AGREEMENT AND PLAN OF MERGER

Exhibit 2.6

AGREEMENT AND PLAN OF MERGER

DATED AS OF APRIL 16, 2007

BY AND BETWEEN

NEW HAMPSHIRE THRIFT BANCSHARES, INC.

AND

FIRST COMMUNITY BANK

 

TABLE OF CONTENTS

 

 

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EXHIBITS AND SCHEDULES

Exhibits

 

Bank Disclosure Schedules

 

Buyer Disclosure Schedules

 

 

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This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is dated as of April 16, 2007, by and between New Hampshire Thrift Bancshares, Inc., a Delaware corporation (“Buyer”), and First Community Bank, a Vermont-chartered commercial bank (“Bank”).

WITNESSETH

WHEREAS , the Board of Directors of Buyer and the Board of Directors of Bank have each (i) determined that this Agreement and the business combination and related transactions contemplated hereby are in the best interests of their respective entities and shareholders; (ii) determined that this Agreement and the transactions contemplated hereby are consistent with and in furtherance of their respective business strategies; and (iii) approved this Agreement;

WHEREAS , in accordance with the terms of this Agreement, Bank will merge with and into Lake Sunapee Bank, fsb, a federal savings association and wholly-owned subsidiary of Buyer;

WHEREAS , as a material inducement to Buyer to enter into this Agreement, each of the directors and executive officers of Bank has entered into a voting agreement with Buyer dated as of the date hereof (a “Voting Agreement”), substantially in the form attached hereto as Exhibit A pursuant to which each such director or executive officer has agreed, among other things, to vote all shares of Bank Stock (as defined herein) owned by such person in favor of the approval of this Agreement and the transactions contemplated hereby, upon the terms and subject to the conditions set forth in such agreement;

WHEREAS , the parties intend the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and that this Agreement be and hereby is adopted as a “plan of reorganization” within the meaning of Sections 354 and 361 of the Code; and

WHEREAS , the parties desire to make certain representations, warranties and agreements in connection with the transactions described in this Agreement and to prescribe certain conditions thereto.

NOW, THEREFORE, in consideration of the mutual promises herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

Section 1.01 Certain Definitions . The following terms are used in this Agreement with the meanings set forth below (unless the context otherwise requires, references to Articles and Sections refer to Articles and Sections of this Agreement):

 

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“Acquisition Proposal” means any proposal or offer with respect to any of the following (other than the transactions contemplated hereunder) involving Bank: (a) any merger, consolidation, share exchange, business combination or other similar transactions; (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets and/or liabilities that constitute a substantial portion of the net revenues, net income or assets of Bank in a single transaction or series of transactions; (c) any tender offer or exchange offer for 10% or more of the outstanding shares of its capital stock or the filing of a registration statement under the Securities Act in connection therewith; or (d) any public announcement by any Person (which shall include any regulatory application or notice, whether in draft or final form) of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.

“Acquisition Transaction” means any of the following (other than the transactions contemplated hereunder): (a) a merger, consolidation, share exchange, business combination or any similar transaction, involving the relevant companies; (b) a sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets and/or liabilities that constitute a substantial portion of the net revenues, net income or assets of the relevant companies in a single transaction or series of transactions; (c) a tender offer or exchange offer for 10% or more of the outstanding shares of the capital stock of the relevant companies or the filing of a registration statement under the Securities Act in connection therewith; or (d) an agreement or commitment by the relevant companies to take any action referenced above.

“Advisory Board” has the meaning set forth in Section 2.01(g).

“Agreement” has the meaning set forth in the preamble to this Agreement, as amended or modified from time to time in accordance with Section 9.02.

“Bank” has the meaning set forth in the preamble to this Agreement.

“Bank Benefit Plans” has the meaning set forth in Section 4.16(a).

“Bank Board” means the Board of Directors of Bank.

“Bank Disclosure Schedule” means the disclosure schedule delivered by Bank to Buyer on or prior to the date hereof setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express provision of this Agreement or as an exception to one or more of its representations and warranties in Article IV or its covenants in Article VI.

“Bank Division” has the meaning set forth in Section 2.01(b).

“Bank Employees” has the meaning set forth in Section 4.16(a).

“Bank Financial Statements” has the meaning set forth in Section 4.08.

“Bank Intellectual Property” means the Intellectual Property used in or held for use in the conduct of the business of Bank.

“Bank Loan Property” has the meaning set forth in Section 4.18(a).

 

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“Bank Meeting” has the meaning set forth in Section 6.04.

“Bank Option” shall mean an option to purchase shares of Bank Stock granted pursuant to the First Community Bank 1998 Stock Incentive Plan and First Community Bank 2004 Stock Incentive Plan and outstanding as of the date hereof, as set forth in Bank Disclosure Schedule 4.03 .

“Bank Pension Plan” has the meaning set forth in Section 4.16(b).

“Bank Stock” means the Class A common stock, $1.00 par value per share, of Bank and the Class B common stock, $1.00 par value per share, of the Bank.

“BOLI” has the meaning set forth in Section 4.26.

“Business Day” means Monday through Friday of each week, except a legal holiday recognized as such by the U.S. Government or any day on which banking institutions in the States of New Hampshire or Vermont are authorized or obligated to close.

“Buyer” has the meaning set forth in the preamble to this Agreement.

“Buyer Bank” has the meaning set forth in the recitals to this Agreement.

“Buyer Benefit Plan” has the meaning set forth in Section 6.15(a).

“Buyer Board” means the Board of Directors of Buyer.

“Buyer Disclosure Schedule” means the disclosure schedule delivered by Buyer to Bank on or prior to the date hereof setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express provision of this Agreement or as an exception to one or more of its representations and warranties in Article V or its covenants in Article VI.

“Buyer Financial Statements” has the meaning set forth in Section 4.02(h).

“Buyer Option Plans” means the Lake Sunapee Bank, fsb 1987 Stock Option Plan, the New Hampshire Thrift Bancshares, Inc. 1996 Stock Option Plan, the New Hampshire Thrift Bancshares, Inc. 1998 Stock Option Plan, and the New Hampshire Thrift Bancshares, Inc. 2004 Stock Incentive Plan.

“Buyer Share Price” means the average of the closing sales prices of one share of Buyer Stock for the ten (10) trading days immediately preceding the Determination Date on NASDAQ as reported by The Wall Street Journal .

“Buyer Stock” means the common stock, par value $0.01 per share, of Buyer.

“Cash Consideration” has the meaning set forth in Section 3.03.

“Cash Election Shares” has the meaning set forth in Section 3.07(a).

 

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“Certificate” means any certificate that immediately prior to the Effective Time represents shares of Bank Stock.

“Change in Recommendation” has the meaning set forth in Section 6.04.

“Closing” and “Closing Date” have the meanings set forth in Section 2.10(b).

“Code” means the Internal Revenue Code of 1986, as amended.

“Community Reinvestment Act” means the Community Reinvestment Act of 1977, as amended.

“Confidentiality Agreement” has the meaning set forth in Section 6.10(b).

“Derivative Transaction” means any swap transactions, option, warrant, forward purchase or sale transactions, futures transactions, cap transactions, floor transactions or collar transactions relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, catastrophe events, weather-related events, credit-related events or conditions or any indexes, or any other similar transactions (including any option with respect to any of these transactions) 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.

“Determination Date” means the close of business on the fifth (5 ^th ) Business Day prior to the Effective Date.

“Dissenting Shares” has the meaning set forth in Section 3.06.

“Effective Date” has the meaning set forth in Section 2.10(a).

“Effective Time” has the meaning set forth in Section 2.10(a).

“Election Deadline” has the meaning set forth in Section 3.07(c).

“Election Form” has the meaning set forth in Section 3.07(b).

“Election Form Record Date” has the meaning set forth in Section 3.07(b).

“Environmental Law” means any federal, state or local law, regulation, order, decree, permit, authorization, opinion or agency requirement relating to: (a) the protection or restoration of the environment, health, safety, or natural resources, (b) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance or (c) wetlands, indoor air, pollution, contamination or any injury or threat of injury to persons or property in connection with any Hazardous Substance. The term Environmental Law includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: (a) the Comprehensive Environmental Response, Compensation and Liability Act, as

 

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amended, 42 U.S.C. § 9601 et seq. ; the Resource Conversation and Recovery Act, as amended, 42 U.S.C. § 6901, et seq. ; the Clean Air Act, as amended, 42 U.S.C. § 7401, et seq .; the Federal Water Pollution Control Act, as amended, 33 U.S.C. § 1251, et seq .; the Toxic Substances Control Act, as amended, 15 U.S.C. § 2601, et seq. ; the Emergency Planning and Community Right to Know Act, 42 U.S.C. § 1101, et seq. ; the Safe Drinking Water Act; 42 U.S.C. § 300f, et seq. ; the Occupational Safety and Health Act, 29 U.S.C. § 651, et seq. ; and (b) any common law (including without limitation common law that may impose strict liability) that may impose liability or obligations for injuries or damages due to the presence of or exposure to any Hazardous Substance.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” has the meaning set forth in Section 4.16(c).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

“Exchange Agent” means such exchange agent as may be designated by Buyer and reasonably acceptable to Bank to act as agent for purposes of conducting the exchange procedures described in Article III.

“Exchange Ratio” has the meaning set forth in Section 3.02.

“FDIC” means the Federal Deposit Insurance Corporation.

“FHLB” means the Federal Home Loan Bank of Boston, or any successor thereto.

“GAAP” means accounting principles generally accepted in the United States of America.

“Governmental Authority” means any federal, state or local court, administrative agency or commission or other governmental authority or instrumentality.

“Hazardous Substance” includes but is not limited to any and all substances (whether solid, liquid or gas) defined, listed, or otherwise classified as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, or words of similar meaning or regulatory effect under any present or future Environmental Laws or that may have a negative impact on human health or the environment, including but not limited to petroleum and petroleum products, asbestos and asbestos-containing materials, polychlorinated biphenyls, lead, radon, radioactive materials, flammables and explosives, mold, mycotoxins, microbial matter and airborne pathogens (naturally occurring or otherwise), but excluding substances of kinds and in amounts ordinarily and customarily used or stored in similar properties for the purposes of cleaning or other maintenance or operations.

“Indemnified Party” and “Indemnifying Party” have the meanings set forth in Section 6.14(a).

“Informational Systems Conversion” has the meaning set forth in Section 6.19.

 

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“Insurance Amount” has the meaning set forth in Section 6.14(c).

“Insurance Policies” has the meaning set forth in Section 4.26(a).

“Intellectual Property” means (a) trademarks, service marks, trade names, Internet domain names, designs, logos, slogans, and general intangibles of like nature, together with all goodwill, registrations and applications related to the foregoing; (b) patents and industrial designs (including any continuations, divisionals, continuations-in-part, renewals, reissues, and applications for any of the foregoing); (c) copyrights (including any registrations and applications for any of the foregoing); (d) Software; and (e) technology, trade secrets and other confidential information, know-how, proprietary processes, formulae, algorithms, models, and methodologies.

“IRS” means the Internal Revenue Service.

“Knowledge” as used with respect to a Person (including references to such Person being aware of a particular matter) means those facts that are known by the senior officers and directors of such Person, and includes any facts, matters or circumstances set forth in any written notice from any Governmental Authority or any other written notice received by that Person.

“Leases” has the meaning set forth in Section 4.23(b).

“Liens” means any charge, mortgage, pledge, security interest, restriction, claim, lien or encumbrance.

“Loans” has the meaning set forth in Section 4.22(a).

“Mailing Date” has the meaning set forth in Section 3.07(b).

“Material Adverse Effect” means (a) with respect to Bank, any effect that is material and adverse to the financial position, results of operations or business of Bank or that would materially impair the ability of Bank to perform its obligations under this Agreement or otherwise materially impairs the ability of Bank to consummate the transactions contemplated by this Agreement; provided, however , that Material Adverse Effect shall not be deemed to include the impact of (i) changes in banking and similar laws of general applicability or interpretations thereof by Governmental Authorities, (ii) changes in GAAP or regulatory accounting requirements applicable to banks generally, (iii) changes in general economic conditions (including interest rates) affecting banks generally, (iv) any modifications or changes to valuation policies and practices in connection with the transactions contemplated by this Agreement or restructuring charges taken in connection with the transactions contemplated by this Agreement, in each case in accordance with GAAP, (v) reasonable expenses incurred in connection with the transactions contemplated by this Agreement and (vi) the effects of any action or omission taken with the prior consent of Buyer or as otherwise expressly permitted or contemplated by this Agreement; and (b) with respect to Buyer, any effect that materially impairs the ability of Buyer to make payment at the Effective Time of the aggregate Merger Consideration or otherwise materially impairs the ability of Buyer to consummate the transactions contemplated by this Agreement.

 

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“Merger” has the meaning set forth in the preamble to this Agreement.

“Merger Consideration” means the cash or Buyer Stock, or combination thereof, in an aggregate per share amount to be paid by Buyer for each share of Bank Stock, pursuant to the terms of Article III.

“Merger Registration Statement” has the meaning set forth in Section 6.06(a).

“Mixed Election” has the meaning set forth in Section 3.07(b).

“NASDAQ” means The Nasdaq Stock Market, LLC.

“Non-Election Shares” has the meaning set forth in Section 3.07(a).

“OREO” has the meaning set forth in Section 4.22(a).

“OTS” means the Office of Thrift Supervision.

“Person” means any individual, bank, corporation, partnership, association, joint-stock company, business trust, limited liability company, unincorporated organization or other organization or firm of any kind or nature.

“Proxy Statement/Prospectus” means the proxy statement and prospectus, satisfying all applicable requirements of applicable state securities and banking laws, and of the Securities Act and the Exchange Act, and the rules and regulations thereunder, together with any amendments and supplements thereto, as prepared by Buyer and Bank and as delivered to holders of Bank Stock in connection with the solicitation of their approval of this Agreement.

“Regulatory Order” has the meaning set forth in Section 4.11(b).

“Rights” means, with respect to any Person, warrants, options, rights, convertible securities and other arrangements or commitments which obligate the Person to issue or dispose of any of its capital stock or other ownership interests.

“SEC” means the United States Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Settlement Agreement” has the meaning set forth in Section 6.15(d).

“Shortfall Number” has the meaning set forth in Section 3.07(e).

“Software” means computer programs, whether in source code or object code form (including any and all software implementation of algorithms, models and methodologies), databases and compilations (including any and all data and collections of data), and all documentation (including user manuals and training materials) related to the foregoing.

“Stock Consideration” has the meaning set forth in Section 3.02.

 

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“Stock Conversion Number” has the meaning set forth in Section 3.07(a).

“Stock Election Shares” has the meaning set forth in Section 3.07(a).

“Stock Election Number” has the meaning set forth in Section 3.07(a).

“Subsidiary” means, with respect to any party, any corporation or other entity of which a majority of the capital stock or other ownership interest having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such party.

“Superior Proposal” means any bona fide written proposal made by a third party to acquire, directly or indirectly, including pursuant to a tender offer, exchange offer, merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction, for consideration consisting of cash and/or securities, more than 25% of the combined voting power of the shares of Bank Stock then outstanding or all or substantially all of the assets of Bank and otherwise (a) on terms which the Bank Board determines in good faith, after consultation with its financial advisor, to be more favorable from a financial point of view to Bank’s shareholders than the transactions contemplated by this Agreement, and (b) that constitutes a transaction that, in the Bank Board’s good faith judgment, is reasonably likely to be consummated on the terms set forth, taking into account all legal, financial, regulatory and other aspects of such proposal.

“Surviving Bank” has the meaning set forth in Section 2.01(a).

“Tax” and “Taxes” mean all federal, state, local or foreign income, gross income, gains, gross receipts, sales, use, ad valorem, goods and services, capital, production, transfer, franchise, windfall profits, license, withholding, payroll, employment, disability, employer health, excise, estimated, severance, stamp, occupation, property, environmental, custom duties, unemployment or other taxes of any kind whatsoever, together with any interest, additions or penalties thereto and any interest in respect of such interest and penalties.

“Tax Returns” means any return, declaration or other report (including elections, declarations, schedules, estimates and information returns) with respect to any Taxes.

“Termination Date” has the meaning set forth in Section 8.01(f).

“Voting Agreement” has the meanings set forth in the recitals to this Agreement.

ARTICLE II

THE MERGER

Section 2.01 Terms of the Merger. Subject to the terms and conditions of this Agreement, at the Effective Time, Bank shall merge with and into Buyer Bank, and Buyer Bank shall be the surviving entity (hereinafter sometimes referred to as the “Surviving Bank”) and shall continue to be governed by the laws of the United States. Buyer will cause Buyer Bank, and Bank shall execute and deliver a Plan of Bank Merger substantially in the form attached to

 

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this Agreement as Exhibit B . As part of the Merger, shares of Bank Stock shall, at the Effective Time, be converted into the right to receive the Merger Consideration pursuant to the terms of Article III.

Section 2.02 Alternative Structure . Buyer may, at any time prior to the Effective Time, change the method of effecting the combination of Buyer and Bank (including the provisions of this Article II) if and to the extent it deems such change to be necessary, appropriate or desirable; provided, however, that no such change shall (a) alter or change the Merger Consideration; (b) adversely affect the tax treatment of Buyer’s shareholders or Bank’s shareholders pursuant to this Agreement; (c) adversely affect the tax treatment of Buyer or Bank pursuant to this Agreement; or (d) materially impede or delay consummation of the transactions contemplated by this Agreement. In the event Buyer makes such a change, Bank agrees to execute an appropriate amendment to this Agreement in order to reflect such change.

Section 2.03 Tax Consequences . It is intended that the Merger shall constitute a reorganization within the meaning of Section 368(a) of the Code, and that this Agreement shall constitute a “plan of reorganization” as that term is used in Section 354 and 361 of the Code. From and after the date of this Agreement and until the Closing, each party hereto shall use its reasonable best efforts to cause the Merger to qualify, and will not knowingly take any action, cause any action to be taken, fail to take any action or cause any action to fail to be taken, which action or failure to act would reasonably be expected to prevent the Merger from qualifying as a reorganization under Section 368(a) of the Code. Bank and Buyer each hereby agree to deliver a certificate substantially in compliance with IRS published advance ruling guidelines, with customary exceptions and modifications thereto, to enable its counsel to deliver the legal opinion contemplated by Section 7.01(e).

Section 2.04 Name of the Surviving Bank . The name of the Surviving Bank upon consummation of the Merger shall be “Lake Sunapee Bank, fsb.”

Section 2.05 Charter and Bylaws of the Surviving Bank . The charter and bylaws of the Surviving Bank upon consummation of the Merger shall be the charter and bylaws of Buyer Bank as in effect immediately prior to consummation of the Merger.

Section 2.06 Directors and Officers of the Surviving Bank . The directors of the Surviving Bank immediately after the Effective Time shall consist of the directors of Buyer Bank in office immediately prior to the Effective Time. At the Effective Time, the number of persons constituting the Board of Directors of Surviving Bank shall be increased by one member to be selected by Buyer and agreed to by Bank shall be appointed to the Board of Directors of Surviving Bank for a term to expire at the Surviving Bank’s next annual meeting, and renominated for such position until at least the third anniversary of the Effective Date. The officers of the Surviving Bank shall consist of the officers of Buyer in office immediately prior to the Effective Time. Each of the directors and executive officers of the Surviving Bank immediately after the Effective Time shall hold office until his or her successor is elected and qualified or otherwise in accordance with the charter and bylaws of the Surviving Bank.

 

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Section 2.07 Buyer Board Member and Advisory Board . At the Effective Time, the number of persons constituting the Board of Directors of Buyer shall be increased by one member to be selected by Buyer and agreed to by Bank shall be appointed to the Board of Directors of Buyer. In addition, Buyer shall establish an Advisory Board (the “Advisory Board”), which shall operate pursuant to a written charter consistent with this Section 2.07, and which shall meet quarterly. At or prior to the Effective Time, all of the directors of Bank in office immediately prior to the Effective Time whose primary residences are located in the State of Vermont, excluding that Bank director appointed to the Board of Directors of Buyer and Surviving Bank, shall be invited to serve as members of such Advisory Board for a term to expire at Buyer’s next annual meeting, and renominated for such position until at least the third anniversary of the Effective Date; each member of the Advisory Board shall receive a fee of $250 per meeting attended, which fee shall not be paid for meetings attended by telephone.

Section 2.08 Authorized Capital Stock . The authorized capital stock of the Surviving Bank upon consummation of the Merger shall be as set forth in the charter of Buyer Bank immediately prior to the Merger.

Section 2.09 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided under federal law, Title 8 of the Vermont Statutes Annotated, and the regulations promulgated thereunder. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, the separate corporate existence of Bank shall cease and all of the rights, privileges, powers, franchises, properties, assets, debts, liabilities, obligations, restrictions, disabilities and duties of Bank shall be vested in and assumed by Buyer Bank.

Section 2.10 Effective Date and Effective Time; Closing .

(a) Subject to the terms and conditions of this Agreement, Buyer will make all such filings as may be required to consummate the Merger by applicable laws and regulations. The Merger provided for herein shall become effective upon the acceptance by the OTS of the filing of articles of combination as provided in 12 C.F.R. § 552.13(j). The date of such filings is herein called the “Effective Date.” The “Effective Time” of the Merger shall be as specified by the OTS on the articles of combination.

(b) A closing (the “Closing”) shall take place immediately prior to the Effective Time at 10:00 a.m., Eastern time, at the principal offices of Thacher Proffitt & Wood LLP in Washington, D.C., or such other place, at such other time, or on such other date as the parties may mutually agree upon (such date, the “Closing Date”). At the Closing, there shall be delivered to Buyer and Bank the certificates and other documents required to be delivered under Article VII hereof.

Section 2.11 Additional Actions . If, at any time after the Effective Time, Buyer shall consider or be advised that any further deeds, documents, assignments or assurances in law or any other acts are necessary or desirable to (i) vest, perfect or confirm, or record or otherwise, in Buyer its right, title or interest in, to or under any of the rights, properties or assets of Bank, or (ii) otherwise carry out the purposes of this Agreement, Bank and its officers and directors shall be deemed to have granted to Buyer an irrevocable power of attorney to execute and deliver, in such official corporate capacities, all such deeds, assignments or assurances in law or any other

 

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acts as are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in Buyer its right, title or interest in, to or under any of the rights, properties or assets of Bank or (b) otherwise carry out the purposes of this Agreement, and the officers and directors of Buyer are authorized in the name of Bank or otherwise to take any and all such action.

ARTICLE III

CONSIDERATION; EXCHANGE PROCEDURES

Section 3.01 Merger Consideration . Subject to the provisions of this Agreement, at the Effective Time, automatically by virtue of the Merger and without any action on the part of any Person, all shares of Bank Stock held in the treasury of Bank and each share of Bank Stock owned by Buyer or any direct or indirect wholly owned subsidiary of Buyer or of Bank immediately prior to the Effective Time (other than shares held in a fiduciary capacity or in connection with debts previously contracted) shall cease to exist, and the Certificates for such shares shall be canceled as promptly as practicable thereafter, and no payment or distribution shall be made in consideration therefor. All remaining shares of Bank Stock, excluding Dissenting Shares, issued and outstanding immediately prior to the Effective Time shall become and be converted into the right to receive the Merger Consideration, pursuant to the terms of this Article III.

Section 3.02 Stock Consideration . Each outstanding share of Bank Stock that under the terms of Section 3.07 is to be converted into the right to receive shares of Buyer Stock (the “Stock Consideration”) shall be converted into and become the right to receive from Buyer 0.7477 shares of Buyer Stock (the “Exchange Ratio”).

Section 3.03 Cash Consideration . Each outstanding share of Bank Stock that under the terms of Section 3.07 is to be converted into the right to receive cash (the “Cash Consideration”) shall be converted into the right to receive a cash payment of $12.00.

Section 3.04 Rights as Shareholders; Stock Transfers . At the Effective Time, holders of Bank Stock shall cease to be, and shall have no rights as, shareholders of Bank other than the right to receive the consideration provided under this Article III. After the Effective Time, there shall be no transfers on the stock transfer books of Bank of shares of Bank Stock.

Section 3.05 No Fractional Shares . Notwithstanding any other provision of this Agreement, neither certificates nor scrip for fractional shares of Buyer Stock shall be issued in the Merger. Each holder of a Certificate who otherwise would have been entitled to a fraction of a share of Buyer Stock shall receive in lieu thereof cash (without interest) in an amount determined by multiplying the fractional share interest to which such holder would otherwise be entitled (after taking into account all shares of Bank Stock owned by such holder at the Effective Time) by the Buyer Share Price. No such holder shall be entitled to dividends, voting rights or any other rights in respect of any fractional share.

Section 3.06 Dissenting Shares . Each outstanding share of Bank Stock the holder of which has perfected his or her right to dissent from the Merger under Chapter 11A of the Vermont Statutes Annotated and has not effectively withdrawn or lost such rights as of the

 

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Effective Time (the “Dissenting Shares”) shall not be converted into the right to receive the Merger Consideration, and the holder thereof shall be entitled only to such rights as are granted by such provisions of the Vermont Statutes Annotated. If any holder of Dissenting Shares shall fail to perfect or shall have effectively withdrawn or lost the right to dissent, the Dissenting Shares held by such holder shall thereupon be treated as though such Dissenting Shares had been converted into the right to receive the Merger Consideration to which such holder would be entitled pursuant to Section 3.07 hereof. Bank shall give Buyer prompt notice upon receipt by Bank of any such written demands for payment of the fair value of shares of Bank Stock and of withdrawals of such demands and any other instruments provided pursuant to Chapter 11A of the Vermont Statutes Annotated. Any payments made in respect of Dissenting Shares shall be made by the Surviving Corporation.

Section 3.07 Election Procedures .

(a) Holders of Bank Stock may elect to receive shares of Buyer Stock or cash (in either case without interest) in exchange for their shares of Bank Stock in accordance with the following procedures, provided that, in the aggregate, eighty percent (80%) of the total number of shares of Bank Stock issued and outstanding at the Effective Time, including any Dissenting Shares (the “Stock Conversion Number”), shall be converted into the Stock Consideration and the remaining outstanding shares of Bank Stock shall be converted into the Cash Consideration. Shares of Bank Stock as to which a holder of Bank Stock has elected to receive the Cash Consideration (including, pursuant to a Mixed Election) are referred to herein as “Cash Election Shares.” Shares of Bank Stock as to which a holder of Bank Stock has elected to receive the Stock Consideration (including, pursuant to a Mixed Election) are referred to herein as “Stock Election Shares.” Shares of Bank Stock as to which no election has been made (or as to which an Election Form is not returned properly completed) are referred to herein as “Non-Election Shares.” The aggregate number of Stock Election Shares is referred to herein as the “Stock Election Number.”

(b) An election form and other appropriate and customary transmittal materials (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of such Certificates to the Exchange Agent), in such form as Bank and Buyer shall mutually agree (“Election Form”), shall be mailed no more than forty (40) Business Days and no less than twenty (20) Business Days prior to the anticipated Effective Date or on such earlier date as Bank and Buyer shall mutually agree (the “Mailing Date”) to each holder of record of Bank Stock as of five (5) Business Days prior to the Mailing Date (the “Election Form Record Date”). Each Election Form shall permit such holder, subject to the allocation and election procedures set forth in this Section 3.07, (i) to elect to receive all cash with respect to each share of Bank Stock held by such holder, (ii) to elect to receive all Buyer Stock with respect to each share of Bank Common Stock held by such holder, (iii) to elect to receive cash with respect to a part of such holder’s Bank Stock and Buyer Stock with respect to the remaining part of such holder’s Bank Stock (a “Mixed Election”), or (iv) to indicate that such record holder has no preference as to the receipt of cash or Buyer Stock for such shares. A holder of record of shares of Bank Stock who holds such shares as nominee, trustee or in another representative capacity may submit multiple Election Forms, provided that each such Election Form covers all the shares of Bank Stock held by such nominee, trustee or held in another representative capacity for a particular beneficial owner. Any shares of Bank Stock with respect

 

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to which the holder thereof shall not, as of the Election Deadline, have made an election by submission to the Exchange Agent of an effective, properly completed Election Form shall be deemed Non-Election Shares. All Dissenting Shares shall be deemed Cash Election Shares, and with respect to such shares the holders thereof shall in no event receive consideration comprised of Buyer Stock, subject to Section 3.06; provided, however, that for purposes of making the proration calculations provided for in this Section 3.07 only Dissenting Shares as existing at the Effective Time shall be deemed Cash Election Shares.

(c) To be effective, a properly completed Election Form shall be submitted to the Exchange Agent on or before 5:00 p.m., Eastern time, on the twenty-fifth (25 ^th ) day following the Mailing Date (or such other time and date as Acquirer and Buyer may mutually agree) (the “Election Deadline”); provided, however, that the Election Deadline may not occur on or after the Closing Date. Bank shall make available up to two separate Election Forms, or such additional Election Forms as Buyer may permit, to all Persons who become holders (or beneficial owners) of Bank Stock between the Election Form Record Date and the close of business on the Business Day prior to the Election Deadline. Bank shall provide to the Exchange Agent all information reasonably necessary for it to perform as specified herein. An election shall have been properly made only if the Exchange Agent shall have actually received a properly completed Election Form by the Election Deadline. An Election Form shall be deemed properly completed only if accompanied by one or more Certificates (or customary affidavits and indemnification regarding the loss or destruction of such Certificates or the guaranteed delivery of such Certificates) representing all shares of Bank Stock covered by such Election Form, together with duly executed transmittal materials included with the Election Form. If a Bank shareholder either (i) does not submit a properly completed Election Form in a timely fashion or (ii) revokes its Election Form prior to the Election Deadline (without later submitting a properly completed Election Form prior to the Election Deadline), the shares of Bank Stock held by such shareholder shall be designated as Non-Election Shares. Any Election Form may be revoked or changed by the Person submitting such Election Form to the Exchange Agent by written notice to the Exchange Agent only if such notice of revocation or change is actually received by the Exchange Agent at or prior to the Election Deadline. Buyer shall cause the Certificate or Certificates relating to any revoked Election Form to be promptly returned without charge to the Person submitting the Election Form to the Exchange Agent. Subject to the terms of this Agreement and of the Election Form, the Exchange Agent shall have discretion to determine when any election, modification or revocation is received and whether any such election, modification or revocation has been properly made.

(d) If the Stock Election Number exceeds the Stock Conversion Number, then all Cash Election Shares and all Non-Election Shares shall be converted into the right to receive the Cash Consideration, and each holder of Stock Election Shares will be entitled to receive the Stock Consideration only with respect to that number of Stock Election Shares held by such holder (rounded to the nearest whole share) equal to the product obtained by multiplying (x) the number of Stock Election Shares held by such holder by (y) a fraction, the numerator of which is the Stock Conversion Number and the denominator of which is the Stock Election Number, with the remaining number of such holder’s Stock Election Shares being converted into the right to receive the Cash Consideration.

 

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(e) If the Stock Election Number is less than the Stock Conversion Number (the amount by which the Stock Conversion Number exceeds the Stock Election Number being referred to herein as the “Shortfall Number”), then all Stock Election Shares shall be converted into the right to receive the Stock Consideration and the Non-Election Shares and Cash Election Shares shall be treated in the following manner:

(i) if the Shortfall Number is less than or equal to the number of Non-Election Shares, then all Cash Election Shares shall be converted into the right to receive the Cash Consideration and each holder of Non-Election Shares shall receive the Stock Consideration in respect of that number of Non-Election Shares held by such holder (rounded to the nearest whole share) equal to the product obtained by multiplying (x) the number of Non-Election Shares held by such holder by (y) a fraction, the numerator of which is the Shortfall Number and the denominator of which is the total number of Non-Election Shares, with the remaining number of such holder’s Non-Election Shares being converted into the right to receive the Cash Consideration; or

(ii) if the Shortfall Number exceeds the number of Non-Election Shares, then all Non-Election Shares shall be converted into the right to receive the Stock Consideration and each holder of Cash Election Shares shall receive the Stock Consideration in respect of that number of Cash Election Shares held by such holder (rounded to the nearest whole share) equal to the product obtained by multiplying (x) the number of Cash Election Shares held by such holder by (y) a fraction, the numerator of which is the amount by which (1) the Shortfall Number exceeds (2) the total number of Non-Election Shares and the denominator of which is the total number of Cash Election Shares, with the remaining number of such holder’s Cash Election Shares being converted into the right to receive the Cash Consideration.

Section 3.08 Exchange of Certificates; Payment of the Consideration .

(a) Until the six (6) month anniversary of the Effective Time, Buyer shall make available on a timely basis or cause to be made available to the Exchange Agent the following: (i) cash in an amount sufficient to allow the Exchange Agent to make all payments that may be required pursuant to this Article III, and (ii) certificates, or at Buyer’s option, evidence of shares in book entry form, representing the shares of Buyer Stock, sufficient to pay the aggregate Stock Consideration required pursuant to this Article III, each to be given to the holders of Bank Stock in exchange for Certificates pursuant to this Article III. Upon such six (6) month anniversary, any such cash or certificates remaining in the possession of the Exchange Agent, together with any earnings in respect thereof, shall be delivered to Buyer. Any holder of Certificates who has not theretofore exchanged his or her Certificates for the Merger Consideration pursuant to this Article III shall thereafter be entitled to look exclusively to Buyer, and only as a general creditor thereof, for the Merger Consideration to which he or she may be entitled upon exchange of such Certificates pursuant to this Article III. If outstanding Certificates are not surrendered or the payment for them is not claimed prior to the date on which such payment would otherwise escheat to or become the property of any Governmental Authority, the unclaimed items shall, to the extent permitted by abandoned property and any other applicable law, become the property of Buyer (and to the extent not in its possession shall be delivered to it), free and clear of all Liens of any Person previously entitled to such property. Neither the Exchange Agent nor any of the parties hereto shall be liable to any holder of Bank Stock represented by any Certificate for

 

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any consideration paid to a public official pursuant to applicable abandoned property, escheat or similar laws. Buyer and the Exchange Agent shall be entitled to rely upon the stock transfer books of Bank to establish the identity of those Persons entitled to receive the Merger Consideration, which books shall be conclusive with respect thereto.

(b) The Exchange Agent or Buyer shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any holder of Certificates such amounts as it is 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 Exchange Agent or Buyer such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Certificates in respect of which such deduction and withholding was made.

(c) Promptly after the Effective Time, but in no event later than five (5) Business Days thereafter, Buyer shall cause the Exchange Agent to mail or deliver to each Person who was, immediately prior to the Effective Time, a holder of record of Bank Stock a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to Certificates shall pass, only upon proper delivery of such Certificates to the Exchange Agent) containing instructions for use in effecting the surrender of Certificates in exchange for the Merger Consideration. Upon surrender to the Exchange Agent of a Certificate for cancellation together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, the holder of such Certificate shall promptly be provided in exchange therefor, but in no event later than ten (10) Business Days after due surrender, a check in the amount of the Cash Consideration to which such holder is entitled pursuant to this Article III, plus any amounts due pursuant to Section 3.05 above, as well as a certificate representing the Stock Consideration to which such holder is entitled pursuant to this Article III, and the Certificate so surrendered shall forthwith be canceled. No interest will accrue or be paid with respect to any property to be delivered upon surrender of Certificates.

(d) If any cash payment is to be made in a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of such exchange that the Person requesting such exchange shall pay any transfer or other taxes required by reason of the making of such payment of the Cash Consideration in a name other than that of the registered holder of the Certificate surrendered, or required for any other reason relating to such holder or requesting Person, or shall establish to the reasonable satisfaction of the Exchange Agent that such tax has been paid or is not payable. If any certificate representing shares of Buyer Stock is to be issued in the name of other than the registered holder of the Certificate surrendered in exchange therefore, it shall be a condition of the issuance thereof that the Certificate so surrendered shall be properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer, and that the Person requesting such exchange shall pay to the Exchange Agent in advance any transfer or other taxes required by reason of the issuance of a certificate representing shares of Buyer Stock in a name other than that of the registered holder of the Certificate surrendered, or required for any other reason relating to such holder or requesting Person, or shall establish to the reasonable satisfaction of the Exchange Agent that such tax has been paid or is not payable.

 

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(e) No dividends or other distributions with a record date after the Effective Time with respect to Buyer Stock shall be paid to the holder of any unsurrendered Certificate until the holder thereof shall surrender such Certificate in accordance with this Article III. After the surrender of a Certificate in accordance with this Article III, the recordholder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to shares of Buyer Stock.

(f) 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 Bank or the Exchange Agent, the posting by such Person of a bond in such reasonable amount as the Surviving Bank or the Exchange Agent may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Surviving Bank or the Exchange Agent shall, in exchange for such lost, stolen or destroyed Certificate, pay or cause to be paid the Merger Consideration deliverable in respect of the shares of Bank Stock formerly represented by such Certificate pursuant to this Article III.

Section 3.09 Reservation of Shares . Effective upon the date of this Agreement, Buyer shall reserve for issuance a sufficient number of shares of the Buyer Stock for the purpose of issuing shares of Buyer Stock to Bank shareholders in accordance with this Article III.

Section 3.10 Listing of Additional Shares . Prior to the Effective Time, Buyer shall notify NASDAQ of the additional shares of Buyer Stock to be issued by Buyer in exchange for the shares of Bank Stock.

Section 3.11 Options . Bank Disclosure Schedule 3.11 sets forth all of the outstanding Bank Options as of the date hereof. At the Effective Time, and pursuant to the terms of the Bank Benefit Plans under which Bank Options are granted, each Bank Option that is unexercised and outstanding, whether or not then exercisable, immediately prior thereto shall, by reason of the Merger, be cancelled and converted into the right to receive in cash an amount (subject to required tax withholdings) equal to (i) the excess of (A) the Cash Consideration per share over (B) the exercise price per share of each such Bank Option multiplied by (ii) the number of shares of Bank Stock subject to the Bank Option (the “Option Payment”). The Bank shall make the Option Payment immediately prior to the Effective Time and the Bank shall give written notice to each holder of a then outstanding Bank Option that such holder will receive the payment described herein in exchange for such holder’s outstanding Bank Options and the Bank shall obtain the written acknowledgment of each such holder of the receipt of such notice. Prior to making any Option Payment, the Bank shall obtain an executed cancellation agreement from the holder of each Bank Option acknowledging and agreeing to the cancellation of the Bank Option and all rights thereunder in exchange for the Option Payment.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BANK

Section 4.01 Making of Representations and Warranties . Except as set forth in the Bank Disclosure Schedule, Bank hereby represents and warrants to Buyer that the statements contained in this Article IV are correct as of the date of this Agreement and will be correct as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article IV), except as to any representation or warranty which specifically relates to an earlier date, which only need be correct as of such earlier date.

Section 4.02 Organization, Standing and Authority of Bank . Bank is a Vermont-chartered commercial bank duly organized, validly existing and in good standing under the laws of the State of Vermont. Bank’s deposits are insured by the FDIC in the manner and to the fullest extent provided by applicable law, and all premiums and assessments required to be paid in connection therewith have been paid by Bank when due. Bank is a member in good standing of the FHLB and owns the requisite amount of stock of the FHLB as set forth on Bank Disclosure Schedule 4.02 .

Section 4.03 Bank Capital Stock . The authorized capital stock of Bank consists solely of 2,650,000 shares of Class A common stock, par value $1.00 per share of the Bank, of which 1,168,575 shares are outstanding as of the date hereof, and 135,965 shares of Class B common stock, par value $1.00 per share of the Bank, of which 85,655 shares are outstanding as of the date hereof. As of the date hereof, there are no shares of Bank Stock held in treasury by Bank. The outstanding shares of Bank Stock have been duly authorized and validly issued and are fully paid and non-assessable. Bank does not have any Rights issued or outstanding with respect to Bank Stock and Bank does not have any commitment to authorize, issue or sell any Bank Stock or Rights other than 193,550 Bank Options. Bank Disclosure Schedule 4.03 sets forth the name of each holder of an Bank Option, identifying the nature of the award (incentive or non-qualified), the number of shares each such individual may acquire pursuant to the exercise of such options, the grant, vesting and expiration dates, and the exercise price relating to the options held.

Section 4.04 Subsidiaries . Bank has no Subsidiaries.

Section 4.05 Corporate Power; Minute Books . Bank has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets; and Bank has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby, subject to receipt of all necessary approvals of Governmental Authorities and the approval of Bank’s shareholders of this Agreement. The minute books of Bank contain true, complete and accurate records of all meetings and other corporate actions held or taken by shareholders of Bank and the Bank Board (including committees of the Bank Board).

Section 4.06 Corporate Authority . Subject to the approval of this Agreement by the shareholders of Bank, this Agreement and the transactions contemplated hereby have been authorized by all necessary corporate action of Bank and the Bank Board on or prior to the date

 

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hereof. The Bank Board has directed that this Agreement be submitted to Bank’s shareholders for approval at a meeting of such shareholders and, except for the approval and adoption of this Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Bank Stock, no other vote of the shareholders of Bank is required by law, the Articles of Incorporation of Bank, the Bylaws of Bank or otherwise to approve this Agreement and the transactions contemplated hereby. Bank has duly executed and delivered this Agreement and, assuming due authorization, execution and delivery by Buyer, this Agreement is a valid and legally binding obligation of Bank, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles).

Section 4.07 Regulatory Approvals; No Defaults .

(a) No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with any third party are required to be made or obtained by Bank in connection with the execution, delivery or performance by Bank of this Agreement or to consummate the transactions contemplated hereby, except for (i) filings of applications or notices with, and consents, approvals or waivers by the Vermont Department of Banking, Insurance, Securities & Health Care Administration and the FDIC, and (ii) the approval of this Agreement by the a majority of the holders of the outstanding shares of Bank Stock. As of the date hereof, Bank is not aware of any reason why the approvals set forth above and referred to in Section 7.01(b) will not be received in a timely manner.

(b) Subject to receipt, or the making, of the consents, approvals, waivers and filings referred to in the preceding paragraph, and the expiration of related waiting periods, the execution, delivery and performance of this Agreement by Bank, as applicable, and the consummation of the transactions contemplated hereby do not and will not (i) constitute a breach or violation of, or a default under, the Articles of Incorporation or Bylaws (or similar governing documents) of Bank, (ii) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Bank, or any of its properties or assets or (iii) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the properties or assets of Bank under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, contract, agreement or other instrument or obligation to which Bank is a party, or by which it or any of its properties or assets may be bound or affected.

Section 4.08 Financial Statements .

Bank has previously made available to Buyer copies of (i) the statements of condition of Bank as of December 31 for the fiscal year 2006, and the related statements of income, changes in shareholders’ equity and cash flows for the fiscal year 2006 in each case accompanied by the audit report of Shatswell, MacLeod & Company, P.C., the registered public accounting firm of Bank; (ii) the statements of condition of Bank as of December 31 for the fiscal years 2005 and 2004, and the related statements of income, changes in shareholders’ equity and cash flows for

 

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the fiscal years 2005 and 2004, in each case accompanied by the audit report of Shatswell, MacLeod & Company, P.C., the registered public accounting firm of Bank; and (iii) the unaudited statements of condition of Bank as of March 31, 2007 and the related unaudited statements of income, cash flows and changes in shareholders’ equity for the three-month period then ended (the “Bank Financial Statements”). The Bank Financial Statements (including the related notes, where applicable) fairly present (subject, in the case of the unaudited statements, to recurring audit adjustments normal in nature and amount), the results of the operations and financial position of Bank for the respective fiscal periods or as of the respective dates therein set forth; each of such statements (including the related notes, where applicable) complies with applicable accounting requirements; and each of such statements (including the related notes, where applicable) has been prepared in accordance with GAAP consistently applied during the periods involved, except as indicated in the notes thereto. The books and records of Bank have been, and are being, maintained in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions. Shatswell, MacLeod & Company, P.C. has not resigned or been dismissed as independent public accountants of Bank as a result of or in connection with any disagreements with Bank on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. Any financial statements of Bank included in the Bank Board packages to be delivered by Bank to Buyer pursuant to Section 6.17 of this Agreement will be complete and not misleading.

Section 4.09 Absence of Certain Changes or Events .

(a) Except as reflected in Bank’s unaudited balance sheet as of March 31, 2007, since December 31, 2006, there has been no change or development or combination of changes or developments which, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect on Bank.

(b) Since December 31, 2006, Bank has carried on its business only in the ordinary and usual course of business consistent with its past practices (except for the incurrence of expenses in connection with this Agreement).

(c) Except as set forth in Bank Disclosure Schedule 4.09 , since March 31, 2007, Bank has not (i) increased the wages, salaries, compensation, pension, or other fringe benefits or perquisites payable to any officer, employee or director from the amount thereof in effect as of March 31, 2007, granted any severance or termination pay, entered into any contract to make or grant any severance or termination pay, or paid any bonus, (ii) declared, set aside or paid any dividend or other distribution (whether in cash, stock or property) with respect to any of Bank’s capital stock, (iii) effected or authorized any split, combination or reclassification of any of Bank’s capital stock or any issuance or issued any other securities in respect of, in lieu of or in substitution for shares of Bank’s capital stock, (iv) changed any accounting methods (or underlying assumptions), principles or practices of Bank affecting its assets, liabilities or business, including without limitation, any reserving, renewal or residual method, practice or policy, (v) made any tax election by Bank or any settlement or compromise of any income tax liability by Bank, (vi) made any material change in Bank’s policies and procedures in connection with underwriting standards, origination, purchase and sale procedures or hedging activities with respect to any Loans, (vii) suffered any strike, work stoppage, slow-down, or other labor disturbance, (viii) been a party to a collective bargaining agreement, contract or other agreement

 

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or understanding with a labor union or organization, (ix) had any union organizing activities or (x) made any agreement or commitment (contingent or otherwise) to do any of the foregoing.

Section 4.10 Financial Controls and Procedures .

During the periods covered by the Bank Financial Statements, Bank has had in place internal controls over financial reporting which are designed and maintained to ensure that (a) transactions are executed in accordance with management’s general or specific authorizations, (b) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (c) access to assets is permitted only in accordance with management’s general or specific authorization and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. None of Bank’s records, systems, controls, data or information are recorded, stored, maintained, operated or otherwise wholly or partly dependent on or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of Bank or its accountants.

Section 4.11 Regulatory Matters .

(a) Bank has timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that it was required to file since December 31, 2004 with any Governmental Authority, and has paid all fees and assessments due and payable in connection therewith. Except for normal examinations conducted by any Governmental Authority in the regular course of the business of Bank, and except as set forth in Bank Disclosure Schedule 4.11 , no Governmental Authority has initiated any proceeding, or to the Knowledge of Bank, investigation into the business or operations of Bank, since December 31, 2004. Other than as set forth in Bank Disclosure Schedule 4.11 , there is no unresolved violation, criticism, or exception by any Governmental Authority with respect to any report or statement relating to any examinations of Bank. Bank is “well capitalized” as defined in applicable laws and regulations, and Bank has a Community Reinvestment Act rating of “satisfactory” or better.

(b) Other than as set forth in Bank Disclosure Schedule 4.11 , neither Bank, nor any of its properties is a party to or is subject to any order, decree, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter (each a “Regulatory Order”) from, any Governmental Authority charged with the supervision or regulation of financial institutions or issuers of securities or engaged in the insurance of deposits or the supervision or regulation of it. Bank has not been advised by, or has any Knowledge of facts which could give rise to an advisory notice by, any Governmental Authority that such Governmental Authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any Regulatory Order.

 

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Section 4.12 Legal Proceedings .

(a) Other than as set forth in Bank Disclosure Schedule 4.12 , there are no pending or, to Bank’s Knowledge, threatened legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against Bank.

(b) Bank is not a party to any, nor are there any pending or, to Bank’s Knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against Bank in which, to the Knowledge of Bank, there is a reasonable probability of any material recovery against or other Material Adverse Effect on Bank or which challenges the validity or propriety of the transactions contemplated by this Agreement.

(c) There is no injunction, order, judgment or decree imposed upon Bank, or the assets of Bank, and Bank has not been advised of, or is aware of, the threat of any such action.

Section 4.13 Compliance With Laws .

(a) Bank is in compliance with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including, without limitation, the Equal Credit Opportunity Act, as amended, the Fair Housing Act, as amended, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act of 1970, as amended, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 and all other applicable fair lending and fair housing laws or other laws relating to discrimination;

(b) Bank has all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, all Governmental Authorities that are required in order to permit it to own or lease their properties and to conduct their business as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to Bank’s Knowledge, no suspension or cancellation of any of them is threatened; and

(c) Other than as set forth in Bank Disclosure Schedule 4.13 , Bank has received, since December 31, 2004, no notification or communication from any Governmental Authority (i) asserting that it is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces or (ii) threatening to revoke any license, franchise, permit or governmental authorization (nor, to Bank’s Knowledge, do any grounds for any of the foregoing exist).

Section 4.14 Material Contracts; Defaults .

(a) Other than as set forth in Bank Disclosure Schedule 4.14 , Bank is not a party to, bound by or subject to any agreement, contract, arrangement, commitment or understanding (whether written or oral) (i) with respect to the employment of any directors, officers, employees or consultants, (ii) which would entitle any present or former director, officer, employee or agent of Bank to indemnification from Bank, (iii) which is a consulting agreement (including data

 

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processing, software programming and licensing contracts) not terminable on sixty (60) days or less notice and involving the payment of more than $25,000 per annum or (iv) which materially restricts the conduct of any business by Bank. Bank has previously delivered to Buyer true, complete and correct copies of each such document.

(b) To its Knowledge, Bank is not in default under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party, by which its assets, business, or operations may be bound or affected, or under which it or its assets, business, or operations receives benefits, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default. No power of attorney or similar authorization given directly or indirectly by Bank is currently outstanding.

Section 4.15 Brokers .

Neither Bank nor any of its officers or directors has employed any broker or finder or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with any of the transactions contemplated by this Agreement, except that Bank has engaged, and will pay a fee or commission to, RBC Capital Mar