TABLE OF CONTENTS

 

			Page
ARTICLE I CERTAIN DEFINITIONS			2
1.1	Certain Definitions		2
ARTICLE II THE MERGER			13
2.1	The Merger		13
2.2	Effective Date and Effective Time; Closing		15
ARTICLE III MERGER CONSIDERATION; EXCHANGE PROCEDURES			15
3.1	Conversion of Shares		15
3.2	Fractional Shares		16
3.3	Election and Proration Procedures		16
3.4	Exchange Procedures		19
3.5	Adjustments for Dilution and Other Matters		21
3.6	Dissenting Shares		22
3.7	Withholding Rights		22
3.8	AHB Options and Warrants		22
3.9	Lost, Stolen or Destroyed Certificates		23
ARTICLE IV ACTIONS PENDING CLOSING			24
4.1	Forbearances of AHB		24
4.2	Forbearances of Parent		27
ARTICLE V REPRESENTATIONS AND WARRANTIES			28
5.1	Disclosure Schedules		28
5.2	Standard		29
5.3	Representations and Warranties of AHB		29
5.4	Representations and Warranties of Parent		49
ARTICLE VI COVENANTS			57
6.1	Commercially Reasonable Efforts		57
6.2	Shareholders Meeting		57
6.3	Registration Statement		57
6.4	Regulatory Filings		58
6.5	Press Releases		59
6.6	Access; Information		59
6.7	Certain Actions		60
6.8	Certain Policies		62
6.9	Indemnification		62
6.10	Benefit Plans		64
6.11	Parent and Parent Bank Board		65
6.12	Notification of Certain Matters		65
6.13	Employees; Severance Plan		66

 

i

 

6.14	AHB Management Incentive Plan		66
6.15	AHB Warrants		66
6.16	Reconciliation of Accounts		67
6.17	CMAC Applications		67
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER			68
7.1	Conditions to Each Party’s Obligation to Effect the Merger		68
7.2	Conditions to Obligation of AHB		69
7.3	Conditions to Obligation of Parent		70
ARTICLE VIII TERMINATION			71
8.1	Termination		71
8.2	Effect of Termination		73
8.3	Termination Fee		73
ARTICLE IX MISCELLANEOUS			74
9.1	Survival		74
9.2	Waiver; Amendment		74
9.3	Counterparts		74
9.4	Governing Law		74
9.5	Expenses		74
9.6	Notices		74
9.7	Entire Understanding; No Third Party Beneficiaries		76
9.8	Severability		76
9.9	Enforcement		76
9.10	Interpretation		77
9.11	Assignment		77
9.12	Alternative Structure		77

 

ii

 

LIST OF EXHIBITS

 

Description		Number
Franklin Financial Services Corporation Support Agreement		1
Warrant Cancellation Agreement		2
AHB Option and AHB Warrant Standstill Agreement		3
Voting Agreement		4
Non-Competition and Non-Solicitation Agreement		5
Post-Closing Selling Agreement		6
Employment Agreement of James M. Deitch		7
Employment Agreement of Anna R. Smith		8

 

iii

 

AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER, dated as of September 16, 2008 (this “ Agreement ”), among First Chester County Corporation (“ Parent ”), First National Bank of Chester County (“ Parent Bank ”) and American Home Bank, National Association (“ AHB ”).

 

RECITALS

 

A.            AHB .  AHB is a national banking association, having its principal place of business in Mountville, Lancaster County, Pennsylvania.

 

B.            Parent .  Parent is a Pennsylvania corporation, having its principal place of business in West Chester, Chester County, Pennsylvania.

 

C.            Parent Bank .  Parent Bank is a national banking association, having its principal place of business in West Chester, Chester County, Pennsylvania and is a wholly-owned subsidiary of Parent.

 

D.            Franklin Agreements .  As a condition and inducement to Parent, Parent Bank and AHB to enter into this Agreement, Franklin Financial Services Corporation has entered into the Franklin Financial Services Corporation Support Agreement in the form of Exhibit 1, the Warrant Cancellation Agreement in the form of Exhibit 2, and the AHB Option and AHB Warrant Standstill Agreement in the form of Exhibit 3.

 

E.             Director and Management Agreements .  As a condition and inducement to Parent and Parent Bank to enter into this Agreement, the directors of AHB, James M. Deitch and Anna R. Smith are each concurrently executing a Voting Agreement in the form of Exhibit 4, the Warrant Cancellation Agreement in the form of Exhibit 2, and the AHB Option and AHB Warrant Standstill Agreement in the form of Exhibit 3; the directors of AHB (other than James M. Deitch and Anna R. Smith, who are executing Employment Agreements as set forth in Recital F) are concurrently executing a Non-Competition and Non-Solicitation Agreement in the form of Exhibit 5; and the persons listed on Recital Schedule E are each concurrently executing a Post-Closing Selling Agreement in the form of Exhibit 6.

 

F.             Employment Agreements .  As a condition and inducement to Parent, Parent Bank, and AHB to enter into this Agreement, Parent and Parent Bank have entered into the Employment Agreement with James M. Deitch attached hereto as Exhibit 7 and the Employment Agreement with Anna R. Smith attached hereto as Exhibit 8.

 

G.            Board Action .  The respective Boards of Directors of Parent, Parent Bank and AHB have (i) determined that it is in the best interests of their respective companies and their shareholders to consummate the strategic business combination provided for in this Agreement; (ii) determined that this Agreement and the transactions contemplated hereby are consistent with and in furtherance of their respective business objectives; and (iii) approved this Agreement.

 

 

H.            The Merger .   In accordance with the terms of this Agreement, AHB will merge with and into Parent Bank (the “ Merger ”), with Parent Bank as the surviving corporation in the Merger (sometimes referred to in such capacity as the “ Surviving Bank ”).  Pursuant to the procedures set forth in Article III of this Agreement, in the aggregate, approximately 90% of the consideration to be received by AHB shareholders as a result of the Merger shall be in the form of Parent common stock and approximately 10% of the consideration to be received by AHB shareholders as a result of the Merger shall be in cash.

 

I.              Intention of the Parties .   It is the intention of the parties to this Agreement that the Merger provided for herein be treated as a “reorganization” under Section 368(a) of the Internal Revenue Code of 1986, as amended, and this Agreement constitutes a “plan of reorganization” within the meaning of Section 1.368-1(c) of the Treasury Regulations.

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations, warranties and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows:

 

ARTICLE I

 

CERTAIN DEFINITIONS

 

1.1          Certain Definitions .  The following terms are used in this Agreement with the meanings set forth below:

 

“ Acquisition Proposal ” has the meaning set forth in Section 6.7(e)(i).

 

“ Action ”   means any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, Bank Regulatory Authority or other Governmental Authority.

 

“ Advances ”  means, with respect to AHB, or any of the Affiliates in the AHB Group or the Servicing Agreements, the monies or funds that have been advanced by AHB before the Closing from its funds in connection with the servicing of the Mortgage Loans in accordance with the Applicable Requirements.

 

“ Affiliate ” means, with respect to AHB, any member of AHB Group.

 

 “ Agency ” means FHA, VA, FNMA, FHLMC, GNMA, HUD or State Agency, as applicable.

 

“ Agreement ” means this Agreement, as amended or modified from time to time in accordance with Section 9.2.

 

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

 

“ AHB Articles ” means the Articles of Association of AHB, as amended.

 

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

 

2

 

“ AHB Bylaws ” means the Bylaws of AHB, as amended.

 

“ AHB Commercial Loan Property ” has the meaning set forth in Section 5.3(p)(i).

 

“ AHB Common Stock ” means the common stock, par value $1.00 per share, of AHB.

 

“ AHB Disclosure Schedule ” has the meaning set forth in Section 5.1.

 

“ AHB Financial Reports ” has the meaning set forth in Section 5.3(h).

 

“ AHB Group ” means any “affiliated group”, as defined in Section 1504(a) of the Code without regard to the limitations contained in Section 1504(b) of the Code, that includes AHB or any predecessor of or any successor to AHB, and includes, without limitation, AHB and all joint ventures of AHB with other Persons.

 

“ AHB Insiders ” means the officers, directors and 10% or greater shareholders of AHB.

 

“ AHB Meeting ” has the meaning set forth in Section 6.2.

 

“ AHB Options ” means options, rights, or contracts to acquire AHB Common Stock.

 

“ AHB Option Holder ” has the meaning set forth in Section 3.8(a).

 

“ AHB Regulation ” has the meaning set forth in Section 5.2(g)(ii)(3).

 

“ AHB Residential Loan Property ” has the meaning set forth in Section 5.3(p)(i).

 

“ AHB Regulatory Authorities ” has the meaning set forth in Section 5.3(j)(i).

 

“ AHB Stock Option Plan ” means AHB’s 2001 Stock Option Incentive Plan as set forth on Schedule 3.8(a) .

 

“ AHB Warrants ” means warrants to acquire AHB Common Stock.

 

“ AHB Warrant Holder ” means the owners of any and all outstanding AHB Warrants.

 

“ Applicable Requirements ” means and includes, as of the time of reference, with respect to the origination of the Pipeline Loans, or the origination, purchase, sale and servicing of the Mortgage Loans, or the handling of an REO, or the Servicing Agreements, all of the following (in each case to the extent applicable to any particular Pipeline Loan, Mortgage Loan, REO or Servicing Agreement):  (i) all contractual obligations of the AHB Group, including with respect to any Servicing under any Servicing Agreement, Mortgage Loan, Mortgage Note, Mortgage and other Mortgage Loan Document or any commitment or other contractual obligation relating to a Pipeline Loan, (ii) all applicable underwriting, servicing and other guides of AHB or the AHB Group, and as may be incorporated in the Seller and Servicing Guides, (ii) all applicable federal, state and local legal and regulatory requirements (including statutes, rules, regulations and ordinances) binding upon AHB or the AHB Group, (iii) all other applicable requirements and guidelines of each governmental agency, board, commission, instrumentality and other governmental or quasi-governmental body or office having jurisdiction, including without

 

3

 

limitation those of any applicable Agency, Investor or Insurer and (iv) all other applicable judicial and administrative judgments, orders, stipulations, awards, writs and injunctions.

 

“ Approval Recommendation ” has the meaning set forth in Section 6.2.

 

“ Average Closing Price ” means the arithmetic average of the per share last prices for Parent Common Stock as quoted on the OTC Bulletin Board, calculated to four decimal places, for each of the twenty consecutive trading days ending on and including the fifth such trading day prior to the specified date rounded to the nearest whole cent.  For the purposes of this Agreement, the last price for each day shall be the last price as quoted as of the end of a trading day on www.otcbb.com.

 

“ Bank Insurance Fund ” means the Bank Insurance Fund maintained by the FDIC.

 

“ Bank Regulatory Authority ” means the Federal Reserve Board, the OCC and the FDIC, and any other state or federal bank regulatory agency charged with the supervision or regulation of AHB, Parent or Parent Bank or the insurance of the deposits of AHB or Parent Bank.

 

“ Bank Secrecy Act ” means the Bank Secrecy Act of 1970, as amended.

 

“ Benefit Plans ” has the meaning set forth in Section 5.3(n)(i).

 

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

 

“ Cash Amount ” means that portion of the Merger Consideration not consisting of Parent Common Stock and, subject to adjustment pursuant to Sections 3.5, Section 6.16 and Section 7.1(g), equals $1,843,157.

 

“ Cash Election ” has the meaning set forth in Section 3.3(a).

 

“ Cash Proration Factor ” has the meaning set forth in Section 3.3(c)(ii)(C).

 

“ Certificate ” means any certificate that immediately prior to the Effective Time represented shares of AHB Common Stock.

 

“ Change in AHB Recommendation ” has the meaning set forth in Section 6.7(b).

 

“ Closing ” and “ Closing Date ” have the meanings set forth in Section 2.2(b).

 

“ Code ” means the Internal Revenue Code of 1986, as amended, and any successor thereto.

 

“ Combination Cash Election ” has the meaning set forth in Section 3.3(a).

 

“ Combination Stock Election ” has the meaning set forth in Section 3.3(a).

 

4

 

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

 

“ Comparable Benefit Plans ” has the meaning set forth in Section 6.10(a).

 

“ Confidentiality Agreement ” has the meaning set forth in Section 6.6(c).

 

“ Custodial Account ” means all funds held or directly controlled by AHB or the AHB Group with respect to any Mortgage Loan, including all principal and interest funds and any other funds due Investors, buydown funds, suspense funds, funds for the payment of taxes, assessments, insurance premiums, ground rents and similar charges, funds from hazard insurance and other mortgage escrow amount and impound amounts.

 

“ Derivatives Contract ” has the meaning set forth in Section 5.3(r).

 

“ Dissenting Shares ” means shares of AHB Common Stock as to which appraisal rights are perfected under Section 215a of the National Bank Act or other applicable law.

 

“ DOL ” means the Department of Labor.

 

“ Effective Date ” has the meaning set forth in Section 2.2(a).

 

“ Effective Time ” has the meaning set forth in Section 2.2(a).

 

“ Election ” has the meaning set forth in Section 3.3(a).

 

“ Election Deadline ” has the meaning set forth in Section 3.3(b).

 

“ Election Form ” has the meaning set forth in Section 3.3(a).

 

“ Election Form Record Date ” has the meaning set forth in Section 3.3(a).

 

“ Environmental Laws ” has the meaning set forth in Section 5.3(p)(iii).

 

“ Equity Investment ” means (i) an Equity Security, (ii) any ownership interest in any company or other entity, any membership interest that includes a voting right in any company or other entity or any interest in real estate or (iii) any investment or transaction that in substance falls into any of these categories even though it may be structured as some other form of investment or transaction.

 

“ Equity Security ” means any stock (other than adjustable-rate preferred stock, money market (auction rate) preferred stock or other instrument determined by the OCC to have the character of debt securities), certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, or voting-trust certificate; any security convertible into such a security; any security carrying any warrant or right to subscribe to or purchase any such security and any certificate of interest or participation in, any temporary or interim certificate for or receipt for any of the foregoing.

 

5

 

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

 

“ ERISA Affiliate ” has the meaning set forth in Section 5.3(n)(iii).

 

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

 

“ Exchange Agent ” means Parent’s transfer agent which shall effect the exchange of AHB Common Stock for Parent Common Stock and/or cash, or such other Person designated by Parent and agreeable to AHB to act as Parent’s agent to effect such exchange.

 

“ Exchange Fund ” has the meaning set forth in Section 3.4(a).

 

“ Exchange Ratio ” shall mean 0.7000, subject to adjustment pursuant to Section 3.5, Section 6.16 and Section 7.1(g).

 

“ Fair Housing Act ” means the Fair Housing Act, as amended.

 

“ FDIC ” means the Federal Deposit Insurance Corporation.

 

“ Federal Reserve Act ” means the Federal Reserve Act, as amended.

 

“ Federal Reserve Board ” means the Board of Governors of the Federal Reserve System.

 

“ FHA ” means Federal Housing Administration or any successor thereto.

 

“ FHA Loans ” means residential mortgage loans that are insured, or are eligible and intended to be insured, by FHA.

 

“ FHLMC ” means Federal Home Loan Mortgage Corporation or any successor thereto.

 

“ FNMA ” means Federal National Mortgage Association or any successor thereto.

 

“ GAAP ” means generally accepted accounting principles and practices as in effect from time to time in the United States.

 

“ GNMA ” means Government National Mortgage Association or any successor thereto.

 

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

 

“ Hazardous Substance ” has the meaning set forth in Section 5.3(p)(iii).

 

“ Home Mortgage Disclosure Act ” means the Home Mortgage Disclosure Act, as amended.

 

“ HUD ” means United States Department of Housing and Urban Development or any successor thereto.

 

6

 

“ Indemnification ” has the meaning set forth in Section 5.3(g)(iv).

 

“ Indemnified Parties ” and “ Indemnifying Party ” have the meanings set forth in Section 6.9(a).

 

“ Insurance Policies ” has the meaning set forth in Section 5.3(x).

 

“ Insurer ” means a Person who insures or guarantees all or any portion of the risk of loss on any Mortgage Loan, including without limitation any Agency and any provider of private mortgage insurance, standard hazard insurance, flood insurance, earthquake insurance or title insurance with respect to any Mortgage Loan or related Mortgaged Property.

 

“ Intellectual Property ” means each of the following:  (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice) and any reissue, continuation, continuation-in-part, revision, extension or reexamination thereof; (ii) trademarks, service marks, trade dress, logos, trade names, the name “American Home Bank,” and Internet domain names together with all goodwill associated therewith, including, without limitation, the use of all translations, adaptations, derivations and combinations of the foregoing; (iii) copyrights and copyrightable works (including, without limitation, web sites) and all registrations, applications and renewals for any of the foregoing; (iv) information not generally known to the public or that would constitute a trade secret under the Uniform Trade Secrets Act, and confidential information (including, without limitation, know-how, research and development information, designs, plans, proposals, technical data, financial, business and marketing plans, sales and promotional literature, and customer and supplier lists and related information); (v) other intellectual property rights, including derivative rights; (vi) all copies and tangible embodiments of the foregoing (in whatever form or medium), along with all income, royalties, damages and payments due or payable after the Effective Date including, without limitation, damages and payments for past or future infringements or misappropriations thereof; (vii) the right to sue and recover for past infringements or misappropriations thereof; (viii) any defenses related to any of the above; and (ix) any and all corresponding rights that, now or hereafter, may be secured throughout the world.

 

“ Investment Commitment ” means the optional or mandatory commitment of AHB, or an Affiliate of AHB, to sell to any person, and a person to purchase from AHB, or an Affiliate of AHB, a Loan held for Sale or an interest in a Loan held for Sale or owned or to be acquired by AHB, or any Affiliate of AHB.

 

“ Investor ” means, with respect to the Mortgage Servicing Portfolio or any Mortgage Loan, FHLMC, FNMA, GNMA, a State Agency, AHB or the AHB Group or an Affiliate thereof, a private investor or any other Person to which AHB Group sells eligible Mortgage Loans or services Mortgage Loans pursuant to Servicing Agreements or otherwise.

 

“ IRS ” means the Internal Revenue Service.

 

“ Joint Ventures ” has the meaning set forth in Section 5.3(g)(vi)(A).

 

“ Knowledge ” (which includes the expressions “to Know” and “Known to”) of a particular fact or other matter, with respect to each of AHB and Parent, means that any person

 

7

 

whose name is set forth in Schedule 1.1 of their respective Disclosure Schedules, is or should be actually aware of such fact or other matter.

 

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

 

“ Loans ” has the meaning set forth in Section 4.1(q).

 

“ Loan Held for Sale ” means a mortgage loan, including a construction loan and a mortgage loan that has closed but has not funded, secured by a Mortgage that is owned by AHB or any Affiliate of AHB at the time immediately prior to the Effective Date, and that is intended to be sold to an Investor in the ordinary course.

 

“ Mailing Date ” has the meaning set forth in Section 3.3(a).

 

“ Material Adverse Effect ” means, with respect to Parent or AHB any effect that (i) is material and adverse to the financial position, results of operations, business or prospects of Parent and its Subsidiaries taken as a whole or the AHB Group taken as a whole, as the case may be, or (ii) would materially impair the ability of Parent and its Subsidiaries or the AHB Group, as the case may be, to perform their respective obligations under this Agreement or otherwise materially impede the consummation of the Transaction; provided, however, that Material Adverse Effect shall not be deemed to include the impact of (a) changes after the date hereof in GAAP or regulatory accounting requirements applicable to banks, federal savings institutions and their holding companies generally, (b) changes after the date hereof in general economic or market conditions affecting banks and their holding companies generally, including changes in interest rates, (c) public disclosure of the Transaction contemplated hereby, (d) costs incurred in connection with the Transaction including, without limitation, change in control and severance payments, as disclosed herein on the AHB Disclosure Schedules, investment banking fees, legal fees, accounting fees and printing costs, in each case in accordance with GAAP and (e) any action or omission of the AHB Group or Parent taken with the prior consent of the other or as otherwise contemplated by this Agreement in connection with the consummation of the Transaction .

 

“ Material Contract ” has the meaning set forth in Section 5.3(l).

 

“ Merger ” has the meaning set forth in Recital H.

 

“ Merger Consideration ” means the number of whole shares of Parent Common Stock, cash or a combination thereof, plus cash in lieu of any fractional share interest into which shares of AHB Common Stock shall be converted pursuant to the provisions of Article III.

 

“ Mortgage ” means, with respect to a Mortgage Loan, a mortgage, deed or trust or other security instrument creating a Lien upon real property and any other property described therein which secures a Mortgage Note, together with any assignment, reinstatement, extension, endorsement or modification thereof.

 

“ Mortgage Business ” means the business of originating, brokering, marketing, making, purchasing, servicing and selling first-lien and subordinate-lien, closed-end and open-end residential mortgage loans by AHB and the AHB Group.

 

8

 

“ Mortgage Loan ” means either a Loan Held for Sale, Serviced Loan, Portfolio Loan, Previously Disposed of Loan or Pipeline Loan.

 

“ Mortgage Loan Documents ” means, with respect to a Mortgage Loan, the Mortgage Note, Mortgage and all other documents relating to Mortgage Loans required to document and service the Mortgage Loan by Applicable Requirements, whether on hard copy, microfiche or its equivalent or in electronic format and, to the extent required by Applicable Requirements, credit and closing packages and disclosures.

 

“ Mortgage Note ” means, with respect to a Mortgage Loan, a promissory note or notes, or other evidence of indebtedness, with respect to such Mortgage Loan secured by a Mortgage or Mortgages, together with any assignment, reinstatement, extension, endorsement or modification thereof.

 

“ Mortgaged Property ” means (i) the real property and improvements thereon, (ii) the stock in a residential housing corporation and the lease to the related dwelling unit or (iii) a manufactured home and, as applicable, the real property upon which the home is situated, in each case that secures a Mortgage Note and that are subject to a Mortgage.

 

“ Mortgage Servicing Portfolio ”  means the portfolio of Mortgage Loans serviced or to be serviced by AHB pursuant to Servicing Agreements.

 

“ Mortgagor ” means, with respect to a Mortgage Loan, the borrower of such Mortgage Loan.

 

“ National Bank Act ” means the National Bank Act, as amended.

 

“ National Labor Relations Act ” means the National Labor Relations Act, as amended.

 

“ OCC ” means the Office of the Comptroller of the Currency.

 

“ Originator ” means, with respect to any Mortgage Loan, the entity or entities that (i) took the relevant Mortgagor’s loan application, (ii) processed the relevant Mortgagor’s loan application and/or (iii) closed and/or funded such Mortgage Loan.

 

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

 

“ Parent Articles ” means the Articles of Incorporation of Parent, as amended.

 

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

 

“ Parent Bank Articles ” means the Articles of Parent Bank, as amended.

 

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

 

“ Parent Bank Bylaws ” means the Bylaws of Parent Bank, as amended.

 

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

 

9

 

“ Parent Benefit Plans ” has the meaning set forth in Section 5.4(l)(i).

 

“ Parent Bylaws ” means the Bylaws of Parent, as amended.

 

“ Parent Common Stock ” means the common stock, $1.00 par value per share, of Parent.

 

“ Parent Disclosure Schedule ” has the meaning set forth in Section 5.1.

 

“ Parent Option ” has the meaning set forth in Section 3.8(a).

 

“ Parent Regulatory Authorities ” has the meaning set forth in Section 5.4(i)(i).

 

“ Pension Plan ” has the meaning set forth in Section 5.3(n)(ii).

 

“ Person ” means a natural person or any legal, commercial, or governmental entity, such as, but not limited to, a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, group acting in concert, a common enterprise, or any person acting in a representative capacity.

 

“ Pipeline Loan ” means each of those pending applications in process for a mortgage loan, including construction loans, to be secured by a first- or subordinate-lien on a one- to four-family residential property that has been registered on AHB’s origination system by the Effective Date (including those Pipeline Loans that are pending with an Originator and that otherwise meet AHB Group’s acquisition criteria for such Pipeline Loans) and that have not closed as of the Effective Date.

 

“ Portfolio Loan ” means a residential mortgage loan or REO, including construction loans, owned by AHB which is not a Loan Held for Sale.

 

“ Previously Disposed of Loans ” means mortgage loans or any other type of loans or loan servicing rights that, as of any time, AHB, or any Affiliate of AHB, or any predecessor in interest of AHB, or any Affiliate of AHB, owned and subsequently sold, transferred or assigned and for which AHB, or any Affiliate of AHB, retains contingent liability to third parties in accordance with the then current Applicable Requirements, including, without limitation, the obligation to repurchase or indemnify the purchaser pursuant to the applicable loan or servicing purchase agreement.

 

“ Price Per Share ” means, subject to adjustment pursuant to Sections 6.16 and 7.1(g), $11.00.

 

“ Proxy Statement ” has the meaning set forth in Section 6.3(a).

 

“ Recourse ” means any arrangement pursuant to which any member of the AHB Group bears the risk to an Investor of any part of the ultimate credit losses incurred in connection with a default under or foreclosure of a Previously Disposed of Loan or a Serviced Loan, including liability for an early payment default, other than risk of loss based upon (i) a breach of any of the contractual representations, warranties or covenants or (ii) expenses, such as legal fees, in excess of the reimbursement limits, if any, set forth in the Applicable Requirements.

 

10

 

“ Registration Statement ” has the meaning set forth in Section 6.3(a).

 

“ Representatives ” has the meaning set forth in Section 6.7(a).

 

“ Repurchase ” has the meaning set forth in Section 5.3(g)(iv).

 

“ Required Vote ” has the meaning set forth in Section 5.3(e).

 

“ REO ” means any property acquired in the conduct of AHB’s mortgage servicing activities as a result of foreclosure or any of the method of satisfaction of indebtedness (whether for AHB’s own account or on behalf of an Investor or Insurer).

 

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

 

“ SEC ” means the Securities and Exchange Commission.

 

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

 

“ Securities Documents ” has the meaning set forth in Section 5.4(g)(i).

 

“ Seller and Servicing Guides ” means the (i) seller and servicing guides utilized by the Agencies and other Investors to which AHB, or any Affiliate of AHB, has sold residential mortgage loans and/or which AHB services residential mortgage loans and (ii) the manuals, guidelines and related employee reference materials utilized by AHB, or any Affiliate of AHB, to govern its relationships with mortgage brokers, correspondent and wholesale sellers of loans or under which mortgage loans originated directly by AHB, or any Affiliate of AHB, is made.

 

“ Serviced Loan ” means any mortgage loan with respect to which AHB owns or provides Servicing.

 

“ Servicing ” means mortgage loan servicing and subservicing rights and obligations including one or more of the following functions (or portion thereof):  (i) the administration and collection of payments for the reduction of principal and/or the application of interest on a mortgage loan, (ii) the collection of payments on account of taxes and insurance, (iii) the remittance of appropriate portions of collected payments, (iv) the provision of full escrow administration, (v) the pursuit of foreclosure and alternate remedies against a related mortgaged property, (vi) the administration and liquidation of REO, (vii) the right to receive the Servicing Compensation and any ancillary fees arising from or connected to the Serviced Loans, earnings on and other benefits of related custodial accounts and other related accounts maintained by AHB pursuant to Applicable Requirements; and (viii) any other obligation related to servicing of mortgage loans required under any Servicing Agreement not otherwise described in the foregoing clauses.

 

“ Servicing Agreements ” means all agreements pursuant to which AHB provides Servicing in connection Serviced Loans.

 

11

 

“ Servicing Compensation ” means any servicing fees and any excess servicing compensation to the AHB is entitled to receive pursuant to any Servicing Agreement.

 

“ State Agency ” means any state agency or other entity with authority to regulate the mortgage-related activities of the AHB Group or to determine the investment requirements with regard to mortgage loan origination or purchasing performed by the AHB Group.

 

“ Stock Amount ” means 1,055,625 shares of Parent Common Stock, subject to adjustment as may be necessary pursuant to Sections 3.5, 6.16 and 7.1(g).

 

“ Stock Election ” has the meaning set forth in Section 3.3(a).

 

“ Stock Proration Factor ” has the meaning set forth in Section 3.3(c)(i)(C).

 

“ Subsidiary ” has the meaning ascribed thereto in Rule 1-02 of Regulation S-X of the SEC.

 

“ Superior Proposal ” has the meaning set forth in Section 6.7(e)(ii).

 

“ Surviving Bank ” has the meaning set forth in Recital H.

 

“ Tangible Net Worth ” means the sum of AHB’s common stock and surplus accounts, plus retained earnings or minus accumulated deficit, and minus goodwill, originated mortgage servicing rights and unamortized organizational expenses, on a consolidated basis, using AHB’s historical accounting methodologies, provided that such methodologies are consistent with GAAP (and without taking into account expenses related to (A) the application of Statement of Financial Accounting Standards No. 115; (B) costs incurred in connection with this Agreement or the Transaction; or (C) actions taken by AHB with the prior written acknowledgment of Parent that such expenditure will be omitted from this calculation).

 

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

 

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

 

“ Transaction ” means the Merger and any other transactions contemplated by this Agreement.

 

“ Undesignated Shares ” has the meaning set forth in Section 3.3(a).

 

“ VA ” means the United States Department of Veterans Affairs and any successor thereto.

 

12

 

“ VA Loans ” means residential mortgage loans that are guaranteed, or are eligible and intended to be guaranteed, by VA.

 

“ Warrant Consideration ” has the meaning set forth in Section 3.8(b).

 

“ WARN Act ” means the Worker Adjustment and Retaining Notification Act of 1988, as amended, and any applicable state equivalents.

 

ARTICLE II

 

THE MERGER

 

2.1                                The Merger .

 

(a)                                   The Merger .  Subject to the terms and conditions of this Agreement, at the Effective Time, AHB shall merge with and into Parent Bank in accordance with the applicable laws of the United States, the separate corporate existence of AHB shall cease and Parent Bank shall survive and continue to exist as a national banking association.

 

(b)                                  Name and Main Office .  The name of the Surviving Bank shall be “First National Bank of Chester County”.  The main office of the Surviving Bank shall be the main office of Parent Bank immediately prior to the Effective Time.  All branch offices of AHB and Parent Bank that were in lawful operation immediately prior to the Effective Time shall be the branch offices of the Surviving Bank upon consummation of the Merger, subject to the opening or closing of any offices that may be authorized by AHB and Parent Bank.  Schedule 2.1 hereto contains a list of each of the deposit taking offices or loan originating offices of AHB and Parent Bank that shall be operated by the Surviving Bank, subject to the opening or closing of any offices that may be authorized by AHB or Parent Bank, respectively, and the OCC and the FDIC after the date hereof and in accordance with this Agreement.

 

(c)                                   Operation of AHB as a Division of Parent Bank .  From and after the Effective Time, Parent shall cause Parent Bank to establish a division of Parent Bank that will consist of the existing AHB mortgage banking operation and staff and that will be called, consistent with applicable regulations, “American Home Bank, a Division of First National Bank of Chester County.”  Parent shall cause Parent Bank to operate the AHB division for a period of at least two years after the Effective Date.  AHB will cooperate with Parent prior to the Effective Time to ensure that all consents or waivers required to be filed in any state to permit Parent Bank to use the name of American Home Bank are properly and timely filed.

 

(d)                                  Charter and Bylaws .  The charter and bylaws of the Surviving Bank immediately after the Merger shall be the charter and the bylaws of Parent Bank as in effect immediately prior to the Merger, in each case until thereafter amended in accordance with applicable law.

 

(e)                                   Directors and Executive Officers of the Surviving Bank .  The directors of the Surviving Bank immediately after the Merger shall be the directors of Parent Bank immediately prior to the Merger.  The executive officers of the Surviving Bank immediately after the Merger shall be the executive officers of Parent Bank immediately prior to the Merger,

 

13

 

each of whom shall serve until such time as their successors shall be duly appointed and qualified.  In addition, James M. Deitch will be appointed as a director of Parent and Parent Bank pursuant to Section 6.11; and James M. Deitch and Anna R. Smith will serve as officers of Parent Bank in accordance with the Employment Agreements entered into by each of them and the Parent Bank.

 

(f)                                     Effect on Shares of Stock .

 

(i)                                      Each share of Parent Common Stock issued and outstanding immediately prior to the Effective Time shall be unchanged and shall remain issued and outstanding.

 

(ii)                                   At the Effective Time, each share of AHB Common Stock issued and outstanding prior to the Merger shall, by virtue of the Merger and without any action on the part of Parent, Parent Bank, AHB or the holder thereof, be canceled and converted into the right to receive the Merger Consideration as provided in Section 3.1 below.  Any shares of AHB Common Stock held in the treasury of AHB immediately prior to the Effective Time shall be retired and canceled pursuant to Section 3.1(b).

 

(iii)                                Parent Bank has 30,000 shares of common stock issued and outstanding.  Each such share shall remain issued and outstanding and 30,000 shares of Parent Bank common stock will be issued and outstanding upon consummation of the Merger.  No shares of Parent Bank common stock will be issued in connection with the Merger.

 

(g)                                  Effects of the Merger .  Upon consummation of the Merger, and in addition to the effects set forth at 12 U.S.C. § 215a:

 

(i)                                      all rights, franchises and interests of AHB in and to every type of property (real, personal and mixed), tangible and intangible, and choses in action shall be transferred to and vested in the Surviving Bank by virtue of the Merger without any deed or other transfer, and the Surviving Bank, without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises and interests, including appointments, designations and nominations, and all other rights and interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver and committee, and in every other fiduciary capacity, in the same manner and to the same extent as such rights, franchises and interest were held or enjoyed by AHB immediately prior to the Effective Time; and

 

(ii)                                   the Surviving Bank shall be liable for all liabilities of AHB, fixed or contingent, including all deposits, accounts, debts, obligations and contracts thereof, matured or unmatured, whether accrued, absolute, contingent or otherwise, and whether or not reflected or reserved against on balance sheets, books of account or records thereof, and all rights of creditors or obligees and all liens on property of AHB shall be preserved unimpaired; after the Effective Time, the Surviving Bank will continue to issue savings accounts on the same basis as immediately prior to the Effective Time.

 

14

 

(h)                                  Additional Actions .  If, at any time after the Effective Time, the Surviving Bank shall consider that any further assignments or assurances in law or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Bank its rights, title or interest in, to or under any of the rights, properties or assets of AHB acquired or to be acquired by the Surviving Bank as a result of, or in connection with, the Merger, or (b) otherwise carry out the purposes of this Agreement, AHB and its proper officers and directors shall be deemed to have granted to the Surviving Bank an irrevocable power of attorney to (i) execute and deliver all such proper deeds, assignments and assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving Bank and (ii) otherwise to carry out the purposes of this Agreement.  The proper officers and directors of the Surviving Bank are fully authorized in the name of AHB or otherwise to take any and all such action.

 

2.2                                Effective Date and Effective Time; Closing .

 

(a)                                   Subject to the satisfaction or waiver of the conditions set forth in Article VII, other than those conditions that by their nature are to be satisfied at the consummation of the Merger, but subject to the fulfillment or waiver of those conditions, the “ Effective Date ” shall be as soon as possible after the receipt of all required approvals from Bank Regulatory Authorities on (i) a date selected by Parent after such satisfaction or waiver that is no later than fifteen Business Days after such satisfaction or waiver, or (ii) such other date to which the parties may mutually agree in writing.  If any remaining unsatisfied and unwaived condition set forth in Article VII becomes satisfied or is waived during the two weeks immediately prior to the end of a calendar quarter of Parent, the Parent may postpone the Effective Time until the first full week after the end of that fiscal quarter, provided that it is understood and agreed that Parent may not postpone the Effective Time longer than one week, including by asserting that any of the conditions specified in Sections 7.1(a), 7.1(b), 7.1(d) and 7.1(e) of this Agreement are no longer satisfied or waived.  The “ Effective Time ” of the Merger shall be the time on the Effective Date selected by the Parent and if no time is selected, then 12:01 a.m. on the Effective Date.

 

(b)                                  A closing (the “ Closing ”) shall take place immediately prior to the Effective Time as of the close of business, prevailing time, at the principal offices of Parent in West Chester, Pennsylvania, or at such other place, at such other time, or on such other date as the parties may mutually agree upon (such date, the “ Closing Date ”).  At the Closing, there shall be delivered to Parent, Parent Bank and AHB the opinions, certificates and other documents required to be delivered under Article VII.

 

ARTICLE III

 

MERGER CONSIDERATION; EXCHANGE PROCEDURES

 

3.1                                Conversion of Shares .

 

(a)                                   Subject to the provisions of this Agreement, each share of AHB Common Stock issued and outstanding immediately prior to the Effective Time other than Dissenting Shares and shares held in treasury by AHB shall, by virtue of the Merger, no longer be

 

15

 

outstanding and shall as of the Effective Time automatically be converted into and shall thereafter only represent the right to receive, at the election of the holder thereof as provided in and subject to Section 3.3, and further subject to Section 3.5, Section 6.16 and Section 7.1(g), any of the following:

 

(i)                                      Parent Common Stock equal to the Exchange Ratio; or

 

(ii)                                   cash in the amount of the Price Per Share.

 

(b)                                  At and after the Effective Time, each share of AHB Common Stock held in AHB’s treasury shall be cancelled and retired, and no shares of Parent Common Stock, cash or other consideration shall be issued in exchange therefor.

 

(c)                                   At the Effective Time, the stock transfer books of AHB shall be closed as to holders of AHB Common Stock immediately prior to the Effective Time and no transfer of AHB Common Stock by any such holder shall thereafter be made or recognized.  If, after the Effective Time, Certificates are properly presented in accordance with Section 3.4 of this Agreement to the Exchange Agent, such Certificates shall be canceled and exchanged for certificates representing the number of whole shares of Parent Common Stock, if any, and/or a check representing the amount of cash, if any, into which the AHB Common Stock represented thereby was converted in the Merger, plus any payment for any fractional share of Parent Common Stock without any interest thereon.

 

(d)                                  At and after the Effective Time, each share of Parent Common Stock issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding and shall not be affected by the Merger.

 

3.2                                Fractional Shares .  Notwithstanding any other provision of this Agreement, each holder of AHB Common Stock who would otherwise be entitled to receive a fractional share of Parent Common Stock, after taking into account all Certificates delivered by such holder, shall receive an amount in cash, without interest, rounded to the nearest cent, equal to the product obtained by multiplying (a) the Average Closing Price determined as of the Effective Date by (b) the fractional share, calculated to the nearest ten-thousandth of the share of Parent Common Stock, to which such holder would otherwise be entitled.  No such holder shall be entitled to dividends or other rights in respect of any such fractional shares.

 

3.3                                Election and Proration Procedures .

 

(a)                                   An election form and other appropriate and customary transmittal materials, which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of such Certificates to the Exchange Agent in such form as Parent and AHB shall mutually agree (the “ Election Form ”) shall be mailed by or on behalf of Parent no less than 40 days prior to the anticipated Effective Time of the Merger, as jointly determined by Parent and AHB, or on such other date as Parent and AHB shall agree (the “ Mailing Date ”) to each holder of record of AHB Common Stock as of the close of business on the fifth business day prior to the mailing date (the “ Election Form Record Date ”).  Parent shall make available one or more Election Forms as may be reasonably requested by all persons who become holders (or beneficial owners) (the term “beneficial owner” and “beneficial ownership”

 

16

 

for purposes of this Agreement shall have the meaning set forth in Section 13(d) of the Exchange Act) of AHB Common Stock after the Election Form Record Date and prior to the Election Deadline, and AHB shall provide to the Exchange Agent all information reasonably necessary for it to perform its obligations as specified herein.  Each Election Form shall permit the holder or the beneficial owner through appropriate and customary documentation and instructions to elect (an “ Election ”) to receive (i) Parent Common Stock (a “ Stock Election ”) with respect to all of such holder’s AHB Common Stock, or (ii) cash (a “ Cash Election ”) with respect to all of such holder’s AHB Common Stock, or (iii) Parent Common Stock for a specified number of shares of AHB Common Stock (a “ Combination Stock Election ”) and cash for the remaining number of shares of AHB Common Stock held by such holder (a “ Combination Cash Election ”).  Any AHB Common Stock other than Dissenting Shares and shares held in AHB’s treasury, with respect to which the Exchange Agent has not received an effective, properly completed Election Form prior to the Election Deadline shall be deemed to be “Undesignated Shares” hereunder.

 

(b)                                  Any Election shall have been properly made and effective only if the Exchange Agent shall have actually received a properly completed Election Form that has not been revoked by 5:00 p.m., prevailing time, by the thirtieth (30 ^th ) Business Day following the Mailing Date (or such other time and date as Parent and AHB may mutually agree) (the “ Election Deadline ”).  An Election Form shall be deemed properly completed only if an Election is indicated for each share of AHB Common Stock covered by such Election Form and if accompanied by one or more Certificates (or customary affidavits and indemnification regarding the loss or destruction of such Certificates or the guaranteed delivery of such Certificates) representing all shares of AHB Common Stock covered by such Election Form, together with duly executed transmittal materials included in or required by the Election Form.  For shares of AHB Common Stock held in book entry form, Parent shall establish procedures for delivery of such shares, which procedures shall be reasonably acceptable to AHB.  Any Election Form may be revoked by the person submitting such Election Form at or prior to the Election Deadline, provided that the Exchange Agent shall have actually received prior to the Election Deadline a written notice revoking such Election Form and specifying the shares of AHB Common Stock covered by such revoked Election Form.  In the event an Election Form is revoked prior to the Election Deadline, the shares of AHB Common Stock representing such Election Form shall automatically become Undesignated Shares unless and until a new Election is properly made with respect to such shares on or before the Election Deadline, and Parent shall cause the Certificates to be promptly returned without charge to the person submitting the revoked Election Form upon written request to that effect from the holder who submitted such 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 or revocation has been properly or timely made and to disregard immaterial defects in the Election Forms, and any decisions of AHB and Parent required by the Exchange Agent and made in good faith in determining such matters shall be binding and conclusive.  Neither Parent nor the Exchange Agent shall be under any obligation to notify any person of any defect in an Election Form.

 

(c)                                   As promptly as practicable but not later than three (3) Business Days prior to the Effective Time of the Merger, Parent shall cause the Exchange Agent to effect the allocation among the holders of AHB Common Stock of rights to receive Parent Common Stock or cash in the Merger in accordance with the Election Forms as follows:

 

17

 

(i)                                      if the aggregate number of shares of AHB Common Stock as to which Stock Elections and Combination Stock Elections shall have effectively been made times the Exchange Ratio exceeds the Stock Amount, then:

 

(A)                               each holder of AHB Common Stock who made an effective Cash Election or Combination Cash Election shall receive the Price Per Share in cash for each such share of AHB Common Stock;

 

(B)                                 each holder of Undesignated Shares shall be deemed to have made a Cash Election and shall receive the Price Per Share in cash for each such Undesignated Share; and

 

(C)                                 a stock proration factor (the “ Stock Proration Factor ”) shall be determined by dividing (1) the Stock Amount by (2) the product of the Exchange Ratio and the number of shares of AHB Common Stock with respect to which effective Stock Elections and Combination Stock Elections were made.  Each holder of AHB Common Stock who made an effective Stock Election or Combination Stock Election shall be entitled to:

 

(1)                                   the number of shares of Parent Common Stock equal to the product of (x) the Exchange Ratio, multiplied by (y) the number of shares of AHB Common Stock covered by such Stock Election or Combination Stock Election, multiplied by (z) the Stock Proration Factor, and

 

(2)                                   cash in an amount equal to the product of (x) the Price Per Share, multiplied by (y) the number of shares of AHB Common Stock covered by such Stock Election or Combination Stock Election, multiplied by (z) one minus the Stock Proration Factor.

 

(ii)                                   if the aggregate number of shares of AHB Common Stock as to which Stock Elections and Combination Stock Elections shall have effectively been made times the Exchange Ratio is less than the Stock Amount, then:

 

(A)                               each holder of AHB Common Stock who made an effective Stock Election or Combination Stock Election shall receive the number of shares of Parent Common Stock equal to the product of the Exchange Ratio multiplied by the number of shares of AHB Common Stock covered by such Stock Election or Combination Stock Election;

 

(B)                                 the Exchange Agent shall allocate pro rata according to the number of AHB shares held, among those holders of Undesignated Shares (other than holders of Undesignated Shares who voted against or gave notice to the presiding officer of the AHB Meeting at or prior to the AHB Meeting that the holder dissents from the Merger as required by Section 215a of the National Bank Act), such number of shares of Parent Common Stock as shall be necessary so that the shares of Parent Common Stock to be received by those holders, when combined with the number of shares for which a Stock Election or Combination

 

18

 

Stock Election has been made, multiplied by the Exchange Ratio shall be approximately equal to the Stock Amount.  If all of said Undesignated Shares plus all shares as to which Stock Elections and Combination Stock Elections have been made together multiplied by the Exchange Ratio are less than, and not approximately equal to, the Stock Amount, then:

 

(C)                                 a cash proration factor (the “ Cash Proration Factor ”) shall be determined by dividing (1) the amount which is the difference between (x) the number obtained by dividing the Stock Amount by the Exchange Ratio and (y) the sum of the number of shares of AHB Common Stock with respect to which effective Stock Elections and Combination Stock Elections were made and the number of Undesignated Shares selected pursuant to subparagraph (ii)(B) above by (2) the number of shares of AHB Common Stock with respect to which effective Cash Elections and Combination Cash Elections were made.  Each holder of AHB Common Stock who made an effective Cash Election or Combination Cash Election shall be entitled to:

 

(1)                                   cash equal to the product of (x) the Price Per Share, multiplied by (y) the number of shares of AHB Common Stock covered by such Cash Election or Combination Cash Election, multiplied by (z) one minus the Cash Proration Factor, and

 

(2)                                   the number of shares of Parent Common Stock equal to the product of (x) the Exchange Ratio, multiplied by (y) the number of shares of AHB Common Stock covered by such Cash Election or Combination Cash Election, multiplied by (z) the Cash Proration Factor.

 

(iii)                                Notwithstanding any provision of this Agreement, Parent reserves the right to adjust the relative proportions of the Cash Amount and Stock Amount to meet such requirements as may be necessary for the Merger to qualify as a reorganization under Section 368(a) of the Code.

 

3.4                                Exchange Procedures .

 

(a)                                   Not later than three (3) Business Days prior to the Effective Time of the Merger, Parent shall deposit with the Exchange Agent for the benefit of the holders of shares of AHB Common Stock, for exchange in accordance with this Section 3.4, certificates representing the aggregate number of shares of Parent Common Stock and cash issuable pursuant to Section 3.1 in exchange for shares of AHB Common Stock outstanding immediately prior to the Effective Time of the Merger and cash payable in lieu of fractional shares of Parent Common Stock that would otherwise be issuable in connection with Section 3.1, but for the operation of Section 3.23.1 of this Agreement (the “ Exchange Fund ”).

 

(b)                                  After the Effective Time of the Merger, each holder of a Certificate, other than Dissenting Shares and shares of AHB Common Stock held in AHB’s treasury, who

 

19

 

surrenders or has surrendered such Certificate (or provided an affidavit of loss in lieu of such Certificate in accordance with Section 3.9), together with duly executed transmittal materials included in or required by the Election Form to the Exchange Agent, shall, upon acceptance thereof, be entitled to (i) a certificate representing the Parent Common Stock and/or (ii) cash into which the shares of AHB Common Stock shall have been converted pursuant to Section 3.1, as well as cash in lieu of any fractional share of Parent Common Stock to which such holder would otherwise be entitled pursuant to Section 3.2, if applicable.  The Exchange Agent shall accept such Certificate upon compliance with such reasonable and customary terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with normal practices.  Until surrendered as contemplated by this Section 3.4(b), each Certificate representing AHB Common Stock shall be deemed from and after the Effective Time of the Merger to evidence only the right to receive the Merger Consideration to which it is entitled hereunder upon such surrender.  Parent shall not be obligated to deliver the Merger Consideration to which any former holder of AHB Common Stock is entitled as a result of the Merger until such holder surrenders his Certificate or Certificates for exchange as provided in this Section 3.4(b).  If any certificate for shares of Parent Common Stock, or any check representing cash and/or declared but unpaid dividends, is to be issued in a name other than that in which a Certificate surrendered for exchange is issued, the Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and the person requesting such exchange shall affix any requisite stock transfer tax stamps to the Certificate surrendered or provide funds for their purchase or establish to the satisfaction of the Exchange Agent that such taxes are not payable.

 

(c)                                   No dividends or other distributions declared or made after the Effective Time of the Merger with respect to Parent Common Stock with a record date after the Effective Time of the Merger shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock represented thereby, and no cash payment in lieu of a fractional share shall be paid to any such holder pursuant to Section 3.2, until the holder of record of such Certificate shall surrender such Certificate.  Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of a fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 3.2, and the amount of dividends or other distributions with a record date after the Effective Time of the Merger but prior to surrender and a payment date prior to surrender with respect to such whole shares of Parent Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time of the Merger but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Parent Common Stock.

 

(d)                                  All cash paid and/or shares of Parent Common Stock issued upon the surrender for exchange of shares of AHB Common Stock in accordance with the terms of this Agreement, shall be deemed to have been paid and/or issued in full satisfaction of all rights pertaining to such shares of AHB Common Stock, and there shall be no further registration of transfers on the stock transfer books of Parent, after the Merger, of the shares of AHB Common Stock that were outstanding immediately prior to the Effective Time of the Merger.  If, after the

 

20

 

Effective Time of the Merger, Certificates are presented to Parent for any reason, they shall be canceled and exchanged as provided in this Agreement.

 

(e)                                   Any portion of the Exchange Fund, including any interest thereon, that remains undistributed to the shareholders of AHB following the passage of nine months after the Effective Time of the Merger shall be delivered to Parent, upon demand, and any shareholders of AHB who have not theretofore complied with this Section 3.1 shall thereafter look only to Parent for payment of their claim for cash and for Parent Common Stock, any cash in lieu of fractional shares of Parent Common Stock and any dividends or distributions with respect to Parent Common Stock.

 

(f)                                     Neither AHB nor Parent shall be liable to any holder of shares of AHB Common Stock or Parent Common Stock, as the case may be, for such shares, or dividends or distributions with respect thereto, or cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

(g)                                  The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the shares of Parent 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 of Parent Common Stock for the account of the Persons entitled thereto.

 

3.5                                Adjustments for Dilution and Other Matters .   If prior to the Effective Time of the Merger, (i) Parent shall declare a stock dividend or distribution on Parent Common Stock with a record date prior to the Effective Time of the Merger, or subdivide, split up, reclassify or combine Parent Common Stock, or make a distribution other than a cash dividend on Parent Common Stock in any security convertible into Parent Common Stock, in each case with a record date prior to the Effective Time of the Merger, or (ii) the outstanding shares of Parent Common Stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities, in each case as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in Parent’s capitalization other than a transaction in which Parent shall have received fair consideration, as determined by its Board of Directors, for the shares issued, then a proportionate adjustment or adjustments will be made to the Exchange Ratio, the Stock Amount and the Average Closing Price.

 

(b)                                  If prior to the Effective Time of the Merger, (i) AHB shall declare a stock dividend or distribution on AHB Common Stock with a record date prior to the Effective Time of the Merger, or subdivide, split up, reclassify or combine AHB Common Stock, or make a distribution other than a cash dividend on AHB Common Stock in any security convertible into Parent Common Stock, in each case with a record date prior to the Effective Time of the Merger, or (ii) the outstanding shares of AHB Common Stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in AHB’s capitalization other than a transaction in which AHB shall have received fair consideration, as determined by its Board of Directors, for the shares issued, then a proportionate adjustment or adjustments will be made to the Exchange Ratio, the Stock Amount

 

21

 

and the Average Closing Price; provided that if the outstanding shares of AHB Common Stock shall have been increased due to the exercise or conversion of AHB Options or AHB Warrants, as permitted in this Agreement, then the consideration to be paid for such additional shares will be the Per Share Price paid in cash.

 

3.6                                Dissenting Shares .   Notwithstanding anything to the contrary contained in this Agreement, any holder of AHB Common Stock who shall be entitled to be paid the “fair value” of such holder’s Dissenting Shares of AHB Common Stock, as provided in Section 215a of the National Bank Act, shall not be entitled to the consideration to which such holder would otherwise have been entitled pursuant to Sections 2.1, 3.1 and 3.3, unless and until such holder shall have failed to perfect or withdrawn or lost such holder’s rights as a dissenter under Section 215a of the National Bank Act, and shall be entitled to receive only such payment as is provided for by Section 215a of the National Bank Act.

 

3.7                                Withholding Rights .   Parent, directly or through the Exchange Agent, shall be entitled to deduct and withhold from any amounts otherwise payable pursuant to this Agreement to any holder of shares of AHB Common Stock such amounts as Parent is required under the Code or any state, local or foreign tax law or regulation thereunder to deduct and withhold with respect to the making of such payment.  Any amounts so withheld shall be treated for all purposes of this Agreement as having been paid to the holder of AHB Common Stock in respect of which such deduction and withholding was made by Parent.

 

3.8                                AHB Options and Warrants.

 

(a)                                   AHB Options .  At the Effective Date, each holder of an AHB Option (collectively, “ AHB Option Holders ”) that

 

(i)                                      is outstanding at the Effective Date,

 

(ii)                                   has been identified on Schedule 3.8(a)  of the AHB Disclosure Schedule (along with the name of the grantee, the date of the grant, the status of the option grant as qualified or non-qualified under Section 422 of the Code, the number of shares of AHB Common Stock subject to each AHB Option, the number of shares of AHB Common Stock subject to each AHB Option that are currently exercisable, and the exercise price per share); and

 

(iii)                                would otherwise survive the Effective Date shall be entitled to receive, in substitution for the AHB Option, an option to acquire shares of Parent Common Stock on the terms set forth below (each AHB Option, as substituted, a “ Parent Option ”):

 

(A)                               A Parent Option shall be a stock option to acquire shares of Parent Common Stock with the following terms:

 

(1)                                   the number of shares of Parent Common Stock, which may be acquired pursuant to the Parent Option shall be equal to the product of the number of shares of AHB Common Stock covered by the corresponding AHB Option multiplied by the Exchange Ratio, provided

 

22

 

that any fractional share of Parent Common Stock resulting from the multiplication shall be rounded down to the nearest whole share;

 

(2)                                   the exercise price per share of Parent Common Stock issuable upon exercise of the Parent Option shall be equal to the exercise price of the corresponding AHB Option immediately prior to its conversion to a Parent Option, divided by the Exchange Ratio, provided that the exercise price shall be rounded up to the nearest whole cent;

 

(3)                                   the duration and other terms of the Parent Option shall be identical to the duration and other terms of the corresponding AHB Option as set forth on Schedule 3.8(a) , except that all references to AHB shall be deemed to be references to Parent where the context so requires, and shall remain exercisable until the stated expiration date of the corresponding AHB Option;

 

(4)                                   Parent shall assume the AHB Option, as contemplated by the Code; and

 

(5)                                   to the extent AHB Options qualify as incentive stock options under Code Section 422, the Parent Options exchanged therefore shall also so qualify.

 

(B)                                 On or within 15 days after the Effective Date, Parent shall take appropriate action to reserve for issuance and, if not previously registered pursuant to the Securities Act, register the number of shares of Parent Common Stock necessary to satisfy Parent’s obligations with respect to the issuance of Parent Common Stock pursuant to the exercise of Parent Options.

 

(b)                                  AHB Warrants .  At the Effective Time, all AHB Warrants, as identified on Schedule 3.8(b)  of the AHB Disclosure Schedule (along with the name of the grantee, the date of the grant, the number of shares of AHB Common Stock subject to each AHB Warrant, the number of shares of AHB Common Stock subject to AHB Warrants that are currently exercisable, the dates on which such AHB Warrant may be exercised (if not currently exercisable) and the exercise price per share), that are then outstanding shall cease to represent a right to acquire shares of AHB Common Stock and shall automatically be converted into, and in full release, termination and satisfaction of such AHB Warrant, the right to receive cash in an amount equal to the difference between the AHB Warrant strike price and the Price Per Share (the “ Warrant Consideration ”), subject to Parent’s receipt of a warrant cancellation and termination form from the respective AHB Warrant Holder.

 

3.9                                Lost, Stolen or Destroyed Certificates .  If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed (including such indemnification of Parent and Exchange Agent as may be customary) and, if required by Parent or the Exchange Agent, the posting by such Person of a bond in such reasonable amounts as the Parent or the Exchange Agent may direct as indemnity against any claim that may be made against it with respect to

 

23

 

such Certificate, or the Exchange Agent shall, in exchange for such lost, stolen or destroyed Certificate, pay or cause to be paid the amounts, if any, deliverable in respect to the shares of AHB Common Stock formerly represented by such Certificate pursuant to this Article III.

 

ARTICLE IV

 

ACTIONS PENDING CLOSING

 

4.1                                Forbearances of AHB .   From the date hereof until the Effective Time, except as (i) expressly contemplated or permitted by this Agreement; or (ii) contemplated by the potential business transactions described on Schedule 4.1 of the AHB Disclosure Schedule (as may be revised and/or updated from time to time prior to the Effective Time with the prior written consent of Parent, which consent may not to be unreasonably withheld) and the actions that may reasonably be expected to result from the potential business transactions described thereon, without the prior written consent of Parent, which consent may not to be unreasonably withheld, AHB will not:

 

(a)                                   Ordinary Course .

 

(i)                                      Conduct its business other than in the ordinary and usual course consistent with past practice or fail to use commercially reasonable efforts to preserve intact its business organization and advantageous business relationships;

 

(ii)                                   Fail to use commercially reasonable efforts to keep available the present services of its employees and preserve for itself and Parent the goodwill of the customers of AHB and others with whom business relations exist;

 

(iii)                                Take any action that would adversely affect or materially delay the ability of either AHB or Parent to obtain any necessary approvals of any Bank Regulatory Authority required for the Transaction or to perform its covenants and agreements under this Agreement or to consummate the Transaction.

 

(b)                                  Common Stock .  Other than pursuant to Rights set forth on Schedule 4.1(b)  of the AHB Disclosure Schedule and outstanding on the date hereof, (i) issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional shares of stock or any Rights, or (ii) permit any additional shares of stock to become subject to grants of employee or director stock options or other Rights.

 

(c)                                   Dividends; Etc .

 

(i)                                      Make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any other distribution on any shares of AHB Common Stock; or

 

(ii)                                   Directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire any shares of its common stock.

 

24

 

(d)                                  Compensation; Employment Agreements; Etc .  Enter into or amend or renew any employment, consulting, change in control, severance, retention or similar agreements or arrangements with any director, officer or employee of the AHB Group or grant any salary or wage increase or increase any employee benefit, including discretionary or other incentive or bonus payments, but excluding commissioned earnings paid pursuant to existing commission payment practices, or accelerate the vesting of any unvested stock options or acceleration of any benefits under any Benefit Plan, except:

 

(i)                                      for normal increases in compensation and bonuses to employees in the ordinary course of business consistent with past practice, provided that no such increases shall result in an annual aggregate increase in compensation or bonus (excluding commissioned earnings paid pursuant to existing commission payment practices) of more than three percent (3%);

 

(ii)                                   for other changes that are required by applicable law or are advisable in order to comply with Section 409A of the Code and the regulations promulgated thereunder;

 

(iii)                                to pay the amounts or to provide payments under plans and/or commitments set forth in Schedule 4.1(d)  of the AHB Disclosure Schedule; or

 

(iv)                               to pay the amounts for severance payments contemplated by Section 6.13(a) or employment agreements that are set forth in Schedule 4.1(d)  of the AHB Disclosure Schedule; provided that any employee who is eligible to receive any severance payments shall execute a release in favor of AHB in AHB’s customary form and in accordance with any applicable law.

 

(e)                                   Hiring.   Hire any person as an employee of any member of the AHB Group or promote any employee, except (i) to satisfy contractual obligations existing as of the date hereof or anticipated as set forth on Schedule 4.1(e)  of the AHB Disclosure Schedule, or (ii) to fill any vacancies existing as of the date hereof and described in Schedule 4.1(e)  of the AHB Disclosure Schedule or (iii) to fill any vacancies arising after the date hereof, provided, however , that any such vacancy shall be filled with at-will employees paid at an annual rate of salary (excluding commissioned earnings paid pursuant to existing commission payment practices) not to exceed Sixty-Five Thousand Dollars ($65,000.00) per employee.

 

(f)                                     Benefit Plans .  Enter into, establish, adopt, amend or make any contributions to, except (i) as may be required by applicable law or (ii) to satisfy contractual obligations existing as of the date hereof and set forth on Schedule 4.1(f)  of the AHB Disclosure Schedule, any pension, retirement, stock option, stock purchase, stock appreciation right, stock grant, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement or similar arrangement related thereto, in respect of any director, officer or employee of AHB or take any action to accelerate the vesting or exercisability of stock options, restricted stock or other compensation or benefits payable thereunder.

 

25

 

(g)                                  Dispositions .  Sell, transfer, mortgage, encumber or otherwise dispose of or discontinue any of its assets, deposits, business or properties except in the ordinary course of business consistent with past practice and in a transaction that, together with all other such transactions, is not material to AHB taken as a whole.

 

(h)                                  Acquisitions .  Acquire, other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary and usual course of business consistent with past practice, all or any portion of the assets, business, deposits or properties of any other entity.

 

(i)                                      Capital Expenditures .  Make any capital expenditures other than capital expenditures in the ordinary course of business consistent with past practice in amounts not exceeding Twenty-Five Thousand Dollars ($25,000.00) individually or Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate, provided, however , that if Parent does not object to a written request for approval within five (5) business days after receipt, the request shall be deemed approved.

 

(j)                                      Governing Documents .  Amend the AHB Articles or the AHB Bylaws except as may be required by law.

 

(k)                                   Accounting Methods .  Implement or adopt any change in its tax accounting or financial accounting principles, practices or methods, other than as may be required by changes in laws or regulations or GAAP.

 

(l)                                      Contracts .  Except as otherwise permitted under this Section 4.1, enter into or terminate any Material Contract or amend or modify in any material respect any of its existing Material Contracts.

 

(m)                                Claims .  Enter into any settlement or similar agreement with respect to any action, suit, proceeding, order or investigation to which AHB is or becomes a party, which settlement, agreement or action involves payment by AHB of an amount that, individually or in the aggregate, exceeds One Hundred Thousand Dollars ($100,000.00) and/or would impose any material restriction on the business of AHB or create precedent for claims that are reasonably likely to be material to AHB taken as a whole.

 

(n)                                  Banking Operations .  Enter into any new line of business; change its lending, investment, underwriting, risk and asset liability management and other material banking and operating policies, except as required by applicable law, regulation or policies imposed by any Governmental Authority; or file any application or make any contract with respect to opening or closing a branching or site location or branching or site relocation.

 

(o)                                  Indebtedness .  (i) Incur any indebtedness for borrowed money, other than deposits, federal funds purchased, cash management accounts, Federal Home Loan Bank borrowings that mature within one year and securities sold under agreements to repurchase that mature within 90 days, in each case in the ordinary course of business consistent with past practice, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other Person, other than in the ordinary course of business consistent with past practice or (ii) prepay any indebtedness.

 

26

 

(p)           Investment Securities .  (i) Acquire, other than by way of foreclosures or acquisitions in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business consistent with past practice, any debt security or Equity Investment other than federal funds or United States Government securities or United States Government agency securities, in each case with a term of one (1) year or less, (ii) restructure or materially change its investment securities portfolio or its gap position or (iii) enter in any Derivatives Contract, provided, however , that if Parent does not object to a written request for approval within five (5) business days after receipt, the request shall be deemed approved.

 

(q)           Loans .  (i) Make, renew or otherwise modify any loan, loan commitment, letter of credit or other extension of credit (individually, a “ Loan ” and collectively, “ Loans ”) other than in conformity in all material respects with AHB’s Credit Policy Manual dated November 19, 2007, as amended September 15, 2008 (the “ Credit Policy ”); and (ii) amend or otherwise modify the Credit Policy.

 

(r)            Investments in Real Estate .  Make any investment or commitment to invest in real estate or in any real estate development project, other than by way of foreclosure or acquisitions in a bona fide fiduciary capacity or in satisfaction of a debt previously contracted in good faith, in each case in the ordinary course of business consistent with past practice.

 

(s)           Adverse Actions .  Take any action that (i) would, or is reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code, (ii) is intended or is reasonably likely to result in (x) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (y) any of the conditions to the Merger set forth in Article VII not being satisfied or (z) a material violation of any provision of this Agreement, except as may be required by applicable law or regulation, or (iii) would adversely affect or materially delay the ability of either Parent or AHB to obtain any necessary approvals required of any Bank Regulatory Authority for the transactions contemplated hereby or to perform its covenants and agreements under this Agreement or to consummate the transactions contemplated hereby.

 

(t)            Commitments .  Enter into any contract with respect to, or otherwise agree or commit to do, any of the foregoing.

 

4.2          Forbearances of Parent .   From the date hereof until the Effective Time, except as expressly contemplated or permitted by this Agreement, without the prior written consent of AHB, not to be unreasonably withheld, Parent will not, and will cause each of its Subsidiaries not to:

 

(a)           Adverse Actions .  Take any action that (i) would, or is reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code, (ii) is intended or is reasonably likely to result in (x) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (y) any of the conditions to the Merger set forth in Article VII not being satisfied or (z) a material violation of any provision of

 

27

 

this Agreement, except as may be required by applicable law or regulation, or (iii) would adversely affect or materially delay the ability of either Parent or AHB to obtain any necessary approvals required of any Bank Regulatory Authority for the transactions contemplated hereby or to perform its covenants and agreements under this Agreement or to consummate the transactions contemplated hereby.

 

(b)           Stock Dividends, Splits, Etc .  Declare any stock dividend or distribution on Parent Common Stock with a record date prior to the Effective Time of the Merger, or subdivide, split up, reclassify or combine Parent Common Stock, or make a distribution other than a cash dividend on Parent Common Stock in any security convertible into Parent Common Stock, in each case with a record date prior to the Effective Time of the Merger.

 

(c)           Capitalization .  Take any action that would result in the outstanding shares of Parent Common Stock to be increased, decreased, changed into or exchanged for a different number or kind of shares or securities, in each case as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in Parent’s capitalization.

 

(d)           Dispositions .  Sell, transfer, mortgage, encumber or otherwise dispose of or discontinue any of its assets, deposits, business or properties except in the ordinary course of business consistent with past practice and in a transaction that, together with all other such transactions, is not material to Parent and its Subsidiaries taken as a whole.

 

(e)           Acquisitions .  Acquire, other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary and usual course of business consistent with past practice, all or any portion of the assets, business, deposits or properties of any other entity that is engaged in a similar line of business as AHB.

 

(f)            Governing Documents .  Amend the Parent Articles or the Parent Bylaws except as may be required by law.

 

(g)           Commitments .  Enter into any contract with respect to, or otherwise agree or commit to do, any of the foregoing.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES

 

5.1          Disclosure Schedules .   On or prior to the date hereof, Parent has delivered to AHB a schedule (the “ Parent Disclosure Schedule ”) and AHB has delivered to Parent a schedule (the “ AHB Disclosure Schedule ”) setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in Sections 5.3 or 5.4 or to one or more of its covenants contained in Article VI; provided, however , that the mere inclusion of an item in the Parent Disclosure Schedule or the AHB Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by a party that such item represents a material exception or fact, event or circumstance

 

28

 

or that, absent such inclusion in the Parent Disclosure Schedule or the AHB Disclosure Schedule, such item is or would be reasonably likely to result in a Material Adverse Effect.

 

5.2          Standard .   No representation or warranty of AHB or Parent contained in Sections 5.3 or 5.4, respectively, shall be deemed untrue or incorrect for any purpose under this Agreement, and no party hereto shall be deemed to have breached a representation or warranty, in any case, as a consequence of the existence of any fact, event or circumstance unless such fact, circumstance or event, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty contained in Sections 5.3 or 5.4, has had or would be reasonably likely to have a Material Adverse Effect on the party making such representation or warranty disregarding for the purposes of this Section 5.2 any materiality or Material Adverse Effect qualification contained in any representations or warranties.  Notwithstanding the immediately preceding sentence, the representations and warranties contained in (x) Section 5.3(b), in the case of AHB, and Section 5.4(b), in the case of Parent, shall be deemed untrue and incorrect if not true and correct except to a de minimis extent, (y) Sections 5.3(d), 5.3(e), 5.3(m), and 5.3(aa) and 5.3(bb), in the case of AHB, and Sections 5.4(d), 5.4(e), 5.4(k), and 5.4(t), in the case of Parent, shall be deemed untrue and incorrect if not true and correct in all material respects, and (z) Section 5.3(cc), in the case of AHB, and Section 5.4(r)(i), in the case of Parent, shall be deemed untrue and incorrect if not true and correct in all respects.

 

5.3          Representations and Warranties of AHB .   Subject to Sections 5.1 and 5.2, AHB hereby represents and warrants to Parent:

 

(a)           Organization, Standing and Authority .  AHB is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America.  AHB is duly qualified to do business and is in good standing in each jurisdiction where its ownership or leasing of property or assets or the conduct of its business requires it to be so qualified.  AHB has in effect all federal, state, local and foreign governmental authorizations necessary for it to own or lease its properties and assets and to carry on its business as now conducted.  AHB is duly licensed by the OCC and its deposits are insured by the Bank Insurance Fund of the FDIC in the manner and to the maximum extent provided by law.

 

(b)           AHB Common Stock .  The authorized common stock of AHB consists of Four Million (4,000,000) shares of AHB Common Stock, of which 1,675,596 shares are issued and outstanding as of the date hereof.  As of the date hereof, 5,500 shares of AHB Common Stock were held in treasury by AHB.  Schedule 5.3(b)  of the AHB Disclosure Schedule sets forth the name and state of residence of each holder of AHB Common Stock, the number of shares owned of record and beneficially owned by each such holder and whether such shares are certificated or held in book entry form.  AHB also has outstanding AHB Warrants exercisable for the purchase of 212,000 shares of AHB Common Stock and outstanding AHB Options exercisable for the purchase of 204,500 shares of AHB Common Stock.  The outstanding shares of AHB Common Stock, the AHB Warrants, and the AHB Options have been duly authorized and validly issued and are fully paid and non-assessable (except with respect to 12 U.S.C. Section 55), and neither the outstanding shares of AHB Common Stock have been nor the shares of AHB Common Stock issuable upon exercise of the AHB Warrants or AHB Options will be, upon issuance, issued in violation of the preemptive rights of any Person.  Each of the AHB

 

29

 

Options was issued pursuant to and in accordance with the AHB Stock Option Plan.  The AHB Stock Option Plan, and all material amendments thereto, was approved by the shareholders of AHB in accordance with Section 422(b) of the Code.  Except as set forth in Schedule 3.8(a)  or Schedule 3.8(b)  of the AHB Disclosure Schedule there are no shares of AHB Common Stock reserved for issuance, AHB does not have any Rights issued or outstanding with respect to AHB Common Stock and AHB does not have any commitment to authorize, issue or sell any AHB Common Stock or Rights.  Except as set forth in Schedule 3.8(a)  or Schedule 3.8(b)  of AHB’s Disclosure Schedule, there are no voting trusts, voting agreements, proxies, first refusal rights, first offer rights, co-sale rights, options, transfer restrictions or other agreements, instruments or understandings (whether written or oral, formal or informal) with respect to the voting, transfer or disposition of AHB’s Common Stock to which AHB is a party or by which it is bound or, to the Knowledge of AHB, among or between any persons other than AHB.  All prior issuances of securities of AHB and its Subsidiaries were made in compliance with all, and not in violation of any, applicable Federal, state, local and foreign securities laws.

 

(c)           Subsidiaries.

 

(i)            Each member of the AHB Group has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its organization, and is duly qualified to do business and is in good standing in the jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect on Parent.

 

(ii)           As of the date hereof, (A) except as set forth in Schedule 5.3(c)(ii)  of AHB Disclosure Schedule, AHB owns, directly or indirectly, all the issued and outstanding equity securities of each Affiliate; (B) no equity securities of any Affiliates are or may become required to be issued other than to AHB by reason of any Right or otherwise; (C) there are no contracts, commitments, understandings or arrangements by which any Affiliate is or may be bound to sell or otherwise transfer any of its equity securities other than to AHB or any of its wholly-owned Subsidiaries; and (D) there are no contracts, commitments, understandings or arrangements relating to AHB’s right to vote or to dispose of such securities.

 

(d)           Corporate Power .  AHB has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets; and AHB has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the Transaction, subject to receipt of all necessary approvals of Governmental Authorities and the approval of AHB’s shareholders of this Agreement, and no other corporate proceedings are necessary on the part of AHB to approve this Agreement or to consummate the Transaction.

 

(e)           Corporate Authority .  Subject to the approval of this Agreement by the holders of not less than two-thirds of the outstanding shares of AHB Common Stock (a “ Required Vote ”), this Agreement and the Transaction have been authorized by all necessary corporate action of AHB and the AHB Board on or prior to the date hereof.  AHB has duly executed and delivered this Agreement and, assuming due authorization, execution and delivery

 

30

 

by Parent of this Agreement, this Agreement is a valid and legally binding obligation of AHB, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, receivership, conservatorship, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles.

 

(f)            Regulatory Approvals; No Defaults .

 

(i)            No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with any third party are required to be made or obtained by AHB in connection with the execution, delivery or performance by AHB of this Agreement or to consummate the Transaction except for (A) filings of applications or notices with, and approvals or waivers by, the OCC, the FDIC, and the Federal Reserve Board, and (B) the filing with the Secretary of State of the Commonwealth of Pennsylvania of a certificate of approval of the Merger by the OCC, AHB is not aware of any reason why the approvals set forth above and referred to in Section 7.1(b) will not be received in a timely manner and without the imposition of a condition, restriction or requirement of the type described in Section 7.1(b).

 

(ii)           Subject to receipt, or the making, of the consents, approvals, waivers and filings referred to in the preceding paragraph and the expiration of related waiting periods, the execution, delivery and performance of this Agreement by AHB and the consummation of the Transaction do not and will not (A) except as set forth on Schedule 5.3(f)(ii)  of the AHB Disclosure Schedule, constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of AHB or any Affiliate of AHB or to which AHB or any Affiliate of AHB or any of their respective properties is subject or bound, (B) constitute a breach or violation of, or a default under, the AHB Articles, the AHB Bylaws, or any organizational document or agreement of an Affiliate of AHB or (C) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license, agreement, indenture or instrument of AHB or any Affiliate of AHB.

 

(g)           Mortgage Banking .

 

(i)            General.

 

(1)           Recourse .              Except as set forth on Schedule 5.3(g)(i)(1) of the AHB Disclosure Schedule, none of the Mortgage Loans or Servicing Agreements provides for Recourse to AHB or any Affiliate of AHB.

 

(2)           Advances .             The Advances are valid and subsisting amounts owing to AHB, were made in accordance with Applicable Requirements and are carried on the books of AHB at values determined in accordance with GAAP, and are not subject to setoffs or

 

31

 

claims arising from acts or omissions of AHB.  No Investor has claimed any defense, offset or counterclaim for repayment of any Advance that is pending.

 

(ii)           Mortgage Loans .

 

(1)           Investor/Insurer Requirements .  Each Mortgage Loan was originated and conforms in all respects to the Applicable Requirements, and each Loan Held for Sale and each Pipeline Loan shall be eligible for sale to, insurance by, or pooling to back securities issued or guaranteed by the applicable Investor or Insurer program under which AHB originated the Loan Held for Sale and/or Pipeline Loan.  Each Loan Held for Sale allocated to a particular Investor in accordance with standard secondary marketing practices of AHB is eligible in all respects for sale under an Investment Commitment.  Each Loan Held for Sale not allocated to a particular Investor in accordance with standard secondary marketing practices of AHB would be otherwise eligible for sale in all respects under an Investment Commitment upon allocation to an Investor.  To AHB’s Knowledge, there exists no fact or circumstance that would entitle the applicable Insurer or Investor to (A) demand from AHB, or any Affiliate of AHB, either repurchase of any Serviced Loan or Previously Disposed of Loan or indemnification for losses or refuse to purchase a Loan Held for Sale, (B) impose on AHB, or any Affiliate of AHB, sanctions, penalties or special requirements in respect of any Mortgage Loan or (C) rescind any insurance policy or reduce insurance benefits in respect of any Mortgage Loan which would result in a breach of any obligation of AHB, or any Affiliate of AHB, under any agreement.  Each Pipeline Loan complies in all material respects with Applicable Requirements for the stage of processing that it has achieved based on the Investor or Insurer program, if applicable, under which AHB, or any Affiliate of AHB, originated the Pipeline Loan.

 

(2)           Documentation/Enforceability .  Each Mortgage Loan is evidenced by a Mortgage Note and is duly secured by a valid first lien or subordinated lien on the related Mortgaged Property, in each case, on such forms and with such terms as comply with all Applicable Requirements.  Each Mortgage Note and the related Mortgage is genuine and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting generally the enforcement of creditors’ rights.  No Mortgage Loan is subject to any rights of rescission, set-off, counterclaim or defense, including the defense

 

32

 

of usury, nor will the operation of any of the terms of the Mortgage Note or the Mortgage, or the exercise of any right thereunder, render either the Mortgage Note or the Mortgage unenforceable by AHB, in whole or in part, or subject to any right of rescission, set-off, counterclaim or defense, including the defense of usury, and no such right of rescission, set-off, counterclaim, or defense has been asserted with respect thereto.

 

(3)           Compliant with Law .  AHB and/or the AHB Group, as the case may be, has complied, and each Mortgage Loan complied and comply, in all respects, with respect to origination, sale and servicing of the Mortgage Loans, with the Applicable Requirements, including any and all applicable federal, state, or local law, statute, and ordinance, and any applicable rule, regulation, or order issued thereunder, required to have been complied with as of the Effective Date, including, without limitation, the fair housing, anti-redlining, equal credit opportunity, truth-in-lending, real estate settlement procedures, fair credit reporting, high cost and anti-predatory lending and every other prohibition against unlawful discrimination in residential mortgage lending or governing consumer credit, and also including, without limitation, the Fair Housing Act, Consumer Credit Reporting Act, Equal Credit Opportunity Act of 1975 and Regulation B, Fair Credit Reporting Act, Truth in Lending Act and Regulation Z, the Flood Disaster Protection Act of 1973, Fair Debt Collection Practices Act, Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act of 1974, and Regulation X, all as amended, and any applicable state consumer credit statute, rule, regulation or law (each, an “ AHB Regulation ”).  To AHB’s Knowledge, each originator of a Mortgage Loan was qualified to do business, and had all requisite licenses, permits and approvals, in the states in which the properties associated with the Mortgage Loans are located, as well as the states in which the associated mortgage notes or mortgages will be executed.

 

(4)           Good Title .  Except for the interest of the applicable Originator in the case of wholesale originations, AHB is the sole owner and holder of all right, title and interest in and to each  Loan Held for Sale, Portfolio Loan and each Pipeline Loan.  On the Effective Date, the Loans Held for Sale, the Portfolio Loans and the Pipeline Loans will be valid and enforceable in accordance with their terms and will effectively vest in Parent or Parent Bank, as the case may be, good and marketable title to the Loans Held for Sale, the Portfolio Loans and the Pipeline Loans free and clear of any and all Liens.  AHB has not previously assigned, transferred or encumbered any of the Loans Held for Sale, the Portfolio Loans or the Pipeline Loans.

 

(5)           Origination and Servicing Practices .  The origination and servicing practices used by AHB, the AHB Group or any Originator with respect to each Mortgage Loan have been in all material respects legal, proper, prudent and customary in the mortgage lending business and in accordance with Applicable Requirements.  Except for customary industry standards for indemnification and repurchase remedies in connection with agreements for the sale or servicing of mortgage loans, none of AHB, or any Affiliate of AHB, is now or has been subject to any

 

33

 

material fine, suspension, settlement or other agreement or administrative agreement or sanction by, or an obligation to indemnify, an Agency, an Insurer or an Investor, relating to the origination, sale or servicing of mortgage loans.

 

(6)           Loan-to-Value Ratio; Appraisals .  AHB relies on third-party appraiser to provide opinions and value upon which AHB determine the loan-to-value ratio of Loans Held for Sale and Committed Pipeline Loans.  To AHB’s Knowledge, at the time of origination, the loan-to-value ratio of each Loan Held for Sale and each committed Pipeline Loan did not exceed the maximum amount permitted by the applicable Investor or Insurer for such Loan Held for Sale or Pipeline Loan.  The appraisal prepared in connection with property associated with each Loan Held for Sale and each Pipeline Loan was prepared by a qualified appraiser with, to the Knowledge of AHB, no direct or indirect interest in the property, and both the appraisal and appraiser satisfied all Applicable Requirements.

 

(7)           Fraud .  To AHB’s Knowledge, there has been no fraudulent action on the part of any Originator or parties acting on behalf of the Originator in connection with the Origination of any Mortgage Loan or Pipeline Loan or the application of insurance proceeds with respect to a Mortgage Loan or the Mortgaged Property for which AHB, or any Affiliate of AHB, is responsible to the applicable Investor or Insurer or otherwise bears the risk of loss.

 

(8)           High Cost Loans .  No Mortgage Loan is a “High Cost Loan” or “Covered Loan”, as applicable, under either the Home Ownership Equity Protection Act or a similar state or local anti-predatory lending law, statute, regulation or ordinance, including, without limitation, as such terms are defined in the then current Standard & Poor’s LEVELS ^® a Glossary of Terms which is now Version 5.7 Revised, Appendix E.

 

(iii)          Mortgage Banking Qualification .   AHB (a) to the extent required for the conduct of the Mortgage Business, is approved (i) by HUD as an approved non-supervised mortgagee for FHA Loans, (ii) by VA as an approved lender for VA Loans, and (iii) by FNMA and FHLMC as an approved seller/servicer of first lien residential mortgages; (b) has all other material certifications, authorization, licenses, permits and other approvals, including without limitation those required by State Agencies, that are necessary to conduct the Mortgage Business (or, where legally permissible, any waiver of or exemption from any of the foregoing by such Agency or State Agency); and (c) is in good standing under all applicable federal, state and local laws and regulations thereunder as a lender.  AHB has not received any notice or information from any Governmental Authorities that it intends to terminate or restrict AHB’s or any AHB employee’s status as an approved participant in its Mortgage Business for which AHB is registered, approved or authorized.

 

34

 

(iv)          Repurchase/Indemnification .  Schedule 5.3(g)(iv)  of the AHB Disclosure Schedule contains a true and correct list of each written audit, investigation report or complaint in respect of AHB by any Agency, Investor or Insurer received by AHB since December 31, 2005 which asserted a material failure to comply with Applicable Requirements affecting the Mortgage Business or resulted in (a) a Repurchase by AHB of mortgage loans and/or REO’s acquired as a result of a default under a mortgage loan from such Agency, Investor or Insurer, (b) Indemnification by AHB in connection with mortgage loans, or (c) rescission of an insurance or guaranty contract or agreement applicable to mortgage loans.  For purposes of this Section 5.3(g)(iv) , the term “ Repurchase ” means any Loan bought back from the Investor by AHB or any Affiliate of AHB due to an early payment default and/or an asserted material failure to comply with representations, warranties or covenants made by AHB and/or its Affiliates to the Investor under a seller/servicer agreement with the Investor.  For purposes of this Section 5.3(g)(iv) , Indemnification means payment of a claim for payment of costs, claims and expenses required under a written agreement between AHB and an Investor for the sale of Mortgage Loans that provides for indemnification by AHB of the Investor for costs, claims and expenses arising out of a material failure by AHB to comply with the representations, warranties and covenants in such written agreement with the Investor.

 

(v)           Servicing .   Each Servicing Agreement is valid and binding on AHB, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting generally the enforcement of creditors’ rights, and is in full force and effect without notice by the applicable Investor of termination thereof.  AHB and, to AHB’s Knowledge, each other party thereto has duly performed all obligations required to be performed by it to date under each Servicing Agreement.  No event or condition exists that constitutes, or after notice or lapse of time or both, will constitute, a breach, violation, or default on the part of AHB, or, to AHB’s Knowledge, any other party thereto under any such Servicing Agreement.  There are no disputes pending or, to AHB’s Knowledge, threatened with respect to any Servicing Agreement.  The Servicing of the Mortgage Loans complies in all respects with all Applicable Requirements.

 

All Custodial Accounts required to be maintained by AHB have been established and continuously maintained in accordance with Applicable Requirements.  All Mortgage Loan Documents required to be obtained and maintained by AHB have been obtained and continuously maintained in accordance with Applicable Requirements.

 

(vi)          Joint Ventures .

 

(A)          Schedule 5.3(g)(vi)(A)  of the AHB Disclosure Schedule contains a true and correct list of each joint venture in which AHB or any Affiliate of AHB currently holds, or has held an interest, together with a brief description of the joint venture’s activities, the place of organization, the type and amount of interest held by AHB or any Affiliate of AHB, the respective capital account balances as of August 31, 2008 for each owner thereof, and whether the

 

35

 

joint venture is in good standing and actively operating or whether it has been dissolved (collectively, the “ Joint Ventures ”).

 

(B)           Compliance with Law; Litigation .  Except as set forth on Schedule 5.3(g)(vi)(B)  of the AHB Disclosure Schedule, the activities and operations of each of the Joint Ventures have been conducted in compliance with all applicable federal, state and local laws and regulations.  Except as set forth on Schedule 5.3(g)(vi)(B)  of the AHB Disclosure Schedule, none of the Joint Ventures is party to any litigation, and, to AHB’s Knowledge, no litigation involving any of the Joint Ventures has been threatened.  No dispute, disagreement or controversy exists among any of the interest holders in any of the Joint Ventures regarding operations, profit/loss distributions and/or capital accounts.  AHB has delivered true and correct copies of the organizational documents of each of the Joint Ventures and all material agreements relating thereto to Parent, and no default exists with respect to such documents and agreements or would exist but for the passage of time.

 

(h)           Financial Reports; Undisclosed Liabilities .

 

(i)            AHB’s balance sheets for the fiscal years ended December 31, 2006 and December 31, 2007, statements of income, statements of shareholders’ equity and cash flows, for fiscal years ended December 31, 2005, December 31, 2006, and December 31, 2007 audited by Beard Miller Company, LLP, and all other reports, proxy statements, information statements or call reports filed or to be filed by it subsequent to December 31, 2007 with the OCC (collectively, “ AHB Financial Reports ”), as of the date filed or to be filed and as amended prior to the date hereof, (A) complied or will comply in all material respects as to form with the applicable regulations of the OCC and (B) did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that information as of a later date shall be deemed to modify information as of an earlier date; and each of the statements of financial condition contained in any such AHB Financial Reports, including the related notes and schedules thereto, fairly presents, or will fairly present, the financial position of the AHB Group as of its date, and each of the balance sheets, statements of income, shareholders’ equity and cash flows or equivalent statements in AHB Financial Reports, including any related notes and schedules thereto, fairly presents, or will fairly present, the balance sheets, the results of operations, changes in shareholders’ equity and changes in cash flows, as the case may be, of the AHB Group for the periods to which they relate, in each case in accordance with GAAP consistently applied during the periods involved, except in each case as may be noted therein.

 

(ii)           Since December 31, 2007, AHB has not incurred any liability other than in the ordinary course of business consistent with past practice, excluding the incurrence of expenses related to this Agreement and the Transaction.

 

36

 

(iii)          Since December 31, 2007, (A) AHB and each of its Affiliates has conducted its respective businesses in the ordinary and usual course consistent with past practice, excluding the incurrence of expenses related to this Agreement and the Transaction; and (B) except as set forth in AHB Financial Reports, since December 31, 2007, no event has occurred or circumstance arisen that, individually or taken together with all other facts, circumstances and events described in any paragraph of this Section 5.3 or otherwise, is reasonably likely to have a Material Adverse Effect with respect to AHB.

 

(iv)          Except as set forth on Schedule 5.3(g)(iv)  or Schedule 5.3(h)(iv)  of the AHB Disclosure Schedule, no agreement pursuant to which any loans or other assets have been or shall be sold by the AHB Group entitled the buyer of such loans or other assets, unless there is material breach of a representation or covenant by AHB or an Affiliate to cause AHB or an Affiliate to repurchase such loan or other asset or the buyer to pursue any other form of recourse against AHB or any Affiliate.  There has been no material breach of a representation or covenant by AHB or an Affiliate in any such agreement.  Except as disclosed in AHB Financial Reports since December 31, 2007, no cash, stock or other dividend or any other distribution with respect to the capital stock of AHB has been declared, set aside or paid.  Except as disclosed in AHB Financial Reports, no shares of AHB Common Stock have been purchased, redeemed or otherwise acquired, directly or indirectly, by AHB since December 31, 2007, and no agreements have been made to do the foregoing.

 

(v)           The AHB Group maintains disclosure controls and procedures required by the OCC; such controls and procedures are effective to ensure that all material information concerning the AHB Group is made known on a timely basis to the individuals responsible for the preparation of AHB Financial Reports and other public disclosure documents.  The President and the Chief Financial Officer of AHB have signed, and AHB has furnished to the OCC, any certifications required by the OCC; such certifications contain no qualifications or exceptions to the matters certified therein and have not been modified or withdrawn; and neither AHB nor any of its officers has received notice from any Governmental Authorities questioning or challenging the accuracy, completeness, form or manner of filing or submission of such certifications.

 

(vi)          Except as reflected, noted or adequately reserved against in AHB Financial Reports and call reports for the year ended December 31, 2007 and for the six months ended June 30, 2008, as filed with the OCC, at December 31, 2007 and for the six months ended June 30, 2008, the AHB Group had no liabilities, whether accrued, absolute, contingent or otherwise, that are required to be reflected, noted or reserved against therein under GAAP or that are in any case or in the aggregate material.

 

(i)            Litigation .  Except as set forth in Schedule 5.3(i)  of the AHB Disclosure Schedule, no litigation, claim or other proceeding before any court or governmental agency is pending against AHB or any Affiliate of AHB, and to AHB’s Knowledge no such litigation, claim or other proceeding has been threatened, and there are no facts that could reasonably give rise to such litigation, claim or other proceeding.  No member of the AHB Group is a party to

 

37

 

any order, judgment or decree that has or could reasonably be expected to have a Material Adverse Effect with respect to AHB.

 

(j)            General Regulatory Matters .

 

(i)            Neither AHB, any Affiliate, nor any of their respective properties is a party to or is subject to any order, decree, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter from, any Bank Regulatory Authority or any federal or state governmental agency or authority charged with the supervision or regulation of issuers of securities or the supervision or regulation of it (collectively, the “ AHB Regulatory Authorities ”).  AHB has paid all assessments made or imposed by any AHB Regulatory Authority.

 

(ii)           No member of the AHB Group has been advised by, nor has any Knowledge of facts that could give rise to an advisory notice by, any AHB Regulatory Authority that such AHB Regulatory Authority is contemplating issuing or requesting, or is considering the appropriateness of issuing or requesting, any such order, decree, agreement, memorandum of understanding, commitment letter, supervisory letter or similar submission.

 

(iii)          AHB has 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, 2002 with (A) the Federal Reserve Board, (B) the OCC, (C) and any other AHB Regulatory Authority, and all other reports and statements required to be filed by them since January 1, 2002, and have paid all fees and assessments due and payable in connection therewith.  Except as set forth in Schedule 5.3(j)(iii)  of the AHB Disclosure Schedule and except for normal examinations conducted by Bank Regulatory Authorities, (A) no Bank Regulatory Authority has initiated or has pending any proceeding or, to the Knowledge of AHB, investigation into the business or operations of AHB since January 1, 2002, and (B) there is no unresolved violation, criticism or exception by any AHB Regulatory Authority with respect to the business, operations, policies or procedures of AHB since January 1, 2002.

 

(k)           Compliance With Laws .  AHB and all Affiliates in the AHB Group:

 

(i)            are in material compliance with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including, without limitation, Sections 23A and 23B of the Federal Reserve Act and FDIC, and OCC regulations pursuant thereto, the Equal Credit Opportunity Act of 1975, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act and all other applicable fair lending laws and other laws relating to discriminatory business practices;

 

(ii)           have all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Authorities

 

38

 

that are required in order to permit it to own or lease its properties and to conduct its business as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to AHB’s Knowledge, no suspension or cancellation of any of them is threatened;

 

(iii)          have not received, since December 31, 2005, any notification or communication from any Governmental Authority (A) threatening to revoke any license, franchise, permit or governmental authorization, nor, to AHB’s Knowledge, do any grounds exist therefor, or (B) other than matters contained in AHB’s regular Reports of Examination from the OCC, asserting that AHB or any Affiliate of AHB is not in compliance with any of the statutes, regulations or ordinances; and

 

(iv)          are not a party to any contract which restricts it from relocating, closing or terminating any of its operations or facilities or any portion thereof.  AHB has not, since January 1, 2008 effectuated (A) a “plant closing” (as defined in the WARN Act) or (B) a “mass lay-off” (as defined in the WARN Act), in either case affecting any site of employment or facility of AHB, except in accordance with the WARN Act.  Set forth in Schedule 5.3(k)(iv)  of AHB Disclosure Schedule is a true and complete list of each employee terminated by AHB, including the date of termination, for each employee terminated by AHB after December 31, 2007.

 

(l)            Material Contracts; Defaults .

 

(i)            Except as set forth in Schedule 5.3(l)(i)  of AHB Disclosure Schedule, AHB or any Affiliate of AHB is not a party to, bound by or subject to any agreement, contract, arrangement, commitment or understanding, whether written or oral:  (A) with respect to the employment of any of its directors, officers or employees; (B) that would entitle any present or former director, officer, employee or agent to indemnification from AHB; (C) that is a material contract as defined in Item 601(b)(10) of Regulation  S-K of the SEC; (D) that is a consulting agreement not terminable on 60 days or less notice and involving the payment of more than One Hundred Thousand Dollars ($100,000.00) per annum; (E) that is a data processing, software programming, licensing or similar contract; or (F) that materially restricts the conduct of any business by AHB or any Affiliate of AHB (collectively, “ Material Contracts ”).  AHB has identified in Schedule 5.3(l)(i)  of AHB Disclosure Schedule and made available to Parent true, correct and complete copies of each such Material Contract.

 

(ii)           Neither AHB nor any Affiliate of AHB is in material default under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party, by which its assets, business or operations may be bound or affected, or under which it or its respective assets, business or operations receives benefits, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default.  Except (A) as provided in this Agreement, or (B) for limited powers of attorney granted in connection with recordation of assignments and other documents required for loan securitization, no power of attorney or similar authorization given directly or indirectly by AHB or any Affiliate is currently outstanding.

 

39

 

(m)                                No Brokers .  Except as set forth in Schedule 5.3(m)  of AHB Disclosure Schedule, no action has been taken by AHB or any Affiliate that would give rise to any valid claim against any party hereto for a brokerage commission, a finder’s fee or other like payment with respect to the Transaction.

 

(n)                                  Employee Benefit Plans .

 

(i)                                      All benefit and compensation plans, contracts, policies or arrangements covering current or former employees of AHB or any Affiliate and current or former directors of AHB and any Affiliate including, but not limited to, “employee benefit plans” within the meaning of Sections 3(1), 3(2), 3(3) and 3(37) of ERISA, and deferred compensation, stock option, stock purchase, stock appreciation rights, stock based, incentive and bonus plans (the “ Benefit Plans ”), have been set forth in Schedule 5.3(n)  of the AHB Disclosure Schedule.  There has been no announcement or commitment by AHB or any Affiliate to create an additional Benefit Plan or to amend any Benefit Plan, except for amendments required by applicable law to maintain its qualified status or otherwise.  True and complete copies of the following have been provided or made available to Parent:  (A) all Benefit Plans including, but not limited to, any trust instruments and insurance contracts forming a part of any Benefit Plans and all amendments thereto; (B) the three most recent annual reports (Form 5500), together with all schedules, as required, filed with the IRS or DOL, as applicable, and any financial statements and opinions required by Section 103(b)(3) of ERISA with respect to each Benefit Plan; (C) for each Benefit Plan that is a “top-hat” plan, a copy of filings with the DOL; (D) the most recent determination letter issued by the IRS for each Benefit Plan that is intended to be “qualified” under Section 401(a) of the Code; (E) the most recent summary plan description and any summary of material modifications, as required, for each Benefit Plan; (F) the most recent actuarial report, if any, relating to each Benefit Plan; (G) the most recent actuarial valuation, study or estimate of any retiree medical and life insurance benefits plan or supplemental retirement benefits plan; (H) the most recent summary annual report for each Benefit Plan required to provide summary annual reports by Section 104 of ERISA; and (i) most recent nondiscrimination tests performed under ERISA and the Code.

 

(ii)                                   Each Benefit Plan has been administered to date in all material respects in accordance with the applicable provisions of ERISA, the Code, and all other applicable laws and regulations and with the terms and provisions of all documents, contracts or agreements pursuant to which such Benefit Plan is maintained.  Each Benefit Plan that is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA (a “ Pension Plan ”) and that is intended to be qualified under Section 401(a) of the Code, has received a favorable determination letter from the IRS or is the adoption of a prototype plan for which the prototype sponsor has a favorable determination letter from the IRS, and AHB is not aware of any circumstances likely to result in revocation of any such favorable determination letter or the loss of the qualification of such Pension Plan under Section 401(a) of the Code.  No member of the AHB Group has received any correspondence or written or verbal notice from the IRS, DOL, any other governmental agency, any participant in or beneficiary of, a Benefit Plan or any agent representing any of the foregoing that brings into question the qualification of any such Benefit Plan.

 

40

 

There is no material pending or, to AHB’s Knowledge, threatened litigation relating to the Benefit Plans.  No member of the AHB Group has engaged in a transaction with respect to any Benefit Plan that, assuming the taxable period of such transaction expired as of the date hereof or as of the Closing Date, as the case may be, could subject AHB or any Affiliate to a tax or penalty imposed by either Section 4975 of the Code or Section 502 of ERISA.  There are no matters pending before the IRS, DOL or other Governmental Authority with respect to any Benefit Plans, nor does AHB have Knowledge that any is threatened.

 

(iii)                                No liability under Title IV of ERISA has been, or to AHB’s Knowledge is presently expected, to be incurred by any member of the AHB Group with respect to any ongoing, frozen or terminated “single-employer plan,” within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them or the single-employer plan of any entity that is considered one employer with AHB under Section 4001 of ERISA or Section 414 of the Code (an “ ERISA Affiliate ”).  No member of the AHB Group has contributed to any “multiemployer plan” as defined in Section 3(37) of ERISA.

 

(iv)                               All contributions required to be made under the terms of any Benefit Plan have been timely made and all anticipated contributions and binding obligations are accrued monthly on AHB’s consolidated financial statements to the extent required and in accordance with GAAP.  AHB has expensed and accrued as a liability the present value of future benefits in accordance with applicable laws and GAAP.  Neither any Pension Plan nor any single-employer plan of the AHB Group or an ERISA Affiliate has an “accumulated funding deficiency”, whether or not waived, within the meaning of Section 412 of the Code or Section 302 of ERISA and neither AHB, any Affiliate or an ERISA Affiliate has an outstanding funding waiver.  The fair market value of the assets of each Benefit Plan exceeds the present value of the “benefit liabilities” as defined in Section 4001(a)(16) of ERISA under such Benefit Plan as of the end of the most recent plan year with respect to the respective Benefit Plan ending prior to the date hereof, calculated on the basis of the actuarial assumptions used in the most recent actuarial valuation for such Benefit Plans as of the date hereof; there is not currently pending with the Pension Benefit Guaranty Corporation any filing with respect to any reportable event under Section 4043 of ERISA nor has any reportable event occurred as to which a filing is required and has not been made (other than as might be required with respect to this Agreement and the transactions contemplated thereby).  Except as set forth in Schedule 5.3(n)  of AHB Disclosure Schedule, no member of the AHB Group has provided, or is required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.

 

(v)                                  Except as set forth in Schedule 5.3(n)  of AHB Disclosure Schedule, no member of the AHB Group has any obligations for retiree health, life, disability or other benefits under any Benefit Plan, other than coverage as may be required under Section 4980B of the Code or Part 6 of Title I of ERISA, or under the continuation of coverage provisions of the laws of any state or locality.  To AHB’s Knowledge, no event or condition exists with respect to a Benefit Plan that could subject any member of the AHB Group to tax under Section 4980B of the Code.  To AHB’s

 

41

 

Knowledge, there has been no communication to employees by any member of the AHB Group that would reasonably be expected to promise or guarantee such employees retiree health, life, or disability insurance or other retiree benefits.

 

(vi)                               Except as set forth in Schedule 5.3(n)  of AHB Disclosure Schedule, none of the execution of this Agreement, shareholder approval of this Agreement or consummation of the Transaction will (A) entitle any employee, consultant or director of the AHB Group to severance pay or any increase in severance pay upon any termination of employment after the date hereof, (B) accelerate the time of payment or vesting or trigger any payment or funding, through a grantor trust or otherwise, of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any of the Benefit Plans, (C) result in any breach or violation of, or a default under, any of the Benefit Plans or (D) result in any payment that would be a “excess parachute payment” to a “disqualified individual” as those terms are defined in Section 280G of the Code, without regard to whether such payment is reasonable compensation for personal services performed or to be performed in the future.

 

(vii)                            All required reports and descriptions, including but not limited to Form 5500 annual reports and required attachments, Forms 1099-R, summary annual reports, Forms PBGC-1 and summary plan descriptions, have been filed or distributed appropriately with respect to each Benefit Plan.  All required tax filings with respect to each Benefit Plan have been made, and any taxes due in connection with such filings have been paid.

 

(viii)                         Neither AHB nor any of its Affiliates maintains any Benefit Plan covering employees who are not United States residents.

 

(o