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AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 19, 2007
BY AND AMONG
NEW BRADFORD BANCORP, INC.
(a Maryland corporation)
BRADFORD BANK MHC
(a federally chartered mutual holding company)
BRADFORD BANCORP, INC.
(a federal corporation)
BRADFORD BANK
(a federally chartered savings bank)
AND
PATAPSCO BANCORP, INC.
(a Maryland corporation)
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ii
TABLE OF CONTENTS
Page No.
Introductory
Statement.......................................................1
ARTICLE I -
DEFINITIONS......................................................2
ARTICLE II - THE
MERGER......................................................7
2.1 The
Merger................................................7
2.2
Closing...................................................7
2.3
Effective Time............................................7
2.4
Effects of the Merger.....................................7
2.5
Effect on Outstanding Shares of Patapsco Common Stock.....8
2.6
Election and Proration Procedures.........................8
2.7
Exchange Procedures......................................11
2.8
Effect on Outstanding Shares of Newco Common Stock.......13
2.9
Directors of Surviving Corporation After Effective Time..13
2.10 Articles
of Incorporation and Bylaws.....................13
2.11 Treatment
of Stock Options and Restricted Stock..........14
2.12
Dissenters' Rights.......................................14
2.13 Bank
Merger..............................................15
2.14 The
Conversion...........................................15
2.15
Alternative Structure....................................15
2.16 Absence of
Control.......................................15
ARTICLE III - REPRESENTATIONS AND
WARRANTIES................................15
3.1
Disclosure Letters.......................................15
3.2
Representations and Warranties of Patapsco...............16
3.3
Representations and Warranties of the Bradford Parties...32
ARTICLE IV - CONDUCT PENDING THE
MERGER.....................................41
4.1
Forbearances by Patapsco.................................41
4.2
Forbearances by the Bradford Parties.....................44
ARTICLE V -
COVENANTS.......................................................44
5.1
Acquisition Proposals....................................44
5.2
Advice of Changes........................................45
5.3
Access and Information...................................46
5.4
Applications; Consents...................................47
5.5
Antitakeover Provisions..................................47
5.6
Additional Agreements....................................47
5.7
Publicity................................................48
5.8
Stockholder Meeting......................................48
5.9
Registration of Newco Common Stock.......................49
5.10
Notification of Certain Matters..........................50
5.11 Employee
Benefit Matters.................................50
5.12
Indemnification..........................................52
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5.13 Affiliate
Letters........................................53
5.14
Environmental Reports....................................53
5.15 MHC
Conversion from Mutual to Stock Form.................53
5.16
Accountant's Comfort Letter..............................55
5.17 Trust
Preferred Securities...............................55
ARTICLE VI - CONDITIONS TO
CONSUMMATION.....................................55
6.1
Conditions to Each Party's Obligations...................55
6.2
Conditions to the Obligations of the Newco...............56
6.3
Conditions to the Obligations of Patapsco................57
ARTICLE VII -
TERMINATION...................................................58
7.1
Termination..............................................58
7.2
Termination Fees.........................................59
7.3
Effect of Termination....................................60
ARTICLE VIII - CERTAIN OTHER
MATTERS........................................60
8.1
Interpretation...........................................60
8.2
Survival.................................................60
8.3
Waiver; Amendment........................................60
8.4
Counterparts.............................................60
8.5
Governing Law............................................60
8.6
Expenses.................................................61
8.7
Notices..................................................61
8.8
Entire Agreement; etc....................................61
8.9
Successors and Assigns; Assignment.......................62
8.10 Specific
Performance.....................................62
EXHIBITS
Exhibit A Plan of Conversion
Exhibit B Form of Voting Agreement
Exhibit C Plan of Bank Merger
Exhibit D Form of Affiliate Letter
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Agreement and Plan of
Merger
This
is an Agreement and Plan of Merger, dated as of the 19th day of
March,
2007 ("Agreement"),
by and among New Bradford Bancorp, Inc., a Maryland
corporation ("Newco"),
Bradford Bank MHC, a
federally chartered mutual holding
company (the "MHC"),
Bradford Bancorp,
Inc., a federally chartered subsidiary
holding company ("Bradford"), Bradford Bank, a federally
chartered savings bank
("Bradford
Bank") and
Patapsco Bancorp, Inc., a Maryland corporation
("Patapsco").
Introductory Statement
The
respective
Boards of Directors of
Newco, MHC,
Bradford and
Bradford
Bank (collectively,
the "Bradford Parties") and the Board of Directors of
Patapsco have each determined that this Agreement and the
business
combination
and related
transactions
contemplated
hereby are
advisable and in the best
interests of their respective corporations and stockholders or
members, as the
case may be.
In
connection
with the Merger,
it is intended that
MHC will convert from
the mutual form of
organization
to the capital stock form of organization
pursuant to certain
transactions
(the "Conversion") as the result of which,
inter alia, Bradford
Bank will become a wholly owned subsidiary of Newco, and
that in connection
with such Conversion, Newco will conduct a subscription
offering of its common
stock, and if
necessary a community
and/or syndicated
community offering,
all pursuant to a plan of conversion, substantially in the
form attached at Exhibit A hereto and subject to regulatory review
and amendment
in connection with such review as provided therein (the "Plan of
Conversion").
The
parties hereto intend
that the Merger as defined herein shall qualify
as a reorganization
under the provisions of Section 368(a) of the IRC for
federal income tax purposes.
The
parties hereto desire to make certain representations, warranties and
agreements in connection with the business combination and related
transactions
provided for herein and to prescribe various conditions to such
transactions.
As a
condition and inducement to the Bradford Parties' willingness to
enter
into this Agreement,
each of the members of
the Board of Directors of Patapsco
has entered into an agreement dated as of the date hereof in the
form of Exhibit
B pursuant
to which he or she
will vote his or her shares of Patapsco Common
Stock in favor of this Agreement and the transactions contemplated
hereby.
In
consideration of their
mutual promises and obligations hereunder, the
parties hereto
adopt and make this Agreement and prescribe the terms and
conditions hereof and
the manner and basis of carrying it into effect, which
shall be as follows:
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ARTICLE I
DEFINITIONS
The following terms are defined in this Agreement in the Section
indicated:
Defined Term
Location of Definition
------------
----------------------
Agreement
Preamble
Articles of Merger
Section 2.3
Bank Merger
Section 2.13
Bradford
Preamble
Bradford Bank
Preamble
Bradford Employee Plans
Section 3.3(u)(i)
Bradford Parties
Recitals
Cash Consideration
Section 2.5(a)
Cash Election
Section 2.6(b)
Cash Election Shares
Section 2.6(b)
Certificate(s)
Section 2.6(c)
Change in
Recommendation
Section 5.8
Closing
Section 2.2
Closing Date
Section 2.2
Continuing Employee
Section 5.11(a)
Conversion
Recitals
Disclosure Letter
Section 3.1
Dissenters' Shares
Section 2.12
Effective Time
Section 2.3
Election Deadline
Section 2.6(c)
Election Form
Section 2.6(a)
Environmental Consultant
Section 5.14
Exchange Agent
Section 2.6(c)
Exchange Ratio
Section 2.5(a)
Indemnified
Party
Section 5.12(a)
Initial Offering Price
Section 2.14
Intellectual Property
Section 3.2(q)
Letter of Transmittal
Section 2.7(a)
Mailing Date
Section 2.6(a)
Maximum Insurance Amount
Section 5.12(c)
Merger
Section 2.1
Merger Consideration
Section 2.5(a)
MHC
Preamble
Mixed Election
Section 2.6(b)
Newco
Preamble
Non-Election
Section 2.6(b)
Non-Election Shares
Section 2.6(b)
Patapsco
Preamble
Patapsco Employee Plans
Section 3.2(s)(i)
Patapsco ESOP
Section 5.11(c)
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Patapsco Option
Section 2.11(a)
Patapsco Property
Section 5.14
Patapsco Qualified Plan
Section 3.2(s)(iv)
Patapsco's Reports
Section 3.2(h)
Patapsco Stock Plans
Section 2.11(a)
Pending Merger Agreements
Section 3.2(t)
Pending Merger Applications
Section 3.2(t)
Plan of Conversion
Recitals
Proxy Statement
Section 5.9(a)
Representative
Section 2.6(b)
Target Organizations
Section 3.2(t)
Termination Date
Section 7.1(d)
Shortfall Number
Section 2.6(e)(ii)
Stock Consideration
Section 2.5(a)
Stock Conversion Number
Section 2.6(d)
Stock Election
Section 2.6(b)
Stock Election Number
Section 2.6(b)
Stock Election Shares
Section 2.6(b)
Stockholder Meeting
Section 5.8
Surviving Corporation
Section 2.1
In addition, for purposes of this Agreement:
"Acquisition Proposal"
means any proposal or
offer with respect to any of
the following (other
than the transactions
contemplated
hereunder):
(i) any
merger, consolidation,
share exchange,
business combination,
or other similar
transaction involving Patapsco or any of its Subsidiaries; (ii) any
sale, lease,
exchange, mortgage,
pledge, transfer or other disposition of 25% or more of
Patapsco's
consolidated
assets in a single transaction or series of
transactions; (iii)
any tender offer or
exchange offer for 25%
or more of the
outstanding shares of
Patapsco's capital
stock or the filing of a registration
statement under the Securities Act of 1933, as amended, in
connection therewith;
or (iv) any public
announcement of a
proposal, plan or
intention to do any of
the foregoing or any agreement to engage in an any of the
foregoing.
"Agreement" means this
Agreement,
as amended, modified or amended and
restated from time to time in accordance with its terms.
"BHC
Act" means the Bank Holding Company Act of 1956, as amended.
"BMA" means the Bank Merger Act, as amended (12 U.S.C.
1828(c)).
"Conversion
Prospectus" means a
prospectus issued by
Newco in connection
with Offering that meets the requirements of the Securities Act, applicable
state securities
laws and banking laws and regulations. The Conversion
Prospectus may be combined with the Proxy Statement delivered to
stockholders of
Patapsco in connection with the solicitation of their approval of
this Agreement
and the transactions
contemplated
hereby and the
offering of the Newco Common
Stock to them as Merger Consideration.
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<PAGE>
"Conversion
Registration
Statement" means
the registration statement,
together with all
amendments, filed with
the SEC under the
Securities Act for
the purpose of
registering the shares
of Newco Common Stock
to be offered and
issued in connection with the Offering. The Conversion Registration Statement
and the Merger Registration Statement may be separate registration
statements or
may be combined in one
registration statement
that shall
register shares of
Newco Common Stock to be offered and issued in connection
with the Offering
and
to be offered to holders of Patapsco Common Stock in connection
with the Merger.
"CRA" means the Community Reinvestment Act, as amended.
"Environmental Law"
means any federal, state or local law, statute,
ordinance, rule,
regulation, code,
license, permit,
authorization,
approval,
consent, order, directive, executive or administrative order,
judgment, decree,
injunction, or
agreement with any Governmental Entity relating to (i) the
protection,
preservation or
restoration of the
environment (which
includes,
without limitation, air, water vapor, surface water, groundwater,
drinking water
supply, soil, surface land, subsurface land, plant and animal
life or any other
natural resource),
or to human
health or safety as it
relates to Hazardous
Materials, or (ii) the exposure to, or the use, storage,
recycling,
treatment,
generation, transportation, processing, handling, labeling,
production, release
or disposal
of, Hazardous Materials, in each case as amended
and as now in
effect. The term
Environmental Law includes, without limitation, the Federal
Comprehensive
Environmental
Response, Compensation
and Liability Act of 1980,
the Superfund
Amendments and
Reauthorization
Act of 1986,
the Federal Water
Pollution Control Act
of 1972, the Federal
Clean Air Act,
the Federal
Clean
Water Act, the Federal
Resource Conservation
and Recovery Act of 1976, the
Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the
Federal Insecticide,
Fungicide and
Rodenticide Act, the
Federal
Occupational
Safety and Health Act of 1970 as it relates to Hazardous Materials,
the Federal
Hazardous Substances
Transportation
Act, the Emergency
Planning and Community
Right-To-Know Act, the
Safe Drinking Water Act, the Endangered Species Act, the
National Environmental
Policy Act, the Rivers and Harbors Appropriation Act or
any so-called
"Superfund"
or "Superlien" law, each as amended and as now
in
effect.
"ERISA" means the
Employee Retirement
Income Security Act of 1974, as
amended.
"ERISA Affiliate"
means any entity that
is considered
one employer with
Patapsco or Bradford,
as applicable, under Section 4001(b)(1) of ERISA or
Section 414 of the IRC.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Shares"
shall consist of (i) Dissenters' Shares and (ii) shares
held directly or indirectly by the Bradford Parties (other than
shares held in a
fiduciary capacity or in satisfaction of a debt previously
contracted).
"FDIC" means the Federal Deposit Insurance Corporation.
"FRB" means the Board of Governors of the Federal Reserve
System.
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"GAAP" means generally accepted accounting principles.
"Government Regulator"
means any federal or state governmental authority
charged with the
supervision
or regulation of depository institutions or
depository institution
holding companies or engaged in the
insurance of bank
deposits.
"Governmental Entity"
means any court,
administrative agency or commission
or other governmental authority or instrumentality.
"Hazardous Material"
means any substance
(whether solid,
liquid or gas)
which is or
could be detrimental to human health or safety or to the
environment, currently or hereafter listed, defined, designated or
classified as
hazardous, toxic,
radioactive or
dangerous, or otherwise regulated, under any
Environmental Law,
whether by type or by
quantity, including any substance
containing any such
substance as a
component.
Hazardous Material includes,
without limitation,
any toxic waste, pollutant, contaminant, hazardous
substance, toxic
substance,
hazardous
waste, special waste, industrial
substance, oil or
petroleum, or any
derivative or by-product thereof, radon,
radioactive material, asbestos, asbestos-containing material, urea
formaldehyde
foam insulation, lead and polychlorinated biphenyl.
"HOLA" means the Home Owners' Loan Act, as amended.
"IRC" means the Internal Revenue Code of 1986, as amended.
"knowledge" means, with respect to a party hereto, actual knowledge of the
members of the Board of Directors of that party or any officer of that party
with the title ranking not less than vice president.
"Lien" means any charge, mortgage, pledge, security interest,
claim, lien
or encumbrance.
"Loan" means a loan, lease, advance, credit enhancement, guarantee
or other
extension of credit.
"Loan Property"
means any property in which the applicable party (or a
subsidiary of it) holds a security interest and, where required by
the context,
includes the owner or operator of such property, but only with respect to such
property.
"Material Adverse Effect" means an effect
which is material and adverse to
the business,
financial condition or results of operations of Patapsco or
Bradford, as the
context may dictate,
and its Subsidiaries
taken as a whole;
provided, however,
that any such effect resulting from any (i) changes in laws,
rules or regulations or generally accepted accounting principles or regulatory
accounting
requirements or
interpretations
thereof that apply to both the
Bradford Parties and Patapsco, or to financial and/or
depository
institutions
generally, (ii)
changes in economic conditions affecting financial institutions
generally, including
but not limited to, changes in the general level of market
interest rates, (iii)
actions and omissions of the Bradford Parties or Patapsco
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taken with the prior written consent of the other, (iv) 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, or any of its territories, possessions or
diplomatic or consular offices or upon any military installation, equipment or
personnel of the United States, or (v) direct effects of compliance with this
Agreement on the
operating performance of the parties, including expenses
incurred by the parties in consummating the transactions contemplated by this
Agreement, shall not
be considered in determining if a Material Adverse Effect
has occurred.
"Merger Registration
Statement" means the
registration statement
on Form
S-4, together with all
amendments, filed with
the SEC under the Securities Act
for the purpose of registering the shares of Newco Common Stock to
be offered to
holders of Patapsco
Common Stock
issued in connection with the Merger. The
Conversion
Registration Statement
and the Merger Registration Statement may be
separate registration
statements
or may be combined in one registration
statement that shall
register shares of Newco Common Stock to be offered and
issued in connection
with the Offering and to be offered to holders of Patapsco
Common Stock in connection with the Merger.
"MGCL" means the Maryland General Corporation Law.
"Newco Common Stock" means the common stock, par value $.01 per share,
of
Newco.
"Offering" means
the offering of shares of Newco Common Stock in a
subscription offering
and, if necessary, a community offering and/or a
syndicated community offering as part of the Conversion.
"OTS" means the Office of Thrift Supervision.
"Participation
Facility" means any facility in which the applicable party
(or a Subsidiary of it) participates in the management
(including all
property
held as trustee or in any other fiduciary capacity) and, where required by
the
context, includes the
owner or operator of such property, but only with respect
to such property.
"Patapsco Common
Stock" means the common stock, par value $.01 per share,
of Patapsco.
"person" means an
individual,
corporation,
limited liability company,
partnership, association, trust, unincorporated organization or
other entity.
"SDAT" means the Maryland State Department of Assessments and
Taxation.
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933, as amended.
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"Subsidiary" means a
corporation,
partnership,
joint venture or other
entity in which a party has, directly or indirectly, an equity interest
representing 50% or
more of any class of the capital stock thereof or other
equity interests therein.
"Superior Proposal" means an unsolicited, bona fide written offer
made by a
third party to consummate an Acquisition Proposal that (i) Patapsco's
Board of
Directors determines
in good faith,
after consulting with its outside legal
counsel and a financial advisor other than Bradford's financial advisor on this
transaction, would,
if consummated, result in a transaction that is more
favorable to the
stockholders of
Patapsco from a financial point of view than
the transactions
contemplated hereby (taking into account all legal, financial,
regulatory and
other aspects of the proposal and the entity making the
proposal), (ii) is not
conditioned on obtaining financing (and with respect to
which Bradford and Newco has received written evidence of such person's
ability
to fully finance its Acquisition Proposal), and (iii) is for 100% of the
outstanding shares of Patapsco Common Stock.
"Tax(es)" means all income, franchise, gross receipts, real and personal
property, real property transfer and gains, wage and employment
taxes.
ARTICLE II
THE MERGER
2.1
The Merger. Upon the
terms and subject to the conditions set forth in
this Agreement,
Patapsco will merge
with and into Newco (the "Merger") at the
Effective Time.
At the Effective
Time, the separate corporate existence of
Patapsco shall cease.
Newco shall be the
surviving corporation (hereinafter
sometimes referred to
in such capacity as the "Surviving Corporation") in the
Merger and shall
continue to be governed by the MGCL and its name and separate
corporate existence, with all of its rights, privileges,
immunities, powers
and
franchises, shall continue unaffected by the Merger.
2.2
Closing. Subject to the satisfaction or waiver of all of the
conditions
to closing contained
in Article VI hereof (other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the fulfillment
or waiver of those
conditions), the
closing of the Merger (the "Closing") will
take place in the
offices of
Muldoon Murphy & Aguggia LLP, 5101 Wisconsin
Avenue, Washington, DC, or at such other location as is agreed to
by the parties
hereto, on the date of
the closing of the
Conversion
(the "Closing Date"),
immediately following
the completion of the Conversion, unless another time or
date is agreed to by the parties hereto.
2.3
Effective Time. In connection with the Closing, Newco and Patapsco
shall duly execute and deliver articles of merger (the "Articles
of Merger") to
the SDAT for filing
pursuant to the MGCL. The Merger shall become effective at
such time as the
Articles of Merger
are duly filed with the SDAT or at such
later date or time as the parties shall agree and specify in the Articles of
Merger (the date and
time the Merger
becomes effective
being the "Effective
Time").
2.4
Effects of the
Merger. The Merger will have the effects
set forth in
the MGCL. Without limiting the generality of the foregoing, and
subject thereto,
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from and after the Effective Time, Newco shall possess all of the
properties,
rights, privileges,
powers and franchises
of Patapsco and be subject to all of
the debts, liabilities and obligations of Patapsco.
2.5
Effect on Outstanding Shares of Patapsco Common Stock.
(a) Subject to the provisions of Section 2.6 hereof, by virtue of the
Merger, automatically
and without any action on the part of the holder thereof,
each share of Patapsco
Common Stock issued
and outstanding
at the Effective
Time, other than
Excluded Shares,
shall become and be
converted into, at
the
election of the holder as provided in and subject to the
limitations
set forth
in this Agreement,
either the right to receive (i) $23.00 in cash, without
interest (the "Cash Consideration") or (ii) the number of shares of
Newco Common
Stock equal to the Exchange Ratio, as defined below (the "Stock
Consideration").
The Cash Consideration
and the Stock
Consideration are
sometimes referred
to
herein collectively as the "Merger Consideration." The "Exchange
Ratio" shall be
equal to the result obtained by dividing the Cash Consideration by the Initial
Offering Price, as defined below.
(b) Notwithstanding any other provision of this Agreement, no
fraction
of a share of Newco Common Stock and no certificates or scrip therefor will be
issued in the Merger; instead, Newco shall pay to each holder of
Patapsco Common
Stock who would
otherwise be entitled
to a fraction of a share of Newco Common
Stock an amount in cash, rounded to the nearest cent, determined by multiplying
such fraction by the Initial Offering Price.
(c) If, between the date of this Agreement and the Effective Time,
the
outstanding shares
of Newco Common Stock shall have been changed into a
different number
of shares or into a different class by reason of any stock
dividend, subdivision, reclassification, recapitalization, split,
combination or
exchange of shares,
the Exchange Ratio shall be adjusted appropriately to
provide the
holders of Patapsco Common Stock the same economic effect as
contemplated by this Agreement prior to such event.
(d) As of the Effective Time, each Excluded Share, other than
Dissenters' Shares,
shall be canceled and retired and shall cease to exist, and
no exchange or payment
shall be made with
respect thereto.
In addition, no
Dissenters' Shares shall be converted into shares of Newco Common
Stock pursuant
to this Section
2.5 but instead shall be treated in accordance with the
provisions set forth in Section 2.12 of this Agreement.
2.6
Election and Proration Procedures.
(a) An election form in such form as Patapsco and Newco shall
mutually
agree (an "Election
Form") shall be mailed on the
Mailing Date (as defined
below) to each holder
of record of
shares of Patapsco Common Stock as of a
record date which shall be the same date as the record date for
eligibility
to
vote on the Merger.
The "Mailing Date" shall be the date on which proxy
materials relating
to the Merger
are mailed to holders
of shares of
Patapsco
Common Stock. Newco
shall make available
Election Forms as may be reasonably
requested by all persons who become holders of Patapsco Common Stock after the
record date for
eligibility
to vote on the Merger
and prior to the
Election
8
<PAGE>
Deadline (as defined
herein), and Patapsco
shall provide to the Exchange Agent
all information
reasonably
necessary for it to perform its obligations as
specified herein.
(b) Each Election Form
shall entitle the holder of shares of Patapsco
Common Stock
(or the beneficial owner through appropriate and customary
documentation and
instructions) to (i) elect to receive the Cash Consideration
for all of such holder's shares (a "Cash Election"), (ii) elect to receive the
Stock Consideration for all of such holder's shares (a "Stock
Election"), (iii)
elect to receive the Cash Consideration with respect to some of such
holder's
shares and the Stock
Consideration
with respect to such holder's remaining
shares (a "Mixed
Election") or (iv)
make no election or to indicate that such
holder has no
preference as to the
receipt of the Cash
Consideration
or the
Stock Consideration (a "Non-Election"). Holders of record of shares of
Patapsco
Common Stock
who hold such shares as nominees, trustees or in other
representative
capacities (a
"Representative") may
submit multiple
Election
Forms, provided that such Representative certifies that each such Election
Form
covers all the shares of Patapsco Common Stock held by that
Representative for a
particular beneficial
owner. Shares of Patapsco Common Stock as to which a Cash
Election has been made (including pursuant to a Mixed Election) are
referred to
herein as "Cash Election Shares." Shares of Patapsco Common
Stock as to which a
Stock Election
has been made
(including
pursuant to a Mixed Election) are
referred to herein as "Stock Election Shares." Shares of Patapsco Common
Stock
as to which no election has been made are referred to as
"Non-Election
Shares."
The aggregate number
of shares of Patapsco Common Stock with respect to which a
Stock Election
has been made is
referred to herein as the "Stock Election
Number."
(c) To be effective,
a properly completed Election Form must be
received by the transfer agent for Newco Common Stock (the
"Exchange Agent")
on
or before 5:00 p.m.,
New York City time,
on the Election Deadline. As used
herein, "Election
Deadline" means the date, as reasonably determined by Newco,
that is as close as
possible to the
fifth business day prior to the date on
which the Effective
Time is expected to occur. 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
theretofore
representing Patapsco Common Stock ("Certificate(s)") (or
customary
affidavits and, if required by Newco pursuant to Section 2.7(i),
indemnification
regarding the
loss or destruction of such Certificates or the guaranteed
delivery of such Certificates) representing all shares of
Patapsco Common Stock
covered by such Election Form, together with duly executed
transmittal materials
included with the Election Form. Any Patapsco stockholder may at any time
prior
to the Election
Deadline change his or
her election by written notice received
by the Exchange Agent prior to the Election Deadline accompanied by a properly
completed and signed revised Election Form. Any Patapsco
stockholder may, at any
time prior to the
Election Deadline, revoke his or her election by written
notice received
by the Exchange Agent prior to the Election Deadline or by
withdrawal prior to the Election Deadline of his or her
Certificates, or of
the
guarantee of
delivery of such Certificates, previously deposited with the
Exchange Agent.
All elections shall be
revoked automatically
if the Exchange
Agent is notified in writing by Newco and Patapsco that this
Agreement has been
terminated. If a
stockholder
either (i) does not
submit a properly
completed
Election Form by the
Election Deadline or
(ii) revokes its Election Form prior
to the Election
Deadline and does not submit a new properly executed Election
Form prior to the Election Deadline, the shares of Patapsco Common
Stock held by
such stockholder shall be designated Non-Election Shares. Newco shall
cause the
Certificates
representing Patapsco
Common Stock described in clause (ii) to be
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promptly returned without charge to the person submitting the
Election Form upon
written request to
that effect from the person who submitted the Election Form.
Subject to the terms of this Agreement and of the Election
Form, the Exchange
Agent shall have
reasonable discretion
to determine whether any election,
revocation or
change has been properly or timely made and to disregard
immaterial defects in
any Election Form,
and any good faith
decisions of the
Exchange Agent regarding such matters shall be binding and
conclusive.
(d) Notwithstanding
any other provision
contained in this Agreement,
50% of the total number of shares of Patapsco Common Stock outstanding at the
Effective Time (the "Stock Conversion Number") shall be converted
into the Stock
Consideration and the
remaining outstanding shares of Patapsco Common Stock
(excluding shares of Patapsco Common Stock to be canceled as
provided in Section
2.5(d) and Dissenters'
Shares) shall be converted into the Cash Consideration;
provided, however, that for federal income tax purposes, it is
intended that the
Merger will qualify as a reorganization under the provisions of Section
368(a)
of the IRC and,
notwithstanding
anything to the contrary contained herein, in
order that
the Merger will not fail to satisfy continuity of interest
requirements under
applicable
federal income tax principles relating to
reorganizations under Section 368(a) of the IRC, Newco shall
increase the number
of shares of
Patapsco Common Stock that will be converted into the Stock
Consideration and reduce the number of shares of Patapsco Common
Stock that will
be converted into the right to receive the Cash Consideration to
ensure that the
Stock Consideration
will represent at least 40% of the
value of the aggregate
Merger Consideration,
increased by the value
of any Excluded
Shares, each as
measured as of the Effective Time.
(e) Within five business days after the later to occur of the
Election
Deadline or the Effective Time, Newco shall cause the Exchange
Agent to effect
the allocation among
holders of Patapsco
Common Stock of rights to receive the
Cash Consideration and the Stock Consideration as follows:
(i) 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 (A) the Stock
Consideration in
respect of the number of Stock Election Shares held by such holder
multiplied by
a fraction,
the numerator of which is the Stock Conversion Number and the
denominator of which is the Stock Election Number and (B) the Cash
Consideration
in respect of the remaining number of such holder's Stock Election
Shares;
(ii) 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:
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<PAGE>
(A) 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 (1) the Stock
Consideration
in respect of the
number of
Non-Election Shares held by such holder multiplied by a fraction,
the numerator
of which is the
Shortfall Number
and the denominator of which is the total
number of Non-Election
Shares and (2) the Cash Consideration in respect of
the
remaining number of such holder's Non-Election Shares; or
(B) 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 (1) the Stock
Consideration
in respect of the
number of
Cash Election Shares held by such holder multiplied by a fraction,
the numerator
of which is the amount
by which the Shortfall
Number exceeds the number of
Non-Election Shares
and the denominator
of which is the total
number of Cash
Election Shares and
(2) the Cash
Consideration in
respect of the remaining
number of such holder's Cash Election Shares.
For purposes of the foregoing calculations, Excluded Shares shall be
deemed Cash Election
Shares. For purposes
of this Section 2.6(e), if Newco is
obligated to
increase the number of shares of Patapsco Common Stock to be
converted into shares
of Newco Common Stock as a result of the application of
the last clause of
Section 2.6(d) above, then the higher number shall be
substituted for the Stock Conversion Number in the calculations set forth in
this Section 2.6(e).
2.7
Exchange Procedures.
(a) Appropriate
transmittal materials
("Letter of Transmittal") in a
form satisfactory
to Newco and Patapsco
shall be mailed as soon as practicable
(but in no event later than five business days) after the Effective
Time to each
holder of record of Patapsco Common Stock as of the Effective
Time who did not
previously submit a
completed Election
Form. A Letter of
Transmittal will
be
deemed properly
completed only if accompanied by certificates representing all
shares of Patapsco
Common Stock to be
converted thereby or other acceptable
documentation.
(b) At and after the
Effective Time,
each Certificate (except as
specifically set forth in Section 2.5) shall represent only the
right to receive
the Merger Consideration.
(c) Prior to the Effective Time, Newco shall (i) reserve for
issuance
with its transfer
agent and registrar a
sufficient
number of shares of
Newco
Common Stock to provide for payment of the aggregate Stock Consideration and
(ii) deposit, or cause to be deposited, with the Exchange Agent,
for the benefit
of the holders of shares of Patapsco Common Stock, for exchange in accordance
with this Section 2.7, an amount of cash sufficient to pay the aggregate Cash
Consideration.
(d) The Letter of Transmittal shall (i) specify that delivery shall
be
effected, and risk of
loss and title to the Certificates shall pass, only upon
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<PAGE>
delivery of the
Certificates
to the Exchange Agent, (ii) be in a form and
contain any other provisions as Newco may reasonably determine and
(iii) include
instructions for use
in effecting the surrender of the Certificates in exchange
for the Merger
Consideration. Upon
the proper surrender of the Certificates to
the Exchange Agent,
together with a properly completed and duly executed Letter
of Transmittal, the
holder of such Certificates shall be entitled to receive in
exchange therefor a
certificate
representing
that number of whole
shares of
Newco Common Stock that such holder has the right to receive
pursuant to Section
2.5, if any,
and a check in the
amount equal to the
cash that such holder has
the right to receive pursuant to Section 2.5, if any (including any
cash in lieu
of fractional shares, if any, that such holder has the right to
receive pursuant
to Section 2.5, and any dividends or other distributions to which
such holder is
entitled pursuant to
Section 2.5).
Certificates so surrendered shall forthwith
be canceled. As soon
as practicable following receipt of the properly completed
Letter of Transmittal and any necessary accompanying documentation,
the Exchange
Agent shall distribute
Newco Common Stock and cash as provided
herein. The
Exchange Agent shall not be entitled to vote or exercise any rights
of ownership
with respect to the
shares of Newco Common
Stock held by it from
time to time
hereunder, except
that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such shares for
the account of
the persons entitled thereto. If there is a transfer of
ownership of any shares
of Patapsco Common Stock not registered in the transfer records of
Patapsco, the
Merger
Consideration shall
be issued to the transferee thereof if the
Certificates
representing such
Patapsco Common Stock are presented to the
Exchange Agent,
accompanied
by all documents required, in the reasonable
judgment of Newco and the Exchange Agent, to evidence and effect such
transfer
and to evidence that any applicable stock transfer taxes have been
paid.
(e) No dividends
or other distributions declared or made after the
Effective Time with
respect to Newco
Common Stock issued pursuant to this
Agreement shall be
remitted to any person
entitled to receive
shares of Newco
Common Stock hereunder until such person surrenders his or her Certificates in
accordance with
this Section 2.7. Upon the surrender of such person's
Certificates, such
person shall be
entitled to receive any dividends or other
distributions, without
interest thereon, which subsequent to the Effective Time
had become payable but
not paid with respect
to shares of Newco
Common Stock
represented by such person's Certificates.
(f) The stock transfer
books of Patapsco shall be closed immediately
upon the Effective
Time and from and after the Effective Time there shall be no
transfers on the stock
transfer records of Patapsco of any shares
of Patapsco
Common Stock. If, after the Effective Time, Certificates are
presented to Newco,
they shall be canceled and exchanged for the Merger Consideration
deliverable in
respect thereof pursuant to this Agreement in accordance with the
procedures set
forth in this Section 2.7.
(g) Any portion of the aggregate amount of cash to be paid pursuant
to
Section 2.5, any
dividends or other
distributions to be
paid pursuant to this
Section 2.7 or any proceeds from any investments thereof that remains unclaimed
by the stockholders of Patapsco for six months after the Effective
Time shall be
repaid by the Exchange Agent to Newco upon the written request of Newco. After
such request is made,
any stockholders
of Patapsco
who have not
theretofore
complied with
this Section 2.7 shall look only to Newco for the Merger
Consideration deliverable in respect of each share of Patapsco
Common Stock such
stockholder holds,
as determined pursuant to Section 2.5 of this
Agreement,
without any interest
thereon. If
outstanding
Certificates are not surrendered
prior to the date on which such payments would otherwise escheat to or become
the property of any governmental unit or agency, the unclaimed items shall, to
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<PAGE>
the extent permitted
by any abandoned
property, escheat or other applicable
laws, become the
property of Newco (and, to the extent not in its
possession,
shall be paid over to it), free and clear of all claims or interest of any
person previously
entitled to such claims. Notwithstanding the foregoing,
neither the Exchange
Agent nor any party to this Agreement (or any affiliate
thereof) shall be
liable to any former holder of Patapsco Common Stock for any
amount delivered to a public official pursuant to applicable
abandoned property,
escheat or similar laws.
(h) Newco and the Exchange Agent shall be entitled to rely upon
Patapsco's stock
transfer books to establish the identity of those persons
entitled to receive the Merger Consideration, which books shall be conclusive
with respect
thereto. In the event of a dispute
with respect to
ownership of
stock represented
by any Certificate, Newco and the Exchange
Agent shall be
entitled to deposit any Merger Consideration represented thereby in escrow
with
an independent third party and thereafter be relieved with respect
to any claims
thereto.
(i) 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 Exchange
Agent or Newco,
the posting by such person of a bond in such amount as the Exchange Agent 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
deliverable in
respect
thereof pursuant to Section 2.5.
2.8
Effect on Outstanding
Shares of Newco Common
Stock. At the
Effective
Time, each share of Newco Common Stock issued and outstanding
immediately prior
to the Effective
Time shall
remain issued and outstanding and shall not be
affected by the Merger.
2.9
Directors of Surviving
Corporation After
Effective Time.
Immediately
after the Effective Time, until their respective successors are duly elected or
appointed and
qualified,
the directors of the Surviving Corporation shall
consist of the
directors of Newco
serving immediately
prior to the
Effective
Time. Newco shall take all action necessary to appoint two members
of Patapsco's
Board of Directors, selected by Newco prior to the mailing of the Proxy
Statement, to the
Boards of Directors of
Newco and Bradford
Bank, effective
immediately following
the Effective Time.
To the extent
consistent
with the
requirement to stagger
the terms of the
directors of Newco and Bradford Bank,
Newco and Bradford
Bank will nominate one
such person for election at the 2008
annual meeting
of stockholders to a one year term and one such person for
election to a three year term.
2.10
Articles of Incorporation and Bylaws. The articles of incorporation
of
Newco, as in
effect immediately prior to the Effective Time, shall be the
articles of incorporation of the Surviving Corporation until thereafter
amended
in accordance with applicable law. The bylaws of Newco, as in
effect immediately
prior to the Effective
Time, shall be the
bylaws of the Surviving Corporation
until thereafter amended in accordance with applicable law.
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<PAGE>
2.11
Treatment of Stock Options and Restricted Stock.
(a) As soon as
practicable
following the date of this Agreement,
Patapsco's Board of
Directors shall adopt
such resolutions or
take such other
actions as are
required to provide
for the cancellation of all outstanding
options to acquire shares of Patapsco Common Stock (each, a "Patapsco
Option")
issued pursuant to the
equity-based
compensation plans
identified in
Section
3.2(s) of the Patapsco
Disclosure Letter (the "Patapsco Stock Plans"), whether
or not vested,
as of the Effective Time in exchange for a cash payment by
Patapsco in cash an
amount equal to the
product of (i) the number of shares of
Patapsco Common Stock
subject to such option at the Effective Time and (ii) the
amount by which the Cash Consideration exceeds the exercise price per
share of
such option,
net of any cash which
must be withheld
under federal and state
income and employment tax requirements. In the event that the exercise
price of
a Patapsco Option is greater than the Cash Consideration,
then at the
Effective
Time such Patapsco Option shall be canceled without any payment
made in exchange
therefor.
Notwithstanding the
foregoing,
any vested
Patapsco Option may be
exercised in accordance with its terms at any time prior to the
Effective Time.
(b) At the Effective Time, each share of restricted stock
outstanding
as of the Effective Time and issued pursuant to the Patapsco
Bancorp, Inc. 2004
Stock Incentive
Plan, to the extent
not already vested,
shall vest and
shall
represent a right to
receive the same
Merger Consideration
provided to other
holders of Patapsco
Common Stock
pursuant to Section 2.5 above, net of any
amounts that must be withheld under federal and state income and
employment tax
requirements.
2.12
Dissenters'
Rights. Notwithstanding any other provision of this
Agreement to the contrary, shares of Patapsco Common Stock
that are outstanding
immediately prior to
the Effective Time and which are held by stockholders who
shall have filed with
Patapsco a written
objection to the Merger in compliance
with applicable Maryland law and who shall have not voted in favor
of the Merger
or consented thereto in writing (collectively, the "Dissenters' Shares")
shall
not be converted into or represent the right to receive the Merger
Consideration. Such stockholders instead shall be entitled to
demand and receive
payment of the fair value of such shares held by them in accordance with the
provisions of the MGCL, except that all Dissenters' Shares held by stockholders
who shall have failed
to perfect or who
effectively shall have
withdrawn or
otherwise lost their
rights as dissenting stockholders under the MGCL 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 Merger
Consideration
upon surrender in the manner provided in
Section 2.7 of the Certificate(s) that, immediately prior to the
Effective Time,
evidenced such
shares. Patapsco shall give Newco (i) prompt notice of any
objections to the
Merger, written demands for payment of fair value of any
shares of Patapsco Common Stock, attempted withdrawals of such demands and
any
other instruments
served pursuant to the MGCL and received by Patapsco relating
to stockholders'
dissenters' rights and
(ii) the opportunity to participate in
all negotiations
and proceedings with respect to demands under the MGCL
consistent with the
obligations
of Patapsco
thereunder.
Patapsco shall
not,
except with the prior
written consent of Newco, (x) make any payment with
respect to such demand, (y) offer to settle or settle any
demand for payment of
fair value or (z)
waive any failure
to timely deliver a written demand for
14
<PAGE>
payment of fair value or timely take any other action to perfect
payment of fair
value rights in accordance with the MGCL.
2.13
Bank Merger.
Concurrently with or
as soon as practicable
after the
execution and delivery of this Agreement, Bradford Bank and The
Patapsco Bank, a
wholly owned
subsidiary of Patapsco, shall enter into the Plan of Bank
Merger,
in the form attached
hereto as Exhibit C,
pursuant to which The
Patapsco Bank
will merge with and into Bradford Bank (the "Bank Merger"). The parties intend
that the Bank Merger will become effective simultaneously with or immediately
following the Effective Time.
2.14
The Conversion.
Contemporaneous with
the adoption of this Agreement,
the Board of Directors of MHC is adopting the Plan of Conversion to
convert into
the capital stock form of organization. Newco is being organized to become
the
parent of Bradford Bank and to offer for sale
shares of common
stock to the
Participants (as defined in the Plan of Conversion) in the
Conversion. The price
per share of the shares of Newco Common Stock to be issued in the
Conversion is
referred to as the
"Initial Offering
Price." The
Initial Offering Price is
expected to be
$10.00. The shares of Newco Common Stock to be issued in
connection with
the Merger may be either shares unsubscribed for in the
Conversion subscription or community offerings, or to the extent
such shares are
unavailable,
authorized but unissued shares of Newco Common Stock, which
shares
shall be issued immediately following completion of the
Conversion.
2.15
Alternative
Structure.
Notwithstanding
anything to the contrary
contained in this
Agreement, prior to
the Effective
Time, Bradford or Newco
shall be entitled to revise the structure of the Merger,
the Bank Merger or
the
Conversion, provided
that (i) there are no adverse federal or state income tax
consequences to Patapsco stockholders as a result of the
modification; (ii)
the
consideration to be
paid to the holders of
Patapsco Common Stock under this
Agreement is not
thereby changed in kind or value or reduced in amount as a
result of such change
in structure
and, in the case of any revision to the
structure of the
Conversion,
the pro forma capitalization of Newco (or the
corporation issuing its capital stock to Patapsco stockholders giving effect to
such revision) shall not be materially different than that contemplated by the
Plan of Conversion;
and (iii) such
modification will not
materially delay
or
jeopardize receipt of
any required
regulatory approvals
or other consents and
approvals relating to the consummation of the Merger. Each of the
parties hereto
agrees to appropriately amend this Agreement and any
related documents in order
to reflect any such revised structure.
2.16
Absence of Control. Subject to any specific provisions of this
Agreement, it is the
intent of the parties hereto that the Bradford Parties by
reason of this Agreement shall not be deemed (until consummation of the
transactions contemplated hereby) to control, directly or indirectly,
Patapsco
or to exercise,
directly or indirectly, a controlling influence over the
management or policies of Patapsco.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1
Disclosure
Letters. Prior to the execution and delivery of this
Agreement, the
Bradford Parties and Patapsco have each delivered to the other
a
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<PAGE>
letter (each, its "Disclosure Letter") setting forth, among other
things, facts,
circumstances and
events the disclosure
of which is required
or appropriate
either in response to an express disclosure requirement contained
in a provision
hereof or as an exception to one or more of their respective
representations and
warranties (and making
specific reference to the Section of this
Agreement to
which they relate). Any disclosures made with respect to a
subsection of Section
3.2 or 3.3 shall be deemed to qualify (i) any subsections of Section 3.2 or
3.3
specifically
referenced or
cross-referenced
and (ii) other subsections of
Section 3.2 or 3.3 to the extent that it is reasonably apparent
(notwithstanding
the absence of a specific cross-reference) from a reading of the
disclosure that
such disclosure is relevant to such other subsections and contains sufficient
detail to enable a reasonable person to recognize the relevance of such
disclosure to such other subsections.
3.2
Representations
and Warranties of
Patapsco. Patapsco
represents and
warrants to the
Bradford Parties that, except as disclosed in Patapsco's
Disclosure Letter:
(a) Organization
and Qualification. Patapsco is a corporation duly
organized, validly
existing and in good standing under the laws of the State of
Maryland and is registered as a bank holding company under the BHC
Act. Patapsco
has all requisite
corporate power and
authority to own,
lease and operate its
properties and to conduct the business currently being conducted by
it. Patapsco
is duly qualified or licensed as a foreign corporation to transact business
and
is in good
standing in each jurisdiction in which the character of the
properties owned or
leased by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so qualified or licensed and in good standing would not have a
Material Adverse
Affect on Patapsco.
(b) Subsidiaries.
(i) Patapsco's
Disclosure Letter sets
forth with respect to each
of Patapsco's
Subsidiaries
its name, its jurisdiction of incorporation,
Patapsco's percentage
ownership,
the number of shares of stock owned or
controlled by
Patapsco and the name and number of shares held by any other
person who owns any
stock of the Subsidiary. Patapsco owns of record and
beneficially all the capital stock of each of its Subsidiaries free
and clear of
any Liens. There are
no contracts,
commitments,
agreements or
understandings
relating to Patapsco's right to vote or dispose of any equity
securities of its
Subsidiaries.
Patapsco's ownership
interest in each of
its Subsidiaries is in
compliance with all applicable laws, rules and regulations relating to equity
investments by bank holding companies.
(ii) Each of Patapsco's Subsidiaries is a corporation duly
organized and
validly existing under the laws of its jurisdiction of
incorporation, has all requisite corporate power and authority to
own, lease and
operate its properties and to conduct the business currently being conducted by
it and is duly
qualified or
licensed as a foreign corporation to transact
business and is in good standing in each jurisdiction in which the
character of
the properties owned or leased by it or the nature of the business
conducted by
it makes such qualification or licensing necessary, except where the failure to
be so qualified
or licensed and in good standing would not have a Material
Adverse Affect on such Subsidiary.
16
<PAGE>
(iii) The outstanding
shares of capital
stock of each Subsidiary
have been validly authorized and are validly issued, fully paid and
nonassessable. No
shares of capital stock of any Subsidiary of Patapsco are or
may be required to be issued by virtue of any options, warrants or
other rights,
no securities exist that are convertible into or exchangeable for
shares of such
capital stock or any other debt or equity security of any
Subsidiary, and
there
are no contracts, commitments, agreements or understandings of
any kind for the
issuance of additional
shares of capital stock or other debt or equity security
of any Subsidiary
or options,
warrants or other
rights with
respect to such
securities.
(iv) No Subsidiary of Patapsco other than The Patapsco Bank is
an
"insured depository
institution" as
defined in the Federal
Deposit Insurance
Act, as amended, and the applicable regulations thereunder.
The Patapsco
Bank's
deposits are insured
by the FDIC to the fullest extent permitted by law. The
Patapsco Bank is a
member in good
standing of the
Federal Home Loan Bank of
Atlanta.
(c) Capital Structure.
(i) The authorized capital stock of Patapsco consists of
4,000,000
shares of Patapsco
Common Stock and 1,000,000 shares of preferred stock, par
value $.01 per share.
(ii) As of the date of this Agreement: (A) 1,889,033 shares of
Patapsco Common
Stock are issued and
outstanding
and no shares of
preferred
stock are outstanding;
and (B) no shares of
Patapsco Common Stock are reserved
for issuance except
for 68,297 shares of
Patapsco Common
Stock reserved for
issuance upon the exercise of Patapsco Options issued pursuant to the Patapsco
Stock Plans and 40,769 shares of Patapsco Common Stock reserved for issuance
in
connection with outstanding deferred compensation obligations. All
of the issued
and outstanding
shares of Patapsco
Common Stock have
been, and all shares
of
Patapsco Common
Stock that may be
issued upon the
exercise of Patapsco
Stock
Options will be,
when issued in
accordance
with the terms
thereof, validly
issued, fully paid and nonassessable and are free of preemptive
rights.
(iii) Set forth in Patapsco's Disclosure Letter is a complete
and
accurate list of all outstanding Patapsco Options, including the names of the
optionees, dates
of grant, exercise prices, dates of vesting, dates of
termination, shares
subject to each grant and whether stock appreciation,
limited or other similar rights were granted in
connection
with such options.
The per share exercise price or purchase price for each Patapsco
Option is equal
to or greater than the
fair market value of the underlying shares of Patapsco
Common Stock determined as prescribed by the relevant Patapsco
Stock Plan on the
effective date of the corporate action effectuating the grant of such
Patapsco
Option.
(iv) No bonds, debentures, notes or other indebtedness having
the
right to vote on any
matters on which
stockholders of
Patapsco may vote are
issued or outstanding.
(v) Except pursuant to the Patapsco Stock Plans, neither Patapsco
nor any of its
Subsidiaries has or is
bound by any outstanding subscriptions,
17
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options, warrants,
calls, rights, convertible securities, commitments or
agreements of any character obligating Patapsco or any of its
Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold,
any additional
shares of capital stock of Patapsco or obligating Patapsco or any of its
Subsidiaries to grant,
extend or enter into
any such option,
warrant, call,
right, convertible
security, commitment or agreement.
As of the date
hereof,
there are no
outstanding
contractual
obligations of
Patapsco or any of its
Subsidiaries to
repurchase, redeem or
otherwise acquire any
shares of capital
stock of Patapsco or any of its Subsidiaries.
(d) Authority.
Patapsco
has all requisite corporate power and
authority to enter into this Agreement, to perform its obligations
hereunder and
to consummate the transactions contemplated by this Agreement. The
execution and
delivery of this Agreement and the consummation of the transactions
contemplated
by this Agreement have been duly authorized by all necessary
corporate actions
on the part of Patapsco's Board of Directors. The Board of
Directors of Patapsco
has determined that this Agreement and the transactions
contemplated hereby
are
advisable and in the
best interests of
Patapsco and its
stockholders and
has
directed that this Agreement and the transactions contemplated by
this Agreement
be submitted to Patapsco's stockholders for adoption at a duly held
meeting of
such stockholders
and, except for the approval of this Agreement and the
transactions
contemplated by this
Agreement by the affirmative vote of the
holders of at least
two-thirds of the
outstanding
shares of Patapsco
Common
Stock entitled to vote
on such proposal
at such meeting at which a quorum is
present, no other corporate proceedings on the part of Patapsco are
necessary to
approve this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Patapsco
and
constitutes a valid
and binding obligation
of Patapsco,
enforceable
against
Patapsco in
accordance
with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies
generally
and to general
principles
of equity,
whether applied in a court of law or a
court of equity.
(e) No Violations.
The execution,
delivery and
performance of
this
Agreement by
Patapsco do not, and the consummation of the transactions
contemplated by this Agreement will not, (i) assuming all required
governmental
approvals have been
obtained and the applicable waiting periods have expired,
violate any law, rule or regulation or any judgment, decree, order,
governmental
permit or license to which Patapsco or any of its Subsidiaries (or any of their
respective properties) is subject, (ii) violate the articles of
incorporation or
bylaws of Patapsco or the similar organizational documents of any of its
Subsidiaries or (iii)
constitute a breach or
violation of, or a
default under
(or an event which, with due notice or lapse of time or both, would
constitute a
default under),
or result in the
termination
of, accelerate the performance
required by, or result in the creation of any Lien upon any of the
properties or
assets of Patapsco or any of its Subsidiaries under, any of the terms,
conditions or
provisions of any
note, bond,
indenture,
deed of trust,
loan
agreement or other agreement, instrument or obligation to which
Patapsco or any
of its Subsidiaries is a party, or to which any of their
respective
properties
or assets may be subject except, in the case of (iii), for any such breaches,
violations or defaults that would not, individually or in the
aggregate, have a
Material Adverse Effect on Patapsco.
(f) Consents and
Approvals.
Except for (i) the
filing of the Merger
Registration Statement
and the declaration of effectiveness of the Merger
18
<PAGE>
Registration Statement
by the SEC, and such proxy solicitation materials and
reports under the
Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement;
(ii) the filing
of the Articles
of Merger with the SDAT and such
filings with Governmental
Entities to satisfy the applicable requirements of the laws of states in which
Patapsco and its
Subsidiaries are qualified or licensed to do business or state
securities or "blue
sky" laws; (iii) the
approval of FRB under
the BHC Act in
connection with the merger of Patapsco and Newco, or the waiver thereof; (iv)
the approval or
non-objection of the
OTS under the HOLA in connection with the
merger of Patapsco and Newco and the approval of the OTS under the BMA in
connection with the
merger of Bradford Bank and The Patapsco Bank; and (v) the
approval of the Maryland Superintendent of Financial Regulation in connection
with the acquisition of the voting stock of The Patapsco Bank as a
result of the
merger of Patapsco
and Newco, no consents or approvals of or filings or
registrations with any Governmental Entity are necessary in connection
with (A)
the execution
and delivery by Patapsco of this Agreement and (B) the
consummation by Patapsco of the Merger and the other transactions contemplated
by this Agreement.
As of the date
hereof, Patapsco has no knowledge of any
reason pertaining
to Patapsco why any of the approvals referred to in this
Section 3.2(f)
should not be obtained
without the
imposition of any
material
condition or restriction described in Section 6.1(b).
(g) Governmental
Filings. Patapsco and
each of its Subsidiaries have
timely filed all
reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since January 1, 2004 with (i) the FRB, (ii) the FDIC, (iii) the Maryland
Office of Financial Regulation or any state regulatory authority,
(iv) the SEC,
and (v) each other
applicable
Governmental Entity,
and all other reports
and
statements required to
be filed by them since
January 1, 2004,
including any
report or statement required to be filed pursuant to the laws, rules or
regulations of the
United States, any state, any foreign entity, or any
Government Regulator,
and have paid all fees and assessments due and payable in
connection therewith.
No administrative actions have been taken or, to the
knowledge of Patapsco,
threatened or orders issued in connection with any such
report, registration
or statement.
As of their
respective
dates, each such
report, registration
and statement complied
in all material
respects with all
laws or regulations
under which it was filed (or was
amended so as to be in
compliance promptly following discovery of such noncompliance).
(h) Securities
Filings. Patapsco has previously made available to
Newco an accurate and complete copy of each (i) final
registration
statement,
prospectus, report,
schedule and definitive proxy statement filed since January
1, 2004 by Patapsco with the SEC pursuant to the Securities Act or the Exchange
Act (collectively,
"Patapsco's
Reports"),
and prior to the date of this
Agreement and (ii)
communication mailed
by Patapsco to its stockholders since
January 1, 2004 and
prior to the date of
this Agreement.
None of Patapsco's
Reports contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements
made therein,
in light of the
circumstances
under which they were
made, not
misleading. As of
their respective dates, all of Patapsco's Reports complied in
all material respects with the applicable requirements of the Securities Act
or
the Exchange Act, as the case may be, and the rules and
regulations
of the SEC
promulgated
thereunder. Each of
the financial statements (including, in each
case, any notes thereto) of Patapsco included in Patapsco's
Reports complied
as
to form, as of their
respective
dates of filing with
the SEC, in all material
19
<PAGE>
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto.
(i) Financial
Statements. Patapsco
has previously made
available to
Newco copies
of (i) the consolidated balance sheets of Patapsco and its
Subsidiaries as of June 30, 2006 and 2005 and related consolidated
statements of
income, cash flows and changes in stockholders' equity for each of the years
in
the two-year
period ended June 30, 2006, together with the notes thereto,
accompanied by the audit report of Patapsco's independent public auditors, as
reported in Patapsco's
Annual Report on Form 10-KSB for the year ended June 30,
2006 filed with the SEC and (ii) the unaudited consolidated balance sheet of
Patapsco and
its Subsidiaries as of December 31, 2006 and the related
consolidated
statements of
income, cash flows and changes in stockholders'
equity for the three and six months ended December 31, 2006, as reported in
Patapsco's Quarterly
Report on Form 10-QSB
for the period ended
December 31,
2006 filed with the SEC. Such financial statements were prepared from the
books
and records of Patapsco and its Subsidiaries, fairly present the consolidated
financial position of
Patapsco and its
Subsidiaries in each
case at and as of
the dates indicated and the consolidated results of operations, retained
earnings and cash
flows of Patapsco and its Subsidiaries for the periods
indicated, and,
except as otherwise set forth in the notes thereto, were
prepared in accordance
with GAAP consistently
applied throughout the periods
covered thereby; provided, however, that the unaudited
financial statements for
interim periods are
subject to normal year-end adjustments (which will not be
material individually
or in the aggregate) and lack footnotes and other
disclosures to the extent permitted under applicable regulations.
The books and
records of Patapsco and its Subsidiaries have been, and are being,
maintained in
all respects
in accordance with GAAP and any other legal and accounting
requirements and reflect only actual transactions.
(j) Undisclosed
Liabilities.
Neither
Patapsco nor any of its
Subsidiaries has
incurred any debt, liability or obligation of any nature
whatsoever (whether accrued, contingent, absolute or otherwise and whether
due
or to become due) other than liabilities reflected on or reserved
against in the
consolidated balance
sheet of Patapsco as of December 31, 2006 included in
Patapsco's Quarterly
Report on Form 10-QSB
for the period ended
December 31,
2006, except
for (i) liabilities incurred since December 31, 2006 in the
ordinary course of business consistent with past practice
that, either alone or
when combined
with all similar liabilities, have not had, and would not
reasonably be expected to have, a Material Adverse Effect on Patapsco and (ii)
liabilities
incurred for
legal, accounting, financial advising fees,
out-of-pocket
and other expenses in connection with the transactions
contemplated by this Agreement.
(k) Absence of Certain
Changes or Events. Except for liabilities
incurred in connection with this Agreement or as disclosed in
Patapsco's Reports
filed prior to the date of this Agreement, since December 31,
2006:
(i) Patapsco and its Subsidiaries have conducted their
respective
businesses only in the ordinary and usual course of such
businesses
consistent
with their past practices;
(ii) there has not been any event or occurrence that has had, or
is reasonably expected to have, a Material Adverse Effect on
Patapsco;
20
<PAGE>
(iii) Patapsco has not
declared, paid or set
aside any dividends
or distributions with
respect to the Patapsco Common Stock, other than regular
quarterly cash
dividends not in excess of $.07 per share on
Patapsco Common
Stock;
(iv) except for
supplies or equipment
purchased in the
ordinary
course of business,
neither Patapsco nor any of its Subsidiaries have made any
capital expenditures exceeding individually or in the aggregate
$25,000;
(v) there has not been
any write-down
by The Patapsco Bank in
excess of $25,000 with respect to any of its Loans or other real
estate owned;
(vi) there has not been any sale, assignment or transfer of any
assets by Patapsco or any of its Subsidiaries in excess of $25,000
other than in
the ordinary course of business or pursuant to a contract or
agreement disclosed
in Patapsco's Disclosure Letter;
(vii) there has been
no increase
in the salary, compensation,
pension, severance or other benefits payable or to become payable
by Patapsco or
any of its
Subsidiaries to any of
their respective directors, officers or
employees, other than
in conformity
with the policies
and practices of such
entity in the usual and ordinary course of its business;
(viii) neither
Patapsco nor any of its Subsidiaries has paid or
made any accrual or arrangement for payment of bonuses or special
compensation
of any kind or any
severance or
termination
pay to any of
their directors,
officers or employees;
(ix) neither Patapsco nor any of its Subsidiaries has entered
into
or amended
any employment, deferred compensation, consulting, severance,
termination or indemnification agreement with any current or
former director or
officer; and
(x) there has been no change in any accounting principles,
practices or
methods of Patapsco or any of its Subsidiaries other than as
required by GAAP.
(l) Litigation. There
are no suits, actions or legal, administrative
or arbitration proceedings pending or, to the knowledge of
Patapsco,
threatened
against or affecting
Patapsco or any of its
Subsidiaries
or any property or
asset of Patapsco or any of its Subsidiaries. To the knowledge of Patapsco,
there are no
investigations,
reviews or inquiries by any court or Governmental
Entity pending or threatened against Patapsco or any of its
Subsidiaries.
There
are no judgments,
decrees, injunctions,
orders or rulings of
any Governmental
Entity or arbitrator
outstanding against
Patapsco or any of its
Subsidiaries
that have not been satisfied or that enjoin Patapsco or any of its
Subsidiaries
from taking any action.
(m) Absence of
Regulatory Actions.
Since January 1, 2004, neither
Patapsco nor any of
its Subsidiaries
has been a party to
any cease and desist
order, written
agreement or memorandum of understanding with, or any
commitment
letter or similar undertaking to, or has been subject to any
action, proceeding,
order or directive
by any Government Regulator, or has adopted any board
resolutions at the request of any Government Regulator, or has been advised by
21
<PAGE>
any Government
Regulator that it is contemplating issuing or requesting (or is
considering the
appropriateness
of issuing or
requesting)
any such action,
proceeding, order,
directive, written
agreement, memorandum
of understanding,
commitment letter,
board resolutions or similar undertaking. There are no
violations, criticisms or exceptions by any Government Regulator
with respect to
any report
or statement relating to any examinations of Patapsco or its
Subsidiaries that have not been addressed by Patapsco.
(n) Compliance
with Laws. Patapsco and each of its Subsidiaries
conducts its
business in material compliance with all statutes, laws,
regulations,
ordinances, rules,
judgments, orders or decrees applicable to it.
Patapsco and each of its Subsidiaries has all permits, licenses,
certificates of
authority, orders and
approvals of, and has made all filings, applications and
registrations with,
all Governmental Entities that are required in order to
permit it to carry
on its business as it is presently conducted; all such
permits, licenses,
certificates of authority, orders and approvals are in
full
force and effect, and, to the knowledge of Patapsco, no suspension or
cancellation of any of
them is threatened. Neither Patapsco nor any of its
Subsidiaries has been
given notice or been charged with any violation of, any
law, ordinance,
regulation, order,
writ, rule, decree or condition to approval
of any Governmental
Entity which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on
Patapsco.
(o) Taxes. All federal, state, local and foreign Tax
returns required
to be filed by or on behalf of Patapsco or any of its Subsidiaries have been
timely filed or
requests for
extensions
have been timely
filed and any such
extension shall
have been granted and not have expired, and all such filed
returns are complete and accurate in all material respects. All Taxes shown on
such returns,
all Taxes required to be shown on returns
for which
extensions
have been granted and all other taxes required to be paid by Patapsco or
any of
its Subsidiaries have been paid in full or adequate provision has been made for
any such Taxes on Patapsco's balance sheet (in accordance with
GAAP). There is
no audit examination, deficiency assessment, tax investigation or refund
litigation with respect to any Taxes of Patapsco or any of its
Subsidiaries, and
no claim has been made in writing by any authority in a jurisdiction where
Patapsco or any of its Subsidiaries do not file Tax returns that
Patapsco or any
such Subsidiary
is subject to taxation in that jurisdiction. All Taxes,
interest, additions
and penalties due with respect to completed
and settled
examinations or
concluded litigation relating to Patapsco or any of its
Subsidiaries have been paid in full or adequate provision has been made for
any
such Taxes on Patapsco's balance sheet (in accordance with
GAAP). Patapsco
and
its Subsidiaries
have not executed an extension or waiver of any statute of
limitations on the
assessment or collection of any Tax due that is currently in
effect. Patapsco and
each of its
Subsidiaries has
withheld and paid all Taxes
required to have been withheld and paid in connection with amounts
paid or owing
to any employee,
independent contractor, creditor, stockholder or other third
party, and Patapsco
and each of its
Subsidiaries has
timely complied with all
applicable information
reporting requirements under Part III,
Subchapter A of
Chapter 61 of the
IRC and similar applicable state and local information
reporting requirements. Neither Patapsco nor any of its
Subsidiaries is a party
to any agreement,
contract, arrangement or plan that has resulted or would
result, individually
or in the aggregate,
in connection with this Agreement in
the payment of any
"excess parachute
payments" within the meaning of Section
280G of the IRC and neither Patapsco nor any of its
Subsidiaries
has made any
payments and is not a
party to any
agreement, and does
not maintain any plan,
program or
arrangement, that
could require it to make any payments (including
22
<PAGE>
any deemed payment of
compensation
upon the exercise of a
Patapsco Option or
upon the issuance
of any Patapsco Common Stock), that would not be fully
deductible by reason of Section 162(m) of the IRC.
(p) Agreements.
(i) Except as set forth in the exhibit index for Patapsco's
Annual
Report on Form
10-KSB for the year ended June 30, 2006 or as set forth in
Section 3.2(p) of Patapsco's Disclosure Letter, neither Patapsco nor any of
its
Subsidiaries is a party to or bound by:
(A) any agreement
relating to the incurring of indebtedness
or guarantee
thereof by
Patapsco or any of its
Subsidiaries
in an amount in
excess in the aggregate of $250,000, other than deposit liabilities
and advances
from the Federal Home Loan Bank of Atlanta;
(B) any "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC);
(C) any
non-competition or exclusive dealing agreement, or
any other agreement or
obligation
which purports to limit or restrict in
any
material respect (1)
the ability of
Patapsco or its
Subsidiaries
to solicit
customers or (2) the manner in which, or the localities in which, all or any
portion of
the business of Patapsco and its Subsidiaries or, following
consummation of the transactions contemplated by this Agreement,
Newco and its
Subsidiaries, is or would be conducted;
(D) any contract or
agreement providing for any payments
that are conditioned, in whole or in part, on a change of control
of Patapsco or
any of its Subsidiaries;
(E) any agreement providing for the indemnification by
Patapsco or a
Subsidiary
of Patapsco
of any person
other than with
vendors
providing goods or services to Patapsco or its Subsidiaries
where the
potential
indemnity obligations
thereunder are not
reasonably expected to be material to
Patapsco;
(F) any joint venture or partnership agreement material to
Patapsco;
(G) any agreement that
grants any right of first refusal or
right of first offer
or similar right or
that limits or
purports to limit the
ability of Patapsco any of its Subsidiaries to own, operate, sell, transfer,
pledge or otherwise dispose of any assets or business;
(H) any employment
agreement with, or any agreement or
arrangement that
contains any severance pay or post-employment liabilities or
obligations to, any current or former director, officer or employee of
Patapsco
or its Subsidiaries;
23
<PAGE>
(I) any agreement
material to Patapsco and its Subsidiaries
taken as a whole
pertaining
to the use of or
granting any right to use or
practice any rights
under any Intellectual Property (as defined in Section
3.2(q)), whether
Patapsco or its Subsidiary is the licensee or licensor
thereunder;
(J) any contract or
agreement material to
Patapsco and its
Subsidiaries taken as
a whole providing
for the outsourcing or provision of
servicing of
customers,
technology
or product
offerings of Patapsco or its
Subsidiaries; and
A complete and correct copy of each agreement listed in Section
3.2(p)
of Patapsco's Disclosure Letter has previously been provided to
Newco.
(K) any contract or other agreement not made in the ordinary
course of business which (1) is material to Patapsco and its
Subsidiaries taken
as a whole or (2) which would reasonably be expected to materially delay the
consummation of the
Merger or any of the transactions contemplated by this
Agreement.
(ii) Neither Patapsco
nor any of its
Subsidiaries is in
default
under (and no event
has occurred
which, with due notice or lapse of time or
both, would
constitute a default
under) or is in violation of any provision of
any note, bond,
indenture, mortgage,
deed of trust, loan
agreement, lease
or
other agreement
to which it is a party
or by which it is bound or to which any
of its respective
properties
or assets is subject
and, to the
knowledge of
Patapsco, no other
party to any such agreement (excluding any loan or extension
of credit made by
Patapsco or any of its Subsidiaries) is in default in any
respect thereunder,
except for such
defaults or violations that would not,
individually or in the aggregate, have a Material Adverse Effect on
Patapsco.
(q) Intellectual Property. Patapsco and each of its
Subsidiaries owns
or possesses valid
licenses or other rights to use without payment all patents,
copyrights, trade secrets, trade names, service marks and
trademarks material to
its business.
Patapsco's
Disclosure
Letter sets forth a
complete and correct
list of all material trademarks, trade names, service marks and
copyrights owned
by or licensed to Patapsco or any of its Subsidiaries for use in its business,
and all licenses
and other agreements relating thereto and all agreements
relating to third
party intellectual property that Patapsco or any of its
Subsidiaries is licensed or authorized to use in its business,
including without
limitation any software licenses (collectively, the "Intellectual Property").
With respect to each item of Intellectual Property owned by Patapsco or any
of
its Subsidiaries,
the owner possesses
all right, title and
interest in and to
the item, free and
clear of any Lien. With respect to each item of Intellectual
Property that Patapsco or any of its Subsidiaries is licensed or authorized to
use, the license,
sublicense or agreement covering such item is legal,
valid,
binding, enforceable
and in full force and effect. Neither Patapsco nor any of
its Subsidiaries has
received any charge,
complaint, claim,
demand or notice
alleging any interference, infringement, misappropriation or violation with
or
of any intellectual
property rights of a third party (including any claims that
Patapsco or any of its
Subsidiaries
must license or refrain from using any
intellectual property
rights of a third
party). To the
knowledge of Patapsco,
neither Patapsco nor
any of its
Subsidiaries has
interfered with,
infringed
upon, misappropriated
or otherwise
come into conflict
with any intellectual
property rights of
third parties and, to
the knowledge of
Patapsco, no third
24
<PAGE>
party has interfered
with, infringed upon,
misappropriated
or otherwise come
into conflict with any
intellectual property
rights of Patapsco or
any of its
Subsidiaries.
(r) Labor Matters.
Patapsco and its Subsidiaries are in material
compliance with
all applicable laws respecting employment, retention of
independent
contractors,
employment practices,
terms
and conditions of
employment, and wages and hours. Neither Patapsco nor any of its
Subsidiaries is
or has ever been a party to, or is or has ever been bound by, any collective
bargaining agreement,
contract or other agreement or understanding with a labor
union or labor
organization with
respect to its employees, nor is Patapsco or
any of its
Subsidiaries the
subject of any
proceeding asserting
that it has
committed an
unfair labor practice or seeking to compel it or any such
Subsidiary to bargain with any labor organization as to wages and
conditions of
employment nor, to the
knowledge of
Patapsco, has any such proceeding been
threatened, nor is
there any strike,
other labor dispute or organizational
effort involving
Patapsco or any of its Subsidiaries pending or, to the
knowledge of Patapsco, threatened.
(s) Employee Benefit Plans.
(i) Patapsco's
Disclosure Letter contains a complete and accurate
list of all pension,
retirement, stock option, stock purchase, stock ownership,
savings, stock
appreciation
right, profit sharing, deferred compensation,
consulting,
bonus, group
insurance,
severance
and other benefit plans,
contracts, agreements and arrangements, including, but not limited
to, "employee
benefit plans,"
as defined in Section
3(3) of ERISA,
incentive and welfare
policies, contracts,
plans and arrangements
and all trust
agreements related
thereto with
respect to any
present or former
directors,
officers or other
employees of
Patapsco or any of its Subsidiaries (hereinafter referred to
collectively as
the "Patapsco Employee Plans"). Patapsco has previously
delivered or made available to Newco true and complete copies of
each agreement,
plan and other documents referenced in Patapsco's Disclosure
Letter, along with,
where applicable,
copies of the IRS Form
5500 or 5500-C for the most recently
completed year. There
has been no announcement or commitment by Patapsco or any
of its Subsidiaries to create an additional Patapsco Employee Plan, or to
amend
any Patapsco Employee
Plan, except for
amendments
required by applicable
law
which do not materially increase the cost of such Patapsco Employee
Plan.
(ii) There
is no pending or, to the knowledge of Patapsco,
threatened litigation,
administrative
action or proceeding relating to any
Patapsco Employee
Plan. All of the Patapsco Employee Plans comply in all
material respects with
all applicable
requirements of ERISA, the IRC and other
applicable laws. There
has occurred no "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the IRC) with respect to the Patapsco
Employee Plans which
is likely to result in the imposition of any penalties or
taxes upon Patapsco or any of its Subsidiaries under Section 502(i) of ERISA
or
Section 4975 of the IRC.
(iii) Neither Patapsco, its Subsidiaries nor any ERISA
Affiliates
maintains or has maintained during the last ten years a
Patapsco Employee
Plan
which is subject to Title IV of ERISA or which is subject to the
minimum funding
requirements of Section 412 of the Code. Neither Patapsco, its
Subsidiaries, nor
25
<PAGE>
any ERISA Affiliate has contributed to any "multiemployer plan," as defined in
Section 3(37) of ERISA, on or after September 26, 1980.
(iv) Each Patapsco
Employee Plan that is an "employee pension
benefit plan" (as
defined in Section 3(2) of ERISA) and which is intended to be
qualified under
Section 401(a) of the IRC (a "Patapsco
Qualified Plan") has
received a favorable
determination letter
from the IRS, and
Patapsco and its
Subsidiaries are not aware of any circumstances likely to result in revocation
of any such favorable determination letter. Each Patapsco Qualified
Plan that is
an "employee stock ownership plan" (as defined in Section
4975(e)(7) of the IRC)
has satisfied all of the applicable requirements of Sections 409 and
4975(e)(7)
of the IRC and the
regulations thereunder
in all material respects and any
assets of any such Patapsco Qualified Plan that, as of the end of
the plan year,
are not allocated to participants' individual accounts are pledged as
security
for, and may be applied to satisfy, any securities acquisition
indebtedness.
(v) With respect to each Patapsco Employee Plan that is a
"multiple employer
plan" (as defined in Section 4063 of ERISA): (A) none of
Patapsco or
any of its Subsidiaries, nor any of their respective ERISA
Affiliates, has received any notification, nor has any actual
knowledge, that if
Patapsco or any of its
Subsidiaries or any of their respective ERISA Affiliates
were to experience a
withdrawal or partial
withdrawal from such
plan it would
incur withdrawal
liability that would
be reasonably likely
to have a Material
Adverse Effect on Patapsco; and (B) none of Patapsco or any of its
Subsidiaries,
nor any of their respective ERISA Affiliates, has received any
notification, nor
has any reason to believe, that any Patapsco Employee Plan is in
reorganization,
has been terminated, is insolvent, or may be in reorganization,
become insolvent
or be terminated.
(vi) Neither
Patapsco nor any of its Subsidiaries has any
obligations for
post-retirement or post-employment benefits under any Patapsco
Employee Plan that cannot be amended or terminated upon 60 days' notice or less
without incurring any liability thereunder, except for coverage
required by Part
6 of Title I of ERISA or Section 4980B of the IRC, or similar
state laws,
the
cost of which is borne by the insured individuals.
(vii) All
contributions required
to be made with
respect to any
Patapsco Employee Plan
by applicable law or
regulation or by any plan document
or other contractual
undertaking, and all
premiums due or payable with respect
to insurance policies funding any Patapsco Employee Plan, for any
period through
the date hereof
have been timely made or paid in full, or to the extent not
required to be made or
paid on or before
the date hereof, have been fully
reflected in the financial statements of Patapsco.
Each Patapsco Employee
Plan
that is an employee
welfare benefit plan under Section 3(1) of ERISA either (A)
is funded through an insurance company contract and is not a "welfare
benefit
fund" within the meaning of Section 419 of the IRC or (B) is
unfunded.
(t) Properties.
(i) A list and description of all real property owned or leased
by
Patapsco or a
Subsidiary
of Patapsco
is set forth in
Patapsco's
Disclosure
Letter. Patapsco and
each of its
Subsidiaries has good and marketable title to
26
<PAGE>
all real property
owned by it (including
any property
acquired in a
judicial
foreclosure proceeding
or by way of a deed in
lieu of foreclosure
or similar
transfer), in each
case free and clear of any Liens except (i) liens for taxes
not yet due and payable and (ii) such easements, restrictions and encumbrances,
if any, as are not material in character, amount or extent, and do not
materially detract from the value, or materially interfere with the present use
of the properties
subject thereto or affected thereby. Each lease pursuant to
which Patapsco or any
of its Subsidiaries
as lessee,
leases real or
personal
property is valid and in full force and effect and neither
Patapsco nor any of
its Subsidiaries, nor, to the knowledge of Patapsco, any other
party to any such
lease, is in default
or in violation of any
material provisions of any such
lease. A complete and correct copy of each such lease has
previously
been
provided to Newco. All
real property owned or
leased by Patapsco or any of its
Subsidiaries are in a good state of maintenance and repair (normal
wear and tear
excepted), conform in
all material respects
with all applicable ordinances,
regulations and zoning
laws and are
considered by Patapsco
to be adequate for
the current business
of Patapsco and its
Subsidiaries.
To the knowledge of
Patapsco, none of the buildings, structures or other improvements
located on any
real property owned or leased by Patapsco or any of its
Subsidiaries
encroaches
upon or over any adjoining parcel or real estate or any easement or
right-of-way.
(ii) Patapsco and each of its Subsidiaries has good and
marketable
title to all tangible personal property owned by it, free and clear
of all Liens
except such Liens, if
any, as are not material in character, amount or extent,
and do not materially
detract from the value, or materially interfere with the
present use of the properties subject thereto or affected thereby.
With respect
to personal property
used in the business of Patapsco and its Subsidiaries that
is leased rather than owned, neither Patapsco nor any of its
Subsidiaries is in
default under the terms of any such lease.
(u) Fairness
Opinion. Patapsco has received the opinion of
Sandler
O'Neill & Partners, L.P. to the effect that, as of the
date hereof, the
Merger
Consideration is
fair, from a financial point of view, to Patapsco's
stockholders.
(v) Fees. Other than
for financial advisory
services performed for
Patapsco by Sandler
O'Neill & Partners, L.P. pursuant to an agreement dated
November 1, 2006, a
complete and
correct copy of which has previously been
provided to Newco,
neither Patapsco
nor any of its
Subsidiaries,
nor any of
their respective
officers, directors, employees or agents, has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees,
commissions or finder's fees, and no broker or finder has acted
directly or indirectly
for Patapsco or any of
its Subsidiaries
in connection
with this Agreement or the transactions contemplated hereby.
(w) Environmental Matters.
(i) Each of
Patapsco and its Subsidiaries, the Participation
Facilities, and, to the knowledge of Patapsco, the Loan Properties
are, and have
been, in substantial compliance with all Environmental Laws.
27
<PAGE>
(ii) There
is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding
pending or, to the
knowledge of Patapsco,
threatened,
before any court,
governmental
agency or
board or other forum against Patapsco or any of its Subsidiaries or any
Participation
Facility (A)
for alleged noncompliance (including by any
predecessor) with, or
liability under, any Environmental Law or (B) relating to
the presence of or
release into the
environment
of any Hazardous Material,
whether or not
occurring at or on a site owned, leased or operated by Patapsco
or any of its Subsidiaries or any Participation Facility.
(iii) To the knowledge
of Patapsco, there is no suit, claim,
action, demand,
executive or administrative order, directive, investigation or
proceeding pending or threatened before any court, governmental agency or board
or other forum
relating to or against any Loan Property (or Patapsco or any
of
its Subsidiaries
in respect of such
Loan Property)
(A) relating to alleged
noncompliance
(including by any
predecessor)
with, or liability
under, any
Environmental Law or
(B) relating
to the presence of or release into the
environment of any
Hazardous Material, whether or not occurring at a Loan
Property.
(iv) Neither Patapsco nor any of its Subsidiaries has received
any notice, demand
letter, executive or administrative order, directive or
request for
information
from any Governmental Entity or any third party
indicating that it may
be in violation of, or liable under, any Environmental
Law.
(v) There are no underground storage tanks at any properties
owned
or operated
by Patapsco or any of its Subsidiaries or any Participation
Facility. Neither
Patapsco nor any of its Subsidiaries nor, to the knowledge of
Patapsco, any other
person or entity,
has closed or removed
any underground
storage tanks from any
properties
owned or operated by
Patapsco or any of its
Subsidiaries or any Participation Facility.
(vi) During
the period of (A) Patapsco's or its Subsidiary's
ownership or operation
of any of their
respective current
properties
or (B)
Patapsco's or
its Subsidiary's participation in the management of any
Participation Facility, there has been no release of Hazardous
Materials in, on,
under or affecting such properties. To the knowledge of Patapsco,
prior to the
period of (A)
Patapsco's or its
Subsidiary's ownership
or operation of any of
their respective
current properties or (B) Patapsco's or its Subsidiary's
participation in the
management of any
Participation
Facility, there was no
contamination by or
release of Hazardous
Material in, on, under or affecting
such properties.
(x) Loan
Portfolio; Allowance for Loan Losses.
(i) With respect to each Loan owned by Patapsco or its
Subsidiaries in whole or in part:
(A) The note and the
related security
documents are each
legal, valid
and binding obligations of the maker or obligor thereof,
enforceable against such maker or obligor in accordance with their
terms;
28
<PAGE>
(B) neither Patapsco
nor any of its
Subsidiaries, nor
any
prior holder of a Loan, has modified the note or any of the related
security
documents in any material respect or satisfied, canceled or subordinated the
note or any of the related security documents except as otherwise
disclosed by
documents in the applicable Loan file;
(C) Patapsco or a Subsidiary of Patapsco is the sole holder
of legal and beneficial title to each Loan (or
Patapsco's or its
Subsidiary's
applicable
participation
interest, as
applicable),
except
as otherwise
referenced on the books and records of Patapsco or a Subsidiary of
Patapsco;
(D) the original note and the related security documents are
included in the Loan files, and copies of any documents in the Loan files are
true and correct
copies of the
documents they purport
to be and have not been
suspended, amended,
modified, canceled or otherwise changed except as otherwise
disclosed by documents in the applicable Loan file; and
(E)
with respect to a Loan held in the form of a
participation, the
participation
documentation is
legal, valid,
binding and
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance
and other laws of
general applicability
relating to or
affecting creditors' rights and to general equity principles.
(ii) Neither the terms of any Loan, any of the documentation for
any Loan, the manner in which any Loans have been administered and
serviced, nor
Patapsco's practices of approving or rejecting Loan applications,
violate in any
material respect any federal, state, or local law, rule or
regulation applicable
thereto, including,
without limitation, the Truth In Lending Act, Regulations O
and Z of the Federal Reserve Board, the CRA, the Equal Credit
Opportunity Act,
and any state laws,
rules and regulations
relating to consumer protection,
installment sales and usury.
(iii) The allowance for loan losses reflected in Patapsco's
audited balance
sheet at June 30, 2006
was, and the allowance
for loan losses
shown on the balance sheets in Patapsco's Reports for periods ending after
such
date, in the opinion
of management,
was or will be
adequate, as of the
dates
thereof, under GAAP.
(y)
Anti-takeover
Provisions
Inapplicable.
Patapsco and
its
Subsidiaries have taken all actions required to exempt Newco, the
Agreement, the
Plan of Bank Merger,
the Merger and the Bank Merger from any provisions of an
antitakeover nature
contained in their organizational documents, and the
provisions of any federal or state "anti-takeover," "fair price,"
"moratorium,"
"control share acquisition" or similar laws or regulations.
(z) Material
Interests of Certain Persons. No current or former
officer or director of Patapsco, or any family member or affiliate of any
such
person, has any
material interest,
directly or indirectly, in any contract or
property (real or personal), tangible or intangible, used in or pertaining to
the business of Patapsco or any of its Subsidiaries.
(aa) Insurance.
In the opinion of management, Patapsco and its
Subsidiaries are presently insured for amounts deemed
reasonable by
management
29
<PAGE>
against such
risks as companies engaged in a similar business would, in
accordance with good
business practice, customarily be insured. Patapsco's
Disclosure Letter contains a list of all policies of insurance
carried and owned
by Patapsco or any of Patapsco's Subsidiaries showing the name of
the insurance
company and agent, the
nature of the
coverage, the policy
limit, the annual
premiums and the
expiration
date. All of the insurance policies and bonds
maintained by
Patapsco and its Subsidiaries are in full force and effect,
Patapsco and its
Subsidiaries are not in default thereunder, all premiums and
other payments due under any such policy have been paid and all
material claims
thereunder have been filed in due and timely fashion.
(bb) Investment Securities; Derivatives.
(i) Except for
restrictions that
exist for securities
that are
classified as "held to
maturity," none of the
investment
securities
held by
Patapsco or any of its
Subsidiaries is subject to any restriction (contractual
or statutory) that
would materially
impair the ability of
the entity holding
such investment freely to dispose of such investment at any
time.
(ii) Neither Patapsco nor any of its Subsidiaries is a party to
or
has agreed to enter into an exchange-traded or over-the-counter
equity, interest
rate, foreign exchange or other swap, forward, future, option, cap, floor or
collar or any other contract that is a derivative contract (including various
combinations thereof) or owns securities that (A) are referred to
generically as
"structured notes,"
"high risk mortgage
derivatives,"
"capped floating rate
notes" or "capped floating rate mortgage derivatives" or (B) are likely to
have
changes in value
as a result of interest or exchange rate changes that
significantly exceed
normal changes in value attributable to interest or
exchange rate changes.
(cc)
Indemnification.
Except as provided in the articles of
incorporation or bylaws of Patapsco and the similar organizational
documents of
its Subsidiaries, neither Patapsco nor any of its Subsidiaries is a
party to any
agreement that provides for the indemnification of any of its
present or former
directors, officers
or employees, or other persons who serve or served as
a
director, officer or
employee of another corporation, partnership or other
enterprise at the request of Patapsco and, to the knowledge of Patapsco,
there
are no claims for which any such person would be entitled to indemnification
under the articles of incorporation or bylaws of Patapsco or the similar
organizational documents of any of its Subsidiaries, under any
applicable law or
regulation or under any indemnification agreement.
(dd) Corporate
Documents
and Records. Patapsco has previously
delivered to Newco a complete and correct copy of the articles of
incorporation,
bylaws and similar
organizational
documents of Patapsco and each of Patapsco's
Subsidiaries, as in
effect as of the date of this Agreement. Neither Patapsco
nor any of Patapsco's Subsidiaries is in violation of its articles of
incorporation, bylaws
or similar organizational documents. The minute books of
Patapsco and each of Patapsco's Subsidiaries constitute a complete and
correct
record of all actions taken by their respective boards of directors (and each
committee thereof) and their stockholders.
(ee) Information Supplied. The information regarding Patapsco
and its
Subsidiaries to be
supplied by Patapsco for inclusion in the Proxy
Statement,
30
<PAGE>
the Merger Registration Statement, the Conversion Registration Statement,
any
filings or
approvals under applicable state securities laws or any filing
pursuant to Rule 165 or Rule 425 under the Securities Act or Rule 14a-12 under
the Exchange Act will
not contain any untrue
statement of a
material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which
they are made, not misleading.
(ff) CRA, Anti-Money Laundering, OFAC and Customer Information
Security. The Patapsco Bank has received a rating of "Satisfactory"
or better in
its most recent
examination or interim review with respect to the CRA. Patapsco
is not aware of, and has not been advised of, any facts or
circumstances
exist
that would cause The Patapsco Bank or any other Subsidiary of Patapsco:
(i) to
be deemed not to be in satisfactory compliance in any material respect
with the
CRA, and the regulations promulgated thereunder, or to be assigned a rating for
CRA purposes by federal or state bank regulators of lower than
"satisfactory";
or (ii) to be deemed to be operating in violation in any material
respect of the
Bank Secrecy Act, the
Patriot Act, any order issued with respect to anti-money
laundering by the U.S.
Department of the
Treasury's Office of
Foreign Assets
Control, or
any other applicable anti-money laundering statute, rule or
regulation; or (iii)
to be deemed not to be in satisfactory compliance in any
material respect
with the applicable privacy of customer information
requirements contained
in any federal and state privacy laws and regulations,
including without limitation, in Title V of the Gramm-Leach-Bliley Act of 1999
and the regulations
promulgated
thereunder,
as well as the
provisions of the
information security program adopted by The Patapsco Bank. Patapsco
is not aware
of any facts or circumstances that would cause it to believe that
any non-public
customer information
has been disclosed to or accessed by an unauthorized third
party in a manner which would cause either Patapsco or any of its
Subsidiaries
to undertake any
remedial action.
The Board of Directors
of The Patapsco Bank
(or where appropriate of any other Subsidiary of Patapsco) has
adopted, and The
Patapsco Bank (or such
other Subsidiary of Patapsco) has implemented, an
anti-money laundering
program that contains
adequate and appropriate customer
identification
verification
procedures that
comply with Section 326 of the
Patriot Act and such anti-money laundering program meets the
requirements in all
material respects
of Section 352 of the Patriot Act and the regulations
thereunder, and The
Patapsco Bank (or such
other Subsidiary
of Patapsco) has
complied in all
material respects
with any requirements to file reports and
other necessary
documents as required by the Patriot Act and
the regulations
thereunder.
(gg) Internal Controls.
(i) Patapsco
has devised and maintained a system of internal
accounting controls
sufficient to provide
reasonable
assurance that: (A)
all
material transactions
are executed in accordance with general or specific
authorization of the
Board of Directors and the duly authorized executive
officers of Patapsco; (B) all material transactions are recorded as
necessary to
permit the
preparation
of financial statements in conformity with GAAP
consistently applied;
and (C) access to the
material properties
and assets of
Patapsco is permitted only in accordance with general or specific
authorization
of the Board
of Directors and the duly authorized executive officers of
Patapsco.
31
<PAGE>
(ii) Patapsco
(A) has implemented and maintains disclosure
controls and
procedures (as defined
in Rule 13a-15(e) of
the Exchange Act) to
ensure that
material
information
relating
to Patapsco, including its
Subsidiaries, is made
known to the chief executive officer and the chief
financial officer of
Patapsco by others
within those entities, and (B) has
disclosed, based on
its most recent
evaluation prior to
the date hereof,
to
Patapsco's outside
auditors and the audit committee of Patapsco's Board of
Directors (1) any significant deficiencies and material weaknesses
in the design
or operation of internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect
Patapsco's
ability to
record, process, summarize and report financial
information, and
(2) any fraud, whether or not material, that involves
management or other employees who have a significant role in
Patapsco's internal
controls over financial reporting. Any such disclosures were made in
writing by
management to Patapsco's auditors and audit committee and a
copy has previously
been made available
to Newco. As of the date hereof, there is no reason to
believe that Patapsco's chief executive officer and chief financial
officer will
not be able to give the certifications required under SEC regulations
when next
due.
(iii) Since January 1, 2004, (A) through the date hereof,
neither
Patapsco nor any of its Subsidiaries has received or otherwise had or
obtained
knowledge of any material complaint, allegation, assertion or claim, whether
written or oral,
regarding the
accounting or auditing
practices,
procedures,
methodologies or
methods of Patapsco or any of its Subsidiaries or their
respective internal
accounting
controls, including any material complaint,
allegation, assertion
or claim that
Patapsco or any of its
Subsidiaries
has
engaged in questionable accounting or auditing
practices,
and (B) no
attorney
representing Patapsco
or any of its
Subsidiaries, whether
or not employed by
Patapsco or
any of its
Subsidiaries,
has reported evidence of a material
violation of securities laws, federal banking laws and
regulations,
breach of
fiduciary duty
or similar violation by Patapsco or any of its officers,
directors, employees
or agents to the Board
of Directors
of Patapsco or any
committee thereof or to any director or officer of Patapsco.
(hh) Tax Treatment
of the Merger.
Patapsco has no knowledge of any
fact or circumstance relating to it that would prevent the transactions
contemplated by this Agreement from qualifying as a reorganization
under Section
368 of the IRC.
3.3 Representations and Warranties of the Bradford Parties. Each of
the
Bradford Parties, severally and not jointly, represents and
warrants to Patapsco
that, except as set forth in the Bradford Parties' Disclosure
Letter:
(a) Organization and Qualification.
(i) MHC is a federally
chartered mutual holding company duly
organized, validly
existing and in good
standing under the
laws of the United
States and is registered as a savings and loan holding
company under the
HOLA.
MHC has all requisite
corporate power and
authority to own,
lease and operate
its properties and to conduct the business currently being conducted by it.
MHC
is duly qualified or licensed as a foreign corporation to transact business
and
is in good
standing in each jurisdiction in which the character of the
properties owned or
leased by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
32
<PAGE>
so qualified or licensed and in good standing would not have a
Material Adverse
Affect on the Bradford Parties.
(ii) Bradford is a federal corporation duly organized, validly
existing and in good
standing under the laws of the United States and is
registered as a savings and loan holding company under the HOLA. Bradford has
all requisite
corporate power and authority to own, lease and operate its
properties and to conduct the business currently being conducted by
it. Bradford
is duly qualified or licensed as a foreign corporation to transact business
and
is in good
standing in each jurisdiction in which the character of the
properties owned or
leased by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so qualified or licensed and in good standing would not have a
Material Adverse
Affect on the Bradford Parties.
(iii) Newco is a corporation duly organized, validly existing and
in good standing
under the laws of the State of Maryland. Newco has all
requisite corporate power and authority to own, lease and operate
its properties
and to conduct the
business currently
being conducted by it. Newco is duly
qualified or licensed as a foreign corporation to transact business and is in
good standing in each
jurisdiction
in which the
character of the
properties
owned or leased by it or the nature of the business conducted by it makes such
qualification or
licensing necessary, except where the failure to be so
qualified or licensed
and in good standing
would not have a
Material Adverse
Affect on the Bradford Parties.
(b) Subsidiaries.
Bradford owns of
record and
beneficially all
the
capital stock of Bradford Bank free and clear of any Liens.
Following completion
of the Conversion,
Newco will own of record and beneficially all of the capital
stock of Bradford Bank free and clear of any Liens. Bradford Bank
is a bank duly
organized and validly
existing under the laws of the United
States, has all
requisite corporate power and authority to own, lease and operate
its properties
and to conduct
the business currently being conducted by it and is duly
qualified or licensed as a foreign corporation to transact business and is in
good standing in each
jurisdiction
in which the
character of the
properties
owned or leased by it or the nature of the business conducted by it makes such
qualification or
licensing necessary, except where the failure to be so
qualified or licensed
and in good standing
would not have a
Material Adverse
Affect on the Bradford
Parties. No Subsidiary
of Bradford other than
Bradford
Bank is an "insured
depository
institution" as
defined in the Federal Deposit
Insurance Act, as amended, and the applicable regulations
thereunder.
Bradford
Bank's deposits are insured by the FDIC to the fullest extent
permitted by law.
Bradford Bank is a
member in good
standing of the
Federal Home Loan Bank of
Atlanta.
(c) Capital Structure.
(i) The authorized capital stock of Bradford consists of
10,000,000 shares of
common stock,
par value $.01 per share, and 1,000,000
shares of preferred
stock, par value $.01 per share. MHC owns of record and
beneficially all the capital stock of Bradford free and clear of
any Liens.
33
<PAGE>
(ii) The authorized
capital stock of Newco consists of 100,000,000
shares of Newco Common
Stock, of which 1,000 shares are outstanding, and
10,000,000 shares of
preferred stock, par
value $.01 per share,
none of which
are outstanding.
Bradford Bank owns of record and beneficially all the
outstanding Newco Common Stock free and clear of any Liens.
(iii) The shares of Newco Common Stock to be issued in exchange
for shares
of Patapsco Common Stock upon consummation of the Merger in
accordance with this
Agreement have been duly authorized and when issued in
accordance with the terms of this Agreement, will be validly issued, fully
paid
and nonassessable and subject to no preemptive rights.
(iv) Neither Bradford
nor any of its Subsidiaries has or is bound
by any outstanding subscriptions, options, warrants, calls, rights,
convertible
securities,
commitments or agreements of any character obligating Bradford or
any of its
Subsidiaries to
issue, deliver or sell, or cause to be issued,
delivered or sold,
any additional shares of capital stock of Bradford or
obligating Bradford or
any of its
Subsidiaries to grant,
extend or enter into
any such option,
warrant, call,
right, convertible security, commitment or
agreement.
(d) Authority.
MHC, Bradford, Bradford Bank and Newco each has
all
requisite corporate power and authority to enter into this
Agreement, to perform
its obligations
hereunder and to
consummate the
transactions
contemplated by
this Agreement.
The execution and delivery of this Agreement and the
consummation of the
transactions
contemplated by this Agreement have been duly
authorized by all
necessary corporate actions on the part of the Boards of
Directors of MHC,
Bradford, Bradford
Bank and Newco,
by Bradford as the
sole
stockholder of
Bradford Bank and by
Bradford Bank as the sole stockholder of
Newco. Except for the
approval of the members of MHC in
connection
with the
Conversion as
described in the Plan of Conversion, no other corporate
proceedings on the part of MHC, Bradford, Bradford Bank and Newco are
necessary
to authorize this Agreement or to consummate the transactions contemplated by
this Agreement. This
Agreement has been duly and validly executed and delivered
by MHC, Bradford,
Bradford Bank and
Newco and constitutes
a valid and binding
obligation of MHC, Bradford, Bradford Bank and Newco,
enforceable against
MHC,
Bradford, Bradford
Bank and Newco in
accordance
with its terms, subject to
applicable bankruptcy,
insolvency and similar
laws affecting creditors' rights
and remedies generally and to general principles of equity, whether
applied in a
court of law or a court of equity.
(e) No Violations.
The execution,
delivery and
performance of
this
Agreement by MHC, Bradford, Bradford Bank and Newco do not, and the
consummation
of the transactions
contemplated
by this Agreement will
not, (i) assuming all
required governmental
approvals have been
obtained and the applicable waiting
periods have expired,
violate any law,
rule or regulation or any judgment,
decree, order,
governmental permit or license to which MHC, Bradford, Bradford
Bank and Newco or any of their respective Subsidiaries (or any of their
respective properties) is subject, (ii) violate the articles of
incorporation or
bylaws of MHC, Bradford, Bradford Bank and Newco or the
similar
organizational
documents of any of their respective Subsidiaries or (iii) constitute a
breach
or violation of, or a default under (or an event which, with due
notice or lapse
of time or both, would constitute a default under), or result in
the termination
of, accelerate
the performance required by, or result in the
creation of any
Lien upon any of the
properties or assets of MHC, Bradford, Bradford Bank and
Newco or any of their respective Subsidiaries under, any of the terms,
conditions or
provisions of any
note, bond,
indenture,
deed of trust,
loan
34
<PAGE>
agreement or other agreement, instrument or obligation to which
MHC, Bradford,
Bradford Bank and Newco or any of their respective Subsidiaries is a party, or
to which any of their respective properties or assets may be
subject except, in
the case of (iii), for any such breaches, violations or defaults
that would not,
individually or in the aggregate, have a Material Adverse Effect on
the Bradford
Parties.
(f) Consents and Approvals. Except for (i) the regulatory approvals
required for the
completion
of the Conversion, as described in the Plan of
Conversion, (ii) the
filing by Newco with
the SEC of the Merger
Registration
Statement and the
declaration
of effectiveness of the Merger Registration
Statement by the SEC;
(iii) the filing of
the Articles of Merger with the SDAT
and such filings with Governmental Entities to satisfy the applicable
requirements of the
laws of states in which Patapsco and its Subsidiaries are
qualified or licensed
to do business or
state securities
or "blue sky"
laws;
(iv) the approval of the FRB under the BHC Act in connection
with the merger of
Patapsco and Newco, or the waiver thereof; (v) the approval or non-objection
of
the OTS under the HOLA in connection with the merger of Patapsco and
Newco and
the approval of the OTS under the BMA in connection with the merger of Bradford
Bank and The Patapsco Bank; and (vi) the approval of the Maryland
Superintendent
of Financial
Regulation in connection with the acquisition of the voting
stock
of The Patapsco
Bank as a result
of the merger of Patapsco and Newco, no
consents or
approvals of or filings or registrations with any Governmental
Entity are necessary in connection with (A) the execution and
delivery by MHC,
Bradford, Bradford
Bank and Newco of this Agreement and (B) the consummation by
Newco of the Merger and the other transactions contemplated by this
Agreement.
As of the date hereof,
neither MHC, Bradford,
Bradford Bank nor Newco knows of
no reason pertaining
to MHC, Bradford,
Bradford Bank and
Newco why any of the
approvals referred to
in this Section 3.3(f) should not be obtained without the
imposition of any material condition or restriction described in
Section 6.1(b).
(g) Governmental
Filings. MHC, Bradford and Bradford Bank have timely
filed all reports,
registrations and
statements, together
with any amendments
required to be made with respect thereto, that they were required to file
since
January 1, 2004 with (i) the OTS, (ii) the FDIC, and (iii) each
other applicable
Governmental Entity,
and all other reports and statements required to be filed
by them since January 1, 2004, including any report or statement
required to be
filed pursuant to the
laws, rules or
regulations
of the United
States, any
state, any foreign entity, or any Government Regulator, and have paid all fees
and assessments
due and payable in
connection
therewith.
No administrative
actions have been taken or, to the knowledge of MHC, Bradford and
Bradford Bank,
threatened or orders issued in connection with any such report,
registration or
statement. As of their
respective
dates, each such report, registration and
statement complied in
all material respects
with all laws or regulations under
which it was filed (or was amended so as to be in compliance
promptly following
discovery of such noncompliance).
(h) Financial
Statements.
MHC has previously made available to
Patapsco copies
of (i) the consolidated balance sheets of MHC and its
Subsidiaries as
of December 31, 2005 and 2004 and related consolidated
statements of income, cash flows and changes in stockholders'
equity for each of
35
<PAGE>
the years in the two-year period ended December 31, 2005, together with the
notes thereto,
accompanied by the audit report of Bradford's independent
public
auditors, and
(ii) the unaudited consolidated balance sheet of MHC and its
Subsidiaries as of September 30, 2006 and the related consolidated
statements of
income for the nine months ended September 30, 2006. Such financial statements
were prepared
from the books and
records of MHC and its
Subsidiaries,
fairly
present the consolidated financial position of MHC and its
Subsidiaries in each
case at and as of the dates indicated and the consolidated results of
operations, retained earnings and cash flows of MHC and its
Subsidiaries for the
periods indicated, and, except as otherwise set forth in the notes
thereto, were
prepared in accordance
with GAAP consistently
applied throughout the periods
covered thereby; provided, however, that the unaudited
financial statements for
interim periods are
subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack statements of
cash flows and
changes in stockholders' equity and footnotes. The books and records of MHC
and
its Subsidiaries
have been, and are being, maintained in all respects in
accordance with GAAP and any other legal and accounting
requirements and reflect
only actual transactions.
(i) Undisclosed Liabilities. Neither MHC, Bradford, Bradford
Bank nor
Newco nor any of their respective Subsidiaries has incurred any
debt, liability
or obligation of any nature whatsoever (whether accrued,
contingent, absolute or
otherwise and whether due or to become due) other than liabilities
reflected on
or reserved
against in the consolidated balance sheet of Bradford as of
September 30, 2006, except for (i) liabilities incurred since
September 30, 2006
in the ordinary course of business consistent with past practice that,
either
alone or when combined with all similar liabilities, have not had,
and would not
reasonably be expected to have, a Material Adverse Effect on Bradford and (ii)
liabilities incurred
for legal, accounting, financial advising fees and
out-of-pocket expenses in connection with the transactions
contemplated by
this
Agreement.
(j) Absence of Certain
Changes or Events.
Since September 30,
2006,
(i) MHC, Bradford,
Bradford Bank and
Newco and their
respective
Subsidiaries
have conducted their respective businesses only in the ordinary and
usual course
of such businesses
consistent with their
past practices and (ii) there has not
been any event or occurrence that has had, or is reasonably
expected to have,
a
Material Adverse Effect on the Bradford Parties.
(k) Litigation. There
are no suits, actions or legal, administrative
or arbitration
proceedings
pending or, to the knowledge of MHC, Bradford,
Bradford Bank and Newco, threatened against or affecting MHC,
Bradford, Bradford
Bank and Newco or any of their Subsidiaries or any property or asset of MHC,
Bradford, Bradford Bank and Newco or any of their respective
Subsidiaries. There
are no judgments,
decrees, injunctions,
orders or rulings of
any Governmental
Entity or arbitrator outstanding against MHC, Bradford,
Bradford Bank and
Newco
or any of their respective Subsidiaries that, individually or
in the aggregate,
would reasonably be
expected to have a Material Adverse Effect on the Bradford
Parties.
(l) Absence of Regulatory Actions. Since January 1, 2004, neither
MHC,
Bradford, Bradford
Bank nor any of their
respective
Subsidiaries
has been a
party to any cease
and desist order, written agreement or memorandum of
understanding with, or
any commitment letter or similar undertaking to, or has
been subject to any action, proceeding, order or directive by any Government
36
<PAGE>
Regulator, or has adopted any board resolutions at the request of
any Government
Regulator, or
has been advised by any Government Regulator that it is
contemplating issuing
or requesting (or is considering the appropriateness of
issuing or requesting) any such action, proceeding, order, directive, written
agreement, memorandum of understanding, commitment letter, board
resolutions or
similar undertaking.
There
are no unresolved violations, criticisms or
exceptions by any
Government Regulator
with respect to any report or statement
relating to any examinations of MHC, Bradford, Bradford Bank or
their respective
Subsidiaries.
(m) Compliance with
Laws. Each of MHC,
Bradford, Bradford Bank and
Newco conducts its
business in material
compliance with all
statutes, laws,
regulations,
ordinances, rules,
judgments, orders or decrees applicable to it.
Each of MHC, Bradford,
Bradford Bank and Newco has all permits, licenses,
certificates of
authority,
orders and approvals
of, and has made all filings,
applications and registrations with, all Governmental Entities that
are required
in order to permit it to carry on its business as it is presently
conducted; all
such permits, licenses, certificates of authority,
orders and approvals
are in
full force and effect, and, to the knowledge of MHC, Bradford,
Bradford Bank and
Newco, no suspension or cancellation of any of them is threatened.
Neither MHC,
Bradford, Bradford Bank nor Newco has been given notice or been
charged with any
violation of, any law,
ordinance, regulation,
order, writ, rule, decree or
condition to approval of any Governmental Entity which, individually or in the
aggregate, would
reasonably be expected
to have a Material
Adverse Effect on
Bradford.
(n) Information
Supplied. The information to be supplied by the
Bradford Parties,
including any information related to any entities to be
acquired by them,
for inclusion in the Merger Registration Statement, the
Conversion
Registration
Statement, any filings
or approvals under
applicable
state securities laws,
or any filing pursuant to Rule 165 or Rule 425 under the
Securities Act or Rule 14a-12 under the Exchange Act will not
contain any untrue
statement of a material fact or omit to state any material
fact required to
be
stated therein or necessary in order to make the statements
therein, in light of
the circumstances under which they are made, not misleading. The
Proxy Statement
(except for such
portions thereof that relate only to Patapsco or
any of its
Subsidiaries) will
comply as to form in all material respects with the
provisions of the
Exchange Act and the rules and regulations thereunder. The
Merger Registration
Statement and the
Conversion
Registration Statement
will
comply as to form in all material respects with the provisions of
the Securities
Act and the rules and regulations thereunder.
(o) Environmental Matters.
(i) Each of Bradford and its Subsidiaries are, and have been, in
substantial compliance with all Environmental Laws.
(ii) There
is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding
pending or, to the
knowledge of Bradford,
threatened,
before any court,
governmental
agency or
board or other forum against Bradford or any of its Subsidiaries
(A) for alleged
noncompliance
(including by any
predecessor)
with, or liability
under, any
Environmental Law or
(B) relating
to the presence of or release into the
37
<PAGE>
environment of any Hazardous Material, whether or not occurring at or on
a site
owned, leased or operated by Bradford or any of its
Subsidiaries.
(iii) To the knowledge
of Bradford, there is no suit, claim,
action, demand,
executive or administrative order, directive, investigation or
proceeding pending or threatened before any court, governmental agency or board
or other forum
relating to or against any Loan Property (or Bradford or any
of
its Subsidiaries
in respect of such
Loan Property)
(A) relating to alleged
noncompliance
(including by any
predecessor)
with, or liability
under, any
Environmental Law or
(B) relating
to the presence of or release into the
environment of any
Hazardous Material, whether or not occurring at a Loan
Property.
(iv) Neither Bradford nor any of its Subsidiaries has received
any
notice, demand letter,
executive or administrative order, directive or request
for information from any Governmental Entity or any third party
indicating that
it may be in violation of, or liable under, any Environmental
Law.
(v) There are no underground storage tanks at any properties
owned
or operated
by Bradford or any of its Subsidiaries or any Participation
Facility. Neither
Bradford nor any of its Subsidiaries nor, to the knowledge of
Bradford, any other
person or entity,
has closed or removed
any underground
storage tanks from any
properties
owned or operated by
Bradford or any of its
Subsidiaries or any Participation Facility.
(vi) During the period of Bradford's or its Subsidiary's
ownership
or operation of any of their respective current properties, there has been no
release of Hazardous
Materials in, on, under or affecting such properties. To
the knowledge of Bradford, prior to the period of Bradford's or its
Subsidiary's
ownership or operation of any of their respective current
properties, there
was
no contamination by or release of Hazardous Material in, on, under or
affecting
such properties.
(p) CRA, Anti-Money Laundering, OFAC and Customer Information
Security. Bradford Bank has received a rating of "Satisfactory" or
better in its
most recent
examination or interim review with respect to the CRA. Bradford is
not aware of, and has not been advised of, any facts or
circumstances exist that
would cause Bradford Bank or any other Subsidiary of Bradford:
(i) to be deemed
not to be in satisfactory compliance in any material
respect with the CRA,
and
the regulations
promulgated
thereunder,
or to be assigned a rating for CRA
purposes by federal or state bank regulators of lower than
"satisfactory";
or
(ii) to be deemed to be operating in violation in any material
respect of the
Bank Secrecy Act, the
Patriot Act, any order issued with respect to anti-money
laundering by the U.S.
Department of the
Treasury's Office of
Foreign Assets
Control, or
any other applicable anti-money laundering statute, rule or
regulation; or (iii)
to be deemed not to be in satisfactory compliance in any
material respect
with the applicable privacy of customer information
requirements contained
in any federal and state privacy laws and regulations,
including without limitation, in Title V of the Gramm-Leach-Bliley Act of 1999
and the regulations
promulgated
thereunder,
as well as the
provisions of the
information security
program adopted by Bradford Bank. Bradford is not aware of
any facts or
circumstances that
would cause it to believe that any non-public
customer information
has been disclosed to or accessed by an unauthorized third
party in a manner which would cause either Bradford or any of its
Subsidiaries
to undertake any
remedial action.
The Board of Directors
of Bradford Bank (or
where appropriate of any other Subsidiary of Bradford) has adopted,
and Bradford
Bank (or such other
Subsidiary of
Bradford) has
implemented,
an anti-money
38
<PAGE>
laundering
program that
contains
adequate
and appropriate customer
identification
verification
procedures that
comply with Section 326 of the
Patriot Act and such anti-money laundering program meets the
requirements in all
material respects
of Section 352 of the Patriot Act and the regulations
thereunder, and
Bradford Bank (or such other Subsidiary of Bradford) has
complied in all
material respects
with any requirements to file reports and
other necessary
documents as required by the Patriot Act and
the regulations
thereunder.
(q) Internal Controls.
(i) Bradford and Bradford Bank have devised and maintained, and
Newco will have at the Effective Time, a system of internal
accounting
controls
sufficient to provide reasonable assurances that: (A) all material
transactions
are executed in accordance with general or specific authorization of the Board
of Directors and the duly authorized executive officers of Bradford
and Bradford
Bank; (B) all
material transactions are recorded as necessary to permit
the
preparation of
financial statements in conformity with GAAP consistently
applied; and (C)
access to the material
properties and assets
of Bradford and
Bradford Bank
is permitted only in accordance with general or specific
authorization of the
Board of Directors and the duly authorized executive
officers of Bradford and Bradford Bank.
(ii) Since January 1, 2004, (A) through the date hereof,
neither
Bradford nor Bradford Bank has received or otherwise had or obtained knowledge
of any material complaint, allegation, assertion or claim, whether written or
oral, regarding the accounting or auditing practices, procedures,
methodologies
or methods of Bradford or Bradford Bank or their respective
internal
accounting
controls, including any material complaint, allegation, assertion or claim
that
Bradford or Bradford Bank or any of their respective Subsidiaries
has engaged in
questionable accounting or auditing practices, and (B) no attorney
representing
Bradford, Bradford Bank or any of their respective Subsidiaries,
whether or not
employed by Bradford or Bradford Bank or any of their respective Subsidiaries,
has reported
evidence of a material
violation of securities laws, federal
banking laws and regulations, breach of fiduciary duty or
similar violation
by
Bradford or Bradford
Bank or any of their
officers, directors,
employees or
agents to the Board of Directors of Bradford or Bradford
Bank or any
committee
thereof or to any director or officer of Bradford or Bradford
Bank.
(r) Tax Treatment of the Merger. Neither MHC, Bradford,
Bradford Bank
nor Newco has any
knowledge of any fact
or circumstance
relating to it that
would prevent the transactions contemplated by this Agreement from
qualifying as
a reorganization under Section 368 of the IRC.
(s) Availability
of Funds. Newco will have available to it at the
Effective Time
sources of capital sufficient to pay the aggregate Cash
Consideration and to
pay any other amounts
payable pursuant to
this Agreement
and to effect the transactions contemplated hereby.
39
<PAGE>
(t) Pending Acquisitions. As of the date hereof, Bradford Bank and
the
MHC have entered into an Agreement and Plan of Merger, dated as of January 2,
2007, with Golden Prague Federal Savings and Loan Association and an Agreement
and Plan of Merger,
dated as of January 25, 2007, with Senator Bank (together,
the "Pending
Merger Agreements"). Golden Prague Federal Savings and Loan
Association and
Senator Bank are referred to collectively as the "Target
Organizations". Bradford has previously made available to Patapsco
copies of the
Pending Merger
Agreements,
including all exhibits and disclosure schedules
thereto. To Bradford's knowledge, each of the representations and
warranties of
the Target
Organizations
contained in the Pending Merger Agreements were
accurate as of the date of such agreements and are accurate as of the date of
this Agreement,
except for such inaccuracies that would not have a Material
Adverse Effect on the Bradford Parties. To Bradford's knowledge, none of the
parties to the Pending
Merger Agreements are
in breach thereof.
Bradford has
previously made
available to Patapsco
copies of all
regulatory
applications,
notices and other information (the "Pending Merger Applications")
that have been
filed with Government
Entities with respect
to the acquisition
of the Target
Organizations. To
Bradford's knowledge,
all the information
contained in the
Pending Merger
Applications
is accurate.
Bradford knows of no
reason why all
approvals, consents
and clearances necessary for the consummation of the
transactions
contemplated by the Pending Merger Agreements will not be
received
by July 31, 2007.
(u) Employee Benefit Plans.
(i) Bradford's
Disclosure Letter contains a complete and accurate
list of all pension,
retirement, stock option, stock purchase, stock ownership,
savings, stock
appreciation
right, profit sharing, deferred compensation,
consulting,
bonus, group
insurance,
severance
and other benefit plans,
contracts, agreements and arrangements, including, but not limited
to, "employee
benefit plans,"
as defined in Section
3(3) of ERISA,
incentive and welfare
policies, contracts,
plans and arrangements
and all trust
agreements related
thereto with
respect to any
present or former
directors,
officers or other
employees of
Bradford or any of its Subsidiaries (hereinafter referred to
collectively as
the "Bradford Employee Plans"). Bradford has previously
delivered or made
available to Patapsco true and complete copies of each
agreement, plan and
other documents referenced in Bradford's Disclosure Letter,
along with, where applicable, copies of the IRS Form 5500 or 5500-C
for the most
recently completed
year. Each Bradford Employee Plan that is an "employee
pension benefit
plan" (as defined in Section 3(2) of ERISA) and which is
intended to be
qualified under Section 401(a) of the IRC has received a
favorable
determination letter
from the IRS, and Bradford and its subsidiaries
are not aware of any
circumstances likely
to result in
revocation of any such
favorable determination letter.
(ii) There
is no pending or, to the knowledge of Bradford,
threa
