<PAGE>
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
dated as of
December 13, 2006
between
SANDY SPRING BANCORP, INC.
and
CN BANCORP, INC.
<PAGE>
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Article 1
Definitions.....................................................................................2
1.1
Definitions...................................................................................2
1.2 Other
Definitional and Interpretative
Provisions..............................................7
Article II
The Merger; Certain Related
Matters.............................................................8
2.1 The
Merger;
Closing...........................................................................8
Article III
Conversion of the Company Shares; Cash Election; Exchange of
Certificates.......................9
3.1 Conversion
of the Company
Shares..............................................................9
3.2
Elections.....................................................................................9
3.3 Proration of
Election
Price...................................................................9
3.4 Election
Procedures; Exchange
Agent..........................................................11
3.5 Exchange
Procedures; Surrender and
Payment...................................................12
3.6
Dissenters'
Shares...........................................................................13
3.7 Stock
Options................................................................................13
3.8
Adjustments..................................................................................14
3.9 Fractional
Shares............................................................................14
3.10
Withholding
Rights...........................................................................14
3.11
Lost
Certificates............................................................................14
Article IV
The Surviving
Corporation......................................................................15
4.1
Certificate of
Incorporation.................................................................15
4.2
Bylaws.......................................................................................15
4.3 Directors
and
Officers.......................................................................15
Article V
Representations and Warranties of the
Company..................................................15
5.1 Corporate
Existence and
Power................................................................15
5.2 Corporate
Authorization......................................................................15
5.3
Governmental
Authorization...................................................................16
5.4 Consents
and
Approvals.......................................................................17
5.5
Non-contravention............................................................................17
5.6
Capitalization...............................................................................18
5.7
Subsidiaries.................................................................................18
5.8 SEC
Documents; Sarbanes-Oxley Act and Regulatory
Statements..................................19
5.9 Financial
Statements.........................................................................21
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5.10
Proxy Statement; Registration
Statement......................................................21
5.11
Absence of Certain
Changes...................................................................21
5.12
No Undisclosed Material
Liabilities..........................................................23
5.13
Compliance with Laws and Court
Orders........................................................23
5.14
Litigation...................................................................................23
5.15
Material
Contracts...........................................................................24
5.16
Finders'
Fees................................................................................24
5.17
Opinion of Financial
Advisor.................................................................25
5.18
Taxes........................................................................................25
5.19
Employee Plans and
Employees.................................................................26
5.20
Environmental
Matters........................................................................29
5.21
Tax
Treatment................................................................................30
5.22
Derivative
Instruments.......................................................................30
5.23
Insurance....................................................................................31
5.24
Capital; Management; CRA
Rating..............................................................31
5.25
Properties...................................................................................31
5.26
Private Equity
Portfolio.....................................................................31
5.27
Affiliate
Transactions.......................................................................32
5.28
Antitakeover Statutes; Rights
Plans..........................................................32
5.29
Regulatory
Matters...........................................................................32
5.30
Certain Loan
Matters.........................................................................32
5.31
Intellectual
Property........................................................................33
Article VI
Representations and Warranties of
Parent.......................................................34
6.1 Corporate
Existence and
Power................................................................34
6.2 Corporate
Authorization......................................................................35
6.3
Governmental
Authorization...................................................................35
6.4 Consents
and
Approvals.......................................................................35
6.5
Non-contravention............................................................................36
6.6
Capitalization...............................................................................36
6.7
Subsidiaries.................................................................................37
6.8 SEC
Filings and the Sarbanes-Oxley
Act.......................................................37
6.9 Financial
Statements.........................................................................39
</TABLE>
ii
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6.10
Proxy Statement; Registration
Statement......................................................39
6.11
Absence of Certain
Changes...................................................................39
6.12
No Undisclosed Material
Liabilities..........................................................40
6.13
Compliance with Laws and Court
Orders........................................................40
6.14
Litigation...................................................................................40
6.15
Finders'
Fees................................................................................41
6.16
Tax
Treatment................................................................................41
6.17
Regulatory
Matters...........................................................................41
6.18
Financing....................................................................................41
6.19
Recent Purchases of Parent
Stock.............................................................41
Article VII
Covenants of the
Company.......................................................................42
7.1 Conduct of
the
Company.......................................................................42
7.2
Stockholder Meeting; Proxy
Material..........................................................44
7.3 No
Solicitation; Other
Offers................................................................44
7.4 Tax
Matters..................................................................................46
7.5
Termination of Company
DRIP..................................................................46
7.6
Proxy
Solicitor..............................................................................46
Article VIII Covenants
of
Parent............................................................................46
8.1 Conduct of
Parent............................................................................46
8.2 Director
and Officer
Liability...............................................................47
8.3
Registration
Statement.......................................................................47
8.4 Stock
Exchange
Listing.......................................................................47
8.5
Appointment of Advisory
Board................................................................48
8.6 Company
Brand................................................................................48
Article IX
Covenants of Parent and the
Company............................................................48
9.1 Best
Efforts.................................................................................48
9.2 Certain
Filings..............................................................................48
9.3 Public
Announcements.........................................................................49
9.4 Further
Assurances...........................................................................49
9.5 Access to
Information........................................................................49
9.6 Notices of
Certain
Events....................................................................50
9.7
Confidentiality..............................................................................50
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iii
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9.8 Tax-free
Reorganization......................................................................50
9.9
Affiliates...................................................................................51
9.10
Employees....................................................................................51
9.11
Bank Merger
Agreement........................................................................52
9.12
Company
Options..............................................................................52
9.13
Prohibited Purchases or
Sales................................................................52
Article X
Conditions to the
Merger.......................................................................53
10.1
Conditions to Obligations of Each
Party......................................................53
10.2
Conditions to the Obligations of
Parent......................................................54
10.3
Conditions to the Obligations of the
Company.................................................56
Article XI
Termination....................................................................................56
11.1
Termination..................................................................................56
11.2
Effect of
Termination........................................................................59
Article XII
Miscellaneous..................................................................................59
12.1
Notices......................................................................................59
12.2
Survival of Representations and
Warranties...................................................60
12.3
Amendments and
Waivers.......................................................................60
12.4
Expenses.....................................................................................60
12.5
Binding Effect; Benefit;
Assignment..........................................................61
12.6
Schedules and
Exhibits.......................................................................62
12.7
Governing
Law................................................................................62
12.8
Jurisdiction.................................................................................62
12.9
WAIVER OF JURY
TRIAL.........................................................................62
12.10
Counterparts;
Effectiveness..................................................................62
12.11
Entire
Agreement.............................................................................62
12.12
Severability.................................................................................62
12.13
Specific
Performance.........................................................................63
</TABLE>
iv
<PAGE>
SCHEDULES:
Company Disclosure Schedule
Parent Disclosure Schedule
EXHIBITS:
Exhibit A
--
Form of Voting Agreement
Exhibit B
--
Form of Company Rule 145 Affiliate Letter
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated as of
December
13, 2006 between SANDY SPRING BANCORP, INC., a Maryland corporation
("PARENT")
and CN BANCORP, INC., a Maryland corporation (the "COMPANY").
WHEREAS, the respective Boards of Directors of the Company and
Parent
deem it advisable and in the best interests of their respective
stockholders and
corporations to consummate the business combination transaction
provided for
herein in which the Company will merge with and into Parent (the
"MERGER"), with
Parent as the surviving corporation in the Merger, on the terms and
subject to
the conditions set forth in this Agreement;
WHEREAS, in furtherance thereof, the respective Boards of Directors
of
the Company and Parent have approved this Agreement and the Merger
contemplated
hereby;
WHEREAS, concurrently with the execution and delivery of this
Agreement, Sandy Spring Bank, a Maryland chartered commercial bank
and a
wholly-owned subsidiary of Parent ("PARENT BANK") and County
National Bank, a
national banking association and a wholly-owned subsidiary of the
Company
("COMPANY BANK"), have entered into an Agreement and Plan of Merger
(the "BANK
MERGER AGREEMENT"), pursuant to which Company Bank shall merge with
and into
Parent Bank (the "BANK MERGER") with the Parent Bank as the
surviving bank in
the Bank Merger, and the Bank Merger shall be consummated
concurrently with the
consummation of the Merger;
WHEREAS, concurrently with the execution of this Agreement, as
a
condition of the willingness of Parent to enter into this
Agreement, certain
stockholders of the Company have entered into a Voting Agreement
(the "VOTING
AGREEMENT") substantially in the form attached hereto as Exhibit A
providing
for, among other things, the agreement of such stockholders to vote
Company
Shares (as defined herein) in favor of the Merger and the approval
and adoption
of this Agreement; and
WHEREAS, for U.S. federal income tax purposes, it is intended that
the
Merger shall qualify as a reorganization within the meaning of
Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "CODE"), and the
regulations
promulgated thereunder.
NOW, THEREFORE, in consideration of the foregoing and the
respective
representations, warranties, covenants and agreements contained
herein, and
other good and valuable consideration, the receipt and sufficiency
of which are
hereby acknowledged, the parties hereto, intending to be legally
bound, hereby
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. (a) The following terms, as used herein, have
the
following meanings:
<PAGE>
"ACQUISITION PROPOSAL" means, other than the transactions
contemplated
by this Agreement, any offer, proposal or inquiry relating to, or
any Third
Party indication of interest in, (A) any acquisition or purchase,
direct or
indirect, of 20% or more of the consolidated assets of the Company
and its
Subsidiaries or over 20% of any class of equity or voting
securities of the
Company or any of its Subsidiaries whose assets, individually or in
the
aggregate, constitute more than 20% of the consolidated assets of
the Company,
(B) any tender offer (including a self-tender offer) or exchange
offer that, if
consummated, would result in such Third Party beneficially owning
20% or more of
any class of equity or voting securities of the Company or any of
its
Subsidiaries whose assets, individually or in the aggregate,
constitute 20% or
more of the consolidated assets of the Company, (C) a merger,
consolidation,
share exchange, business combination, sale of all or substantially
all the
assets, reorganization, recapitalization, liquidation, dissolution
or other
similar transaction involving the Company or any of its
Subsidiaries whose
assets, individually or in the aggregate, constitute 20% or more of
the
consolidated assets of the Company or (D) any other transaction to
which the
Company or the Company Bank is a party, the consummation of which
could
reasonably be expected to impede, interfere with, prevent or
materially delay
the Merger or the Bank Merger or that could reasonably be expected
to dilute
materially the benefits to Parent of the transactions contemplated
hereby.
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common
control with
such Person.
"BANK MERGER ACT" means Section 18(c) of the Federal Deposit
Insurance
Act, codified at 12 U.S.C. 1828(c).
"BUSINESS DAY" means a day, other than Saturday, Sunday or other
day on
which commercial banks in the State of Maryland are authorized or
required by
law to close.
"COMPANY BALANCE SHEET" means the consolidated balance sheets of
the
Company as of December 31, 2005 and the footnotes thereto.
"COMPANY BALANCE SHEET DATE" means December 31, 2005.
"COMPANY DRIP" means the Company's Dividend Reinvestment and
Stock
Purchase Plan.
"COMPANY DSPP" means the Company's Director Stock Purchase
Plan.
"COMPANY ESPP" means the Company's Employee Stock Purchase
Plan.
"COMPANY OPTION" means each option or right to acquire Company
Shares
granted under the Company's Equity Plans.
"COMPANY OPTION PLAN" means the Company's Stock Option Plan.
2
<PAGE>
"COMPANY EQUITY PLANS" means, collectively, the Company Option
Plan,
the Company DRIP, the Company ESPP and the Company DSPP.
"COMPANY 10-K" means the Company's annual report on Form 10-KSB for
the
fiscal year ended December 31, 2005.
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement
dated
as of September 18, 2006 between Parent and the Company.
"EMPLOYEE PLAN" means all bonus, pension, profit sharing,
deferred
compensation, stock options, stock appreciation rights, stock
purchase or other
equity or incentive compensation, retirement, hospitalization,
health benefits,
medical or dental reimbursement, severance pay, vacation pay,
disability, death
benefits, insurance, fringe benefits, cafeteria plans, and all
other similar
plans, programs or arrangements providing benefits to any employee
and/or
non-employee director (including without limitation all "employee
welfare
benefit plans" within the meaning of Section 3(1) of ERISA, and all
"employee
pension benefit plans" within the meaning of Section 3(2) of
ERISA). In the case
of an Employee Plan funded through a trust described in Code
Section 401(a), or
any other funding vehicle, each reference to such Employee Plan
funded through a
trust described in Code Section 401(a), or any other funding
vehicle, shall
include a reference to such trust, organization or other
vehicle.
"ENVIRONMENTAL LAWS" means any federal, state, local or foreign
law
(including common law), treaty, judicial decision, regulation,
rule, judgment,
order, decree, injunction, permit or governmental restriction or
requirement or
any agreement with any governmental authority or other third party,
regarding
human health and safety, the environment or pollutants,
contaminants, wastes or
chemicals or any toxic, radioactive, ignitable, corrosive, reactive
or otherwise
hazardous substances, wastes or materials.
"ENVIRONMENTAL PERMITS" means all permits, licenses,
franchises,
certificates, approvals and other similar authorizations of
governmental
authorities relating to or required by Environmental Laws and
affecting, or
relating in any way to, the business of the Company or any
Subsidiary as
currently conducted.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA AFFILIATE" of any entity means any other entity that,
together
with such entity, would be treated as a single employer under
Section 414 of the
Code.
"FDIA" means the Federal Deposit Insurance Act.
"FDIC" means the Federal Deposit Insurance Corporation.
"HAZARDOUS SUBSTANCE" has the meaning given to such term in 42
U.S.C.
ss.9601(14); provided, however, that such term shall also include
any form of
petroleum or natural gas.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of
1976.
3
<PAGE>
"INSIDER" has the meaning set forth in 12 C.F.R. ss.215.1(h).
"KNOWLEDGE" of any Person that is not an individual means the
knowledge of such
Person's Officers after reasonable inquiry.
"LIEN" means, with respect to any property or asset, any
mortgage,
lien, pledge, charge, security interest, encumbrance or other
adverse claim of
any kind in respect of such property or asset. For purposes of this
Agreement, a
Person shall be deemed to own subject to a Lien any property or
asset that it
has acquired or holds subject to the interest of a vendor or lessor
under any
conditional sale agreement, capital lease or other title retention
agreement
relating to such property or asset.
"MARYLAND LAW" means the Maryland Code.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a
material
adverse effect on (i) the condition (financial or otherwise),
business, assets
or results of operations of such Person and its Subsidiaries, taken
as a whole,
or (ii) the ability of such Person to perform its obligations under
or to
consummate the transactions contemplated by this Agreement;
provided, however,
that none of the following shall be taken into account in
determining whether
there has been or will be, a Material Adverse Effect: (a) changes
in tax,
banking and similar laws or interpretations thereof by courts or
governmental
authorities, but only to the extent the effect on such Person and
its
Subsidiaries, taken as a whole, is not materially worse than the
effect on
similarly situated banks and their holding companies, (b) changes
in GAAP or
regulatory accounting requirements applicable to banks and their
holding
companies generally, but only to the extent the effect on such
Person and its
Subsidiaries, taken as a whole, is not materially worse than the
effect on
similarly situated banks and their holding companies, (c) changes
in economic
conditions affecting financial institutions generally, including
changes in
market interest rates or the projected future interest rate
environment, but
only to the extent the effect on such Person and its Subsidiaries,
taken as a
whole, is not materially worse than the effect on similarly
situated banks and
their holding companies, (d) actions and omissions of Parent or the
Company
taken with the prior written consent of the other party hereto in
contemplation
of the transactions contemplated hereby, (e) direct effects of
compliance with
this Agreement on operating performance of any Person, including
expenses
incurred in connection with the transactions contemplated hereby,
(f) the effect
of any change, or prospective change, in loan valuation, accrual or
reserve
policy which is undertaken by the Company or the Company Bank with
the consent
of Parent prior to the Effective Time to conform to those of Parent
or Parent
Bank, or the impact of changes in the fair market valuation
policies of the
Company's and the Company Bank's loans as of the Effective Time
made with the
consent of Parent, where the facts on which such adjusted valuation
are based
relate to events occurring prior to the date hereof, or (g) changes
in national
or international political or social conditions including the
engagement by the
United States in hostilities, whether or not pursuant to the
declaration of a
national emergency or war, or the occurrence of any military or
terrorist attack
upon or within the United States, but only to the extent the effect
on such
Person and its Subsidiaries, taken as a whole, is not materially
worse than the
effect on similarly situated banks and their holding companies.
4
<PAGE>
"MULTIEMPLOYER PLAN" means an employee pension or welfare benefit
plan
to which more than one unaffiliated employer contributes and which
is maintained
pursuant to one or more collective bargaining agreements.
"1933 ACT" means the Securities Act of 1933.
"1934 ACT" means the Securities Exchange Act of 1934.
"OCC" means the Office of the Comptroller of the Currency.
"OFFICER" of any Person means any executive officer of such
Person
within the meaning of Rule 3b-7 of the 1934 Act.
"PARENT BALANCE SHEET" means the consolidated balance sheets of
Parent
as of December 31, 2005 and the footnotes thereto.
"PARENT BALANCE SHEET DATE" means December 31, 2005.
"PARENT BANKING SUBSIDIARY" means Parent Bank.
"PARENT 10-K" means Parent's annual report on Form 10-K for the
fiscal
year ended December 31, 2005.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or
organization, including
a government or political subdivision or an agency or
instrumentality thereof.
"REGULATION O AFFILIATE" means an "Affiliate" as defined in 12
C.F.R.
ss. 215.2(a).
"REGULATORY AUTHORITIES" means, collectively, the SEC, the
Federal
Trade Commission, the United States Department of Justice, the
Board, the FDIC,
the OCC, the Commissioner of Financial Regulation of the State of
Maryland and
all other federal, state, county, local or other governmental or
regulatory
agencies, authorities (including self-regulatory authorities),
instrumentalities, commissions, boards or bodies having
jurisdiction over the
parties hereto and their Subsidiaries.
"SARBANES-OXLEY ACT" means the Sarbanes-Oxley Act of 2002. "SEC"
means
the Securities and Exchange Commission.
"SUBSIDIARY" means, with respect to any Person, any entity of
which
securities or other ownership interests having ordinary voting
power to elect a
majority of the board of directors or other persons performing
similar functions
are at any time directly or indirectly owned by such Person.
5
<PAGE>
"THIRD PARTY" means any Person as defined in Section 13(d) of the
1934
Act, other than Parent or any of its Affiliates.
"TRANSACTION DOCUMENTS" means this Agreement, the Bank Merger
Agreement
and the Voting Agreement.
Any reference in this Agreement to a statute shall be to such
statute, as
amended from time to time, and to the rules and regulations
promulgated
thereunder.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
Agreement
Preamble
Average Closing Price
11.1(d)
Bank Merger
Recitals
Bank Merger Agreement
Recitals
BHC Act
5.1
Board
5.3
Cash Electing Company Share
3.1(b)
Cash Election
3.2
Cash Election Consideration
3.1(b)
Cash Election Price
3.1(b)
Cash Proration Factor
3.3(b)
Certificates
3.4(a)
Closing
2.1(c)
Closing Date
2.1(c)
Code
Recitals
Company
Preamble
Company Bank
Recitals
Company Disclosure Schedule
Article 5
Company Employees
9.10(a)
Company Intellectual Property Rights
5.31(c)
Company Proxy Statement
5.10(a)
Company Regulatory Statements
5.8(h)
Company SEC Documents
5.8(a)
Company Securities
5.6(b)
Company Shares
5.6(a)
Company Stockholder Meeting
7.2
Company Subsidiary Securities
5.7(b)
CRA
5.24
Decision Period
11.1(d)
Determination Date
11.1(d)
Dissenters' Shares
3.6
Effective Time
2.1(a)
Election Date
3.2
Election Deadline
3.4(c)
Election Form
3.4(a)
End Date
11.1(b)
Exchange Agent
3.4(b)
Exchange Fund
3.4(b)
Exchange Ratio
3.1(b)
GAAP
5.9
6
<PAGE>
Governmental Entity
5.3
Imputed Exchange Ratio
11.1(d)
Indemnified Person
8.2(a)
Index Price
11.1(d)
Index Ratio
11.1(d)
Material Contracts
5.15
Maximum Cash Election Number
3.3(a)
MSDAT
2.1
Merger
Recitals
Merger Consideration
3.1(b)
Minimum Cash Election Number
3.3(a)
Non-Electing Company Shares
3.3(d)
Parent
Preamble
Parent Bank
Recitals
Parent Disclosure Schedule
Article 6
Parent Ratio
11.1(d)
Parent Regulatory Statements
6.8(h)
Parent SEC Documents
6.8(a)
Parent Stock
3.1(b)
Payment Event
12.4(b)
Registration Statement
6.10(b)
Required Filings and Approvals
5.3
Starting Price
11.1(d)
Stock Election Consideration
3.1(b)
Stock Proration Factor
3.3(d)
Superior Proposal
7.3(c)
Surviving Corporation
2.1(a)
Tax
5.18(h)
Taxing Authority
5.18(h)
Tax Return
5.18(h)
Tax Sharing Agreements
5.18(h)
Third-Party Intellectual Property Rights
5.31(b)
368 Reorganization
5.21
Top Up Amount
11.1(d)
Uncertificated Shares
3.4(b)
Voting Agreement
Recitals
Watch List
5.30(b)
1.2 Other Definitional and Interpretative Provisions. Unless
specified
otherwise, in this Agreement the obligations of any party
consisting of more
than one person are joint and several. The words "hereof", "herein"
and
"hereunder" and words of like import used in this Agreement shall
refer to this
Agreement as a whole and not to any particular provision of this
Agreement. The
captions herein are included for convenience of reference only and
shall be
ignored in the construction or interpretation hereof. References to
Articles,
Sections, Exhibits and Schedules are to Articles, Sections,
Exhibits and
Schedules of this Agreement unless otherwise specified. All
Exhibits and
Schedules annexed hereto or referred to herein are hereby
incorporated in and
made a part of this Agreement as if set forth in full herein. Any
capitalized
terms used in any Exhibit or Schedule but not otherwise defined
therein, shall
have the meaning as defined in this Agreement. Any singular term in
this
Agreement shall be deemed to include the plural, and any plural
term the
singular. The use of the neuter gender in this Agreement shall be
deemed to
include the masculine and feminine genders wherever necessary or
appropriate,
7
<PAGE>
the use of the masculine gender in this Agreement shall be deemed
to include the
neuter and feminine genders wherever necessary or appropriate and
the use of the
feminine gender in this Agreement shall be deemed to include the
neuter and
masculine genders wherever necessary or appropriate. Whenever the
words
"include", "includes" or "including" are used in this Agreement,
they shall be
deemed to be followed by the words "without limitation", whether or
not they are
in fact followed by those words or words of like import. "Writing",
"written"
and comparable terms refer to printing, typing and other means of
reproducing
words (including electronic media) in a visible form. References to
any
agreement or contract are to that agreement or contract as amended,
modified or
supplemented from time to time in accordance with the terms hereof
and thereof.
References to any Person include the successors and permitted
assigns of that
Person. References from or through any date mean, unless otherwise
specified,
from and including or through and including, respectively.
References to "law",
"laws" or to a particular statute or law shall be deemed also to
include any and
all related rules, regulations, ordinances, directives, treaties
and judicial or
administrative decisions, judgments, decrees or injunctions of any
U.S. or
non-U.S. federal, state, local or foreign governmental
authority.
ARTICLE II
THE MERGER; CERTAIN RELATED MATTERS
2.1 The Merger; Closing. (a) As soon as practicable, and in any
event
not more than five Business Days after satisfaction or, to the
extent permitted
hereunder, waiver of all conditions to the Merger, the Company and
Parent shall
file articles of merger with the Maryland State Department of
Assessments and
Taxation (the "MSDAT") and make all other filings or recordings
required by
Maryland Law in connection with the Merger. The Merger shall become
effective
(the "EFFECTIVE TIME") at the time the Certificate of Merger is
issued by the
MSDAT (or at such later time as may be specified in the Certificate
of Merger)
in accordance with Maryland Law. Upon and following the Merger, the
separate
existence of the Company shall cease, and Parent shall be the
Surviving
Corporation (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 "Sandy Spring Bancorp,
Inc."
(b) From and after the Effective Time, the Surviving
Corporation shall possess all the rights, powers, privileges and
franchises and
be subject to all of the obligations, liabilities, restrictions and
disabilities
of the Company and Parent, all as provided under Maryland Law.
(c) The closing of the Merger (the "CLOSING") shall take place
at such time and place as Parent and the Company shall agree, on
the date when
the Effective Time is to occur (the "CLOSING DATE").
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ARTICLE III
CONVERSION OF THE COMPANY SHARES; CASH ELECTION;
EXCHANGE OF CERTIFICATES
3.1 Conversion of the Company Shares. At the Effective Time by
virtue
of the Merger and without any action on the part of any holder of
shares of
capital stock of the Company or Parent:
(a) each issued Company Share owned by the Company or any
Subsidiary of the Company immediately prior to the Effective Time
(other than
shares held for the account of clients, customers or other Persons)
or owned by
Parent or any of its Subsidiaries immediately prior to the
Effective Time (other
than shares held for the account of clients, customers or other
Persons) shall
be canceled, and no payment shall be made with respect thereto;
(b) each Company Share outstanding immediately prior to the
Effective Time shall, except as otherwise provided in Section
3.1(a) or Section
3.6 or as adjusted pursuant to Section 11.1(d)(iii), be converted
into the
following (collectively, the "MERGER CONSIDERATION"):
(i) for each such Company Share with respect to which an
election to receive cash has been effectively made and not revoked
or deemed
converted into the right to receive the Stock Election Price
pursuant to Section
3.3(b), or is deemed made pursuant to Section 3.3(d), as the case
may be (each,
a "CASH ELECTING COMPANY SHARE"), the right to receive an amount
equal to $25.00
(the "CASH ELECTION PRICE") in cash without interest (the "CASH
ELECTION
CONSIDERATION"); and
(ii) for each other such Company Share, the right to
receive 0.6657 of a share (the "EXCHANGE RATIO") of common stock,
par value
$1.00 per share ("PARENT STOCK"), of the Parent (the "STOCK
ELECTION
CONSIDERATION") as may be adjusted pursuant to Section
11.1(d)(iii).
3.2 Elections. Each Person (other than the Company and Parent) who,
at
the close of business on the date of the Company Stockholder
Meeting (as defined
in Section 7.2) or on such other date as the Parent and the Company
publicly
announce as the Election Date (such date, the "ELECTION DATE"), is
a record
holder of Company Shares will be entitled, with respect to any or
all of such
Company Shares, to make an election (a "CASH ELECTION") on or prior
to such date
to receive the Cash Election Consideration on the basis hereinafter
set forth.
No such Person shall be entitled to make a Cash Election with
respect to
Dissenters' Shares; provided, however, that stockholders who shall
have failed
to perfect or who effectively shall have withdrawn or otherwise
lost their
rights to appraisal of such shares under Maryland Law shall
thereupon be deemed
to have made a Cash Election with respect to such Company Shares
pursuant to
Section 3.6.
3.3 Proration of Election Price. (a) Subject to adjustment pursuant
to
Section 11.1(d)(iii), the number of Company Shares to be converted
into the
right to receive the Cash Election Consideration at the Effective
Time shall not
be less than the number of Company Shares which is equal to (i) 40%
of the
Company Shares outstanding at the Effective Time (excluding any
Company Shares
to be canceled pursuant to Section 3.1(a)) minus (ii) the number of
Dissenters'
Shares at the Effective Time (such difference, the "MINIMUM CASH
ELECTION
NUMBER") and shall not exceed the number of Company Shares which is
equal to (i)
50% of the Company Shares outstanding at the Effective Time
(excluding any
Company Shares to be canceled pursuant to Section 3.1(a)) minus
(ii) the number
of Dissenters' Shares at the Effective Time (such difference, the
"MAXIMUM CASH
ELECTION NUMBER").
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(b) If the number of Cash Electing Company Shares exceeds the
Maximum Cash Election Number, then such Cash Electing Company
Shares shall be
treated in the following manner:
(i) A cash proration factor (the "CASH PRORATION FACTOR")
shall be determined by dividing (x) the Maximum Cash Election
Number by (y) the
total number of Cash Electing Company Shares.
(ii) A number of Cash Electing Company Shares covered by
each stockholder's Cash Election equal to the product of (x) the
Cash Proration
Factor and (y) the total number of Cash Electing Company Shares
covered by such
Cash Election shall be converted into the right to receive the Cash
Election
Consideration.
(iii) Each Cash Electing Company Share, other than those
Company Shares converted into the right to receive the Cash
Election Price in
accordance with Section 3.3(b)(ii), shall be converted into the
right to receive
the Stock Election Consideration as if such Company Shares were not
Cash
Electing Company Shares.
(c) If the number of Cash Electing Company Shares is greater
than or equal to the Minimum Cash Election Number and less than or
equal to the
Maximum Cash Election Number, then each Cash Electing Company Share
shall be
converted into the right to receive the Cash Election Price and
each other
Company Share (other than Company Shares to be canceled pursuant to
Section
3.1(a) and other than Dissenters' Shares) shall be converted into
the right to
receive the Stock Election Consideration.
(d) If the number of Cash Electing Company Shares is less than
the Minimum Cash Election Number, then:
(i) Each Cash Electing Company Share shall be converted
into the right to receive the Cash Election Price.
(ii) The Company Shares as to which a Cash Election is not
in effect, excluding Company Shares to be cancelled pursuant to
Section 3.1(a),
(the "NON-ELECTING COMPANY SHARES") shall be treated in the
following manner:
(A) A stock proration factor (the "STOCK PRORATION
FACTOR") shall be determined by dividing (x) the difference between
the Minimum
Cash Election Number and the number of Cash Electing Company
Shares, by (y) the
total number of Non-Electing Company Shares.
(B) A number of Non-Electing Company Shares of each
stockholder equal to the product of (x) the Stock Proration Factor
and (y) the
total number of Non-Electing Company Shares of such stockholder
shall be
converted into the right to receive the Cash Election Price (and a
Cash Election
shall be deemed to have been made with respect to such Company
Shares).
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(C) Each Non-Electing Company Share of each
stockholder as to which a Cash Election is not deemed made pursuant
to Section
3.3(d)(ii)(B) shall be converted into the right to receive the
Stock Election
Consideration.
3.4 Election Procedures; Exchange Agent. (a) Prior to the date of
the
Company Stockholder Meeting, Parent and the Company shall prepare a
form (an
"ELECTION FORM") pursuant to which a holder of record of Company
Shares may make
a Cash Election with respect to each Company Share owned by such
holder. The
Company shall cause an Election Form and a letter of transmittal
and
instructions (which shall specify that the delivery shall be
effected, and risk
of loss and title shall pass, only upon proper delivery of the
Certificates to
the Exchange Agent) for use in exchanging certificates representing
Company
Shares (the "CERTIFICATES") for the Merger Consideration to be
included with the
Company Proxy Statement (as defined in Section 5.9(a)) and mailed
to each holder
of record of Company Shares as of the record date for such
meeting.
(b) Prior to the date of the Company Stockholder Meeting,
Parent shall appoint an agent independent of and unaffiliated with
Parent or the
Company (the "EXCHANGE AGENT") for the purpose of (i) receiving
Election Forms
and determining, in accordance with this Article 3, the form of
Merger
Consideration to be received by each holder of Company Shares, and
(ii)
exchanging for the Merger Consideration (A) Certificates or (B)
uncertificated
Company Shares (the "UNCERTIFICATED SHARES"). At or prior to the
Effective Time,
Parent shall deposit, or cause to be deposited, with the Exchange
Agent, for the
benefit of the holders of the Certificates and the Uncertificated
Shares, for
exchange in accordance with this Article 3, (i) subject to Section
3.4(c),
certificates representing the shares of Parent Stock that
constitute the stock
portion of the Merger Consideration and (ii) an amount of cash
necessary to
satisfy the cash portion of the Merger Consideration (the "EXCHANGE
FUND"). At
the Effective Time or promptly thereafter, Parent shall send, or
shall cause the
Exchange Agent to send, to each holder of record of Company Shares
which have
not previously been delivered to the Exchange Agent pursuant to
Section 3.5(a)
at the Effective Time, a letter of transmittal and instructions
(which shall
specify that the delivery shall be effected, and risk of loss and
title shall
pass, only upon proper delivery of the Certificates to the Exchange
Agent) for
use in such exchange.
(c) A Cash Election shall be effective only if the Exchange
Agent shall have received no later than 5:00 p.m. eastern time on
the date of
the Company Stockholder Meeting (the "ELECTION DEADLINE") (i) an
Election Form
covering the Company Shares to which such Cash Election applies,
executed and
completed in accordance with the instructions set forth in such
Election Form
and (ii) Certificates, in such form and with such endorsements,
stock powers and
signature guarantees as may be required by such Election Form or
the letter of
transmittal. Any Company Share with respect to which the Exchange
Agent has not
received an effective Cash Election meeting the requirements of
this Section
3.4(c) by the Election Deadline shall be deemed to be a
Non-Electing Company
Share. A Cash Election may be revoked or changed only by delivering
to the
Exchange Agent, prior to the Election Deadline, a written notice of
revocation
or, in the case of a change, a properly completed revised Election
Form that
identifies the Company Shares to which such revised Election Form
applies.
Delivery to the Exchange Agent prior to the Election Deadline of a
revised
Election Form with respect to any Company Shares shall result in
the revocation
of all prior Election Forms with respect to all such Company
Shares. Any
termination of this Agreement in accordance with Article 11 shall
result in the
revocation of all Election Forms delivered to the Exchange Agent on
or prior to
the date of such termination.
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(d) The Company and Parent shall have the right to make rules,
not inconsistent with the terms of this Agreement, governing the
validity and
effectiveness of Election Forms and letters of transmittal.
3.5 Exchange Procedures; Surrender and Payment. (a) Each holder
of
Company Shares that have been converted into the right to receive
the Merger
Consideration shall be entitled to receive, upon (i) surrender to
the Exchange
Agent of a Certificate, together with a properly completed letter
of
transmittal, or (ii) receipt of an "agent's message" by the
Exchange Agent (or
such other evidence, if any, of transfer as the Exchange Agent may
reasonably
request) in the case of a book-entry transfer of Uncertificated
Shares, the
Merger Consideration in respect of the Company Shares represented
by a
Certificate or Uncertificated Share. Until so surrendered or
transferred, as the
case may be, each such Certificate or Uncertificated Share shall
represent after
the Effective Time for all purposes only the right to receive such
Merger
Consideration.
(b) If any portion of the Merger Consideration is to be paid
to a Person other than the Person in whose name the surrendered
Certificate or
the transferred Uncertificated Share is registered, it shall be a
condition to
such payment that (i) either such Certificate shall be properly
endorsed or
shall otherwise be in proper form for transfer or such
Uncertificated Share
shall be properly transferred and (ii) the Person requesting such
payment shall
pay to the Exchange Agent any transfer or other taxes required as a
result of
such payment to a Person other than the registered holder of such
Certificate or
Uncertificated Share or establish to the satisfaction of the
Exchange Agent that
such tax has been paid or is not payable.
(c) After the Effective Time, there shall be no further
registration of transfers of Company Shares. If, after the
Effective Time,
Certificates or Uncertificated Shares are presented to the
Surviving
Corporation, they shall be canceled and exchanged for the Merger
Consideration
provided for, and in accordance with the procedures set forth, in
this Article
3.
(d) Any portion of the Merger Consideration made available to
the Exchange Agent pursuant to Section 3.4(b) that remains
unclaimed by the
holders of Company Shares six months after the Effective Time shall
be returned
to Parent, upon demand, and any such holder who has not exchanged
Company Shares
for the Merger Consideration in accordance with this Section 3.5
prior to that
time shall thereafter look only to Parent for payment of the
Merger
Consideration, and any dividends and distributions with respect
thereto, in
respect of such shares without any interest thereon.
Notwithstanding the
foregoing, Parent shall not be liable to any holder of Company
Shares for any
amounts paid to a public official pursuant to applicable abandoned
property,
escheat or similar laws.
(e) No dividends or other distributions with respect to
securities of Parent constituting part of the Merger Consideration,
and no cash
payment in lieu of fractional shares as provided in Section 3.9,
shall be paid
to the holder of any Certificates not surrendered or of any
Uncertificated
Shares not transferred until such Certificates or Uncertificated
Shares are
surrendered or transferred, as the case may be, as provided in this
Section.
Following such surrender or transfer, there shall be paid, without
interest, to
the Person in whose name the securities of Parent have been
registered, (i) at
the time of such surrender or transfer, the amount of any cash
payable in lieu
of fractional shares to which such Person is entitled pursuant to
Section 3.9
and the amount of all dividends or other distributions with a
record date after
the Effective Time previously paid or payable on the date of such
surrender with
respect to such securities, and (ii) at the appropriate payment
date, the amount
of dividends or other distributions with a record date after the
Effective Time
and prior to surrender or transfer and with a payment date
subsequent to
surrender or transfer payable with respect to such securities.
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<PAGE>
3.6 Dissenters' Shares. Notwithstanding any other provision of
this
Agreement to the contrary, Company Shares that are outstanding
immediately prior
to the Effective Time and which are held by stockholders who shall
not have
voted in favor of the Merger or consented thereto in writing and
who shall have
properly demanded appraisal for such shares in accordance with
Maryland Law
(collectively, the "DISSENTERS' SHARES") shall not be converted
into or
represent the right to receive the Merger Consideration, and such
stockholders
instead shall be entitled to receive payment of the appraised value
of such
shares held by them in accordance with the provisions of Maryland
Law; provided
that all Dissenters' Shares held by stockholders who shall have
failed to
perfect or who effectively shall have withdrawn or otherwise lost
their rights
to appraisal of such shares under Maryland Law shall thereupon be
deemed to have
been converted into and to have become exchangeable, as of the
Effective Time,
for the right to receive, without any interest thereon, the Cash
Election Price
upon surrender in the manner provided in Section 3.5 of the
Certificates that,
immediately prior to the Effective Time, evidenced such shares,
subject to
proration in accordance with the provisions of Section 3.3 hereof
in the event
that such failure to perfect, withdrawal or other loss of appraisal
rights
occurs prior to the Effective Time. The Company shall give Parent
(i) prompt
notice of any written objections to the Merger and any written
demands for the
payment of the fair value of any shares, withdrawals of such
demands and any
other instruments received by the Company relating to appraisal
rights under
Maryland Law with respect to the Company Shares and (ii) the
opportunity to
participate in all negotiations and proceedings with respect to
such demands.
The Company shall not voluntarily make any payment with respect to
any demands
for payment of the fair value of the Company Shares and shall not,
except with
the prior written consent of Parent, settle or offer to settle any
such demands.
3.7 Stock Options. Subject to the last sentence of this Section
3.7,
each Company Option issued and outstanding at the Effective Time
under the
Company Option Plan shall be converted into an option to purchase a
number of
shares of Parent Stock in accordance with (a) the terms and
conditions of the
Company Option Plan pursuant to which such Company Option was
issued, (b) the
agreement evidencing the grant of such Company Option and (c) any
other
agreement between the Company and such optionee regarding such
Company Option;
provided, however, that from and after the Effective Time, each
such Company
Option shall be exercisable solely for Parent Stock; the number of
shares of
Parent Stock which may be acquired pursuant to such Company Option
shall be the
number of Company Shares subject to such Company Option multiplied
by the
Exchange Ratio, rounded down to the nearest whole share; and the
exercise price
per share shall be equal to the exercise price per Company Share
divided by the
Exchange Ratio, rounded down to the nearest cent. It is intended
that the
foregoing assumption and adjustment shall be effected in a manner
consistent
with the requirements of Section 424 of the Code, as to each
Company Option
which is an incentive stock option. Notwithstanding the foregoing,
the Parent in
its sole and complete discretion may offer to cancel any Company
Option in
exchange for a cash payment at Closing in an amount equal to the
Cash Election
Price minus the per share exercise price for such Company Option,
subject to any
required withholding of taxes.
13
<PAGE>
3.8 Adjustments. If, during the period between the date of this
Agreement and the Effective Time, (i) any change in the outstanding
shares of
capital stock of the Company or Parent shall occur, including by
reason of any
reclassification, recapitalization, stock split or combination,
exchange or
readjustment of shares, in each case whether by merger or otherwise
or (ii) any
stock dividend thereon with a record date during such period shall
occur, the
Merger Consideration, and any other amounts payable pursuant to
this Agreement
and, if applicable, the Cash Election Price, Exchange Ratio and
their
determination shall be appropriately adjusted.
3.9 Fractional Shares. No fractional shares of Parent Stock shall
be
issued in the Merger. All fractional shares of Parent Stock that a
holder of
Company Shares would otherwise be entitled to receive as a result
of the Merger
shall be aggregated and if a fractional share results from such
aggregation,
such holder shall be entitled to receive, in lieu thereof, an
amount in cash
without interest determined by multiplying the closing sale price
of a share of
Parent Stock on the NASDAQ Global Select Market, as reported in the
New York
City edition of The Wall Street Journal, on the trading day
immediately
preceding the Effective Time by the fraction of a share of Parent
Stock to which
such holder would otherwise have been entitled.
3.10 Withholding Rights. Each of the Exchange Agent, Surviving
Corporation and Parent shall be entitled to deduct and withhold
from the
consideration otherwise payable to any Person pursuant to this
Article 3 such
amounts as it is required to deduct and withhold with respect to
the making of
such payment under any provision of federal, state, local or
foreign tax law. If
the Exchange Agent, Surviving Corporation or Parent, as the case
may be, so
withholds amounts, such amounts shall be treated for all purposes
of this
Agreement as having been paid to the holder of the Company Shares
in respect of
which the Exchange Agent, Surviving Corporation or Parent, as the
case may be,
made such deduction and withholding.
3.11 Lost Certificates. If any Certificate shall have been lost,
stolen
or destroyed, upon the making of an affidavit of that fact by the
Person
claiming such Certificate to be lost, stolen or destroyed and, if
required by
the Surviving Corporation, the posting by such Person of a bond, in
such
reasonable amount as the Surviving Corporation 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 Merger Consideration to be paid in respect of the
Company Share
represented by such Certificate, as contemplated by this Section
3.11.
ARTICLE IV
THE SURVIVING CORPORATION
4.1 Certificate of Incorporation. The articles of incorporation
of
Parent in effect at the Effective Time shall be the articles of
incorporation of
the Surviving Corporation until amended in accordance with
applicable law.
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<PAGE>
4.2 Bylaws. The bylaws of Parent in effect at the Effective Time
shall
be the bylaws of the Surviving Corporation until amended in
accordance with
applicable law.
4.3 Directors and Officers. From and after the Effective Time,
until
successors are duly elected or appointed and qualified in
accordance with
applicable law, (i) the directors of Parent at the Effective Time
shall be the
directors of the Surviving Corporation and (ii) the officers of
Parent at the
Effective Time shall be the officers of the Surviving
Corporation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the
Company to
Parent on or prior to the date hereof (the "COMPANY DISCLOSURE
SCHEDULE"), the
Company represents and warrants to Parent that:
5.1 Corporate Existence and Power. The Company is duly
incorporated,
validly existing and in good standing under the laws of the State
of Maryland
and has all corporate powers and all governmental licenses,
authorizations,
permits, consents and approvals required to carry on its business
as now
conducted, except for those licenses, authorizations, permits,
consents and
approvals the absence of which would not reasonably be expected to
have,
individually or in the aggregate, a Material Adverse Effect on the
Company. The
Company is duly registered as a bank holding company under the U.S.
Bank Holding
Company Act of 1956, as amended (the "BHC ACT"). The Company is
duly qualified
to do business as a foreign corporation and is in good standing in
each
jurisdiction where such qualification is necessary, except for
those
jurisdictions where failure to be so qualified would not reasonably
be expected
to have, individually or in the aggregate, a Material Adverse
Effect on the
Company. The Company has heretofore delivered to Parent true and
complete copies
of the articles of incorporation and bylaws of the Company as
currently in
effect.
5.2 Corporate Authorization. (a) The execution, delivery and
performance by the Company of this Agreement and the consummation
by the Company
of the transactions contemplated hereby are within the Company's
corporate
powers and, except for the required approval of the Company's
stockholders in
connection with the consummation of the Merger, have been duly
authorized by all
necessary corporate action on the part of the Company. The
affirmative vote of
the holders of at least 80% of the outstanding Company Shares is
the only vote
of the holders of any of the Company's capital stock necessary in
connection
with the consummation of the Merger. This Agreement (assuming due
authorization
and delivery by Parent) constitutes a valid and binding obligation
of the
Company, and will be enforceable against the Company in accordance
with its
terms, except as such enforceability may be limited by applicable
bankruptcy,
insolvency, reorganization, moratorium, receivership or similar
laws affecting
the enforcement of creditors' rights generally and except that the
availability
of the equitable remedy of specific performance or injunctive
relief is subject
to the discretion of the court before which any such proceeding may
be brought.
(b) The execution, delivery and performance of the Bank Merger
Agreement and the consummation of the transactions contemplated
thereby have
been duly and validly approved by the Board of Directors of the
Company Bank.
The Board of Directors of the Company Bank has declared the
transactions
contemplated by the Bank Merger Agreement to be advisable and fair
to and in the
best interests of the Company Bank's sole stockholder and has
directed that the
Bank Merger Agreement and the transactions contemplated thereby be
submitted to
the Company as the Company Bank's sole stockholder for approval
and, except for
the approval of the Bank Merger Agreement by the Company as the
Company Bank's
sole stockholder, no other corporate proceedings on the part of the
Company Bank
are necessary to approve the Bank Merger Agreement and to
consummate the
transactions contemplated thereby. The Bank Merger Agreement
(assuming due
authorization and delivery by Parent Bank) constitutes a valid and
binding
obligation of the Company Bank, and will be enforceable against the
Company Bank
in accordance with its terms, except as such enforceability may be
limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
receivership or
similar laws affecting the enforcement of creditors' rights
generally and except
that the availability of the equitable remedy of specific
performance or
injunctive relief is subject to the discretion of the court before
which any
such proceeding may be brought.
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(c) At a meeting duly called and held, the Company's Board of
Directors has (i) unanimously determined that this Agreement and
the
transactions contemplated hereby are advisable and fair to and in
the best
interests of the Company's stockholders, (ii) unanimously approved
and adopted
this Agreement and the transactions contemplated hereby, including
the Merger
and (iii) unanimously resolved (subject to Section 7.3(b)) to
recommend approval
of the Merger and adoption of the Merger Agreement by the
Company's
stockholders.
5.3 Governmental Authorization. The execution, delivery and
performance
by the Company of this Agreement, by the Company Bank of the Bank
Merger
Agreement, the consummation by the Company of the transactions
contemplated
hereby and the consummation by the Company Bank of the transactions
contemplated
by the Bank Merger Agreement, require no action by or in respect
of, or filing
with, any governmental body, agency, official or authority,
domestic, foreign or
supranational, including the Board of Governors of the Federal
Reserve System
(the "BOARD"), the FDIC, the OCC and the banking authorities of the
State of
Maryland (any of the foregoing, a "GOVERNMENTAL ENTITY") other than
(i) (A) the
filing of articles of merger with respect to the Merger with the
MSDAT, (B) the
filing with and approval of the Bank Merger Agreement, and the
issuance of a
Certificate of Merger, by the Commissioner of Financial Regulation
of Maryland
and the filing of the Bank Merger Agreement and such Certificate of
Merger with
the MSDAT, (C) the filing with the Commissioner of Financial
Regulation of
Maryland of an application under Title 3, Subtitle 7 of the
Financial Regulation
of the Maryland Code (including a copy of the applications filed
with the
Federal Reserve Bank of Richmond under the Bank Merger Act with
respect to the
Bank Merger), and the approval of the Merger and the Bank Merger by
the
Commissioner of Financial Regulation of Maryland, and (D) the
filing of
appropriate documents with the relevant authorities of other states
in which the
Company and the Company Bank are qualified to do business, (ii)
compliance with
any applicable requirements of the HSR Act, (iii) compliance with
any applicable
requirements of the 1933 Act, the 1934 Act, and any other
applicable state or
federal securities laws, (iv) the applications and notices required
by, the
filing with and approval of the Board under Section 3 of the BHC
Act, with
respect to the Merger, (v) the applications and notices required
by, the filing
with and approval of the Federal Reserve under the Bank Merger Act,
and (vi) any
other filings and approvals required by the banking authorities of
the State of
Maryland or any other state or the District of Columbia with
respect to the
Merger or the Bank Merger (the filings and approvals set forth in
clauses (i)
through (vi), the "REQUIRED FILINGS AND APPROVALS"), and any other
actions or
filings the absence of which would not be reasonably expected to
have,
individually or in the aggregate, a Material Adverse Effect on the
Company.
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5.4 Consents and Approvals. Except for (i) the approval of the
stockholders of the Company of this Agreement and the Merger in the
manner
described in Section 5.2(a) hereof, (ii) the approval of the
Company in its
capacity as the sole stockholder of the Company Bank of the Bank
Merger
Agreement and the Bank Merger, (iii) the Required Filings and
Approvals and (iv)
as set forth in Section 5.4 of the Company Disclosure Schedule, no
material
consents or approvals of any Person are necessary in connection
with the
execution, delivery and performance by the Company of this
Agreement, the
consummation of the Merger and the consummation of the other
transactions
contemplated hereby, or the execution, delivery and performance by
the Company
Bank of the Bank Merger Agreement, the consummation of the Bank
Merger and the
consummation of the other transactions contemplated thereby.
5.5 Non-contravention. (a) The execution, delivery and performance
by
the Company of this Agreement and the consummation of the
transactions
contemplated hereby and the execution, delivery and performance by
the Company
Bank of the Bank Merger Agreement and the consummation of the
transactions
contemplated thereby, do not and will not (i) contravene, conflict
with, or
result in any violation or breach of any provision of the articles
of
incorporation or bylaws or other governing documents of the Company
or any of
its Subsidiaries, (ii) assuming compliance with the matters
referred to in
Sections 5.3 and 5.4, contravene, conflict with or result in a
violation or
breach of any provision of any applicable law, (iii) assuming
compliance with
the matters referred to in Sections 5.3 and 5.4, require any
consent or other
action by any Person under, constitute a default, or an event that,
with or
without notice or lapse of time or both, would constitute a
default, under, or
cause or permit the termination, cancellation, acceleration or
other change of
any right or obligation or the loss of any benefit to which the
Company or any
of its Subsidiaries is entitled under any provision of any
agreement or other
instrument binding upon the Company or any of its Subsidiaries or
any license,
franchise, permit, certificate, approval or other similar
authorization
affecting, or relating in any way to, the assets or business of the
Company and
its Subsidiaries or (iv) result in the creation or imposition of
any Lien on any
asset of the Company or any of its Subsidiaries, except for such
contraventions,
conflicts and violations referred to in clause (ii) and for such
failures to
obtain any such consent or other action, defaults, terminations,
cancellations,
accelerations, changes, losses or Liens referred to in clauses
(iii) and (iv)
that in the case of clause (ii), (iii) and (iv) would not be
reasonably expected
to have, individually or in the aggregate, a Material Adverse
Effect on the
Company.
(b) As of the date hereof, the Company knows of no reason why
the tax opinion referred to in Section 10.1(g) should not be
obtained on a
timely basis.
5.6 Capitalization. (a) The authorized capital stock of the
Company
consists of 5,000,000 shares of common stock, par value $10.00 per
share
("COMPANY SHARES"), and 5,000,000 shares of preferred stock, par
value $0.01 per
share. As of the date hereof, there are (i) 1,728,011 Company
Shares outstanding
and (ii) Company Options to purchase an aggregate of 97,500 Company
Shares
outstanding (all of which are exercisable). All outstanding shares
of capital
stock of the Company have been, and all shares that may be issued
pursuant to
the Company Equity Plans will be, when issued in accordance with
the respective
terms thereof, duly authorized, validly issued, fully paid and
nonassessable. No
Subsidiary of the Company owns any shares of capital stock of the
Company. All
outstanding Company Shares and Company Options were issued in
compliance with
all applicable federal and state securities laws and were not
issued in
violation of any preemptive right or similar right or any right of
first refusal
or similar right. In connection with each offering of Company
Shares or Company
Options, no documents or other information provided to the offerees
by or on
behalf of the Company contained any untrue statement of a material
fact or
failed to state a material fact required to be stated therein or
omitted to
state a material fact necessary to make the statements therein, in
light of the
circumstances under which they were made, not misleading.
17
<PAGE>
(b) Except as set forth in this Section 5.6, there are no
outstanding (i) shares of capital stock or voting securities of the
Company,
(ii) securities of the Company convertible into or exchangeable for
shares of
capital stock or voting securities of the Company or (iii) options
or other
rights to acquire from the Company, or other obligations of the
Company to
issue, any capital stock, voting securities or securities
convertible into or
exchangeable for capital stock or voting securities of the Company
(the items in
clauses (i), (ii), and (iii) being referred to collectively as the
"COMPANY
SECURITIES"). There are no outstanding obligations of the Company
or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any of the
Company
Securities.
(c) The Company has taken all actions necessary to suspend,
effective as of the date hereof, the issuance of any Company Shares
or any
rights to acquire Company Shares under the Company DRIP, as
required by the
terms of the Company DRIP and any applicable laws.
5.7 Subsidiaries. (a) (i) Company Bank is a duly organized
national
banking association and is validly existing and in good standing
under the laws
of the United States of America, has all corporate powers and all
governmental
licenses, authorizations, permits, consents and approvals required
to carry on
its business as now conducted and (ii) each other Subsidiary of the
Company is a
corporation or other entity duly organized, validly existing and in
good
standing under the laws of its jurisdiction of incorporation, has
all corporate
powers and all governmental licenses, authorizations, permits,
consents and
approvals required to carry on its business as now conducted,
except, in each of
clauses (i) and (ii), for those licenses, authorizations, permits,
consents and
approvals the absence of which would not reasonably be expected to
have,
individually or in the aggregate, a Material Adverse Effect on the
Company.
Company Bank is an "insured bank" as defined in Section 3(h) of the
FDIA. Each
Subsidiary of the Company is duly qualified to do business as a
foreign
corporation and is in good standing in each jurisdiction where
such
qualification is necessary, except for those jurisdictions where
failure to be
so qualified would not reasonably be expected to have, individually
or in the
aggregate, a Material Adverse Effect on the Company. All
Subsidiaries of the
Company and their respective jurisdictions of incorporation are
identified in
Section 5.7(a) of the Company Disclosure Schedule.
(b) Except as set forth in Section 5.7(b) of the Company
Disclosure Schedule, all of the outstanding capital stock of, or
other voting
securities or ownership interests in, each Subsidiary of the
Company, is owned
by the Company, directly or indirectly, free and clear of any Lien
and free of
any other limitation or restriction (including any restriction on
the right to
vote, sell or otherwise dispose of such capital stock or other
voting securities
or ownership interests). There are no outstanding (i) securities of
the Company
or any of its Subsidiaries convertible into or exchangeable for
shares of
capital stock or other voting securities or ownership interests in
any
Subsidiary of the Company or (ii) options or other rights to
acquire from the
Company or any of its Subsidiaries, or other obligation of the
Company or any of
its Subsidiaries to issue, any capital stock or other voting
securities or
ownership interests in, or any securities convertible into or
exchangeable for
any capital stock or other voting securities or ownership interests
in, any
Subsidiary of the Company (the items in clauses (i) and (ii) being
referred to
collectively as the "COMPANY SUBSIDIARY SECURITIES"). There are no
outstanding
obligations of the Company or any of its Subsidiaries to
repurchase, redeem or
otherwise acquire any of the Company Subsidiary Securities.
18
<PAGE>
(c) Other than Company Bank, the Company does not own or
control any shares of any class of capital stock of any "depository
institution"
as defined in Section 3 of the FDIA.
5.8 SEC Documents; Sarbanes-Oxley Act and Regulatory Statements.
(a)
The Company has made available to Parent (i) the Company's annual
reports on
Form 10-KSB for its fiscal years ended December 31, 2003, 2004 and
2005 and (ii)
all of its other reports, statements, schedules and registration
statements
filed with the SEC since December 31, 2003 (the documents referred
to in this
Section 5.8(a) and the amendments thereto, collectively, the
"COMPANY SEC
DOCUMENTS").
(b) As of its filing date, each Company SEC Document complied
as to form in all material respects with the applicable
requirements of the 1933
Act, the 1934 Act and all other statutes, rules and regulations
adopted,
enforced or promulgated by the SEC or applicable regulatory body,
as the case
may be.
(c) As of its filing date (or, if amended or superseded by a
filing prior to the date hereof, on the date of such filing), each
Company SEC
Document filed pursuant to the 1934 Act did not, contain any untrue
statement of
a material fact or omit to state any material fact necessary in
order to make
the statements made therein, in the light of the circumstances
under which they
were made, not misleading.
(d) Each Company SEC Document that is a registration
statement, as amended or supplemented, if applicable, filed
pursuant to the 1933
Act, as of the date such registration statement or amendment became
effective,
did not 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 not misleading.
(e) The Company has established and maintains disclosure
controls and procedures (as defined in Rule 15d-15 under the
Exchange Act). Such
disclosure controls and procedures are designed to ensure that
material
information relating to the Company, including its consolidated
Subsidiaries, is
made known to the Company's principal executive officer and its
principal
financial officer by others within those entities, particularly
during the
periods in which the periodic reports required under the 1934 Act
are being
prepared. Such disclosure controls and procedures are effective in
timely
alerting the Company's principal executive officer and principal
financial
officer to material information required to be included in the
Company's
periodic reports required under the 1934 Act.
19
<PAGE>
(f) The Company is not deemed an accelerated filer as defined
in Rule 12b-2 of the 1934 Act.
(g) Except as set forth in Section 5.8(g) of the Company
Disclosure Schedule, there are no outstanding loans or other
extensions of
credit made by the Company or any of its Subsidiaries to any
Officer or director
or Insider of the Company or Insider of any Regulation O Affiliate.
The Company
has not since the enactment of the Sarbanes-Oxley Act, taken any
action
prohibited by Section 402 of the Sarbanes-Oxley Act. All
outstanding extensions
of credit, if any, were, at the time they were made, and continue
to be,
permitted and in compliance with the provisions of Regulation O, 12
C.F.R. Part
215.
(h) Since January 1, 2001, the Company and the Company Bank
have timely filed all required annual and quarterly statements,
reports and
other documents (including exhibits and all other information
incorporated
therein) required to be filed with Regulatory Authorities
(collectively, the
"COMPANY REGULATORY STATEMENTS"). The Company Regulatory
Statements, including
the method for determining the Company's and the Company Bank's
provision for
loan and lease losses, are and have been prepared in conformity
with regulatory
accounting practices, applicable law and supervisory policy,
consistently
applied, for the periods covered thereby and (as may have been
amended and
restated or supplemented by Company Regulatory Statements filed
subsequently but
prior to the date hereof), fairly present in all material respects
the statutory
financial position of the Company and the Company Bank, as at the
respective
dates thereof and the results of operations of the Company and the
Company Bank
for the respective periods then ended. The Company Regulatory
Statements
complied in all material respects with any requirement of law when
filed and no
material deficiency has been asserted with respect to any Company
Regulatory
Statement by the Board, the OCC, the FDIC or any other Governmental
Entity. The
annual statutory balance sheets and income statements included in
the Company
Regulatory Statements have been audited, and the Company and the
Company Bank
have made available to Parent true and complete copies of all audit
opinions
related thereto. Neither the Company's nor the Company Bank's
independent public
accountants nor any employee of the Company or the Company Bank has
alleged that
any Company Regulatory Statement contains any misstatement or other
defect
which, if true, would cause the representations and warranties
contained in this
Section 5.8(h) to be untrue.
5.9 Financial Statements. The audited consolidated financial
statements
and unaudited consolidated interim financial statements of the
Company included
in the Company SEC Documents fairly present, in all material
respects, in
conformity with United States generally accepted accounting
principles ("GAAP")
applied on a consistent basis (except as may be indicated in the
notes thereto),
the consolidated financial position of the Company and its
consolidated
Subsidiaries as of the dates thereof and their consolidated results
of
operations and cash flows for the periods then ended (subject to
normal year-end
adjustments in the case of any unaudited interim financial
statements).
5.10 Proxy Statement; Registration Statement. (a) The proxy
statement
of the Company to be filed as part of the Registration Statement
with the SEC in
connection with the Merger (the "COMPANY PROXY STATEMENT") and any
amendments or
supplements thereto will, when filed, comply as to form in all
material respects
with the applicable requirements of the 1934 Act. At the time the
Company Proxy
Statement or any amendment or supplement thereto is first mailed to
stockholders
of the Company, and at the time such stockholders vote on adoption
of this
Agreement and at the Effective Time, the Company Proxy Statement,
as
supplemented or amended, if applicable, will not contain any untrue
statement of
a material fact or omit to state any material fact necessary in
order to make
the statements made therein, in the light of the circumstances
under which they
were made, not misleading. The representations and warranties
contained in this
Section 5.10(a) will not apply to statements or omissions included
in the
Company Proxy Statement based upon information furnished to the
Company in
writing by Parent specifically for use therein.
20
<PAGE>
(b) None of the information provided by the Company for
inclusion in the Registration Statement (as defined in Section
6.9(b)) or any
amendment or supplement thereto, at the time the Registration
Statement or any
amendment or supplement thereto becomes effective and at the
Effective Time,
will 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.
5.11 Absence of Certain Changes. Since the Company Balance Sheet
Date,
the business of the Company and its Subsidiaries has been conducted
in the
ordinary course consistent with past practices and, except as
disclosed in
Section 5.11 of the Company Disclosure Schedule or in the Company
SEC Documents,
there has not been:
(a) any event, occurrence, development or state of
circumstances or facts that has had or could reasonably be expected
to have,
individually or in the aggregate, a Material Adverse Effect on the
Company;
(b) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock
of the
Company, or any repurchase, redemption or other acquisition by the
Company or
any of its Subsidiaries of any outstanding shares of capital stock
or other
securities of, or other ownership interests in, the Company or any
of its
Subsidiaries;
(c) any amendment of any material term of any outstanding
security of the Company or any of its Subsidiaries;
(d) any incurrence, assumption or guarantee by the Company or
any of its Subsidiaries of any indebtedness for borrowed money
other than in the
ordinary course of business and in amounts and on terms consistent
with past
practices;
(e) any creation or other incurrence by the Company or any of
its Subsidiaries of any Lien on any material asset other than in
the ordinary
course of business consistent with past practices;
(f) any making of any material loan, advance or capital
contributions to or investment in any Person other than (x) loans
in the
ordinary course of the Company Bank's lending business consistent
with past
practices and (y) loans, advances or capital contributions to or
investments in
its wholly-owned Subsidiaries in the ordinary course of business
consistent with
past practices;
21
<PAGE>
(g)
any material damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the business or
assets of the
Company or any of its Subsidiaries;
(h) any transaction or commitment made, or any contract or
agreement entered into, by the Company or any of its Subsidiaries
relating to
its assets or business (including the acquisition or disposition of
any assets)
or any relinquishment by the Company or any of its Subsidiaries of
any contract
or other right, in either case, material to the Company and its
Subsidiaries,
taken as a whole, other than transactions and commitments in the
ordinary course
of business consistent with past practices and those contemplated
by this
Agreement;
(i) any change in any material method of accounting or
accounting principles or practice by the Company or any of its
Subsidiaries,
except for any such change required by reason of a concurrent
change in GAAP or
Regulation S-X under the 1934 Act;
(j) any (i) grant of
any severance or termination pay to (or
amendment to any existing arrangement with) any director, officer
or employee of
the Company or any of its Subsidiaries, (ii) increase in benefits
payable under
any existing severance or termination pay policies or employment
agreements,
(iii) entry into any employment, deferred compensation or other
similar
agreement (or any amendment to any such existing agreement) with
any director,
officer or employee of the Company or any of its Subsidiaries,
(iv)
establishment, adoption or amendment (except as required by
applicable law) of
any collective bargaining, bonus, profit-sharing, thrift, pension,
retirement,
deferred compensation, compensation, stock option, restricted stock
or other
benefit plan or arrangement covering any director, officer or
employee of the
Company or any of its Subsidiaries or (v) increase in compensation,
bonus or
other benefits payable to any director, officer or employee of the
Company or
any of its Subsidiaries, other than, in the case of clause (v),
increases
granted to employees (other than officers) in the ordinary course
of business
consistent with past practice;
(k) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative
thereof to organize any employees of the Company or any of its
Subsidiaries,
which employees were not subject to a collective bargaining
agreement at the
Company Balance Sheet Date, or any lockouts, strikes, slowdowns,
work stoppages
or threats thereof by or with respect to such employees; or
(l) any material Tax election made (other than elections
consistent with the Company's and its Subsidiaries' past practice)
or changed,
any annual tax accounting period changed, any material method of
Tax accounting
adopted or changed, any material amended Tax Returns or claims for
material Tax
refunds filed, any material closing agreement entered into, any
material Tax
claim, audit or assessment settled, or any right to claim a
material Tax refund,
offset or other reduction in Tax liability surrendered.
5.12 No Undisclosed Material Liabilities. Except as set forth
in
Section 5.12 of the Company Disclosure Schedule, there are no
liabilities or
obligations of the Company or any of its Subsidiaries of any kind
whatsoever,
whether accrued, contingent, absolute, determined, determinable or
otherwise,
and there is no existing condition, situation or set of
circumstances that could
reasonably be expected to result in such a liability or obligation,
other than:
22
<PAGE>
(a) liabilities or obligations disclosed and provided for in
the Company Balance Sheet or in the notes thereto or in the Company
SEC
Documents filed prior to the date hereof, and
(b) liabilities or obligations incurred in the ordinary course
of business consistent with past practices that would not
reasonably be expected
to have, individually or in the aggregate, a Material Adverse
Effect on the
Company.
5.13 Compliance with Laws and Court Orders. Except as set forth
in
Section 5.13 of the Company Disclosure Schedule, the Company and
each of its
Subsidiaries is and, since January 1, 2003, has been in compliance
with, and, to
the Knowledge of the Company, is not under investigation with
respect to and has
not been threatened to be charged with or given notice of any
violation of, any
applicable law (including the Equal Credit Opportunity Act, the
Fair Housing
Act, the Community Reinvestment Act, the Home Mortgage Disclosure
Act, all other
applicable fair lending laws and other laws relating to
discriminatory business
practices, the applicable provisions of the Sarbanes-Oxley Act
(which provisions
do not include Section 404), the Uniting and Strengthening America
by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorist (USA
PATRIOT) Act
of 2001 and the Bank Secrecy Act), except for failures to comply or
violations
that have not had and would not reasonably be expected to have,
individually or
in the aggregate, a Material Adverse Effect on the Company.
5.14 Litigation. Except as set forth in the Company SEC Documents
filed
prior to the date hereof and except as set forth in Section 5.14 of
the Company
Disclosure Schedule, there is no action, suit, investigation or
proceeding (or
any basis therefor) pending against, or, to the Knowledge of the
Company,
threatened against or affecting, the Company, any of its
Subsidiaries, any
present or former officer, director or employee of the Company or
any of its
Subsidiaries or any Person for whom the Company or any Subsidiary
may be liable
or any of their respective properties before any court or
arbitrator or before
or by any governmental body, agency or official, domestic, foreign
or
supranational, that (i) in any manner challenges or seeks to
prevent, enjoin,
alter or materially delay the Merger or the Bank Merger or any of
the other
transactions contemplated hereby or by the Bank Merger Agreement or
(ii) if
determined or resolved adversely in accordance with the plaintiff's
demands,
would (A) involve damages in excess of $100,000, (B) could
reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect on
the Company or (iii) as of the date hereof, involve the imposition
of permanent
injunctive relief.
5.15 Material Contracts.
(a) Except for those agreements and other documents listed as
exhibits to the Company SEC Documents filed prior to the date
hereof, neither
the Company nor any of its Subsidiaries is a party to, bound by or
subject to
any agreement, contract, arrangement, commitment or understanding
(whether
written or oral) (i) that is a "material contract" within the
meaning of Item
601(b)(10) of the SEC's Regulation S-K or (ii) that restricts the
conduct of
business or any line of business of the Company or any of its
Subsidiaries (or,
after the consummation of the Merger, Parent or any of its
Subsidiaries).
Neither the Company nor any of its Subsidiaries is in breach of or
default under
any material contract, agreement, commitment, understanding,
arrangement, lease,
insurance policy or other instrument to which the Company or such
Subsidiary is
a party, by which the Company's or such Subsidiary's respective
assets,
business, or operations may be bound or affected, or under which
the Company's
or such Subsidiary's respective assets, business, or operations
receives
benefits (collectively "MA
