EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered
into as of April 20, 2006, by and between COMMUNITY BANK SYSTEM, INC., a
Delaware corporation ("CBSI"), ESL ACQUISITION CORP., a New York corporation
("Merger Sub"), and ES&L BANCORP, INC., a New York corporation ("ESLBI").
WHEREAS, CBSI is a bank holding company, the principal banking
subsidiary of which is Community Bank, N.A., a national banking association
("Community Bank");
WHEREAS, Merger Sub is a newly formed, wholly-owned subsidiary of
CBSI;
WHEREAS, ESLBI is a savings and loan holding company, the principal
banking subsidiary of which is Elmira Savings & Loan, F.A., a federal stock
savings association ("ES&L");
WHEREAS, the respective Boards of Directors of CBSI, Merger Sub and
ESLBI have each determined that it is in the best interests of their respective
shareholders for CBSI to acquire ESLBI through the merger (the "Merger") of
Merger Sub with and into ESLBI, and a subsequent merger (the "Short-Form
Merger") of the Surviving Corporation (as defined below) with and into CBSI, in
each case upon the terms and subject to the conditions set forth herein;
WHEREAS, immediately following the consummation of the Merger and
the Short-Form Merger, ES&L, which shall become a wholly-owned subsidiary of
CBSI as a result of the Merger and the Short-Form Merger, shall merge (the "Bank
Merger") with and into Community Bank, with Community Bank continuing as the
surviving bank, pursuant to a plan of merger (the "Continuing Bank");
WHEREAS, it is the current intention of CBSI to operate, after the
consummation of the Bank Merger, the existing business of ES&L as an additional
branch of Community Bank;
WHEREAS, in furtherance of such acquisition, the respective Boards
of Directors of CBSI, Merger Sub and ES&L have each approved this Agreement and
the Merger in accordance with the General Corporation Law of the State of
Delaware (the "DGCL") and the Business Corporation Law of the State of New York
(the "NYBCL") and upon the terms and conditions set forth herein;
WHEREAS, upon the consummation and effectiveness of the Merger, all
of the issued and outstanding shares of common stock, par value $0.01 per share,
of ESLBI ("ESLBI Common Stock"), other than the Dissenting Shares (as defined
below), shall be converted into the right to receive cash, without interest, as
provided in Article II of this Agreement;
WHEREAS, concurrently with the execution of this Agreement, and as a
condition and inducement to CBSI's willingness to enter into this Agreement, all
executive officers and directors of ESLBI are entering into a Voting Agreement
(collectively, the "Voting Agreements"), substantially in the form attached
hereto as Exhibit A;
WHEREAS, it is the intention of the parties that the Merger be
treated, for federal income tax purposes, as an acquisition of all of the
outstanding capital stock of ESLBI by CBSI for Merger Consideration (as defined
below);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, representations, and agreements herein contained, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
"Agreement" is defined in the preamble hereof.
"Bank Examinations" is defined in Section 3.30 hereof.
"Bank Holding Company Act" shall mean the Bank Holding Company Act
of 1956, as amended.
"Bank Merger" is defined in the preamble of this Agreement.
"CBSI" is defined in the preamble of this Agreement.
"CBSI Common Stock" shall mean common stock, par value $1.00 per
share, of CBSI.
"CBSI Plan" is defined in Section 5.10(a) hereof.
"CERCLA" is defined in Section 3.20 hereof.
"Closing Date" shall mean the date specified pursuant to Section 5.9
hereof as the date on which the parties hereto shall close the transactions
contemplated herein.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" or "SEC" shall mean the Securities and Exchange
Commission.
"Community Bank" is defined in the preamble of this Agreement.
"Consulting Agreement" is defined in Section 6.1 hereof.
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"Continuing Bank" is defined in the preamble of this Agreement.
"CRA" is defined in Section 3.29 hereof.
"DGCL" is defined in the preamble of this Agreement.
"Dissenting Shares" is defined in Section 2.4 hereof.
"Effective Time" is defined in Section 2.1(b) hereof.
"Employment Agreement" is defined in Section 6.1 hereof.
"Environmental Law" shall mean any federal, state, local or foreign
law (including any common law), statute, code, ordinance, rule, regulation or
other requirement relating to the environment, natural resources or public or
employee health and safety, and includes, but not limited to, CERCLA, the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., as
amended, the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., as amended, the Clean Water Act, 33 U.S.C. Section 2601 et seq., as
amended, the Toxic Substances Control Act, 15 U.S.C. Section 6901 et seq., as
amended, the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C.
Section 136 et seq., as amended, the Oil Pollution Act of 1990, 33 U.S.C.
Section 2701 et seq., as amended, and the Occupational Safety and Health Act, 29
U.S.C. Section 6901 et seq., as amended.
"Environmental Costs and Liabilities" shall mean any and all losses,
liabilities, obligations, damages, fines, penalties, judgments, actions, claims,
costs and expenses (including, without limitation, fees, disbursements and
expenses of legal counsel, experts, engineers and consultants and the costs of
investigation and feasibility studies and remedial activities) arising from or
under any Environmental Law or order or contract with any governmental authority
or any other Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" is defined in Section 3.13(a) hereof.
"ESLBI" is defined in the preamble of this Agreement.
"ES&L" is defined in the preamble of this Agreement.
"ESLBI Common Stock" is defined in the preamble of this Agreement.
"ESLBI Plan" is defined in Section 3.13(a) hereof.
"ESLBI Shareholders' Meeting" shall mean the special meeting of the
shareholders of ESLBI to be called for the purpose of approving this Agreement
and the transactions contemplated thereby.
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"ESLBI Financial Statements" shall mean (i) the unaudited
consolidated statements of condition of ESLBI as of December 31, 2005 and the
related unaudited consolidated statements of income, cash flows and changes in
shareholders' equity (including related notes, if any) for the six months ended
December 31, 2005; (ii) the audited consolidated statements of condition of
ESLBI as of June 30, 2005 and 2004 and the related consolidated statements of
income, cash flows and changes in shareholders' equity (including related notes,
if any) for each of the three years ended June 30, 2005, 2004 and 2003, and
(iii) the consolidated statements of condition of ESLBI and related consolidated
statements of income, cash flows and changes in shareholders' equity (including
related notes, if any) as of dates or with respect to periods ending subsequent
to December 31, 2005.
"ESOP" is defined in Section 2.2(c) hereof.
"ESOP Trustee" is defined in Section 2.2(c) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" is defined in Section 2.5 hereof.
"FDIA" shall mean the Federal Deposit Insurance Act.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
"Hazardous Materials" shall mean any petroleum or petroleum
products, radioactive materials, asbestos containing materials, radon gas, PCBs
and any other hazardous or toxic substance, material or waste which is or
becomes regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous materials," "toxic substance" or
"hazardous chemical" under any Environmental Law.
"Indemnified Parties" is defined in Section 5.11(d) hereof.
"Intellectual Property" means domestic and foreign letters patent,
patents, patent applications, patent licenses, software licensed or owned,
know-how licenses, trade names, common law and other trademarks, service marks,
licenses of trademarks, trade names and/or service marks, trademark
registrations and applications, service ▇▇▇▇ registrations and applications and
copyright registrations and applications.
"Interested Party Transactions" is defined in Section 3.25 hereof.
"IRS" means the Internal Revenue Service.
"Material Adverse Effect" shall mean, with respect to any party, a
material adverse effect on the business, results of operations or financial
condition of such party and its
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Subsidiaries, taken as a whole, or a material adverse effect on such party's
ability to consummate the transactions contemplated hereby; provided, however,
that in determining whether a Material Adverse Effect has occurred there shall
be excluded any effect on the referenced party the primary cause of which is (i)
any change in banking or similar laws, rules or regulations of general
applicability or interpretations thereof by courts or governmental authorities,
(ii) any change in generally accepted accounting principles or regulatory
accounting requirements applicable to banks or their holding companies
generally, (iii) general changes in conditions, including interest rates, in the
banking industry or in the global or United States economy or financial markets,
with respect to clause (i), (ii) or (iii), to the extent that such a change does
not materially affect the referenced party to a materially different extent than
other similarly situated banking organizations, and (iv) any action or omission
of the referenced party or any of its Subsidiaries taken with the prior written
consent of the other party to this Agreement in contemplation of the Merger.
"Maximum Amount" is defined in Section 5.10(d)(3) hereof.
"Merger" is defined in the preamble of this Agreement.
"Merger Consideration" is defined in Section 2.2(a)(i) hereof.
"NYBCL" is defined in the preamble of this Agreement.
"NYSE" shall mean the New York Stock Exchange.
"OCC" shall mean the Office of the Comptroller of Currency.
"OTS" shall mean the Office of Thrift Supervision.
"PBGC" is defined in Section 3.13 hereof.
"Person" shall mean an individual, corporation, partnership, bank,
limited liability company, trust, association, unincorporated organization,
other entity or group (as defined in Section 13(d)(3) of the Exchange Act).
"Previously Disclosed" shall mean disclosed prior to the execution
hereof in a letter dated of even date herewith from the party making such
disclosure and delivered to the other party prior to the execution hereof. Any
information disclosed by one party to the other for any purpose hereunder shall
be deemed to be disclosed for all purposes hereunder provided that the relevance
of the disclosed information to the representations or warranties in question is
reasonably apparent. The inclusion of any matter in such letter shall not be
deemed an admission or otherwise to imply that any such matter is material for
purposes of this Agreement. With respect to CBSI, "Previously Disclosed" shall
also mean disclosed or reflected in an SEC Document filed with the SEC
subsequent to January 1, 2005 and prior to the date hereof.
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"Proxy Statement" shall mean the proxy statement, together with any
amendments or supplements thereto, and related materials sent to the
shareholders of ESLBI to solicit their votes in connection with this Agreement
and the Merger.
"Related Party" is defined in Section 3.25 hereof.
"Rights" shall mean warrants, options, rights, convertible
securities and other arrangements or commitments which obligate an entity to
issue or dispose of any of its capital stock, and stock appreciation rights,
performance units and other similar stock-based rights whether they obligate the
issuer thereof to issue stock or other securities or to pay cash.
"Rights Agreement" shall mean the Rights Agreement, dated as of May
13, 1997, by and between ESLBI (as successor in interest to ES&L Bancorp, Inc.,
a Delaware corporation) and American Stock Transfer & Trust Company, a New York
corporation, as the same may be amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall mean all reports and registration statements
filed, or required to be filed, by a party hereto pursuant to the Securities
Laws.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Laws" shall mean the Securities Act; the Exchange Act;
the Investment Company Act of 1940, as amended; the Investment Advisers Act of
1940, as amended; the Trust Indenture Act of 1939, as amended; and the rules and
regulations of the Commission promulgated thereunder.
"Short-Form Merger" is defined in the preamble of this Agreement.
"Stock Option" is defined in Section 2.2(b) hereof.
"Stock Option Plan" is defined in Section 2.2(b) hereof.
"Superior Proposal" is defined in Section 5.13 hereof.
"Subsidiary" shall mean with respect to any party, any Person which
is consolidated with such party for financial reporting purposes; provided,
however, that "Subsidiary" shall not include any subsidiary trust formed for the
purpose of issuing trust preferred or similar securities.
"Surviving Corporation" is defined in Section 2.1(a) hereof.
"Takeover Laws" is defined in Section 5.12 hereof.
"Takeover Proposal" is defined in Section 5.13 hereof.
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"Taxes" shall mean all taxes, however denominated, including any
interest, penalties, criminal sanctions or additions to tax (including, without
limitation, any underpayment penalties for insufficient estimated tax payments)
or other additional amounts that may become payable in respect thereof (or in
respect of a failure to file any Tax Return when and as required), imposed by
any federal, state, local or foreign government or any agency or political
subdivision of any such government, which taxes shall include, without limiting
the generality of the foregoing, all income taxes, payroll and employment taxes,
withholding taxes (including withholding taxes in connection with amounts paid
or owing to any employee, independent contractor, creditor, stockholder or other
person or entity), unemployment insurance taxes, social security (or similar)
taxes, sales and use taxes, excise taxes, franchise taxes, gross receipts taxes,
occupation taxes, real and personal property taxes, stamp taxes, value added
taxes, transfer taxes, profits or windfall profits taxes, licenses in the nature
of taxes, estimated taxes, severance taxes, duties (custom and others), workers'
compensation taxes, premium taxes, environmental taxes (including taxes under
Section 59A of the Code), disability taxes, registration taxes, alternative or
add-on minimum taxes, estimated taxes, and other fees, assessments, charges or
obligations of the same or of a similar nature.
"Tax Returns" shall mean all returns, reports, estimates,
information statements or other written submissions, and any schedules or
attachments thereto, required or permitted to be filed pursuant to the statutes,
rules and regulations of any federal, state, local or foreign government Tax
authority, including but not limited to, original returns and filings, amended
returns, claims for refunds, information returns and accounting method change
requests.
"Transaction Documents" shall mean, collectively, the Voting
Agreements, the Employment Agreement, the Consulting Agreement, any instruments
to effect the Bank Merger and the Short-Form Merger, and certificates and other
documents contemplated thereby or by this Agreement.
"USA Patriot Act" is defined in Section 3.29 hereof.
"Voting Agreement" is defined in the preamble of this Agreement.
For purposes of this Agreement, the terms "ESLBI," "ES&L," "CBSI,"
"Community Bank" and "Subsidiary" include all of the respective predecessors
thereof (including without limitation, any previously acquired Person).
ARTICLE II
THE MERGER
2.1. The Merger.
(a) At the Effective Time, and upon the terms and subject to the
conditions of this Agreement, Merger Sub shall be merged with and into ESLBI,
the separate existence of Merger Sub shall cease and ESLBI shall continue as the
surviving corporation and wholly-
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owned subsidiary of CBSI. ESLBI as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
(b) As promptly as practicable after the satisfaction or waiver of
the conditions set forth in Article VI, the parties shall cause the Merger to be
consummated by filing articles of merger as contemplated by the NYBCL, together
with any required related documents, with the Department of State of the State
of New York, in such form as required by, and executed in accordance with, the
relevant provisions of the NYBCL (the time of such filing, or the time specified
in such filing as the effective time for the Merger, as applicable, being the
"Effective Time").
2.2. Merger Consideration.
(a) ESLBI Common Stock. At the Effective Time, by virtue of the
Merger and without any further action by the parties, each share of ESLBI Common
Stock issued and outstanding immediately prior to the Effective Time (other than
shares to be cancelled pursuant to Section 2.2(d) and Dissenting Shares, if any)
shall be cancelled and shall be converted automatically into the right to
receive $50.75 in cash, without interest, per share (the "Merger
Consideration").
(b) Stock Options. At the Effective Time, each outstanding option
(whether or not such option is then vested or exercisable) to purchase shares of
ESLBI Common Stock (a "Stock Option") granted under the ES&L Bancorp, Inc. 2002
Stock Option Plan (the "Stock Option Plan") shall be cancelled and extinguished
in consideration and exchange for a cash payment from CBSI equal to the product
of (i) the per share difference between the Merger Consideration and the
exercise price of such Stock Option, and (ii) the number of shares of ESLBI
Common Stock underlying such Stock Option. The cash payment to each holder of
the Stock Options shall be subject to all applicable federal and state tax
withholding obligations. Prior to the Effective Time, ESLBI shall take all such
action as is necessary to terminate the Stock Option Plan and all outstanding
Stock Options effective as of the Effective Time, and shall provide written
notice to each holder of an outstanding Stock Option of the cancellation thereof
and a cash payment in exchange therefor as of the Effective Time, pursuant to
this Section 2.2(b).
(c) Employee Stock Ownership Plan. At the Effective Time, each share
of ESLBI Common Stock held by the trustees (the "ESOP Trustees") for the ES&L
Bancorp, Inc. Employee Stock Ownership Plan (the "ESOP"), whether or not then
allocated to accounts of ESOP participants, shall be cancelled and extinguished
in consideration and exchange for the rights to receive the Merger Consideration
in accordance with Section 2.2(a).
(d) Treasury Shares and Shares Held by CBSI. Each share of ESLBI
Common Stock held in treasury by ESLBI or owned by any Subsidiary of ESLBI, CBSI
or any Subsidiary of CBSI (in each case other than (i) shares held directly or
indirectly in trust accounts, managed accounts and the like or otherwise held in
a fiduciary capacity for the benefit of third parties, or (ii) shares held by
the ESOP Trustees for the purposes of the ESOP) immediately prior
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to the Effective Time shall be cancelled without any consideration and no
payment or distribution shall be made with respect thereto.
(e) Merger Sub Common Stock. Each share of common stock of Merger
Sub outstanding immediately prior to the Effective Time shall remain unchanged
and shall constitute the common stock of the Surviving Corporation.
(f) Adjustments to Merger Consideration. If, subsequent to the date
of this Agreement but prior to the Effective Time, the outstanding shares of
ESLBI Common Stock shall be increased, decreased, changed into or exchanged for
a different number of shares, in each case by reason of any stock split,
recapitalization, or reclassification or other similar change, the Merger
Consideration shall be adjusted proportionately.
2.3. Effect of Merger.
Upon the Effective Time of the Merger:
(a) The certificate of incorporation and bylaws of Merger Sub, each
as in effect immediately prior to the Effective Time, shall be the certificate
of incorporation and bylaws, respectively, of the Surviving Corporation, in each
case until amended in accordance with the NYBCL.
(b) All respective assets, rights, franchises, and interest of ESLBI
and Merger Sub in and to every type of property shall be vested in the Surviving
Corporation by virtue of the Merger without any deed or other transfer; and the
Surviving Corporation, without any order or other action on the part of any
court or otherwise, shall hold and enjoy all rights of property, franchises and
interest, in the same manner and to the same extent as such rights, franchises
and interests were held and enjoyed by ESLBI and Merger Sub immediately prior to
the Effective Time.
(c) The Surviving Corporation shall be liable for all of the
liabilities of ESLBI and Merger Sub and shall be bound by and subject to all of
the obligations and contracts of ESLBI and Merger Sub. All rights of creditors
and obligees and all liens on property of ESLBI and Merger Sub shall be
preserved and unimpaired.
(d) The directors and officers of Merger Sub immediately prior to
the Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation.
2.4. Dissenting Shares. Notwithstanding any other provision
contained in this Agreement, no shares of ESLBI Common Stock that are issued and
outstanding as of the Effective Time and that are held by a shareholder who has
properly exercised his or her appraisal rights (such shares being collectively
referred to herein as "Dissenting Shares") under the NYBCL shall be converted
into the right to receive the Merger Consideration as provided in Section 2.2(a)
unless and until the holder shall have failed to perfect, or shall have
effectively withdrawn or lost, such holder's right to dissent from the Merger
under the NYBCL and to
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receive such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to and subject to the requirements of the NYBCL. If
any holder of Dissenting Shares shall have so failed to perfect or effectively
withdrawn or lost such holder's right to dissent from the Merger, each of such
holder's shares of ESLBI Common Stock shall thereupon no longer be deemed
Dissenting Shares and to have become, as of the Effective Time, the right to
receive the Merger Consideration pursuant to Section 2.2(a). ESLBI shall give
CBSI (a) prompt notice of any demands for appraisal, attempted withdrawals of
such demands and any other instruments received by ESLBI relating to
stockholders' rights of appraisal, and (b) the opportunity to direct all
negotiations and proceedings with respect to any demands for appraisal under the
NYBCL. ESLBI shall not, except with the prior written consent of CBSI,
voluntarily make any payment with respect to any demands for appraisal of any
capital stock of ESLBI or agree to do so, or offer to settle or settle any such
demands or approve any withdrawals of any such demands.
2.5. Procedure to Exchange Shares.
(a) Immediately prior to the Effective Time, CBSI shall cause to be
deposited with American Stock Transfer & Trust Company or another financial
institution experienced in serving as an exchange agent (the "Exchange Agent"),
for exchange in accordance with this Article II, cash, by wire transfer of
immediately available funds, into which the outstanding shares of ESLBI Common
Stock shall be converted pursuant to this Agreement. As soon as reasonably
practicable after the Effective Time, CBSI shall use its commercially reasonable
efforts to cause the Exchange Agent to mail to all holders of record of ESLBI
Common Stock, excluding any holders of Dissenting Shares, letters of transmittal
specifying the procedures for delivery of such holders' certificates formerly
representing ESLBI Common Stock to the Exchange Agent in exchange for the Merger
Consideration payable pursuant to this Article II. As soon as reasonably
practicable, after surrender to the Exchange Agent of the certificates of ESLBI
Common Stock in accordance with the instructions of the letter of transmittal,
CBSI shall cause the Exchange Agent to distribute to each former holder of
shares of ESLBI Common Stock a check for the Merger Consideration that such
holder is entitled to receive pursuant to this Agreement. In no event shall the
holder of any such surrendered certificates be entitled to receive interest on
any cash to be received in the Merger. If any certificate surrendered for
exchange is to be issued in a name other than that in which the surrendered
certificate is issued, the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and the Person requesting such
exchange shall affix any required stock transfer tax stamps to the certificate
or provide funds for their purchase or established to the satisfaction of the
Exchange Agent that such taxes are not payable.
(b) At any time following the expiration of twelve (12) months
following the Effective Time, CBSI shall be entitled to direct the Exchange
Agent to deliver to it any funds which had been deposited with the Exchange
Agent and not disbursed to holders of the ESLBI Common Stock (including, without
limitation, all interest and other earnings on such funds), and thereafter such
holders shall be entitled to look to CBSI only as general creditors thereof with
respect to any Merger Consideration that may be payable upon due surrender of
their certificates,
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a letter of transmittal and other related documents to the Exchange Agent or
CBSI, until at such time as such undisbursed cash is delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(c) At the Effective Time, the stock transfer books of ESLBI shall
be closed and no transfer of ESLBI Common Stock shall thereafter be made or
recognized. If, after the Effective Time, certificates representing such shares
are presented for transfer, they shall be cancelled and exchanged for the Merger
Consideration as provided in this Section.
(d) In the event any certificate shall have been lost, stolen,
destroyed or mutilated, upon the making of an affidavit of that fact by the
Person claiming such certificate to be lost, stolen, destroyed or mutilated and,
if required by CBSI, the making of an indemnity agreement in a form reasonably
requested by CBSI and/or the posting by such Person of a bond in such amount as
CBSI may reasonably direct as indemnity against any claim that may be made
against it with respect to such certificate, the Exchange Agent will issue in
exchange for such lost, stolen, destroyed or mutilated certificate the Merger
Consideration deliverable in respect thereof pursuant to this Agreement.
(e) None of CBSI, Merger Sub or the Surviving Corporation shall be
liable to any holder of shares of ESLBI Common Stock for any dividends or other
distributions with respect thereto, or any Merger Consideration payable in
respect thereof, delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ESLBI
Except as Previously Disclosed, ESLBI hereby represents and warrants
to CBSI and Merger Sub as follows:
3.1. Capital Structure of ESLBI.
(a) Capital Stock. The authorized capital stock of ESLBI consists
solely of 280,000 shares of preferred stock, par value $0.01 per share (the
"ESLBI Preferred Stock"), and 1,667,988 shares of ESLBI Common Stock, of which
767,749 shares of ESLBI Common Stock and no shares of ESLBI Preferred Stock are
issued and outstanding. 103,066 shares of ESLBI Common Stock and no shares of
ESLBI Preferred Stock are held in treasury. Except as set forth in Section
3.1(b) or (c), there are no outstanding options, warrants, agreements,
arrangements, commitments or any similar rights in existence for the purchase of
or issuance of, or which encumber in any way, ESLBI Common Stock or any equity
interest in any Subsidiary of ESLBI. All outstanding shares of ESLBI Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. None of the shares of ESLBI's capital stock has been issued in
violation of the preemptive rights of any Person.
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(b) Stock Options. An aggregate of 58,949 shares of ESLBI Common
Stock were reserved for existing and future grants under the Stock Option Plan,
pursuant to which options to purchase a total of 23,750 shares of ESLBI Common
Stock are issued and outstanding on the date hereof (of which options to
purchase an aggregate of 8,750 shares are currently exercisable). For each
outstanding Stock Option, the name of the holder thereof, the grant date, the
number of shares of ESLBI Common Stock subject thereto, the exercise price per
share and the vesting schedule thereof have been Previously Disclosed.
(c) ESOP Awards. An aggregate of 1,515 shares of ESLBI Common Stock
are held by the ESOP Trustees for the benefit of the ESOP Participants, and such
shares are included in the number of issued and outstanding shares of ESLBI
Common Stock set forth in the first sentence of Section 3.1(a). All shares of
ESLBI Common Stock held by the ESOP Trustees are allocated to the individual
ESOP accounts of ESOP participants.
3.2. Organization, Standing and Authority of ESLBI. Except as set
forth in Schedule 3.2, each of ESLBI and its Subsidiaries is a duly organized
corporation, validly existing and in good standing under the laws of its
incorporation with full corporate power and authority to own, lease and operate
the properties it purports to own, lease or operate and to carry on its business
as now conducted. Each of ESLBI and its Subsidiaries is duly licensed or
qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires such qualification. ESLBI is registered as a savings and loans
holding company under the Home Owner's Loan Act. True, correct and complete
copies of the articles of incorporation and bylaws of ESLBI and each of its
Subsidiaries, as in effect on the date hereof, have previously been furnished to
CBSI.
3.3. Ownership of ESLBI Subsidiaries; Capital Structure of ESLBI
Subsidiaries. A true and complete list of all of the Company's Subsidiaries,
together with the jurisdiction of incorporation of each Subsidiary and the
percentage of each Subsidiary's outstanding capital stock owned by ESLBI or
another subsidiary of ESLBI, has been Previously Disclosed. Except as Previously
Disclosed, ESLBI does not, directly or indirectly, own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any Person.
3.4. Authorized and Effective Agreement.
(a) ESLBI has all requisite corporate power and authority to enter
into and perform all of its obligations under this Agreement and each of the
Transaction Documents to which it is a party. The execution and delivery of this
Agreement and each such Transaction Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
ESLBI, except for the affirmative vote by the holders of two-thirds of all
outstanding shares of ESLBI Common Stock entitled to vote thereon, which is the
only shareholder vote required to approve the Merger pursuant to ESLBI 's
certificate of incorporation and bylaws. The Board of Directors of ESLBI has
approved and adopted this Agreement and the Merger, and directed that this
Agreement be submitted to ESLBI 's shareholders for approval at a special
meeting to be
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held in accordance with this Agreement. The Board of Directors of ESLBI has
unanimously recommended that the shareholders of ESLBI approve this Agreement
and the Merger.
(b) This Agreement and each Transaction Document to which ESLBI is a
party have been duly executed and delivered by ESLBI and, assuming the accuracy
of the representation contained in Section 4.2(b) hereof, this Agreement
constitutes the legal, valid and binding obligations of ESLBI, enforceable
against ESLBI in accordance with its terms, except that such enforceability may
be subject to bankruptcy, insolvency and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
(c) Neither the execution and delivery by ESLBI of this Agreement or
any Transaction Document to which it is a party, nor consummation of the
transactions contemplated hereby or thereby, nor compliance by ESLBI with any of
the provisions hereof or thereof shall (i) conflict with or result in a breach
of any provision of the certificate of incorporation or bylaws of ESLBI, (ii)
assuming the consents and approvals contemplated by Section 5.3 hereof and the
consents and approvals which are Previously Disclosed are duly obtained,
constitute or result in a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of ESLBI or any of its
Subsidiaries pursuant to, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which ESLBI or any of its
Subsidiaries is a party, or (iii) assuming the consents and approvals
contemplated by Section 5.3 hereof and the consents and approvals which are
Previously Disclosed are duly obtained, conflict with or violate any law, order,
writ, injunction, decree, statute, rule or regulation applicable to ESLBI or any
of its Subsidiaries or their respective assets.
(d) Other than as contemplated by Section 5.3 hereof, no consent,
approval or authorization of, or declaration, notice, filing or registration
with, any governmental or regulatory authority, or any other Person, is required
to be made or obtained by ESLBI on or prior to the Closing Date in connection
with the execution, delivery and performance of this Agreement or any of the
Transaction Documents to which it is a party or the consummation of the
transactions contemplated hereby or thereby. As of the date hereof, ESLBI is not
aware of any reason that the condition set forth in Section 6.1(b) of this
Agreement would not be satisfied.
3.5. Regulatory Filings. Each of ESLBI and its Subsidiaries has
filed all reports required by statute or regulation to be filed with any federal
or state bank regulatory agency, and such reports were prepared in accordance
with the applicable statutes, regulations and instructions in existence as of
the date of filing of such reports in all material respects.
3.6. Financial Statements; Books and Records; Minute Books. ESLBI
has previously provided true and complete copies of the ESLBI Financial
Statements to CBSI, and ESLBI shall deliver to CBSI promptly upon preparation
true and complete copies of any ESLBI Financial Period relating to any period
subsequent to December 31, 2005. The ESLBI Financial Statements fairly present,
and the ESLBI Financial Statements furnished by ESLBI in respect of any period
subsequent to December 31, 2005 will fairly present when so furnished, the
13
consolidated financial position of ESLBI as of the dates indicated and the
consolidated income, changes in shareholders' equity and cash flows of ESLBI and
its consolidated Subsidiaries for the periods then ended and each such financial
statement has been or will be, as the case may be, prepared in conformity with
generally accepted accounting principles applicable to financial institutions
applied on a consistent basis, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount, and may not contain
certain related notes as may be permitted by the applicable rules promulgated by
the SEC. The books and records of ESLBI and each of its Subsidiaries fairly
reflect in all material respects the transactions to which it is a party or by
which its properties are subject or bound. Such books and records have been
properly kept and maintained and are in compliance with all applicable legal and
accounting requirements in all material respects. The minute books of ESLBI and
each of its Subsidiaries contain records which are accurate in all material
respects of all corporate actions of its shareholders and Board of Directors
(including committees of its Board of Directors).
3.7. Material Adverse Change. ESLBI has not, on a consolidated
basis, suffered any change in its financial condition, results of operations,
prospects or business since June 30, 2005, which, individually or in the
aggregate with any other such changes, could reasonably be expected to
constitute a Material Adverse Effect with respect to ESLBI.
3.8. Absence of Undisclosed Liabilities. Neither ESLBI nor any of
its Subsidiaries has any liability (contingent or otherwise) that is material to
ESLBI on a consolidated basis, or that, when combined with all similar
liabilities, would be material to ESLBI on a consolidated basis, except as
disclosed in the consolidated balance sheet at December 31, 2005 included in the
ESLBI Financial Statements and except for liabilities incurred in the ordinary
course of business consistent with past practice since December 31, 2005.
3.9. Absence of Certain Changes. Since December 31, 2005, except as
Previously Disclosed, neither ESLBI nor any of its Subsidiaries has:
(a) suffered any material damage, destruction or loss of physical
property or assets (whether or not covered by insurance);
(b) issued, sold or otherwise disposed of any of its capital stock,
except upon exercise of outstanding Stock Options;
(c) incurred or agreed to incur any material indebtedness for
borrowed money, other than in the ordinary course of business consistent with
past practice;
(d) made or obligated itself to make any capital expenditure in
excess of $25,000, individually or in the aggregate;
(e) waived any material right, except in the ordinary course of
business consistent with past practice;
14
(f) sold, transferred or otherwise disposed of any assets, or
canceled, or agreed to cancel, any material debts or claims, in each case, other
than in the ordinary course of business consistent with past practice;
(g) mortgaged, pledged or subjected to any charge, lien, claim or
encumbrance any of its material properties or assets, other than in the ordinary
course of business;
(h) declared, set aside or paid any dividend (whether in cash,
property or stock) with respect to any of its capital stock, or redeemed,
purchased or otherwise acquired any of its capital stock;
(i) increased the salaries, bonuses or other compensation of any of
its directors, officers, employees or agents, or adopted or increased any
benefits under any insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with any such director, officer, employee or agent;
(j) made or permitted any amendment or termination of any material
contract, agreement or license to which it is a party, other than in the
ordinary course of business consistent with past practice;
(k) made any material change in its accounting methods or practices
with respect to its financial condition, properties, business or operations;
(l) repaid any outstanding loans, other than repayments in the
ordinary course of business;
(m) entered into any other material transaction not in the ordinary
course of business;
(n) become aware of the need to make additional specific provisions
for reserves for loan losses which would have a Material Adverse Effect on
ESLBI;
(o) hired any new employees;
(p) entered into any real estate or equipment lease, requiring
aggregate rental payments in excess of $25,000; or
(q) agreed to or otherwise become obligated to do any of the
foregoing.
3.10. Properties. ESLBI and its Subsidiaries have good and
marketable title free and clear of all liens, encumbrances, charges, defaults or
equitable interests to all of their properties and assets, real and personal,
except (i) liens for Taxes not yet due and payable, (ii) pledges to secure
deposits and other liens incurred in the ordinary course of banking business as
reflected in the books and records of ESLBI, (iii) such imperfections of title,
easements and
15
encumbrances, if any, as are not material in character, amount or extent and
(iv) dispositions and encumbrances for adequate consideration in the ordinary
course of business consistent with past practice. All leases pursuant to which
ESLBI or any of its Subsidiaries, as lessee, leases real and personal property
which, individually or in the aggregate, are material to the business of ESLBI
on a consolidated basis are valid and enforceable against the lessor in
accordance with their respective terms. All tangible property used in the
business of ESLBI is in good condition, reasonable wear and tear excepted, and
is usable in the ordinary course of business consistent with ESLBI 's past
practices.
3.11. Loans.
(a) Each loan reflected as an asset in the ESLBI Financial
Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, an such
documents comply in all material respects with all applicable laws, rules and
regulations, (ii) to the extent secured, has been secured by valid liens and
security interests which have been perfected, and (iii) is the legal, valid and
binding obligation of the obligor named therein, enforceable in accordance with
its terms, except that the enforceability thereof may be subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, and
(iv) was solicited, originated and existed, and will exist at the Effective
Time, in material compliance with all applicable loan policies of ESLBI and
ES&L. The information (including electronic information and information
contained on tapes and computer disks) with respect to all loans of ES&L and its
Subsidiaries furnished to CBSI by ESLBI is, as of the respective dates indicated
therein, true and complete in all material respects.
(b) The allowance for loan losses reflected on the ESLBI Financial
Statements, as of their respective dates, is consistent with the requirements of
generally accepted accounting principles to provide for reasonably anticipated
losses with respect to the loan portfolio of ESLBI and its Subsidiaries based
upon information available at the time. ESLBI has made available to CBSI true,
correct and complete (to the extent in its possession) information concerning
its asset quality, including without limitation, delinquency reports and
information concerning non-performing/non-accrual loans and loans classified as
substandard or lower.
3.12. Tax Matters.
(a) ESLBI and each of its Subsidiaries have timely filed federal
income tax returns for each year through June 30, 2005 and has timely filed, or
caused to be filed, all other Tax Returns required to be filed with respect to
ESLBI or any of its Subsidiaries. All Taxes due by or on behalf of ESLBI or any
of its Subsidiaries have been paid or adequate reserves have been established on
the ESLBI Financial Statements for the payment of such Taxes. Neither ESLBI nor
any of its Subsidiaries will have any liability for any such Taxes in excess of
the amounts so paid or reserves or accruals so established.
(b) All Tax Returns filed by ESLBI and each of its Subsidiaries are
complete and accurate in all material respects. Neither ESLBI nor any of its
Subsidiaries is delinquent in
16
the payment of any material Tax, and none of them has requested any extension of
time within which to file any Tax Returns which have not since been filed. No
material audit examination, deficiency, adjustment, refund claim or litigation
with respect to Tax Returns, paid Taxes, unpaid Taxes or Tax attributes of ESLBI
or any of its Subsidiaries has been proposed, asserted or assessed (tentatively
or otherwise). There are currently no agreements in effect with respect to ESLBI
or any of its Subsidiaries to extend the period of limitations for the
assessment or collection of any Tax.
(c) Neither the transactions contemplated hereby nor the termination
of the employment of any employees of ESLBI prior to or following consummation
of the transactions contemplated hereby will result in ESLBI or any of its
Subsidiaries (or any successor thereof) making or being required to make any
"excess parachute payment" as that term is defined in Section 280G of the Code.
(d) Neither ESLBI nor any of its Subsidiaries is a party to any
agreement providing for the allocation or sharing of, or indemnification for,
Taxes.
(e) Except as Previously Disclosed, neither ESLBI nor any of its
Subsidiaries is required to include in income any adjustment in any taxable
period ending after the date hereof pursuant to Section 481(a) of the Code.
(f) Neither ESLBI nor any of its Subsidiaries has executed or
entered into any written agreement with any Tax authority conceding or agreeing
to any treatment of Taxes or Tax attributes, including, without limitation, an
Internal Revenue Service Form 870 or Form 870-AD, closing agreement or special
closing agreement, affecting ESLBI or any of its Subsidiaries pursuant to
Section 7121 of the Code or any predecessor provision thereof or any similar
provision of state, local or foreign law, which agreement would have a material
impact on the calculation of the Taxes of CBSI or any of its Subsidiaries after
the Effective Time.
(g) ES&L has met the New York state thrift tax bad debt reserve 60%
qualifying asset test for all prior years and will continue to meet the test
through the Closing. ESLBI has not caused ES&L to make a distribution to ESLBI
in excess of the current or accumulated earnings and profits of ES&L during 2006
through the Closing Date, nor has it caused ES&L to pay a distribution in
redemption of any shares of ES&L in 2006 through the Closing Date. ES&L has not
paid any distribution in any prior year in excess of current or accumulated
earnings and profits, and has not paid a distribution in redemption of any
shares of capital stock of ES&L in any prior years. ES&L met the federal thrift
tax bad debt reserve 60% qualifying asset test for all prior years for which the
test was relevant for federal income tax purposes.
3.13. Employee Benefit Plans. (a) Schedule 3.13(a) hereto sets forth
a true and complete list of each ESLBI Plan. For purposes of this Section 3.13,
the term "ESLBI Plan" means each bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance pay, medical, life or
other insurance, profit-sharing, or pension plan, program, agreement or
arrangement, and each other employee benefit plan, program, agreement or
17
arrangement, sponsored, maintained or contributed to or required to be
contributed to by ESLBI or by any trade or business, whether or not
incorporated, that together with ESLBI would be deemed a "single employer" under
Section 414 of the Code (an "ERISA Affiliate") for the benefit of any employee
or director or former employee or former director of ESLBI or any ERISA
Affiliate of ESLBI.
(b) With respect to each of the ESLBI Plans, ESLBI has made
available to CBSI true and complete copies of each of the following documents:
(a) the ESLBI Plan and related documents (including all amendments thereto); (b)
the most recent annual reports, financial statements, and actuarial reports, if
any; (c) the most recent summary plan description, together with each summary of
material modifications, required under ERISA with respect to such ESLBI Plan and
all material communications relating to each such ESLBI Plan; and (d) the most
recent determination letter received from the IRS with respect to each ESLBI
Plan that is intended to be qualified under the Code and all material
communications to or from the IRS or any other governmental or regulatory agency
or authority relating to each ESLBI Plan.
(c) No liability under Title IV of ERISA has been incurred by ESLBI
or any ERISA Affiliate of ESLBI that has not been satisfied in full, and no
condition exists that presents a material risk to ESLBI or any ERISA Affiliate
of ESLBI of incurring a liability under such Title, other than liability for
premium payments to the Pension Benefit Guaranty Corporation, which premiums
have been or will be paid when due.
(d) Neither ESLBI nor, to the knowledge of ESLBI, any ERISA
Affiliate of ESLBI, nor any of the ESLBI Plans, nor, to the knowledge of ESLBI,
any trust created thereunder, nor any trustee, fiduciary or administrator
thereof, nor any party in interest with respect thereto, has engaged in a
prohibited transaction (within the meaning of Section 406 of ERISA and Section
4975 of the Code) in connection with which ESLBI or any ERISA Affiliate of ESLBI
could reasonably be expected to, either directly or indirectly, incur any
material liability or material cost.
(e) Full payment has been made, or will be made in accordance with
Section 404(a)(6) of the Code, of all amounts that ESLBI or any ERISA Affiliate
of ESLBI is required to pay under Section 412 of the Code or under the terms of
the ESLBI Plans.
(f) The fair market value of the assets held under each ESLBI Plan
that is subject to Title IV of ERISA equals or exceeds the actuarial present
value of all accrued benefits under each such ESLBI Plan. No ESLBI Plan subject
to Section 412 of the Code has an "accumulated funding deficiency" within the
meaning of Section 412(a) of the Code. No reportable event under Section 4043 of
ERISA has occurred with respect to any ESLBI Plan other than any reportable
event occurring by reason of the transactions contemplated by this Agreement or
a reportable event for which the requirement of notice to the PBGC has been
waived.
(g) None of the ESLBI Plans is a "multiemployer pension plan," as
such term is defined in Section 3(37) of ERISA, a "multiple employer welfare
arrangement," as such term is defined in Section 3(40) of ERISA, or a single
employer plan that has two or more
18
contributing sponsors, at least two of whom are not under common control, within
the meaning of Section 4064(a) of ERISA.
(h) Except with respect to the ESOP, a favorable determination
letter has been issued by the Internal Revenue Service with respect to each of
the ESLBI Plans that is intended to be "qualified" within the meaning of Section
401(a) of the Code to the effect that such plan is so qualified and, to the
knowledge of ESLBI, no condition exists that could adversely affect the
qualified status of any such ESLBI Plan. Each of the ESLBI Plans that is
intended to satisfy the requirements of Section 125 or 501(c)(9) of the Code
satisfies such requirements in all material respects. Each of the ESLBI Plans
has been operated and administered in all material respects in accordance with
its terms and applicable laws, including but not limited to ERISA and the Code.
(i) There are no actions, suits or claims pending, or, to the
knowledge of ESLBI, threatened or anticipated (other than routine claims for
benefits) against any ESLBI Plan, any ESLBI Plan fiduciary, the assets of any
ESLBI Plan or against ESLBI or any ERISA Affiliate of ESLBI with respect to any
ESLBI Plan. There is no judgment, decree, injunction, rule or order of any
court, governmental body, commission, agency or arbitrator outstanding against
or in favor of any ESLBI Plan or any fiduciary thereof, other than rules of
general applicability. There are no pending or, to the knowledge of ESLBI,
threatened audits, examinations or investigations by any governmental body,
commission or agency involving any ESLBI Plan.
(j) Except as set forth in Schedule 3.13(j), the consummation of the
transactions contemplated by this Agreement will not result in, and is not a
precondition to, (i) any current or former employee or director of ESLBI or any
ERISA Affiliate of ESLBI becoming entitled to severance pay, unemployment
compensation or any similar payment, (ii) any acceleration in the time of
payment or vesting, or increase in the amount, of any compensation due to any
such current or former employee or director, or (iii) any renewal or extension
of the term of any agreement regarding compensation for any such current or
former employee or director.
(k) The ESLBI Plans have been maintained (and all obligations
required to be performed have been performed), in all material respects, in
accordance with their terms and with all applicable provisions of ERISA, the
Code and other applicable laws. Participation in each ESLBI Plan has been made
available to all individuals who, pursuant to the terms of such ESLBI Plan, are
entitled to participate.
(l) No ESLBI Plan fiduciary has any liability (under ERISA Section
502(l) or otherwise) for breach of fiduciary duty for which ESLBI or any ERISA
Affiliate of ESLBI is liable, or for any other failure to act or comply in
connection with the administration or investment of the assets of any ESLBI Plan
that would cause material liability for which the ESLBI or any ERISA Affiliate
of ESLBI is liable. Nothing has occurred, and nothing is anticipated to occur,
that would be a breach of fiduciary responsibility by any fiduciary of any ESLBI
Plan that would cause material liability for which ESLBI or any ERISA Affiliate
of ESLBI is or would be liable.
19
(m) None of the ESLBI Plans provides for post-employment welfare
benefits other than (i) a governmental plan to which contributions are
mandatory, such as Social Security or Medicare, (ii) any ESLBI Plan for which
the sole post-employment benefit is required under COBRA or similar laws of any
state within the United States, or (iii) where all liabilities under such ESLBI
Plan are fully the obligation of an insurer or other person unaffiliated with
ESLBI or any Subsidiary or ERISA Affiliate of ESLBI.
(n) There are no contracts, plans, agreements or arrangements
covering any current or former employee, director, contractor or other service
provider that, individually or collectively, have resulted in or could give rise
to (i) the payment of any amount that would not be deductible pursuant to the
terms of Section 280G of the Code, or (ii) the payment of any excise tax
pursuant to Section 409A of the Code.
(o) Neither ESLBI nor any Subsidiary or ERISA Affiliate of ESLBI,
nor the Pension Benefit Guaranty Corporation ("PBGC") has terminated any plan
that is subject to Title IV of ERISA, nor has ESLBI, or any Subsidiary or ERISA
Affiliate of ESLBI incurred any outstanding liability under Section 4062 of
ERISA to the PBGC or to a trustee appointed under Section 4042 of ERISA. All
premiums due the PBGC with respect to plans that are subject to Title IV of
ERISA have been timely paid. No reportable event within the meaning of ERISA
Section 4043 has occurred.
(p) Except with respect to the ESOP, no stock or other security
issued by ESLBI or any of its Subsidiaries or ERISA Affiliates forms or has
formed a part of the assets of any ESLBI Plan. Solely for purposes of this
subparagraph (p), a stock option shall not be deemed to be a ESLBI Plan.
(q) Any individual who performs, or has performed, services for
ESLBI or any of its Subsidiaries or ERISA Affiliates and who is not, or has not
been, treated as an employee of ESLBI or any Subsidiary or ERISA Affiliate for
federal income tax purposes is not, and was not, an employee for such purposes.
3.14. Material Contracts.
(a) Except as set forth in Schedule 3.14, neither ESLBI nor any of
its Subsidiaries is a party to, and is bound by, (i) any material agreement or
contract or similar arrangement or commitment (any contract or commitment which
could reasonably be expected to involve expenditures or receipt by ESLBI or any
of its Subsidiaries in excess of $25,000 in the aggregate shall be deemed
material for these purposes) whether or not made in the ordinary course of
business (other than loans or loan commitments and funding transactions in the
ordinary course of business consistent with past practice of ES&L) or any
agreement restricting the nature or geographic scope of its business activities
in any material respect, (ii) any agreement, indenture or other instrument
relating to the borrowing of money by ESLBI or any of its Subsidiaries or the
guarantee by ESLBI of any of its Subsidiaries of any such obligation, other
20
than instruments relating to transactions entered into in the ordinary course of
business consistent with past practice, (iii) any agreement, arrangement or
commitment relating to the employment of a consultant who was a director or
executive officer or to the employment, election, retention in office or
severance of any present or former director or officer, (iv) any contract,
agreement or understanding with a labor union, in each case whether written or
oral, or (v) any contract, arrangement or understanding concerning the
ownership, transfer or voting of the ESLBI Common Stock, in each case whether
written or oral.
(b) Neither ESLBI nor any of its Subsidiaries is in default under
any material agreement, commitment, arrangement, lease, insurance policy or
other instrument (any contract or commitment which could reasonably be expected
to involve expenditures or receipt by ESLBI or any of its Subsidiaries in excess
of $25,000 in the aggregate shall be deemed material for these purposes) whether
entered into in the ordinary course of business or otherwise and whether written
or oral, and there has not occurred any event that, with the lapse of time or
giving of notice or both, would constitute such a default.
3.15. Legal Proceedings. Except as Previously Disclosed, there are
no actions, suits or proceedings instituted, pending or, to the knowledge of
ESLBI, threatened against ESLBI or any of its Subsidiaries or against any asset,
interest or right of ESLBI or any of its Subsidiaries. There are no actual or,
to the knowledge of ESLBI, threatened actions, suits or proceedings which
present a claim to restrain or prohibit the transactions contemplated herein or
to impose any material liability or restrictions in connection therewith. There
are no actions, suits or proceedings instituted, pending or, to the knowledge of
ESLBI, threatened against any present or former director or officer of ESLBI or
any of its Subsidiaries, that would reasonably be expected to give rise to a
claim for indemnification.
3.16. Compliance with Laws. ESLBI and each of its Subsidiaries is in
compliance with all statutes and regulations applicable to the conduct of its
business, and neither ESLBI nor any of its Subsidiaries has received
notification from any agency or department of federal, state or local government
(i) asserting a violation of any such statute or regulation, (ii) threatening to
revoke any license, franchise, permit or government authorization or (iii) in
any way restricting or limiting its operations. Neither ESLBI nor any of its
Subsidiaries is subject to any regulatory or supervisory cease and desist order,
agreement, directive, memorandum of understanding or commitment, or has received
any communication contemplating any of the foregoing.
3.17. Labor Matters. With respect to their employees, neither ESLBI
nor its Subsidiaries is a party to any collective bargaining or other similar
agreement with any labor organization, group or association or has engaged in
any unfair labor practice. Since January 1, 2003, neither ESLBI nor its
Subsidiaries has experienced any attempt by organized labor or its
representatives to make ESLBI or any of its Subsidiaries conform to demands of
organized labor relating to their employees or to enter into a binding agreement
with organized labor that would cover the employees of ESLBI or any of its
Subsidiaries. To the knowledge of ESLBI, there is no unfair labor practice
charge or other complaint by any employee or former employee of
21
ESLBI or any of its Subsidiaries against any of them pending before any court,
arbitrator or governmental agency arising out of ESLBI's or such Subsidiary's
activities or such employee's employment with ESLBI or such Subsidiary. There is
no strike, work stoppage or labor disturbance pending or, to the knowledge of
ESLBI, threatened against ESLBI or any of its Subsidiaries, and neither ESLBI
nor any of its Subsidiaries has experienced any such strike, stoppage or
disturbance since January 1, 2003.
3.18. Brokers and Finders. Neither ESLBI nor any of its
Subsidiaries, nor any of their respective officers, directors or employees, has
engaged any broker, finder or financial advisor or become obligated to or
incurred any liability for any fees or commissions in connection with the
transactions contemplated herein, except for the firm of RP Financial, LC. to
provide financial advice with respect to the transaction provided for in this
Agreement. ESLBI has heretofore furnished to CBSI a complete and correct copy of
all agreements between ESLBI or any of its Subsidiaries and RP Financial, LC.,
pursuant to which such firm would be entitled to any payment relating to the
transactions contemplated hereunder.
3.19. Insurance. Each of ESLBI and its Subsidiaries currently
maintains insurance in amounts reasonably adequate for their operations. Neither
ESLBI nor any of its Subsidiaries has received any notice of a material premium
increase over current rates or cancellation with respect to any of their
insurance policies or bonds, and within the last three years, neither ESLBI nor
any of its Subsidiaries has been refused any insurance coverage sought or
applied for, and neither ESLBI nor any of its Subsidiaries has any reason to
believe that existing insurance coverage cannot be renewed as and when the same
shall expire, upon terms and conditions as favorable as those presently in
effect. ESLBI has Previously Disclosed a list of all outstanding claims as of
the date hereof by ESLBI or any of its Subsidiaries under any insurance policy.
The deposits of ES&L are insured by the FDIC in accordance with the FDIA, and
ES&L has paid all assessments and filed all reports required by the FDIA. No
proceedings for the revocation or termination of such deposit insurance are
pending or, to the knowledge of ESLBI, threatened.
3.20. Environmental Liability.
(a) During the period that ESLBI or any of its Subsidiaries has
owned, leased or operated any properties or facilities, neither it nor any other
Person has disposed, released, or participated in or authorized the release or
threatened release of Hazardous Materials on, from or under such properties or
facilities. There is not now nor has there ever been any presence, disposal,
release or threatened release of Hazardous Materials on, from or under any of
such properties or facilities, which may have occurred prior to ESLBI having
taken possession of any of such properties or facilities. For the purposes of
this Agreement, the terms "disposal," "release," and "threatened release" shall
have the definitions assigned thereto by the Comprehensive Environmental
Response Compensation and Liability Act of 1980, 42 U. S.C. Section 9601 et
seq., as amended ("CERCLA").
(b) The operations of ESLBI or any of its Subsidiaries, and
properties that ESLBI or any of its Subsidiaries owns or leases, are in
compliance with Environmental Law.
22
During the time that ESLBI or any of its Subsidiaries has owned or leased its
properties and facilities, neither ESLBI or any of its Subsidiaries nor, to the
best knowledge of ESLBI, any third party has used, generated, manufactured or
stored on, under or about such properties or facilities or transported or
arranged for disposal to or from such properties or facilities, any Hazardous
Materials in violation of applicable Environmental Law.
(c) During the time that ESLBI or any of its Subsidiaries has owned
or leased its properties and facilities, there has been no litigation brought
or, to the best knowledge ESLBI, threatened against ESLBI or any of its
Subsidiaries by, or any settlement reached by ESLBI or any of its Subsidiaries
with, any Person alleging the presence, disposal, release or threatened release
of any Hazardous Materials, on from or under any of such properties or
facilities.
(d) There are no facts, circumstances or conditions relating to the
properties and facilities owned or leased by ESLBI or any of its Subsidiaries
known to ESLBI which are reasonably likely to give rise to a claim under any
Environmental Law or to any material Environmental Costs and Liabilities.
3.21. Administration of Trust Accounts. ESLBI and each of its
Subsidiaries have properly administered all common trust funds and collective
investment funds and all accounts for which each of them acts as a fiduciary or
agent, including but not limited to accounts for which it serves as a trustee,
agent, custodian, personal representative, guardian, conservator or investment
advisor, in accordance with the terms of the governing documents and applicable
state and federal law and regulation and common law. Neither ESLBI nor any of
its Subsidiaries, nor any of their respective directors, officers or employees
acting on behalf of ESLBI or any of its Subsidiaries, has committed any breach
of trust with respect to any such common trust fund or collective investment
fund or fiduciary or agency account, and the accountings for each such common
trust fund or collective investment fund or fiduciary or agency account are true
and correct and accurately reflect the assets of such common trust fund or
collective investment fund or fiduciary or agency account.
3.22. Intellectual Property. Each of ESLBI and its Subsidiaries owns
the entire right, title and interest in and to, or has valid licenses with
respect to, all of the Intellectual Property necessary in all material respects
to conduct their respective businesses and operations as presently conducted.
The ownership, licensing or use of Intellectual Property by ESLBI or any of its
Subsidiaries does not conflict with, infringe, misappropriate or otherwise
violate the Intellectual Property rights of any other Person. None of such
Intellectual Property is subject to any outstanding order, decree, judgment,
stipulation, settlement, lien, charge, encumbrance or attachment. Except as
Previously Disclosed, upon consummation of the transactions contemplated by this
Agreement, the Surviving Corporation and Continuing Bank will be entitled to
continue to use all such Intellectual Property without the payment of any fees,
licenses or other payments.
3.23. Certain Information. When the Proxy Statement (or any
supplement or amendment thereto) is first mailed to the shareholders of ESLBI,
and at all times subsequent thereto up to and including the time of the ESLBI
Shareholders' Meeting, such Proxy Statement
23
and all amendments or supplements thereto, with respect to all information set
forth or incorporated by reference therein furnished by ESLBI relating to ESLBI
or any of its Subsidiaries, shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements contained therein, in the light of the circumstances
under which they were made, not misleading. All information concerning ESLBI and
its Subsidiaries and their respective directors, officers, and shareholders
included (or submitted for inclusion) in any application and furnished by it
pursuant to Sections 5.2 or 5.3 of this Agreement shall be true, correct and
complete.
3.24. Risk Management Instruments. All interest rate swaps, caps,
floors, option agreements, futures and forward contracts and other similar risk
management arrangements to which ESLBI or any of its Subsidiaries is a party,
whether entered into for ESLBI's own account, or for the account of one or more
of such Subsidiaries or their customers, were entered into (i) in accordance
with prudent business practices and all applicable laws, rules, regulations and
regulatory policies and (ii) with parties reasonably believed to be financially
responsible; and each of them constitutes the valid and legally binding
obligation of ESLBI or such Subsidiary, enforceable in accordance with its terms
(except that enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
equity principles), and neither ESLBI nor any of its Subsidiaries nor to ESLBI's
knowledge, any other party thereto, is in breach of any of its obligations under
any such agreement or arrangement. ESLBI has previously made available to CBSI
all of such agreements and arrangements that are in effect as of the date of
this Agreement.
3.25. Interested Party Transactions. Except as Previously Disclosed,
no Related Party (as defined below) has been directly or indirectly a party to
any contract or other arrangement (whether written or oral) with ESLBI or any of
its Subsidiaries pertaining to deposits, loans, services (other than as an
employee), products, goods or supplies, rental of real or personal property, or
otherwise requiring payments, provided from or to ESLBI (collectively, the
"Interested Party Transactions"). For purposes hereof, the term "Related Party"
shall mean a 5%-or-greater shareholder of ESLBI, a director or officer of ESLBI
or any of its Subsidiaries, or any member of such person's family or any
corporation, partnership, limited liability company, other business entity or
trust in which such person or any member of such person's family has greater
than a ten percent (10%) interest, or of which such person or any member of such
person's family is an officer, director, partner, member or trustee. Each
Interested Party Transaction that is an arrangement to make a loan to the
applicable Related Party, or is a deposit or other investment by the applicable
Related Party, was an arms'-length transaction approved pursuant to the normal
underwriting standards, and upon the normal commercial terms and conditions,
that are applicable to ESLBI's unaffiliated customers.
3.26. Takeover Statutes Not Applicable; No Rights Agreement. The
Board of Directors of ESLBI has taken all actions (if applicable) so that the
restrictions contained in Section 912 of the NYBCL applicable to a "business
combination" (as defined therein) will not apply to the execution or delivery of
this Agreement or any Transaction Document to which ESLBI is a party, or to the
consummation of the Merger or the other transactions contemplated
24
hereby or thereby. Except as set forth on Schedule 3.26, ESLBI has no
shareholder rights agreement or plan or other similar plan, agreement or
arrangement.
3.27. Investment Securities. Except for pledges to secure public and
trust deposits, Federal Reserve borrowings, repurchase agreements and reverse
repurchase agreements entered into in arms'-length transactions pursuant to
normal commercial terms and conditions and other pledges required by law, none
of the investments reflected in the ESLBI Financial Statements, and none of the
material investments made by ESLBI or any of its Subsidiaries since December 31,
2005, is subject to any restriction (contractual, statutory or otherwise) that
would materially impair the ability of the entity holding such investment freely
to dispose of such investment at any time.
3.28. Capitalization. ESLBI and ES&L are "well capitalized" as such
term is defined in the rules and regulations promulgated by the OTS and the
FDIC.
3.29. CRA, Anti-Money Laundering and Customer Information Security.
Neither ESLBI nor ES&L is aware of, has been advised of, or has reason to
believe that any facts or circumstances exist which would cause ES&L: (i) to be
deemed not to be in satisfactory compliance in any material respect with the
Community Reinvestment Act of 1977, as amended (the "CRA") and the regulations
promulgated thereunder, or to be assigned a rating for CRA purposes by federal
or state bank regulators of lower than "satisfactory," or (ii) to be deemed to
be operating in violation in any material respect of the federal Bank Secrecy
Act, as amended and its implementing regulations (31 CFR part 103), the USA
Patriot Act of 2001, Public Law 107-56 (the "USA Patriot Act") and the
regulations promulgated thereunder, any order issued with respect to anti-money
laundering by the U.S. Treasury's Office of Foreign Assets Control, or any other
applicable anti-money laundering statute, rule or regulation; or (iii) to be
deemed not to be in satisfactory compliance in any material respect with the
privacy of customer information requirements contained in Title V of the
▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act of 1999 and regulations promulgated thereunder as well as
the provisions of the Information Security Program adopted by ES&L pursuant to
12 CFR Part 364. Furthermore, the Board of Directors of ES&L has adopted, and
ES&L has implemented, an anti-money laundering program that meets the
requirements in all material respects of Section 352 of the USA Patriot Act and
the regulations thereunder.
3.30. Agreements with and Examination by Banking Authorities.
Neither ESLBI nor any of its Subsidiaries is a party to any commitment, letter
(other than letters addressed to regulated depository institutions generally),
written agreement, memorandum of understanding, order to cease and desist with,
is subject to any order or directive specifically naming or referring to ESLBI
or any of its Subsidiaries by, has been required to adopt any board resolution
by, any federal or state governmental entity charged with the supervision or
regulation of savings and loans or bank holding companies or engaged in the
insurance of bank deposits which is currently in effect and restricts materially
the conduct of its business, or in any manner relates to its capital adequacy,
loan loss allowances or reserves, ability to perform its obligations hereunder,
and neither ESLBI nor any of its Subsidiaries has received written notification
from
25
any such federal or state governmental entity that any such Person may be
required to enter into, or otherwise be subject to, any such commitment, letter,
written agreement, memorandum of understanding or cease and desist order.
Neither ESLBI nor any of its Subsidiaries has been informed by any bank
regulator that it is contemplating issuing or requesting any such order,
directive, agreement, memorandum of understanding, commitment letter or similar
submission. Neither ESLBI nor any of its Subsidiaries is a party to any
agreement or arrangement entered into in connection with the consummation of a
federally assisted acquisition of a depository institution pursuant to which
ESLBI or any of its Subsidiaries is entitled to receive financial assistance or
indemnification from any governmental agency. Except for normal periodic
examinations (the "Bank Examinations") conducted by the Federal Reserve Board,
the FDIC or the OTS in the regular course of the business of ESLBI and its
Subsidiaries, since January 1, 2003, no bank regulator has initiated any
proceeding or, to the best knowledge of ESLBI, investigation into the business
or operations of the ESLBI or any of its Subsidiaries. ESLBI and its
Subsidiaries have resolved any material violations, criticisms or exceptions by
any bank regulator with respect to any Bank Examination.
3.31. Ownership of CBSI Common Stock. Neither ESLBI nor any of its
affiliates or associates beneficially owns in the aggregate three percent (3%)
or more of the outstanding shares of CBSI Common Stock or, to the knowledge of
ESLBI, has acquired shares of CBSI Common Stock which were at any time in the
past two years beneficially owned by an "Interested Shareholder" (as defined
below) if such acquisition occurred other than pursuant to a public offering
within the meaning of the Securities Act, in each case such that ESLBI would be
deemed an "Interested Shareholder" under CBSI's certificate of incorporation.
3.32. Internal Controls. Neither ESLBI's nor any of its
Subsidiaries' records, systems, controls data or information are recorded,
stored, maintained, operated or otherwise wholly or partly dependent on or held
by any means (including any electronic, mechanical or photographic process,
whether computerized or not) which (including all means of access thereto and
therefrom) are not under their exclusive ownership and direct control, except as
would not reasonably be expected to have a material adverse effect on the system
of internal accounting controls described in the next sentence. ESLBI and its
Subsidiaries have devised and maintain a system of internal accounting controls
sufficient to provide reasonable assurances regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
3.33. Liquidation Account. The initial amount of the liquidation
account established by ES&L pursuant to the plan of conversion adopted by it in
connection with its conversion from a mutual federal savings association to a
stock federal savings association, was approximately $3,960,000 as of the
effective date of such conversion.
3.34. Disclosure. None of the representations and warranties of
ESLBI contained in this Agreement or any of the Transaction Documents to which
it is a party, taken as a whole, contains or will contain any untrue statement
of a material fact, or omits to state any
26
material fact required to be stated or necessary to make any such information or
document, in light of the circumstances, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CBSI AND MERGER SUB
Except as Previously Disclosed, CBSI and Merger Sub hereby represent
and warrant to ESLBI as follows:
4.1. Organization, Standing and Authority of CBSI and Merger Sub.
Each of CBSI and Merger Sub is a duly organized corporation or bank, validly
existing and in good standing under the laws of its incorporation with full
corporate power and authority to own, lease and operate the properties it
purports to own, lease or operate and to carry on its business as now conducted,
except where the failure to be in good standing or to have such power or
authority would not have a Material Adverse Effect on CBSI. CBSI is a registered
bank holding company under the Bank Holding Company Act. CBSI is duly licensed
or qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires such qualification or licensing, except where failure to be so
licensed or qualified would not have a Material Adverse Effect on CBSI.
4.2. Authorized and Effective Agreement.
(a) Each of CBSI and Merger Sub has all requisite corporate power
and authority to enter into and perform all of its obligations under this
Agreement and each of the Transaction Documents to which it is a party. The
execution and delivery of this Agreement and each such Transaction Agreement and
the consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate action in respect thereof
on the part of CBSI and Merger Sub, as the case may be.
(b) This Agreement and each Transaction Document to which CBSI or
Merger Sub is a party have been duly executed and delivered by CBSI or Merger
Sub, respectively, and assuming the accuracy of the representation contained in
Section 3.4(b) hereof, this Agreement and each Transaction Document to which
CBSI or Merger Sub is a party constitutes the legal, valid and binding
obligations of CBSI or Merger Sub, as the case may be, enforceable against such
party in accordance with its terms, except that such enforceability may be
subject to bankruptcy, insolvency and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
(c) Neither the execution and delivery by CBSI or Merger Sub of this
Agreement or any Transaction Document to which it is a party, nor consummation
of the transactions contemplated hereby or thereby, nor compliance by CBSI or
Merger Sub with any of the provisions hereof or thereof shall (i) , assuming the
accuracy of the representation
27
contained in Section 3.32 hereof, conflict with or result in a breach of any
provision of the articles or certificate of incorporation or bylaws of CBSI or
Merger Sub, (ii) assuming the consents and approvals contemplated by Section 5.3
hereof and the consents and approvals which are Previously Disclosed are duly
obtained, constitute or result in a breach of any term, condition or provision
of, or constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of CBSI or Merger Sub
pursuant to, any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which CBSI or Merger Sub is a party, or (iii)
assuming the consents and approvals contemplated by Section 5.3 hereof and the
consents and approvals which are Previously Disclosed are duly obtained,
conflict with or violate any law, order, writ, injunction, decree, statute, rule
or regulation applicable to CBSI or Merger Sub or their respective assets;
except, in case of clauses (ii) and (iii) above, for any such breach, default,
right, lien, charge, encumbrances, violation or conflict which, individually or
in the aggregate, would not have a Material Adverse Effect on CBSI.
(d) Other than as contemplated by Section 5.3 hereof and the
consents and approvals which are Previously Disclosed, no consent, approval or
authorization of, or declaration, notice, filing or registration with, any
governmental or regulatory authority, or any other Person, is required to be
made or obtained by CBSI or Merger Sub on or prior to the Closing Date in
connection with the execution, delivery and performance of this Agreement or any
of the Transaction Documents to which it is a party or the consummation of the
transactions contemplated hereby or thereby. As of the date hereof, neither CBSI
nor Merger Sub is aware of any reason that the condition set forth in Section
6.1(b) of this Agreement would not be satisfied.
4.3. Regulatory Filings. Each of CBSI and its Subsidiaries has filed
all reports required by statute or regulation to be filed with any federal or
state bank regulatory agency, except where the failure to so file would not have
a Material Adverse Effect on CBSI, and such reports were prepared in accordance
with the applicable statutes, regulations and instructions in existence as of
the date of filing of such reports in all material respects.
4.4. Legal Proceedings. Except as Previously Disclosed, there are no
actions, suits or proceedings instituted, pending or, to the knowledge of CBSI,
threatened against CBSI or any of its Subsidiaries or against any asset,
interest or right of CBSI or any of its Subsidiaries that, if decided against
CBSI or any of its Subsidiaries, would, individually or in the aggregate, have a
Material Adverse Effect on CBSI. There are no actual or threatened actions,
suits or proceedings which present a claim to restrain or prohibit the
transactions contemplated herein or to impose any material liability or
restrictions in connection therewith.
4.5. Certain Information. When the Proxy Statement (or any
supplement or amendment thereto) is first mailed to the shareholders of ESLBI,
and at all times subsequent thereto up to and including the time of the ESLBI
Shareholders' Meeting, such Proxy Statement and all amendments or supplements
thereto, with respect to all information set forth or incorporated by reference
therein furnished by CBSI and relating to CBSI or any of its Subsidiaries, shall
not contain any untrue statement of a material fact or omit to state a material
28
fact required to be stated therein or necessary to make the statements contained
therein, in the light of the circumstances under which they were made, not
misleading. All information concerning CBSI and its directors, officers, and
shareholders included (or submitted for inclusion) in any application and
furnished by it pursuant to Sections 5.2 or 5.3 of this Agreement shall be true,
correct and complete in all material respects.
4.6. Financial Resources. CBSI has, or will have prior to the
Effective Time, sufficient cash funds to pay the aggregate Merger Consideration
and the other amounts required under Section 2.2.
4.7. Compliance with Laws. CBSI and each of its Subsidiaries
conducts its business in compliance with all statutes and regulations applicable
to the conduct of its business, and neither CBSI nor any of its Subsidiaries has
received notification from any agency or department of federal, state or local
government (i) asserting a violation of any such statute or regulation, (ii)
threatening to revoke any license, franchise, permit or government authorization
or (iii) in any way restricting or limiting its operations. Neither CBSI nor any
of its Subsidiaries is subject to any regulatory or supervisory cease and desist
order, agreement, directive, memorandum of understanding or commitment, or has
received any communication contemplating any of the foregoing.
4.8. CRA, Anti-Money Laundering and Customer Information Security.
CBSI is not aware of, has been advised of, or has reason to believe that any
facts or circumstances exist which would cause CBSI: (i) to be deemed not to be
in satisfactory compliance in any material respect with the CRA and the
regulations promulgated thereunder, or to be assigned a rating for CRA purposes
by federal or state bank regulators of lower than "satisfactory," or (ii) to be
deemed to be operating in violation in any material respect of the federal Bank
Secrecy Act, as amended and its implementing regulations (31 CFR part 103), the
USA Patriot Act and the regulations promulgated thereunder, any order issued
with respect to anti-money laundering by the U.S. Treasury's Office of Foreign
Assets Control, or any other applicable anti-money laundering statute, rule or
regulation; or (iii) to be deemed not to be in satisfactory compliance in any
material respect with the privacy of customer information requirements contained
in Title V of the ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act of 1999 and regulations promulgated
thereunder. Furthermore, the Board of Directors of CBSI has adopted, and CBSI
has implemented, an anti-money laundering program that meets the requirements in
all material respects of Section 352 of the USA Patriot Act and the regulations
thereunder.
ARTICLE V
COVENANTS
5.1. ESLBI Shareholders' Meeting. ESLBI shall call and give notice
of the ESLBI Shareholders' Meeting as promptly as practicable, but in no event
later than five (5) days following the date on which the condition set forth in
Section 6.1(b) (other than with respect to any regulatory notices and filings
which are to be given or made on or after the Closing Date) is
29
first satisfied, for the purpose of voting upon the approval of this Agreement,
and ESLBI shall use all reasonable efforts to hold the ESLBI Shareholders'
Meeting as soon as practicable thereafter, subject to the applicable notice
requirements under the NYBCL. Subject to the fiduciary duties of the Board of
Directors of ESLBI, as determined after consultation with outside counsel and
financial advisors, (i) the Board of Directors of ESLBI shall recommend that the
shareholders vote in favor of the approval of this Agreement, and (ii) ESLBI
shall solicit from its shareholders proxies in favor of approval of this
Agreement and shall take all other action necessary or desirable to secure the
vote of shareholders to obtain such approval. Notwithstanding any withdrawal,
modification or change in any recommendation of the Board of Directors of ESLBI,
to the fullest extent permitted by law, ESLBI agrees to hold the ESLBI
Shareholders' Meeting within the time period specified above unless this
Agreement is terminated in accordance with its terms.
5.2. ESLBI Proxy Statement. As promptly as practicable after the
date hereof, ESLBI shall prepare, and CBSI shall cooperate in the preparation
of, the Proxy Statement to be mailed to the shareholders of ESLBI in connection
with obtaining their approval of this Agreement. ESLBI shall provide CBSI and
its counsel a reasonable opportunity for review and comment on the Proxy
Statement.
5.3. Applications. As promptly as practicable after the date hereof,
and after a reasonable opportunity for review by the other party and its
counsel, CBSI, Merger Sub and ESLBI shall submit any requisite applications for
prior approval of, and notices with respect to, the transactions contemplated
herein to the OCC, the OTS and the Federal Reserve Board, and each of the
parties hereto shall, and shall cause its Subsidiaries to, submit any
applications, notices or other filings to any other state or federal government
agency, department or body, the approval of which is required or desirable for
consummation of the Merger, the Short-Form Merger or the Bank Merger. ESLBI, on
one hand, and CBSI and Merger Sub, on the other hand, each represents and
warrants to the other that all information concerning it and its directors,
officers, shareholders and Subsidiaries included (or submitted for inclusion) in
any such application and furnished by it shall be true, correct and complete in
all material respects. Each party agrees to consult with the other parties with
respect to obtaining all necessary approvals and consents and each will keep the
other apprised of the status of matters relating to such approvals and consents.
5.4. Best Efforts.
(a) Subject to the terms and conditions of this Agreement, each of
the parties hereto will use reasonable best efforts in good faith to (i) furnish
such information as may be required or desirable in connection with the
preparation of the documents referred to in Sections 5.2 and 5.3 above, and (ii)
take or cause to be taken all action necessary or desirable on its part so as to
permit consummation of the Merger, the Short-Form Merger and the Bank Merger at
the earliest possible date, including, without limitation, (1) obtaining the
consent or approval of Person whose consent or approval is required for
consummation of the transactions contemplated hereby, provided that ESLBI shall
not agree to make any payments or modifications to
30
agreements in connection therewith without the prior written consent of CBSI,
and (2) requesting the delivery of appropriate opinions, consents and letters
from its counsel and independent auditors. Subject to the terms and conditions
of this Agreement, no party hereto shall take or fail to take, or cause or
permit its Subsidiaries to take or fail to take, or to the best of its ability
permit to be taken or omitted to be taken by any third party, any action that
would substantially impair the prospects of completing the Merger, the
Short-Form Merger or the Bank Merger pursuant to this Agreement, or that would
materially delay such completion.
(b) Each party hereto shall give prompt notice to the other party of
(i) the occurrence, or failure to occur, of any event which occurrence or
failure would be reasonably likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate at any time from the date
hereof to the Closing Date such that the condition set forth in Section 6.2(a)
or 6.3(a), as applicable, would not be met if such failure to be true or
accurate were to occur or be continuing on the Closing Date, and (ii) any
material failure of any party to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder, and each party
shall use all reasonable best efforts in good faith to remedy such failure.
(c) From the date of this Agreement through the Effective Time, to
the extent permitted by law, ESLBI shall cause ES&L to provide such assistance
to Community Bank as reasonably necessary for Community Bank to prepare for the
conversion and transfer in connection with the Bank Merger all information
concerning the loans, deposits and other assets and liabilities of ES&L into
Community Bank's own data processing system, with a view to facilitating the
integration of Community Bank's and ES&L's systems and otherwise combining
Community Bank's and ES&L's operations upon consummation of the Bank Merger.
Such assistance shall include providing Community Bank with computer file
instructions with respect to the information in its data processing system
regarding the assets and liabilities of ES&L, together with operational
procedures designed to implement the transfer of such information to Community
Bank, provided that the confidentiality of customer information shall be
preserved and no such information shall be transferred until the Effective Time.
After execution of this Agreement, ES&L and Community Bank shall each designate
an individual to serve as liaison concerning the transfer of data processing
information and other similar operational matters.
(d) Each party shall provide, and shall request its auditors to
provide, the other party with such historical financial information regarding it
(and related audit reports and consents) as the other party may reasonably
request for disclosure purposes under the Securities Laws.
5.5. Investigation and Confidentiality. Each of the parties hereto
will keep the other advised of all material developments relevant to its and its
Subsidiaries' businesses and to consummation of the transactions contemplated
herein. Each of the parties hereto may make or cause to be made such
investigation of the financial and legal condition of the other as such party
reasonably deems necessary or advisable in connection with the transactions
contemplated herein, provided, however, that such investigation shall be
reasonably related to such
31
transactions and the party conducting such investigation shall use its
reasonable best efforts to minimize any disruptions to the operations of the
other party. Each of the parties hereto agrees to furnish the other and the
other's advisors with such financial data and other information with respect to
its business and properties as such other party shall from time to time
reasonably request. No investigation pursuant to this Section 5.5 or otherwise
shall affect or be deemed to modify any representation or warranty made by, or
the conditions to the obligations to consummate the Merger of, any party hereto.
Each party hereto shall hold all information furnished by the other party or any
of such party's Subsidiaries or representatives pursuant to this Agreement in
confidence and in accordance with the confidentiality agreement dated January 6,
2006, between ESLBI and CBSI (the "Confidentiality Agreement").
5.6. Press Releases and Other Public Disclosures. ESLBI and CBSI
shall agree with each other as to the form and substance of any press release
related to this Agreement or the transactions contemplated hereby, and shall
consult and agree with each other as to the form and substance of other public
disclosures related thereto, including without limitation, any communications
with securities market professionals and investors, provided, however, that
nothing contained herein shall prohibit any party, following notification to the
other party, from making any disclosure which is required by applicable law or
NYSE rules.
5.7. Actions Pending the Merger.
(a) Prior to the Closing Date, and except as otherwise provided
for by this Agreement or consented to or approved in writing by the other party
hereto, each of CBSI and ESLBI shall, and shall cause each of its Subsidiaries
to, use its reasonable best efforts to preserve its properties, business and
relationships with customers, employees and other persons.
(b) Except with the prior written consent of CBSI (which consent
will not be unreasonably withheld) or as expressly permitted by this Agreement,
ESLBI shall not, and shall not permit any of its Subsidiaries to:
(1) carry on its business other than in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted, or
incur an obligation in excess of $25,000 in the aggregate or which requires
performance over more than one year (other than loans and investments booked in
the usual, regular and ordinary course of business);
(2) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock or earnings other than its regular
quarterly cash dividends on ESLBI Common Stock in amounts not in excess of $0.35
per share;
(3) issue any shares of its capital stock or permit any
treasury shares to become outstanding, other than pursuant to the exercise of
Stock Options which are outstanding on the date hereof; redeem, purchase or
otherwise acquire any shares of its capital stock or any securities or
obligations convertible into or exchangeable for any shares of its capital
stock;
32
(4) incur any additional debt obligation or other obligation
for borrowed money other than in the ordinary course of business consistent with
past practice;
(5) issue, grant or authorize any Rights (or amend or modify
the terms or exercisability of any outstanding Rights) or effect any
recapitalization, reclassification, stock dividend, stock split or like change
in capitalization, or redeem, repurchase or otherwise acquire any shares of its
capital stock;
(6) amend or otherwise change its certificate of incorporation
or articles of association or bylaws; impose, or suffer the imposition, on any
share of capital stock of ESLBI of any lien, charge or encumbrance;
(7) merge or consolidate with, or acquire control over, any
Person or create any Subsidiary;
(8) waive or release any material right or cancel or
compromise any material debt or claim other than in the ordinary course of
business consistent with past practice with prior notice to CBSI;
(9) sell, liquidate, pledge or encumber or dispose of, or
acquire any, assets with a value in excess of $25,000 (other than assets
acquired in foreclosure, in lieu of foreclosure or other legal proceedings
relating to collateral for loans in each case in the ordinary course of business
consistent with past practice); make any capital expenditure in excess of
$25,000 in the aggregate; or establish new branches or other similar facilities,
close existing branches or similar facilities or enter into or modify any leases
or other contracts relating thereto;
(10) increase the rate of compensation of, pay or agree to pay
any bonus to, or provide any additional employee benefit or incentive (including
without limitation, any "change of control" or severance payment) to, any of its
directors, officers or employees except as required by law or contractual
obligation in effect as of the date hereof; or become party to, adopt,
terminate, amend, or commit itself to, any pension, retirement, profit sharing
or welfare benefit plan or agreement or employment agreement, other than in the
ordinary course of business consistent with past practice or except as required
by existing plans or agreements; or accelerate the vesting of any deferred
compensation;
(11) change its lending, investment, asset/liability
management or other material banking policies in any material respect except as
may be required by changes in applicable law, or as required by the OTS;
(12) engage or enter into any new Interested Party
Transactions, or modify, extend or renew any existing Interested Party
Transactions;
(13) change its methods of accounting in effect at June 30,
2005, except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants, or change any of
its methods of reporting income,
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deductions or other items for federal income tax purposes from those employed in
the preparation of its federal income tax returns for the fiscal year ended June
30, 2005, except as required by applicable law;
(14) take any action that would result in any of its
representations or warranties in this Agreement being or becoming untrue in any
material respects at any time prior to the Effective Time, or in any of the
conditions to the Merger set forth in Article VI not being satisfied, except as
may be required by law; or
(15) agree to do any of the foregoing or take any other action
which would in any manner interfere with, impede, delay, or make more costly the
consummation of the transactions contemplated hereby.
(c) CBSI shall not, except with the prior written consent of ESLBI
(which consent shall not unreasonably be withheld) or as expressly permitted by
this Agreement, carry on its business other than in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted;
provided, however, that nothing herein shall be construed to prevent CBSI from
acquiring or agreeing to acquire any Person, by merging or consolidating with,
by purchasing an equity interest in or a portion of the assets of, or by any
other manner, such Person or taking actions reasonably related thereto, so long
as such transaction would not materially delay or prevent the consummation of
the transactions contemplated by this Agreement.
5.8. Certain Policies. Prior to the Effective Time, but only after
the satisfaction of the condition set forth in Section 6.1(b) hereof (other than
with respect to any regulatory notices and filings which are to be given or made
on or after the Closing Date) and the receipt of the shareholder approval
contemplated by Section 5.1 hereof, (i) ESLBI shall, consistent with generally
accepted accounting principles and on a basis mutually satisfactory to it and
CBSI, modify and change its loan, litigation and real estate valuation policies
and practices (including loan classifications and levels of reserves) so as to
be applied on a basis that is consistent with that of CBSI, and (ii) ESLBI and
CBSI shall review the adequacy of reserves for loan losses currently established
by ESLBI and, if deemed warranted by both parties under generally accepted
accounting principles, ESLBI shall make mutually acceptable changes to such
reserves. ESLBI shall cooperate with CBSI in planned actions discussed as part
of the due diligence process which are designed to improve the short and
long-term profitability of ESLBI and eliminate or reduce any potential earnings
per share dilution of CBSI upon consummation of the Merger, including but not
limited to those actions set forth on Schedule 5.8 hereto.
5.9. Closing. The transactions contemplated by this Agreement shall
be consummated at a closing to be held at the offices of the law firm of Bond,
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, PLLC, One Lincoln Center, Syracuse, New York on the first
business day, or other mutually agreeable time, following satisfaction or waiver
of the conditions to consummation of the Merger set forth in Article VI hereof.
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5.10. Employee Benefits; ESOP; Indemnification.
(a) The current employees of ESLBI or any of its Subsidiaries who
continue as employees of CBSI or its Subsidiaries after the Effective Time shall
be given credit for past service with ESLBI for purposes of determining
eligibility for and vesting of employee benefits (but not for pension benefit
accrual purposes) under all welfare and retirement programs maintained by CBSI
or its Subsidiaries (collectively, the "CBSI Plans") in which such employees
participate following the Merger. In the event that the employment of any
current employee of ESLBI or any of its Subsidiaries shall be terminated without
cause after the Effective Time, such employees shall be entitled to receive
benefits under CBSI's severance plan (without duplication, however, with any
payment under any severance or separation plan or program maintained by ESLBI or
any of its Subsidiaries) in accordance with its terms.
(b) Prior to the Effective Time, ESLBI shall take all actions that
may be requested by CBSI in writing upon advance notice of not less than 30 days
with respect to (i) causing one or more ESLBI Plans to terminate as of the
Effective Time or for benefit accrual and entitlements to cease as of the
Effective Time, (ii) causing the continuation on and after the Effective Time of
any contract, arrangement or insurance policy relating to any ESLBI Plan for
such period as may be requested by CBSI, or (iii) cooperating with CBSI to
facilitate the merger of any ESLBI Plan into any CBSI Plan as of or following
the Effective Time. To the extent required, ESLBI shall amend its Stock Option
Plan to permit the cancellation of the Stock Options against a payment therefor
pursuant to Section 2.2(b) hereof. Each ESLBI Plan that is not terminated or
amended pursuant to clause (i) above, or merged into a CBSI Plan pursuant to
clause (iii) above, shall be assumed by CBSI to the extent permitted by the
terms of the ESLBI Plan; provided that, to the extent necessary, each ESLBI Plan
shall be amended, effective prior to the Effective Time, to provide that ESLBI
and its successors shall have the right to amend and/or terminate each such plan
at any time, including any time on or after the Effective Time.
(c) ESLBI shall cause the ESOP to be terminated prior to the
Effective Time. In furtherance of the foregoing, prior to the Effective Time,
ESLBI shall take all such action as is necessary or reasonably appropriate to
terminate the ESOP, including without limitation, applying to the IRS for a
favorable determination that the termination of the ESOP does not adversely
affect the tax-qualified status of the ESOP. As of the Effective Time, all
shares of ESLBI Common Stock held by the ESOP shall be converted into the right
to receive the Merger Consideration in accordance with Article II.
Notwithstanding anything in this Section 5.10(c) to the contrary, distributions
may be made from the ESOP to terminated employees of ESLBI or any of its
Subsidiaries as soon as administratively practicable after the determination of
final allocations and the receipt of a determination letter from the IRS, unless
CBSI determines that it is appropriate to make earlier distributions.
(d) (1) In the event of any threatened or actual claim, action,
suit, proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person (the "Indemnified Party") who is now, or has
been at any time prior to the date of this Agreement, or
35
who becomes prior to the Effective Time, a director or officer of ESLBI is, or
is threatened to be, made a party based in whole or in part on, or arising in
whole or in part out of, or pertaining to (i) the fact that he is or was a
director, officer or employee of ESLBI or any of its Subsidiaries, or (ii) this
Agreement or any of the transactions contemplated hereby, whether in any case
asserted or arising before or after the Effective Time, the parties hereto agree
to cooperate and use their best efforts to defend against and respond thereto.
For a period of six years after the Effective Time, CBSI shall indemnify and
hold harmless, to the fullest extent permitted by law, each such Indemnified
Party against any losses, claims, damages, liabilities, costs, expenses
(including reasonable attorney's fees and expenses in advance of the final
disposition of any claim, suit, proceeding or investigation to each Indemnified
Party to the fullest extent permitted by the DGCL upon receipt of any
undertaking required by the DGCL), judgments, fines and amounts paid in
settlement in connection with any such threatened or actual claim, action, suit,
proceeding or investigation, and in the event of any such threatened or actual
claim, action, suit, proceeding or investigation (whether asserted or arising
before or after the Effective Time), the Indemnified Parties may retain counsel
reasonably satisfactory to them after consultation with CBSI; provided, however,
that (1) CBSI shall have the right to assume the defense thereof and upon such
assumption CBSI shall not be liable to any Indemnified Party for any legal
expenses of other counsel or any other expenses subsequently incurred by any
Indemnified Party in connection with the defense thereof, except that if CBSI
elects not to assume such defense or counsel for the Indemnified Parties
reasonably advises the Indemnified Parties that there are issues which raise
conflicts of interest between CBSI and the Indemnified Parties, the Indemnified
Parties may retain counsel reasonably satisfactory to them after notification,
and CBSI shall pay the reasonable fees and expenses of such counsel for the
Indemnified Parties, (2) CBSI shall be obligated pursuant to this paragraph to
pay for only one firm of counsel for all Indemnified Parties, (3) CBSI shall not
be liable for any settlement effected without its prior written consent, and (4)
CBSI shall have no obligation hereunder to any Indemnified Party when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that indemnification of
such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law. Any Indemnified Party wishing to claim indemnification under
this Section 5.11(d), upon becoming aware of any such claim, action, suit,
proceeding or investigation, shall promptly notify CBSI thereof, provided that
the failure of any Indemnified Party to so notify CBSI shall relieve it of its
obligations to indemnify hereunder to the extent that such failure materially
prejudices CBSI.
(2) CBSI agrees that all rights to indemnification and all
limitations on liability existing in favor of the directors, officers and
employees of ESLBI and any of its Subsidiaries as provided in their respective
certificates of incorporation, bylaws or similar governing documents as in
effect as of the date of this Agreement with respect to matters occurring prior
to the Effective Time shall survive the Merger, and shall continue in full force
and effect, and shall be honored by such entities or their respective successors
as if they were the indemnifying party thereunder, without any amendment
thereto, for a period of six years from the Effective Time.
36
(3) CBSI will use its reasonable best efforts directly or
indirectly to cause the persons who served as directors or officers of ESLBI on
or before the Effective Time to be covered by ESLBI's existing directors' and
officers' liability insurance policy (provided that CBSI may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are not less advantageous than such policy) but in no event
shall any insured person be entitled under this Section to insurance coverage
more favorable than that provided to him or her in such capacities as of the
date hereof with respect to acts or omissions resulting from their service as
such on or prior to the Effective Time. Such insurance coverage shall commence
at the Effective Time and will be provided for a period of no less than six
years after the Effective Time; provided, however, that in no event shall CBSI
be required to expend annually more than 200% of the current amount (the
"Maximum Amount") expended by ESLBI per year to maintain or procure insurance
coverage pursuant hereto, and if such coverage cannot be maintained or procured
for the Maximum Amount, then CBSI is only required to procure or maintain such
coverage, if any, that can be purchased with the Maximum Amount. ESLBI agrees to
renew any such existing insurance or to purchase any "discovery period"
insurance provided for thereunder at CBSI's request.
5.11. Takeover Laws. No party hereto shall take any action that
would cause the transactions contemplated by this Agreement or any of the
Transaction Documents to be subject to the requirements imposed by any Takeover
Law, and each of them shall take all necessary steps within its control to
exempt (or ensure the continued exemption of) all such transactions from, or if
necessary challenge the validity or applicability of, any applicable Takeover
Law, as now or hereafter in effect. For purposes of this Section, "Takeover Law"
shall mean any legal requirement related to mergers, business combinations, sale
of control, affiliate transactions, or antitrust laws or regulations which is
applicable to the transactions contemplated by this Agreement.
5.12. No Solicitation.
(a) Subject to Section 5.13(b) hereof, from and after the date of
this Agreement until the earlier of the Closing or the termination of this
Agreement in accordance with its terms, neither ESLBI nor any Person acting on
behalf of ESLBI shall, directly or indirectly, (a) solicit, initiate or respond
to discussions or engage in negotiations with any Person (whether such
negotiations are initiated by ESLBI or otherwise) or take any other action
intended or designed to facilitate the efforts of any Person, other than CBSI,
relating to the possible acquisition, recapitalization or other business
combination involving ESLBI or any of its Subsidiaries (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its capital stock or assets (with any such efforts by any
such Person, including a firm proposal to make such an acquisition, to be
referred to as "Takeover Proposal"), (b) provide non-public information with
respect to ESLBI or any of its Subsidiaries to any Person, other than CBSI and
its professional advisors or ESLBI's professional advisors, or (c) enter into an
agreement, or a letter of intent or term sheet, with any Person, other than
CBSI, providing for a possible Takeover Proposal. If ESLBI receives any offer or
proposal relating to a Takeover Proposal, ESLBI shall immediately notify CBSI
thereof, including
37
information as to the identity of the party making any such offer or proposal
and the specific terms of such offer or proposal, as the case may be.
(b) (i) Notwithstanding anything to the contrary contained in
Section 5.13(a), prior to the Closing or the termination of this Agreement in
accordance with its terms, ESLBI may, to the extent the Board of Directors of
ESLBI determines, in good faith, after consultation with outside legal counsel,
that the Board's fiduciary duties require it to do so, participate in
discussions or negotiations with, and, subject to the requirements of Section
5.13(c), furnish non-public information, and afford access to the properties,
books or records of ESLBI or any of its Subsidiaries to any Person after such
Person has delivered to ESLBI in writing, an unsolicited bona fide Takeover
Proposal with respect to ESLBI or any of its Subsidiaries (which has not been
withdrawn) which the Board of Directors of ESLBI in its good faith judgment
determines, after reasonable inquiry and consultation with its financial advisor
(i) would be reasonably likely to result in a transaction more favorable than
that contemplated by this Agreement to the shareholders of ESLBI (which judgment
must be reasonable), and (ii) that the Person making such Takeover Proposal is
financially capable of consummating such Takeover Proposal or that the financing
necessary to consummate such Takeover Proposal, to the extent required, is then
committed or is capable of being obtained by such Person (a "Superior
Proposal"). In addition, notwithstanding the provisions of Section 5.13(a)
above, in connection with a submitted, written bona fide Takeover Proposal or
potential Takeover Proposal, ESLBI shall refer any third party to this Section
5.13 or make a copy of this Section 5.13 available to such third party.
(ii) In the event ESLBI or any of its Subsidiaries receives a
Superior Proposal, nothing contained in this Agreement (but subject to the terms
of this Section 5.13(b)) will prevent the Board of Directors of ESLBI from
recommending such Superior Proposal to the shareholders of ESLBI, if the Board
determines, in good faith, after consultation with outside legal counsel, that
such action is required by its fiduciary duties; in such case, the Board of
Directors of ESLBI may withdraw, modify or refrain from making its
recommendations set forth in the relevant sections in this Agreement; provided,
however, that ESLBI shall (A) provide CBSI at least 48 hours prior notice of any
meeting of the Board of Directors of ESLBI at which such Board of Directors is
reasonably expected to consider a Superior Proposal, (B) not recommend to its
shareholders a Superior Proposal for a period of not less than the greater of
two full business days and 48 hours after CBSI's receipt of a copy of such
Superior Proposal and the identity of the third party, and (C) not enter into a
definitive agreement relating to such Superior Proposal unless CBSI fails to
match the terms of the Super Proposal within the greater of two full business
days and 48 hours after CBSI's receipt of a copy of such Superior Proposal and
the identity of the third party; and provided, further, that unless this
Agreement is terminated pursuant to Article VII, nothing contained in this
Section 5.13(b) shall limit ESLBI's obligation to hold and convene a special
meeting of its shareholders (regardless of whether the recommendation of the
Board of Directors of ESLBI shall have been withdrawn, modified or not yet made)
or to provide the shareholders of ESLBI with material information relating to
such meeting.
38
(c) Notwithstanding anything to the contrary herein, neither ESLBI
nor any of its Subsidiaries shall provide any non-public information to a third
party unless: (x) ESLBI provides such non-public information pursuant to a
nondisclosure agreement with terms regarding the protection of oral or written
confidential information at least as restrictive as such terms in the
confidentiality agreement heretofore entered into by the parties hereto; and (y)
such non-public information has been previously delivered or made available to
CBSI.
5.13. Shareholder Rights Plan. As soon as reasonably practicable
following the date hereof, but in any event no later than the Closing Date,
ESLBI will take, and cause to be taken, all actions so that (i) neither CBSI nor
Merger Sub shall be an "Acquiring Person" or "Adverse Person" under the Rights
Agreement, and (ii) the execution of this Agreement by CBSI or Merger Sub and
the consummation of the transactions contemplated hereby, including the Merger,
will not result in the grant of any rights to any person under the Rights
Agreement or enable or require the Rights to be exercised, distributed or
triggered. ESLBI shall not redeem the Rights or amend or modify (including by
delay of the "Distribution Date" thereunder) the Rights Agreement, other than to
render the Rights inapplicable to the Merger or any action contemplated by this
Agreement, or terminate the Rights Agreement prior to the earlier of the
Effective Time or the termination of this Agreement unless, and only to the
extent that, it is required to do so by order of a court of competent
jurisdiction or in connection with the entry by ESLBI into a definitive binding
agreement with respect to a Superior Proposal pursuant to and in compliance with
Section 5.12. Solely for the purposes of this Section 5.13, the term "Rights"
shall have the meaning ascribed to such term in the Rights Agreement.
ARTICLE VI
CONDITIONS PRECEDENT
6.1. Conditions Precedent to Obligations of CBSI and ESLBI. The
respective obligations of the parties to effect the Merger and to consummate the
other transactions contemplated by this Agreement and the Transaction Documents
shall be subject to satisfaction or waiver of the following conditions at or
prior to the Closing Date:
(a) All corporate action necessary to authorize the execution,
delivery and performance of this Agreement and each of the other Transaction
Documents (including, without limitation, the Bank Merger) and consummation of
the transactions contemplated hereby and thereby, including without limitation
the shareholder approval contemplated by Section 5.1 hereof, shall have been
duly and validly taken;
(b) The parties hereto shall have received all regulatory approvals
required or mutually deemed necessary in connection with the transactions
contemplated by this Agreement or any of the other Transaction Documents
(including, without limitation, the Bank Merger), all notice periods and waiting
periods required after the granting of any such approvals shall have passed and
all conditions contained in any such approval required to have been satisfied
prior to consummation of such transactions shall have been satisfied;
39
(c) There shall not have been instituted, pending or threatened in
writing any action or proceeding by any governmental authority or administrative
agency or in a court of competent jurisdiction, nor shall there be in any effect
any judgment, order, decree or injunction of any governmental authority,
administrative agency or court of competent jurisdiction, or any other legal
restraint, preventing or seeking to prevent the consummation of the transactions
contemplated by this Agreement;
(d) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President and Chief Executive Officer of
ESLBI, and CBSI (and/or Community Bank) shall have entered into an Employment
Agreement, substantially in the form attached hereto as Exhibit C (the
"Employment Agreement"); and
(e) J. ▇▇▇▇▇▇▇ ▇▇▇▇▇, Treasurer and Chief Operating Officer of
ESLBI, and CBSI (and/or Community Bank) shall have entered into a Consulting
Agreement, substantially in the form attached hereto as Exhibit D (the
"Consulting Agreement").
6.2. Conditions Precedent to Obligations of ESLBI. The obligations
of ESLBI to effect the Merger and to consummate the other transactions
contemplated by this Agreement and the Transaction Documents shall be subject to
satisfaction of the following additional conditions at or prior to the Closing
Date unless waived by ESLBI pursuant to Section 7.5 hereof:
(a) The representations and warranties of CBSI and Merger Sub set
forth in Article IV hereof shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (or, in the case of any representation and warranty which
specifically relates to an earlier date, as of such earlier date), except as
otherwise contemplated by this Agreement or consented to in writing by ESLBI;
provided, however, that (i) in determining whether or not the condition
contained in this paragraph (a) is satisfied, no effect shall be given to any
qualifications or exceptions in any such representation or warranty relating to
materiality or Material Adverse Effect, but (ii) the condition contained in this
paragraph (a) shall be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitute,
individually or in the aggregate, a material adverse effect on CBSI and Merger
Sub's ability to consummate the transactions contemplated by this Agreement and
the other Transaction Documents;
(b) CBSI and Merger Sub shall have in all material respects
performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with at or prior to the Closing Date;
(c) Each of CBSI and Merger Sub shall have delivered to ESLBI a
certificate, dated the Closing Date and signed by its President and Chief
Executive Officer, to the effect that the conditions set forth in paragraphs (a)
and (b) of this Section have been satisfied; and
(d) ESLBI shall have received a written certification signed by an
authorized officer of the Exchange Agent confirming that the Exchange Agent
holds in its possession cash
40
or other immediately available funds sufficient to satisfy the requisite payment
of the aggregate Merger Consideration under this Agreement.
6.3. Conditions Precedent to Obligations of CBSI and Merger Sub.
The obligations of CBSI and Merger Sub to effect the Merger and to
consummate the other transactions contemplated by this Agreement and the
Transaction Documents shall be subject to satisfaction of the following
additional conditions at or prior to the Closing Date, unless waived by CBSI
pursuant to Section 7.5 hereof:
(a) The representations and warranties of ESLBI set forth in
Article III hereof shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date (or, in the case of any representation and warranty which
specifically relates to an earlier date, as of such earlier date), except as
otherwise contemplated by this Agreement or consented to in writing by CBSI;
provided, however, that (i) in determining whether or not the condition
contained in this paragraph (a) is satisfied, no effect shall be given to any
qualifications or exceptions in any such representation or warranty relating to
materiality or Material Adverse Effect but (ii) the condition contained in this
paragraph (a) shall be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitute,
individually or in the aggregate, a Material Adverse Effect on ESLBI;
(b) ESLBI shall have in all material respects performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with at or prior to the Closing Date;
(c) ESLBI shall have delivered to CBSI a certificate, dated the
Closing Date and signed by its President and Chief Executive Officer, to the
effect that the conditions set forth in paragraphs (a) and (b) of this Section
have been satisfied;
(d) Dissenters' rights shall not have been exercised with respect
to more than eight percent (8%) of the outstanding shares of ESLBI Common Stock;
and
(e) To the extent that any material, lease, license, loan,
financing agreement or other contract or agreement to which ESLBI or any of its
Subsidiaries is a party requires the consent of or waiver from the other party
thereto as a result of the transactions contemplated by this Agreement, such
consent or waiver shall have been obtained.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
7.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time, either before or after approval by the shareholders
of ESLBI:
41
(a) by the mutual written consent duly authorized by the
respective Boards of Directors of the parties hereto;
(b) by CBSI in writing, if ESLBI has, or by ESLBI in writing, if
CBSI has, breached (i) any covenant or agreement contained herein or (ii) any
representation or warranty contained herein, and in either case if (x) to the
extent that such breach is curable, such breach has not been cured within 30
days after the date on which written notice thereof is given to the breaching
party and (y) such breach would entitle the non-breaching party not to
consummate the transactions contemplated hereby under Article VI hereof;
(c) by any party hereto in writing, if the applications for prior
approval referred to in Section 5.3 hereof have been finally denied, and the
time period for appeals and requests for reconsideration has expired, or if any
governmental entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the Merger, the
Short-Form Merger or the Bank Merger;
(d) by any party hereto in writing, if the shareholders of ESLBI
do not approve this Agreement and the transactions contemplated hereby at the
annual or special meeting duly called for that purpose;
(e) by any party hereto in writing, if the Merger shall not have
been consummated by the close of business on November 15, 2006, unless the
failure to so consummate by such date shall be principally due to the failure of
the party seeking to terminate this Agreement to perform or observe the
covenants and agreements set forth herein;
(f) by CBSI, if (i) the Board of Directors of ESLBI shall
withdraw, modify or change its approval or recommendation of this Agreement or
the transactions contemplated thereby in a manner adverse to CBSI, or ESLBI
shall have failed to include in the Proxy Statement the recommendation of its
Board of Directors in favor of the approval of this Agreement or the
transactions contemplated thereby; (ii) following its receipt of a Takeover
Proposal or the public announcement of a Takeover Proposal, ESLBI shall fail to
timely comply with the covenants contained in Section 5.1; (iii) the Board of
Directors of ESLBI shall have recommended to the shareholders of ESLBI a
Superior Proposal, or ESLBI shall have executed a letter of intent, a definitive
agreement or similar document with respect to a Superior Proposal; (iv) a tender
offer or exchange offer for 25% or more of the outstanding shares of ESLBI
Common Stock is commenced and ESLBI shall not have sent to its shareholders,
within 10 business days after the commencement of such tender or exchange offer,
a statement that the Board of Directors of ESLBI recommends rejection of such
tender or exchange offer; (v) a Takeover Proposal (other than a tender or
exchange offer covered by clause (iv) of this Section 7.1(f)) with respect to
ESLBI is publicly announced and, upon CBSI's request, ESLBI fails to issue a
press release announcing its opposition to such Takeover Proposal within three
(3) business days after such request; or (vi) the Board of Directors of ESLBI
shall have resolved to take any action described in clauses (i) and (iii) of
this Section 7.1(f); or
42
(g) by ESLBI, if the Board of Directors of ESLBI shall have
recommended to the shareholders of ESLBI a Superior Proposal, or ESLBI shall
have executed a letter of intent, a definitive agreement or similar document
with respect to a Superior Proposal, in each case in accordance with Section
5.13, provided that ESLBI has complied with all provisions thereof.
7.2. Effect of Termination. In the event this Agreement and is
terminated pursuant to Section 7.1 hereof, this Agreement shall become void and
have no effect, except that (i) the provisions relating to confidentiality and
break-up fees and expenses set forth in Sections 5.5 and 7.3 hereof,
respectively, shall survive any such termination and (ii) a termination pursuant
to Section 7.1 shall not relieve the breaching party from liability for any
willful breach of such covenant or agreement or representation or warranty
giving rise to such termination.
7.3. Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not such
transactions are consummated.
(b) In the event that this Agreement is terminated (i) by CBSI
pursuant to Section 7.1(b) (but only in the event of a willful or knowing breach
of a representation, warranty or covenant of ESLBI) or Section 7.1(f), (ii) by
ESLBI pursuant to Section 7.1(g), or (iii) by either party pursuant to Section
7.1(d) or (e) after a Takeover Proposal from a third party is received by ESLBI
or made public (unless CBSI is then in breach of its representations, warranties
or covenants contained in this Agreement such that conditions set forth in
Section 6.2(a) or (b) would not be satisfied, and ESLBI shall have duly given
written notice to that effect prior to such termination), then in each case
(without duplication) ESLBI shall pay in immediately available funds to an
account designated by CBSI, no later than three (3) business days after the date
of such termination, all out-of-pocket costs and expenses (including limitation,
professional fees of legal counsel, financial advisors and accountants, and
their expenses) actually incurred by CBSI and its Subsidiaries in connection
with the transactions contemplated by this Agreement, such costs and expenses
not to exceed FIFTY THOUSAND DOLLARS ($50,000) in the aggregate. In addition, in
such event, if (x) ESLBI or any of its Subsidiaries shall have consummated a
transaction with a third party with respect to a Takeover Proposal within one
year of the termination of this Agreement, or (y) within such one-year period,
any third party Person consummates a tender or exchange offer for 25% or more of
the outstanding ESLBI Common Stock, then ESLBI shall pay in immediately
available funds to an account designated by CBSI, no later than three (3)
business days after the date of the applicable triggering event, a fee equal to
ONE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($1,750,000), as liquidated
damages and not as a penalty.
7.4. Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants in this Agreement or in any instrument
delivered pursuant hereto shall expire on, and be terminated and extinguished
at, the Effective Time other than covenants that by their terms are to survive
or be performed after the Effective Time; provided, that no such
representations, warranties or covenants shall be deemed to be terminated
43
or extinguished so as to deprive CBSI, Merger Sub or ESLBI (or any director,
officer or controlling person thereof) of any defense in law or equity which
otherwise would be available against the claims of any Person, including,
without limitation, any shareholder or former shareholder of either CBSI, Merger
Sub or ESLBI, the aforesaid representations, warranties and covenants being
material inducements to the consummation by CBSI, Merger Sub and ESLBI of the
transactions contemplated herein.
7.5. Waiver. Except where not permitted by law, CBSI, Merger Sub or
ESLBI, by written instrument signed by an executive officer of such party, may
at any time (whether before or after approval of this Agreement by the
shareholders of ESLBI) extend the time for the performance of any of the
obligations or other acts of the other party, and may waive (i) any inaccuracies
of such other party in the representations or warranties contained in this
Agreement or any document delivered pursuant hereto, (ii) compliance with any of
the covenants, undertakings or agreements of such other party, or satisfaction
of any of the conditions precedent to its obligations, contained herein or (iii)
the performance by such other party of any of its obligations set out herein or
therein. No failure or delay on the part of any party hereto in the exercise of
any right hereunder shall impair such right or be construed as a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right.
7.6. Amendment or Supplement. This Agreement may be amended or
supplemented at any time prior to the Effective Time only by mutual agreement of
the parties hereto evidenced by a written instrument signed by such parties;
provided, however, that, after approval of this Agreement by the shareholders of
ESLBI, no amendment may be made which by law requires further approval by such
shareholders without obtaining such further approval.
ARTICLE VIII
MISCELLANEOUS
8.1. Entire Agreement. This Agreement and the Transaction Documents
contain the entire agreement between the parties with respect to the
transactions contemplated hereunder and supersede all prior arrangements or
understandings with respect thereto, written or oral, other than documents
referred to herein. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the parties hereto and thereto and their
respective successors. Except as specifically set forth herein, nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto and thereto, and their respective successors, any
rights, remedies, obligations or liabilities.
8.2. No Assignment. No party hereto may assign any of its rights or
obligations under this Agreement to any other Person.
8.3. Alternative Structure. Notwithstanding any provision of this
Agreement to the contrary, CBSI may, with the written consent of ESLBI, which
consent shall not be
44
unreasonably withheld or delayed, elect, subject to the filing of all necessary
applications and the receipt of all required regulatory approvals, to modify the
structure of the acquisition of ESLBI set forth herein, provided, that (i) the
consideration to be paid to the holders of the ESLBI Common Stock is not thereby
changed in kind or reduced in amount as a result of such modification and (ii)
such modification will not materially delay or jeopardize the consummation of
the transactions contemplated by the Agreement.
8.4. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by facsimile transmission or overnight express or by
registered or certified mail, postage prepaid, addressed as follows:
If to ESLBI:
ES&L Bancorp, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President and Chief Executive Officer
With a required copy (which shall not constitute notice hereunder) to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
If to CBSI:
Community Bank System, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President and Chief Executive Officer
With a required copy (which shall not constitute notice hereunder)to:
Bond, ▇▇▇▇▇▇▇▇▇ & King, PLLC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
8.5. Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
45
8.6. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.7. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and entirely to be performed within such jurisdiction, except to
the extent federal law may be applicable.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
46
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have caused this Agreement to be executed by their duly authorized
officers, all as of the day and year first above written.
COMMUNITY BANK SYSTEM, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Executive Vice President and Chief
Operating Officer
ESL ACQUISITION CORP.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
ES&L BANCORP, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
47
TABLE OF CONTENTS
ARTICLE I DEFINITIONS......................................................................... 2
ARTICLE II THE MERGER......................................................................... 7
2.1. The Merger.................................................................... 7
2.2. Merger Consideration.......................................................... 8
2.3. Effect of Merger.............................................................. 9
2.4. Dissenting Shares............................................................. 9
2.5. Procedure to Exchange Shares.................................................. 10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ESLBI........................................... 11
3.1. Capital Structure of ESLBI.................................................... 11
3.2. Organization, Standing and Authority of ESLBI................................. 12
3.3. Ownership of ESLBI Subsidiaries; Capital Structure of ESLBI Subsidiaries...... 12
3.4. Authorized and Effective Agreement............................................ 12
3.5. Regulatory Filings............................................................ 13
3.6. Financial Statements; Books and Records; Minute Books......................... 13
3.7. Material Adverse Change....................................................... 14
3.8. Absence of Undisclosed Liabilities............................................ 14
3.9. Absence of Certain Changes.................................................... 14
3.10. Properties.................................................................... 15
3.11. Loans......................................................................... 16
3.12. Tax Matters................................................................... 16
3.13. .............................................................................. 16
3.13. Employee Benefit Plans........................................................ 17
3.14. Material Contracts............................................................ 20
3.15. Legal Proceedings............................................................. 21
3.16. Compliance with Laws.......................................................... 21
3.17. Labor Matters................................................................. 21
3.18. Brokers and Finders........................................................... 22
3.19. Insurance..................................................................... 22
3.20. Environmental Liability....................................................... 22
3.21. Administration of Trust Accounts.............................................. 23
3.22. Intellectual Property......................................................... 23
3.23. Certain Information........................................................... 23
3.24. Risk Management Instruments................................................... 24
3.25. Interested Party Transactions................................................. 24
3.26. Takeover Statutes Not Applicable; No Rights Agreement......................... 24
3.27. Investment Securities......................................................... 25
3.28. Capitalization................................................................ 25
3.29. CRA, Anti-Money Laundering and Customer Information Security.................. 25
3.30. Agreements with and Examination by Banking Authorities........................ 25
i
3.31. Ownership of CBSI Common Stock............................................ 26
3.32. Internal Controls......................................................... 26
3.33. Liquidation Account....................................................... 26
3.34. Disclosure................................................................ 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CBSI AND MERGER SUB.......................... 27
4.1. Organization, Standing and Authority of CBSI and Merger Sub............... 27
4.2. Authorized and Effective Agreement........................................ 27
4.3. Regulatory Filings........................................................ 28
4.4. Legal Proceedings......................................................... 28
4.5. Certain Information....................................................... 28
4.6. Financial Resources....................................................... 29
4.7. Compliance with Laws...................................................... 29
4.8. CRA, Anti-Money Laundering and Customer Information Security.............. 29
ARTICLE V COVENANTS....................................................................... 29
5.1. ESLBI Shareholders' Meeting............................................... 29
5.2. ESLBI Proxy Statement..................................................... 30
5.3. Applications.............................................................. 30
5.4. Best Efforts.............................................................. 30
5.5. Investigation and Confidentiality......................................... 31
5.6. Press Releases and Other Public Disclosures............................... 32
5.7. Actions Pending the Merger................................................ 32
5.8. Certain Policies.......................................................... 34
5.9. Closing................................................................... 34
5.10. Employee Benefits; ESOP; Indemnification.................................. 35
5.11. Takeover Laws............................................................. 37
5.12. No Solicitation........................................................... 37
5.13. Shareholder Rights Plan................................................... 39
ARTICLE VI CONDITIONS PRECEDENT........................................................... 39
6.1. Conditions Precedent to Obligations of CBSI and ESLBI..................... 39
6.2. Conditions Precedent to Obligations of ESLBI.............................. 40
6.3. Conditions Precedent to Obligations of CBSI and Merger Sub................ 41
ARTICLE VII TERMINATION, WAIVER AND AMENDMENT............................................. 41
7.1. Termination............................................................... 41
7.2. Effect of Termination..................................................... 43
7.3. Fees and Expenses......................................................... 43
7.4. Survival of Representations, Warranties and Covenants..................... 43
7.5. Waiver.................................................................... 44
7.6. Amendment or Supplement................................................... 44
ii
ARTICLE VIII MISCELLANEOUS............................................................... 44
8.1. Entire Agreement......................................................... 44
8.2. No Assignment............................................................ 44
8.3. Alternative Structure.................................................... 44
8.4. Notices.................................................................. 45
8.5. Captions................................................................. 45
8.6. Counterparts............................................................. 46
8.7. Governing Law............................................................ 46
iii
