EXHIBIT 99.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 25th DAY OF JANUARY, 2000
BY AND BETWEEN
STERLING FINANCIAL CORPORATION
AND
HANOVER BANCORP, INC.
TABLE OF CONTENTS
Page(s)
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ARTICLE I
THE PLAN OF MERGER
SECTION 1.1 The Merger, Closing: Effective Time..........................................................2
ARTICLE II
CONVERSION OF SHARES AND
EXCHANGE OF STOCK CERTIFICATES
SECTION 2.1 Conversion of Shares........................................................................3
SECTION 2.2 Exchange of Stock Certificates..............................................................5
SECTION 2.3 Other Matters...............................................................................8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of HBI.......................................................9
SECTION 3.2 Representations and Warranties of Sterling.................................................24
ARTICLE IV
COVENANTS OF HBI
SECTION 4.1 Conduct of Business........................................................................36
SECTION 4.2 Best Efforts...............................................................................39
SECTION 4.3 Regulatory Matters and Consents ...........................................................40
SECTION 4.4 Access to Properties and Records...........................................................40
SECTION 4.5 Subsequent Financial Statements............................................................41
SECTION 4.6 Board and Committee Minutes................................................................41
SECTION 4.7 Update Schedule............................................................................41
SECTION 4.8 Notice.....................................................................................41
SECTION 4.9 Other Proposals............................................................................41
SECTION 4.10 Dividends.................................................................................42
SECTION 4.11 Core Deposits.............................................................................42
SECTION 4.12 Affiliate Letters.........................................................................42
SECTION 4.13 No Purchases or Sales of Sterling Common
Stock During Price Determination Period............................................43
SECTION 4.14 Accounting Treatment......................................................................43
SECTION 4.15 Press Releases............................................................................43
SECTION 4.16 Phase I Environmental Audit................................................................43
ARTICLE V
CONDITIONS TO CONSUMMATION
SECTION 5.1 Common Conditions..........................................................................44
SECTION 5.2 Conditions to Obligations of Sterling......................................................46
SECTION 5.3 Conditions to the Obligations of HBI.......................................................48
ARTICLE VI
TERMINATION
SECTION 6.1 Termination................................................................................49
SECTION 6.2 Effect of Termination......................................................................50
SECTION 6.3 Expenses...................................................................................50
ARTICLE VII
POST MERGER AGREEMENTS
SECTION 7.1 Employees and Benefits ..................................................................51
SECTION 7.2 Officers. ...............................................................................51
SECTION 7.3 Hanover Board of Directors. .............................................................52
SECTION 7.4 Board Appointments and Sterling Management Committee ....................................52
SECTION 7.5 Indemnification and Director and Officer Liability Insurance..............................53
SECTION 7.6 Certain Matters...........................................................................53
ARTICLE VIII
OTHER MATTERS
SECTION 8.1 Certain Definitions; Interpretation........................................................54
SECTION 8.2 Survival...................................................................................54
SECTION 8.3 Parties in Interest........................................................................55
SECTION 8.4 Captions...................................................................................55
SECTION 8.5 Severability...............................................................................55
SECTION 8.6 Access; Confidentiality....................................................................55
SECTION 8.7 Waiver and Amendment.......................................................................55
SECTION 8.8 Counterparts...............................................................................56
SECTION 8.9 Governing Law..............................................................................56
SECTION 8.10 Expenses..................................................................................56
SECTION 8.11 Change of Control Fee......................................................................56
SECTION 8.12 Notices...................................................................................57
SECTION 8.13 Entire Agreement: Etc.....................................................................58
AGREEMENT AND PLAN OF MERGER dated as of the 25th day of January, 2000
(this "Plan" or this "Agreement"), is entered into by and between Sterling
Financial Corporation, a Pennsylvania corporation ("Sterling"), and Hanover
Bancorp, Inc., a Pennsylvania corporation ("HBI").
RECITALS:
WHEREAS, Sterling is a Pennsylvania corporation and multi-institution bank
holding company; and
WHEREAS, HBI is a Pennsylvania corporation and bank holding company; and
WHEREAS, the boards of directors of Sterling and HBI have each determined
that it is in the best interests of their respective shareholders and other
constituencies for HBI to statutorily merge with and into Sterling (the
"Merger"), upon the terms and subject to the conditions set forth herein; and
WHEREAS, Sterling and HBI desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement and to
set forth the conditions to the Merger; and
WHEREAS, HBI and Sterling desire to merge in the manner provided for herein
and to adopt this Agreement as a plan of merger and to consummate such plan in
accordance with the provisions of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"); and
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Sterling's willingness to enter into this Plan,
HBI has executed and delivered an Investment Agreement with Sterling (the
"Investment Agreement") in substantially the form attached hereto as Exhibit
"A", pursuant to which HBI is granting to Sterling an option to purchase, under
certain circumstances, shares of HBI Common Stock.
NOW, THEREFORE, in consideration of their mutual promises and obligations
hereunder, the parties hereto, intending to be legally bound hereby, adopt and
make this Agreement and prescribe the terms and conditions hereof and the manner
and basis of carrying it into effect, which shall be as follows:
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ARTICLE I
THE PLAN OF MERGER
SECTION 1.1 The Merger, Closing: Effective Time.
(a) Subject to the terms and conditions of this Agreement and in
accordance with the applicable laws of the Commonwealth of
Pennsylvania, at the Effective Time (as defined in Section 1. 1 (c)),
HBI shall be merged with and into Sterling and the separate corporate
existence of HBI shall thereupon cease. Sterling shall be the
surviving corporation in the Merger (sometimes hereinafter referred to
as the "Surviving Corporation") and shall continue to be governed by
the laws of the Commonwealth of Pennsylvania and shall be a registered
bank holding company under the Bank Holding Company Act of 1956, as
amended, and the separate corporate existence of Sterling with all its
rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger. The name of the Surviving Corporation shall
be "Sterling Financial Corporation". The Merger shall have the effects
specified in the Pennsylvania Business Corporation Law of 1988, as
amended (the "PBCL"').
(b) The closing of the Merger (the "Closing") shall take place at such
place and time and on such date, following three (3) business days'
notice to HBI, as shall be agreed upon by all parties, which date
shall not be later than the 30th business day after the last of: (i)
the last approval of required governmental authorities is granted and
any related waiting periods expire, (ii) the lifting, discharge or
dismissal of any stay of any such governmental approval or of any
injunction against the Merger and (iii) all shareholder approvals
required by the parties hereunder are received.
(c) Immediately following the Closing, and provided that this Agreement
has not been terminated or abandoned pursuant to Article VI hereof,
Sterling and HBI will cause articles of merger (the "Articles of
Merger") to be delivered and properly filed with the Department of
State of the Commonwealth of Pennsylvania (the "Department of State").
The Merger shall become effective on 11:59 p.m. on the day on which
the Closing occurs and Articles of Merger are filed with the
Department of State or such later date and time as may be agreed upon
by the parties and specified in the Articles of Merger (the "Effective
Time"). The "Effective Date" when used herein means the day on which
the Effective Time for the Merger occurs.
(d) At the Effective Time, the articles of incorporation and bylaws of
Sterling in effect immediately prior to the Effective Time shall be
the articles of incorporation and bylaws of the Surviving Corporation.
At the Effective Time, the directors and officers of Sterling
immediately prior to the Effective Time shall be and become the
directors and officers of the Surviving Corporation with such
additions as provided in this Agreement.
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(e) As a result of the Merger, Bank of Hanover and Trust Company
("Hanover") shall be a wholly-owned operating subsidiary of Sterling
subject to the provisions of Section 7.6 of this Agreement.
ARTICLE II
CONVERSION OF SHARES AND
EXCHANGE OF STOCK CERTIFICATES
SECTION 2.1 Conversion of Shares.
On the Effective Date, the shares of HBI Common Stock (defined below) then
outstanding shall be converted into shares of Sterling Common Stock (defined
below), as follows:
(a) General. Subject to the provisions of this Article II, each share of
HBI Common Stock, par value $0.83 per share ("HBI Common Stock")
issued and outstanding immediately before the Effective Date (other
than (i) shares of HBI Common Stock then owned by Sterling or any
direct or indirect subsidiary of Sterling, except for trust account
shares or shares acquired in connection with debts previously
contracted (ii) shares the holders of which (each a "Dissenting
Shareholder") are exercising appraisal rights pursuant to the PBCL
(the "Dissenters' Shares"), if any), shall, on the Effective Date, be
converted into and become, automatically and without any action on the
part of the holder thereof, the right to receive shares of common
stock, par value, $5.00 per share, of Sterling ("Sterling Common
Stock") determined in conformity with the Exchange Ratio set forth at
Schedule 2.1 hereof. As of the Effective Time, each share of HBI
Common Stock held directly or indirectly by Sterling, other than
shares held in a fiduciary capacity or in satisfaction of a debt
previously contracted, shall be canceled and retired and cease to
exist, and no exchange or payment shall be made with respect thereto.
(b) Anti-dilution Provision. In the event that Sterling shall at any time
before the Effective Date: (i) declare or pay a dividend in shares of
Sterling Common Stock, (ii) combine the outstanding shares of Sterling
Common Stock into a smaller number of shares, or (iii) subdivide the
outstanding shares of Sterling Common Stock into a greater number of
shares, or (iv) reclassify the shares of Sterling Common Stock, then
the Exchange Ratio shall be proportionately adjusted accordingly.
(c) Assumption of Stock Options. Sterling shall assume the obligations of
HBI under the stock options, outstanding as of the date of this
Agreement, to purchase 132,657 shares of HBI Common Stock which remain
unexercised on the Effective Date (the "HBI Options"). The holder(s)
of the HBI Options shall receive stock options (the "Exchange
Options") to purchase, on the same terms and conditions as were
applicable under the assumed HBI Options, a number of shares of
Sterling Common Stock equal to the product of the Exchange Ratio and
the number of shares of HBI Common Stock subject to such HBI Options.
The option exercise price per share of
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the Exchange Options shall be equal to the option exercise price per
share of HBI Common Stock divided by the Exchange Ratio (the option
price per share, as so determined, being rounded upward to the nearest
full cent). The Exchange Options to be received by the HBI Option
holders shall be subject to proportional adjustment under Section
2.1(b) of this Agreement; provided, however, that the obligation to
assume the HBI Options by Sterling is conditioned upon receipt of
copies of all executed outstanding options as disclosed on Annex
2.1(c) and receipt of agreements from each of the holders of HBI
Options to accept the Exchange Options in exchange therefor. Each
Exchange Option shall be exercisable in accordance with the terms of
the corresponding HBI Option (including any acceleration of
exercisability as a result of the Merger and giving effect to the
Exchange Ratio, as provided herein). To the extent an HBI Option
qualifies as an incentive stock option under Section 422 of the Code,
the corresponding Exchange Option shall also so qualify, to the extent
permitted by the PCBL, the federal tax laws and the "pooling of
interest"accounting rules. Prior to the Effective Time, Sterling shall
reserve for issuance and, if not previously registered pursuant to the
Securities Act of 1933, as amended, register the number of shares of
Sterling Common Stock necessary to satisfy Sterling's obligations with
respect to the issuance of Sterling's Common Stock pursuant to the
exercise of the Exchange Options.
(d) No Fractional Shares. No fractional shares of Sterling Common Stock,
and no scrip or certificates therefor, shall be issued in connection
with the Merger. In lieu of the issuance of any fractional share to
which he would otherwise be entitled, each former shareholder of HBI
shall receive in cash an amount equal to the fair market value of his
fractional interest, which fair market value shall be determined by
multiplying such fraction by the Closing Market Price (as defined in
Schedule 2.1 to this Agreement).
(e) HBI Treasury Stock. Each share of HBI Common Stock (other than trust
account shares or shares acquired in connection with debts previously
contracted) owned by HBI or any direct or indirect subsidiary of HBI
on the Effective Date, if any, shall be canceled.
(a) HBI Common Stock held by Sterling. Each share of HBI Common Stock
(other than trust account shares or shares acquired in connection with
debts previously contracted) owned by Sterling or any direct or
indirect subsidiary of Sterling on the Effective Date, if any, shall
be canceled.
(g) Sterling Common Stock.
(i) Each share of Sterling Common Stock issued and outstanding
immediately prior to the Effective Date, shall, on and after the
Effective Date, continue to be issued and outstanding as an
identical share of Sterling Common Stock.
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(ii) Each share of Sterling Common Stock issued and held in the
treasury of Sterling as of the Effective Date, if any, shall, on
and after the Effective Date, continue to be issued and held in
the treasury of Sterling.
SECTION 2.2 Exchange of Stock Certificates.
HBI Common Stock certificates shall be exchanged for Sterling Common Stock
certificates in accordance with the following procedures:
(a) Exchange Agent. The transfer agent of Sterling shall act as exchange
agent (the "Exchange Agent") to receive HBI Common Stock certificates
from the holders thereof and to exchange such stock certificates for
Sterling Common Stock certificates and (if applicable) to pay cash for
fractional shares of HBI Common Stock pursuant to Section 2.1(d)
above. The Exchange Agent shall, on or promptly after the Effective
Date, mail to each former shareholder of HBI a notice specifying the
procedures to be followed in surrendering such shareholder's HBI
Common Stock certificates.
(b) Surrender of Certificates. As promptly as possible after receipt of
the Exchange Agent's notice, each former shareholder of HBI shall
surrender his HBI Common Stock certificates to the Exchange Agent;
provided, that if any former shareholder of HBI shall be unable to
surrender his HBI Common Stock certificates due to loss or mutilation
thereof, he may make a constructive surrender by following procedures
comparable to those customarily used by Sterling for issuing
replacement certificates to Sterling shareholders whose Sterling
Common Stock certificates have been lost or mutilated. Upon receiving
a proper actual or constructive surrender of HBI Common Stock
certificates from a former HBI shareholder, the Exchange Agent shall
issue to such shareholder, in exchange therefor, a Sterling Common
Stock certificate representing the whole number of shares of Sterling
Common Stock into which such shareholder's shares of HBI Common Stock
have been converted in accordance with this Article II, together with
a check in the amount of any cash to which such shareholder is
entitled, pursuant to Section 2.1(d) of this Agreement, in lieu of the
issuance of a fractional share.
(c) Dividend Withholding. Dividends, if any, payable by Sterling after the
Effective Date to any former shareholder of HBI who has not prior to
the payment date surrendered his HBI Common Stock certificates may, at
the option of Sterling, be withheld. Any dividends so withheld shall
be paid, without interest, to such former shareholder of HBI upon
proper surrender of his HBI Common Stock certificates.
(d) Failure to Surrender Certificates. All HBI Common Stock certificates
must be surrendered to the Exchange Agent within two (2) years after
the Effective Date. In the event that any former shareholder of HBI
shall not have properly surrendered his HBI Common Stock certificates
within two (2) years after the Effective Date, the shares of Sterling
Common Stock that would otherwise have been issued to him may,
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at the option of Sterling, be sold and the net proceeds of such sale,
together with the cash (if any) to which he is entitled in lieu of the
issuance of a fractional share and any previously accrued dividends,
shall be held in a non-interest bearing account for his benefit. From
and after any such sale, the sole right of such former shareholder of
HBI shall be the right to collect such net proceeds, cash and
accumulated dividends. Subject to all applicable laws of escheat, such
net proceeds, cash and accumulated dividends shall be paid to such
former shareholder of HBI, without interest, upon proper surrender of
his HBI Common Stock certificates.
(e) Expenses of Share Surrender and Exchange. All costs and expenses
associated with the foregoing surrender and exchange procedure shall
be borne by Sterling. Notwithstanding the foregoing, no party hereto
will be liable to any holder of HBI Common Stock for any amount paid
in good faith to a public official or agency pursuant to any
applicable abandoned property, escheat or similar law.
(f) Exchange Procedures. Each certificate for shares of HBI Common Stock
delivered for exchange under this Article II must be endorsed in blank
by the registered holder thereof or be accompanied by a power of
attorney to transfer such shares endorsed in blank by such holder. If
more than one certificate is surrendered at one time and in one
transmittal package for the same shareholder account, the number of
whole shares of Sterling Common Stock for which certificates will be
issued pursuant to this Article II will be computed on the basis of
the aggregate number of shares represented by the certificates so
surrendered. If shares of HBI Common Stock or payments of cash are to
be issued or made to a person other than the one in whose name the
surrendered certificate is registered, the certificate so surrendered
must be properly endorsed in blank, with signature(s) guaranteed, or
otherwise in proper form for transfer, and the person to whom
certificates for shares of Sterling Common Stock is to be issued or to
whom cash is to be paid shall pay any transfer or other taxes required
by reason of such issuance or payment to a person other than the
registered holder of the certificate for shares of HBI Common Stock
which are surrendered. As promptly as practicable after the Effective
Date, Sterling shall send, or cause to be sent, to each shareholder of
record of HBI Common Stock, transmittal materials for use in
exchanging certificates representing HBI Common Stock for certificates
representing Sterling Common Stock into which the former have been
converted in the Merger.
(g) Closing of Stock Transfer Books; Cancellation of HBI Certificates.
Upon the Effective Date, the stock transfer books for HBI Common Stock
will be closed and no further transfers of shares of HBI Common Stock
will thereafter be made or recognized. All certificates for shares of
HBI Common Stock surrendered pursuant to this Article II will be
canceled by Sterling.
(h) Rights Evidenced by Certificate. Each certificate for shares of
Sterling Common Stock issued in exchange for certificates of HBI
Common Stock pursuant to Section 2.2(f) hereof will be dated as of the
Effective Date and be entitled to dividends and
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all other rights and privileges pertaining to such shares of Sterling
Common Stock from the Effective Date. Until surrendered, each
certificate theretofore evidencing shares of HBI Common Stock will,
from and after the Effective Date, evidence solely the right to
receive certificates for shares of Sterling Common Stock pursuant to
Section 2.2(f) hereof. If certificates for shares of HBI Common Stock
are exchanged for Sterling Common Stock at a date following one or
more record dates for the payment of dividends or of any other
distribution on the shares of Sterling Common Stock subsequent to the
Effective Date, Sterling will pay cash in an amount equal to dividends
theretofore payable on such Sterling Common Stock and pay or deliver
any other distribution to which holders of shares of Sterling Common
Stock have theretofore become entitled. No interest will accrue or be
payable in respect of dividends or cash otherwise payable under this
Section 2.2 upon surrender of certificates for shares of Sterling
Common Stock. Notwithstanding the foregoing, no party hereto will be
liable to any holder of HBI Common Stock for any amount paid in good
faith to a public official or agency pursuant to any applicable
abandoned property, escheat or similar law. Until such time as
certificates for shares of HBI Common Stock are surrendered by a HBI
shareholder to Sterling for exchange, Sterling shall have the right to
withhold dividends or any other distributions, without interest, on
the shares of the Sterling Common Stock issuable to such shareholder.
(i) Payment Procedures. As soon as practical after the Effective Date,
Sterling shall make payment of the cash consideration provided for in
Section 2.1(d) to each person entitled thereto.
(j) Unclaimed Shares. In the event that any certificates for shares of HBI
Common Stock have not been surrendered for exchange in accordance with
this Section on or before the second anniversary of the Effective
Time, Sterling may at any time thereafter, with or without notice to
the holders of record of such certificates, sell for the accounts of
any or all of such holders any or all of the shares of Sterling Common
Stock which such holders are entitled to receive under Section 2.1(a)
hereof (the "Unclaimed Shares"). Any such sale may be made by public
or private sale or sale at any broker's board or on any securities
exchange in such manner and at such times as Sterling shall determine.
If, in the opinion of counsel for Sterling, it is necessary or
desirable, any Unclaimed Shares may be registered for sale under the
Securities Act of 1933, as amended (the "Securities Act") and
applicable state laws. Sterling shall not be obligated to make any
sale of Unclaimed Shares if it shall determine not do so, even if
notice of sale of the Unclaimed Shares has been given. The net
proceeds of any such sale of Unclaimed Shares shall be held for
holders of the unsurrendered certificates for shares of HBI Common
Stock whose Unclaimed Shares have been sold, to be paid to them upon
surrender of the certificates for shares of HBI Common Stock. From and
after any such sale, the sole right of the holders of the
unsurrendered certificates for shares of HBI Common Stock whose
Unclaimed Shares have been sold shall be the right to collect the net
sale proceeds held by Sterling for their respective accounts, and such
holders shall not be entitled to receive any interest on such net sale
proceeds held by Sterling.
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SECTION 2.3 Other Matters.
Nothing set forth in this Agreement or any Exhibit hereto shall be
construed:
(a) to preclude Sterling from acquiring or assuming, or to limit in
any way the right of Sterling to acquire or assume, prior to or
following the Effective Time, the stock, assets or liabilities of
any other financial services institution or other corporation or
entity, whether by issuance or exchange of Sterling Common Stock,
or otherwise;
(b) to preclude Sterling from issuing, or to limit in any way the
right of Sterling to issue, prior to or following the Effective
Date, Sterling Common Stock, Sterling Preferred Stock or other
securities;
(c) to preclude Sterling from granting options at any time with
respect to Sterling Common Stock, Sterling Preferred Stock or
other securities;
(d) to preclude option holders of Sterling from exercising options at
any time with respect to Sterling Common Stock, Sterling
Preferred Stock or other securities; or
(e) to preclude Sterling from taking, or to limit in any way its
right to take, any other action not expressly and specifically
prohibited by the terms of this Agreement; provided, however,
that in the event Sterling desires to (A) take any action
described in Section 2.3(a) above, (B) merge or consolidate with
or into, or convert to, any other person or entity, or otherwise
effect a change of control of Sterling, and, as a result of such
action(s) taken pursuant to (A) or (B) hereof, Sterling shall
become obligated to issue shares in an amount in excess of twenty
percent (20%) of the number of shares of Sterling Common Stock
then outstanding, or (C) enter into an agreement relating to, or
effect, a Change of Control (as defined in Section 8.11 hereof)
of Sterling, Sterling shall notify HBI simultaneously with taking
any such action (including entering into any agreement relating
thereto), and HBI shall have the right, in its sole discretion,
to terminate this Agreement without cost, expense or liability on
its part to any other party.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of HBI.
HBI represents and warrants to Sterling (and the word "it" in this Section
3.1 refers to HBI, and each subsidiary of HBI) that, as of even date herewith
and except as specifically disclosed in the Annex of disclosure schedules
included herewith, as follows:
(a) Corporate Organization and Qualification. HBI is a corporation duly
incorporated, validly existing and in good standing under the laws of
the Commonwealth of Pennsylvania and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by HBI requires such
qualification, except for such failure to qualify or be in such good
standing which, when taken together with all other such failures,
would not have a Material Adverse Effect on HBI and its subsidiaries,
taken as a whole. HBI is a registered bank holding company under the
Bank Holding Company Act of 1956, as amended. HBI owns, directly or
indirectly all of the issued and outstanding shares of capital stock
of Hanover. Hanover is a Pennsylvania chartered bank and trust
company, duly organized, validly existing and in good standing under
the laws of the Commonwealth of Pennsylvania. HBI and Hanover each
have the requisite corporate and other power and authority (including
all federal, state, local and foreign governmental authorizations) to
carry on their respective businesses as now being conducted and to own
its properties and assets. HBI has made available to Sterling a
complete and correct copy of the articles of incorporation and bylaws
of HBI, and Hanover has made available to Sterling a complete and
correct copy of the charter and bylaws of Hanover and such charter or
articles, as applicable, and such bylaws are in full force and effect
as of the date hereof.
(b) Authorized Capital. The authorized capital stock of HBI consists of
9,000,000 shares of HBI Common Stock and 2,000,000 shares of preferred
stock, of which 3,884,198 shares of HBI Common Stock were issued and
outstanding as of the date of this Agreement. The stock of Hanover
consists of 600,000 shares of common stock, $2.50 par value per share,
of which 399,574 shares of common stock were issued and outstanding as
of the date of this Agreement; all of these are held by HBI. All of
the outstanding shares of capital stock of HBI have been duly
authorized and are validly issued, fully paid and nonassessable.
Neither HBI nor Hanover has any shares of capital stock reserved for
issuance except pursuant to the Investment Agreement and the HBI
Options. Neither HBI nor Hanover has any outstanding bonds,
debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities
having the right to vote) with shareholders on any matter. The shares
of Hanover's common stock owned by HBI are owned free and clear of all
liens, pledges, security interests, claims or other encumbrances. The
outstanding shares of capital stock of HBI have not been issued in
violation of any preemptive rights. Except as set forth in Annex 3.1
(b) and in Annex 3.1(m), and as
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provided in the Investment Agreement, there are no outstanding
subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the
issued or unissued capital stock or other securities of HBI. After the
Effective Time, HBI will have no obligation which is being assumed by
Sterling which will result in any obligation to issue, transfer or
sell any shares of capital stock pursuant to any HBI/Hanover Employee
Plan (as defined in Section 3.1 (m)).
(c) Subsidiaries. The only subsidiaries of HBI are as listed and described
at Annex 3.l(c). The only subsidiaries of Hanover are as listed and
described at Annex 3.1(c). Each such subsidiary is duly organized and
existing as a corporation, is in good standing under the laws of the
jurisdiction in which it was organized, and has adequate corporate
power to carry on its business as now conducted. All of the
outstanding capital stock of all such subsidiaries has been validly
issued, is fully paid and nonassessable and is owned by HBI or
Hanover, free and clear of all liens, security interests and
encumbrances. Except as set forth in Annex 3.1(c), all such
subsidiaries are organized under Pennsylvania law and make no use of
fictitious names in the conduct of their respective businesses.
(d) Corporate Authority. Subject only to approval of this Agreement by the
holders of the number of votes required by HBI's articles of
incorporation or bylaws cast by all holders of HBI Common Stock
(without any minority, class or series voting requirement), and,
subject to the regulatory approvals specified in Section 5.1(b)
hereof, HBI has the requisite corporate power and authority, and legal
right, and has taken all corporate action necessary in order to
execute and deliver this Agreement and to consummate the transactions
applicable to either HBI or Hanover contemplated hereby. This
Agreement has been duly and validly executed and delivered by HBI and
constitutes the valid and binding obligations of HBI enforceable
against each, in accordance with its terms, except to the extent
enforcement is limited by bankruptcy, insolvency and other similar
laws affecting creditors' rights or the application by a court of
equitable principles.
(e) No Violations. The execution, delivery and performance of this
Agreement by it does not, the execution, delivery and performance of
the Investment Agreement by it will not, and the consummation of the
transactions contemplated hereby by it will not, constitute (i)
subject to receipt of the required regulatory approvals specified in
Section 5.1(b), a breach or violation of, or a default under, any law,
rule or regulation or any judgment, decree, order, governmental permit
or license, to which it (or any of its respective properties) is
subject, which breach, violation or default would have a Material
Adverse Effect on it, or enable any person to enjoin the Merger, (ii)
a breach or violation of, or a default under HBI's articles of
incorporation, the charter of Hanover, or the bylaws of either of
them, or (iii) except as disclosed in Annex 3.1(e), a breach or
violation of, or a default under (or an event which with due notice or
lapse of time or both would constitute a default under), or result in
the termination of, accelerate the performance required by, or result
in the creation of any lien,
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pledge, security interest, charge or other encumbrance upon any of the
properties or assets of it under any of the terms, conditions or
provisions of any note, bond, indenture, deed of trust, loan agreement
or other agreement, instrument or obligation to which it is a party,
or to which any of its respective properties or assets may be bound,
or affected, except for any of the foregoing that, individually or in
the aggregate, would not have a Material Adverse Effect on it or
enable any person to enjoin the Merger; and the consummation of the
transactions contemplated hereby or, upon its execution and delivery,
the Investment Agreement, will not require any approval, consent or
waiver under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent or waiver of
any other party to any such agreement, indenture or instrument, other
than (w) all required approvals, consents and waivers of governmental
authorities, (x) the approval of its shareholders referred to in
Section 5.1(a), (y) any such approval, consent or waiver that already
has been obtained, and (z) any other approvals, consents or waivers,
the absence of which, individually or in the aggregate, would not
result in a Material Adverse Effect on it or enable any person to
enjoin the Merger.
(f) Reports.
(i) HBI's consolidated statement of financial condition as of
September 30, 1999 previously provided to Sterling and each
statement of financial condition provided after the date hereof
to Sterling (including in each case any related notes and
schedules) as required by Section 4.5 hereof fairly presents or
will fairly present the financial position of it as of its date
and each of the statements of income and shareholders' equity and
of cash flows provided therewith (including in each case any
related notes and schedules), fairly presents or will fairly
present the results of operations, shareholders' equity and cash
flows, as the case may be, of it for the periods set forth
therein (subject, in the case of unaudited interim statements, to
normal year-end audit adjustments that are not material in amount
or effect), in each case in accordance with generally accepted
accounting principles consistently applied during the periods
involved, except as maybe noted therein.
(ii) Except as set forth in Annex 3.1(f), it has timely filed all
material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that it was
required to file since January 1, 1999 with (A) the Pennsylvania
Department of Banking (the "PDB"), (B) the Federal Deposit
Insurance Corporation (the "FDIC"), (C) the Board of Governors of
the Federal Reserve System (the "Board"), (D) the Securities and
Exchange Commission (the "SEC"), and collectively with the SEC,
the PDB, the FDIC, and the Board, the "HBI/Hanover Regulatory
Agencies", and (F) any other regulatory authority, and all other
material reports and statements required to be filed by it since
January 1, 1999, including, without limitation, any report or
statement required to be filed pursuant to the laws, rules or
regulations of the United States or any HBI/Hanover Regulatory
11
Agency, and has paid all fees and assessments due and payable in
connection therewith, and no such report, registration or
statement contains any material misstatement or omission or is
otherwise in material noncompliance with any law, regulation or
requirement.
(g) Absence of Certain Changes or Events. Since September 30, 1999 to the
date hereof, it has not incurred any material liability, except in the
ordinary course of its business consistent with past practice, nor has
there been any material change in the financial condition, properties,
assets, business, results of operations or prospects of it which,
individually or in the aggregate, has had, or might reasonably be
expected to result in, a Material Adverse Effect on it.
(h) Taxes. Its federal income tax returns have been examined and closed or
otherwise closed by operation of law through 1995. All federal, state,
local and foreign tax returns, including, but not limited to, any and
all Pennsylvania tax filings arising under the Bank Shares Tax, Single
Excise Tax and the Amended 1989 Bank Shares Tax and/or similar taxes,
required to be filed by it or on its behalf, have been timely filed,
or requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and, to the
knowledge of management, all such filed returns are complete and
accurate in all material respects. All taxes shown on such returns,
and all taxes required to be shown on returns for which extensions
have been granted, have been paid in full or adequate provision has
been made for any such taxes on its balance sheet (in accordance with
generally accepted accounting principles) other than those taxes which
are being contested in appropriate forums in proceedings which are
being diligently pursued. Adequate provision has been made on its
balance sheet (in accordance with generally accepted accounting
principles consistently applied) for all federal, state, local and
foreign tax liabilities for periods subsequent to those for which
returns have been filed. There is no audit examination, deficiency, or
refund litigation pending or, to the knowledge of HBI or Hanover,
threatened, with respect to any taxes that could result in a
determination that would have a Material Adverse Effect on it. All
taxes, interest, additions and penalties due with respect to completed
and settled examinations or concluded litigation relating to it have
been paid in full or adequate provision has been made for any such
taxes on its balance sheet (in accordance with generally accepted
accounting principles). It has not executed an extension or waiver of
any statute of limitations on the assessment or collection of any tax
due that is currently in effect.
(i) Litigation and Liabilities. Except as set forth in Annex 3.1(i), there
are no (i) civil, criminal or administrative actions, suits, claims,
hearings, investigations or proceedings before any court, governmental
agency or otherwise pending or, to the knowledge of management,
threatened against it or (ii) obligations or liabilities, whether or
not accrued (contingent or otherwise, including, without limitation,
those relating to environmental and occupational safety and health
matters, or any other facts or circumstances of which its management
is aware that could reasonably be expected to result in any claims
against or obligations or liabilities of it), that, alone
12
or in the aggregate, are reasonably likely to have a Material Adverse
Effect on it or to hinder or delay, in any material respect,
consummation of the transactions contemplated by this Agreement.
(j) Absence of Regulatory Actions. It is not a party to any cease and
desist order, written agreement or memorandum of understanding with,
or a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, or has adopted any board
resolutions at the request of, federal or state governmental
authorities, including, without limitation, the HBI/Hanover Regulatory
Agencies, charged with the supervision or regulation of financial or
depository institutions or engaged in the insurance of bank deposits,
nor has it been advised by any HBI/Hanover Regulatory Agency that such
body is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, directive,
written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolution or similar
undertaking.
(k) Agreements.
(i) Except for the Investment Agreement and as set forth in Annex
3.1(k) attached hereto, as of the date of this Agreement, it is
not a party to, or bound by, any oral or written:
(A) "material contract" as such term is defined in Item
601(b)(10) of Regulation S-K promulgated by the SEC;
(B) consulting agreement not terminable on thirty (30) days or
less notice involving the payment of more than $20,000 per
annum, in the case of any such agreement;
(C) agreement with any officer or other key employee the
benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction of
the nature contemplated by this Agreement;
(D) agreement with respect to any officer providing any term of
employment or compensation guarantee extending for a period
longer than one year or for a payment in excess of
$10,000.00;
(E) agreement or plan, including any stock option plan, stock
appreciation rights plan, employee stock ownership plan,
restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement
13
or the value of any of the benefits of which will be
calculated on the basis of any of the transactions
contemplated by this Agreement;
(F) agreement containing covenants that limit its ability to
compete in any line of business or with any person, or that
involve any restriction on the geographic area in which, or
method by which, it may carry on its business (other than as
may be required by law or any regulatory agency);
(G) agreement, contract or understanding, other than this
Agreement, and the Investment Agreement, regarding the
capital stock of HBI and/or Hanover or committing to dispose
of some or all of the capital stock or substantially all of
the assets of HBI and/or Hanover; or
(H) collective bargaining agreement, contract, or other
agreement or understanding with a labor union or labor
organization.
(ii) It is not in default under or in violation of any provision of
any note, bond, indenture, mortgage, deed of trust, loan
agreement, lease or other agreement to which it is a party or to
which any of its respective properties or assets is subject,
other than such defaults or violations as could not reasonably be
expected, individually or in the aggregate, to have a Material
Adverse Effect on it.
(1) Labor Matters. It is not the subject of any proceeding asserting that
it has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages and conditions of
employment, nor is there any strike, other labor dispute or
organizational effort involving it pending or threatened.
(m) Employee Benefit Plans. Annex 3.1(m) contains a complete list of all
pension, retirement, stock option, stock purchase, stock ownership,
savings, stock appreciation right, profit sharing, deferred
compensation, consulting, bonus, group insurance, severance and other
employee benefits, incentive and welfare policies, contracts, plans
and arrangements, and all trust agreements related thereto, in respect
to any of its present or former directors, officers or other employees
(hereinafter referred to collectively as the "HBI/Hanover Employee
Plans").
(i) All of the HBI/Hanover Employee Plans comply in all material
respects with all applicable requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the
Code and other applicable laws; it has not engaged in a
"prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to any HBI/Hanover
Employee Plan which is likely to result in any material
penalties, taxes or other events under Section 502(i) of ERISA or
Section 4975 of the Code which would have a Material Adverse
Effect on it.
14
(ii) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by it to be incurred with respect to any
HBI/Hanover Employee Plan which is subject to Title IV of ERISA
("Pension Plan"), or with respect to any "single-employer plan"
(as defined in Section 4001 (a)(15) of ERISA) currently or
formerly maintained by it or any entity which is considered one
employer with HBI or Hanover under Section 4001 of ERISA or
Section 414 of the Code (an "ERISA Affiliate").
(iii) No Pension Plan or single-employer plan of an ERISA Affiliate
had an "accumulated funding deficiency" (as defined in Section
302 of ERISA (whether or not waived)) as of the last day of the
end of the most recent plan year ending prior to the date hereof;
all contributions to any Pension Plan or single-employer plan of
an ERISA Affiliate that were required by Section 302 of ERISA and
were due prior to the date hereof have been made on or before the
respective dates on which such contributions were due; the fair
market value of the assets of each Pension Plan or
single-employer plan of an ERISA Affiliate exceeds the present
value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under such Pension Plan or single employer
plan of an ERISA Affiliate as of the end of the most recent plan
year with respect to the respective Pension Plan or
single-employer plan of an ERISA Affiliate ending prior to the
date hereof, calculated on the basis of the actuarial assumptions
used in the most recent actuarial valuation for such Pension Plan
or single-employer plan of an ERISA Affiliate as of the date
hereof; and no notice of a "reportable event" (as defined in
Section 4043 of ERISA) for which the 30-day reporting requirement
has not been waived has been required to be filed for any Pension
Plan or single-employer plan of an ERISA Affiliate within the
12-month period ending on the date hereof.
(iv) Neither has it provided, nor is it required to provide, security
to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Neither it nor any ERISA Affiliate has contributed to any
"multi-employer plan," as defined in Section 3(37) of ERISA, on
or after September 26, 1980.
(vi) Each HBI/Hanover Employee Plan of it which is an "employee
pension benefit plan" (as defined in Section 3(2) of ERISA) and
which is intended to be qualified under Section 401(a) of the
Code (a "Qualified Plan") has received a favorable determination
letter from the Internal Revenue Service ("IRS") covering the
requirements of the Tax Equity and Fiscal Responsibility Act of
1982, the Retirement Equity Act of 1984 and the Deficit Reduction
Act of 1984 and the Tax Reform Act of 1986; it is not aware of
any circumstances likely to result in revocation of any such
favorable determination letter; each such HBI/Hanover Employee
Plan has been amended to reflect the requirements of subsequent
legislation applicable
15
to such plans; and each Qualified Plan has complied at all
relevant times in all material respects with all applicable
requirements of Section 401(a) of the Code.
(vii) Each Qualified Plan which is an "employee stock ownership plan"
(as defined in Section 4975(e)(7) of the Code) has at all
relevant times satisfied all of the applicable requirements of
Sections 409 and 4975(e)(7) of the Code and the regulations
thereunder.
(viii) Neither it nor any ERISA Affiliate has committed any act or
omission or engaged in any transaction that has caused it to
incur, or created a material risk that it may incur, liability
for any excise tax under Sections 4971 through 4980B of the Code,
other than excise taxes which heretofore have been paid and fully
reflected in its financial statements.
(ix) There is no pending or threatened litigation, administrative
action or proceeding relating to any HBI/Hanover Employee Plan,
other than routine claims for benefits.
(x) There has been no announcement or legally binding commitment by
it to create an additional HBI/Hanover Employee Plan, or to amend
an HBI/Hanover Employee Plan, except for amendments required by
applicable law which do not materially increase the cost of such
HBI/Hanover Employee Plan, and it does not have any obligations
for retiree health and life benefits under any HBI/Hanover
Employee Plan that cannot be terminated without incurring any
liability thereunder.
(xi) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not result in any
payment or series of payments by HBI or Hanover to any person
which is an "excess parachute payment" (as defined in Section
280G of the Code) under any HBI/Hanover Employee Plan, increase
any benefits payable under any HBI/Hanover Employee Plan, or,
except as set forth in Annex 3.1(m), accelerate the time of
payment or vesting of any such benefit.
(xii) All annual reports have been filed timely with respect to each
HBI/Hanover Employee Plan, it has made available to Sterling a
true and correct copy of (A) reports on the applicable form of
the Form 5500 series filed with the IRS for plan years beginning
after 1987, (B) such HBI/Hanover Employee Plan, including
amendments thereto, (C) each trust agreement and insurance
contract relating to such HBI/Hanover Employee Plan, including
amendments thereto, (D) the most recent summary plan description
for such HBI/Hanover Employee Plan, including amendments thereto,
if the HBI/Hanover Employee Plan is subject to Title I of ERISA,
(E) the most recent actuarial report or valuation if such
HBI/Hanover Employee Plan is a Pension Plan and (F) the
16
most recent determination letter issued by the IRS if such
HBI/Hanover Employee Plan is a Qualified Plan.
(xiii) There are no retiree health benefit plans except as required to
be maintained by COBRA.
(n) Title to Assets. It has good and marketable title to its properties
and assets (other than property as to which it is lessee), except for
(i) such items shown in the HBI consolidated financial statements or
notes thereto, (ii) liens on real property for current real estate
taxes not yet delinquent, or (iii) such defects in title which would
not, individually or in the aggregate, have a Material Adverse Effect
on it. With respect to any property leased by it, there are no
defaults by it, or, to its knowledge, any of the other parties
thereto, or any events which, with the giving of notice or lapse of
time or both, would become defaults by it or, to its knowledge, any of
the other parties thereto, under any of such leases, except for such
defaults or events which would not, individually or in the aggregate,
have a Material Adverse Effect on it; and all such leases are in full
force and effect and are enforceable against it, as the case may be,
and, to its knowledge, there is no circumstance existing as of the
date of this Agreement which causes or would cause such leases to be
unenforceable against any of the other parties thereto except as the
same may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors generally
as well as principles of equity to the extent enforcement by a court
of equity is required.
(o) Compliance with Laws. It has all permits, licenses, certificates of
authority, orders and approvals of, and has made all filings,
applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit
it to carry on its business as it is presently conducted and the
absence of which could, individually or in the aggregate, have a
Material Adverse Effect on it; all such permits, licenses,
certificates of authority, orders and approvals are in full force and
effect, and no suspension or cancellation of any of them is
threatened.
(p) Fees. Except as set forth in Annex 3.1(p) attached hereto, neither it
nor any of its respective officers, directors, employees or agents
have employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's
fees, and no broker or finder has acted directly or indirectly for it
in connection with this Agreement or the transactions contemplated
hereby.
(q) Environmental Matters. For purposes of this Section 3.1, the following
terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement
with any governmental entity relating to: the
17
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal
life or any other natural resource); and the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Substances. The term
Environmental Law includes without limitation: the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42
U.S.C. ss.9601, et seq., the Resource Conservation and Recovery Act,
as amended, 42 U.S.C. ss.6901, et seq., the Clean Air Act, as amended,
42 U.S.C. ss.7401, et seq., the Federal Water Pollution Control Act,
as amended, 33 U.S.C. ss.1251, et seq., the Toxic Substances Control
Act, as amended, 15 U.S.C. ss.9601, et seq., the Emergency Planning
and Community Right to Know Act, 42 U.S.C. ss.11001, et seq., the Safe
Drinking Water Act, 42 U.S.C. ss.300f, et seq., and all comparable
state and local laws; and any common law (including without limitation
common law that may impose strict liability) that may impose liability
or obligation for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous
or otherwise regulated under any Environmental Law, whether by type or
by quantity, including any material containing any such substance as a
component. Hazardous Substances include without limitation petroleum
or any derivative or by-product thereof, asbestos, radioactive
material, and polychlorinated biphenyls.
"Hanover Loan Portfolio Properties and Other Properties Owned" means
those properties serving as collateral for loans in Hanover's loan
portfolio, or properties owned or operated by Hanover (including,
without limitation, in a fiduciary capacity).
18
Except as set forth on Annex 3.1(q) hereto:
(i) Neither HBI nor Hanover has been or is in violation of or liable
under any Environmental Law.
(ii) To the knowledge of HBI, none of the Hanover Loan Portfolio
Properties and Other Properties Owned have been or are in
violation of or liable under any Environmental Law.
(iii) Neither HBI nor Hanover has any knowledge that any environmental
contaminant, pollutant, toxic or hazardous waste or other similar
substance has been generated, used, stored, processed, disposed
of or discharged onto any of the real estate now or previously
owned or acquired (including without limitation any real estate
acquired by means of foreclosure or exercise of any other
creditor's right) or leased by Hanover, except as disclosed on
Annex 3.1(q). In particular, without limiting the generality of
the foregoing sentence, except as disclosed on Annex 3.1(q),
neither HBI nor Hanover have any knowledge that: (i) any
materials containing asbestos have been used or incorporated in
any building or other structure or improvement located on any of
the real estate now or previously owned or acquired (including
without limitation any real estate acquired by means of
foreclosure or exercise of any other creditor's right) or leased
by HBI or Hanover; (ii) any electrical transformers, fluorescent
light fixtures with ballasts or other equipment containing PCB's
are or have been located on any of the real estate now or
previously owned or acquired (including without limitation any
real estate acquired by means of foreclosure or exercise of any
other creditor's right) or leased by HBI or Hanover; (iii) any
underground storage tanks for the storage of gasoline, petroleum
products or other toxic or hazardous substances are or have ever
been located on any of the real estate now or previously owned or
acquired (including without limitation any real estate acquired
by means of foreclosure or exercise of any other creditor's
right) or leased by HBI or Hanover.
(iv) Except as previously disclosed in Annex 3.1(q), there is no
legal, administrative, arbitration or other proceeding, claim,
action, cause of action or governmental investigation of any
nature seeking to impose, or that, to the knowledge of HBI, could
result in the imposition on HBI or Hanover of any liability
arising under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, pending or threatened against HBI or
Hanover; to the knowledge of HBI, there is no reasonable basis
for any such proceeding, claim, action or governmental
investigation; and neither HBI nor Hanover is subject to any
agreement, order, judgment, decree or memorandum by or with any
court,
19
governmental authority, regulatory agency or third party imposing
any such liability.
(r) Allowance. The allowance for loan and lease losses shown on HBI's
consolidated statement of financial condition as of December 31, 1998
was, and the allowance for loan and lease losses shown on HBI's
consolidated statement of financial condition for periods ending after
the date of this Agreement will be, in the opinion of management of
HBI, adequate, as of the date thereof, under generally accepted
accounting principles applicable to commercial banks and all other
applicable regulatory requirements for all losses reasonably
anticipated in the Ordinary Course of Business as of the date thereof
based on information available as of such date. It has disclosed to
Sterling in writing prior to the date hereof the amounts of all loans,
leases, advances, credit enhancements, other extensions of credit,
commitments and interest-bearing assets of it that it has classified
internally as "Other Loans Specially Mentioned," "Special Mention,"
"Substandard," "Doubtful," "Loss," "Classified," "Criticized," "Credit
Risk Assets," "Concerned Loans" or words of similar import, and it
shall disclose promptly to Sterling after the end of each quarter
after the date hereof and on the Effective Date the amount of each
such classification. It has disclosed to Sterling in writing prior to
the date hereof the amounts of all overdrafts occurring since January
1, 1999 and it shall disclose promptly to Sterling after the end of
each quarter after the date hereof and on the Effective Date the
amount of such overdrafts. The OREO and in-substance foreclosures
included in any of its non-performing assets are carried net of
reserves at the lower of cost or market value based on current
independent appraisals or current management appraisals.
(s) Material Interests of Certain Persons. Except as noted in Annex
3.1(s), none of its respective officers or directors, or any
"associate" (as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934 (the "Exchange Act")) of any such
officer or director, has any material interest in any material
contract or property (real or personal), tangible or intangible, used
in or pertaining to its business.
(t) Insurance. It is presently insured, and has been insured, in the
amounts, with the companies and since the periods set forth in Annex
3.1(t). All of the insurance policies and bonds maintained by it are
in full force and effect, it is not in default thereunder and all
material claims thereunder have been filed in due and timely fashion.
In the judgment of its management, such insurance coverage is
adequate.
(u) Dividends. The only dividends or other distributions which it has made
on its capital stock since January 1, 1999 are set forth in Annex
3.1(u).
(v) Books and Records. Its books and records have been, and are being,
maintained in accordance with applicable legal and accounting
requirements and reflect in all material respects the substance of
events and transactions that should be included therein.
20
(w) Board Action. Its board of directors (at a meeting duly called and
held) has been duly convened and by the requisite vote of the
directors (a) determined that the Merger is advisable and in the best
interests of it and its shareholders, (b) approved this Agreement, the
Investment Agreement and the transactions contemplated hereby and
thereby and (c) directed that the Agreement be submitted for
consideration by its shareholders at the HBI Shareholders' Meeting (as
hereafter defined) with the recommendation of the board of directors
that the shareholders approve the merger and the transactions
contemplated thereby.
(y) Fairness Opinions. Its board of directors has received a written
opinion, a copy of which has been furnished to Sterling, to the effect
that the Exchange Ratio specified in this Agreement, at the time of
its execution, is fair to HBI shareholders from a financial point of
view.
(y) Fidelity Bonds. Since at least December 31, 1994, Hanover has
continuously maintained fidelity bonds insuring it against acts of
dishonesty by its employees in such amounts as is customary for a bank
of its size. Since December 31, 1994, the aggregate amount of all
potential claims under such bonds has not exceeded $100,000 and
neither HBI nor Hanover is aware of any facts which would reasonably
form the basis of a claim under such bonds. Neither HBI nor Hanover
has reason to believe that its fidelity coverage will not be renewed
by its carrier on substantially the same terms as its existing
coverage.
(z) Condition of Tangible Assets. Except as set forth in Annex 3.1(z), all
buildings, structures and improvements on the real property owned or
leased by it are in good condition, ordinary wear and tear excepted,
and are free from structural defects in all material respects. The
equipment, including heating, air conditioning and ventilation
equipment owned by it, is in good operating condition, ordinary wear
and tear excepted. The operation and use of the property in the
business conform in all material respects to all applicable laws,
ordinances, regulations, permits, licenses and certificates.
(aa) Owned Software. To its knowledge, HBI and Hanover do not use any
software material to either of their operations that has been designed
or developed by HBI"s or Hanover's management information or
development staff or by consultants on HBI's or Hanover's behalf.
(bb) Licensed Software. The software material to its operations that is
used by HBI and Hanover is licensed from third party licensors or
constitutes "off-the-shelf" software, is held by HBI or Hanover
legitimately and, except as set forth on Annex 3.1(bb), is fully
transferable hereunder without any third party consent. All of HBI's
or Hanover's computer hardware has legitimately licensed software
installed therein.
(cc) No Errors; Nonconformity. The software material to its operations that
is used by HBI or Hanover is free from any material defect or
programming or documentation
21
error, operates and runs in a reasonable and efficient business manner
and conforms to the stated specifications thereof.
(dd) No Bugs or Viruses. Neither HBI nor Hanover has knowingly altered its
data, or any software material to its operations which may, in turn,
damage the integrity of the data, stored in electronic, optical, or
magnetic or other form. Except as set forth on Annex 3.1(dd) hereto,
neither HBI nor Hanover has knowledge of the existence of any bugs or
viruses with respect to such software.
(ee) Annual Reports and Financial Statements. HBI has delivered to Sterling
true and complete copies of (i) its Balance Sheets, Statements of
Earnings, Statements of Stockholders' Equity and Statements of Cash
Flows of HBI for the years ended December 31, 1998, 1997 and 1996,
certified by independent public accountants, and (ii) HBI's Quarterly
Reports for the quarter ended September 30, 1999, containing unaudited
consolidated balance sheets of HBI as at such dates and unaudited
consolidated statements of earnings and cash flows of HBI for the
three month period reflected therein. HBI has also delivered to
Sterling true and correct copies of its annual reports to shareholders
for the years 1998, 1997 and 1996. All such reports (collectively, the
"HBI Reports") (i) comply in all material respects with the
requirements of the Financial Accounting Standards Board ("FASB") and
the American Institute of Certified Public Accountants, (ii) do not
contain any untrue statement of a material fact and (iii) do not omit
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading. No documents to be filed
by HBI with the SEC or any regulatory agency in connection with this
Agreement, or the transactions contemplated hereby will contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading. All documents which HBI is responsible for filing with the
SEC or any regulatory agency in connection with the Merger will comply
as to form in all material respects with the requirements of
applicable law.
(ff) Proxy Statement/Prospectus., Etc. Except for information relating to
Sterling and its subsidiaries and pro forma financial information
reflecting the combined operations of Sterling and HBI, neither (i)
the Proxy Statement/Prospectus (as defined herein at Section 4.3(b))
or any amendment or supplement thereto, at the time it is filed with
the SEC, at the time the Registration Statement (as defined
hereinafter at Section 4.3(b)) is declared effective, at the time the
Proxy Statement/Prospectus is mailed to the shareholders of HBI or at
the date of the meeting of the HBI shareholders at which the
shareholders will consider this Agreement (the "HBI Shareholders'
Meeting") nor (ii) any other documents to be filed by HBI with the SEC
or any regulatory agency in connection with this Agreement, or the
transactions contemplated hereby, will contain any untrue statement of
material fact or omit to state any material fact required to be stated
therein or necessary to make the
22
statements therein, in light of the circumstances under which they are
made, not misleading.
(gg) Complete and Accurate Disclosure. Neither this Agreement (insofar as
it relates to HBI, HBI Common Stock and HBI's involvement in the
transactions contemplated hereby) nor any financial statement,
schedule (including without limitation the Annexes attached hereto,
certificate, or other statement or document delivered by HBI to
Sterling in connection herewith contains any statement which, at the
time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact or omits to
state any material fact necessary to make the statements contained
herein or therein not false or misleading. In particular, without
limiting the generality of the foregoing sentence, the information
provided and the representations made by HBI to Sterling in connection
with the Registration Statement, both at the time such information and
representations are provided and made and at the time of the Closing,
will be true and accurate in all material respects and will not
contain any false or misleading statement with respect to any material
fact or omit to state any material fact necessary (i) to make the
statements made therein not false or misleading, or (ii) to correct
any statement contained in an earlier communication with respect to
such information or representations which has become false or
misleading.
(hh) Beneficial Ownership of Sterling Common Stock. Prior to the Effective
Date, HBI and its officers and directors will not in the aggregate own
beneficially (within the meaning of SEC Rule 13d-3(d)(1)) more than
five percent (5%) of the outstanding shares of Sterling Common Stock.
(ii) Assumability of Contracts and Leases. Except as disclosed on Annex
3.1(ii), all Material Contracts between HBI or Hanover and any other
entity or person are assumable and assignable and do not contain any
term or provision that would accelerate or increase payments that
would otherwise be due by HBI or Hanover to such person or entity, or
change or modify the provisions or terms of such leases, contracts and
agreements by reason of this Agreement or the transactions
contemplated hereby. Except as disclosed on Annex 3.1(ii), each lease
pursuant to which HBI or Hanover, as lessee, leases real or personal
property is valid and in effect in accordance with its respective
terms, and there is not, under any of such leases, on the part of the
lessee any material existing default or any event which with notice or
lapse of time, or both, would constitute such a default, other than
defaults which would not individually or in the aggregate have a
material adverse effect on the financial condition, business,
prospects, or operating results of HBI.
(jj) Absence of Questionable Payments. From and after December 31, 1994
neither HBI nor Hanover has, nor, to the knowledge of HBI or Hanover,
has any director, officer, agent, employee, consultant or other person
associated with or acting on behalf of, HBI or Hanover (i) used any
HBI or Hanover corporate funds for unlawful contributions, gifts,
entertainment or unlawful expenses relating to political activity;
23
or (ii) made any direct or indirect unlawful payments to governmental
officials from any HBI or Hanover corporate funds, or established or
maintained any unlawful or unrecorded accounts with funds received
from HBI or Hanover.
(kk) Powers of Attorney; Guarantees. Except as set forth on Annex 3.1(kk),
neither HBI nor Hanover has any power of attorney outstanding, or any
obligation or liability either actual, constructive or contingent, as
guarantor, surety, cosigner, endorser, co-maker or indemnitor in
respect of the obligation of any person, corporation, partnership,
joint venture, association, organization or other entity, except for
letters of credit issued in the Ordinary Course of Business which are
listed on Annex 3.1(ll)
(ll) Accuracy of Representations. Until and as of Closing, HBI will
promptly notify Sterling if any of the representations contained in
this Section 3.1 cease to be true and correct subsequent to the date
hereof. Further, no representations made by HBI or Hanover pursuant to
this Agreement contain any untrue statement of material fact or omit
to state a material fact necessary to make the statements not
misleading.
SECTION 3.2 Representations and Warranties of Sterling.
Sterling represents and warrants to HBI (and the word "it" in this Section
3.2 refers to Sterling, and each subsidiary of it) that, as of even date
herewith and except as specifically disclosed in the Annex of disclosure
schedules included herewith, as follows:
(a) Corporate Organization and Qualification. Sterling is a corporation
duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania and is in good standing as a
foreign corporation in each jurisdiction where the properties owned,
leased or operated, or the business conducted, by Sterling requires
such qualification, except for such failure to qualify or be in such
good standing which, when taken together with all other such failures,
would not have a Material Adverse Effect on Sterling and its
subsidiaries, taken as a whole. Sterling is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended.
Sterling has the requisite corporate and other power and authority
(including all federal, state, local and foreign governmental
authorizations) to carry on its businesses as now being conducted and
to own its properties and assets. Sterling owns, directly or
indirectly all of the issued and outstanding shares of capital stock
of Bank of Lancaster County, N.A. ("Bank of Lancaster County"),
Northeast Bancorp, Inc. and The First National Bank of North East.
Bank of Lancaster County and the First National Bank of North East are
national banking associations duly organized, validly existing and in
good standing under the laws of the United States, and are duly
authorized to engage in the banking business as an insured bank under
the Federal Deposit Insurance Act, as amended. Bank of Lancaster
County is authorized to engage in trust activities. Northeast Bancorp,
Inc. is a Delaware corporation and a registered bank holding company
under the Bank Holding Company Act of 1956, as amended. Northeast
Bancorp, Inc. has the requisite corporate and other power and
authority (including all federal, state,
24
local and foreign governmental authorizations) to carry on its
businesses as now being conducted and to own its properties and
assets. Northeast Bancorp, Inc. directly owns all of the issued and
outstanding shares of The First National Bank of North East. Sterling
has made available to HBI a complete and correct copy of the articles
of incorporation and bylaws of Sterling, and such articles and such
bylaws are in full force and effect as of the date hereof.
(b) Authorized Capital. The authorized capital stock of Sterling consists
of 35,000,000 shares of Sterling Common Stock of which 8,931,568
shares were issued and outstanding as of the date of this Agreement,
and 3,220 shares were issued and held as treasury shares as of the
date of this Agreement. All of the outstanding shares of capital stock
of Sterling have been duly authorized and are validly issued, fully
paid and nonassessable. Sterling has no shares of capital stock
reserved for issuance. Sterling has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote
(or convertible into or exercisable for securities having the right to
vote) with shareholders on any matter. The outstanding shares of
capital stock of Sterling have not been issued in violation of any
preemptive rights. Except as set forth in Annex 3.2 (b) and in Annex
3.2(m), there are no outstanding subscriptions, options, warrants,
rights, convertible securities or other agreements or commitments of
any character relating to the issued or unissued capital stock or
other securities of Sterling. After the Effective Time, Sterling will
have no obligation which is being assumed by HBI which will result in
any obligation to issue, transfer or sell any shares of capital stock
pursuant to any Sterling Employee Plan (as defined in Section 3.2
(m)).
(c) Subsidiaries. The subsidiaries of Sterling are as listed and described
at Annex 3.2(c). Each such subsidiary is duly organized and existing
as a corporation, is in good standing under the laws of the
jurisdiction in which it was organized, and has adequate corporate
power to carry on its business as now conducted. All of the
outstanding capital stock of all such subsidiaries has been validly
issued, is fully paid and nonassessable (other than as provided at 12
U.S.C.ss.55) and is owned by Sterling, free and clear of all liens,
security interests and encumbrances. Except as set forth in Annex
3.2(c), all such subsidiaries are organized under Pennsylvania law and
make no use of fictitious names in the conduct of their respective
businesses.
(d) Corporate Authority. Subject only to approval of this Agreement by the
holders of the number of votes required by Sterling's articles of
incorporation or bylaws cast by all holders of Sterling Common Stock
(without any minority, class or series voting requirement), and,
subject to the regulatory approvals specified in Section 5.1(b)
hereof, Sterling has the requisite corporate power and authority, and
legal right, and has taken all corporate action necessary in order to
execute and deliver this Agreement and to consummate the transactions
applicable to Sterling contemplated hereby. This Agreement has been
duly and validly executed and delivered by Sterling and constitutes
the valid and binding obligations of Sterling enforceable against it,
in accordance with its terms, except to the extent enforcement is
limited by
25
bankruptcy, insolvency and other similar laws affecting creditors'
rights or the application by a court of equitable principles.
(e) No Violations. The execution, delivery and performance of this
Agreement by it does not, and the consummation of the transactions
contemplated hereby by it will not, constitute (i) subject to receipt
of the required regulatory approvals specified in Section 5.1(b), a
breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or
license, to which it (or any of its respective properties) is subject,
which breach, violation or default would have a Material Adverse
Effect on it, or enable any person to enjoin the Merger, (ii) a breach
or violation of, or a default under Sterling's articles of
incorporation or its bylaws, or (iii) except as disclosed in Annex
3.2(e), a breach or violation of, or a default under (or an event
which with due notice or lapse of time or both would constitute a
default under), or result in the termination of, accelerate the
performance required by, or result in the creation of any lien,
pledge, security interest, charge or other encumbrance upon any of the
properties or assets of it under any of the terms, conditions or
provisions of any note, bond, indenture, deed of trust, loan agreement
or other agreement, instrument or obligation to which it is a party,
or to which any of its respective properties or assets may be bound,
or affected, except for any of the foregoing that, individually or in
the aggregate, would not have a Material Adverse Effect on it or
enable any person to enjoin the Merger; and the consummation of the
transactions contemplated hereby will not require any approval,
consent or waiver under any such law, rule, regulation, judgment,
decree, order, governmental permit or license or the approval, consent
or waiver of any other party to any such agreement, indenture or
instrument, other than (w) all required approvals, consents and
waivers of governmental authorities, (x) the approval of its
shareholders referred to in Section 5.1(a), (y) any such approval,
consent or waiver that already has been obtained, and (z) any other
approvals, consents or waivers, the absence of which, individually or
in the aggregate, would not result in a Material Adverse Effect on it
or enable any person to enjoin the Merger.
(f) Reports.
(i) Except as previously disclosed to HBI, Sterling's consolidated
statement of financial condition as of September 30, 1999,
previously provided to HBI, and each statement of financial
condition provided after the date hereof to HBI (including in
each case any related notes and schedules) as required by Section
4.5 hereof fairly presents or will fairly present the financial
position of it as of its date and each of the statements of
income and shareholders' equity and of cash flows provided
therewith (including in each case any related notes and
schedules), fairly presents or will fairly present the results of
operations, shareholders' equity and cash flows, as the case may
be, of it for the periods set forth therein (subject, in the case
of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect), in each
case in accordance with generally accepted
26
accounting principles consistently applied during the periods
involved, except as maybe noted therein.
(ii) Except as set forth in Annex 3.2(f), it has timely filed all
material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that it was
required to file since 1994 with (A) the Office of the
Comptroller of the Currency (the "OCC"), (B) the Federal Deposit
Insurance Corporation (the "FDIC"), (C) the Board of Governors of
the Federal Reserve System (the "Board"), (D) the Securities and
Exchange Commission (the "SEC"), and collectively with the SEC,
the OCC, the FDIC, and the Board, the "Sterling Regulatory
Agencies", and (F) any other regulatory authority, and all other
material reports and statements required to be filed by it since
January 1, 1999 including, without limitation, any report or
statement required to be filed pursuant to the laws, rules or
regulations of the United States or any Sterling Regulatory
Agency, and has paid all fees and assessments due and payable in
connection therewith, and no such report, registration or
statement contains any material misstatement or omission or is
otherwise in material noncompliance with any law, regulation or
requirement.
(g) Absence of Certain Changes or Events. Since September 30, 1999 to the
date hereof, it has not materially changed its dividend policy, nor
incurred any material liability, except in the ordinary course of its
business consistent with past practice, nor has there been any
material change in the financial condition, properties, assets,
business, results of operations or prospects of it which, individually
or in the aggregate, has had, or might reasonably be expected to
result in, a Material Adverse Effect on it.
(h) Taxes. Its federal income tax returns have been examined and closed or
otherwise closed by operation of law through 1990. All federal, state,
local and foreign tax returns, including, but not limited to, any and
all Pennsylvania tax filings arising under the Bank Shares Tax, Single
Excise Tax and the Amended 1989 Bank Shares Tax and/or similar taxes,
required to be filed by it or on its behalf, have been timely filed,
or requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and, to the
knowledge of management, all such filed returns are complete and
accurate in all material respects. All taxes shown on such returns,
and all taxes required to be shown on returns for which extensions
have been granted, have been paid in full or adequate provision has
been made for any such taxes on its balance sheet (in accordance with
generally accepted accounting principles) other than those taxes which
are being contested in appropriate forums in proceedings which are
being diligently pursued. Adequate provision has been made on its
balance sheet (in accordance with generally accepted accounting
principles consistently applied) for all federal, state, local and
foreign tax liabilities for periods subsequent to those for which
returns have been filed. There is no audit examination, deficiency, or
refund litigation pending or, to the knowledge of Sterling,
threatened, with respect to any taxes that could result in a
determination that would have a
27
Material Adverse Effect on it. All taxes, interest, additions
and penalties due with respect to completed and settled examinations
or concluded litigation relating to it have been paid in full or
adequate provision has been made for any such taxes on its balance
sheet (in accordance with generally accepted accounting principles).
It has not executed an extension or waiver of any statute of
limitations on the assessment or collection of any tax due that is
currently in effect.
(i) Litigation and Liabilities. Except as set forth in Annex 3.2(i), there
are no (i) civil, criminal or administrative actions, suits, claims,
hearings, investigations or proceedings before any court, governmental
agency or otherwise pending or, to the knowledge of management,
threatened against it or (ii) obligations or liabilities, whether or
not accrued (contingent or otherwise, including, without limitation,
those relating to environmental and occupational safety and health
matters, or any other facts or circumstances of which its management
is aware that could reasonably be expected to result in any claims
against or obligations or liabilities of it), that, alone or in the
aggregate, are reasonably likely to have a Material Adverse Effect on
it or to hinder or delay, in any material respect, consummation of the
transactions contemplated by this Agreement.
(j) Absence of Regulatory Actions. It is not a party to any cease and
desist order, written agreement or memorandum of understanding with,
or a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, or has adopted any board
resolutions at the request of, federal or state governmental
authorities, including, without limitation, the Sterling Regulatory
Agencies, charged with the supervision or regulation of financial or
depository institutions or engaged in the insurance of bank deposits,
nor has it been advised by any Sterling Regulatory Agency that such
body is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, directive,
written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolution or similar
undertaking.
(k) Agreements. It is not in default under or in violation of any
provision of any note, bond, indenture, mortgage, deed of trust, loan
agreement, lease or other agreement to which it is a party or to which
any of its respective properties or assets is subject, other than such
defaults or violations as could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on
it.
(1) Labor Matters. It is not the subject of any proceeding asserting that
it has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages and conditions of
employment, nor is there any strike, other labor dispute or
organizational effort involving it pending or threatened.
(m) Employee Benefit Plans. Sterling has provided to HBI a complete list
of all pension, retirement, stock option, stock purchase, stock
ownership, savings, stock appreciation
28
right, profit sharing, deferred compensation, consulting, bonus, group
insurance, severance and other employee benefits, incentive and
welfare policies, contracts, plans and arrangements in respect to any
of its present or former directors. officers or other employees
(hereinafter referred to collectively as the "Sterling Employee
Plans")
(i) All of the Sterling Employee Plans comply in all material
respects with all applicable requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the
Code and other applicable laws; it has not engaged in a
"prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to any Sterling Employee
Plan which is likely to result in any material penalties, taxes
or other events under Section 502(i) of ERISA or Section 4975 of
the Code which would have a Material Adverse Effect on it.
(ii) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by it to be incurred with respect to any Sterling
Employee Plan which is subject to Title IV of ERISA ("Pension
Plan"), or with respect to any "single-employer plan" (as defined
in Section 4001 (a)(15) of ERISA) currently or formerly
maintained by it or any entity which is considered one employer
with Sterling under Section 4001 of ERISA or Section 414 of the
Code (an "ERISA Affiliate").
(iii) No Pension Plan or single-employer plan of an ERISA Affiliate
had an "accumulated funding deficiency" (as defined in Section
302 of ERISA (whether or not waived)) as of the last day of the
end of the most recent plan year ending prior to the date hereof;
all contributions to any Pension Plan or single-employer plan of
an ERISA Affiliate that were required by Section 302 of ERISA and
were due prior to the date hereof have been made on or before the
respective dates on which such contributions were due; the fair
market value of the assets of each Pension Plan or
single-employer plan of an ERISA Affiliate exceeds the present
value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under such Pension Plan or single employer
plan of an ERISA Affiliate as of the end of the most recent plan
year with respect to the respective Pension Plan or
single-employer plan of an ERISA Affiliate ending prior to the
date hereof, calculated on the basis of the actuarial assumptions
used in the most recent actuarial valuation for such Pension Plan
or single-employer plan of an ERISA Affiliate as of the date
hereof; and no notice of a "reportable event" (as defined in
Section 4043 of ERISA) for which the 30-day reporting requirement
has not been waived has been required to be filed for any Pension
Plan or single-employer plan of an ERISA Affiliate within the
12-month period ending on the date hereof.
29
(iv) Neither has it provided, nor is it required to provide, security
to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Neither it nor any ERISA Affiliate has contributed to any
"multi-employer plan," as defined in Section 3(37) of ERISA, on
or after September 26, 1980.
(vi) Each Sterling Employee Plan of it which is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) and which is
intended to be qualified under Section 401(a) of the Code (a
"Qualified Plan") has received a favorable determination letter
from the Internal Revenue Service ("IRS") covering the
requirements of the Tax Equity and Fiscal Responsibility Act of
1982, the Retirement Equity Act of 1984 and the Deficit Reduction
Act of 1984 and the Tax Reform Act of 1986; it is not aware of
any circumstances likely to result in revocation of any such
favorable determination letter; each such Sterling Employee Plan
has been amended to reflect the requirements of subsequent
legislation applicable to such plans; and each Qualified Plan has
complied at all relevant times in all material respects with all
applicable requirements of Section 401(a) of the Code.
(vii) Each Qualified Plan which is an "employee stock ownership plan"
(as defined in Section 4975(e)(7) of the Code) has at all
relevant times satisfied all of the applicable requirements of
Sections 409 and 4975(e)(7) of the Code and the regulations
thereunder.
(viii) Neither it nor any ERISA Affiliate has committed any act or
omission or engaged in any transaction that has caused it to
incur, or created a material risk that it may incur, liability
for any excise tax under Sections 4971 through 4980B of the Code,
other than excise taxes which heretofore have been paid and fully
reflected in its financial statements.
(ix) There is no pending or threatened litigation, administrative
action or proceeding relating to any Sterling Employee Plan,
other than routine claims for benefits.
(x) There has been no announcement or legally binding commitment by
it to create an additional Sterling Employee Plan, or to amend a
Sterling Employee Plan, except for amendments required by
applicable law which do not materially increase the cost of such
Sterling Employee Plan, and it does not have any obligations for
retiree health and life benefits under any Sterling Employee Plan
that cannot be terminated without incurring any liability
thereunder.
(xi) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not result in any
payment or series of
30
payments by Sterling to any person which is an "excess parachute
payment" (as defined in Section 280G of the Code) under any
Sterling Employee Plan, increase any benefits payable under any
Sterling Employee Plan, or accelerate the time of payment or
vesting of any such benefit.
(xii) All annual reports have been filed timely with respect to each
Sterling Employee Plan.
(n) Title to Assets. It has good and marketable title to its properties
and assets (other than property as to which it is lessee), except for
(i) such items shown in the Sterling consolidated financial statements
or notes thereto; (ii) liens on real property for current real estate
taxes not yet delinquent, or (iii) such defects in title which would
not, individually or in the aggregate, have a Material Adverse Effect
on it. With respect to any property leased by it, there are no
defaults by it, or to its knowledge, any of the other parties thereto,
or any events which, with the giving of notice or lapse of time or
both, would become defaults by it or to its knowledge any of the other
parties thereto, under any of such leases, except for such defaults or
events which would not, individually or in the aggregate, have a
Material Adverse Effect on it; and all such leases are in full force
and effect and are enforceable against it, as the case may be, and to
its knowledge there is no circumstance existing as of the date of this
Agreement which causes or would cause such leases to be unenforceable
against any of the other parties thereto except as the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally as well as
principles of equity to the extent enforcement by a court of equity is
required.
(o) Compliance with Laws. It has all permits, licenses, certificates of
authority, orders and approvals of, and has made all filings,
applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit
it to carry on its business as it is presently conducted and the
absence of which could, individually or in the aggregate, have a
Material Adverse Effect on it; all such permits, licenses,
certificates of authority, orders and approvals are in full force and
effect, and no suspension or cancellation of any of them is
threatened.
(p) Fees. Except as set forth in Annex 3.2(p) attached hereto, neither it
nor any of its respective officers, directors, employees or agents
have employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's
fees, and no broker or finder has acted directly or indirectly for it
in connection with this Agreement or the transactions contemplated
hereby.
(q) Environmental Matters. Other than as disclosed on Annex 3.2(q), there
are no legal, administrative, arbitration or other proceeding, claim,
action, cause of action or governmental investigation of any nature
seeking to impose, or that, to the knowledge of Sterling, could result
in the imposition on Sterling of any liability arising under
31
any local, state or federal environmental statute, regulation or
ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, pending or threatened against Sterling; to the knowledge of
Sterling, there is no reasonable basis for any such proceeding, claim,
action or governmental investigation; Sterling is not subject to any
agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any
such liability.
To the knowledge of Sterling, there are and have been no Hazardous
Substances or other conditions at any property (whether or not owned
operated, or otherwise used by, or the subject of a security interest
on behalf of, Sterling or any of its subsidiaries), and there are no
reasonably anticipated future events, conditions circumstances,
practices, plans. or legal requirements that could give rise to
obligations under any Environmental Law.
For purposes of this Section 3.2, the following terms shall have the
indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement
with any governmental entity relating to: the protection, preservation
or restoration of the environment (including, without limitation, air,
water vapor, surface water, groundwater, drinking water supply,
surface soil, subsurface soil, plant and animal life or any other
natural resource); and the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Substances. The term
Environmental Law includes without limitation: the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42
U.S.C. ss.9601, et seq., the Resource Conservation and Recovery Act,
as amended, 42 U.S.C. ss.6901, et seq., the Clean Air Act, as amended,
42 U.S.C. ss.7401, et seq., the Federal Water Pollution Control Act,
as amended, 33 U.S.C. ss.1251, et seq., the Toxic Substances Control
Act, as amended, 15 U.S.C. ss.9601, et seq., the Emergency Planning
and Community Right to Know Act, 42 U.S.C. ss.11001, et seq., the Safe
Drinking Water Act, 42 U.S.C. ss.300f, et seq., and all comparable
state and local laws; and any common law (including without limitation
common law that may impose strict liability) that may impose liability
or obligation for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous
or otherwise regulated under any Environmental Law, whether by type or
by quantity, including any material containing any such substance as a
component. Hazardous Substances include without limitation petroleum
or any derivative or by-product thereof, asbestos, radioactive
material, and polychlorinated biphenyls.
32
(r) Allowance. The allowance for loan and lease losses shown on
Sterling's consolidated statement of financial condition as of
September 30, 1999, was, and the allowance for loan and lease
losses shown on Sterling's consolidated statement of financial
condition for periods ending after the date of this Agreement
will be, in the opinion of management of Sterling and Bank of
Lancaster County, adequate, as of the date thereof, under
generally accepted accounting principles applicable to commercial
banks and all other applicable regulatory requirements for all
losses reasonably anticipated in the Ordinary Course of Business
as of the date thereof based on information available as of such
date.
(s) Material Interests of Certain Persons. Except as noted in Annex
3.2(s), none of its respective officers or directors, or any
"associate" (as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934 (the "Exchange Act")) of any such
officer or director, has any material interest in any material
contract or property (real or personal), tangible or intangible,
used in or pertaining to its business.
(t) Insurance. All of the insurance policies and bonds maintained by
it are in full force and effect, it is not in default thereunder
and all material claims thereunder have been filed in due and
timely fashion. In the judgment of its management, such insurance
coverage is adequate.
(u) Dividends. The only dividends or other distributions which it has
made on its capital stock since January 1, 1999 are set forth in
Annex 3.2(u).
(v) Books and Records. Its books and records have been, and are
being, maintained in accordance with applicable legal and
accounting requirements and reflect in all material respects the
substance of events and transactions that should be included
therein.
(w) Board Action. Its board of directors (at a meeting duly called
and held) has been duly convened and by the requisite vote of the
directors (a) determined that the Merger is advisable and in the
best interests of it and its shareholders, (b) approved this
Agreement and the transactions contemplated hereby and thereby
and (c) directed that the Agreement be submitted for
consideration by its shareholders at the Sterling Shareholders'
Meeting (as hereafter defined) with the recommendation of the
board of directors that the shareholders approve the merger and
the transactions contemplated thereby.
(x) Fairness Opinions. Its board of directors has received a written
opinion, a copy of which has been furnished to HBI, to the effect
that the Exchange Ratio specified in this Agreement, at the time
of its execution, is fair to Sterling's shareholders from a
financial point of view.
(y) Fidelity Bonds. Since at least December 31, 1992, each Sterling
subsidiary has continuously maintained fidelity bonds insuring it
against acts of dishonesty by its
33
employees in such amounts as is customary for a bank of its size.
Since December 31, 1992, the aggregate amount of all potential
claims under such bonds has not exceeded $100,000 and Sterling is
not aware of any facts which would reasonably form the basis of a
claim under such bonds. Sterling has no reason to believe that
its fidelity coverage will not be renewed by its carrier on
substantially the same terms as its existing coverage.
(z) Condition of Tangible Assets. All buildings, structures and
improvements on the real property owned or leased by it are in
good condition, ordinary wear and tear excepted, and are free
from structural defects in all material respects. The equipment,
including heating, air conditioning and ventilation equipment
owned by it, is in good operating condition, ordinary wear and
tear excepted. The operation and use of the property in the
business conform in all material respects to all applicable laws,
ordinances, regulations, permits, licenses and certificates.
(aa) Annual Reports and Financial Statements. Except as previously
disclosed, Sterling has delivered to HBI true and complete copies
of (i) its Balance Sheets, Statements of Earnings, Statements of
Stockholders' Equity and Statements of Cash Flows of Sterling for
the years ended December 31, 1998, 1997 and 1996, certified by
independent public accountants, and (ii) Sterling's Quarterly
Reports for the quarter ended September 30, 1999, containing
unaudited consolidated balance sheets of Sterling as at such
dates and unaudited consolidated statements of earnings and cash
flows of Sterling for the three month period reflected therein.
Except as previously disclosed, Sterling has also delivered to
HBI true and correct copies of its annual reports to shareholders
for the years 1998, 1997 and 1996. Except as previously disclosed
to HBI, all such reports (collectively, the "Sterling Reports")
(i) comply in all material respects with the requirements of the
Financial Accounting Standards Board ("FASB") and the American
Institute of Certified Public Accountants, (ii) do not contain
any untrue statement of a material fact and (iii) do not omit to
state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. No
documents to be filed by Sterling with the SEC or any regulatory
agency in connection with this Agreement, or the transactions
contemplated hereby will contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not
misleading. All documents which Sterling is responsible for
filing with the SEC or any regulatory agency in connection with
the Merger will comply as to form in all material respects with
the requirements of applicable law.
(bb) Proxy Statement/Prospectus., Etc. Except for information relating
to HBI and its subsidiaries and pro forma financial information
reflecting the combined operations of Sterling and HBI, neither
(i) the Proxy Statement/Prospectus (as defined herein at Section
4.3(b)) or any amendment or supplement thereto, at the time it is
filed with the SEC, at the time the Registration Statement is
declared effective, at the time the
34
Proxy Statement/Prospectus is mailed to the shareholders of
Sterling or at the date of the meeting of the Sterling
shareholders at which the shareholders will consider this
Agreement (the "Sterling Shareholders' Meeting") nor (ii) any
other documents to be filed by Sterling with the SEC or any
regulatory agency in connection with this Agreement, or the
transactions contemplated hereby, will contain any untrue
statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made,
not misleading.
(cc) Complete and Accurate Disclosure. Neither this Agreement (insofar
as it relates to Sterling, Sterling Common Stock and Sterling's
involvement in the transactions contemplated hereby) nor any
financial statement, schedule (including without limitation the
Annexes attached hereto, certificate, or other statement or
document delivered by Sterling to HBI in connection herewith
contains any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with
respect to any material fact or omits to state any material fact
necessary to make the statements contained herein or therein not
false or misleading. In particular, without limiting the
generality of the foregoing sentence, the information provided
and the representations made by Sterling to HBI in connection
with the Registration Statement, both at the time such
information and representations are provided and made and at the
time of the Closing, will be true and accurate in all material
respects and will not contain any false or misleading statement
with respect to any material fact or omit to state any material
fact necessary (i) to make the statements made therein not false
or misleading, or (ii) to correct any statement contained in an
earlier communication with respect to such information or
representations which has become false or misleading.
(dd) Beneficial Ownership of HBI Common Stock. To the knowledge of
Sterling, prior to the Effective Date, Sterling and its officers
and directors will not in the aggregate own beneficially (within
the meaning of SEC Rule 13d-3(d)(1)) more than five percent (5%)
of the outstanding shares of HBI Common Stock.
(ee) Absence of Questionable Payments. From and after December 31,
1994, Sterling nor has not, nor, to the knowledge of Sterling,
has any director, officer, agent, employee, consultant or other
person associated with or acting on behalf of, Sterling (i) used
any Sterling corporate funds for unlawful contributions, gifts,
entertainment or unlawful expenses relating to political
activity; or (ii) made any direct or indirect unlawful payments
to governmental officials from any Sterling corporate funds, or
established or maintained any unlawful or unrecorded accounts
with funds received from Sterling.
(ff) Accuracy of Representations. Until and as of Closing, Sterling
will promptly notify HBI if any of the representations contained
in this Section 3.2 cease to be true and correct subsequent to
the date hereof. Further, no representations made by Sterling
35
pursuant to this Agreement contain any untrue statement of
material fact or omit to state a material fact necessary to make
the statements not misleading.
ARTICLE IV
COVENANTS OF THE PARTIES
SECTION 4.1 Conduct of Business.
Except as otherwise consented to the other party in writing, HBI and
Sterling and their respective subsidiaries (and the word "it" in this Section
4.1 refers to HBI, Sterling and each subsidiary of either) shall each:
(a) use all reasonable efforts to carry on its business in, and only in,
the ordinary course of business consistent with customary business
practices of prudently managed banks (hereinafter referred to as
"Ordinary Course of Business");
(b) to the extent consistent with prudent business judgment, use all
reasonable efforts to preserve its present business organization, to
retain the services of its present officers and employees, to maintain
good relationships with its employees, and to maintain its
relationships with customers, suppliers and others having business
dealings with it;
(c) maintain all of its structures, equipment and other real property and
tangible personal property in good repair, order and condition, except
for ordinary wear and tear and damage by unavoidable casualty;
(d) use all reasonable efforts to preserve or collect all material claims
and causes of action belonging to it;
(e) keep in full force and effect all insurance policies now carried by
it;
(f) perform in all material respects each of its obligations under all
material agreements, contracts, instruments and other commitments to
which it is a party or by which it may be bound or which relate to or
affect its properties, assets and business;
(g) maintain its books of account and other records in the Ordinary Course
of Business;
(h) comply in all material respects with all statutes, laws, ordinances,
rules and regulations, decrees, orders, consent agreements,
examination reports, memoranda of understanding and other federal,
state, county, local and municipal governmental directives applicable
to it and to the conduct of its business;
(i) not amend its Articles of Incorporation or Bylaws, except in
accordance with the terms hereof;
36
(j) not take or permit to be taken any action which would constitute a
breach of any representation, warranty or covenant set forth in this
Agreement;
(k) not take any action which would result in any of its representations
and warranties set forth in this Agreement becoming untrue as of any
date after the date hereof;
(l) not knowingly take any action that would, under any statute,
regulation or administrative practice of any regulatory agency,
materially or adversely affect the ability of any party to this
Agreement to obtain any required approvals for consummation of the
transaction;
and additionally, in the case of HBI and/or Hanover:
(m) not enter into or assume any material contract, incur any material
liability or obligation, make any material commitment, acquire or
dispose of any property or asset or engage in any transaction or
subject any of its properties or assets to any material lien, claim,
charge, or encumbrance of any kind whatsoever, except for actions
taken in the ordinary course of business, consistent with past
practice and consistent with the HBI 2000 budget previously delivered
to Sterling.
(n) not declare, set aside or pay any dividend or make any other
distribution in respect of its common stock, except as provided in
Section 4.10 of this Article IV;
(o) not make any loan or other credit facility commitment in excess of
$3,000,000 (including without limitation, lines of credit and letters
of credit) or compromise, expand, renew or modify any such outstanding
commitment;
(p) not authorize, purchase, issue or sell (or authorize, issue or grant
options, warrants or rights to purchase or sell) any shares of its
common stock or any other of its equity or debt securities or any
securities convertible into its common stock except pursuant to the
HBI Options;
(q) not increase the rate of compensation of, pay a bonus or severance
compensation to, or enter into any employment, severance, deferred
compensation or other agreement with any of its officers, directors,
employees or consultants; except that it may grant general salary
increases to individual employees in the ordinary course of business
consistent with past practice and as indicated in the HBI budget
previously delivered to Sterling;
(r) not enter into any related party transaction of the kind contemplated
in Section 3.1(k) or Section 3.2(k) of this Agreement except such
related party transactions relating to extensions of credit made in
accordance with all applicable laws, regulations and rules and in the
Ordinary Course of Business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable
37
arm's length transactions with other persons that do not involve more
than the normal risk of collectability or present other unfavorable
features and after disclosure of such to the other party;
(s) except pursuant to the HBI Options, not change the presently
outstanding number of shares or effect any capitalization,
reclassification, stock dividends, stock split or like change in
capitalization;
(t) not enter into or substantially modify (except as may be required by
applicable law) any pension, retirement, stock option, stock warrant,
stock purchase, stock appreciation right, savings, profit sharing,
deferred compensation, severance, consulting, bonus, group insurance
or other employee benefit, incentive or welfare contract, or plan or
arrangement, or any trust agreement related thereto, in respect to any
of its directors, officers, or other employees;
(u) except as may be permitted by Section 4.9 hereof, not merge with or
into, or consolidate with, or be purchased or acquired by, any other
corporation, financial institution, entity, or person (or agree to any
such merger, consolidation, affiliation, purchase or acquisition) or
permit (or agree to permit) any other corporation, financial
institution, entity or person to be merged with it or consolidate or
affiliate with any other corporation, financial institution, entity or
person; acquire control over any other firm, financial institution,
corporation or organization or create any subsidiary; acquire,
liquidate, sell or dispose (or agree to acquire, liquidate, sell or
dispose) of any assets other than in the Ordinary Course of Business
and consistent with prior practice; and
(v) not change any method, practice or principle of accounting except as
may be required by generally accepted accounting principles or any
applicable regulation or take any action that would preclude
satisfaction of the condition to closing contained in Section 5.2(e)
relating to financial accounting treatment of the Merger.
(w) not open any new branches, enter into any contracts or make any
expenditures with respect to any new branches without the prior
written consent of Sterling, with the exception of the branch to be
located in Red Lion, Pennsylvania, the business bank branch to be
located in Westminster, Maryland and the relocation of the branch in
New Oxford, Pennsylvania.
SECTION 4.2 Best Efforts.
HBI and Sterling shall each use its reasonable best efforts in good faith,
and each of them shall cause its subsidiaries to use their reasonable best
efforts in good faith to do or cause to be done all things necessary or
appropriate on its part in order to fulfill the conditions precedent set forth
in Article V of this Agreement and to consummate this Agreement. In particular,
without limiting the generality of the foregoing sentence, each shall:
38
(a) cooperate with the other party in the preparation of all required
applications for regulatory approval of the transactions contemplated
by this Agreement and in the preparation of the Registration
Statement;
(b) call a special or annual meeting of its shareholders and take, in good
faith, all actions which are necessary or appropriate on its part in
order to secure the approval and adoption of this Agreement by its
shareholders at that meeting, including recommending the approval of
such agreements by the shareholders. Unless, prior to calling such
meeting, the party receives a written opinion consistent with the
standard set forth in Section 4.9 of this Agreement;
(c) after receipt of all required regulatory approvals, cooperate with the
other party in making employees reasonably available for training
prior to the Effective Date, to the extent that such training is
deemed reasonably necessary to ensure that all offices of Hanover will
be properly operated as a subsidiary of Sterling after the Merger;
(d) make additions to loan loss reserves and make loan write-offs,
write-downs and other adjustments that reasonably should be made in
light of generally accepted accounting principles, directives of
governmental authorities, and all regulations, rules and directives of
the PDB, OCC and FDIC;
(e) in the case of HBI, execute and deliver the Investment Agreement;
(f) in the case, of HBI, suspend its dividend reinvestment plan, employee
stock purchase plan and the option to purchase HBI Common Stock in its
401(k) plan; and
(g) modify the Articles of Incorporation or Bylaws or any other documents
reasonably requested by the other party necessary to effectuate the
transactions contemplated hereby.
SECTION 4.3 Regulatory Matters and Consents
(a) Applications for Regulatory Approval. Sterling and HBI shall promptly
prepare and file, and use their reasonable best efforts to obtain, all
required applications for regulatory approval of the transactions
contemplated by this Agreement. Sterling shall provide copies of all
applications for regulatory approval to HBI and its counsel for
comment and review at least five (5) business days in advance of the
anticipated filing date.
(b) Registration Statement. Sterling and HBI shall promptly prepare and
Sterling shall file with the SEC, a registration statement under the
1933 Act (the "Registration Statement") for the purpose of registering
the shares of Sterling Common Stock to be issued under the provisions
of this Agreement. Each party may rely upon all information provided
to it by the other party in this connection and each party shall not
be liable for any untrue statement of a material fact or any omission
to state a
39
material fact in the Registration Statement or in the proxy statement
and prospectus (the "Proxy Statement/Prospectus") which is prepared as
a part thereof, if such statement is made by it in reliance upon any
information provided to by the other party or by its agents and
representatives. Sterling will advise HBI, after it receives notice
thereof, of the time when the Registration Statement or any Pre- or
Post-Effective Amendment thereto has become effective or any
supplement or amendment has been filed. Sterling shall provide a copy
of the Registration Statement to HBI and its counsel for comment and
review at least ten (10) business days in advance of the anticipated
filing date.
(c) State Securities Laws. Sterling, with the cooperation of HBI, shall
promptly take all such actions as may be necessary or appropriate in
order to comply with all applicable securities laws of any state
having jurisdiction over the transactions contemplated by this
Agreement. Sterling shall provide a copy of any anticipated
application or filing to HBI for comment and review at least five (5)
days in advance of the anticipated filing date.
SECTION 4.4 Access to Properties and Records.
Each party shall give to the other party and their authorized
representatives (including without limitation their counsel, accountants,
economic and environmental consultants and other designated representatives)
reasonable access during normal business hours to all of its properties, books,
contracts, documents and records as the other party may reasonably request,
subject to the obligation, including the obligation of that party's authorized
representatives, to maintain the confidentiality of all non-public information
obtained by reason of such access.
SECTION 4.5 Subsequent Financial Statements.
Between the date of execution of this Agreement and the Effective Date,
each party shall promptly prepare and deliver to the other party, as soon as
practicable, all internal monthly and quarterly financial statements, reports to
shareholders and reports to regulatory authorities it has prepared, including
all audit reports submitted to it by independent auditors in connection with
each annual, interim or special audit of its books made by such accountants. In
particular, without limiting the generality of the foregoing sentence, HBI shall
deliver to Sterling, and Sterling shall deliver to HBI as soon as practicable a
balance sheet as of December 31, 1999 and a related statement of income for the
three (3) months then ended (which financial statements are hereinafter referred
to as the "December 31, 1999 Financial Statements"). The representations and
warranties set forth in Sections 3.1(f) and 3.2(f) of this Agreement shall apply
to the December 31, 1999 Financial Statements
SECTION 4.6 Board and Committee Minutes.
HBI shall provide to Sterling, within 10 days after any meeting of the
Board of Directors, or any committee thereof, or any senior or executive
management committee, a copy of the minutes of such meeting.
40
SECTION 4.7 Update Schedule.
Each party shall promptly disclose to the other in writing any change,
addition, deletion or other modification to the information set forth in the
Annexes to this Agreement. Notwithstanding the foregoing, disclosures made
subsequent to the date of this Agreement shall not relieve any party from any
and all liabilities for prior statements and disclosures to the other party.
SECTION 4.8 Notice.
Each party shall promptly notify the other party in writing of any actions,
claims, investigations, proceedings or other developments which, if pending or
in existence on the date of this Agreement, would have been required to be
disclosed to that party in order to ensure the accuracy of the representations
and warranties set forth in this Agreement or which otherwise could materially
and adversely affect the condition (financial or otherwise), assets,
liabilities, business operations or future prospects of the party with the
burden of disclosure.
SECTION 4.9 Other Proposals.
(a) HBI shall not solicit or encourage inquiries or proposals with respect
to, furnish any information relating to, or participate in any
negotiations or discussions concerning any acquisition or purchase of
all or a substantial equity interest or portion of the assets in or of
HBI or any business combination with HBI other than as contemplated by
this Agreement, or authorize or permit any officer, director, agent or
affiliate of it to do any of the above, provided, however, that it may
respond to an unsolicited, bona fide, written offer, if the directors
of HBI shall have determined in good faith, based of the written
opinion of outside counsel (subject to appropriate qualifications)
that failure to respond would be reasonably likely to constitute a
breach of the HBI board of directors' fiduciary duty under
Pennsylvania law; or fail to notify Sterling immediately if any such
inquiries or proposals are received by, any such information is
requested from, or any such negotiations are sought to be initiated
with HBI;
(b) HBI shall not authorize or permit any officer, director, employee,
agent, consultant, counsel, financial advisor or other representative
to, directly or indirectly, solicit, encourage, initiate or engage in
discussions or negotiations with, or respond to requests for
information, inquiries or other communications from any persons other
than Sterling concerning the fact of, or the terms and conditions of,
this Agreement, or concerning any acquisition of HBI, or any assets or
business thereof (except that HBI officers may respond to inquiries
from analysts, regulatory authorities and holders of HBI Common Stock
in the Ordinary Course of Business); and HBI shall notify Sterling
immediately if any such discussions or negotiations are sought to be
initiated with HBI by any such person other than Sterling or if any
such requests for information, inquiries, proposals or communications
are received from any person other than Sterling. Provided, however,
that HBI may respond to an unsolicited bona fide written offer if the
directors of HBI shall have determined in good faith, based
41
on the written opinion of outside counsel (subject to appropriate
qualifications) that the failure to respond would be reasonably likely
to constitute a breach of the HBI board of directors' fiduciary duty
under applicable law.
SECTION 4.10 Dividends.
Between the date of this Agreement and the Effective Date, HBI shall only
declare and pay cash dividends as provided herein. HBI shall only pay regular
quarterly cash dividends in an amount not in excess of $0.12 per share during
each of the first, second and third calendar quarters of 2000. HBI dividend
declaration and payment dates shall be consistent with prior practices of HBI.
Provided, however, that if the Effective Date of the Merger were to entitle HBI
shareholders to a quarterly cash dividend for the respective calendar quarter
from HBI and subsequently from Sterling, then HBI shall not pay a dividend in
said quarter.
SECTION 4.11 Core Deposits.
HBI shall cause Hanover to use commercially reasonable efforts to maintain
its deposits.
SECTION 4.12 Affiliate Letters.
HBI shall deliver or cause to be delivered to Sterling, at or before the
Closing (as defined in Section 1.1(c) of this Agreement), a letter or agreement
from its officers, directors and shareholders who may be deemed to be an
"affiliate" (as that term is defined for purposes of Rules 145 and 405
promulgated by the SEC under the ▇▇▇▇ ▇▇▇) of HBI or Hanover, in form and
substance satisfactory to Sterling, under the terms of which each such officer,
director or shareholder acknowledges and agrees to abide by all limitations
imposed by the 1933 Act and by all rules, regulations and releases promulgated
thereunder with respect to the sale or other disposition of the shares of
Sterling Common Stock to be received by such person pursuant to this Agreement.
SECTION 4.13 No Purchases or Sales of Sterling Common Stock During Price
Determination Period.
Neither party nor any of its executive officers or directors nor any of its
shareholders who may be deemed to be an "affiliate" (as that term is defined for
purposes of Rules 145 and 405 promulgated by the SEC under the ▇▇▇▇ ▇▇▇) shall
purchase or sell or submit a bid to purchase or an offer to sell, directly or
indirectly, any shares of Sterling Common Stock or any options, rights or other
securities convertible into shares of Sterling Common Stock during the Price
Determination Period; provided, however, that Sterling may purchase shares of
Sterling Common Stock in the Ordinary Course of Business during the Price
Determination Period pursuant to Sterling's employee benefit plans, stock option
plans or Sterling's dividend reinvestment and stock purchase plan.
SECTION 4.14 Accounting Treatment.
42
Each party acknowledges that the other party presently intends to treat the
business combination contemplated by this Agreement as a "pooling of interests"
for financial reporting purposes. Neither party shall take (and shall use its
best efforts not to permit any of its directors, officers, employees,
shareholders, agents, consultants or other representatives to take) any action
which would preclude treating such business combination as a "pooling of
interests" for financial reporting purposes.
SECTION 4.15 Press Releases.
Neither party shall issue any press release related to this Agreement or
the transactions contemplated hereby or thereby as to which the other party has
not given its prior written consent, which shall not be unreasonably withheld,
and shall consult with the other party as to the form and substance of other
public disclosures related thereto; provided, however, that nothing contained
herein shall prohibit Sterling or HBI from making any disclosure which its
counsel deems reasonably necessary.
SECTION 4.16 Phase I Environmental Audit.
Each party shall permit the other party, if it elects to do so at its own
expense, a "phase I environmental audit" to be performed at any physical
location owned or occupied on the date hereof by it or any of its subsidiaries.
43
ARTICLE V
CONDITIONS TO CONSUMMATION
SECTION 5.1 Common Conditions.
The respective obligations of the parties to effect the Merger shall be
subject to the satisfaction or waiver prior to the Effective Time of the
following conditions:
(a) The Agreement and the transactions contemplated hereby and thereby
shall have been approved by the requisite vote of the shareholders of
HBI and Sterling in accordance with applicable law.
(b) All approvals, consents or waivers required by any of the HBI
Regulatory Agencies or the Sterling Regulatory Agencies with respect
to this Agreement (including the Merger) and the transactions
contemplated hereby and thereby including, without limitation, the
approvals, notices to, consents or waivers of (i) the Board and (ii)
the Pennsylvania Department of Banking (the HBI Regulatory Agencies
and the Sterling Regulatory Agencies, are, collectively the
"Regulatory Agencies") shall have been obtained and shall remain in
full force and effect, and all applicable statutory waiting periods
(including without limitation all applicable statutory waiting periods
relating to the Merger) shall have expired; and the parties shall have
procured all other regulatory approvals, consents or waivers of
governmental authorities or other persons that are necessary or
appropriate to the consummation of the transactions contemplated by
this Agreement, except those approvals, consents or waivers, if any,
of which failure to obtain would not, individually or in the
aggregate, have a Material Adverse Effect on Sterling, HBI or Hanover
(after giving effect to the transaction contemplated hereby);
provided, however, that no such approval shall have imposed any
condition or requirement which would: (i) require or could reasonably
be expected to require (A) any divestiture by Sterling of a portion of
the business of Sterling or of any subsidiary or affiliate of
Sterling, or (B) any divestiture by HBI or any of its subsidiaries of
a portion of its business which Sterling in its good faith judgment
believes will have a significant adverse impact on HBI's business or
prospects; or (ii) impose any condition upon Sterling or any of its
subsidiaries or affiliates, which in Sterling's good faith judgment
(x) would be materially burdensome to Sterling and its subsidiaries
taken as whole, (y) would significantly increase the costs incurred or
that would be incurred by Sterling as a result of consummating the
Merger, or (z) would prevent Sterling from obtaining a material
benefit contemplated to be attained as a result of the Merger.
(c) All other requirements prescribed by law which are necessary to the
consummation of the transactions contemplated by this Agreement shall
have been satisfied.
(d) No party hereto shall be subject to any order, decree or injunction of
a court or agency of competent jurisdiction which enjoins or prohibits
the consummation of the Merger or any other transaction contemplated
by this Agreement, and no litigation or
44
proceeding shall be pending against any of the parties herein or any
of their subsidiaries brought by any governmental agency seeking to
prevent consummation of the transactions contemplated hereby.
(e) No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any governmental
authority which prohibits, restricts or makes illegal consummation of
the Merger or any other transaction contemplated by this Agreement.
(f) The Registration Statement shall have been filed (the date of which is
referred to herein as the "Filing Date") by Sterling with the SEC
under the 1933 Act, and shall have been declared effective prior to
the time the Proxy Statement/ Prospectus is first mailed to the
respective shareholders of Sterling and HBI, and no stop order with
respect to the effectiveness of the Registration Statement shall have
been issued; the Sterling Common Stock to be issued pursuant to this
Agreement shall be duly registered or qualified under the securities
or "blue sky" laws of all states in which such action is required for
purposes of the initial issuance of such shares and the distribution
thereof to the shareholders of HBI entitled to receive such shares.
(g) An opinion of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, P.C., or from Ernst & Young, LLP,
shall have been received by Sterling and HBI to the effect that:
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and HBI and Sterling will each be a
"party to a reorganization" within the meaning of Section 368(b)
of the Code;
(ii) No gain or loss will be recognized by HBI or Sterling by reason
of the Merger;
(iii) Except for cash received in lieu of fractional shares and cash
received by HBI Shareholders who exercise their dissenter's
rights, no gain or loss will be recognized by the shareholders of
HBI who receive solely Sterling Common Stock upon the exchange of
their shares of HBI Common Stock for shares of Sterling Common
Stock;
(iv) The tax basis of the Sterling Common Stock to be received by the
HBI shareholders will be, in each instance, the same as the basis
of the HBI Common Stock surrendered in exchange therefor;
(v) The holding period of the Sterling Common Stock received by a HBI
shareholder receiving Sterling Common Stock will include the
period during which the HBI Common Stock surrendered in exchange
therefor was held;
(vi) Cash received by a HBI shareholder in lieu of a fractional share
interest of Sterling Common Stock or upon exercise of dissenter's
rights will be treated as having been received as a distribution
in full payment in exchange for the
45
fractional share interest of Sterling Common Stock, or the tax
basis in the shares surrendered, as the case may be, which he
would otherwise be entitled to receive and will qualify as
capital gain or loss; and
(vii) Subject to any limitations imposed under Sections 381 and 382 of
the Code, Sterling, as the survivor to the Merger, will
carry-over and take into account all accounting items and tax
attributes of HBI, including but not limited to earning and
profits, methods of accounting, and tax basis and holding periods
of HBI.
In case a ruling from the IRS is sought, HBI and Sterling shall cooperate
and each shall furnish to the other and to the IRS such information and
representations as shall, in the opinion of counsel for Sterling and HBI,
be necessary or advisable to obtain such ruling.
SECTION 5.2 Conditions to Obligations of Sterling.
The obligations of Sterling to effect the Merger shall be subject to the
satisfaction or waiver prior to the Effective Time of the following additional
conditions:
(a) Each of the representations and warranties of HBI contained in this
Agreement shall be true and correct in all material respects as of the
Effective Date as if made on such date (or on the date when made in
the case of any representation or warranty which specifically relates
to an earlier date); HBI shall have performed each of its covenants
and agreements contained in this Agreement; and Sterling shall have
received certificates signed by the President or Vice President and
the Secretary or Assistant Secretary of HBI, dated as of the date of
the Closing, to the foregoing effect.
(b) Ernst & Young, LLP, or such other accounting firm as is acceptable to
the parties, shall have furnished to Sterling an "agreed upon
procedures" letter, dated the Effective Date, in form and substance
satisfactory to Sterling to the effect that, based upon a procedure
performed with respect to the financial condition of HBI, Hanover and
affiliates, for the period from December 31, 1999 to a specified date
not more than five (5) days prior to the date of such letter,
including but not limited to (a) their inspection of the minute books
of HBI, Hanover and affiliates, (b) inquiries made by them of officers
and other employees of HBI, Hanover and affiliates responsible for
financial and accounting matters as to transaction, and events during
the period, as to consistency of accounting procedures with prior
periods and as to the existence and disclosure of any material
contingent liabilities, and (c) of other specified procedures and
inquiries performed by them, nothing has come to their attention that
would indicate that (A) during the period from December 31, 1999 to a
specified date not more than five (5) days prior to the date of such
letter, there was any change in the capitalization of HBI or Hanover
on a consolidated basis, or (B) any material adjustments would be
required to the audited financial statements for the period ended
December 31, 1999 in order for them to be in conformity with generally
accepted accounting principles applied on a consistent basis with that
of prior periods.
46
(c) Sterling shall have received an opinion or opinions dated as of the
Effective Date, from Barley, Snyder, ▇▇▇▇▇ and ▇▇▇▇▇, LLC,
substantially in the form attached hereto as Exhibit "B".
(d) There shall not have occurred any change in the financial condition,
properties, assets, business or results of operation of HBI or Hanover
which, individually or in the aggregate, has had or might reasonably
be expected to result in a Material Adverse Effect on HBI or Hanover.
(e) The Merger shall as of the date of the Closing meet the requirements
for pooling-of-interests accounting treatment under generally accepted
accounting principles and under the accounting rules of the SEC, and
Sterling shall have received a letter from Ernst & Young, LLP in form
and substance reasonably satisfactory to Sterling as to the matters
specified in Section 5.2(e).
(f) Sterling shall have received from each of the persons identified by
HBI pursuant to Section 4.12 hereof an executed counterpart of an
affiliate's agreement in the form contemplated by such Section.
(g) Except as otherwise provided in this Agreement, prior to Closing, all
issued and outstanding options, warrants or rights to acquire HBI
Common Stock or any capital stock of Hanover ("Hanover Common Stock")
shall have been canceled. No compensation or other rights will be
payable or exchangeable in the Merger in respect of any such rights
which remain unexercised at the Effective Time.
(h) Holders of no more than six percent (6%) of the issued and outstanding
shares of HBI Common Stock and holders of no more that five percent
(5%) of the issued and outstanding shares of Sterling Common Stock
shall have exercised their statutory appraisal or Dissenters' Rights.
(i) No environmental problem of the kind contemplated in Section 3.1(q) of
Article III of this Agreement and not previously disclosed on Annex
3.1(q) shall have been discovered which would, or which potentially
could, materially and adversely affect the condition (financial or
otherwise), assets, liabilities, business, operations or future
prospects of HBI or Hanover; provided, that for purposes of
determining the materiality of an undisclosed environmental problem or
problems, the definition of "material" shall be governed by the
proviso to Section 8.1 of this Agreement. The result of any "phase I
environmental audit" conducted pursuant to Section 4.16 with respect
to owned or occupied bank premises shall be reasonably satisfactory to
Sterling.
(j) Sterling shall have received an updated opinion from ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
& Associates, Inc. as of a date no later than the date of the Proxy
Statement/Prospectus mailed to the Sterling shareholders in connection
with the Merger to the effect that the Exchange Ratio is fair to
Sterling's shareholders from a financial point of view.
47
(k) All litigation pending against HBI or Hanover which, individually or
in the aggregate, would have a Material Adverse Effect on HBI's
consolidated operations, business or future prospects, shall have been
settled or otherwise resolved on terms satisfactory to Sterling.
SECTION 5.3 Conditions to the Obligations of HBI.
The obligations of HBI to effect the Merger shall be subject to the
satisfaction or waiver prior to the Effective Time of the following additional
conditions:
(a) Each of the representations, warranties and covenants of Sterling
contained in this Agreement shall be true and correct in all material
respects on the Effective Date as if made on such date (or on the date
when made in the case of any representation or warranty which
specifically relates to an earlier date); Sterling shall have
performed each of its covenants and agreements contained in this
Agreement; and HBI shall have received certificates signed by the
President or Vice President and Secretary or Assistant Secretary of
Sterling.
(b) HBI shall have received an opinion dated as of the Effective Date,
from ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, P.C., counsel to Sterling, substantially in
the form attached hereto as Exhibit "C".
(c) Ernst & Young, LLP, or such other accounting firm as is acceptable to
the parties, shall have furnished to HBI an "agreed upon procedures"
letter, dated the Effective Date, in form and substance satisfactory
to HBI to the effect that, based upon a procedure performed with
respect to the financial condition of Sterling and its affiliates, for
the period from December 31, 1999 to a specified date not more than
five (5) days prior to the date of such letter, including but not
limited to (a) their inspection of the minute books of Sterling and
its affiliates, (b) inquiries made by them of officers and other
employees of Sterling and its affiliates responsible for financial and
accounting matters as to transaction, and events during the period, as
to consistency of accounting procedures with prior periods and as to
the existence and disclosure of any material contingent liabilities,
and (c) of other specified procedures and inquiries performed by them,
nothing has come to their attention that would indicate that (A)
during the period from December 31, 1999 to a specified date not more
than five (5) days prior to the date of such letter, there was any
change in the capitalization of Sterling on a consolidated basis, or
(B) any material adjustments would be required to the audited
financial statements for the period ended December 31, 1999 in order
for them to be in conformity with generally accepted accounting
principles applied on a consistent basis with that of prior periods.
(d) There shall not have occurred any material change in the dividend
policy of Sterling nor any material change in the financial condition,
properties, assets or business or results of operation of Sterling
which, individually or in the aggregate, has had or might reasonably
be expected to result in a Material Adverse Effect on Sterling.
48
(e) The Merger shall as of the date of the Closing meet the requirements
for pooling-of-interests accounting treatment under generally accepted
accounting principles and under the accounting rules of the SEC, and
HBI shall have received a letter from Ernst & Young, LLP, in form and
substance reasonably satisfactory to HBI as to the matters specified
in Section 5.3(e).
(f) HBI shall have received an updated opinion from ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇▇, Inc. as of a date no later than the date of the Proxy
Statement/Prospectus mailed to the HBI shareholders in connection with
the Merger to the effect that the Exchange Ratio is fair to HBI's
shareholders from a financial point of view.
(g) The shares of Sterling Common Stock to be issued in the Merger shall
have been authorized to be listed for quotation on the NASDAQ National
Market System.
ARTICLE VI
TERMINATION
SECTION 6.1 Termination.
This Agreement may be terminated, and the Merger abandoned, prior to the
Effective Date, either before or after its approval by the shareholders of
Sterling and HBI:
(a) by the mutual, written consent of HBI and Sterling if the board of
directors of each so determines by a vote of a majority of the members
of the entire Board;
(b) by HBI if (i) by written notice to Sterling that there has been a
material breach by Sterling of any representation, warranty, covenant
or agreement contained herein and such breach is not cured or not
curable within thirty (30) days after written notice of such breach is
given to Sterling by HBI or (ii) by written notice to Sterling that
any condition precedent to HBI's obligations as set forth in Article V
of this Agreement has not been met or waived by HBI at such time as
such condition can no longer be satisfied through no fault of HBI or
Hanover, on September 30, 2000.
(c) by Sterling by written notice to HBI, in the event (i) of a material
breach by HBI or Hanover of any representation, warranty, covenant or
agreement contained herein and such breach is not cured or not curable
within thirty (30) days after written notice of such breach is given
to HBI by Sterling or (ii) any condition precedent to Sterling's
obligations as set forth in Article V of this Agreement has not been
met or waived by Sterling at such time as such condition can no longer
be satisfied, through no fault of Sterling, on September 30, 2000.
(d) by Sterling or HBI by written notice to the other, in the event that
the Merger is not consummated by September 30, 2000, unless the
failure to so consummate by such time is due to the breach of any
representation, warranty or covenant contained in this
49
Agreement by the party seeking to terminate, provided, however, that
such date may be extended by the written agreement of the parties
hereto.
(e) by HBI, whether before or after approval of the Merger by the HBI
shareholders, by giving written notice to Sterling within one (1)
business day following a determination that the conditions described
in subsection (c) of Schedule 2.1 have been met.
(f) by Sterling, whether before or after approval of the Merger by the
Sterling shareholders, by giving written notice to HBI within one (1)
business day following a determination that the conditions described
in subsection (d) of Schedule 2.1 have been met.
(g) by HBI, pursuant to Section 2.3(e) of this Agreement.
SECTION 6.2 Effect of Termination.
In the event of the termination of this Agreement as provided above, this
Agreement shall thereafter become void and have no effect, except that the
provisions of Section 3.1(p) (Fees), Sections 4.4 (relating to confidentiality
and return of documents), Section 4.15 (Press Releases and Publicity) and
Sections 6.3 and 8.10 (Expenses) of this Agreement shall survive any such
termination and abandonment.
SECTION 6.3 Expenses.
Any termination of this Agreement pursuant to Sections 6.1(a), (d), (e),
(f) or (g) hereof shall be without cost, expense or liability on the part of any
party to the other. Any termination of this Agreement pursuant to Section 6.1(b)
or 6.1(c) hereof shall also be without cost, liability or expense on the part of
any party to the other, unless the breach of a representation or warranty or
covenant is caused by the willful conduct or gross negligence of a party or the
circumstances of, in which event said party shall be liable to the other party
for all out-of pocket costs and expenses, including without limitation,
reasonable legal, accounting and investment banking fees and expenses, incurred
by such other party in connection with their entering into this Agreement and
their carrying out of any and all acts contemplated hereunder ("Expenses").
ARTICLE VII
POST MERGER AGREEMENTS
SECTION 7.1 Employees and Benefits.
(a) Except as otherwise provided in this Agreement, Sterling and Hanover
shall use their best efforts (but shall be under no obligation) to
employ, as officers and employees of Hanover immediately following the
Effective Date, any persons who are officers and employees of Hanover
immediately before the Effective Date (the "Continuing Employees"),
provided that such employment shall be on an "at will" basis. It shall
50
be a condition to employment by Sterling or Hanover that any
Continuing Employee agree to cancel any existing employment contract,
agreement or understanding between himself or herself and HBI or
Hanover, including without limitation all benefits related to
severance arrangements upon a change of control or otherwise, prior to
accepting such new employment and without accepting any of the
severance benefits or other benefits or payments associated with such
contract, agreement or understanding.
(b) After the Effective Date, all benefits of each of the Continuing
Employees will be maintained at a level at least equal to the benefits
enjoyed by the employee of Hanover prior to the Effective Date, with
such changes to compensation and benefits in the future as may be
appropriate, as determined by Sterling's and Hanover's Board of
Directors.
(c) After the Effective Date, Continuing Employees shall be eligible to
apply for any positions available at Sterling, or any of its
subsidiaries.
(d) As provided herein, Sterling will permit, after the Merger, severance
payments to employees of HBI and Hanover (other than employees whose
severance benefits are provided for in written employment agreements)
whose employment is terminated (other than for cause) on or after the
Effective Date, and before the expiration of six (6) months following
the Effective Date and who sign a release of any and all claims the
employee may have against HBI, Hanover, Sterling or a Sterling
affiliate. Sterling, HBI and Hanover shall consult and mutually agree
upon the individual amounts to be received by former HBI or Hanover
employees who are eligible for severance payments.
SECTION 7.2 Officers.
Hanover's senior executive officers who are employed in good standing and
actively at work as of the Effective Date (the "Continuing Officers") shall be
employed and retained in their current management positions with compensation
initially at least equal to their current levels of compensation, with such
changes to employment status, compensation and benefits in the future as may be
appropriate, as determined by Sterling's and Hanover's Board of Directors.
Notwithstanding the foregoing, Sterling shall retain the right to terminate any
of the Continuing Officers at any time following the Effective Date for "Good
Reason", as that term shall be reasonably defined by Sterling.
SECTION 7.3 Hanover Board of Directors.
Immediately following the Effective Date, the Board of Directors of Hanover
shall consist of the members of the board immediately preceding the Effective
Time, with the addition of ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇. Non-employee director's
compensation for services as a member of the Hanover board of directors for
service in all capacities shall remain the same as on the date of this Agreement
for a period of three (3) years after the Effective Date, subject thereafter to
change based on the ongoing needs of Sterling and Hanover. Each person serving
on the board of directors of Hanover
51
immediately following the Effective Date shall, absent a breach of such
director's fiduciary duty to Hanover, be nominated and recommended by the board
of directors of Sterling to serve three (3) successive one year terms, and to
serve until such time as his successor has been duly elected, qualified or
appointed.
SECTION 7.4 Board Appointments and Sterling Management Committee.
(a) Immediately following the Effective Date, subject to any necessary
regulatory approval or notice, three (3) persons who are mutually
agreed upon by Sterling and HBI and who previously served as directors
of HBI shall be appointed to the board of directors of Sterling, one
person to serve in the Class of Director to be elected at the year
2001 Sterling Annual Meeting of Shareholders, one person to serve in
the Class of Director to be elected at the year 2002 Sterling Annual
Meeting of Shareholders, and one person to serve in the Class of
Director to be elected at the year 2003 Sterling Annual Meeting of
Shareholders , so long as each such person qualifies for service as a
director in accordance with the bylaws of Sterling. Upon the
expiration of the initial term of the person appointed to the board of
directors of Sterling to serve in the Class of Director to be elected
at the year 2001 Sterling Annual Meeting of Shareholders, and
consistent with the board members' fiduciary duties and law, the board
of directors of Sterling shall nominate and recommend to the
shareholders of Sterling, at the year 2001 Sterling Annual Meeting of
Shareholders, the election of said person to the board of directors of
Sterling for an additional three (3) year term, to serve until such
time as his successor has been duly elected, qualified, or appointed.
Each person so appointed shall serve until such time as his successor
has been duly elected, qualified, or appointed.
(b) Immediately after the Effective Date, subject to any necessary
regulatory approval or notice, a person selected by HBI and agreed
upon by Sterling shall be appointed to the board of directors of Bank
of Lancaster County.
(c) Immediately following the Effective Date, Sterling's Board of
Directors shall elect or appoint (i) J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as President
and Chief Executive Officer of Hanover and an Executive Vice President
of Sterling, and (ii) ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ as Executive Vice President of
Hanover and a Vice President of Sterling.
(d) Immediately following the Effective Date, Sterling agrees to appoint
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ as members of the Sterling
Management Committee to be established by the Board of Directors of
Sterling.
SECTION 7.5 Indemnification and Director and Officer Liability Insurance.
(a) For six (6) years after the Effective Date (except as described
below), Sterling shall indemnify, defend and hold harmless the present
and former directors, and executive officers of HBI (each, an
"Indemnified Party") against all costs or expenses(including
reasonable attorneys' fees), judgments, fines, losses, claims, damages
or liabilities (collectively, "Costs") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out
52
of actions or omissions occurring at or prior to the Effective Date
(and also advance expenses incurred to the fullest extent permitted by
applicable law), with the exception of (i) actions or omissions
occurring in connection with the transactions contemplated by this
Agreement and the Investment Agreement, whether asserted or claimed
prior to, at or after the Effective Date, and (ii) liability for
fraud, deception or intentional misrepresentation.; provided, however,
that Sterling shall not have an obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall become final and
non-appealable, that the indemnification of such Indemnified Party in
the manner contemplated hereby is prohibited by applicable law.
(b) For a period of six (6) years following the Effective Date, Sterling
shall pay the premiums for a Director and Officer Liability Insurance
Tail Policy for the Directors and Officers of HBI as of the Effective
Date and for all former directors and officers of HBI, if so permitted
by the insurance carrier and within the financial limitations of this
Section 7.5(b), with conditions and terms substantially comparable to
the Director and Officer Liability Policy of HBI as of the date of
this Agreement, so long as such policy can be obtained at a cost not
in excess of 150% of the rate for such Director and Officer Liability
Insurance Tail Policy in effect as of the date of this Agreement. In
the event Sterling is unable to obtain such a Director and Officer
Liability Insurance Tail Policy at a cost not in excess of 150% of
such rate, Sterling shall obtain a Director and Officer Liability
Insurance Tail Policy with the maximum coverage reasonably available
for a cost that is equal to 150% of such rate.
SECTION 7.6 Certain Matters.
(a) Sterling shall continue the separate corporate existence of Hanover as
an operating subsidiary for a period not less than three (3) years
following the Effective Date, with the corporate name "Bank of Hanover
and Trust Company", and until such time as the Sterling and Hanover
Board of Directors determine otherwise. Sterling shall use its best
efforts to maintain the level of customer service and community
support as has been the custom of HBI.
(b) Notwithstanding anything herein to the contrary, the Board of
Directors of Hanover, consistent with the board members' fiduciary
duties and law, may by majority vote, modify or waive any of all of
the provisions of Sections 7.3 or 7.6.
ARTICLE VIII
OTHER MATTERS
SECTION 8.1 Certain Definitions; Interpretation.
As used in this Agreement, the following terms shall have the meanings
indicated:
53
"Material" means material to the party in question (as the case may
be) and its respective subsidiaries, taken as a whole.
"Material Adverse Effect," with respect to a person, means any
condition, event, change or occurrence that has or results in an
effect which is material and adverse to (A) the financial condition,
properties, assets, business or results of operations of such person
and its subsidiaries, taken as a whole, or (B) the ability of such
person to perform its obligations under, and to consummate the
transactions contemplated by, this Agreement.
"Person" includes an individual, corporation, partnership,
association, trust or unincorporated organization.
"Subsidiary," with respect to a person, means any other person
controlled by such person.
When a reference is made in this Agreement to Exhibits, Sections, Annexes
or Schedules, such reference shall be to a Section of, or Annex or Schedule to,
this Agreement unless otherwise indicated. The table of contents, tie sheet and
headings contained in this Agreement are for ease of reference only and shall
not affect the meaning or interpretation of this Agreement. Whenever the words
"include," "includes," or "including" are used in this Agreement, they shall be
deemed followed by the words "without limitation". Any singular term in this
Agreement shall be deemed to include the plural, and any plural term the
singular.
SECTION 8.2 Survival.
Except as otherwise provided in this Agreement, the representations,
warranties and agreements of the parties set forth in this Agreement shall not
survive the Effective Time, and shall be terminated and extinguished at the
Effective Time, and from and after the Effective Time none of the parties hereto
shall have any liability to the other on account of any breach or failure of any
of those representations, warranties and agreement; provided, however, that the
foregoing clause shall not apply to agreements of the parties which by their
terms are intended to be performed either in whole or in part after the
Effective Time.
SECTION 8.3 Parties in Interest.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto and their respective successors and assigns, and, other than
the right to receive the consideration payable in the Merger pursuant to Article
II hereof, is not intended to and shall not confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 8.4 Captions.
54
The captions contained in this Agreement are for reference purposes only
and are not part of this Agreement.
SECTION 8.5 Severability.
If any provision of this Agreement or the application thereof to any party
or circumstance shall be invalid or unenforceable to any extent, the remainder
of this Agreement and the application of such provisions to other parties or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
SECTION 8.6 Access; Confidentiality.
The parties hereby agree to conduct the investigations and discussions
contemplated by Section 4.4 of this Agreement in a manner so as to not interfere
unreasonably with normal operations and customer and employee relationships. If
the transactions contemplated by this Agreement are not consummated, the parties
hereby agree to destroy or return all documents and records obtained from the
other or their respective representatives during the course of any investigation
and will cause all information with respect to the other party obtained pursuant
to this Agreement or preliminarily thereto to be kept confidential, except to
the extent such information becomes public through no fault of the party which
has obtained such information or any of its respective representatives or agents
and except to the extent disclosure of any such information is legally required.
Each party hereby agrees to give the other party prompt notice of any
contemplated disclosure where such disclosure is so legally required.
SECTION 8.7 Waiver and Amendment.
Prior to the Effective Time, any provision of this Agreement may be: (i)
waived by the party benefitted by the provision; or (ii) amended or modified at
any time (including the structure of the transaction) by an agreement in writing
between the parties hereto approved by their respective boards of directors,
except that no amendment or waiver may be made that would change the form or the
amount of the merger consideration or otherwise have the effect of prejudicing
the Sterling or HBI shareholders' interest in the merger consideration following
the Sterling or HBI Shareholders' Meeting.
SECTION 8.8 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed to constitute an original, but all of which together shall constitute one
and the same instrument.
SECTION 8.9 Governing Law.
This Agreement shall be governed by, and interpreted in accordance with,
the laws of the Commonwealth of Pennsylvania, or, to the extent it may control,
federal law, without reference to the choice of law principles thereof.
SECTION 8.10 Expenses.
55
Except as otherwise provided in this Agreement, and subject to the
provisions of Section 6.3 hereof, each party hereto will bear all Expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby; provided, however, that all filing and other fees (other
than federal and state income taxes) required to be paid to any governmental
agency or authority in connection with the consummation of the transactions
contemplated hereby shall be paid by Sterling.
SECTION 8.11 Change of Control Fee.
(a) In the event that a Change of Control of HBI is effected, or HBI or
Hanover enters into an agreement to effect a Change of Control, within
sixty (60) days of the termination of this Agreement in accordance
with the terms hereof (and provided that such period shall be extended
to November 30, 2000, if such termination results from a breach by HBI
of its obligations hereunder), and so long as Sterling shall not have
breached its obligations hereunder, then HBI shall promptly, but in no
event later than two (2) business days after the Change of Control or
entering into an agreement to effect a Change in Control, pay Sterling
a fee of $500,000 in addition to paying Sterling's Expenses hereunder,
which total amount shall be payable by wire transfer of same day
funds. If HBI fails to promptly pay the amount due pursuant to this
Section 8.11 and, in order to obtain such payment, Sterling commences
a suit which results in a judgment against HBI for all or a
substantial portion of the fee set forth in this Section 8.11, HBI
shall pay to Sterling all costs and expenses (including reasonable
attorneys' fees) incurred by Sterling in connection with such suit.
This Section 8.11 shall survive any termination of this Agreement.
(b) As used in this Section 8.11 and subsection (d) of Schedule 2.1 and
Section 2.3(e) of this Agreement, "Change of Control" shall mean the
occurrence of any of the following:
(i) (A) a merger, consolidation or division involving HBI, Hanover or
Sterling, as the case may be, (B) a sale, exchange, transfer or other
disposition of substantially all of the assets of HBI, Hanover or
Sterling, as the case may be, or (C) a purchase by HBI or Hanover of
substantially all of the assets of another entity, unless (y) the
shareholders of HBI or Sterling, as the case may be, are to hold
shares of the legal entity resulting from or existing after the
transaction to be outstanding immediately after such transaction
entitled to cast at least a majority of the votes entitled to be cast
generally for the election of directors; or
(ii) any other change of control of HBI, Hanover or Sterling, as the case
may be, similar in effect to any of the foregoing.
SECTION 8.12 Notices.
All notices, requests, acknowledgments and other communications hereunder
to a party shall be in writing and shall be deemed to have been duly given when
delivered by hand, telecopy, telegram
56
or telex (confirmed in writing) to such party at its address set forth below or
such other address as such party may specify by notice to the other party
hereto.
If to Sterling, to:
Sterling Financial Corporation
North Pointe Banking Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇
President and Chief Executive Officer
With copies to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇., Esquire
If to HBI, to:
Hanover Bancorp, Inc.
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Chief Executive Officer
With copies to:
Barley, Snyder, ▇▇▇▇▇ & ▇▇▇▇▇, LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
SECTION 8.13 Entire Agreement: Etc.
This Agreement, together with such other agreements as are executed by the
parties in connection herewith, on the date hereof, represent the entire
understanding of the parties hereto with reference to the transactions
contemplated hereby and supersede any and all other oral or written agreements
heretofore made. All terms and provisions of this Agreement, together with such
other agreements as are executed by the parties in connection herewith, on the
date hereof, shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Nothing in this Agreement is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement except as expressly provided.
57
58
IN WITNESS WHEREOF, the parties hereto have caused this to be executed by
their duly authorized officers as of the day and year first above written.
STERLING FINANCIAL CORPORATION
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Secretary By: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive
Officer
HANOVER BANCORP, INC.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------- ------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Secretary By: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman of Board
/s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
By: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President and Chief Executive
Officer
59
SCHEDULE 2.1
Exchange Provisions
(a) Each of the outstanding shares of HBI Common Stock shall be exchanged
for 0.93 shares of Sterling Common Stock and the Exchange Ratio shall be 0.93.
Subject to the provisions of Section 2.1(b), the aggregate number of shares of
Sterling Common Stock to be issued under this Agreement shall not exceed
3,735,675 shares (assuming the exercise of all of the HBI Options prior to the
Effective Date).
(b) The Closing Market Price of Sterling Common Stock shall be the
arithmetic average of the per share mean of the closing bid price and the
closing asked price for Sterling Common Stock for each of the twenty (20)
trading days immediately preceding the date which is five (5) business days
before the Effective Date, as reported on the National Market System of the
National Association of Securities Dealers Automated Quotation System
(NASDAQ/NMS), the foregoing twenty (20) trading days being hereinafter sometimes
referred to as the "Price Determination Period". (For example, if June 30, 2000
were to be the Effective Date, then the Price Determination Period would be May
25, 26, 30, 31, June 1, 2, 5, 6, 7, 8, 9, 12, 13, 14, 15, 16, 19, 20, 21 and
22.) In the event that NASDAQ/NMS shall fail to report a closing bid price and
closing asked price, respectively, for Sterling Common Stock for any trading day
during the Price Determination Period, then the per share mean price for that
day shall be equal to the average of the closing bid prices and the closing
asked prices as quoted: (i) by two market makers in Sterling Common Stock listed
in Sterling's 1999 Third Quarter Report to Shareholders; or (ii) in the event
that neither of these firms is then making a market in Sterling Common Stock, by
two brokerage firms then making a market in Sterling Common Stock to be selected
by Sterling and approved by the Board of Directors of HBI which approval shall
not be unreasonably withheld.
(c) HBI shall have the right to terminate the Agreement in accordance with
Section 6.1(e) if: (i) both (A) the Closing Market Price is less than $21.67
(80% of the Starting Price) and (B) the Sterling Ratio is less than the Index
Ratio by more than 5%; or (ii) the Closing Market Price is less than $18.96 (70%
of the Starting Price).
(d) Sterling shall have the right to terminate the Agreement in accordance
with Section 6.1(f) if: (i) both (A) the Closing Market Price is greater than
$32.50 (120% of the Starting Price and (B) the Sterling Ratio is greater than
the Index Ratio by more than 5%; or (ii) the Closing Market Price is greater
than $35.22 (130% of the Starting Price); provided, however, that Sterling shall
not have the right the terminate this Agreement under Section 6.1(f) if a Change
of Control (as such term is defined in Section 8.11 of the Agreement) of
Sterling occurs or is announced prior to the Effective Date.
(e) For purposes of this Schedule 2.1, the following terms shall have the
meanings indicated:
"Average Nasdaq Bank Index Value For The Price Determination Period" means
the average of the Nasdaq Bank Index Value as quoted by Nasdaq for the Price
Determination Period.
"Starting Price" shall mean the mean between the closing bid and the
closing asked price per share of Sterling Common on January 24, 2000, as
reported by the Nasdaq Stock Market reporting system (as reported on the Nasdaq
Stock Market Internet Web Site (▇▇▇.▇▇▇▇▇▇.▇▇▇)). For January 24, 2000, the
closing bid price was reported to be $26.625 and the closing asked price was
reported to be $27.5625, for a starting price calculated to be $27.09375,
rounded to $27.09.
"Sterling Ratio" shall mean the quotient (multiplied by 100 to express such
quotient as a percentage) obtained by dividing the Closing Market Price by the
Starting Price ($27.09).
"Index Ratio" shall mean the quotient (multiplied by 100 to express such
quotient as a percentage) obtained by dividing the Average Nasdaq Bank Index
Value For the Price Determination Period by the Nasdaq Bank Index Value on the
Starting Date (1,516.67).
The Starting Price and the Closing Market Price shall be appropriately
adjusted for an event described in Section 2.1(b) herein.