EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
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AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
F&M BANCORP
AND
PATAPSCO VALLEY BANCSHARES, INC.
DATED AS OF SEPTEMBER 7, 1999
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TABLE OF CONTENTS
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ARTICLE I THE MERGER........................................................................2
1.1. THE MERGER...........................................................................2
1.2. EFFECTIVE TIME.......................................................................2
1.3. EFFECTS OF THE MERGER................................................................2
1.4. CONVERSION OF COMPANY COMMON STOCK...................................................2
1.5. STOCK OPTIONS........................................................................3
1.6. BUYER COMMON STOCK...................................................................5
1.7. ARTICLES OF INCORPORATION............................................................5
1.8. BY-LAWS..............................................................................5
1.9. DIRECTORS AND OFFICERS...............................................................5
1.10. TAX CONSEQUENCES; ACCOUNTING TREATMENT..............................................5
ARTICLE II EXCHANGE OF SHARES................................................................5
2.1. BUYER TO MAKE SHARES AVAILABLE.......................................................5
2.2. EXCHANGE OF SHARES...................................................................6
ARTICLE III DISCLOSURE SCHEDULES; STANDARDS
FOR REPRESENTATIONS AND WARRANTIES...............................................8
3.1. DISCLOSURE SCHEDULES.................................................................8
3.2. STANDARDS............................................................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE COMPANY..................................................................10
4.1. CORPORATE ORGANIZATION..............................................................10
4.2. CAPITALIZATION......................................................................11
4.3. AUTHORITY; NO VIOLATION.............................................................12
4.4. CONSENTS AND APPROVALS..............................................................14
4.5. REPORTS.............................................................................14
4.6. FINANCIAL STATEMENTS................................................................15
4.7. BROKER'S FEES.......................................................................16
4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS................................................16
4.9. LEGAL PROCEEDINGS...................................................................17
4.10. TAXES..............................................................................17
4.11. EMPLOYEES..........................................................................18
4.12. SEC REPORTS........................................................................20
4.13. COMPANY INFORMATION................................................................20
4.14. COMPLIANCE WITH APPLICABLE LAW.....................................................20
4.15. CERTAIN CONTRACTS..................................................................21
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4.14. COMPLIANCE WITH APPLICABLE LAW.....................................................20
4.15. CERTAIN CONTRACTS..................................................................21
4.16. AGREEMENTS WITH REGULATORY AGENCIES................................................22
4.17. INVESTMENT SECURITIES..............................................................22
4.18. INTELLECTUAL PROPERTY..............................................................22
4.19. STATE TAKEOVER LAWS................................................................22
4.20. ADMINISTRATION OF FIDUCIARY ACCOUNTS...............................................22
4.21. ENVIRONMENTAL MATTERS..............................................................23
4.22. DERIVATIVE TRANSACTIONS............................................................24
4.23. OPINION............................................................................24
4.24. APPROVALS..........................................................................24
4.25. LOAN PORTFOLIO.....................................................................24
4.26. ACCOUNTING FOR THE MERGER; REORGANIZATION..........................................25
4.27. OWNERSHIP OF COMPANY COMMON STOCK..................................................25
ARTICLE V REPRESENTATIONS AND WARRANTIES
OF BUYER........................................................................26
5.1. CORPORATE ORGANIZATION..............................................................26
5.2. CAPITALIZATION......................................................................27
5.3. AUTHORITY; NO VIOLATION.............................................................28
5.4. CONSENTS AND APPROVALS..............................................................29
5.5. REPORTS.............................................................................30
5.6. FINANCIAL STATEMENTS................................................................30
5.7. BROKER'S FEES.......................................................................31
5.8. ABSENCE OF CERTAIN CHANGES OR EVENTS................................................31
5.9. LEGAL PROCEEDINGS...................................................................31
5.10. SEC REPORTS........................................................................31
5.11. AGREEMENTS WITH REGULATORY AGENCIES................................................32
5.12. BUYER INFORMATION..................................................................32
5.13. OWNERSHIP OF COMPANY COMMON STOCK; AFFILIATES AND
ASSOCIATES.......................................................................32
5.14. APPROVALS..........................................................................33
5.15. ACCOUNTING FOR THE MERGER; REORGANIZATION..........................................33
5.16. TAXES..............................................................................33
5.17. EMPLOYEES..........................................................................34
5.18. COMPLIANCE WITH APPLICABLE LAW.....................................................35
5.19. INVESTMENT SECURITIES..............................................................35
5.20. INTELLECTUAL PROPERTY..............................................................35
5.21. ENVIRONMENTAL MATTERS..............................................................36
5.22. DERIVATIVE TRANSACTIONS............................................................36
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5.23. LOAN PORTFOLIO.....................................................................37
5.24. ADMINISTRATION OF FIDUCIARY ACCOUNTS...............................................38
ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS........................................38
6.1. COVENANTS OF THE COMPANY............................................................38
6.2. COVENANTS OF BUYER..................................................................42
ARTICLE VII ADDITIONAL AGREEMENTS................................................................43
7.1. REGULATORY MATTERS..................................................................43
7.2. ACCESS TO INFORMATION...............................................................45
7.3. NO SOLICITATION.....................................................................46
7.4. STOCKHOLDER MEETING.................................................................48
7.5. LEGAL CONDITIONS TO MERGER..........................................................48
7.6. AFFILIATES..........................................................................49
7.7. STOCK EXCHANGE LISTING..............................................................49
7.8. EMPLOYEE BENEFIT PLANS; EXISTING AGREEMENTS.........................................49
7.9. INDEMNIFICATION.....................................................................50
7.10. ADDITIONAL AGREEMENTS..............................................................52
7.11. ADVICE OF CHANGES..................................................................52
7.12. CURRENT INFORMATION................................................................53
7.13. EXECUTION AND AUTHORIZATION OF BANK MERGER AGREEMENT...............................53
7.14. DIRECTORSHIP.......................................................................53
7.15. ADVISORY COUNCIL...................................................................54
7.16. COORDINATION OF DIVIDENDS..........................................................54
7.17. YEAR 2000 SURVEY...................................................................54
7.18. COMPANY DRIP.......................................................................54
ARTICLE VIII CONDITIONS PRECEDENT.............................................................55
8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER..........................55
8.2. CONDITIONS TO OBLIGATIONS OF BUYER..................................................56
8.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY............................................57
ARTICLE IX TERMINATION AND AMENDMENT........................................................58
9.1. TERMINATION.........................................................................58
9.2. EFFECT OF TERMINATION; EXPENSES.....................................................62
9.3. AMENDMENT...........................................................................63
9.4. EXTENSION; WAIVER...................................................................63
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ARTICLE X GENERAL PROVISIONS...............................................................63
10.1. CLOSING............................................................................63
10.2. ALTERNATIVE STRUCTURE..............................................................64
10.3. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS..........................64
10.4. EXPENSES...........................................................................64
10.5. NOTICES............................................................................64
10.6. INTERPRETATION.....................................................................66
10.7. COUNTERPARTS.......................................................................66
10.8. ENTIRE AGREEMENT...................................................................66
10.9. GOVERNING LAW......................................................................66
10.10. ENFORCEMENT OF AGREEMENT..........................................................66
10.11. SEVERABILITY......................................................................67
10.12. PUBLICITY.........................................................................67
10.13. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES..........................................67
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 7, 1999 by
and between F&M Bancorp, a Maryland corporation ("Buyer"), and Patapsco Valley
Bancshares, Inc., a Maryland corporation (the "Company"). (Buyer and the Company
are sometimes collectively referred to herein as the "Constituent
Corporations".)
WHEREAS, the Boards of Directors of Buyer and the Company have
determined that it is in the best interests of their respective companies and
their stockholders to consummate the business combination transaction provided
for herein in which the Company will, subject to the terms and conditions set
forth herein, merge (the "Merger") with and into Buyer; and
WHEREAS, as soon as practicable after the execution and
delivery of this Agreement, Farmers & Mechanics National Bank, a banking
association organized under the laws of the United States and a wholly owned
subsidiary of Buyer ("Buyer Bank," and sometimes referred to herein as the
"Surviving Bank"), and Commercial and Farmers Bank, a Maryland-chartered
commercial bank and a wholly owned subsidiary of the Company (the "Company
Bank"), will enter into a Subsidiary Agreement and Plan of Merger in
substantially the form set forth on EXHIBIT A hereto (the "Bank Merger
Agreement") providing for the merger (the "Subsidiary Merger") of the Company
Bank with and into Buyer Bank, and it is intended that the Subsidiary Merger be
consummated immediately following the consummation of the Merger; and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that
the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended
that the Merger will be accounted for as a pooling of interests transaction.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. Subject to the terms and conditions of this
Agreement, in accordance with the Maryland General Corporation Law (the
"MGCL"), at the Effective Time (as defined in Section 1.2 hereof), the Company
shall merge with and into Buyer. Buyer shall be the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") in the Merger, and
shall continue its corporate existence under the laws of the State of Maryland.
The name of the Surviving Corporation shall continue to be F&M Bancorp. Upon
consummation of the Merger, the separate corporate existence of the Company
shall terminate.
1.2. EFFECTIVE TIME. The Merger shall become effective as set
forth in the articles of merger (the "Articles of Merger") which shall be filed
with the State Department of Assessments and Taxation (the "Department") on the
Closing Date (as defined in Section 10.1 hereof). The term "Effective Time"
shall be the date and time when the Merger becomes effective, as set forth in
the Articles of Merger.
1.3. EFFECTS OF THE MERGER. At and after the Effective Time,
the Merger shall have the effects set forth in Section 3-114 of the MGCL.
1.4. CONVERSION OF COMPANY COMMON STOCK. (a) At the Effective
Time, subject to Section 2.2(e) hereof, each share of the common stock, par
value $0.01 per share, of the Company (the "Company Common Stock") issued and
out standing immediately prior to the Effective Time (other than shares of
Company Common Stock held directly or indirectly by Buyer or the Company or any
of their respective Subsidiaries (as defined below) (except for Trust Account
Shares and DPC Shares, as such terms are defined in Section 1.4(b) hereof))
shall, by virtue of this Agreement and without any action on the part of the
holder thereof, be converted into and exchangeable for 1.18 shares (the
"Exchange Ratio") of the common stock, par value $5.00 per share, of Buyer
("Buyer Common Stock"). All of the shares of Company Common Stock converted into
Buyer Common Stock pursuant to this Article I shall no longer be outstanding
and shall automatically be cancelled and shall cease to exist, and each
certificate (each a "Certificate") previously representing any such shares of
Company Common Stock shall thereafter only represent the right to receive (i)
the number of whole shares of Buyer Common Stock and (ii) the cash in lieu of
fractional shares into which the shares of Company Common Stock represented by
such Certificate have been converted pursuant to this Section 1.4(a) and Section
2.2(e) hereof. Certificates previously representing shares of Company Common
Stock shall be exchanged for certificates representing whole shares of
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Buyer Common Stock and cash in lieu of fractional shares issued in consideration
therefor upon the surrender of such Certificates in accordance with Section 2.2
hereof, with out any interest thereon. If, between the date of this Agreement
and the Effective Time, the outstanding shares of Buyer Common Stock shall be
changed into a different number or class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment, or a stock dividend thereon shall be declared with a record date
within said period, the Exchange Ratio shall be adjusted accordingly.
(b) At the Effective Time, all shares of Company
Common Stock that are owned directly or indirectly by Buyer or the Company or
any of their respective Subsidiaries (other than shares of Company Common Stock
(x) held directly or indirectly in trust accounts, managed accounts and the
like or otherwise held in a fiduciary capacity for the benefit of third parties
(any such shares, and shares of Buyer Common Stock which are similarly held,
whether held directly or indirectly by Buyer or the Company, as the case may be,
being referred to herein as "Trust Account Shares") and (y) held by Buyer or
the Company or any of their respective Subsidiaries in respect of a debt
previously contracted (any such shares of Company Common Stock, and shares of
Buyer Common Stock which are similarly held, whether held directly or indirectly
by Buyer or the Company, being referred to herein as "DPC Shares") shall be
cancelled and shall cease to exist and no stock of Buyer or other consideration
shall be delivered in exchange therefor. All shares of Buyer Common Stock that
are owned by the Company or any of its Subsidiaries (other than Trust Account
Shares and DPC Shares) shall become authorized but unissued shares of Buyer
Common Stock. As used in this Agreement, the word "Subsidiary" when used with
respect to any party means any corporation, partnership or other organization,
whether incorporated or unincorporated, which is consolidated with such party
for financial reporting purposes.
1.5. STOCK OPTIONS. (a) At the Effective Time, each option
granted by the Company (a "Company Option") to purchase shares of Company Common
Stock which is outstanding and unexercised (whether vested or unvested)
immediately prior thereto shall be assumed by Buyer and converted automatically
into an option (a "Buyer Option") to purchase shares of Buyer Common Stock in an
amount and at an exercise price determined as provided below (and otherwise
subject to the terms of the Company's Incentive Stock Option Plan, the Company's
Employee Stock Purchase Plan or the Company's Directors' Stock Option Plan, as
the case may be (collectively, the "Company Option Plans") or the Agreement for
Non-Qualified Stock Option, dated February 1, 1999, by and between the Company
and W. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (the "▇▇▇▇▇▇▇ Option"), as applicable):
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(1) the number of shares of Buyer Common Stock to be
subject to the new option shall be equal to the product of the
number of shares of Company Common Stock subject to the
original option and the Exchange Ratio, provided that any
fractional shares of Buyer Common Stock resulting from such
multiplication shall be rounded down to the nearest whole
share; and
(2) the exercise price per share of Buyer Common
Stock under the new option shall be equal to the exercise
price per share of Company Common Stock under the original
option divided by the Exchange Ratio, provided that such
exercise price shall be rounded up to the nearest whole cent.
The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Code) shall be and is intended
to be effected in a manner which is consistent with Section 424(a) of the Code
and, to the extent it is not so consistent, such Section 424(a) shall override
anything to the contrary contained herein. The duration and other terms of the
new option shall be the same as the original option, except that all references
to the Company shall be deemed to be references to Buyer.
(b) Buyer shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of Buyer Common Stock for
delivery upon exercise of Buyer Options, and, at or prior to the Effective Time,
Buyer shall file a registration statement on Form S-8 with respect to the shares
of Buyer Common Stock subject to Buyer Options, and shall use its reasonable
best efforts to maintain the effectiveness of such registration statement for so
long as any such Buyer Options remain outstanding.
(c) Buyer and the Company shall take all such steps
as may be required to cause the transactions contemplated by this Section 1.5
and any other dispositions of Company equity securities (including derivative
securities) or acquisitions of Buyer equity securities (including derivative
securities) in connection with this Agreement by each individual who (i) is a
director or officer of the Company or (ii) at the Effective Time, will become a
director or officer of Buyer, to be exempt under Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), such steps
to be taken in accordance with the No- Action Letter dated January 12, 1999,
issued by the SEC to Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP.
1.6. BUYER COMMON STOCK. Except for shares of Buyer Common
Stock owned by the Company or any of its Subsidiaries (other than Trust Account
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Shares and DPC Shares), which shall constitute authorized but unissued shares of
Buyer Common Stock as contemplated by Section 1.4 hereof, the shares of Buyer
Common Stock issued and outstanding immediately prior to the Effective Time
shall be unaffected by the Merger and such shares shall remain issued and
outstanding.
1.7. ARTICLES OF INCORPORATION. At the Effective Time, the
Articles of Incorporation of Buyer, as in effect at the Effective Time, shall be
the Articles of Incorporation of the Surviving Corporation.
1.8. BY-LAWS. At the Effective Time, the By-Laws of Buyer, as
in effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended in accordance with applicable
law.
1.9. DIRECTORS AND OFFICERS. Except as contemplated by Section
7.14 hereof, the directors and officers of Buyer immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and By-Laws
of the Surviving Corporation until their respective successors are duly elected
or appointed and qualified.
1.10. TAX CONSEQUENCES; ACCOUNTING TREATMENT. It is intended
that the Merger shall (i) constitute a reorganization within the meaning of
Section 368(a) of the Code, and that this Agreement shall constitute a "plan of
reorganization" for purposes of Section 368 of the Code, and (ii) be accounted
for as a "pooling-of-interests" under generally accepted accounting principles
("GAAP").
ARTICLE II
EXCHANGE OF SHARES
2.1. BUYER TO MAKE SHARES AVAILABLE. At or prior to the
Effective Time, Buyer shall deposit, or shall cause to be deposited, with a bank
or trust company (which may be a Subsidiary of Buyer) (the "Exchange Agent"),
selected by Buyer, for the benefit of the holders of Certificates, for exchange
in accordance with this Article II, certificates representing the shares of
Buyer Common Stock and the cash in lieu of fractional shares (such cash and
certificates for shares of Buyer Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") to be issued pursuant to Section 1.4 and paid pursuant to
Section 2.2(a) in exchange for outstanding shares of Company Common Stock.
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2.2. EXCHANGE OF SHARES. (a) As soon as practicable after the
Effective Time, and in no event more than five business days thereafter, the
Exchange Agent shall mail to each holder of record of a Certificate or
Certificates a form letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Ex change Agent) advising such
holder of the effectiveness of the Merger and instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing the
shares of Buyer Common Stock and the cash in lieu of fractional shares into
which the shares of Company Common Stock represented by such Certificate or
Certificates shall have been converted pursuant to this Agreement. Upon
surrender of a Certificate for exchange and cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor (x) a certificate
representing that number of whole shares of Buyer Common Stock to which such
holder of Company Common Stock shall have become entitled pursuant to the
provisions of Article I hereof and (y) a check representing the amount of cash
in lieu of fractional shares, if any, which such holder has the right to receive
in respect of the Certificate surrendered pursuant to the provisions of this
Article II, and the Certificate so surrendered shall forthwith be cancelled. No
interest will be paid or accrued on the cash in lieu of fractional shares and
unpaid dividends and distributions, if any, payable to holders of Certificates.
(b) No dividends or other distributions declared at
or after the Effective Time with respect to Buyer Common Stock and payable to
the holders of record thereof shall be paid to the holder of any unsurrendered
Certificate until the holder thereof shall surrender such Certificate in
accordance with this Article II. After the surrender of a Certificate in
accordance with this Article II, the record holder thereof shall be entitled to
receive any such dividends or other distributions, without any interest thereon,
which theretofore had become payable with respect to shares of Buyer Common
Stock represented by such Certificate. No holder of an unsurrendered Certificate
shall be entitled, until the surrender of such Certificate, to vote the shares
of Buyer Common Stock into which his Company Common Stock shall have been
converted.
(c) If any certificate representing shares of Buyer
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the Certificate so surrendered shall be properly endorsed
(or accompanied by an appropriate instrument of transfer) and otherwise in
proper form for transfer, and that the person requesting such exchange shall pay
to the Exchange Agent in advance any transfer or other taxes required by reason
of the issuance of a certificate representing shares of Buyer Common Stock in
any name other than that of the registered holder
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of the Certificate surrendered, or required for any other reason, or shall
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
(d) After the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the shares of Company
Common Stock which were issued and outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates representing such
shares are presented for transfer to the Exchange Agent, they shall be cancelled
and exchanged for certificates representing shares of Buyer Common Stock as
provided in this Article II.
(e) Notwithstanding anything to the contrary
contained herein, no certificates or scrip representing fractional shares of
Buyer Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution with respect to Buyer Common Stock
shall be payable on or with respect to any fractional share, and such fractional
share interests shall not entitle the owner thereof to vote or to any other
rights of a stockholder of Buyer. In lieu of the issuance of any such fractional
share, Buyer shall pay to each former stockholder of the Company who otherwise
would be entitled to receive a fractional share of Buyer Common Stock an amount
in cash determined by multiplying (i) the fraction of a share of Buyer Common
Stock to which such holder would otherwise be entitled to receive pursuant to
Section 1.4 hereof by (ii) the average of the last reported sale prices per
share of Buyer Common Stock as reported on The Nasdaq Market's National Market
("Nasdaq/NMS") (as reported in THE WALL STREET JOURNAL or, if not reported
therein, in another mutually agreed upon authoritative source) for the 5 (five)
consecutive trading days ending immediately preceding the date on which the
Effective Time shall occur.
(f) Any portion of the Exchange Fund that remains
unclaimed by the stockholders of the Company for six months after the Effective
Time shall be delivered by the Exchange Agent to Buyer. Any stockholders of the
Company who have not theretofore complied with this Article II shall thereafter
be entitled to look to Buyer for payment of their shares of Buyer Common Stock,
cash in lieu of fractional shares and unpaid dividends and distributions on
Buyer Common Stock deliverable in respect of each share of Company Common Stock
such stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon. Notwithstanding the foregoing, none of Buyer, the
Company, the Exchange Agent or any other person shall be liable to any former
holder of shares of Company Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(g) In the event any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such
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Certificate to be lost, stolen or destroyed and, if required by Buyer, the
posting by such person of a bond in such amount as Buyer reasonably may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Buyer Common Stock, cash in lieu of
fractional shares and unpaid dividends and distributions deliverable in respect
thereof pursuant to this Agreement.
ARTICLE III
DISCLOSURE SCHEDULES; STANDARDS
FOR REPRESENTATIONS AND WARRANTIES
3.1. DISCLOSURE SCHEDULES. Prior to the execution and delivery
of this Agreement, the Company has delivered to Buyer, and Buyer has delivered
to the Company, a schedule (in the case of the Company, the "Company Disclosure
Schedule," and in the case of Buyer, the "Buyer Disclosure Schedule") setting
forth, among other things, items the disclosure of which is necessary or
appropriate either in response to an express disclosure requirement contained
in a provision hereof or as an exception to one or more of such party's
representations or warranties contained in Article IV, in the case of the
Company, or Article V, in the case of Buyer, or to one or more of such party's
covenants contained in Article VI; PROVIDED, HOWEVER, that notwithstanding
anything in this Agreement to the contrary (a) no such item is required to be
set forth in the Disclosure Schedule as an exception to a representation or
warranty (other than the representations and warranties contained in Sections
4.2, 4.3(a), 4.3(b), 4.6(a), 4.11(d), 4.12, 4.13, 5.2, 5.3(a), 5.3(b), 5.6(a),
5.10 and 5.12) if its absence would not result in the related representation or
warranty being deemed untrue or incorrect under the standard established by
Section 3.2, and (b) the mere inclusion of an item in a Disclosure Schedule as
an exception to a representation or warranty shall not be deemed an admission by
a party that such item represents a material exception or material fact, event
or circumstance or that such item has had or is reasonably likely to have a
Material Adverse Effect (as defined herein) with respect to either the Company
or Buyer, respectively.
3.2. STANDARDS. (a) No representation or warranty of the
Company contained in Article IV (other than the representations and warranties
contained in Sections 4.2, 4.3(a), 4.3(b), 4.6(a), 4.11(d), 4.12 and 4.13) or of
Buyer in Article V (other than the representations and warranties contained in
Sections 5.2, 5.3(a), 5.3(b), 5.6(a), 5.10 and 5.12) shall be deemed untrue or
incorrect for any purpose under this Agreement, including for purposes of
Section 8.2(a) and Section 8.3(a), and no party hereto shall be deemed to have
breached any such representation or warranty for any purpose under this
Agreement, in any case as a consequence of the
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existence or absence of any fact, circumstance or event unless such fact,
circumstance or event, individually or when taken together with all other facts,
circumstances or events inconsistent with any such representations or
warranties contained in Article IV, in the case of the Company, or Article V, in
the case of Buyer, has had or is reasonably likely to have a Material Adverse
Effect with respect to the Company or Buyer, respectively.
(b) As used in this Agreement, the term "Material
Adverse Effect" means, with respect to Buyer or the Company, as the case may be,
a material adverse effect on (i) the business, results of operations or
financial condition of such party and its Subsidiaries taken as a whole, other
than any such effect attributable to or resulting from (A) any change in banking
or similar laws, rules or regulations of general applicability or
interpretations thereof by courts or governmental authorities, (B) any change in
GAAP or regulatory accounting principles applicable to banks or their holding
companies generally, (C) any change in general economic or business conditions
affecting banks, thrifts or holding companies generally, PROVIDED that such
change does not affect the referenced party to a materially greater extent than
banks, thrifts or holding companies generally, and PROVIDED FURTHER that such
change does not have a materially adverse effect on the results of operations or
financial condition of the referenced party, or (D) any action or omission of
the Company or Buyer or any Subsidiary of either of them taken in contemplation
of the Merger with the prior written consent of the other party hereto, or (ii)
the ability of such party and its Subsidiaries to consummate the transactions
contemplated by the Company Documents (as defined herein) and the Bank Merger
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the Company Disclosure
Schedule (PROVIDED, HOWEVER, that no exception shall be taken with respect to
any representation or warranty set forth in any Section of this Article IV
unless such exception is specifically set forth in the correspondingly
enumerated section of the Company Disclosure Schedule), the Company hereby
represents and warrants to Buyer as follows:
4.1. CORPORATE ORGANIZATION. (a) The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Maryland. The Company has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as it is now
being conducted, and is duly qualified to do business in each jurisdiction in
which the nature of the
9
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such qualification necessary. The Company is
duly registered as a bank holding company under the Bank Holding Company Act of
1956, as amended (the "BHC Act"). The Articles of Incorporation and By-Laws of
the Company, copies of which have previously been made available to Buyer, are
true, complete and correct copies of such documents as in effect as of the date
of this Agreement.
(b) The Company Bank is a commercial bank duly
organized, validly existing and in good standing under the laws of the State of
Maryland. The deposit accounts of the Company Bank are insured by the Federal
Deposit Insurance Corporation (the "FDIC") through the Bank Insurance Fund
("BIF") and/or the Savings Association Insurance Fund ("SAIF") to the fullest
extent permitted by law, and all premiums and assessments required to be paid in
connection therewith have been paid when due by the Company Bank. Each of the
Company's other Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization. Each of the Company's Subsidiaries has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted and is duly qualified to do business in
each jurisdiction in which the nature of the business conducted by it or the
character or the location of the properties and assets owned or leased by it
makes such qualification necessary. The articles of incorporation, by-laws and
similar governing documents of each Subsidiary of the Company, copies of which
have previously been made available to Buyer, are true, complete and correct
copies of such documents as in effect as of the date of this Agreement.
(c) The minute books of the Company and each of its
Subsidiaries contain true, complete and accurate records of all meetings and
other corporate actions held or taken since December 31, 1996 of their
respective stockholders and Boards of Directors (including committees of their
respective Boards of Directors).
4.2. CAPITALIZATION. (a) The authorized capital stock of the
Company consists of 50,000,000 shares of Company Common Stock. As of the date of
this Agreement, there are (x) 1,367,968.9364 shares of Company Common Stock out
standing, (y) 5,200 shares of Company Common Stock reserved for issuance
pursuant to a restricted stock award that was granted by the Board of Directors
of the Company on April 20, 1999 (the "Restricted Stock Award") and described in
Section 4.2(a) of the Company Disclosure Schedule and (z) no shares of Company
Common Stock reserved for issuance upon exercise of outstanding stock options or
otherwise except for (i) 120,000 shares of Company Common Stock reserved for
issuance
10
pursuant to the Company Option Plans and described in Section 4.2(a) of the
Company Disclosure Schedule, (ii) 4,000 shares of Company Common Stock reserved
for issuance pursuant to the ▇▇▇▇▇▇▇ Option Plan and described in Section
4.2(a) of the Company Disclosure Schedule and (iii) 272,225 shares of Company
Common Stock reserved for issuance upon exercise of the option issued to Buyer
pursuant to the Stock Option Agreement, dated as of the date hereof, between
Buyer and the Company (the "Company Option Agreement"). All of the issued and
outstanding shares of Company Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable, with no personal liability
attaching to the ownership thereof. Except as referred to above or reflected in
Section 4.2(a) of the Company Disclosure Schedule, and except for the Company
Option Agreement, the Company does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of Company Common
Stock or any other equity security of the Company or any securities representing
the right to purchase or otherwise receive any shares of Company Common Stock or
any other equity security of the Company. The number of shares subject to each
option to purchase Company Common Stock granted and the price at which each such
option may be exercised are set forth in Section 4.2(a) of the Company
Disclosure Schedule. The names of the optionees, the date of each option to
purchase Company Common Stock granted, and the expiration date of each such
option under the Company Option Plans are set forth in Section 4.2(a) of the
Company Disclosure Schedule.
(b) Section 4.2(b) of the Company Disclosure Schedule
sets forth a true, complete and correct list of all of the Subsidiaries of the
Company. The Company owns, directly or indirectly, all of the issued and
outstanding shares of the capital stock of each of such Subsidiaries, free and
clear of all liens, charges, encumbrances and security interests whatsoever,
and all of such shares are duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. No Subsidiary of the Company has or is bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary. Assuming
compliance by Buyer with Section 1.5 hereof, at the Effective Time, there will
not be any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character by which the Company or any of its Subsidiaries
will be bound calling for the purchase or issuance of any shares of the capital
stock of the Company or any of its Subsidiaries.
11
(c) Upon the suspension by the Company of the Company
Dividend Reinvestment Plan (the "Company DRIP") pursuant to Section 7.18, from
the date of such suspension, if any, no issuances or purchases of the Company
Common Stock under the Company DRIP shall be permitted, nor shall any other
obligations thereunder accrue.
4.3. AUTHORITY; NO VIOLATION. (a) The Company has full
corporate power and authority to execute and deliver this Agreement and the
Company Option Agreement (this Agreement and the Company Option Agreement,
collectively, the "Company Documents") and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of each of the
Company Documents and the consummation of the transactions contemplated hereby
and thereby have been duly and validly approved by the Board of Directors of the
Company. The Board of Directors of the Company has directed that this Agreement
and the transactions contemplated hereby be submitted to the Company's
stockholders for approval at a meeting of such stockholders and, except for the
approval of the Merger and this Agreement by the requisite vote of the
Company's stockholders, no other corporate proceedings on the part of the
Company are necessary to approve the Company Documents and to consummate the
transactions contemplated hereby and thereby. With out limiting the foregoing,
the Board of Directors of the Company has adopted a resolution declaring that
this Agreement, the Merger and the transactions contemplated hereby and thereby
are advisable on substantially the terms set forth herein and that such proposed
transactions be submitted for consideration at a special meeting of the
stockholders of the Company. Each of the Company Documents has been duly and
validly executed and delivered by the Company and (assuming due authorization,
execution and delivery by Buyer) this Agreement constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) The Company Bank has full corporate power and
authority to execute and deliver the Bank Merger Agreement and to consummate
the trans actions contemplated thereby. The execution and delivery of the Bank
Merger Agreement and the consummation of the transactions contemplated thereby
will be duly and validly approved by the Board of Directors of the Company Bank.
Upon the due and valid approval of the Bank Merger Agreement by the Board of
Directors of the Company Bank and by the Company as the sole stockholder of the
Company Bank, no other corporate proceedings on the part of the Company Bank
will be necessary to consummate the transactions contemplated thereby. The Bank
Merger Agreement, upon execution and delivery by the Company Bank, will be duly
and
12
validly executed and delivered by the Company Bank and will (assuming due
authorization, execution and delivery by Buyer Bank) constitute a valid and
binding obligation of the Company Bank, enforceable against the Company Bank in
accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
(c) Neither the execution and delivery of the Company
Documents by the Company or the Bank Merger Agreement by the Company Bank, nor
the consummation by the Company or the Company Bank, as the case may be, of the
transactions contemplated hereby or thereby, nor compliance by the Company or
the Company Bank, as the case may be, with any of the terms or provisions hereof
or thereof, will (i) violate any provision of the Articles of Incorporation or
By-Laws of the Company or the articles of incorporation, by-laws or similar
governing documents of any of its Subsidiaries, or (ii) assuming that the
consents and approvals referred to in Section 4.4 hereof are duly obtained
prior to the Effective Time, (x) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to the
Company or any of its Subsidiaries, or any of their respective properties or
assets, or (y) violate, conflict with, result in a breach of any provision of or
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the respective
properties or assets of the
Company or any of its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Company or any
of its Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected.
4.4. CONSENTS AND APPROVALS. Except for (a) the filing of
applications and notices, as applicable, with the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under the BHC Act and the
Office of the Comptroller of the Currency (the "OCC") under the Bank Merger Act
and approval of such applications and notices, (b) the filing with the
Securities and Exchange Commission (the "SEC") of a proxy statement in
definitive form relating to the meeting of the Company's stockholders to be held
in connection with this Agreement and the trans actions contemplated hereby (the
"Proxy Statement") and the filing and declaration of effectiveness of the
registration statement on Form S-4 (the "S-4") in which the Proxy Statement will
be included as a prospectus, (c) the approval of the Merger and this Agreement
by the requisite vote of the stockholders of the Company,
13
(d) the filing of the Articles of Merger with the Department pursuant to the
MGCL, (e) the approval of the Bank Merger Agreement by the Company as the sole
stockholder of the Company Bank, (f) authorization for quotation of Buyer Common
Stock to be issued in the Merger on the Nasdaq/NMS, (g) approval of the
transactions contemplated by this Agreement and the Bank Merger Agreement by
the Maryland Commissioner of Financial Regulation and/or filings in connection
therewith pursuant to the Financial Institutions Article of the Annotated Code
of Maryland, (h) filings under state securities and blue sky laws, (i) filings
with or approvals of the State Insurance Commissioner and (j) such filings,
authorizations or approvals as may be set forth in Section 4.4 of the Company
Disclosure Schedule, no consents or approvals of or filings or registrations
with any court, administrative agency or commission or other governmental
authority or instrumentality (each a "Governmental Entity") or with any third
party are necessary in connection with (1) the execution and delivery by the
Company of the Company Documents, (2) the consummation by the Company of the
Merger and the other transactions contemplated hereby and thereby, (3) the
execution and delivery by the Company Bank of the Bank Merger Agreement, and (4)
the consummation by the Company Bank of the Subsidiary Merger and the
transactions contemplated thereby.
4.5. REPORTS. The Company and each of its Subsidiaries have
timely filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since December 31, 1995 with (i) the Federal Reserve Board, (ii) the FDIC,
(iii) any state banking commissions or any other state regulatory authority
(each a "State Regulator") and (iv) and any self-regulatory organization ("SRO")
(collectively, the "Regulatory Agencies"), and have paid all fees and
assessments due and payable in connection there with. Except for normal
examinations conducted by a Regulatory Agency in the regular course of the
business of the Company and its Subsidiaries, and no Regulatory Agency has
initiated any proceeding or investigation into the business or operations of the
Company or any of its Subsidiaries since December 31, 1995. There is no
unresolved material violation, criticism, or exception by any Regulatory Agency
with respect to any report or statement relating to any examinations of the
Company or any of its Subsidiaries.
4.6. FINANCIAL STATEMENTS. (a) The Company has previously made
available to Buyer copies of (i) the consolidated balance sheets of Company and
its Subsidiaries as of December 31 for the fiscal years 1997 and 1998, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1996 through 1998, inclusive, as reported in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998 filed with the SEC under the Exchange Act, in each case accompanied by the
audit report of ▇▇▇▇▇▇ & Company, LLP, independent public accountants with
respect to the
14
Company, and (ii) the unaudited consolidated statements of financial condition
of the Company and its Subsidiaries as of June 30, 1999 and June 30, 1998 and
the related unaudited consolidated statements of operations and cash flows for
the six-month periods then ended as reported in the Company's Quarterly Report
on Form 10-QSB for the period ended June 30, 1999 filed with the SEC under the
Exchange Act. The December 31, 1998 consolidated balance sheet of the Company
(including the related notes, where applicable) fairly presents the
consolidated financial position of the Company and its Subsidiaries as of the
date thereof, and the other financial statements referred to in this Section
4.6 (including the related notes, where applicable) fairly present (subject, in
the case of the unaudited statements, to recurring audit adjustments normal in
nature and amount), and the financial statements to be filed with the SEC after
the date hereof will fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount), the
results of the consolidated operations and consolidated financial position of
the Company and its Subsidiaries for the respective fiscal periods or as of the
respective dates therein set forth; each of such statements (including the
related notes, where applicable) comply, and the financial statements to be
filed with the SEC after the date hereof will comply, with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes, where
applicable) has been, and the financial statements to be filed with the SEC
after the date hereof will be, prepared in accordance with GAAP consistently
applied during the periods involved, except as indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q.
(b) The books and records of the Company and its
Subsidiaries have been, and are being, maintained in accordance with applicable
legal and accounting requirements.
4.7. BROKER'S FEES. Neither the Company nor any Subsidiary of
the Company nor any of their respective officers or directors has employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contemplated by the
Company Documents or the Bank Merger Agreement, except that the Company has
engaged, and will pay a fee or commission to, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ Incorporated
in accordance with the terms of a letter agreement between ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Incorporated and the Company, a true, complete and correct copy of which has
been previously made available by the Company to Buyer.
4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Since December
31, 1998, there has been no change or
15
development or combination of changes or developments which, individually or in
the aggregate, has had or is reasonably likely to have a Material Adverse Effect
on the Company.
(b) Except for the execution and delivery of the
Company Documents and the Bank Merger Agreement, since December 31, 1998, the
Company and its Subsidiaries have carried on their respective businesses in the
ordinary course consistent with their past practices.
(c) Since June 30, 1999, neither the Company nor any
of its Subsidiaries has (i) increased the wages, salaries, compensation, pension
or other fringe benefits or perquisites payable to any executive officer,
employee or director from the amount thereof in effect as of June 30, 1999
(which amounts have been previously disclosed to Buyer), granted any severance
or termination pay, entered into any contract to make or grant any severance or
termination pay, or paid any bonus other than year-end bonuses for fiscal 1999
as listed in Section 4.8 of the Company Disclosure Schedule, (ii) suffered any
strike, work stoppage, slow-down, or other labor disturbance, (iii) been a party
to a collective bargaining agreement, contract or other agreement or
understanding with a labor union or organization or (iv) had any union
organizing activities.
4.9. LEGAL PROCEEDINGS. (a) Neither the Company nor any of its
Subsidiaries is a party to any, and there are no pending or, to the Company's
knowledge, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
against the Company or any of its Subsidiaries or challenging the validity or
propriety of the transactions contemplated by any of the Company Documents or
the Bank Merger Agreement.
(b) There is no injunction, order, judgment, decree
or regulatory restriction imposed upon the Company, any of its Subsidiaries or
the assets of the Company or any of its Subsidiaries.
4.10. TAXES. (a) Each of the Company and its Subsidiaries (i)
has duly and timely filed (including applicable extensions granted without
penalty) all Tax Returns (as hereinafter defined) required to be filed on or
prior to the date hereof and will duly and timely file all Tax Returns after the
date hereof and prior to the Effective Time, and such Tax Returns are or will be
true, correct and complete, and (ii) has paid or will pay in full or to the
extent necessary made or will make adequate provision in the financial
statements of the Company (in accordance with GAAP) for all Taxes (as
hereinafter defined). No deficiencies for any Taxes have been proposed,
asserted, assessed or, to the knowledge of the Company, threatened against or
with respect to the Company or any of its Subsidiaries. (i) There are no liens
for
16
Taxes upon the assets of either the Company or its Subsidiaries except for
statutory liens for current Taxes not yet due, (ii) neither the Company nor any
of its Subsidiaries has requested any extension of time within which to file any
Tax Returns in respect of any fiscal year which have not since been filed and no
request for waivers of the time to assess any Taxes are pending or outstanding,
(iii) with respect to each taxable period of the Company and its Subsidiaries,
the federal and state income Tax Returns of the Company and its Subsidiaries
have been audited by the Internal Revenue Service (the "IRS") or appropriate
state tax authorities or the time for assessing and collecting income Tax with
respect to such taxable period has closed and such taxable period is not subject
to review, (iv) neither the Company nor any of its Subsidiaries has filed or
been included in a combined, consolidated or unitary income Tax Return other
than one in which the Company was the parent of the group filing such Tax
Return, (v) neither the Company nor any of its Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes (other than the
allocation of federal income taxes as provided by Regulation 1.1552-1(a)(1)
under the Code), (vi) neither the Company nor any of its Subsidiaries is
required to include in income any adjustment pursuant to Section 481(a) of the
Code (or any similar or corresponding provision or requirement of state, local
or foreign income Tax law), by reason of the voluntary change in accounting
method (nor has any taxing authority proposed in writing any such adjustment or
change of accounting method), (vii) neither the Company nor any of its
Subsidiaries has filed a consent pursuant to Section 341(f) of the Code, (viii)
neither the Company nor any of its Subsidiaries has made any payment or will be
obligated to make any payment (by contract or otherwise) which will not be
deductible by reason of Section 280G of the Code and (ix) none of the Company,
any of its Subsidiaries or any entity acquired by the Company or its
Subsidiaries is or was (a) a domestic building and loan association, (b) a
mutual savings bank or (c) a cooperative bank without capital stock organized
and operated for mutual purposes and without profit, which has taken a deduction
for additions to a reserve for bad debts under Section 593 of the Code.
(b) For the purposes of this Agreement, "Taxes" shall
mean all taxes, charges, fees, levies, penalties or other assessments imposed by
any United States federal, state, local or foreign taxing authority, including,
but not limited to income, excise, property, sales, transfer, franchise,
payroll, withholding, social security or other taxes, including any interest,
penalties or additions attributable thereto. For purposes of this Agreement,
"Tax Return" shall mean any return, report, information return or other
document (including any related or supporting information) with respect to
Taxes.
4.11. EMPLOYEES. (a) Section 4.11(a) of the Company Disclosure
Schedule sets forth a true, complete and correct list of each deferred
compensation plan, incentive compensation plan, equity compensation plan,
"welfare" plan, fund or
17
program (within the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")); each "pension" plan, fund or
program (within the meaning of section 3(2) of ERISA); each employment,
termination or severance agreement; and each other employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to (the "Company Plans") by the
Company, any of its Subsidiaries or by any trade or business, whether or not
incorporated (a "Company ERISA Affiliate"), all of which together with the
Company would be deemed a "single employer" within the meaning of Section 4001
of ERISA, for the benefit of any employee or former employee of the Company, any
Subsidiary or any Company ERISA Affiliate.
(b) The Company has heretofore made available to
Buyer true, complete and correct copies of each of the Company Plans and all
related documents, including but not limited to (i) the actuarial report for
such Company Plan (if applicable) for each of the last two years and (ii) the
most recent determination letter from the IRS (if applicable) for such Company
Plan.
(c) (i) Each of the Company Plans has been operated
and ad ministered in all material respects in accordance with its terms and
applicable law, including but not limited to ERISA and the Code, (ii) each of
the Company Plans intended to be "qualified" within the meaning of Section
401(a) of the Code either (1) has received a favorable determination letter from
the IRS, or (2) is or will be the subject of an application for a favorable
determination letter, and the Company is not aware of any circumstances likely
to result in the revocation or denial of any such favorable determination
letter, (iii) with respect to each Company Plan which is subject to Title IV of
ERISA, the present value of accrued benefits under such Company Plan, based upon
the actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by such Company Plan's actuary with respect to such Company
Plan, did not, as of its latest valuation date, exceed the then current value of
the assets of such Company Plan allocable to such accrued benefits, (iv) no
Company Plan provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
of the Company, its Subsidiaries or any Company ERISA Affiliate beyond their
retirement or other termination of service, other than (w) coverage mandated by
applicable law, (x) death benefits or retirement benefits under any "employee
pension plan," as that term is defined in Section 3(2) of ERISA, (y) deferred
compensation benefits accrued as liabilities on the books of the Company, its
Subsidiaries or the Company ERISA Affiliates or (z) benefits the full cost of
which is borne by the current or former employee (or his beneficiary), (v) no
liability under Title IV of ERISA has been incurred by the Company, its
Subsidiaries or any Company ERISA Affiliate that has not been satisfied in full,
and no condition exists
18
that presents a material risk to the Company, its Subsidiaries or a Company
ERISA Affiliate of incurring a liability thereunder, (vi) no Company Plan is a
"multiemployer pension plan," as such term is defined in Section 3(37) of ERISA,
(vii) all contributions or other amounts payable by the Company, its
Subsidiaries or any Company ERISA Affiliates as of the Effective Time with
respect to each Company Plan in respect of current or prior plan years have been
paid or accrued in accordance with GAAP and Section 412 of the Code, (viii)
neither the Company, its Subsidiaries nor any Company ERISA Affiliate has
engaged in a transaction in connection with which the Company, its Subsidiaries
or any Company ERISA Affiliate could be subject to either a civil penalty
assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant
to Section 4975 or 4976 of the Code, (ix) there are no pending or, to the best
knowledge of the Company, threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of or against any of the Company Plans or any
trusts related thereto and (x) the consummation of the transactions contemplated
by this Agreement or the Bank Merger Agreement will not (y) entitle any current
or former employee or officer of the Company or any Company ERISA Affiliate to
severance pay, termination pay or any other payment or benefit, except as
expressly provided in this Agreement or (z) accelerate the time of payment or
vesting or increase the amount or value of compensation or benefits due any such
employee or officer.
(d) Section 4.11(d) of the Company Disclosure
Schedule sets forth a true, complete and correct list of each contract,
arrangement, commitment or understanding (whether written or oral,) with respect
to the employment or retention of any director, officer, employee or consultant
(each, an "Employment Agreement") to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound, and the Company has heretofore made available to Buyer true, complete and
correct copies of each such Employment Agreement and all related documents.
4.12. SEC REPORTS. The Company has previously made available
to Buyer a true, complete and correct copy of each (a) final registration
statement, prospectus, report, schedule and definitive proxy statement filed
since January 1, 1997 by the Company with the SEC pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), or the Exchange Act (the "Company
Reports") and (b) communication mailed by the Company to its stockholders since
January 1, 1997, and no such registration statement, prospectus, report,
schedule, proxy statement or communication contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, except that information
as of a later date shall be deemed to modify information as of an earlier date.
The Company has timely filed all Company
19
Reports and other documents required to be filed by it under the Securities Act
and the Exchange Act, and, as of their respective dates, all Company Reports
complied with the published rules and regulations of the SEC with respect
thereto.
4.13. COMPANY INFORMATION. The information relating to the
Company and its Subsidiaries which is provided to Buyer by the Company
specifically for inclusion in the Proxy Statement and the S-4, or in any other
document filed with any other regulatory agency in connection herewith, will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances in which
they are made, not misleading.
4.14. COMPLIANCE WITH APPLICABLE LAW. The Company and each of
its Subsidiaries hold, and have at all times held, all licenses, franchises,
permits and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to all, and have complied with and are not in
default in any respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries has received notice of, any violations of any of the above.
4.15. CERTAIN CONTRACTS. (a) Neither the Company nor any of
its Subsidiaries is a party to or bound by any contract, arrangement,
commitment or under standing (whether written or oral) (i) which is an
Employment Agreement, (ii) which, upon the consummation of the transactions
contemplated by this Agreement or the Bank Merger Agreement, will (either alone
or upon the occurrence of any additional acts or events) result in any payment
or benefits (whether of severance pay or otherwise) becoming due, or the
acceleration or vesting of any rights to any payment or benefits, from Buyer,
the Company, the Surviving Corporation, the Surviving Bank or any of their
respective Subsidiaries to any officer, director, consultant or employee
thereof, (iii) which is a material contract (as defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed after the date of this Agreement that
has not been filed or incorporated by reference in the Company Reports, (iv)
which is a consulting agreement (including data processing, software programming
and licensing contracts) not terminable on 60 days or less notice involving the
payment of more than $50,000 per annum, in the case of any such agreement with
an individual, or $100,000 per annum, in the case of any other such agreement,
(v) which materially restricts the conduct of any line of business by the
Company or any of its Subsidiaries or (vi) (including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock purchase plan)
any of the benefits of which will be in creased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this
20
Agreement or the Bank Merger Agreement, or the value of any of the benefits of
which will be calculated on the basis of any of the transactions contemplated
by this Agreement or the Bank Merger Agreement. Each contract, arrangement,
commitment or understanding of the type described in this Section 4.15(a),
whether or not set forth in Section 4.15(a) of the Company Disclosure Schedule,
is referred to herein as a "Company Contract". The Company has previously made
available to Buyer true, complete and correct copies of each Company Contract.
(b) (i) Each Company Contract is valid and binding
and in full force and effect, (ii) the Company and each of its Subsidiaries has
performed all obligations required to be performed by it to date under each
Company Contract, (iii) no event or condition exists which constitutes or, after
notice or lapse of time or both, would constitute, a default on the part of the
Company or any of its Subsidiaries under any such Company Contract and (iv) no
other party to such Company Contract is, to the knowledge of the Company, in
default in any respect thereunder.
4.16. AGREEMENTS WITH REGULATORY AGENCIES. Neither the Company
nor any of its Subsidiaries is subject to any cease-and-desist or other order
issued by, or is a party to any written agreement, consent agreement or
memorandum of under standing with, or is a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any board
resolutions at the request of (each, whether or not set forth on Section 4.16 of
the Company Disclosure Schedule, a "Company Regulatory Agreement"), any
Regulatory Agency or other Governmental Entity that restricts the conduct of
its business or that in any manner relates to its capital adequacy, its credit
policies, its management or its business, nor has the Company or any of its
Subsidiaries been advised in writing by any Regulatory Agency or other
Governmental Entity that it is considering issuing or requesting any Company
Regulatory Agreement.
4.17. INVESTMENT SECURITIES. Section 4.17 of the Company
Disclosure Schedule sets forth the book and market value as of July 31, 1999 of
the investment securities and securities available for sale of the Company and
its Subsidiaries.
4.18. INTELLECTUAL PROPERTY. The Company and each of its
Subsidiaries owns or possesses valid and binding licenses and other rights to
use without payment all patents, copyrights, trade secrets, trade names,
servicemarks and trademarks used in its businesses; and neither the Company nor
any of its Subsidiaries has received any notice of conflict with respect
thereto that asserts the right of others.
21
4.19. STATE TAKEOVER LAWS. The Board of Directors of the
Company has approved this Agreement, the Company Option Agreement and the
transaction contemplated hereby prior to the date of this Agreement such that
the provisions of Section 3-602 of the MGCL will not, assuming the accuracy of
the representations contained in Section 5.13 hereof, apply to this Agreement,
the Bank Merger Agreement or the Company Option Agreement or any of the
transactions contemplated hereby or thereby.
4.20. ADMINISTRATION OF FIDUCIARY ACCOUNTS. The Company and
each of its Subsidiaries has properly administered all accounts for which it
acts as a fiduciary, including but not limited to accounts for which it serves
as a trustee, agent, custodian, personal representative, guardian, conservator
or investment advisor, in accordance with the terms of the governing documents
and applicable state and federal law and regulation and common law. Neither the
Company nor any of its Subsidiaries nor any of their respective directors,
officers or employees has committed any breach of trust with respect to any such
fiduciary account, and the accountings for each such fiduciary account are true,
complete and correct and accurately reflect the assets of such fiduciary
account.
4.21. ENVIRONMENTAL MATTERS. (a) Each of the Company and its
Subsidiaries and to the best knowledge of the Company, the Participation
Facilities and the Loan Properties (each as hereinafter defined) are, and have
been, in compliance with all applicable federal, state and local laws including
common law, regulations and ordinances and with all applicable decrees, orders
and contractual obligations relating to pollution or the discharge of, or
exposure to Hazardous Materials (as hereinafter defined) in the environment or
workplace ("Environmental Laws");
(b) There is no suit, claim, action or proceeding,
pending or, to the best knowledge of the Company, threatened, before any
Governmental Entity or other forum in which the Company, any of its Subsidiaries
or to the best knowledge of the Company, any Participation Facility or any Loan
Property, has been or, with respect to threatened proceedings, may be, named as
a defendant (x) for alleged noncompliance (including by any predecessor), with
any Environmental Laws or (y) relating to the release, threatened release or
exposure to any Hazardous Material, whether or not occurring at or on a site
owned, leased or operated by the Company or any of its Subsidiaries, any
Participation Facility or any Loan Property;
(c) During the period of (x) the Company's or any of
its Subsidiaries' ownership or operation of any of their respective current or
former proper ties, (y) the Company's or any of its Subsidiaries' participation
in the management of any Participation Facility or (z) the Company's or any of
its
22
Subsidiaries' holding of a security interest in a Loan Property, to the best
knowledge of the Company, there has been no release of Hazardous Materials in,
on, under or affecting any such property. Prior to the period of (x) the
Company's or any of its Subsidiaries' ownership or operation of any of their
respective current or former properties, (y) the Company's or any of its
Subsidiaries' participation in the management of any Participation Facility or
(z) the Company's or any of its Subsidiaries' holding of a security interest in
a Loan Property, to the best knowledge of the Company, there was no release or
threatened release of Hazardous Materials in, on, under or affecting any such
property, Participation Facility or Loan Property; and
(d) The following definitions apply for purposes of
this Section 4.21: (x) "Hazardous Materials" means any chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum or other regulated substances
or materials; (y) "Loan Property" means any property in which the Company or any
of its Subsidiaries holds a security interest, and, where required by the
context, said term means the owner or operator of such property; and (z)
"Participation Facility" means any facility in which the Company or any of its
Subsidiaries participates in the management and, where required by the context,
said term means the owner or operator of such property.
4.22. DERIVATIVE TRANSACTIONS. Since December 31, 1998,
neither Company nor any of its Subsidiaries has engaged in transactions in or
involving for wards, futures, options on futures, swaps or other derivative
instruments except (i) as agent on the order and for the account of others or
(ii) as principal for purposes of hedging interest rate risk on U.S.
dollar-denominated securities and other financial instruments. None of the
counterparties to any contract or agreement with respect to any such instrument
is in default with respect to such contract or agreement and no such contract or
agreement, were it to be a Loan (as defined below) held by the Company or any of
its Subsidiaries, would be classified as "Other Loans Specially Mentioned",
"Special Mention", "Substandard", "Doubtful", "Loss", "Classified",
"Criticized", "Credit Risk Assets", "Concerned Loans" or words of similar
import. The financial position of the Company and its Subsidiaries on a
consolidated basis under or with respect to each such instrument has been
reflected in the books and records of the Company and such Subsidiaries in
accordance with GAAP consistently applied, and no open exposure of the Company
or any of its Subsidiaries with respect to any such instrument (or with respect
to multiple instruments with respect to any single counterparty) exceeds
$50,000.
4.23. OPINION. Prior to the execution of this Agreement, the
Company has received an opinion from ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ Incorporated to the
effect that, as of the date hereof and based upon and subject to the matters set
forth therein,
23
the consideration to be received by the stockholders of the Company pursuant to
this Agreement is fair to the Company's stockholders from a financial point of
view. Such opinion has not been amended or rescinded as of the date of this
Agreement.
4.24. APPROVALS. As of the date of this Agreement, the Company
knows of no reason why all Requisite Regulatory Approvals (as such term is
defined in subsection 8.1(c) hereof) should not be obtained.
4.25. LOAN PORTFOLIO. (a) Neither the Company nor any of its
Subsidiaries is a party to any written or oral (i) loan agreement, note or
borrowing arrangement (including, without limitation, leases, credit
enhancements, commitments, guarantees and interest-bearing assets)
(collectively, "Loans"), other than any Loan the unpaid principal balance of
which does not exceed $50,000, under the terms of which the obligor is, as of
the date of this Agreement, over 90 days delinquent in payment of principal or
interest or in default of any other provision, or (ii) Loan with any director,
executive officer or five percent or greater stockholder of the Company or any
of its Subsidiaries, or to the knowledge of the Company, any person, corporation
or enterprise controlling, controlled by or under common control with any of the
fore going. Section 4.25 of the Company Disclosure Schedule sets forth (i) all
of the Loans in original principal amount in excess of $50,000 of the Company or
any of its Subsidiaries that as of the date of this Agreement are classified by
any bank examiner (whether regulatory or internal) as "Other Loans Specially
Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss", "Classified",
"Criticized", "Credit Risk Assets", "Concerned Loans", "Watch List" or words of
similar import, together with the principal amount of and accrued and unpaid
interest on each such Loan and the identity of the borrower thereunder, (ii) by
category of Loan (i.e., commercial, consumer, etc.), all of the other Loans of
the Company and its Subsidiaries that as of the date of this Agreement are
classified as such, together with the aggregate principal amount of and accrued
and unpaid interest on such Loans by category and (iii) each asset of the
Company that as of the date of this Agreement is classified as "Other Real
Estate Owned" and the book value thereof. The Company shall promptly inform
Buyer in writing of any Loan that becomes classified in the manner described in
the previous sentence, or any Loan the classification of which is changed, at
any time after the date of this Agreement.
(b) Each Loan in original principal amount in excess
of $50,000 (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii) to the
extent secured, has been secured by valid liens and security interests which
have been and remain perfected and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency,
24
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
4.26. ACCOUNTING FOR THE MERGER; REORGANIZATION. As of the
date of this Agreement, the Company has no reason to believe that the Merger
will fail to qualify (i) for pooling-of-interests treatment under GAAP or (ii)
as a reorganization under Section 368(a) of the Code.
4.27. OWNERSHIP OF COMPANY COMMON STOCK. Immediately prior to
the Effective Time, none of the Company or its Subsidiaries will beneficially
own, directly or indirectly, any Company Common Stock that will be cancelled,
pursuant to Section 1.4(b) hereof, at the Effective Time.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER
Except as specifically set forth in the Buyer Disclosure
Schedule (PROVIDED, HOWEVER, that no exception shall be taken with respect to
any representation or warranty set forth in any Section of this Article V unless
such exception is specifically set forth in the correspondingly enumerated
section of the Buyer Disclosure Schedule), Buyer hereby represents and warrants
to the Company as follows:
5.1. CORPORATE ORGANIZATION. (a) Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland. Buyer has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary. Buyer is duly registered as a bank holding company
under the BHC Act. The Articles of Incorporation and By-Laws of Buyer, copies of
which have previously been made available to the Company, are true, complete and
correct copies of such documents as in effect as of the date of this Agreement.
(b) Buyer Bank is a banking association duly
organized, validly existing and in good standing under the laws of the United
States. The deposit accounts of Buyer Bank are insured by the FDIC through the
BIF and the SAIF to the fullest extent permitted by law, and all premiums and
assessments
25
required in connection therewith have been paid by Buyer Bank. Each of Buyer's
other Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each Subsidiary of
Buyer has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary.
(c) The minute books of Buyer and each of its
Subsidiaries contain true, complete and accurate records of all meetings and
other corporate actions held or taken since December 31, 1996 of their
respective stockholders and Boards of Directors (including committees of their
respective Boards of Directors).
5.2. CAPITALIZATION. (a) As of the date of this Agreement, the
authorized capital stock of Buyer consists of 50,000,000 shares of Buyer Common
Stock. As of August 31, 1999, there were 9,360,558 shares of Buyer Common Stock
issued and outstanding. As of the date of this Agreement, no shares of Buyer
Common Stock were reserved for issuance, except that (i) 63,814 shares of Buyer
Common Stock were reserved for issuance pursuant to Buyer's dividend
reinvestment and stock purchase plans and (ii) 487,408 shares of Buyer Common
Stock were reserved for issuance upon the exercise of stock options pursuant to
the Buyer 1983 Incentive Stock Option Plan, as amended, the Buyer 1995 Stock
Option Plan, the Buyer Employee Stock Purchase Plan, the Buyer 1999 Employee
Stock Option Plan, the Buyer 1999 Stock Option Plan for Non-Employee Directors,
the Home Federal Corporation 1989 Stock Option and Stock Appreciation Rights
Plan, the Monocacy Bancshares, Inc. 1994 Stock Incentive Plan, the Monocacy
Bancshares, Inc. 1997 Independent Director Stock Option Plan, and the ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ Stock Option Plan (collectively, the "Buyer Stock Plans"). All of
the issued and outstanding shares of Buyer Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. As of the date of this Agreement, except as referred to above or
reflected in Section 5.2(a) of the Buyer Disclosure Schedule, Buyer does not
have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any shares of Buyer Common Stock or any other equity securities of
Buyer or any securities representing the right to purchase or otherwise receive
any shares of Buyer Common Stock. The shares of Buyer Common Stock to be issued
pursuant to the Merger will be duly authorized and validly issued and, at the
Effective Time, all such shares will be fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof.
26
(b) Section 5.2(b) of the Buyer Disclosure Schedule
sets forth a true and correct list of all of Buyer Subsidiaries as of the date
of this Agreement. As of the date of this Agreement, Buyer owns, directly or
indirectly, all of the issued and outstanding shares of capital stock of each of
the Subsidiaries of Buyer, free and clear of all liens, charges, encumbrances
and security interests whatsoever, and all of such shares are duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof. As of the
date of this Agreement, no Subsidiary of Buyer has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character with any party that is not a direct or indirect Subsidiary of
Buyer calling for the purchase or issuance of any shares of capital stock or any
other equity security of such Subsidiary or any securities representing the
right to purchase or otherwise receive any shares of capital stock or any other
equity security of such Subsidiary.
5.3. AUTHORITY; NO VIOLATION. (a) Buyer has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Buyer and no other corporate
proceedings on the part of Buyer are necessary to approve this Agreement and to
consummate the trans actions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Buyer and (assuming due authorization,
execution and delivery by the Company) this Agreement constitutes a valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) Buyer Bank has full corporate power and authority
to execute and deliver the Bank Merger Agreement and to consummate the
transactions contemplated thereby. The execution and delivery of the Bank Merger
Agreement and the consummation of the transactions contemplated thereby will be
duly and validly approved by the Board of Directors of Buyer Bank. Upon the due
and valid approval of the Bank Merger Agreement by Buyer as the sole
stockholder of Buyer Bank, and by the Board of Directors of Buyer Bank, no other
corporate proceedings on the part of Buyer Bank will be necessary to consummate
the transactions contemplated thereby. The Bank Merger Agreement, upon
execution and delivery by Buyer Bank, will be duly and validly executed and
delivered by Buyer Bank and will (assuming due authorization, execution and
delivery by the Company Bank) constitute a valid and binding obligation of Buyer
Bank, enforceable against Buyer Bank in accordance with its terms, except as
enforcement may be limited by general
27
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
(c) Neither the execution and delivery of this
Agreement by Buyer or the Bank Merger Agreement by Buyer Bank, nor the
consummation by Buyer or Buyer Bank, as the case may be, of the transactions
contemplated hereby or thereby, nor compliance by Buyer or Buyer Bank, as the
case may be, with any of the terms or provisions hereof or thereof, will (i)
violate any provision of the Articles of Incorporation or By-Laws of Buyer, or
the articles of incorporation or by-laws or similar governing documents of any
of its Subsidiaries or (ii) assuming that the consents and approvals referred
to in Section 5.4 are duly obtained, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Buyer or any of its Subsidiaries or any of their respective properties or
assets, or (y) violate, conflict with, result in a breach of any provision of or
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the respective
properties or assets of Buyer or any of its Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
Buyer or any of its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected.
5.4. CONSENTS AND APPROVALS. Except for (a) the filing of
applications and notices, as applicable, with the Federal Reserve Board under
the BHC Act and the Office of the Comptroller of the Currency under the Bank
Merger Act, and approval of such applications and notices, (b) the filing and
declaration of effectiveness of the S-4, (c) the filing of the Articles of
Merger with the Department pursuant to the MGCL, (d) such filings and approvals
as are required to be made or obtained under the securities or "Blue Sky" laws
of various states in connection with the issuance of the shares of Buyer Common
Stock pursuant to this Agreement, (e) the approval of the Bank Merger Agreement
by the stockholder of Buyer Bank, (f) authorization for quotation of Buyer
Common Stock to be issued in the Merger on the Nasdaq/NMS, (g) approval of the
transactions contemplated by this Agreement and the Bank Merger Agreement by the
Maryland Commissioner of Financial Regulation and/or filings in connection
therewith pursuant to the Financial Institutions Article of the Annotated Code
of Maryland, (h) filings with the State Insurance Commissioner and (i) such
filings, authorizations or approvals as may be set forth in Section 5.4 of the
Buyer Disclosure Schedule, no consents or approvals of or filings or
registrations with any Governmental Entity or with any third party are
28
necessary in connection with (1) the execution and delivery by Buyer of this
Agreement, (2) the consummation by Buyer of the Merger and the other
transactions contemplated hereby, (3) the execution and delivery by Buyer Bank
of the Bank Merger Agreement, and (4) the consummation of Buyer Bank of the
transactions contemplated by the Bank Merger Agreement.
5.5. REPORTS. Buyer and each of its Subsidiaries have timely
filed all reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 1995 with the OCC or any other Regulatory Agency (collectively, the
"Buyer Regulatory Agencies"), and have paid all fees and assessments due and
payable in connection therewith. Except for normal examinations conducted by a
Buyer Regulatory Agency in the regular course of the business of Buyer and its
Subsidiaries, and no Buyer Regulatory Agency has initiated any proceeding or
investigation into the business or operations of Buyer or any of its
Subsidiaries since December 31, 1995. There is no unresolved violation,
criticism, or exception by any Buyer Regulatory Agency with respect to any
report or statement relating to any examinations of Buyer or any of its
Subsidiaries.
5.6. FINANCIAL STATEMENTS. (a) Buyer has previously made
available to the Company copies of (i) the consolidated balance sheets of Buyer
and its Subsidiaries as of December 31 for the fiscal years 1997 and 1998 and
the related consolidated statements of income and comprehensive income, changes
in shareholders' equity and cash flows for the fiscal years 1996 through 1998,
inclusive, as reported in Buyer's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 filed with the SEC under the Exchange Act, in each case
accompanied by the audit report of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP, independent public
accountants with respect to Buyer, and (ii) the unaudited consolidated balance
sheets of Buyer and its Subsidiaries as of June 30, 1999 and June 30, 1998 and
the related unaudited consolidated statements of income and comprehensive
income, changes in shareholders' equity and cash flows for the six-month periods
then ended as reported in Buyer's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 filed with the SEC under the Exchange Act. The December 31,
1998 consolidated balance sheet of Buyer (including the related notes, where
applicable) fairly presents the consolidated financial position of Buyer and its
Subsidiaries as of the date thereof, and the other financial statements referred
to in this Section 5.6 (a) (including the related notes, where applicable)
fairly present and the financial statements to be filed with the SEC after the
date hereof will fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount), the
results of the consolidated operations and changes in shareholders' equity and
consolidated financial position of Buyer and its Subsidiaries for the
respective fiscal periods or as of the respective dates therein set forth; each
of such statements (including the related notes, where applicable) comply, and
the financial statements to be filed with the SEC after the date hereof will
comply, with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto; and each of such statements
29
(including the related notes, where applicable) has been, and the financial
statements to be filed with the SEC after the date hereof will be, prepared in
accordance with GAAP consistently applied during the periods involved, except
as indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q.
(b) The books and records of Buyer and its
Subsidiaries have been, and are being, maintained in accordance with GAAP and
any other applicable legal and accounting requirements.
5.7. BROKER'S FEES. Neither Buyer nor any Subsidiary of Buyer,
nor any of their respective officers or directors, has employed any broker or
finder or incurred any liability for any broker's fees, commissions or finder's
fees in connection with any of the transactions contemplated by this Agreement,
the Company Option Agreement or the Bank Merger Agreement, except that Buyer
has engaged, and will pay a fee or commission to, Wheat First Securities, Inc.
5.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1998, there has been no change or development or combination of changes or
developments which, individually or in the aggregate, has had or is reasonably
likely to have a Material Adverse Effect on Buyer.
5.9. LEGAL PROCEEDINGS. (a) Neither Buyer nor any of its
Subsidiaries is a party to any, and there are no pending or, to the Buyer's
knowledge, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
against Buyer or any of its Subsidiaries or challenging the validity or
propriety of the transactions contemplated by this Agreement or the Bank Merger
Agreement.
(b) There is no injunction, order, judgment, decree,
or regulatory restriction imposed upon Buyer, any of its Subsidiaries or the
assets of Buyer or any of its Subsidiaries.
5.10. SEC REPORTS. Buyer has previously made available to the
Company a true, complete and correct copy of each (a) final registration
statement, prospectus, report, schedule and definitive proxy statement filed
since January 1, 1997 by Buyer with the SEC pursuant to the Securities Act or
the Exchange Act (the "Buyer Reports") and (b) communication mailed by Buyer to
its stockholders since January 1, 1997, and no such registration statement,
prospectus, report, schedule,
30
proxy statement or communication contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading, except that information as of a later
date shall be deemed to modify information as of an earlier date. Buyer has
timely filed all Buyer Reports and other documents required to be filed by it
under the Securities Act and the Ex change Act, and, as of their respective
dates, all Buyer Reports complied with the published rules and regulations of
the SEC with respect thereto.
5.11. AGREEMENTS WITH REGULATORY AGENCIES. Neither Buyer nor
any of its Subsidiaries is subject to any cease-and-desist or other order issued
by, or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth in Section 5.11 of the Buyer
Disclosure Schedule, a "Buyer Regulatory Agreement"), any Buyer Regulatory
Agency or other Governmental Entity that restricts the conduct of its business
or that in any manner relates to its capital adequacy, its credit policies, its
management or its business, nor has Buyer or any of its Subsidiaries been
advised by any Buyer Regulatory Agency or other Governmental Entity that it is
considering issuing or requesting any Regulatory Agreement.
5.12. BUYER INFORMATION. The information relating to Buyer and
its Subsidiaries which is provided to the Company by Buyer for inclusion in the
Proxy Statement and the S-4, or in any other document filed with any other
regulatory agency in connection herewith, will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances in which they are made, not
misleading.
5.13. OWNERSHIP OF COMPANY COMMON STOCK; AFFILIATES AND
ASSOCIATES. (a) Except for the Company Option Agreement, neither Buyer nor any
of its affiliates or associates (as such terms are defined under the Exchange
Act), (i) beneficially owns, directly or indirectly, or (ii) is a party to any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of, in each case, any shares of capital stock of the Company
(other than Trust Account Shares and DPC Shares); and
(b) Neither Buyer nor any of its Subsidiaries is an
"affiliate" (as such term is defined in MGCL Section 3-601) or an "associate"
(as such term is defined in MGCL Section 3-601) of the Company or an "Interested
Stockholder" (as such term is defined in MGCL Section 3-601) of the Company.
31
5.14. APPROVALS. As of the date of this Agreement, Buyer knows
of no reason why all regulatory approvals required for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger and
the Subsidiary Merger) should not be obtained.
5.15. ACCOUNTING FOR THE MERGER; REORGANIZATION. As of the
date of this Agreement, Buyer has no reason to believe that the Merger will fail
to qualify (i) for pooling-of-interests treatment under GAAP or (ii) as a
reorganization under Section 368(a) of the Code.
5.16. TAXES. Each of Buyer and its Subsidiaries (i) has duly
and timely filed (including applicable extensions granted without penalty) all
Tax Re turns required to be filed on or prior to the date hereof and will duly
and timely file all Tax Returns after the date hereof and prior to the Effective
Time, and such Tax Returns are or will be true, correct and complete, and (ii)
has paid or will pay in full or to the extent necessary made or will make
adequate provision in the financial statements of Buyer (in accordance with
GAAP) for all Taxes. No deficiencies for any Taxes have been proposed, asserted,
assessed or, to the knowledge of Buyer, threatened against or with respect to
Buyer or any of its Subsidiaries. (i) There are no liens for Taxes upon the
assets of either Buyer or its Subsidiaries except for statutory liens for
current Taxes not yet due, (ii) neither Buyer nor any of its Subsidiaries has
requested any extension of time within which to file any Tax Returns in respect
of any fiscal year which have not since been filed and no request for waivers of
the time to assess any Taxes are pending or outstanding, (iii) with respect to
each taxable period of Buyer and its Subsidiaries, the federal and state income
Tax Returns of Buyer and its Subsidiaries have been audited by the IRS or
appropriate state tax authorities or the time for assessing and collecting
income Tax with respect to such taxable period has closed and such taxable
period is not subject to review, (iv) neither Buyer nor any of its Subsidiaries
has filed or been included in a combined, consolidated or unitary income Tax
Return other than one in which Buyer was the parent of the group filing such Tax
Return, (v) neither Buyer nor any of its Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes (other than the
allocation of federal income taxes as provided by Regulation 1.1552-1(a)(1)
under the Code), (vi) neither Buyer nor any of its Subsidiaries is required to
include in income any adjustment pursuant to Section 481(a) of the Code (or any
similar or corresponding provision or requirement of state, local or foreign
income Tax law), by reason of the voluntary change in accounting method (nor has
any taxing authority proposed in writing any such adjustment or change of
accounting method), (vii) neither Buyer nor any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code, and (viii) neither Buyer nor any
of its Subsidiaries has made any payment or will be obligated to make any
payment (by
32
contract or otherwise) which will not be deductible by reason of Section 280G
of the Code.
5.17. EMPLOYEES. (a) Section 5.17(a) of the Buyer Disclosure
Schedule sets forth a true, complete and correct list of each deferred
compensation plan, incentive compensation plan, equity compensation plan,
"welfare" plan, fund or program (within the meaning of section 3(1) of ERISA;
each "pension" plan, fund or program (within the meaning of section 3(2) of
ERISA); each employment, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or arrangement, in each case,
that is sponsored, maintained or contributed to or required to be contributed to
(the "Buyer Plans") by Buyer, any of its Subsidiaries or by any trade or
business, whether or not incorporated (a "Buyer ERISA Affiliate"), all of which
together with Buyer would be deemed a "single employer" within the meaning of
Section 4001 of ERISA, for the benefit of any employee or former employee of
Buyer, any Subsidiary or any Buyer ERISA Affiliate.
(b) (i) Each of the Buyer Plans has been operated and
administered in all material respects in accordance with its terms and
applicable law, including but not limited to ERISA and the Code, (ii) each of
the Buyer Plans intended to be "qualified" within the meaning of Section 401(a)
of the Code either (1) has received a favorable determination letter from the
IRS, or (2) is or will be the subject of an application for a favorable
determination letter, and Buyer is not aware of any circumstances likely to
result in the revocation or denial of any such favorable determination letter,
(iii) with respect to each Buyer Plan which is subject to Title IV of ERISA, the
present value of accrued benefits under such Buyer Plan, based upon the
actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by such Buyer Plan's actuary with respect to such Buyer Plan,
did not, as of its latest valuation date, exceed the then current value of the
assets of such Buyer Plan allocable to such accrued benefits, (iv) no Buyer Plan
provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of Buyer,
its Subsidiaries or any Buyer ERISA Affiliate beyond their retirement or other
termination of service, other than (w) coverage mandated by applicable law, (x)
death benefits or retirement benefits under any "employee pension plan," as that
term is defined in Section 3(2) of ERISA, (y) deferred compensation benefits
accrued as liabilities on the books of Buyer, its Subsidiaries or a Buyer ERISA
Affiliates or (z) benefits the full cost of which is borne by the current or
former employee (or his beneficiary), (v) no liability under Title IV of ERISA
has been incurred by Buyer, its Subsidiaries or any Buyer ERISA Affiliate that
has not been satisfied in full, and no condition exists that presents a material
risk to Buyer, its Subsidiaries or a Buyer ERISA Affiliate of incurring a
liability thereunder, (vi) no Buyer Plan is a "multiemployer pension
33
plan," as such term is defined in Section 3(37) of ERISA, (vii) all
contributions or other amounts payable by Buyer, its Subsidiaries or any Buyer
ERISA Affiliates as of the Effective Time with respect to each Buyer Plan in
respect of current or prior plan years have been paid or accrued in accordance
with GAAP and Section 412 of the Code, (viii) neither Buyer, its Subsidiaries
nor any Buyer ERISA Affiliate has engaged in a transaction in connection with
which Buyer, its Subsidiaries or any Buyer ERISA Affiliate could be subject to
either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a
tax imposed pursuant to Section 4975 or 4976 of the Code, (ix) there are no
pending or, to the best knowledge of Buyer, threatened or anticipated claims
(other than routine claims for benefits) by, on behalf of or against any of the
Buyer Plans or any trusts related thereto and (x) the consummation of the
transactions contemplated by this Agreement or the Bank Merger Agreement will
not (y) entitle any current or former employee or officer of Buyer or any Buyer
ERISA Affiliate to severance pay, termination pay or any other payment or
benefit, except as expressly provided in this Agreement or (z) accelerate the
time of payment or vesting or increase the amount or value of compensation or
benefits due any such employee or officer.
5.18. COMPLIANCE WITH APPLICABLE LAW. Buyer and each of its
Subsidiaries holds, and have at all times held, all licenses, franchises,
permits and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to all, and have complied with and are not in
default in any respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to Buyer
or any of its Subsidiaries, and neither Buyer nor any of its Subsidiaries has
received notice of, any violations of any of the above.
5.19. INVESTMENT SECURITIES. Section 5.19 of the Buyer
Disclosure Schedule sets forth the book and market value as of July 31, 1999 of
the investment securities and securities available for sale of Buyer and its
Subsidiaries.
5.20. INTELLECTUAL PROPERTY. Buyer and each of its
Subsidiaries owns or possesses valid and binding licenses and other rights to
use without payment all patents, copyrights, trade secrets, trade names,
servicemarks and trademarks used in its businesses; and neither Buyer nor any of
its Subsidiaries has received any notice of conflict with respect thereto that
asserts the right of others.
5.21. ENVIRONMENTAL MATTERS. (a) Each of Buyer and its
Subsidiaries and to the best knowledge of Buyer, the Participation Facilities
and the Loan Proper ties (each as hereinafter defined) are, and have been, in
compliance with all applicable federal, state and local laws including common
law, regulations and ordinances and with all applicable Environmental Laws;
34
(b) There is no suit, claim, action or proceeding,
pending or, to the best knowledge of Buyer, threatened, before any Governmental
Entity or other forum in which Buyer, any of its Subsidiaries or to the best
knowledge of Buyer, any Participation Facility or any Loan Property, has been
or, with respect to threatened proceedings, may be, named as a defendant (x) for
alleged noncompliance (including by any predecessor), with any Environmental
Laws or (y) relating to the release, threatened release or exposure to any
Hazardous Material whether or not occurring at or on a site owned, leased or
operated by Buyer or any of its Subsidiaries, any Participation Facility or any
Loan Property;
(c) During the period of (x) Buyer's or any of its
Subsidiaries' ownership or operation of any of their respective current or
former properties, (y) Buyer's or any of its Subsidiaries' participation in the
management of any Participation Facility or (z) Buyer's or any of its
Subsidiaries' holding of a security interest in a Loan Property, to the best
knowledge of Buyer, there has been no release of Hazardous Materials in, on,
under or affecting any such property. Prior to the period of (x) Buyer's or any
of its Subsidiaries' ownership or operation of any of their respective current
or former properties, (y) Buyer's or any of its Subsidiaries' participation in
the management of any Participation Facility or (z) Buyer's or any of its
Subsidiaries' holding of a security interest in a Loan Property, to the best
knowledge of Buyer, there was no release or threatened release of Hazardous
Materials in, on, under or affecting any such property, Participation Facility
or Loan Property; and
(d) The following definitions apply for purposes of
this Section 5.21: (x) "Hazardous Materials" means any chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum or other regulated substances
or materials; (y) "Loan Property" means any property in which Buyer or any of
its Subsidiaries holds a security interest, and, where required by the context,
said term means the owner or operator of such property; and (z) "Participation
Facility" means any facility in which Buyer or any of its Subsidiaries
participates in the management and, where required by the context, said term
means the owner or operator of such property.
5.22. DERIVATIVE TRANSACTIONS. Since December 31, 1998,
neither Buyer nor any of its Subsidiaries has engaged in transactions in or
involving for wards, futures, options on futures, swaps or other derivative
instruments except (i) as agent on the order and for the account of others or
(ii) as principal for purposes of hedging interest rate risk on U.S.
dollar-denominated securities and other financial instruments. None of the
counterparties to any contract or agreement with respect to any such instrument
is in default with respect to such contract or agreement and no such contract or
agreement, were it to be a Loan held by Buyer or any of its
35
Subsidiaries, would be classified as "Other Loans Specially Mentioned",
"Special Mention", "Substandard", "Doubtful", "Loss", "Classified",
"Criticized", "Credit Risk Assets", "Concerned Loans" or words of similar
import. The financial position of Buyer and its Subsidiaries on a consolidated
basis under or with respect to each such instrument has been reflected in the
books and records of Buyer and such Subsidiaries in accordance with GAAP
consistently applied, and no open exposure of Buyer or any of its Subsidiaries
with respect to any such instrument (or with respect to multiple instruments
with respect to any single counterparty) exceeds $10,000,000.
5.23. LOAN PORTFOLIO. (a) Neither Buyer nor any of its
Subsidiaries is a party to any written or oral (i) Loan, other than any Loan the
unpaid principal balance of which does not exceed $1,000,000, under the terms
of which the obligor is, as of the date of this Agreement, over 90 days
delinquent in payment of principal or interest or in default of any other
provision, or (ii) Loan with any director, executive officer or five percent or
greater stockholder of Buyer or any of its Subsidiaries, or to the knowledge of
Buyer, any person, corporation or enterprise controlling, controlled by or under
common control with any of the foregoing. Section 5.23 of the Buyer Disclosure
Schedule sets forth (i) all of the Loans in original principal amount in excess
of $1,000,000 of Buyer or any of its Subsidiaries that as of the date of this
Agreement are classified by any bank examiner (whether regulatory or internal)
as "Other Loans Specially Mentioned", "Special Mention", "Substandard",
"Doubtful", "Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned
Loans", "Watch List" or words of similar import, together with the principal
amount of and accrued and unpaid interest on each such Loan and the identity of
the borrower thereunder, (ii) by category of Loan (i.e., commercial, consumer,
etc.), all of the other Loans of Buyer and its Subsidiaries that as of the date
of this Agreement are classified as such, together with the aggregate principal
amount of and accrued and unpaid interest on such Loans by category and (iii)
each asset of Buyer that as of the date of this Agreement is classified as
"Other Real Estate Owned" and the book value thereof.
(b) Each Loan in original principal amount in excess
of $10,000,000 (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii) to the
extent secured, has been secured by valid liens and security interests which
have been and remain perfected and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
36
5.24. ADMINISTRATION OF FIDUCIARY ACCOUNTS. Buyer and each of
its Subsidiaries has properly administered all accounts for which it acts as a
fiduciary, including but not limited to accounts for which it serves as a
trustee, agent, custodian, personal representative, guardian, conservator or
investment advisor, in accordance with the terms of the governing documents and
applicable state and federal law and regulation and common law. Neither Buyer
nor any of its Subsidiaries nor any of their respective directors, officers or
employees has committed any breach of trust with respect to any such fiduciary
account, and the accountings for each such fiduciary account are true, complete
and correct and accurately reflect the assets of such fiduciary account.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1. COVENANTS OF THE COMPANY. During the period from the date
of this Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, the Bank Merger Agreement or the
Company Option Agreement or with the prior written consent of Buyer, the Company
and its Subsidiaries shall carry on their respective businesses in the ordinary
course consistent with past practice and consistent with prudent banking
practice. The Company will use its reasonable best efforts to (x) preserve its
business organization and that of its Subsidiaries intact, (y) keep available to
itself and Buyer the present services of the employees of the Company and its
Subsidiaries and (z) preserve for itself and Buyer the goodwill of the customers
of the Company and its Subsidiaries and others with whom business relationships
exist. Without limiting the generality of the fore going, and except as set
forth on Section 6.1 of the Company Disclosure Schedule or as otherwise
contemplated by this Agreement or consented to in writing by Buyer, the Company
shall not, and shall not permit any of its Subsidiaries to:
(a) solely in the case of the Company, declare or pay
any dividends on, or make other distributions in respect of, any of its capital
stock, other than normal quarterly dividends not in excess of $0.13 per share of
Company Common Stock;
(b) (i) split, combine or reclassify any shares of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock except upon the exercise or fulfillment of rights or options
issued or existing pursuant to employee benefit plans, programs or arrangements,
all to the extent outstanding and in existence on the date of this Agreement and
in accordance with their present terms and except
37
pursuant to the Company Option Agreement or (ii) repurchase, redeem or otherwise
acquire (except for the acquisition of Trust Account Shares and DPC Shares) any
shares of the capital stock of the Company or any Subsidiary of the Company, or
any securities convertible into or exercisable for any shares of the capital
stock of the Company or any Subsidiary of the Company;
(c) issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock or any
securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares, or enter into any agreement with respect to
any of the foregoing, other than (i) the issuance of Company Common Stock
pursuant to stock options or similar rights to acquire Company Common Stock
granted pursuant to the Company Option Plans and outstanding prior to the date
of this Agreement, in each case in accordance with their present terms, (ii) the
issuance of 4,000 shares of Company Common Stock pursuant to and in accordance
with the terms of the ▇▇▇▇▇▇▇ Option Plan, (iii) the issuance of 5,200 shares of
Company Common Stock pursuant to and in accordance with the Restricted Stock
Award, (iv) if the Company DRIP has not been suspended pursuant to Section 7.18,
the issuance of Company Common Stock pursuant to and in accordance with the
terms of the Company DRIP in respect of regular quarterly dividend payments and
(v) pursuant to the Company Option Agreement;
(d) amend its Articles of Incorporation, By-Laws or
other similar governing documents;
(e) make any capital expenditures other than those
which (i) are made in the ordinary course of business or are necessary to
maintain existing as sets in good repair and (ii) in any event are in an amount
of no more than $100,000 in the aggregate;
(f) enter into any new line of business;
(g) acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire any assets, which would be material,
individually or in the aggregate, to the Company, other than in connection with
foreclosures, settlements in lieu of foreclosure or troubled loan or debt
restructurings in the ordinary course of business consistent with prudent
banking practices;
38
(h) take any action that is intended or may
reasonably be expected to result in any of the conditions to the Merger set
forth in Article VIII not being satisfied;
(i) change its methods of accounting in effect at
June 30, 1999, except as required by changes in GAAP or regulatory accounting
principles as concurred to by the Company's independent auditors;
(j) (i) except as required by applicable law or to
maintain qualification pursuant to the Code, adopt, amend, renew or terminate
any employee benefit plan (including, without limitation, any Plan) or any
agreement, arrangement, plan or policy between the Company or any Subsidiary of
the Company and one or more of its current or former directors, officers or
employees or (ii) except for normal increases in the ordinary course of
business consistent with past practice or except as required by applicable law,
increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any Plan or agreement as
in effect as of the date hereof (including, without limitation, the granting of
stock options, stock appreciation rights, restricted stock, restricted stock
units or performance units or shares);
(k) take or cause to be taken any action which would
disqualify the Merger as a "pooling of interests" for accounting purposes or a
tax free reorganization under Section 368(a) of the Code, PROVIDED, HOWEVER,
that nothing contained herein shall limit the ability of Buyer to exercise its
rights under the Company Option Agreement;
(l) other than activities in the ordinary course of
business consistent with past practice, sell, lease, encumber, assign or
otherwise dispose of, or agree to sell, lease, encumber, assign or otherwise
dispose of, any of its material as sets, properties or other rights or
agreements;
(m) other than in the ordinary course of business
consistent with past practice, incur any indebtedness for borrowed money or
assume, guarantee, endorse or otherwise as an accommodation become responsible
for the obligations of any other individual, corporation or other entity;
(n) file any application to relocate or terminate the
operations of any banking office of it or any of its Subsidiaries;
39
(o) make any equity investment or commitment to make
such an investment in real estate or in any real estate development project,
other than in connection with foreclosures, settlements in lieu of foreclosure
or troubled loan or debt restructurings in the ordinary course of business
consistent with prudent banking practices;
(p) create, renew, amend or terminate or give notice
of a pro posed renewal, amendment or termination of, any material contract,
agreement or lease for goods, services or office space to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or their respective properties is bound;
(q) other than in prior consultation with Buyer,
restructure or materially change its investment securities portfolio or its gap
position, through purchases, sales or otherwise, or the manner in which the
portfolio is classified or re ported;
(r) without the prior consent of Buyer, make or
purchase, or commit to make or purchase, any loan or loans, or extend any line
of credit, to any borrower and its affiliates in an aggregate principal amount
greater than $1,000,000 or in an amount which, when aggregated with any existing
indebtedness to the Company and its Subsidiaries and lines of credit from the
Company and its Subsidiaries of such borrower and its affiliates, would exceed
$1,000,000; PROVIDED, HOWEVER, that if at any time from the date of this
Agreement to the Effective Time, the Company or any of its Subsidiaries desires
to make or purchase, or commit to make or purchase, any such loan, or extend any
such line of credit, the Company shall furnish to Buyer, promptly upon its
substantial completion, the information package prepared by the Company's (or
such Subsidiary's) loan committee with respect to such proposed loan requests
and any other information that Buyer may reasonably request (collectively, the
"Loan Request Documents"), and unless, within 24 hours of receiving the Loan
Request Documents, Buyer notifies the Company (whether telephonically or in
writing) that Buyer objects to the making of such loan or the extension of such
credit, Buyer shall be deemed to have consented to such loan or extension of
credit; or
(s) agree to do any of the foregoing.
6.2. COVENANTS OF BUYER. During the period from the date of
this Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, the Bank Merger Agreement or the
Company Option Agreement or with the prior written consent of the Company, Buyer
and its Subsidiaries shall carry on their respective businesses in the ordinary
course consistent with prudent banking practice. Without limiting the
generality of
40
the foregoing, and except as set forth on Section 6.2 of the Buyer Disclosure
Schedule or as other wise contemplated by this Agreement or consented to in
writing by the Company, Buyer shall not, and shall not permit any of its
Subsidiaries to:
(a) solely in the case of Buyer, declare or pay any
extraordinary or special dividends on or make any other extraordinary or
special distributions in respect of any of its capital stock; PROVIDED, HOWEVER,
that nothing contained herein shall prohibit Buyer from increasing the quarterly
cash dividend on Buyer Common Stock;
(b) take any action that is intended or may
reasonably be expected to result in any of the conditions to the Merger set
forth in Article VIII not being satisfied;
(c) change its methods of accounting in effect at
June 30, 1999, except in accordance with changes in GAAP or regulatory
accounting principles as concurred to by Buyer's independent auditors;
(d) knowingly take any action that would result in a
failure to maintain the authorization for quotation of Buyer Comon Stock on the
Nasdaq/NMS;
(e) take or cause to be taken any action which would
disqualify the Merger as a "pooling of interests" for accounting purposes or a
tax free reorganization under Section 368(a) of the Code, PROVIDED, HOWEVER,
that nothing contained herein shall limit the ability of Buyer to exercise its
rights under the Company Option Agreement; or
(f) agree to do any of the foregoing.
41
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. REGULATORY MATTERS. (a) The Company shall promptly
prepare and file with the SEC the Proxy Statement and Buyer shall promptly
prepare and file with the SEC the S-4, in which the Proxy Statement will be
included as a prospectus. Each of the Company and Buyer shall use all reasonable
efforts to have the S-4 declared effective under the Securities Act as promptly
as practicable after such filing, and the Company shall thereafter mail the
Proxy Statement to its stockholders. Buyer shall also use all reasonable efforts
to obtain all necessary state securities law or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement and the
Company shall furnish all information concerning the Company and the holders of
Company Common Stock as may be reasonably requested in connection with any such
action.
(b) The parties hereto shall cooperate with each
other and use their commercially reasonable efforts to promptly prepare and file
all necessary documentation, to effect all applications, notices, petitions and
filings, and to obtain as promptly as practicable all permits, consents,
approvals and authorizations of all third parties and Governmental Entities
which are necessary or advisable to consummate the transactions contemplated by
this Agreement (including without limitation the Merger and the Subsidiary
Merger) (it being understood that any amendments to the S-4 or a resolicitation
of proxies as consequence of a subsequent proposed merger, stock purchase or
similar acquisition by Buyer or any of its Subsidiaries shall not violate this
covenant). The Company and Buyer shall have the right to review in advance, and
to the extent practicable each will consult the other on, in each case subject
to applicable laws relating to the exchange of information, all the information
relating to the Company or Buyer, as the case may be,and any of their respective
Subsidiaries, which appears in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the parties hereto shall act reasonably and as promptly as practicable.
The parties hereto agree that they will consult with each other with respect to
the obtaining of all permits, consents, approvals and authorizations of all
third parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
apprised of the status of matters relating to completion of the transactions
contemplated herein.
(c) Buyer and the Company shall, upon request,
furnish each other with all information concerning themselves, their
Subsidiaries, directors, officers and stockholders and such other matters as may
be reasonably necessary or
42
advisable in connection with the Proxy Statement, the S-4 or any other
statement, filing, notice or application made by or on behalf of Buyer, the
Company or any of their respective Subsidiaries to any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
(d) Buyer and the Company shall promptly furnish each
other with copies of written communications received by Buyer or the Company, as
the case may be, or any of their respective Subsidiaries, Affiliates or
Associates (as such terms are defined in Rule 12b-2 under the Exchange Act as in
effect on the date of this Agreement) from, or delivered by any of the foregoing
to, any Governmental Entity in respect of the transactions contemplated hereby.
(e) The information supplied by the Company for
inclusion in the S-4 shall not, at the time the S-4 is declared effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. The information supplied by the Company for inclusion in
the Proxy Statement shall not, at the date the Proxy Statement (or any
supplement thereto) is first mailed to stockholders, at the time of the
Company's stockholders meeting or at the Effective Time contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made not misleading. If at any time prior
to the Effective Time, any event or circumstance relating to the Company or any
of its affiliates, or its or their respective officers or directors, should be
discovered by the Company that should be set forth in an amendment to the S-4 or
a supplement to the Proxy Statement, the Company shall promptly inform Buyer
thereof in writing. All documents that the Company is responsible for filing
with the SEC in connection with the transactions contemplated herein will comply
as to form in all material respectswith applicable requirements of the
Securities Act and the rules and regulations thereunder and the Exchange Act and
the rules and regulations thereunder.
(f) The information supplied by Buyer for inclusion
in the S-4 shall not, at the time the S-4 is declared effective, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading. The information supplied by Buyer for inclusion in the Proxy
Statement shall not, at the date the Proxy Statement (or any supplement thereto)
is first mailed to stockholders, at the time of the Company's stockholders
meeting or at the Effective Time, 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 were made, not misleading. If at any time prior to
43
the Effective Time, any event or circumstance relating to Buyer or any of its
affiliates, or to their respective officers or directors, should be discovered
by Buyer that should be set forth in an amendment to the S-4 or a supplement to
the Proxy Statement, Buyer shall promptly inform the Company thereof in writing.
All documents that Buyer is responsible for filing with the SEC in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules and regulations
thereunder.
7.2. ACCESS TO INFORMATION. (a) Upon reasonable notice and
subject to applicable laws relating to the exchange of information, the Company
shall, and shall cause each of its Subsidiaries to, afford to the officers,
employees, accountants, counsel and other representatives of Buyer, access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, contracts, commitments, records, officers, employees,
accountants, counsel and other representatives and, during such period, the
Company shall, and shall cause its Subsidiaries to, make available to Buyer (i)
a copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of Federal
securities laws or Federal or state banking laws (other than reports or
documents which the Company is not permitted to disclose under applicable law)
and (ii) all other information concerning its business, properties and personnel
as Buyer may reasonably request. Neither the Company nor any of its Subsidiaries
shall be required to provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights of the Company's
customers, jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply. Buyer will hold, and will cause
its officers, directors, employees, accountants, counsel and other
representatives to hold, all such information in confidence to the extent
required by, and in accordance with, the provisions of the confidentiality
agreement, dated August 25, 1999, by and between the Company and Buyer, with
respect to all of the information furnished by the Company to Buyer or its
representatives (the "Company Confidentiality Agreement").
(b) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, Buyer shall, and shall cause its
Subsidiaries to, afford to the officers, employees, accountants, counsel and
other representatives of the Company, access, during normal business hours
during the period prior to the Effective Time, to all its properties, books,
contracts, commitments, records, officers, employees, accountants, counsel and
other representatives and, during such period,
44
Buyer shall, and shall cause its Subsidiaries to, make available to the Company
(i) a copy of each report, schedule, registration statement and other document
filed or received by it during such period pursuant to the requirements of
Federal securities laws or Federal or state banking laws (other than reports or
documents which Buyer is not permitted to disclose under applicable law) and
(ii) all other information concerning its business, properties and personnel as
the Company may reasonably request. Neither Buyer nor any of its Subsidiaries
shall be required to provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights of Buyer's customers,
jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply. The Company will hold, and will
cause its officers, directors, employees, accountants, counsel and other
representatives to hold, all such information in confidence to the extent
required by, and in accordance with, the provisions of the confidentiality
agreement, dated August 25, 1999, by and between Buyer and the Company, with
respect to all of the information furnished by Buyer to the Company or its
representatives (the "Buyer Confidentiality Agreement," and together with the
Company Confidential Agreement, the "Confidentiality Agreements").
(c) No investigation by either of the parties or
their respective representatives shall affect the representations, warranties,
covenants or agreements of the other set forth herein.
7.3. NO SOLICITATION. The Company agrees that neither it nor
any of its Subsidiaries shall, or shall authorize or permit any of its
respective officers, directors, employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it to,
directly or indirectly through another person, (i) solicit, initiate, encourage
or facilitate any inquiries relating to, or the making of any proposal which
constitutes, a "takeover proposal" (as defined below), (ii) recommend or endorse
any takeover proposal, or (iii) enter into, encourage or facilitate any
discussions or negotiations regarding, furnish to any person any information
with respect to, or facilitate any attempt to make or implement any proposal
that constitutes or may reasonably be expected to lead to, any proposal relating
to or involving a takeover proposal; PROVIDED, HOWEVER, that the Company may
communicate information about any such takeover proposal to its stockholders if,
in the good faith judgment of the Company's Board of Directors, based upon the
advice of outside counsel, such communication is required under applicable law;
PROVIDED, FURTHER, HOWEVER, that nothing contained in this Section 7.3 shall
prohibit the Board of Directors of the Company from (x) to the extent
applicable, complying with Rule 14e-2 and/or Rule 14d-9 promulgated under the
45
Exchange Act or (y) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited, written bona
fide proposal regarding a takeover proposal if, and only to the extent that (A)
the meeting of the Company's stockholders contemplated by Section 7.4 hereof
shall not have occurred, (B) the Board of Directors of the Company concludes in
good faith, after consultation with and based upon the advice of outside
counsel, that it is legally required to furnish such information or enter into
such discussions or negotiations in order to comply with its fiduciary duties to
stockholders under applicable law,(C) prior to taking such action, the Company
receives from such person or entity an executed confidentiality agreement and an
executed standstill agreement, each in reasonably customary form (provided that
each such agreement is at least as limiting as any such agreement between Buyer
and the Company), and (D) the Board of Directors of the Company, after
consultation with and based upon the advice of its financial advisor, concludes
in good faith that the proposal regarding the takeover proposal contains an
offer of consideration that is greater than the consideration set forth herein
(a "Superior Takeover Proposal"). The Company will immediately cease and cause
to be terminated any existing activities, discussions or negotiations previously
conducted with any parties other than Buyer with respect to any of the
foregoing. The Company will take all actions necessary or advisable to inform
the appropriate individuals or entities referred to in the first sentence hereof
of the obligations undertaken in this Section 7.3. The Company will notify Buyer
immediately if any such inquiries or takeover proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, the Company, and the Company will
promptly inform Buyer in writing of all of the relevant details with respect to
the foregoing. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the first sentence of this Section
7.3 by any officer or director of the Company or any Subsidiary thereof or any
investment banker, attorney or other advisor, representative or agent of the
Company or any Subsidiary thereof, acting on behalf of or at the request of the
Board of Directors of the Company, shall be deemed to be a breach of this
Section 7.3 by the Company. As used in this Agreement, "takeover proposal" shall
mean any tender or exchange offer, proposal for a merger, consolidation or other
business combination involving the Company or any Subsidiary of the Company or
any proposal or offer to acquire in any manner a substantial equity interest in,
or a substantial portion of the assets of, the Company or any Subsidiary of the
Company other than the transactions contemplated or permitted by this Agreement,
the Bank Merger Agreement and the Company Option Agreement.
7.4. STOCKHOLDER MEETING. (a) The Company shall take all steps
necessary to duly call, give notice of, convene and hold a meeting of its
stockholders to be held as soon as is reasonably practicable after the date on
which the S-4
46
becomes effective for the purpose of voting upon the approval of this Agreement
and the consummation of the transactions contemplated hereby. The Company will,
through its Board of Directors, except as provided in Section 7.4(b) hereof,
recommend to its stockholders approval of this Agreement and the transactions
contemplated hereby and such other matters as may be submitted to its
stockholders in connection with this Agreement.
(b) Notwithstanding the provisions of Section 7.4(a)
above, the Board of Directors of the Company may withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Buyer, the approval or
recommendation by such Board of Directors or such committee of the Merger or
this Agreement if the Company receives an unsolicited, written BONA FIDE
proposal regarding a takeover proposal, and (i) the Board of Directors of the
Company concludes in good faith that it is required to take such action, but
only after consultation with and based upon the advice of outside counsel that
the failure to take such action would result in a violation of any fiduciary
duties of the Board of Directors to its stockholders under applicable law, and
(ii) the Board of Directors of the Company, after consultation with and based
upon the advice of its financial advisor, concludes in good faith that such
takeover proposal is a Superior Takeover Proposal.
7.5. LEGAL CONDITIONS TO MERGER. Each of Buyer and the Company
shall, and shall cause its Subsidiaries to, use their commercially reasonable
efforts (a) to take, or cause to be taken, all actions necessary, proper or
advisable to comply promptly with all legal requirements which may be imposed on
such party or its Subsidiaries with respect to the Merger or the Subsidiary
Merger and, subject to the conditions set forth in Article VIII hereof, to
consummate the transactions contemplated by this Agreement and (b) to obtain
(and to cooperate with the other party to obtain) any consent, authorization,
order or approval of, or any exemption by, any Governmental Entity and any other
third party which is required to be obtained by the Company or Buyer or any of
their respective Subsidiaries in connection with the Merger and the Subsidiary
Merger and the other transactions contemplated by this Agreement, and to comply
with the terms and conditions of such consent, authorization, order or approval.
7.6. AFFILIATES. (a) Each of Buyer and the Company shall use
its commercially reasonable efforts to cause each director, executive officer
and other person who is an "affiliate" (for purposes of Rule 145 under the
Securities Act and for purposes of qualifying the Merger for"pooling-of-
interests"accounting treatment) of such party to deliver to the other
party hereto, as soon as practicable after the date of this Agreement,
a written agreement, in the form of Exhibit 7.6(a)
47
hereto (in the case of affiliates of Buyer) or 7.6(b) hereto (in the case of
affiliates of the Company).
(b) Buyer shall use its commercially reasonable
efforts to publish, not later than 21 days after the end of the first full
calendar month (in which there are at least 30 days) following the month in
which the Effective Time occurs, financial results covering at least 30 days of
post-Merger combined operations as contemplated by SEC Accounting Series Release
No. 135; PROVIDED, HOWEVER, if the foregoing would otherwise require publication
of such financial results in April, Buyer shall not be required to publish such
financial results prior to the time it has released summary quarterly earnings
information with respect to the first quarter in the ordinary course.
7.7. STOCK EXCHANGE LISTING. Buyer shall use all commercially
reasonable efforts to cause the shares of Buyer Common Stock to be issued in the
Merger to be authorized for quotation on the Nasdaq/NMS, subject to official
notice of issuance, as of the Effective Time.
7.8. EMPLOYEE BENEFIT PLANS; EXISTING AGREEMENTS. (a) Buyer
agrees that those individuals who are employed by the Company or any of its
Subsidiaries immediately prior to the Effective Time shall continue to be
employees of the Surviving Corporation as of the Effective Time (the "Company
Employees"); PROVIDED, HOWEVER, that this Section 7.8 shall not be construed to
limit the ability of the applicable employer to terminate the employment of any
Company Employee at any time.
(b) As soon as practicable following the Effective
Time, the Company Employees shall be entitled to participate in Buyer's employee
benefit plans in which similarly situated employees of Buyer or its Subsidiaries
participate, to the same extent as comparable employees of Buyer or its
Subsidiaries (it being understood that inclusion of Company Employees in Buyer's
employee benefit plans may occur at different times with respect to different
plans).
(c) Buyer shall, or shall cause the Surviving Bank
to, give Company Employees full credit for the Company Employees' service with
the Company or any Subsidiary of the Company to the same extent recognized by
the Company or such Subsidiary immediately prior to the Effective Time, for
purposes of eligibility, vesting and benefit accrual (except to the extent
giving such credit would result in the duplication of benefits and except for
benefit accruals under any defined benefit pension plan) under any employee
benefit plan or arrangement maintained by the Buyer or the Surviving Bank in
which the Company Employees participate.
48
(d) Buyer shall, or shall cause the Surviving Bank
to, (i) waive all limitations as to preexisting conditions exclusions and
waiting periods with respect to participation and coverage requirements
applicable to the Company Employees under any welfare benefit plans in which
such Company Employees may be eligible to participate after the Effective Time,
other than limitations or waiting periods that are already in effect withrespect
to such Company Employees and that have not been satisfied as of the Effective
Time under any welfare plan maintained for the Company Employees immediately
prior to the Effective Time, and (ii) provide each Company Employee with credit
for any co-payments and deductibles paid prior to the Effective Time in
satisfying any applicable deductible or out-of-pocket requirements under any
welfare plans that such Company Employees are eligible to participate in after
the Effective Time.
(e) Following the Effective Time, Buyer shall honor
and shall cause the Surviving Bank to honor in accordance with their terms all
employment, severance and other compensation agreements and arrangements
existing prior to the execution of this Agreement which are between the Company
and any director, officer or employee thereof and which have been disclosed in
the Company Disclosure Schedule and have previously been made available to
Buyer.
7.9. INDEMNIFICATION. (a) In the event of any threatened or
actual claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, including, without limitation, any
such claim, action, suit, proceeding or investigation in which any person who is
now, or has been at any time prior to the date of this Agreement, or who becomes
prior to the Effective Time, a director or officer of the Company or any of its
Subsidiaries (the "Indemnified Parties") is, or is threatened to be, made a
party based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was a director or officer of the
Company, any of the Subsidiaries of the Company or any of their respective
predecessors or (ii) this Agreement or any of the transactions contemplated
hereby, whether in any case asserted or arising before or after the Effective
Time, the parties hereto agree to cooperate and use their best efforts to defend
against and respond thereto. It is understood and agreed that after the
Effective Time, Buyer shall indemnify and hold harmless, as and to the extent
permitted by Maryland law, each such Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including reasonable attorney's
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law upon receipt of any undertaking required by applicable law),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation, and in
the event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or
49
after the Effective Time), the Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with Buyer; PROVIDED, HOWEVER, that (1)
Buyer shall have the right to assume the defense thereof and upon such
assumption Buyer shall not be liable to any Indemnified Party for any legal
expenses of other counsel or any other expenses subsequently incurred by any
Indemnified Party in connection with the defense thereof, except that if Buyer
elects not to assume such defense or counsel for the Indemnified Parties
reasonably advises that there are issues which raise conflicts of interest
between Buyer and the Indemnified Parties, the Indemnified Parties may retain
counsel reasonably satisfactory to them after consultation with Buyer, and Buyer
shall pay the reasonable fees and expenses of such counsel for the Indemnified
Parties, (2) Buyer shall in all cases be obligated pursuant to this paragraph to
pay for only one firm of counsel for all Indemnified Parties, (3) Buyer shall
not be liable for any settlement effected without its prior written consent
(which consent shall not be unreasonably withheld) and (4) Buyer shall have no
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and nonappealable, that indemnification of such Indemnified Party
in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim Indemnification under this Section 7.9, upon
learning of any such claim, action, suit, proceeding or investigation,shall
promptly notify Buyer thereof, provided that the failure to so notify shall
not affect the obligations of Buyer under this Section 7.9 except to the extent
such failure to notify prejudices Buyer. Buyer's obligations under this Section
7.9,shall continue in full force and effect for a period of six (6) years from
the Effective Time; PROVIDED, HOWEVER, that all rights to indemnification in
respect of any claim (a "Claim") asserted or made within such period shall
continue until the final disposition of such Claim.
(b) Prior to the Effective Time the Company shall
purchase, and for a period of six years after the Effective Time, Buyer shall
use its commercially reasonable efforts to maintain, directors and officers
liability insurance "tail" or "runoff" coverage with respect to wrongful acts
and/or omissions committed or allegedly committed prior to the Effective Time.
Subject to the foregoing, such coverage shall have an aggregate coverage limit
over the term of such policy in an amount no less than the annual aggregate
coverage limit under the Company's existing directors and officers liability
policy, and in all other respects shall be at least comparable to such existing
policy.
(c) In the event Buyer or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then, and in
50
each such case, to the extent necessary, proper provision shall be made so that
the successors and assigns of Buyer assume the obligations set forth in this
section.
(d) The provisions of this Section 7.9 are intended
to be for the benefit of, and shall be enforceable by, each Indemnified Party
and his or her heirs and representatives.
7.10. ADDITIONAL AGREEMENTS. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or the Bank Merger Agreement or to vest the Surviving
Corporation or the Surviving Bank with full title to all properties, assets,
rights, approvals, immunities and franchises of any of the parties to the Merger
or the Subsidiary Merger, the proper officers and directors of each party to
this Agreement and their respective Subsidiaries shall take all such necessary
action as may be reasonably requested by Buyer.
7.11. ADVICE OF CHANGES. Buyer and the Company shall promptly
advise the other party of any change or event having a Material Adverse Effect
on it or which it believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations, warranties or
covenants contained herein. From time to time prior to the Effective Time (and
on the date prior to the Closing Date), each party will promptly supplement or
amend the Disclosure Schedules delivered in connection with the execution of
this Agreement to reflect any matter which, if existing, occurring or known at
the date of this Agreement, would have been required to be set forth or
described in such Disclosure Schedules or which is necessary to correct any
information in such Disclosure Schedules which has been rendered inaccurate
thereby. No supplement or amendment to such Disclosure Schedules shall have any
effect for the purpose of determining satisfaction of the conditions set forth
in Sections 8.2(a) or 8.3(a) hereof, as the case may be, or the compliance by
the Company or Buyer, as the case may be, with the respective covenants and
agreements of such parties contained herein.
7.12. CURRENT INFORMATION. During the period from the date of
this Agreement to the Effective Time, the Company will cause one or more of its
designated representatives to confer on a regular and frequent basis (not less
than monthly) with representatives of Buyer and to report the general status of
the ongoing operations of the Company and its Subsidiaries. The Company will
promptly notify Buyer of any material change in the normal course of business or
in the operation of the properties of the Company or any of its Subsidiaries and
of any governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the threat
of significant
51
litigation involving the Company or any of its Subsidiaries, and will keep Buyer
fully informed of such events.
7.13. EXECUTION AND AUTHORIZATION OF BANK MERGER AGREEMENT. As
soon as reasonably practicable after the date of this Agreement, (a) Buyer shall
(i) cause the Board of Directors of Buyer Bank to approve the Bank Merger
Agreement, (ii) cause Buyer Bank to execute and deliver the Bank Merger
Agreement, and (iii) approve the Bank Merger Agreement as the sole stockholder
of Buyer Bank, and (b) the Company shall (i) cause the Board of Directors of the
Company Bank to approve the Bank Merger Agreement, (ii) cause the Company Bank
to execute and deliver the Bank Merger Agreement, and (iii) approve the Bank
Merger Agreement as the sole stockholder of the Company Bank.
7.14. DIRECTORSHIP. Prior to Closing, Buyer shall take all
action as may be necessary or appropriate to cause one member of the Company's
Board of Directors designated by the Board of Directors of the Company and
acceptable to the Buyer (the "Company Designee") to be a director of Buyer as of
the Effective Time, who is to hold office in accordance with the charter and
bylaws of Buyer until his successor is duly elected or appointed and qualified.
Subject to the next sentence, the Company Designee shall be appointed to the
class of directors with the fewest members as of the Closing Date and at the
first annual meeting of the stockholders of Buyer after the Effective Time shall
be nominated by the Board of Directors of Buyer for election to such position
for the remainder of the term of such class. If at the Effective Time each class
of directors has an equal number of members, the Company Designee shall be
appointed to the class of directors whose term of office expires at the first
annual meeting of the stockholders of Buyer following the Effective Time and at
such annual meeting of the stockholders of Buyer shall be included on the list
of nominees for director presented by the Board of Directors of Buyer.
7.15. ADVISORY COUNCIL. Promptly following the Effective Time,
Buyer shall cause, for a period of not less than twelve months after the
Effective Time, those persons who are members of the Board of Directors of the
Company (other than any such person who shall be appointed to the Board of
Directors of Buyer pursuant to Section 7.14) to be appointed to Buyer Bank's
community advisory council.
7.16. COORDINATION OF DIVIDENDS. After the date of this
Agreement each of Buyer and the Company shall coordinate with the other the
declaration of any dividends in respect of Buyer Common Stock and the Company
Common Stock and the record dates and payments dates relating thereto, it being
the intention of the parties that the holders of Buyer Common Stock or Company
Common Stock shall
52
not receive more than one dividend, or fail to receive one dividend, for any
single calendar quarter with respect to their shares of Buyer Common Stock
and/or Company Common Stock and any shares of Buyer Common Stock any holder of
Company Common Stock receives in exchange therefor in the Merger.
7.17. YEAR 2000 SURVEY. The Company shall, and shall cause its
Subsidiaries to, send to each of its customers identified by Buyer a Year 2000
survey in a form designated by Buyer and the Company shall, and shall cause its
Subsidiaries to, use reasonable best efforts to cause its customers to complete
and return such survey. Furthermore, the Company shall, and shall cause its
Subsidiaries to, (a) seek such additional information as Buyer shall reasonably
request from any customer designated by Buyer, and (b) take such action as is
reasonably necessary to obtain such information, including, without limitation,
scheduling face-to-face meetings with such customers;
7.18. COMPANY DRIP. The Company shall suspend the Company DRIP
upon the request of Buyer if Buyer has been previously advised by its
accountants (a copy of which advice shall be provided to the Company) that such
suspension will not adversely effect pooling-of-interests treatment under GAAP
for the Merger.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have
been approved and adopted by the requisite vote of the holders of Company Common
Stock under applicable law.
(b) NASDAQ/NMS LISTING. The shares of Buyer Common
Stock which shall be issued to the stockholders of the Company upon consummation
of the Merger shall have been authorized for quotation on the Nasdaq/NMS,
subject to official notice of issuance.
(c) OTHER APPROVALS. All regulatory approvals
required to consummate the transactions contemplated hereby (including the
Merger and the Subsidiary Merger) shall have been obtained and shall remain in
full force and effect
53
and all statutory waiting periods in respect thereof shall have expired (all
such approvals and the expiration of all such waiting periods being referred to
herein as the "Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under
the Securities Act and no stop order suspending the effectiveness of the S-4
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No
order, injunction ordecree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger or the Subsidiary Merger shall be in
effect. No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits, restricts or makes illegal consummation of the Merger or the
Subsidiary Merger.
(f) POOLING OF INTERESTS. Buyer shall have received a
letter from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP addressed to Buyer, to the effect that the
Merger will qualify for "pooling of interests" accounting treatment, and the
Company shall have received a copy of such letter.
8.2. CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of
Buyer to effect the Merger is also subject to the satisfaction or waiver by
Buyer at or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. (i) Subject to
Section 3.2, the representations and warranties of the Company set forth in this
Agreement (other than the representations and warranties set forth in Sections
4.2, 4.3(a), 4.3(b), 4.6(a), 4.11(d), 4.12 and 4.13) shall be true and correct
as of the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date and (ii) the representations and warranties
of the Company set forth in Sections 4.2, 4.3(a), 4.3(b), 4.6(a), 4.11(d), 4.12
and 4.13 of this Agreement shall be true and correct in all material respects
(without giving effect to Section 3.2 of this Agreement) as of the date of this
Agreement and (except to the extent such representations and warranties speak as
of an earlier date) as of the Closing Date as though made on and as of the
Closing Date. Buyer shall have received a certificate signed on behalf of the
Company by the Chief Executive Officer and the Chief Financial Officer of the
Company to the foregoing effect.
54
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The
Company shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing Date, and
Buyer shall have received a certificate signed on behalf of the Company by the
Chief Executive Officer and the Chief Financial Officer of the Company to such
effect.
(c) NO PENDING GOVERNMENTAL ACTIONS. No proceeding
initiated by any federal agency or state banking authority seeking an Injunction
shall be pending.
(d) FEDERAL TAX OPINION. Buyer shall have received an
opinion of Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, counsel to Buyer ("Buyer's
Counsel"), in form and substance reasonably satisfactory to Buyer, substantially
to the effect that, on the basis of facts, representations and assumptions set
forth in such opinion which are consistent with the state of facts existing at
the Effective Time, the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code. In rendering such opinion, Buyer's
Counsel may require and rely upon representations and covenants, including those
contained in certificates of officers of Buyer, Buyer Bank, the Company, the
Company Bank and others reasonably satisfactory in form and substance to such
counsel.
8.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation
of the Company to effect the Merger is also subject to the satisfaction or
waiver by the Company at or prior to the Effective Time of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. (i) Subject to
Section 3.2, the representations and warranties of Buyer set forth in this
Agreement (other than the representations and warranties set forth in Sections
5.2, 5.3(a), 5.3(b), 5.6(a), 5.10 and 5.12) shall be true and correct as of the
date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date and (ii) the representations and warranties of Buyer
set forth in Sections 5.2, 5.3(a), 5.3(b), 5.6(a), 5.10 and 5.12 of this
Agreement shall be true and correct in all material respects (without giving
effect to Section 3.2 of this Agreement) as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date. The
Company shall have received a certificate signed on behalf of Buyer by the Chief
Executive Officer and the Chief Financial Officer of Buyer to the foregoing
effect.
(b) PERFORMANCE OF OBLIGATIONS OF BUYER. Buyer shall
have performed in all material respects all obligations required to be performed
by it under
55
this Agreement at or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of Buyer by the Chief Executive Officer
and the Chief Financial Officer of Buyer to such effect.
(c) NO PENDING GOVERNMENTAL ACTIONS. No proceeding
initiated by any federal agency or state banking authority seeking an Injunction
shall be pending.
(d) FEDERAL TAX OPINION. The Company shall have
received an opinion of ▇▇▇▇▇▇, Feinblatt, Rothman, Hoffberger & ▇▇▇▇▇▇▇▇▇, LLC
(the "Company's Counsel"), in form and substance reasonably satisfactory to the
Company, dated as of the Effective Time, substantially to the effect that, on
the basis of facts, representations and assumptions set forth in such opinion
which are consistent with the state of facts existing at the Effective Time, the
Merger and the Subsidiary Merger will be treated as reorganizations within the
meaning of Section 368(a) of the Code and that accordingly for federal income
tax purposes:
(i) No gain or loss will be recognized by the Company
as a result of the Merger;
(ii) No gain or loss will be recognized by the
Company Bank as a result of the Subsidiary Merger (except to
the extent the Company Bank or Buyer Bank may be required to
recognize income due to the recapture of bad debt reserves as
a result of the Subsidiary Merger);
(iii) No gain or loss will be recognized by the
stockholders of the Company who exchange all of their Company
Common Stock solely for Buyer Common Stock pursuant to the
Merger (except with respect to cash received in lieu of a
fractional share interest in Buyer Common Stock); and
(iv) The aggregate tax basis of Buyer Common Stock
received by stockholders who exchange all of their Company
Common Stock solely for Common Stock pursuant to the Merger
will be the same as the aggregate tax basis of the Company
Common Stock surrendered in exchange therefor (reduced by any
amount allocable to a fractional share interest for which cash
is received).
In rendering such opinion, the Company's Counsel may require and rely upon
representations and covenants, including those contained in certificates of
officers of
56
Buyer, Buyer Bank, the Company, the Company Bank and others reasonably
satisfactory in form and substance to such counsel.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the stockholders of the Company:
(a) by mutual consent of the Company and Buyer in a
written instrument, if the Board of Directors of each so determines by a vote of
a majority of the members of its entire Board;
(b) by either Buyer or the Company upon written
notice to the other party (i) 60 days after the date on which any request or
application for a Requisite Regulatory Approval shall have been denied by any
Governmental Entity which must grant such Requisite Regulatory Approval, unless
within the 60-day period following such denial or withdrawal a petition for
rehearing or an amended application has been filed with the applicable
Governmental Entity, PROVIDED, HOWEVER, that no party shall have the right to
terminate this Agreement pursuant to this Section 9.1(b)(i) if such denial shall
be due to the failure of the party seeking to terminate this Agreement to
perform or observe the covenants and agreements of such party set forth herein
or (ii) if any Governmental Entity of competent jurisdiction shall have issued a
final nonappealable order enjoining or otherwise prohibiting the Merger or the
Subsidiary Merger;
(c) by either Buyer or the Company if the Merger
shall not have been consummated on or before March 31, 2000, unless the failure
of the Closing to occur by such date shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein;
(d) by either Buyer or the Company (provided that if
the Company is the terminating party, it shall not be in material breach of any
of its obligations under Section 7.4) if the approval of the stockholders of the
Company required for the consummation of the Merger shall not have been obtained
by reason of the failure to obtain the required vote at a duly held meeting of
such stockholders or at any adjournment or postponement thereof;
57
(e) by either Buyer or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have been
a material breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, which breach is not cured within
thirty days following written notice to the party committing such breach, or
which breach, by its nature, cannot be cured prior to the Closing; PROVIDED,
HOWEVER, that neither party shall have the right to terminate this Agreement
pursuant to this Section 9.1(e) unless the breach of representation or warranty,
together with all other such breaches, would entitle the party receiving such
representation not to consummate the transactions contemplated hereby under
Section 8.2(a) (in the case of a breach of representation or warranty by the
Company) or Section 8.3(a) (in the case of a breach of representation or
warranty by Buyer);
(f) by either Buyer or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have been
a material breach of any of the covenants or agreements set forth in this
Agreement on the part of the other party, which breach shall not have been cured
within thirty days following receipt by the breaching party of written notice of
such breach from the other party hereto, or which breach, by its nature, cannot
be cured prior to the Closing;
(g) by Buyer, if the Board of Directors of the
Company does not publicly recommend in the Proxy Statement that the Company's
stockholders approve this Agreement or if, after recommending in the Proxy
Statement that stockholders approve this Agreement, the Board of Directors of
the Company shall have withdrawn, modified or amended such recommendation in any
respect materially adverse to Buyer; or
(h) by the Company at any time during the ten-day
period commencing two days after the Determination Date (as defined below), if
both of the following conditions are satisfied:
(1) the Average Closing Price (as defined below) shall be
less than the product of 0.75 and the Starting Price; and
(2) (i) the number obtained by dividing the Average Closing
Price by the Starting Price (such number being referred to herein as
the "Buyer Ratio") shall be less than (ii) the number obtained by
dividing the Index Price on the Determination Date by the Index Price
on the Starting Date and subtracting 0.15 from such quotient (such
number being referred to herein as the "Index
58
Ratio");
subject to the following four sentences. If the Company elects to exercise its
termination right pursuant to the immediately preceding sentence, it shall give
prompt written notice of such election to Parent; provided that such notice of
election to terminate may be withdrawn at any time within the aforementioned
ten-day period. During the five-day period commencing with its receipt of such
notice, Buyer shall have the option of adjusting the Exchange Ratio to equal the
lesser of (i) a number equal to a quotient (rounded to the nearest
one-ten-thousandth), the numerator of which is the product of 0.75, the Starting
Price and the Exchange Ratio (as then in effect) and the denominator of which is
the Average Closing Price, and (ii) a number equal to a quotient (rounded to the
nearest one- ten-thousandth), the numerator of which is the Index Ratio
multiplied by the Exchange Ratio (as then in effect) and the denominator of
which is the Buyer Ratio. If Buyer makes an election contemplated by the
preceding sentence, within such five-day period, it shall give prompt written
notice to the Company of such election and the revised Exchange Ratio, whereupon
no termination shall have occurred pursuant to this Section 9.1(h) and this
Agreement shall remain in effect in accordance with its terms (except as the
Exchange Ratio shall have been so modified), and any references in this
Agreement to "Exchange Ratio" shall thereafter be deemed to refer to the
Exchange Ratio as adjusted pursuant to this Section 9.1(h). For purposes of this
Section 9.1(h), the following terms shall have the meanings indicated:
"Average Closing Price" means the average of the last reported sale
prices per share of Buyer Common Stock as reported on Nasdaq/NMS (as reported in
The Wall Street Journal or, if not reported therein, in another mutually agreed
upon authoritative source) for the 20 consecutive trading days on Nasdaq/NMS
ending at the close of trading on the Determination Date.
"Determination Date" means the fifth business day prior to the date on
which the approval of the OCC required for consummation of the Merger shall be
received, without regard to any requisite waiting periods in respect thereof.
"Index Group" means the group of each of the 17 bank holding companies
listed below, the common stock of all of which shall be publicly traded and as
to which there shall not have been, since the Starting Date and before the
Determination Date, an announcement of a proposal for such company to be
acquired or for such company to acquire another company or companies in
transactions with a value exceeding 25% of the acquiror's market capitalization
as of the Starting Date. In the event that the common stock of any such company
ceases to be publicly traded or any such announcement is made with respect to
any such company, such company will be removed from the Index Group, and the
weights (which have been
59
determined based on the number of outstanding shares of common stock)
redistributed proportionately for purposes of determining the Index Price. The
17 bank holding companies and the weights attributed to them are as follows:
BANK HOLDING COMPANY WEIGHTING
BT Financial Corporation 5.2%
F&M National Corporation 7.4
F.N.B. Corporation 6.7
FCNB Corp 3.8
First Commonwealth Financial Corp. 10.2
Harleysville National Corporation 2.5
National Penn Bancshares, Inc. 5.6
Omega Financial Corporation 2.9
Provident Bankshares Corporation 8.4
S&T Bancorp, Inc. 8.9
▇▇▇▇▇ Spring Bancorp, Inc. 3.2
Sun Bancorp, Inc. 2.5
Susquehanna Bancshares, Inc. 12.2
Trust Company of New Jersey (The) 6.3
Union Bankshares Corporation 2.5
United National Bancorp 5.0
WesBanco, Inc. 6.7
100.0%
"Index Price" on a given date means the weighted average (weighted in
accordance with the factors listed above) of the closing prices of the companies
comprising the Index Group.
"Starting Date" means September 7, 1999.
"Starting Price" shall mean the last reported sale price per share of
Buyer Common Stock on the Starting Date, as reported by Nasdaq/NMS (as reported
in The Wall Street Journal or, if not reported therein, in another mutually
agreed upon authoritative source).
If any company belonging to the Index Group or Buyer declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between the Starting Date
and the Determination Date, the prices for the common stock of such company or
Buyer shall be appropriately adjusted for the purposes of applying this Section
9.1(h).
60
9.2. EFFECT OF TERMINATION; EXPENSES. In the event of
termination of this Agreement by either Buyer or the Company as provided in
Section 9.1, this Agreement shall forthwith become void and have no effect
except (i) the last sentence of Section 7.2(a), the last sentence of Section
7.2(b), and Sections 9.2 and 10.4, shall survive any termination of this
Agreement, and (ii) that notwithstanding anything to the contrary contained in
this Agreement, no party shall be relieved or released from any liabilities or
damages arising out of its willful breach of any provision of this Agreement.
9.3. AMENDMENT. Subject to compliance with applicable law,
this Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before or after
approval of the matters presented in connection with the Merger by the
stockholders of either the Company or Buyer; PROVIDED, HOWEVER, that after any
approval of the transactions contemplated by this Agreement by the Company's
stockholders, there may not be, without further approval of such stockholders,
any amendment of this Agreement which reduces the amount or changes the form of
the consideration to be delivered to the Company stockholders hereunder other
than as contemplated by this Agreement. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
9.4. EXTENSION; WAIVER. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Board of Directors, may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party,
but such extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
61
ARTICLE X
GENERAL PROVISIONS
10.1. CLOSING. Subject to the terms and conditions of this
Agreement and the Bank Merger Agreement, the closing of the Merger (the
"Closing") will take place at 10:00 a.m. on the first day which is (a) the last
business day of a month and (b) at least two business days after the
satisfaction or waiver (subject to applicable law) of the latest to occur of the
conditions set forth in Article VIII hereof (other than those conditions which
relate to actions to be taken at the Closing)(the "Closing Date"), at the
offices of Buyer unless another time, date or place is agreed to in writing by
the parties hereto; PROVIDED, HOWEVER, that the Closing shall not occur prior to
December 19, 1999.
62
10.2. ALTERNATIVE STRUCTURE. Notwithstanding anything to the
contrary contained in this Agreement, prior to the Effective Time, Buyer shall
be entitled to revise the structure of the Merger and/or the Subsidiary Merger
and related transactions in order to (x) substitute a subsidiary of Buyer as a
Constituent Corporation in the Merger or (y) provide that a different entity
shall be the surviving corporation in a merger provided that each of the
transactions comprising such revised structure shall (i) qualify as, or be
treated as part of, one or more tax-free reorganizations within the meaning of
Section 368(a) of the Code, and not reduce the amount of consideration to be
received by such stockholders, (ii) be properly treated for financial reporting
purposes as a pooling of interests and (iii) be capable of consummation in as
timely a manner as the structure contemplated herein. This Agreement and any
related documents shall be appropriately amended in order to reflect any such
revised structure.
10.3. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties, covenants and agreements in
this Agreement or in any instrument delivered pursuant to this Agreement (other
than pursuant to the Company Option Agreement which shall terminate in
accordance with its terms) shall survive the Effective Time, except for those
covenants and agreements contained herein and therein which by their terms apply
in whole or in part after the Effective Time.
10.4. EXPENSES. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense, PROVIDED, HOWEVER, that the costs and expenses
of printing and mailing the Proxy Statement to the stockholders of the Company
and Buyer, and all filing and other fees paid to the SEC or any other
Governmental Entity in connection with the Merger, the Subsidiary Merger and the
other transactions contemplated hereby, shall be borne equally by Buyer and the
Company,PROVIDED, FURTHER, HOWEVER, that nothing contained herein shall limit
either party's rights to recover any liabilities or damages arising out of the
other party's willful breach of any provision of this Agreement.
10.5. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation), mailed by registered or certified mail (return
receipt requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
63
(a) if to Buyer, to:
F&M Bancorp
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
with a copy to:
F&M Bancorp
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
and to:
Skadden, Arps Slate, ▇▇▇▇▇▇▇ &
▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇,
Esq.
and
(b) if to the Company, to:
Patapsco Valley Bancshares, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President and Chief
Executive Officer
with a copy to:
▇▇▇▇▇▇, Feinblatt, Rothman,
Hoffberger & ▇▇▇▇▇▇▇▇▇, LLC
The ▇▇▇▇▇▇▇ Building
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
64
10.6. INTERPRETATION. When a reference is made in this
Agreement to Sections, Exhibits or Schedules, such reference shall be to a
Section of or Exhibit or Schedule to this Agreement unless otherwise indicated.
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". The phrases "the date of this Agreement", "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to September 7, 1999.
10.7. COUNTERPARTS. This Agreement may be executed by
facsimile or otherwise in counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
10.8. ENTIRE AGREEMENT. This Agreement (including the
documents and the instruments referred to herein), together with the
Confidentiality Agreements, the Company Option Agreement and the Bank Merger
Agreement, constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof.
10.9. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Maryland, without regard
to any applicable conflicts of law.
10.10. ENFORCEMENT OF AGREEMENT. The parties hereto agree
that irreparable damage would occur in the event that the provisions contained
in the last sentence of Section 7.2(a) and of Section 7.2(b) of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of the last sentence of Section
7.2(a) and of Section 7.2(b) of this Agreement and to enforce specifically the
terms and provisions thereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
65
10.11. SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
10.12. PUBLICITY. Except as otherwise required by law or the
rules of the Nasdaq/NMS, so long as this Agreement is in effect, neither Buyer
nor the Company shall, or shall permit any of its Subsidiaries to, issue or
cause the publication of any press release or other public announcement with
respect to, or otherwise make any public statement concerning, the transactions
contemplated by this Agreement without the consent of the other party, which
consent shall not be unreasonably withheld.
10.13. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns. Except
as otherwise expressly provided herein, this Agreement (including the documents
and instruments referred to herein) is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
66
IN WITNESS WHEREOF, Buyer and the Company have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
F&M BANCORP
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President & Chief Executive
Officer
Attest:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Secretary
PATAPSCO VALLEY BANCSHARES, INC
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President & Chief Executive
Officer
Attest:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Secretary
AMENDMENT NO. 1
AMENDMENT, dated as of October 19, 1999, by and between F&M
Bancorp, a Maryland corporation ("Buyer"), and Patapsco Valley Bancshares, Inc.,
a Maryland corporation (the "Company"), to the Agreement and Plan of Merger,
dated as of September 7, 1999 (the "Merger Agreement"), by and between Buyer and
the Company. Capitalized terms that are not otherwise defined herein shall have
the meanings set forth in the Merger Agreement.
WHEREAS, Buyer and Seller desire to amend the Merger Agreement
(a) to provide procedures for handling demands by holders of Company Common
Stock for payment of the fair value of Company Common Stock in lieu of the
merger consideration as contemplated by Sections 3-201 to 3-213 of the Maryland
General Corporation Law and (b) in accordance with a request from the Federal
Reserve Bank to obtain a waiver for the Federal Reserve Bank's approval of the
merger under the Bank Holding Company Act and the Federal Reserve Board's
Regulation Y.
NOW, THEREFORE, in consideration of the foregoing and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Section 1.4(a) of the Merger Agreement is hereby amended in its
entirety to read as follows:
(a) At the Effective Time, subject to Section 2.2(e)
hereof, each share of the common stock, par value $0.01 per share, of
the Company (the "Company Common Stock") issued and outstanding
immediately prior to the Effective Time (other than shares of Company
Common Stock held directly or indirectly by Buyer or the Company or any
of their respective Subsidiaries (as defined below) (except for Trust
Account Shares and DPC Shares, as such terms are defined in Section
1.4(b) hereof) and other than Dissenting Shares (as such term is
defined in Section 1.4-c- hereof)) shall, by virtue of this Agreement
and without any action on the part of the holder thereof, be converted
into and exchangeable for 1.18 shares (the "Exchange Ratio") of the
common stock, par value $5.00 per share, of Buyer ("Buyer Common
Stock"). All of the shares of Company Common Stock converted into Buyer
Common Stock pursuant to this Article I shall no longer be outstanding
and shall automatically be cancelled and shall cease to exist, and each
certificate (each a "Certificate") previously representing any such
shares of Company Common Stock shall thereafter only represent the
right to receive (i) the number of whole shares of
Buyer Common Stock and (ii) the cash in lieu of fractional shares into
which the shares of Company Common Stock represented by such
Certificate have been converted pursuant to this Section 1.4(a) and
Section 2.2(e) hereof. Certificates previously representing shares of
Company Common Stock shall be exchanged for certificates representing
whole shares of Buyer Common Stock and cash in lieu of fractional
shares issued in consideration therefor upon the surrender of such
Certificates in accordance with Section 2.2 hereof, without any
interest thereon. If, between the date of this Agreement and the
Effective Time, the outstanding shares of Buyer Common Stock shall be
changed into a different number or class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or a stock dividend thereon shall be declared
with a record date within said period, the Exchange Ratio shall be
adjusted accordingly.
by adding the phrase "and other than Dissenting Shares (as such term is defined
in Section 14.(c) hereof)" immediately after the phrase "(except for Trust
Account Shares and DPC Shares, as such terms are defined in Section 1.4(b)
hereof)".
2. Section 1.4 of the Merger Agreement is hereby amended by adding the
following subsection (c):
(c) Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock that have not been voted for
adoption of the Merger and with respect to which appraisal rights shall
have been properly demanded in accordance with Section 3-203 of the
MGCL ("Dissenting Shares") shall not be converted into the right to
receive, or be exchangeable for, Buyer Common Stock or cash in lieu of
fractional shares but, instead, the holders thereof shall be entitled
to payment of the appraised value of such Dissenting Shares in
accordance with the provisions of Section 3-202 of the MGCL; PROVIDED,
HOWEVER, that (i) if any holder of Dissenting Shares withdraws his
demand for appraisal or payment of the fair value of such shares or
(ii) if any holder shall become ineligible for such payment of the fair
value of such shares, such holder or holders (as the case may be) shall
forfeit the right to appraisal of such shares of Company Common Stock
and such holder's Dissenting Shares shall cease to be Dissent-
2
ing Shares and shall thereupon be deemed to have been converted into
the right to receive, and to have become exchangeable for, as of the
Effective Time, Buyer Common Stock and/or cash in lieu of fractional
shares, without any interest thereon, as provided in Section 1.4(a) and
Article II hereof. The Company shall give Buyer (A) prompt notice of
any written demands for appraisal or payment of fair value of any
Company Common Stock, withdrawals of such demands and any other
documents or instruments served pursuant to Section 3-203 of the MGCL
received by the Company and (B) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal or
payment of fair value of shares of Company Common Stock. The Company
shall not make any payment with respect to any demands for appraisal or
payment of fair value without the prior written consent of Buyer and
shall not, except with the prior written consent of Buyer, settle or
offer to settle any such demands.
3. Section 6.1(r) of the Merger Agreement is hereby amended in its
entirety to read as follows:
(r) without at least 24-hour prior written notice to
Buyer, make or purchase, or commit to make or purchase, any loan or
loans, or extend any line of credit, to any borrower and its affiliates
in an aggregate principal amount greater than $1,000,000 or in an
amount which, when aggregated with any existing indebtedness to the
Company and its Subsidiaries and lines of credit from the Company and
its Subsidiaries of such borrower and its affiliates, would exceed
$1,000,000. In addition to such notice, the Company shall furnish to
Buyer, promptly upon its substantial completion, the information
package prepared by the Company's (or such Subsidiary's) loan committee
with respect to such proposed loan requests and any other information
that Buyer may reasonably request; or
4. Each of the parties hereto represents to the other that (a) it has
full corporate power and authority to execute and deliver this Amendment and to
consummate the transactions contemplated hereby, (b) the execution and delivery
of this Amendment by such party have been duly and validly approved by the Board
of Directors of such party and no other corporate proceedings on the part of
such party are necessary in connection with such Amendment and (c) this
Amendment has been duly and validly executed and
3
delivered by such party and consti tutes a valid and binding obligation of such
party, enforceable against such party in accordance with its terms.
5. Except as expressly amended by this Amendment, the Merger Agreement
is hereby ratified and confirmed in all respects.
6. This Amendment may be executed in counterparts, all of which shall
be considered one and the same instrument, each being deemed to constitute an
original, and shall be effective when one or more counterparts have been signed
by each party hereto and delivered to the other party hereto, which delivery may
be made by facsimile transmission.
7. This Agreement shall be governed by, and interpreted in accordance
with, the laws of the State of Maryland, without regard to any applicable
conflicts of law.
8. In the event of any inconsistency between the terms of this
Amendment and the Merger Agreement, this Amendment shall govern.
4
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed, under seal, in counterparts by their duly authorized
officers, all as of the day and year first above written.
F&M BANCORP
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President & Chief Executive Offi cer
Attest:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Secretary
PATAPSCO VALLEY BANCSHARES, INC
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President & Chief Executive Officer
Attest:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Secretary