Exhibit 2.1

 

 

 

 

AGREEMENT AND PLAN OF MERGER

 

BY AND BETWEEN

 

U.S. BANCORP,

 

CASCADE ACQUISITION CORPORATION

 

AND

 

UNITED FINANCIAL CORP.

 

DATED AS OF NOVEMBER 6, 2006

 

 

TABLE OF CONTENTS

				Page
Article I      The Merger				1
SECTION 1.1		The Merger		1
SECTION 1.2		Closing		2
SECTION 1.3		Effective Time		2
SECTION 1.4		Effects of the Merger		2
SECTION 1.5		Certificate of Incorporation and Bylaws of the Surviving Corporation		2
SECTION 1.6		Directors and Officers		2
Article II      Effect of the Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates				3
SECTION 2.1		Effect on Capital Stock		3
SECTION 2.2		Company Stock Options and Company Stock Based Awards		4
SECTION 2.3		Certain Adjustments		4
SECTION 2.4		Exchange Procedures		5
Article III      Representations and Warranties				7
SECTION 3.1		Representations and Warranties of the Company		7
SECTION 3.2		Representations and Warranties of Parent		30
Article IV      Covenants Relating to Conduct of Business				35
SECTION 4.1		Conduct of Business by the Company		35
SECTION 4.2		Advice of Changes		40
SECTION 4.3		No Solicitation by the Company		41
SECTION 4.4		Transition		42
SECTION 4.5		No Fundamental Changes in the Conduct of Business by Parent		43
Article V      Additional Agreements				44
SECTION 5.1		Preparation of the Form S-4, Joint Proxy Statement; Shareholders Meeting		44
SECTION 5.2		Access to Information; Confidentiality		45
SECTION 5.3		Reasonable Best Efforts		46
SECTION 5.4		Rule 16b-3 Actions		46

 

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				Page
SECTION 5.5		Indemnification, Exculpation and Insurance		47
SECTION 5.6		Fees and Expenses		48
SECTION 5.7		Public Announcements		48
SECTION 5.8		Affiliates		49
SECTION 5.9		Stock Exchange Listing		49
SECTION 5.10		Shareholder Litigation		49
SECTION 5.11		Standstill Agreements; Confidentiality Agreements		49
SECTION 5.12		Employee Benefits		49
SECTION 5.13		Tax Matters		51
SECTION 5.14		Additional Covenant		51
Article VI      Conditions Precedent				51
SECTION 6.1		Conditions to Each Party’s Obligation to Effect the Merger		51
SECTION 6.2		Conditions to Obligations of Parent		52
SECTION 6.3		Conditions to Obligations of the Company		53
SECTION 6.4		Frustration of Closing Conditions		54
Article VII      Termination, Amendment and Waiver				54
SECTION 7.1		Termination		54
SECTION 7.2		Effect of Termination		56
SECTION 7.3		Amendment		58
SECTION 7.4		Extension; Waiver		58
Article VIII      General Provisions				58
SECTION 8.1		Nonsurvival of Representations and Warranties		58
SECTION 8.2		Notices		58
SECTION 8.3		Definitions		59
SECTION 8.4		Interpretation		60
SECTION 8.5		Counterparts		61
SECTION 8.6		Entire Agreement; No Third-Party Beneficiaries		61
SECTION 8.7		Governing Law		61
SECTION 8.8		Consent to Jurisdiction		61
SECTION 8.9		Assignment		62
SECTION 8.10		Headings		62
SECTION 8.11		Severability		62
SECTION 8.12		Enforcement		62

 

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INDEX OF DEFINED TERMS

Term		Page
Covered Employees		49
Derivative Transactions		18
Determination Date		56
Effective Time		2
Employee		13
Employment Agreement		23
Environmental Claims		27
ERISA		23
ERISA Affiliate		25
Exchange Act		10
Exchange Agent		5
Exchange Agent Agreement		5
Exchange Fund		5
Exchange Ratio		3
Exchange Ratio		56
FDIC		9
Fill Option		55
Final Index Price		56
Finance Laws		17
Form S-4		11
FRB		11
GAAP		12
Governmental Entity		11
Indebtedness		14
Indemnified Party		47
Index Ratio		55
Initial Index Price		56
Instruments of Indebtedness		13
Intellectual Property		27
IRS		21
Knowledge		60
Letter of Transmittal		5
Liens		8
Major Company Shareholder		10
Material Adverse Change		60
Material Adverse Effect		60
Materially Burdensome Regulatory Condition		46
MBCA		1

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Term		Page
Permitted Deposit Liabilities		39
Person		60
Plan		23
Policies, Practices and Procedures		19
Proxy Statement		11
qualified by materiality		52
Qualified Plans		24
Representatives		45
Requisite Regulatory Approvals		51
Restraints		52
SEC		11
Securities Act		11
Software		27
Starting Price		56
Subsidiary		60
Support Agreement		1
Support Agreement Parties		1
Surviving Corporation		1
Tax		22
Tax Return		23
Taxes		22
Third Party Public Event		57
Unlawful Gains		18
Wachtell, Lipton		2
Withdrawal Liability		25

 

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AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), dated as of November 6, 2006, by and between U.S. Bancorp, a Delaware corporation (“ Parent ”), Cascade Acquisition Corporation, a Minnesota Corporation (“ Merger Sub ”), and United Financial Corp., a Minnesota corporation (the “ Company ”). Parent, Merger Sub and the Company are collectively referred to herein as the “ Parties .”

W I T N E S S E T H :

WHEREAS, each of Parent, Merger Sub and the Company desires to enter into a transaction whereby Merger Sub will merge with and into the Company (the “ Merger ”), with the Company being the surviving corporation, upon the terms and subject to the conditions set forth in this Agreement, whereby each issued and outstanding share of common stock, no par value, of the Company (“ Company Common Stock ”) will be converted into the right to receive the Merger Consideration (as defined in Section 2.1(b));

WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the Company have each approved this Agreement and the Merger in accordance with the provisions of the Minnesota Business Corporations Act (the “ MBCA ”) and determined that the Merger is advisable;

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 United States Internal Revenue Code of 1986, as amended (the “ Code ”), and that this Agreement be, and is hereby, adopted as a plan of reorganization for purposes of Sections 354 and 361 of the Code;

WHEREAS, in connection with the Merger and the entry by the Parties into this Agreement, Parent is entering into a separate Voting and Support Agreement, of even date herewith (the “ Support Agreement ”), by and between Parent and each of the shareholders of the Company whose names are set forth on the signature pages thereto (the “ Support Agreement Parties ”), pursuant to which, among other things, the Support Agreement Parties have agreed to vote all of the shares of Company Common Stock owned by them in favor of adoption and approval of this Agreement and the Merger; and

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and intending to be legally bound hereby, the Parties agree as follows:

ARTICLE I

 

THE MERGER

SECTION 1.1    The Merger . Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the MBCA, Merger Sub shall be merged with and into the Company at the Effective Time (as defined below). Following the Effective Time, the Company shall be the surviving corporation (the “ Surviving Corporation ”) and the corporate existence of Merger Sub shall cease.

 

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SECTION 1.2    Closing . Subject to the satisfaction or waiver of all of the conditions to closing contained in Article VI hereof, the closing of the Merger (the “ Closing ”) will take place at 9:00 a.m. on a date to be specified by the Parties, which date, subject to the proviso at the end of this sentence, shall be no later than the fifth Business Day (as defined herein) after satisfaction or waiver of the conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions), unless another time or date is agreed to by the Parties; provided , that Parent may designate in its sole discretion that the Closing shall occur on the last Business Day of, or the first Business Day of the month immediately following, the month in which the satisfaction or waiver of all of the conditions to closing contained in Article VI hereof occurred (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions) (the “ Closing Date ”). The Closing will be held at the offices of Wachtell, Lipton, Rosen & Katz (“ Wachtell, Lipton ”), 51 West 52nd Street, New York, New York 10019 or at such other location as is agreed to by the Parties. “ Business Day ” shall mean Monday through Friday of each week, except a legal holiday recognized as such by the U.S. Government.

SECTION 1.3    Effective Time . Subject to the provisions of this Agreement, at the Closing, the Parties shall cause the Merger to be consummated by filing the articles of merger with the Office of the Secretary of State of the State of Minnesota in accordance with the MBCA (the “ Articles of Merger ”) and shall make all other filings or recordings required under the MBCA to effectuate the Merger. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Office of the Secretary of State of the State of Minnesota, or at such subsequent date or time as Parent and the Company shall agree and specify in the Articles of Merger (the time the Merger becomes effective being hereinafter referred to as the “ Effective Time ”).

SECTION 1.4    Effects of the Merger . The Merger shall have the effects set forth in the MBCA.

SECTION 1.5    Certificate of Incorporation and Bylaws of the Surviving Corporation . The certificate of incorporation and the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the certificate of incorporation and the bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law.

SECTION 1.6    Directors and Officers .

(a)   From and after the Effective Time and subject to applicable law, the directors of the Company shall consist of the directors of Merger Sub in office immediately prior to the Effective Time, until their successors shall have been duly elected, appointed or qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and the bylaws of the Company.

(b)   From and after the Effective Time, the officers of Merger Sub shall become the officers of the Surviving Corporation until their successors shall have been duly

 

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elected, appointed or qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and the bylaws of the Surviving Corporation.

(c)   No later than the Effective Time, to the extent so requested prior to the Effective Time by Parent, the Company shall cause each director and officer of the Company and of the Company’s Subsidiaries to tender his or her resignation, effective as of the Effective Time, from any directorship or other similar seat or position on any board of directors or similar governing body of the Company and its Subsidiaries and any directorship or other similar position with a charitable foundation, sponsored non-profit company or other entity held in connection with the individual’s service to the Company or and of its Subsidiaries.

ARTICLE II

 

EFFECT OF THE MERGER ON THE CAPITAL STOCK

OF THE CONSTITUENT CORPORATIONS;

EXCHANGE OF CERTIFICATES

SECTION 2.1    Effect on Capital Stock . As of the Effective Time, by virtue of the Merger and without any action on the part of the Company, Parent, Merger Sub or any holder thereof:

(a)    Cancellation of Treasury Stock . Each share of Company Common Stock that is owned by the Company, Parent or Merger Sub (in each case other than shares held in a fiduciary or agency capacity or in satisfaction of debts previously contracted) shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

(b)    Conversion of Company Common Stock . Subject to the provisions of this Article II, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than shares cancelled and retired pursuant to Section 2.1(a) hereof) shall be converted into the right to receive 0.6825 of a share of common stock (the “ Exchange Ratio ”), par value $.01 per share, of Parent (the “ Merger Consideration ”). Upon such conversion, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each certificate of a share of Company Common Stock (a “ Company Stock Certificate ”) shall thereafter represent solely the right to receive the Merger Consideration, cash for fractional shares in accordance with Section 2.4(h) and any dividends or other distributions pursuant to Section 2.4(e) upon the surrender of the Company Stock Certificate in accordance with the terms hereof.

(c)    Merger Sub . Each common share, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one fully paid and nonassessable common share, par value $0.01 per share, of the Surviving Corporation.

 

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SECTION 2.2    Company Stock Options and Company Stock Based Awards .

(a)   Effective as of immediately following the Company Shareholder Approval (as defined in Section 3.1(u)), the Company may, at its option, cause all (but not less than all) then outstanding options to purchase shares of Company Common Stock (each, a “ Company Stock Option ”) granted by the Company pursuant to the Company’s 2000 Long-Term Incentive and Stock Option Plan (the “ Company Stock Plan ”) that are not then vested and exercisable to become fully vested and exercisable.

(b)   Effective as of the Effective Time, the holders of each then outstanding Company Stock Option shall be paid in full satisfaction of each such Company Stock Option a cash payment in an amount in respect thereof equal to the product of (i) the excess, if any, of the cash value of the Merger Consideration (as determined on the second trading day prior to the Closing Date) over the exercise price of such Company Stock Option and (ii) the number of shares of Company Common Stock subject to the Company Stock Option, less any income or employment tax withholding required under the Code or any provision of foreign, state or local law. Notwithstanding the foregoing, solely for purposes of this Section 2.2, the Merger Consideration shall be determined in accordance with the requirements of Section 409A of the Code.

(c)   Prior to the Effective Time, the Company shall cause its board of directors or any committee administering the Company Stock Plan to adopt all resolutions and take any and all actions necessary (i) to effectuate this Section 2.2, including the approval of any amendments to the Company Stock Plan and (ii) to ensure that no individual shall have the right to exercise any Company Stock Options (or other Company equity awards) for Company Common Stock following the Effective Time, including using its reasonable best efforts to secure from each holder of a Company Stock Option as soon as practicable after the date hereof, such consent or other legally binding writing as may be required to give effect to the foregoing provisions of this SECTION 2.2, including without limitation providing that, in consideration for the payments to be made pursuant to this SECTION 2.2, such holder shall waive any rights the holder may have with respect to any Company Stock Option. The Company and Parent shall cooperate in the preparation of an appropriate consent form to be executed by holders of Company Stock Options in connection with the receipt by such holders of the consideration contemplated by SECTION 2.2 in settlement and cancellation thereof. The Company shall cooperate with Parent, and keep Parent fully informed, with respect to all resolutions, actions and consents that Company intends to adopt, take and obtain in connection with the matters described in this SECTION 2.2. Without limitation, Company shall provide Parent with a reasonable opportunity to review and comment on all such resolutions, actions and consents, and Company shall not adopt any such resolutions, take any such actions or obtain any such consents without the prior written consent of Parent (which consent shall not be unreasonably withheld).

SECTION 2.3    Certain Adjustments . If after the date hereof and on or prior to the Effective Time the outstanding shares of Parent Common Stock shall be changed into a different number of shares by reason of any reclassification, recapitalization or combination, stock split, reverse stock split, stock dividend or rights issued in respect of such stock, or any similar event shall occur (any such action, a “ Parent Adjustment Event ”), the Exchange Ratio

 

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shall be proportionately adjusted to provide to the holders of Company Common Stock the same economic effect as contemplated by this Agreement prior to such Parent Adjustment Event.

SECTION 2.4    Exchange Procedures . (a)  Prior to the Effective Time, Parent shall appoint a bank or trust company, pursuant to an agreement (the “ Exchange Agent Agreement ”) to act as exchange agent (the “ Exchange Agent ”) hereunder.

(b)   Promptly following the Effective Time, Parent shall deposit, or shall cause to be deposited, with the Exchange Agent, certificates representing the number of shares of Parent Common Stock sufficient to deliver the aggregate Merger Consideration (together with, to the extent then determinable, any cash payable in lieu of fractional shares pursuant to Section 2.4(h)) (the “ Exchange Fund ”), and Parent shall instruct the Exchange Agent timely to pay the Merger Consideration, and cash in lieu of fractional shares, in accordance with this agreement.

(c)   As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to the Company’s shareholders entitled to vote at the meeting of the shareholders of the Company at which the shareholders of the Company consider and vote on this Agreement (the “ Company Shareholders Meeting ”) (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to Company Stock Certificate(s) shall pass, only upon delivery of Company Stock Certificate(s) (or affidavits of loss in lieu of such Certificate(s)) to the Exchange Agent and shall be substantially in such form and have such other provisions as shall be prescribed in the Exchange Agent Agreement (the “ Letter of Transmittal ”) and (ii) instructions for use in surrendering the Company Stock Certificate(s) in exchange for the Merger Consideration and any cash in lieu of fractional shares of Parent Common Stock to be issued or paid in consideration therefor in accordance with Section 2.4(h) upon surrender of such Company Stock Certificates and any dividends or distributions to which such holder is entitled pursuant to Section 2.4(e).

(d)   Upon surrender to the Exchange Agent of its Company Stock Certificate(s), accompanied by a properly completed Letter of Transmittal, a holder of Company Common Stock will be entitled to receive after the Effective Time the Merger Consideration and any cash in lieu of fractional shares of Parent Common Stock to be issued or paid in consideration therefor in respect of the shares of Parent Common Stock represented by its Company Stock Certificate(s). Until so surrendered, each such Company Stock Certificate shall represent after the Effective Time, for all purposes, only the right to receive the Merger Consideration and any cash in lieu of fractional shares of Parent Common Stock to be issued or paid in consideration therefor upon surrender of such Company Stock Certificate in accordance with, and any dividends or distributions to which such holder is entitled pursuant to, this Section 2.4.

(e)   No dividends or other distributions with respect to Parent Common Stock shall be paid to the holder of any unsurrendered Company Stock Certificate with respect to the shares of Parent Common Stock represented thereby, in each case until the surrender of such Company Stock Certificate in accordance with this Section 2.4. Subject to the effect of applicable abandoned property, escheat or similar laws, following surrender of any such Company Stock Certificate in accordance with this Section 2.4, the record holder thereof will be entitled to receive, without interest, (i) the amount of dividends or other distributions with a

 

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record date after the Effective Time theretofore payable with respect to the whole shares of Parent Common Stock represented by such Company Stock Certificate and not paid and/or (ii) at the appropriate payment date, the amount of dividends or other distributions payable with respect to shares of Parent Common Stock represented by such Company Stock Certificate with a record date after the Effective Time (but before such surrender date) and with a payment date subsequent to the issuance of the Parent Common Stock issuable with respect to such Company Stock Certificate.

(f)   In the event of a transfer of ownership of a Company Stock Certificate representing Company Common Stock that is not registered in the stock transfer records of the Company, the proper number of shares of Parent Common Stock shall be issued therefor to a Person other than the Person in whose name the Certificate so surrendered is registered if the Company Stock Certificate formerly representing such Company Common Stock shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such payment or issuance shall pay any transfer or similar Taxes required by reason of the payment or issuance to a Person other than the registered holder of the Company Stock Certificate or establish to the satisfaction of Parent that the Tax has been paid or is not applicable.

(g)   After the Effective Time, there shall be no transfers on the stock transfer books of the Company of the shares of Company Common Stock that were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, Company Stock Certificates representing such shares are presented for transfer to the Exchange Agent, they shall be cancelled and exchanged for the Merger Consideration and any cash in lieu of fractional shares of Parent Common Stock to be issued or paid in consideration therefor in accordance with the procedures set forth in this Section 2.4.

(h)   Notwithstanding anything to the contrary contained this Agreement, no certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the surrender of Company Stock Certificates for exchange, no dividend or distribution with respect to Parent 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 as a stockholder of Parent. In lieu of the issuance of any such fractional share, Parent shall pay to each former shareholder of the Company who otherwise would be entitled to receive such fractional share an amount in cash (rounded to the nearest cent) determined by multiplying (i) the Parent Closing Price by (ii) the fraction of a share (after taking into account all shares of Company Common Stock held by such holder at the Effective Time and rounded to the nearest thousandth when expressed in decimal form) of Parent Common Stock to which such holder would otherwise be entitled to receive pursuant to this Section 2.4(h). “ Parent Closing Price ” means the average, rounded to the nearest one ten thousandth, of the closing sale prices of Parent Common Stock on the New York Stock Exchange (the “ NYSE ”) as reported in The Wall Street Journal for the five trading days immediately preceding the date of the Effective Time.

(i)   Any portion of the Exchange Fund that remains unclaimed by the shareholders of the Company as of the six month anniversary of the Effective Time may be paid to Parent. In such event, any former shareholders of the Company who have not theretofore complied with this Section 2.4 shall thereafter look only to Parent with respect to the Merger Consideration, any cash in lieu of any fractional shares and any unpaid dividends and

 

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distributions on the Parent Common Stock deliverable in respect of each share of Company Common Stock such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of Parent, 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 delivered in good faith to a public official pursuant to any applicable abandoned property, escheat or similar laws.

(j)   In the event any Company Stock Certificate is lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Company Stock Certificate to be lost, stolen or destroyed and, if requested by Parent or the Exchange Agent, the posting by such Person of a bond in such amount as Parent may in good faith determine is necessary as indemnity against any claim that may be made against it with respect to such Company Stock Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof pursuant to this Agreement.

(k)   Each of Parent and the Surviving Corporation shall be entitled to deduct and withhold, or cause the Exchange Agent to deduct and withhold, from the consideration otherwise payable pursuant to this Agreement to any holder of Company Common Stock or Company Stock Options such amounts as it may be required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax law. To the extent that amounts are so withheld by the Company, the Surviving Corporation, or the Exchange Agent, as the case may be, the withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holders of Company Common Stock in respect of which the deduction and withholding was made by the Company, the Surviving Corporation or the Exchange Agent, as the case may be.

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

SECTION 3.1    Representations and Warranties of the Company . Except as set forth on the Disclosure Schedule delivered by the Company to Parent prior to the execution of this Agreement (the “ Company Disclosure Schedule ”), provided that the exception or matter disclosed on the Disclosure Schedule makes reference to, or readily apparently relates to, the particular subsection of this Agreement to which exception is being taken, the Company represents and warrants to Parent as follows:

(a)    Organization, Standing and Corporate Power .

(i)   Each of the Company and its Subsidiaries is a corporation or other legal entity duly organized, validly existing and in good standing (with respect to jurisdictions which recognize such concept) under the laws of the jurisdiction in which it is organized and has the requisite corporate or other power, as the case may be, and authority to carry on its business as now being conducted, except, as to Subsidiaries other than Heritage Bank (“ Company Bank ”), for those jurisdictions where the failure to be duly organized, validly existing and in good standing would not, individually or in the aggregate, reasonably

 

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be expected to result in a Material Adverse Effect to the Company. Each of the Company and its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on the Company. The Company is duly registered as a bank holding company with the Board of Governors of the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (“ BHCA ”), and the Company Bank is a Montana chartered commercial bank duly organized, validly existing and in good standing under the laws of the State of Montana.

(ii)   The Company has delivered to Parent prior to the execution of this Agreement complete and correct copies of the articles of incorporation and bylaws or other organizational documents, as amended to date, of the Company and its Subsidiaries.

(iii)  Except as set forth in SECTION 3.1(a) of the Company Disclosure Schedule for the past three years, the minute books of the Company and its Subsidiaries, which the Company has made available to Parent prior to execution of this Agreement, contain accurate records of all meetings and accurately reflect all other material actions taken by the shareholders of the Company and its Subsidiaries, the boards of directors of the Company and its Subsidiaries and all standing committees of the boards of directors of the Company and its Subsidiaries.

(b)    Subsidiaries . SECTION 3.1(b) of the Company Disclosure Schedule lists all the Subsidiaries of the Company, whether consolidated or unconsolidated, and sets forth the issued and outstanding securities of each of such Subsidiaries and its jurisdiction of incorporation. Except as set forth in SECTION 3.1(b) of the Company Disclosure Schedule, all outstanding shares of capital stock of, or other equity or ownership interests in, each such Subsidiary: (i) have been validly issued and are fully paid and nonassessable; (ii) are owned directly or indirectly by the Company, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, “ Liens ”) other than Company Permitted Liens (as defined in this Section 3.1(b)); and (iii) other than Company Permitted Liens, are free of any other material restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests) that would prevent the operation by the Surviving Corporation of such Subsidiary’s business as currently conducted. Neither the Company nor any of its Subsidiaries conducts any operations outside of the United States or conducts any operations that are subject to any regulatory oversight by Governmental Entities (as defined below in Section 3.1(d)) outside of the United States. Other than the Subsidiaries of the Company or an equity, ownership or membership interest not in excess of 5 percent of the outstanding number of such interests that was acquired and maintained by the Company or a Subsidiary in the ordinary course of business, the Company does not own or control, directly or indirectly, any equity, ownership or membership interest in any corporation, company, association, partnership, joint venture or other entity, nor is any corporation, company, association, partnership, joint venture or other entity consolidated with the Company for financial reporting purposes. For purpose of this Section 3.1(b) (except as indicated) and elsewhere through this Agreement “ Company Permitted Liens ” shall mean (A) Liens described in SECTION 3.1(b) of the Company Disclosure Schedule; (B) restrictions on

 

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transferability pursuant to generally-applicable federal and state securities laws; and (C) Liens for Taxes not yet due or delinquent or being contested in good faith and for which reserves appropriate in all material respects have been established in accordance with GAAP (as defined in Section 3.1(e)(ii)). The deposit accounts of the Company Bank are insured by the Federal Deposit Insurance Corporation (the “ FDIC ”) through the Bank Insurance Fund (the “ BIF ”) to the fullest extent permitted by law, and all premiums and assessments required in connection therewith have been paid by the Company Bank.

(c)    Capital Structure . The authorized capital stock of the Company consists of 8,000,000 shares of Company Common Stock and 2,000,000 shares of preferred stock, no par value, of the Company (“ Company Preferred Stock ”). As of the date of this Agreement: (i) 3,075,820 shares of Company Common Stock were issued and outstanding; (ii) no shares of Company Common Stock were held by the Company in its treasury and no shares of Company Common Stock were held by Subsidiaries of the Company; (iii) no shares of Company Preferred Stock were issued and outstanding; (iv) no shares of Company Preferred Stock were held by the Company in its treasury or were held by any Subsidiary of the Company; and (v) 322,500 shares of Company Common Stock were reserved for issuance pursuant to the Company Stock Plans, of which 199,708.938 shares are subject to outstanding Company Stock Options. All outstanding shares of capital stock of the Company are, and all shares thereof which may be issued prior to the Closing will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. The Company has delivered to Parent a true and complete list, as of the close of business on the date of this Agreement, of all outstanding Company Stock Options granted under the Company Stock Plans and all outstanding and unvested Company Stock-Based Awards granted or accrued under the Company Stock Plans, or otherwise granted, the number of shares subject to each such Company Stock Option or Company Stock-Based Award, the grant dates, the vesting schedule and the exercise prices (if any) of each such Company Stock Option or Company Stock-Based Award and the names of the holders thereof. Except as set forth in this Section 3.1(b), (x) there are not issued, reserved for issuance or outstanding (A) any shares of capital stock or voting securities or other ownership interests of the Company, (B) any securities of the Company or any Subsidiary of the Company convertible into or exchangeable or exercisable for shares of capital stock or voting securities or other ownership interests of the Company, or (C) any warrants, calls, options or other rights to acquire from the Company or any Subsidiary of the Company, or any obligation of the Company or any of its Subsidiaries to issue, deliver or sell, any capital stock, voting securities or other ownership interests in, or securities convertible into or exchangeable or exercisable for, capital stock or voting securities or other ownership interests of the Company, and (y) there are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any such securities or to issue, deliver or sell, or cause to be issued, delivered or sold, any such securities. Except as set forth in SECTION 3.1(c) of the Company Disclosure Schedule, there are no outstanding (A) securities of the Company or any of its Subsidiaries convertible into or exchangeable or exercisable for shares of capital stock or voting securities or other ownership interests in any Subsidiary of the Company, (B) warrants, calls, options or other rights to acquire from the Company or any of its Subsidiaries, or any obligation of the Company or any of its Subsidiaries to issue, deliver or sell any capital stock, voting securities or other ownership interests in, or any securities convertible into or exchangeable or exercisable for, any capital stock, voting securities or other ownership interests in, any Subsidiary of the Company or (C) obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise

 

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acquire any such outstanding securities of Subsidiaries of the Company or to issue, deliver or sell, or cause to be issued, delivered or sold, any such securities. Neither the Company nor any of its Subsidiaries is a party and, to the knowledge of the Company as of the date hereof, no other Person having beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) of 5% or more of the outstanding Company Common Stock (a “ Major Company Shareholder ”) is a party, to any agreement restricting the transfer of, relating to the voting of, or otherwise granting a proxy in respect of, requiring registration of, or granting any preemptive or antidilutive rights with respect to any of the securities of the Company or any of its Subsidiaries, other than the Support Agreement. There are no voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party or, to the knowledge of the Company as of the date hereof, any Major Company Shareholder is a party with respect to the voting of the capital stock of the Company or any of its Subsidiaries, other than the Support Agreement.

(d)    Authority; Noncontravention . The Company has all requisite corporate power and authority to enter into this Agreement and the Support Agreement and, subject, in the case of the Merger, to the Company Shareholder Approval (as defined in Section 3.1(u)), to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Support Agreement and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of the Merger, to the Company Shareholder Approval. Each of this Agreement and the Support Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent, constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that (i) such enforceability may be subject to applicable bankruptcy, insolvency or other similar laws now or hereafter in effect affecting creditors’ rights generally and (ii) the availability of the remedy of specific performance or injunction or other forms of equitable relief may be subject to equitable defenses and would be subject to the discretion of the court before which any proceeding therefor may be brought. The execution and delivery of this Agreement and the Support Agreement does not, the consummation of the transactions contemplated hereby and thereby will not, and compliance with the provisions of this Agreement and the Support Agreement will not, conflict with, or result in any violation, forfeiture or termination of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of forfeiture, termination, cancellation or acceleration (with or without notice or lapse of time, or both) of any obligation or loss of a benefit, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries under, (i) the articles of incorporation or bylaws of the Company, (ii) the articles of incorporation or bylaws or the comparable organizational documents of any of its Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage, indenture, lease, vendor agreement, software agreement or other agreement, instrument, Intellectual Property (as defined in Section 3.1(q)) right, permit, concession, franchise, license or similar authorization applicable to the Company or any of its Subsidiaries or their respective properties or assets, or (iv) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries or their respective properties or assets, other than, in the case of clauses (iii) and (iv) only, any such conflicts, violations, defaults, rights, losses or Liens that would not, individually or in the aggregate (x) reasonably be expected to result in a Material Adverse Effect

 

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on the Company or (y) reasonably be expected to materially impair or materially delay the ability of the Company to perform its obligations under this Agreement. No consent, approval, order or authorization of, action by or in respect of, or registration, declaration or filing with, any (i) federal, state, local, municipal or foreign government, (ii) governmental, quasi-governmental authority (including any governmental agency, commission, branch, department or official, and any court or other tribunal) or body exercising, or entitled to exercise, any governmentally-derived administrative, executive, judicial, legislative, police, regulatory or taxing authority, or (iii) any self-regulatory organization, administrative or regulatory agency, commission or authority (each, a “ Governmental Entity ”) is required by or with respect to the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement or the Support Agreement by the Company or the consummation by the Company of the transactions contemplated hereby or thereby, except for (1) the filing with the Securities and Exchange Commission (the “ SEC ”) of (A) a registration statement on Form S-4 to be prepared and filed in connection with the issuance of the Parent Common Stock in the Merger, including the proxy statement and other proxy solicitation materials of the Company constituting a part thereof (the “ Proxy Statement ”) (as it may be amended from time to time, the “ Form S-4 ”), and the declaration of effectiveness thereof by the SEC, and (B) such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement; (2) the filing of the Articles of Merger with the Secretary of State of the State of Minnesota and such filings with Governmental Entities to satisfy the applicable requirements of the laws of states in which the Company and its Subsidiaries are qualified or licensed to do business or state securities or “blue sky” laws; (3) the approval of the Board of Governors of the Federal Reserve System (the “ FRB ”); (4) the approval of the Montana Department of Commerce, Division of Banking and Financial Institutions (the “ Montana Banking Division ”); and (5) the approval of the FDIC.

(e)    Company Documents; Undisclosed Liabilities .

(i)   Since January 1, 2003, the Company and each of its Subsidiaries subject to reporting under SECTION 13 or 15(d) of the Exchange Act, has filed all required reports with the SEC and all required schedules, forms, statements and other documents (including exhibits and all other information incorporated therein and certifications thereto) with the SEC (collectively, the “ Company SEC Documents ”). As of their respective filing dates, (i) except as set forth in SECTION 3.1(e) of the Company Disclosure Schedule, the Company SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (the “ Securities Act ”), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Company SEC Documents, and (ii) no Company SEC Document, as of its date, except as amended or supplemented by a subsequent Company SEC Document filed and publicly available prior to the date hereof (as amended to the date hereof, the “ Company Filed SEC Documents ”), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and no Company SEC Document filed subsequent to the date hereof will contain as of its date, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

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(ii)   The financial statements of the Company and its consolidated Subsidiaries included in Company SEC Documents (including the related notes) complied as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles in the United States and the applicable standards of the Public Company Accounting Oversight Board (United States), as applicable (together, “ GAAP ”) (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject in the case of unaudited statements, to recurring year-end audit adjustments normal in nature and amount).

(iii) Except (A) as reflected in the Company’s unaudited balance sheet as of June 30, 2006 or liabilities described in any notes thereto or (B) for liabilities incurred in the ordinary course of business consistent with past practice since June 30, 2006, that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Company and its Subsidiaries, taken as a whole, do not have any material liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise.

(iv) The Company’s and its Subsidiaries’ books and records fairly reflect in all material respects the transactions to which each of the Company and its Subsidiaries are a party or by which its or its Subsidiaries properties or assets are subject or bound. Such books and records have been properly kept and maintained and are in compliance with all applicable legal and accounting requirements.

(v)   Except as set forth in SECTION 3.1(e)(v) of the Company Disclosure Schedule, the records, systems, controls, data and information of the Company and its respective Subsidiaries are recorded, stored, maintained and operated under means that are under the exclusive ownership and direct control of the Company or its Subsidiaries or accountants, except for any non-exclusive ownership and non-direct control that would not reasonably be expected to have a materially adverse effect on the system of internal accounting controls described in the following sentence. The Company and its Subsidiaries have devised and maintain a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including that: (1) transactions are executed only in accordance with management’s authorization; (2) transactions are recorded as necessary to permit preparation of the financial statements of the Company and its Subsidiaries and to maintain accountability for the assets of the Company and its Subsidiaries; (3) access to such assets is permitted only in accordance with management’s authorization; (4) the reporting of such assets is compared with existing assets at regular intervals; and (5) accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current and timely basis. Each of the Company and its Subsidiaries has disclosed, based on its most recent evaluation prior to the date of this Agreement, to its auditors and the audit committee of its Board of Directors (A) any significant deficiencies in the design or

 

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operation of internal controls which could adversely affect in any material respect its ability to record, process, summarize and report financial data and have disclosed to its auditors any material weaknesses in internal controls and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in its internal controls. The Company and its Subsidiaries have made available to Parent a summary of any such disclosure made by management to the Company’s auditors and audit committee since December 31, 2003. The Company has initiated a process of compliance with SECTION 404 of the Sarbanes-Oxley Act.

(f)    Certain Contracts . Except as set forth in the exhibit index for the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 or as permitted pursuant to Section 4.1 or as set forth on SECTION 3.1(f) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to or bound by (i) any agreement relating to the incurring of Indebtedness (as defined in this Section 3.1(f)) by the Company or any of its Subsidiaries in an amount in excess in the aggregate of $100,000, including any such agreement which contains provisions that restrict, or may restrict, the conduct of business of the issuer thereof as currently conducted (collectively, “ Instruments of Indebtedness ”), (ii) any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) or any contract or other agreement that, if being entered into or amended as of the date hereof, would be subject to disclosure under Item 1.01 of Form 8-K of the SEC under the Exchange Act, (iii) any non-competition or exclusive dealing agreement, or any other agreement or obligation which purports to limit or restrict in any respect the ability of the Company and its Subsidiaries, taken as a whole, to (A) conduct its business as it is presently being conducted, (B) engage in any type or activity or business, (C) solicit customers or to select vendors, suppliers or partners or (D) conduct all or any portion of the business of the Company and its Subsidiaries or, following consummation of the transactions contemplated by this Agreement, Parent and its Subsidiaries, in any location or in any manner; (iv) any agreement providing for the indemnification of any Person by the Company or a Subsidiary of the Company, (v) any joint venture or partnership agreement, (vi) any agreement that grants any right of first refusal or right of first offer or similar right or that limits or purports to limit the ability of the Company or any of its Subsidiaries to own or operate any business or own, operate, sell, transfer, pledge or otherwise dispose of any material amount of assets or business, (vii) any contract or agreement providing for any payments that are conditioned, in whole or in part, on, or accelerated by, a change of control of the Company or any of its Subsidiaries, (viii) any collective bargaining agreement, (ix) any agreement with, or for the benefit of, any past or present director or officer of the Company under which the Company has a continuing obligation, whether fixed or contingent, and any employment agreement with, or any agreement or arrangement that contains any severance pay or post-employment liabilities or obligations (other than as required by law) to, any employee or former employee of the Company or its Subsidiaries (any such Person, hereinafter, an “ Employee ”), (x) any agreement regarding any agent bank or other similar relationships with respect to lines of business, (xi) any agreement that contains a “most favored nation” clause or other term providing preferential pricing or treatment to a third party, (xii) any agreement material to the Company pertaining to the use of or granting any right to use or practice any rights under any Intellectual Property, whether the Company is the licensee or licensor thereunder, (xiii) any material agreements pursuant to which the Company or any of its Subsidiaries leases any real property, (xiv) any contract or agreement material to the Company providing for the outsourcing or provision of servicing of customers,

 

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technology or product offerings of the Company or its Subsidiaries, (xv) any contract or agreement with an Affiliated Person, and (xvi) any contract or other agreement not made in the ordinary course of business consistent with past practice which (A) is material to the Company or (B) which would reasonably be expected to materially delay the consummation of the Merger or any of the transactions contemplated by this Agreement (the agreements, contracts and obligations of the type described in clauses (i) through (xvi) being referred to herein as “ Company Material Contracts ”). Each Company Material Contract is valid and binding on the Company (or, to the extent a Subsidiary of the Company is a party, such Subsidiary) and, to the knowledge of the Company, any other party thereto and is in full force and effect. Neither the Company nor any of its Subsidiaries is in breach or default under any Company Material Contract except where any such breach or default would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on the Company. Neither the Company nor any Subsidiary of the Company knows of, or has received notice of, any violation or default under (nor, to the knowledge of the Company, does there exist any condition which with the passage of time or the giving of notice or both would result in such a violation or default under) any Company Material Contract by any other party thereto except where any such violation or default would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on the Company. Prior to the date hereof, the Company has made available or delivered to Parent true and complete copies of all Company Material Contracts. Except as set forth on Section 3.1(c) of the Company Disclosure Schedule, there are no provisions in any Instrument of Indebtedness that provide any restrictions on the repayment of the outstanding Indebtedness thereunder, or that require that any financial payment (other than payment of outstanding principal and accrued interest) be made in the event of the repayment of the outstanding Indebtedness thereunder prior to expiration. For purposes of this Section 3.1(f) and elsewhere through this Agreement, “ Indebtedness ” of a Person shall mean (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes and similar instruments, (iii) all leases of such Person capitalized in accordance with GAAP, and (iv) all obligations of such Person under sale-and-leaseback transactions, agreements to repurchase securities sold and other similar financing transactions.

(g)    Absence of Certain Changes or Events . Except as set forth in SECTION 3.1(g) of the Company Disclosure Schedule, since December 31, 2005, the Company and its Subsidiaries have conducted their respective businesses in all material respects only in the ordinary course of business consistent with past practice and there has not been:

(i)   any Material Adverse Change in the Company,

(ii)  any issuance of Company Stock Options or restricted shares of Company Common Stock, or any other equity-based award, to any directors, officers, Employees or consultants of the Company or any of its Subsidiaries (in any event identifying in SECTION 3.1(g)(ii) of the Company Disclosure Schedule the issue date, exercise price and vesting schedule, as applicable, for issuances thereto since June 30, 2006),

(iii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of the capital stock of the Company or its Subsidiaries, other than a quarterly cash dividend not in excess of $0.23 per share on the Company Common Stock and otherwise declared at times consistent with

 

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past practice, and other than dividends paid by any wholly owned Subsidiary of the Company to the Company or any other wholly owned Subsidiary of the Company,

(iv)  any split, combination or reclassification of any of the Company’s capital stock, or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of the Company’s capital stock, except for issuances of Company Common Stock or upon the exercise of Company Stock Options awarded prior to the date hereof in accordance with their present terms,

(v)   (A) any granting by the Company or any of its Subsidiaries to any current or former directors, executive officers, Employees or consultants of any increase in severance or termination pay, compensation, bonus or other benefits, except for increases (other than to severance or termination pay) that were made in the ordinary course of business consistent with past practice or (B) acceleration of the vesting or payment of compensation payable or benefits provided or to become payable or provided to any of current or former directors, officers, Employees, consultants or service providers or otherwise payment of any amounts, granting of any awards or providing of any benefits not otherwise due in accordance with the present terms of existing contractual obligations,

(vi)  any change in any accounting methods, principles or practices by the Company affecting its assets, liabilities or business, including any reserving, renewal or residual method, or estimate or practice or policy, other than changes after the date hereof to the extent required by a change in GAAP or in applicable regulatory accounting principles,

(vii)  any Tax election or change in or revocation of any Tax election, amendment to any Tax Return (as defined in Section 3.1(m)), closing agreement with respect to Taxes, or settlement or compromise of any Tax liability by the Company or its Subsidiaries,

(viii) any material change in investment policies, or

(ix)   any agreement or commitment (contingent or otherwise) to do any of the foregoing.

(h)    Licenses; Compliance with Applicable Laws .

(i)   SECTION 3.1(h) of the Company Disclosure Schedule sets forth a true and complete listing of all states in which the Company and its Subsidiaries are licensed to conduct business. The Company, its Subsidiaries and Employees hold all permits, licenses, variances, authorizations, exemptions, orders, registrations and approvals of all Governmental Entities (the “ Permits ”) that are required for the operation of the respective businesses of the Company and its Subsidiaries as presently conducted, except insofar as would not, individually or in the aggregate, reasonably be expected to (x) have a Material Adverse Effect on the Company or (y) materially impair or materially delay the ability of the Company to perform its obligations under this Agreement. Each of the Company and its Subsidiaries is and has been, in compliance in all respects with the terms of such Permits and all such Permits are in full force and effect and no suspension, modification or revocation of any of them is pending or, to the knowledge of the Company, threatened nor, to the

 

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knowledge of the Company, do grounds exist for any such action, except where non-compliance or such suspension, modification or revocation would not, individually or in the aggregate, reasonably be expected to (x) result in a Material Adverse Effect on the Company or (y) materially impair or materially delay the ability of the Company to perform its obligations under this Agreement.

(ii)   Each of the Company and its Subsidiaries is and has been, in compliance in all material respects with all applicable statutes, laws, regulations, ordinances, Permits, rules, judgments, orders, decrees or arbitration awards of any Governmental Entity applicable to the Company or its Subsidiaries except for such noncompliance that would not individually, or in the aggregate, reasonably be expected to result in any Material Adverse Effect on the Company or its Subsidiaries.

(iii)  Neither the Company nor any of its Subsidiaries is subject to any outstanding order, injunction or decree 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 supervisory letter from or has adopted any resolutions at the request of, any Governmental Entity that restricts in any respect the conduct of its business or that in any respect relates to its capital adequacy, its policies, its management or its business (each, a “ Company Regulatory Agreement ”), nor has the Company or any of its Subsidiaries or Affiliates (as defined in Section 8.3(a)) (A) to the Company’s knowledge, been advised since January 1, 2003 by any Governmental Entity that it is considering issuing or requesting any such Company Regulatory Agreement or (B) have knowledge of any pending or threatened investigation by any Governmental Entity. Neither the Company nor any of its Subsidiaries is in breach or default under any Company Regulatory Agreement in any material respect. Prior to the date hereof, the Company has made available to Parent true and complete copies, or otherwise disclosed to Parent the substantial terms, of all Company Regulatory Agreements.

(iv)  Except for filings with the SEC, which are the subject of Section 3.1(e), since January 1, 2003, the Company and each of its Subsidiaries have timely filed all regulatory reports, schedules, forms, registrations and other documents, together with any amendments required to be made with respect thereto, that they were required to file with any Governmental Entity (the “ Other Company Documents ”), and have timely paid all fees and assessments due and payable in connection therewith, except where the failure to make such payments and filings would not, individually or in the aggregate, reasonably be expected to (x) result in a Material Adverse Effect on the Company or (y) materially impair or materially delay the ability of the Company to perform its obligations under this Agreement. To the Company’s Knowledge, there is no material unresolved violation or exception with respect to any report or statement relating to any examinations of the Company or any of its Subsidiaries by any Governmental Entities. The Company has delivered or made available to Parent a true and complete copy of each material Other Company Document requested by Parent.

(v)   Neither the Company nor any of its Subsidiaries, nor, to the Company’s Knowledge, any of their respective directors, officers or Employees has been the subject of any disciplinary proceedings or orders of any Governmental Entity arising under

 

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applicable laws or regulations which would be required to be disclosed in any Other Company Document except as disclosed therein, and no such disciplinary proceeding or order is pending, nor to the knowledge of the Company threatened, except where non-disclosure, or such preceding or order, would not, individually or in the aggregate, reasonably be expected to (x) result in a Material Adverse Effect on the Company or (y) materially impair or materially delay the ability of the Company to perform its obligations under this Agreement.

(vi)  The Company Bank is “well-capitalized” and “well managed” under applicable regulatory definitions, and its examination rating under the Community Reinvestment Act of 1977 is “satisfactory.”

(vii)  Neither the Company nor any of its Subsidiaries, nor, to the Knowledge of the Company, any “ affiliated person ” (as defined in the Investment Company Act) of the Company, is ineligible pursuant to SECTION 9(a) or 9(b) of the Investment Company Act of 1940 to act as, or subject to any disqualification which would form a reasonable basis for any denial, suspension or revocation of the registration of or licenses or for any limitation on the activities of the Company or any of its Subsidiaries as, an investment advisor (or in any other capacity contemplated by said Act) to a registered investment company. Neither the Company or any of its Subsidiaries, nor to the knowledge of the Company, any “associated person of a broker or dealer” (as defined in the Exchange Act) of the Company or any of its Affiliates, is ineligible pursuant to SECTION 15(b) of the Exchange Act to act as a broker-dealer or as an associated person to a registered broker-dealer or is subject to a “statutory disqualification” as defined in SECTION 3(a)(39) of the Exchange Act or otherwise ineligible to serve as a broker-dealer or as an associated person to a registered broker-dealer.

(viii) The business and operations of the Company and of each of the Company’s Subsidiaries through which the Company conducts its finance activities have been conducted in compliance with all applicable statutes and regulations regulating the business of consumer lending, including state usury laws, the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Consumer Credit Protection Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Homeowners Ownership and Equity Protection Act, the Fair Debt Collections Act and other federal, state, local and foreign laws regulating lending (“ Finance Laws ”), and have complied with all applicable collection practices in seeking payment under any loan or credit extension of such Subsidiaries, except where non-compliance would not, individually or in the aggregate, reasonably be expected to (x) result in a Material Adverse Effect on the Company or (y) materially impair or materially delay the ability of the Company to perform its obligations under this Agreement. In addition, there is no pending or, to the knowledge of the Company, threatened charge by any Governmental Entity that the Company or any of its Subsidiaries has violated any applicable Finance Laws, except insofar as would not, individually or in the aggregate, reasonably be expected to (x) result in a Material Adverse Effect on the Company or (y) materially impair or materially delay the ability of the Company to perform its obligations under this Agreement..

(ix)  Since January 1, 2003, neither the Company nor any of its Subsidiaries, nor to the knowledge of the Company, any other Person acting on behalf of the Company or any of its Subsidiaries that qualifies as a “financial institution” under the U.S.

 

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Anti-Money Laundering laws, has knowingly acted, by itself or in conjunction with another, in any act in connection with the concealment of any currency, securities, other proprietary interest that is the result of a felony as defined in the U.S. Anti-Money Laundering laws (“ Unlawful Gains ”), nor knowingly accepted, transported, stored, dealt in or brokered any sale, purchase or any transaction of other nature for Unlawful Gains, except insofar as would not, individually or in the aggregate, reasonably be expected to (x) result in a Material Adverse Effect on the Company or (y) materially impair or materially delay the ability of the Company to perform its obligations under this Agreement.. The Company and each of its Subsidiaries that qualifies as a “financial institution” under the U.S. Anti-Money Laundering laws has, during the past three years, implemented such anti-money laundry mechanisms and kept and filed all material reports and other necessary material documents as required by, and, except as set forth on SECTION 3.1(h) of the Disclosure Schedule, otherwise complied with, the U.S. Anti-Money Laundering laws and the rules and regulations issued thereunder, except insofar as would not, individually or in the aggregate, reasonably be expected to (x) result in a Material Adverse Effect on the Company or (y) materially impair or materially delay the ability of the Company to perform its obligations under this Agreement.

(i)    Derivative Transactions .

(i)   Except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on the Company, all Derivative Transactions (as defined in this Section 3.1(i)) entered into by the Company or any of its Subsidiaries were entered into in accordance with applicable rules, regulations and policies of all regulatory authorities, and in accordance with the investment, securities, commodities, risk management and other Policies, Practices and Procedures (as defined in Section 3.1(j)) employed by the Company and its Subsidiaries, and were entered into with counterparties believed at the time to be financially responsible and able to understand (either alone or in consultation with their advisers) and to bear the risks of such Derivative Transactions; and the Company and each of its Subsidiaries have duly performed their obligations under the Derivative Transactions to the extent that such obligations to perform have accrued, and, to the Company’s knowledge, there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder.

(ii)   For purposes of this Agreement, “ Derivative Transactions ” means any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, credit-related events or conditions or any indexes, or any other similar transaction or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions.

(j)    Investment Securities and Commodities .

(i)   Except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on the Company, each of the Company and its Subsidiaries has good title to all securities and commodities owned by it

 

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(except those sold under repurchase agreements or held in any fiduciary or agency capacity), free and clear of any Lien, except for Company Permitted Liens and except to the extent such securities or commodities are pledged in the ordinary course of business consistent with past practice to secure obligations of the Company or its Subsidiaries. Such securities and commodities are valued on the books of the Company in accordance with GAAP in all material respects.

(ii)   The Company and its Subsidiaries and their respective businesses employ investment, securities, commodities, risk management and other policies, practices and procedures (the “ Policies, Practices and Procedures ”) which the Company believes are prudent and reasonable in the context of such businesses. Prior to the date hereof, the Company has made available to Parent the material Policies, Practices and Procedures.

 

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(k)    Administration of Accounts . The Company and each of its Subsidiaries has properly administered all accounts for which it acts as a fiduciary or agent, including but not limited to accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents and applicable state and federal law and regulation and common law, except where the failure to do so would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries, nor, to the Company’s Knowledge, any of their directors, officers, agents or Employees, has committed any breach of trust with respect to any such fiduciary or agency account, and the accountings for each such fiduciary or agency account are true and correct and accurately reflect the assets of such fiduciary or agency account, except for such breaches and failures to be true, correct and accurate which would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on the Company.

(l)    Litigation . Except as set forth in SECTION 3.1(l)(i) of the Company Disclosure Schedule, which contains a true and current (as of the date hereof) summary description of any pending and, to the Company’s knowledge, threatened litigation, action, suit, proceeding, investigation, inquiry or arbitration, and which includes the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedies requested, no action, demand, charge, requirement, investigation or inquiry by any Governmental Entity and no litigation, action, suit, proceeding, investigation or arbitration by any Person or Governmental Entity, in each case with respect to the Company or any of its Subsidiaries or any of their respective properties or Permits, is pending or, to the knowledge of the Company, threatened, except as would not, individually or in the aggregate, reasonably be expected to (x) result in a Material Adverse Effect on the Company or (y) materially impair or materially delay the ability of the Company to perform its obligations under this Agreement.

(m)    Taxes .

(i)   Each of the Company and its Subsidiaries has (A) timely filed (or there have been timely filed on its behalf) with the appropriate Governmental Entities all income and other material Tax Returns required to be filed by it (giving effect to all extensions) and such Tax Returns are true, correct and complete in all material respects; (B) timely paid in full (or there has been timely paid in full on its behalf) all material Taxes due and owing and (C) made adequate provision in all material respects (or adequate provision in all material respects has been made on its behalf) for all accrued Taxes not yet due. The accruals and reserves for Taxes reflected in the Company’s audited consolidated balance sheet as of December 31, 2005 (and the notes thereto) and the most recent quarterly financial statements (and the notes thereto) are adequate in all material respects to cover all Taxes accrued or accruable through the date thereof.

(ii)   There are no material Liens for Taxes upon any property or assets of the Company or any Subsidiary of the Company, except for Company Permitted Liens for Taxes not yet due.

(iii)  Each of the Company and its Subsidiaries has complied in all material respects with all applicable laws, rules and regulations relating to the payment and

 

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withholding of Taxes and has, within the time and in the manner prescribed by law, withheld and paid over to the proper Governmental Entities all material amounts required to be so withheld and paid over under applicable laws.

(iv)  No federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of the Company or any of its Subsidiaries, and neither the Company nor any Subsidiary of the Company has received a written notice of any pending or proposed claims, audits or proceedings with respect to Taxes.

(v)   Neither the Company nor any of its Subsidiaries has granted in writing any power of attorney which is currently in force with respect to any Taxes or Tax Returns.

(vi) Neither the Company nor any of its Subsidiaries has requested an extension of time within which to file any income or other material Tax Return which has not since been filed and no currently effective waivers, extensions, or comparable consents regarding the application of the statute of limitations with respect to Taxes or Tax Returns has been given by or on behalf of the Company or any of its Subsidiaries.

(vii)  Neither the Company nor any of its Subsidiaries is a party to any agreement providing for the allocation, sharing or indemnification of Taxes (other than such an agreement exclusively between or among the Company and any of its Subsidiaries).

(viii) Neither the Internal Revenue Service (the “ IRS ”) nor any other applicable tax authority has notified the Company that it is conducting or will be conducting an examination of any federal or other material income Tax Returns of the Company and there are no pending disputes with the IRS or such other tax authority regarding the federal or other material income Tax Returns of the Company or any of its Subsidiaries.

(ix)  Neither the Company nor any of its Subsidiaries has been included in any “consolidated,” “unitary” or “combined” Tax Return (other than Tax Returns which include only the Company and any of its Subsidiaries) provided for under the laws of the United States, any foreign jurisdiction or any state or locality.

(x)   Neither the Company nor any of its Subsidiaries has constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock to which Section 355 of the Code (or so much of Section 356 of the Code as relates to Section 355 of the Code) applies and which occurred within five years of the date of this Agreement.

(xi)  Neither the Company nor any of its Subsidiaries have agreed, or is required, to make any adjustment under Section 481 of the Code affecting any taxable year.

(xii) There have not been, within two years prior to the date of this Agreement, any (i) redemptions by the Company or any of its Subsidiaries, (ii) material transfers or dispositions of property by the Company or any of its Subsidiaries for which the Company or its Subsidiary did not receive consideration deemed adequate by the Company,

 

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or (iii) distributions to the holders of Company Common Stock with respect to their stock other than distributions of cash in the ordinary course of business consistent with past practice.

(xiii) The Company has not received notice of any material claim made by any Governmental Entities in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns that any such entity is, or may be, subject to taxation by that jurisdiction.

(xiv) Each of the Company and each of its Subsidiaries has made available to Parent correct and complete copies of (i) all Tax Returns filed within the past three years, (ii) all audit reports, letter rulings, technical advice memoranda and similar documents issued by a Governmental Entity within the past three years relating to the federal, state, local or foreign Taxes due from or with respect to the Company or any of its Subsidiaries, and (iii) any closing letters or agreements entered into by the Company or any of its Subsidiaries with any Governmental Entities within the past three years with respect to Taxes.

(xv)  Neither the Company nor any of its Affiliates or Subsidiaries has taken or agreed to take any action, has failed to take any action or knows of any fact, agreement, plan or other circumstance that could reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

(xvi)  Neither the Company nor any of its Subsidiaries has received any notice of deficiency or assessment from any Governmental Entity for any amount of Tax that has not been fully settled or satisfied, and, to the knowledge of the Company and its Subsidiaries, no such deficiency or assessment is proposed.

(xvii) Neither the Company nor any of its Subsidiaries has been a party to a “reportable transaction” within the meaning of Treasury Regulations Section 1.6011-4(b).

(xviii) For purposes of this Agreement (A) “ Tax ” or “ Taxes ” shall mean (x) any and all taxes, customs, duties, tariffs, imposts, charges, deficiencies, assessments, levies or other like governmental charges, including income, gross receipts, excise, real or personal property, ad valorem, value added, estimated, alternative minimum, stamp, sales, withholding, social security, occupation, use, service, service use, license, net worth, payroll, franchise, transfer and recording taxes and charges, imposed by the IRS or any other taxing authority (whether domestic or foreign including any state, county, local or foreign government or any subdivision or taxing agency thereof (including a United States possession)), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such amounts, (y) any liability for the payment of any amounts described in (x) as a result of being a member of an affiliated, consolidated, combined, unitary, or similar group or as a result of transferor or successor liability, and (z) any liability for the payment of any amounts as a result of being a party to

 

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any tax sharing agreement or as a result of any obligation to indemnify any other Person with respect to the payment of any amounts of the type described in (x) or (y), and (B) “ Tax Return ” shall mean any report, return, document, declaration, election or other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes, including information returns and any documents with respect to or accompanying payments of estimated Taxes or requests for the extension of time in which to file any such report, return, document, declaration or other information.

(n)

Employee Benefit Plans .

(i)   SECTION 3.1(n)(i) of the Company Disclosure Schedule includes a complete list of all material Company Plans and all Employment Agreements. As used herein, (A) “ Company Plan ” means any employee benefit plan, program, policy, practices, or other arrangement providing benefits to any current or former Employee, officer or director of the Company or any of its Subsidiaries or any beneficiary or dependent thereof that is sponsored or maintained by the Company or any of its Subsidiaries or to which the Company or any of its Subsidiaries contributes or is obligated to contribute, whether or not written, including without limitation any employee welfare benefit plan within the meaning of SECTION 3.1(l) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), any employee pension benefit plan within the meaning of Section 3.2 of ERISA (whether or not such plan is subject to ERISA) and any bonus, incentive, deferred compensation, vacation, stock purchase, stock option, or fringe benefit plan, program or policy, and (B) “ Employment Agreement ” means a contract, offer letter or agreement of the Company or any of its Subsidiaries with or addressed to any individual who is rendering or has rendered services thereto as an employee or consultant pursuant to which the Company or any of its Subsidiaries has any actual or contingent liability or obligation to provide severance, employment, change of control or other compensation and/or benefits in consideration for past, present or future services.

(ii)   With respect to each Plan, the Company has delivered or made available to Parent a true, correct and complete copy of each of the following documents: (A) each Plan, and any amendments thereto (or if the Plan is not a written plan, a description thereof); (B) the most recent Annual Report (Form 5500 Series) and accompanying schedule, if any; (C) the most recent Summary Plan Description, required under ERISA, if any; (D) the most recent annual financial report, if any; (E) the most recent actuarial report, if any; and (F) the most recent determination letter from the IRS, if any. The Company has delivered or made available to Parent a true, correct and complete copy of each Employment Agreement. Except as specifically provided in the foregoing documents delivered to Parent or as contemplated by the transactions under the Agreement, there are no amendments to any Plan or Employment Agreement that have been adopted or approved nor has the Company or any of its Subsidiaries undertaken to make any such amendments or to adopt or approve any new Plan or Employment Agreement. As used herein, (A) “ Plan ” means any Company Plan other than a Multiemployer Plan and (B) “ Multiemployer Plan ” means any “multiemployer plan” within the meaning of SECTION 4001(a)(3) of ERISA.

(iii)  SECTION 3.1(n)(iii) of the Company Disclosure Schedule identifies each Plan that is intended to be a “qualified plan” within the meaning of

 

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SECTION 401(a) of the Code (“ Qualified Plans ”). The Internal Revenue Service has issued a favorable determination letter with respect to each Qualified Plan and the related trust that has not been revoked, and the Company knows of no existing circumstances and no events have occurred that could adversely affect the qualified status of any Qualified Plan or the related trust. No trust funding any Plan is intended to meet the requirements of Code Section 501(c)(9). The written documents for the Plans that are “nonqualified deferred compensation plans” (within the meaning of Section 409A(d)(1) of the Code) subject to Section 409A of the Code have not been amended to comply with the requirements of Code Section 409A, but each such Plan has been operated in material compliance with Section 409A of the Code since January 1, 2005, based upon a good faith, reasonable interpretation of (A) Section 409A of the Code and (B) (1) the proposed regulations issued thereunder or (2) Internal Revenue Service Notice 2005-1 (clauses (1) and (2), together, the “ 409A Authorities ”). No Plan that would be a nonqualified deferred compensation plan subject to Section 409A of the Code but for the effective date provisions that are applicable to Section 409A of the Code, as set forth in Section 885(d) of the American Jobs Creation Act of 2004, as amended (the “ AJCA ”), has been “materially modified” within the meaning of Section 885(d)(2)(B) of the AJCA after October 3, 2004, based upon a good faith reasonable interpretation of the AJCA and the 409A Authorities.

(iv)  All contributions required to be made with respect to any Plan by applicable law or regulation or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Plan, for any period through the date hereof have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, have been fully reflected on the Company Filed SEC Documents. Each Company Plan that is an employee welfare benefit plan under SECTION 3.1 of ERISA either (A) is funded through an insurance company contract and is not a “welfare benefit fund” with the meaning of SECTION 419 of the Code or (B) is unfunded.

(v)   With respect to each Plan, the Company and its Subsidiaries have complied, and are now in compliance, in all material respects, with all provisions of ERISA, the Code and all laws and regulations applicable to such Plans. Each Plan has been administered in all material respects in accordance with its terms and applicable law. There is not now, nor, to the Company’s knowledge, do any circumstances exist that could give rise to, any requirement for the posting of security with respect to a Plan or the imposition of any lien on the assets of the Company or any of its Subsidiaries under ERISA or the Code with respect to a Plan.

(vi)  No Plan is subject to Title IV or SECTION 302 of ERISA or SECTION 412 or 4971 of the Code, and neither the Company nor any of its Subsidiaries has maintained, contributed to or been obligated to contribute to any plan subject to such sections of ERISA or the Code.

(vii)  No Company Plan is a Multiemployer Plan or a plan that has two or more contributing sponsors at least two of whom are not under common control, within the meaning of SECTION 4063 of ERISA (a “ Multiple Employer Plan ”). None of the

 

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Company and its Subsidiaries nor any of their respective ERISA Affiliates has, at any time during the last six years, contributed to or been obligated to contribute to any Multiemployer Plan or Multiple Employer Plan. None of the Company and its Subsidiaries nor any ERISA Affiliates has incurred any Withdrawal Liability that has not been satisfied in full. As used herein, (A) “ ERISA Affiliate ” means, with respect to any entity, trade or business, any other entity, trade or business that is, or was at the relevant time, a member of a group described in SECTION 414(b), (c), (m) or (o) of the Code or SECTION 4001(b)(1) of ERISA that includes or included the first entity, trade or business, or that is, or was at the relevant time, a member of the same “controlled group” as the first entity, trade or business pursuant to SECTION 4001(a)(14) of ERISA and (B) “ Withdrawal Liability ” means liability to a Multiemployer Plan or a Multiple Employer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan or Multiple Employer Plan, as those terms are defined in Subtitle D and in Part I of Subtitle E of Title IV of ERISA.

(viii) There does not now exist, nor do any circumstances exist that could result in, any Controlled Group Liability that would be a liability of the Company or any of its Subsidiaries following the Closing. As used herein, “ Controlled Group Liability ” means any and all liabilities (i) under Title IV of ERISA, (ii) under SECTION 302 of ERISA, (iii) under Sections 412 and 4971 of the Code, (iv) as a result of a failure to comply with the continuation coverage requirements of SECTION 601 et seq . of ERISA and SECTION 4980B of the Code, and (v) under corresponding or similar provisions of foreign laws or regulations. Without limiting the generality of the foregoing, neither the Company nor any of its Subsidiaries, nor any of their respective ERISA Affiliates, has engaged in any transaction described in SECTION 4069 or SECTION 4204 or 4212 of ERISA.

(ix)  The Company and its Subsidiaries ha