AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

DATED AS OF SEPTEMBER 4, 2008

BY AND BETWEEN

JEFFERSON BANCSHARES, INC.

AND

STATE OF FRANKLIN BANCSHARES, INC.

 

TABLE OF CONTENTS

 

 

i

EXHIBITS

 

 

ii

Agreement and Plan of Merger

This is an Agreement and Plan of Merger , dated as of the 4th day of September, 2008 (“ Agreement ”), by and between Jefferson Bancshares, Inc., a Tennessee corporation (“ Jefferson Bancshares ”), and State of Franklin Bancshares, Inc., a Tennessee corporation (“ SOFB ”).

Introductory Statement

The Board of Directors of each of Jefferson Bancshares and SOFB has determined that this Agreement and the business combination and related transactions contemplated hereby are advisable and in the best interests of Jefferson Bancshares or SOFB, as the case may be, and in the best long-term interests of the shareholders of Jefferson Bancshares or SOFB, as the case may be.

The parties hereto intend that the Merger as defined herein shall qualify as a reorganization under the provisions of Section 368(a) of the IRC for federal income tax purposes.

Jefferson Bancshares and SOFB each desire to make certain representations, warranties and agreements in connection with the business combination and related transactions provided for herein and to prescribe various conditions to such transactions.

In consideration of their mutual promises and obligations hereunder, the parties hereto adopt and make this Agreement and prescribe the terms and conditions hereof and the manner and basis of carrying it into effect, which shall be as follows:

ARTICLE I

D EFINITIONS

The following terms are defined in this Agreement in the Section indicated:

 

 

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In addition, for purposes of this Agreement:

“ Acquisition Proposal ” means any proposal or offer with respect to any of the following (other than the transactions contemplated hereunder): (i) any merger, consolidation, share exchange, business combination, or other similar transaction involving SOFB or any of its Subsidiaries; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 25% or more of SOFB’s consolidated assets in a single transaction or series of transactions; (iii) any tender offer or exchange offer for 25% or more of the outstanding shares of SOFB’s

 

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capital stock or the filing of a registration statement under the Securities Act in connection therewith; or (iv) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in an any of the foregoing.

“ Agreement ” means this Agreement, as amended, modified or amended and restated from time to time in accordance with its terms.

“ Bankruptcy Law ” means Title 11, United States Code, or any similar federal, state, local or foreign law providing for insolvency, reorganization, receivership, dissolution, winding up or liquidation of a debtor.

“ Business Day ” shall mean any day other than a Saturday, a Sunday or any other day that Jefferson Federal is authorized or required to be closed.

“ CRA ” means the Community Reinvestment Act.

“ Custodian ” means any receiver, trustee, conservator, assignee, liquidator, custodian or similar official under any Bankruptcy Law or banking law.

“ Environmental Law ” means any federal, state or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, directive, executive or administrative order, judgment, decree, injunction, or agreement with any Governmental Entity relating to (i) the protection, preservation or restoration of the environment (which includes, without limitation, air, water vapor, surface water, groundwater, drinking water supply, soil, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety as it relates to Hazardous Materials, or (ii) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of, Hazardous Materials, in each case as amended and as now in effect. The term Environmental Law includes, without limitation, the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976, the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970 as it relates to Hazardous Materials, the Federal Hazardous Substances Transportation Act, the Emergency Planning and Community Right-To-Know Act, the Safe Drinking Water Act, the Endangered Species Act, the National Environmental Policy Act, the Rivers and Harbors Appropriation Act or any so-called “Superfund” or “Superlien” law, each as amended and as now in effect.

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

“ ERISA Affiliate ” means any entity that is considered one employer with SOFB under Section 4001(b)(1) of ERISA or Section 414 of the IRC.

 

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“ ESOP ” means the employee stock ownership plan maintained by SOFB.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Excluded Shares ” shall consist of (i) Dissenters’ Shares and (ii) shares held directly or indirectly by Jefferson Bancshares (other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted).

“ FDIC ” means the Federal Deposit Insurance Corporation.

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

“ GAAP ” means generally accepted accounting principles.

“ Government Regulator ” means any federal or state governmental authority charged with the supervision or regulation of depository institutions or depository institution holding companies or engaged in the insurance of bank deposits.

“ Governmental Entity ” means any court, administrative agency or commission or other governmental authority or instrumentality.

“ Hazardous Material ” means any substance (whether solid, liquid or gas) which is or could be detrimental to human health or safety or to the environment, currently or hereafter listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Law, whether by type or by quantity, including any substance containing any such substance as a component. Hazardous Material includes, without limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance, oil or petroleum, or any derivative or by-product thereof, radon, radioactive material, asbestos, asbestos-containing material, urea formaldehyde foam insulation, lead and polychlorinated biphenyl.

“ HOLA ” means the Home Owners’ Loan Act, as amended.

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

“ Jefferson Bancshares Price ” means the average of the closing sales price of Jefferson Bancshares Common Stock, as reported on The Nasdaq Stock Market, for the ten consecutive trading days ending on the date that is ten business days prior to the Closing Date; provided , however , that any date on which shares of Jefferson Bancshares Common Stock do not trade shall be disregarded in computing the average closing sales price and the average shall be based upon the closing sales price and number of days on which shares of Jefferson Bancshares Common Stock actually traded during such period.

 

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“ Knowledge ” means, with respect to a party hereto, actual knowledge of the members of the Board of Directors of that party or any officer of that party with the title ranking not less than vice president.

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

“ Loan ” means a loan, lease, advance, credit enhancement, guarantee or other extension of credit.

“ Loan Property ” means any property in which the applicable party (or a subsidiary of it) holds a security interest and, where required by the context, includes the owner or operator of such property, but only with respect to such property.

“ Material Adverse Effect ” means an effect which is material and adverse to the business, financial condition or results of operations of SOFB or Jefferson Bancshares, as the context may dictate, and its Subsidiaries taken as a whole; provided , however , that any such effect resulting from any (i) changes in laws, rules or regulations or generally accepted accounting principles or regulatory accounting requirements or interpretations thereof that apply to both Jefferson Bancshares and SOFB, or to financial and/or depository institutions generally, (ii) changes in economic conditions affecting financial institutions generally, including but not limited to, changes in the general level of market interest rates, (iii) actions and omissions of Jefferson Bancshares or SOFB taken with the prior written consent of the other or (iv) direct effects of compliance with this Agreement on the operating performance of the parties, including expenses incurred by the parties in consummating the transactions contemplated by this Agreement, shall not be considered in determining if a Material Adverse Effect has occurred.

“ OTS ” means the Office of Thrift Supervision.

“ Participation Facility ” means any facility in which the applicable party (or a Subsidiary of it) participates in the management (including all property held as trustee or in any other fiduciary capacity) and, where required by the context, includes the owner or operator of such property, but only with respect to such property.

“ person ” means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization or other entity.

“ Securities Act ” means the Securities Act of 1933, as amended.

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

“ Subsidiary ” means a corporation, partnership, joint venture or other entity in which SOFB or Jefferson Bancshares, as the case may be, has, directly or indirectly, an equity interest representing 50% or more of any class of the capital stock thereof or other equity interests therein.

 

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“ Superior Proposal ” means an unsolicited, bona fide written offer made by a third party to consummate an Acquisition Proposal that (i) SOFB’s Board of Directors determines in good faith, after consulting with its outside legal counsel and its financial advisor, would, if consummated, result in a transaction that is more favorable to the shareholders of SOFB than the transactions contemplated hereby (taking into account all legal, financial, regulatory and other aspects of the proposal and the entity making the proposal), (ii) is not conditioned on obtaining financing (and with respect to which Jefferson Bancshares has received written evidence of such person’s ability to fully finance its Acquisition Proposal), (iii) is for 100% of the outstanding shares of SOFB Common Stock and (iv) is, in the written opinion of SOFB’s financial advisor, more favorable to the shareholders of SOFB from a financial point of view than the transactions contemplated hereby (including any adjustments to the terms and conditions of such transactions proposed by Jefferson Bancshares in response to such Acquisition Proposal).

“ Taxes ” means all income, franchise, gross receipts, real and personal property, real property transfer and gains, wage and employment taxes.

“ TBCA ” means the Tennessee Business Corporation Act.

ARTICLE II

T HE M ERGER

2.1 The Merger. Upon the terms and subject to the conditions set forth in this Agreement , SOFB will merge with and into Jefferson Bancshares (the “ Merger ”) at the Effective Time. At the Effective Time, the separate corporate existence of SOFB shall cease. Jefferson Bancshares shall be the surviving corporation (hereinafter sometimes referred to in such capacity as the “ Surviving Corporation ”) in the Merger and shall continue to be governed by the TBCA and its name and separate corporate existence, with all of its rights, privileges, immunities, powers and franchises, shall continue unaffected by the Merger.

2.2 Closing. The closing of the Merger (the “ Closing ”) will take place in the offices of Kilpatrick Stockton LLP, 607 14th Street, NW, Washington, DC, or at such other location as is agreed to by the parties hereto, as soon as practicable following satisfaction or waiver of the conditions to Closing set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing) (the “ Closing Date ”).

2.3 Effective Time. In connection with the Closing, Jefferson Bancshares shall duly execute and deliver articles of merger (the “ Articles of Merger ”) to the Tennessee Secretary of State for filing pursuant to the TBCA. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Tennessee Secretary of State or at such later date or time as Jefferson Bancshares and SOFB agree and specify in the Articles of Merger (the date and time the Merger becomes effective being the “ Effective Time ”).

 

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2.4 Effects of the Merger. The Merger will have the effects set forth in the TBCA. Without limiting the generality of the foregoing, and subject thereto, from and after the Effective Time, Jefferson Bancshares shall possess all of the properties, rights, privileges, powers and franchises of SOFB and be subject to all of the debts, liabilities and obligations of SOFB.

2.5 Effect on Outstanding Shares of SOFB Common Stock.

(a) Subject to the provisions of Section 2.6 hereof, by virtue of the Merger, automatically and without any action on the part of the holder thereof, each share of SOFB Common Stock issued and outstanding at the Effective Time, other than Excluded Shares, shall become and be converted into, at the election of the holder as provided in and subject to the limitations set forth in this Agreement, either the right to receive (i) $10.00 in cash, without interest (the “ Cash Consideration ”) or (ii) 1.1287 shares (the “ Exchange Ratio ”) of Jefferson Bancshares Common Stock (the “ Stock Consideration ”). The Cash Consideration and the Stock Consideration are sometimes referred to herein collectively as the “ Merger Consideration .” Notwithstanding the foregoing, all shares of SOFB Common Stock held by persons who are not residents of Tennessee shall be converted into the Cash Consideration.

(b) Notwithstanding any other provision of this Agreement, no fraction of a share of Jefferson Bancshares Common Stock and no certificates or scrip therefor will be issued in the Merger; instead, Jefferson Bancshares shall pay to each holder of SOFB Common Stock who would otherwise be entitled to a fraction of a share of Jefferson Bancshares Common Stock an amount in cash, rounded to the nearest cent, determined by multiplying such fraction by the Jefferson Bancshares Price.

(c) If, between the date of this Agreement and the Effective Time, the outstanding shares of Jefferson Bancshares Common Stock shall have been changed into a different number of shares or into a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the Exchange Ratio shall be adjusted appropriately to provide the holders of SOFB Common Stock the same economic effect as contemplated by this Agreement prior to such event.

(d) As of the Effective Time, each Excluded Share, other than Dissenters’ Shares, shall be canceled and retired and shall cease to exist, and no exchange or payment shall be made with respect thereto. All shares of Jefferson Bancshares Common Stock that are held by SOFB, if any, other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted, shall be canceled and shall constitute authorized but unissued shares. In addition, no Dissenters’ Shares shall be converted into shares of Jefferson Bancshares Common Stock pursuant to this Section 2.5 but instead shall be treated in accordance with the provisions set forth in Section 2.12 of this Agreement.

 

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(e) All certificates issued for the Stock Consideration shall contain the following legend:

THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. FOR A PERIOD OF NINE MONTHS FROM [THE CLOSING DATE] ALL RESALES OF THESE SECURITIES, BY ANY PERSON, SHALL BE MADE ONLY TO BONA FIDE PERMANENT RESIDENTS OF THE STATE OF TENNESSEE.

2.6 Election and Proration Procedures.

(a) An election form in such form as SOFB and Jefferson Bancshares shall mutually agree (an “ Election Form ”) shall be mailed as soon as practicable following the Effective Time to each holder of record of shares of SOFB Common Stock as of the Effective Time.

(b) Each Election Form shall entitle the holder of shares of SOFB Common Stock (or the beneficial owner through appropriate and customary documentation and instructions) to (i) elect to receive the Cash Consideration for all of such holder’s shares (a “ Cash Election ”), (ii) elect to receive the Stock Consideration for all of such holder’s shares (a “ Stock Election ”), (iii) elect to receive the Cash Consideration with respect to some of such holder’s shares and the Stock Consideration with respect to such holder’s remaining shares (a “ Mixed Election ”) or (iv) make no election or to indicate that such holder has no preference as to the receipt of the Cash Consideration or the Stock Consideration (a “ Non-Election ”). Holders of shares of SOFB Common Stock (or the beneficial owner through appropriate and customary documentation and instructions) who are not residents of Tennessee shall only have the right to receive the Cash Consideration for all of such holder’s shares. Jefferson Bancshares in its sole discretion shall determine whether a holder of SOFB Common Stock is a resident of Tennessee. Any such determinations made in good faith shall be binding and conclusive. Holders of record of shares of SOFB Common Stock who hold such shares as nominees, trustees or in other representative capacities (a “ Representative ”) may submit multiple Election Forms, provided that such Representative certifies that each such Election Form covers all the shares of SOFB Common Stock held by that Representative for a particular beneficial owner. Shares of SOFB Common Stock as to which a Cash Election has been made (including pursuant to a Mixed Election) are referred to herein as “ Cash Election Shares .” Shares of SOFB Common Stock held by the ESOP shall be deemed to be Cash Election Shares for purposes of this Section. Shares of SOFB Common Stock as to which a Stock Election has been made (including pursuant to a Mixed Election) are referred to herein as “ Stock Election Shares .” Shares of SOFB Common Stock as to which no election has been made are referred to as “ Non-Election Shares .” The aggregate number of shares of SOFB Common Stock with respect to which a Stock Election has been made is referred to herein as the “ Stock Election Number .”

(c) To be effective, a properly completed Election Form must be received by Registrar and Transfer Company (the “ Exchange Agent ”) on or before 5:00 p.m., New York City time, on the date specified on the Election Form, which shall be no later than 30 days after the date on which Election Forms are first mailed (the “ Election Deadline ”). An election shall have been properly made only if the Exchange Agent shall have actually received a properly

 

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completed Election Form by the Election Deadline. An Election Form shall be deemed properly completed only if accompanied by one or more certificates theretofore representing SOFB Common Stock (“ Certificate(s) ”) (or customary affidavits and, if required by Jefferson Bancshares pursuant to Section 2.7(i) , indemnification regarding the loss or destruction of such Certificates or the guaranteed delivery of such Certificates) representing all shares of SOFB Common Stock covered by such Election Form, together with duly executed transmittal materials included with the Election Form. Any SOFB shareholder may at any time prior to the Election Deadline change his or her election by written notice received by the Exchange Agent prior to the Election Deadline accompanied by a properly completed and signed revised Election Form. Any SOFB shareholder may, at any time prior to the Election Deadline, revoke his or her election by written notice received by the Exchange Agent prior to the Election Deadline or by withdrawal prior to the Election Deadline of his or her Certificates, or of the guarantee of delivery of such Certificates, previously deposited with the Exchange Agent. If a shareholder either (i) does not submit a properly completed Election Form by the Election Deadline or (ii) revokes its Election Form prior to the Election Deadline and does not submit a new properly executed Election Form prior to the Election Deadline, the shares of SOFB Common Stock held by such shareholder shall be designated Non-Election Shares. Subject to the terms of this Agreement and of the Election Form, the Exchange Agent shall have reasonable discretion to determine whether any election, revocation or change has been properly or timely made and to disregard immaterial defects in any Election Form, and any good faith decisions of the Exchange Agent regarding such matters shall be binding and conclusive.

(d) Notwithstanding any other provision contained in this Agreement, 60% of the total number of shares of SOFB Common Stock outstanding at the Effective Time (the “ Stock Conversion Number ”) shall be converted into the Stock Consideration and the remaining outstanding shares of SOFB Common Stock (excluding shares of SOFB Common Stock to be canceled as provided in Section 2.5(d) and Dissenters’ Shares) shall be converted into the Cash Consideration; provided, however , that for federal income tax purposes, it is intended that the Merger will qualify as a reorganization under the provisions of Section 368(a) of the IRC and, notwithstanding anything to the contrary contained herein, in order that the Merger will not fail to satisfy continuity of interest requirements under applicable federal income tax principles relating to reorganizations under Section 368(a) of the IRC, Jefferson Bancshares shall increase the number of shares of SOFB Common Stock that will be converted into the Stock Consideration and reduce the number of shares of SOFB Common Stock that will be converted into the right to receive the Cash Consideration to ensure that the Stock Consideration will represent at least 40% of the value of the aggregate Merger Consideration, increased by the value of any Excluded Shares, each as measured as of the Effective Time.

(e) Within five business days after the Election Deadline, Jefferson Bancshares shall cause the Exchange Agent to effect the allocation among holders of SOFB Common Stock of rights to receive the Cash Consideration and the Stock Consideration as follows:

(i) If the Stock Election Number exceeds the Stock Conversion Number, then all Cash Election Shares and all Non-Election Shares shall be converted into the

 

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right to receive the Cash Consideration, and each holder of Stock Election Shares will be entitled to receive (A) the Stock Consideration in respect of the number of Stock Election Shares held by such holder multiplied by a fraction, the numerator of which is the Stock Conversion Number and the denominator of which is the Stock Election Number and (B) the Cash Consideration in respect of the remaining number of such holder’s Stock Election Shares;

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

(A) if the Shortfall Number is less than or equal to the number of Non-Election Shares, then all Cash Election Shares shall be converted into the right to receive the Cash Consideration and each holder of Non-Election Shares shall receive (1) the Stock Consideration in respect of the number of Non-Election Shares held by such holder multiplied by a fraction, the numerator of which is the Shortfall Number and the denominator of which is the total number of Non-Election Shares and (2) the Cash Consideration in respect of the remaining number of such holder’s Non-Election Shares; or

(B) if the Shortfall Number exceeds the number of Non-Election Shares, then all Non-Election Shares shall be converted into the right to receive the Stock Consideration, and each holder of Cash Election Shares shall receive (1) the Stock Consideration in respect of the number of Cash Election Shares held by such holder multiplied by a fraction, the numerator of which is the amount by which the Shortfall Number exceeds the number of Non-Election Shares and the denominator of which is the total number of Cash Election Shares and (2) the Cash Consideration in respect of the remaining number of such holder’s Cash Election Shares.

For purposes of the foregoing calculations, Excluded Shares shall be deemed Cash Election Shares. For purposes of this Section 2.6(e) , if Jefferson Bancshares is obligated to increase the number of shares of SOFB Common Stock to be converted into shares of Jefferson Bancshares Common Stock as a result of the application of the last clause of Section 2.6(d) above, then the higher number shall be substituted for the Stock Conversion Number in the calculations set forth in this Section 2.6(e) .

2.7 Exchange Procedures.

(a) Appropriate transmittal materials (“ Letter of Transmittal ”) in a form satisfactory to Jefferson Bancshares and SOFB shall be mailed as soon as practicable after the Election Deadline to each holder of record of SOFB Common Stock as of the Effective Time who did not previously submit a completed Election Form. A Letter of Transmittal will be deemed properly completed only if accompanied by certificates representing all shares of SOFB Common Stock to be converted thereby.

 

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(b) At and after the Effective Time, each Certificate (except as specifically set forth in Section 2.5 ) shall represent only the right to receive the Merger Consideration.

(c) Prior to the Effective Time, Jefferson Bancshares shall (i) reserve for issuance with its transfer agent and registrar a sufficient number of shares of Jefferson Bancshares Common Stock to provide for payment of the aggregate Stock Consideration and (ii) deposit, or cause to be deposited, with the Exchange Agent, for the benefit of the holders of shares of SOFB Common Stock, for exchange in accordance with this Section 2.7 , an amount of cash sufficient to pay the aggregate Cash Consideration.

(d) The Letter of Transmittal shall (i) specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent, (ii) be in a form and contain any other provisions as Jefferson Bancshares may reasonably determine and (iii) include instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon the proper surrender of the Certificates to the Exchange Agent, together with a properly completed and duly executed Letter of Transmittal, the holder of such Certificates shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of Jefferson Bancshares Common Stock that such holder has the right to receive pursuant to Section 2.5 , if any, and a check in the amount equal to the cash that such holder has the right to receive pursuant to Section 2.5 , if any (including any cash in lieu of fractional shares, if any, that such holder has the right to receive pursuant to Section 2.5 , and any dividends or other distributions to which such holder is entitled pursuant to Section 2.5 ). Certificates so surrendered shall forthwith be canceled. As soon as practicable following receipt of the properly completed Letter of Transmittal and any necessary accompanying documentation, the Exchange Agent shall distribute Jefferson Bancshares Common Stock and cash as provided herein. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the shares of Jefferson Bancshares Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect to such shares for the account of the persons entitled thereto. If there is a transfer of ownership of any shares of SOFB Common Stock not registered in the transfer records of SOFB, the Merger Consideration shall be issued to the transferee thereof if the Certificates representing such SOFB Common Stock are presented to the Exchange Agent, accompanied by all documents required, in the reasonable judgment of Jefferson Bancshares and the Exchange Agent, to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid.

(e) No dividends or other distributions declared or made after the Effective Time with respect to Jefferson Bancshares Common Stock issued pursuant to this Agreement shall be remitted to any person entitled to receive shares of Jefferson Bancshares Common Stock hereunder until such person surrenders his or her Certificates in accordance with this Section 2.7 . Upon the surrender of such person’s Certificates, such person shall be entitled to receive any dividends or other distributions, without interest thereon, which subsequent to the Effective Time had become payable but not paid with respect to shares of Jefferson Bancshares Common Stock represented by such person’s Certificates.

 

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(f) The stock transfer books of SOFB shall be closed immediately upon the Effective Time and from and after the Effective Time there shall be no transfers on the stock transfer records of SOFB of any shares of SOFB Common Stock. If, after the Effective Time, Certificates are presented to Jefferson Bancshares, they shall be canceled and exchanged for the Merger Consideration deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Section 2.7 .

(g) Any portion of the aggregate amount of cash to be paid pursuant to Section 2.5 , any dividends or other distributions to be paid pursuant to this Section 2.7 or any proceeds from any investments thereof that remains unclaimed by the shareholders of SOFB for six months after the Effective Time shall be repaid by the Exchange Agent to Jefferson Bancshares upon the written request of Jefferson Bancshares. After such request is made, any shareholders of SOFB who have not theretofore complied with this Section 2.7 shall look only to Jefferson Bancshares for the Merger Consideration deliverable in respect of each share of SOFB Common Stock such shareholder holds, as determined pursuant to Section 2.5 of this Agreement, without any interest thereon. If outstanding Certificates are not surrendered prior to the date on which such payments would otherwise escheat to or become the property of any governmental unit or agency, the unclaimed items shall, to the extent permitted by any abandoned property, escheat or other applicable laws, become the property of Jefferson Bancshares (and, to the extent not in its possession, shall be paid over to it), free and clear of all claims or interest of any person previously entitled to such claims. Notwithstanding the foregoing, neither the Exchange Agent nor any party to this Agreement (or any affiliate thereof) shall be liable to any former holder of SOFB Common Stock for any amount delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

(h) Jefferson Bancshares and the Exchange Agent shall be entitled to rely upon SOFB’s stock transfer books to establish the identity of those persons entitled to receive the Merger Consideration, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate, Jefferson Bancshares and the Exchange Agent shall be entitled to deposit any Merger Consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto.

(i) If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Exchange Agent or Jefferson Bancshares, the posting by such person of a bond in such amount as the Exchange Agent may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof pursuant to Section 2.5 .

2.8 Effect on Outstanding Shares of Jefferson Bancshares Common Stock. At the Effective Time, each share of common stock of Jefferson Bancshares issued and outstanding immediately prior to the Effective Time shall remain an issued and outstanding share of common stock of the Surviving Corporation and shall not be affected by the Merger.

 

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2.9 Directors of Surviving Corporation After Effective Time. Immediately after the Effective Time, until their respective successors are duly elected or appointed and qualified, the directors of the Surviving Corporation shall consist of the directors of Jefferson Bancshares serving immediately prior to the Effective Time.

2.10 Charter and Bylaws. The charter of Jefferson Bancshares, as in effect immediately prior to the Effective Time, shall be the charter of the Surviving Corporation until thereafter amended in accordance with applicable law. The bylaws of Jefferson Bancshares, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until thereafter amended in accordance with applicable law.

2.11 Treatment of Stock Options.

(a) As soon as practicable following the date of this Agreement, SOFB’s Board of Directors shall adopt such resolutions or take such other actions as are required to provide for the cancellation of all outstanding options to acquire shares of SOFB Common Stock that are incentive stock options (each, a “ SOFB Option ”), whether or not vested, as of the Effective, without any payment made in exchange therefor.

(b) Each SOFB Option that is a non-qualified stock option that is outstanding at the Effective Time and that has an exercise price of $13.50 or less shall be converted into an option to purchase shares of Jefferson Bancshares Common Stock without any adjustment to either the number of shares issuable upon the exercise of the converted SOFB Option or the exercise price, subject to the agreement of each holder of a converted SOFB Option to the expiration of all converted SOFB Options on the third anniversary of the Effective Time and to the cancellation of all options held by such person with an exercise price of more than $13.50.

(c) Jefferson Bancshares will take all corporate action necessary to reserve for future issuance a sufficient additional number of shares of Jefferson Bancshares Common Stock to provide for the satisfaction of its obligations with respect to the converted SOFB Options. Jefferson Bancshares agrees to file, as soon as practicable after the Effective Time, a registration statement on Form S-8 (or any successor or other appropriate form) and make any state filings or obtain state exemptions with respect to the Jefferson Bancshares Common Stock issuable upon exercise of the converted SOFB Options.

2.12 Dissenters’ Rights. Notwithstanding any other provision of this Agreement to the contrary, shares of SOFB Common Stock that are outstanding immediately prior to the Effective Time and which are held by shareholders who shall have not voted in favor of the Merger or consented thereto in writing and who properly shall have demanded payment of the fair value for such shares in accordance with the TBCA (collectively, the “ Dissenters’ Shares ”) shall not be converted into or represent the right to receive the Merger Consideration. Such shareholders instead shall be entitled to receive payment of the fair value of such shares held by them in accordance with the provisions of the TBCA, except that all Dissenters’ Shares held by shareholders who shall have failed to perfect or who effectively shall have withdrawn or

 

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otherwise lost their rights as dissenting shareholders under the TBCA shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the Merger Consideration upon surrender in the manner provided in Section 2.7 of the Certificate(s) that, immediately prior to the Effective Time, evidenced such shares. SOFB shall give Jefferson Bancshares (i) prompt notice of any written demands for payment of fair value of any shares of SOFB Common Stock, attempted withdrawals of such demands and any other instruments served pursuant to the TBCA and received by SOFB relating to shareholders’ dissenters’ rights and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands under the TBCA consistent with the obligations of SOFB thereunder. SOFB shall not, except with the prior written consent of Jefferson Bancshares, (x) make any payment with respect to such demand, (y) offer to settle or settle any demand for payment of fair value or (z) waive any failure to timely deliver a written demand for payment of fair value or timely take any other action to perfect payment of fair value rights in accordance with the TBCA.

2.13 Bank Merger. Concurrently with or as soon as practicable after the execution and delivery of this Agreement, Jefferson Federal Bank (“ Jefferson Federal ”), a wholly owned subsidiary of Jefferson Bancshares, and State of Franklin Savings Bank (“ State of Franklin Savings Bank ”), a wholly owned subsidiary of SOFB, shall enter into the Plan of Bank Merger, in the form attached hereto as Exhibit A , pursuant to which State of Franklin Savings Bank will merge with and into Jefferson Federal (the “ Bank Merger ”). The parties intend that the Bank Merger will become effective simultaneously with or immediately following the Effective Time.

2.14 Alternative Structure. Notwithstanding anything to the contrary contained in this Agreement, prior to the Effective Time, Jefferson Bancshares may specify that the structure of the transactions contemplated by this Agreement be revised and the parties shall enter into such alternative transactions as Jefferson Bancshares may reasonably determine to effect the purposes of this Agreement; provided, however, that such revised structure shall not (i) alter or change the amount or kind of the Merger Consideration or (ii) materially impede or delay the receipt of any regulatory approval referred to in, or the consummation of the transactions contemplated by, this Agreement. In the event that Jefferson Bancshares elects to make such a revision, the parties agree to execute appropriate documents to reflect the revised structure.

2.15 Absence of Control. Subject to any specific provisions of this Agreement, it is the intent of the parties hereto that Jefferson Bancshares by reason of this Agreement shall not be deemed (until consummation of the transactions contemplated hereby) to control, directly or indirectly, SOFB or to exercise, directly or indirectly, a controlling influence over the management or policies of SOFB.

ARTICLE III

R EPRESENTATIONS AND W ARRANTIES

3.1 Disclosure Letters. Prior to the execution and delivery of this Agreement, Jefferson Bancshares and SOFB have each delivered to the other a letter (each, its “ Disclosure Letter ”) setting forth, among other things, facts, circumstances and events the disclosure of

 

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which is required or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more of their respective representations and warranties (and making specific reference to the Section of this Agreement to which they relate).

3.2 Representations and Warranties of SOFB . SOFB represents and warrants to Jefferson Bancshares that, except as disclosed in SOFB’s Disclosure Letter:

(a) Organization and Qualification . SOFB is a corporation duly organized and validly existing under the laws of the State of Tennessee and is registered with the FRB as a bank holding company. SOFB has all requisite corporate power and authority to own, lease and operate its properties and to conduct the business currently being conducted by it. SOFB is duly qualified or licensed as a foreign corporation to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Affect on SOFB. SOFB engages only in activities (and holds properties only of the types) permitted to bank holding companies by the Bank Holding Company Act and the rules and regulations of the FRB promulgated thereunder.

(b) Subsidiaries .

(i) SOFB’s Disclosure Letter sets forth with respect to each of SOFB’s Subsidiaries its name, its jurisdiction of incorporation, SOFB’s percentage ownership, the number of shares of stock owned or controlled by SOFB and the name and number of shares held by any other person who owns any stock of the Subsidiary. SOFB owns of record and beneficially all the capital stock of each of its Subsidiaries free and clear of any Liens. There are no contracts, commitments, agreements or understandings relating to SOFB’s right to vote or dispose of any equity securities of its Subsidiaries. SOFB’s ownership interest in each of its Subsidiaries is in compliance with all applicable laws, rules and regulations relating to equity investments by bank holding companies or state savings banks.

(ii) Each of SOFB’s Subsidiaries is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation, has all requisite corporate power and authority to own, lease and operate its properties and to conduct the business currently being conducted by it and is duly qualified or licensed as a foreign corporation to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Affect on such Subsidiary.

(iii) The outstanding shares of capital stock of each Subsidiary have been validly authorized and are validly issued, fully paid and nonassessable. No shares of capital stock of any Subsidiary of SOFB are or may be required to be issued by virtue of any options, warrants or other rights, no securities exist that are convertible into or exchangeable for shares of

 

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such capital stock or any other debt or equity security of any Subsidiary, and there are no contracts, commitments, agreements or understandings of any kind for the issuance of additional shares of capital stock or other debt or equity security of any Subsidiary or options, warrants or other rights with respect to such securities.

(iv) No Subsidiary of SOFB other than State of Franklin Savings Bank is an “insured depository institution” as defined in the Federal Deposit Insurance Act, as amended, and the applicable regulations thereunder. State of Franklin Savings Bank’s deposits are insured by the FDIC to the fullest extent permitted by law. State of Franklin Savings Bank is a member in good standing of the Federal Home Loan Bank of Cincinnati. State of Franklin Savings Bank engages only in activities (and holds properties only of the types) permitted by the Savings Bank Chartering Act of 1991 and the rules and regulations of the Commissioner of the Tennessee Department of Financial Institutions promulgated thereunder.

(c) Capital Structure .

(i) The authorized capital stock of SOFB consists of 10,000,000 shares of SOFB Common Stock.

(ii) As of the date of this Agreement: (A) 1,086,791 shares of SOFB Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable and were issued in full compliance with all applicable federal and state securities laws, and no shares of preferred stock are outstanding; and (B) 476,603 shares of SOFB Common Stock are reserved for issuance pursuant to outstanding SOFB Options.

(iii) SOFB has issued $10,000,000 principal amount of subordinated debentures pursuant to the Indenture between SOFB and Wilmington Trust Company, as Trustee, dated as of December 13, 2006. The subordinated debentures were duly and validly issued and represent the obligations of SOFB in accordance with the terms of such indenture. All of the subordinated debentures are owned by State of Franklin Statutory Trust II. State of Franklin Statutory Trust II was duly and validly organized pursuant to and in accordance with the Amended and Restated Declaration of Trust of State of Franklin Statutory Trust II, dated as of December 13, 2006 and all applicable laws and regulations. The beneficial interests in State of Franklin Statutory Trust II consist of 310 shares of common securities, all of which are owned by SOFB and 10,000 shares of preferred securities, all of which are issued and outstanding. All of the issued and outstanding preferred securities have been duly and validly authorized and issued, and are fully paid and non-assessable.

(iv) Set forth in SOFB’s Disclosure Letter is a complete and accurate list of all outstanding SOFB Options, including the names of the optionees, dates of grant, exercise prices, dates of vesting, dates of termination, shares subject to each grant and whether stock appreciation, limited or other similar rights were granted in connection with such options.

(v) No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which shareholders of SOFB may vote are issued or outstanding.

 

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(vi) Except as set forth in this Section 3.2(c) , as of the date of this Agreement, (A) no shares of capital stock or other voting securities of SOFB are issued, reserved for issuance or outstanding and (B) neither SOFB nor any of its Subsidiaries has or is bound by any outstanding subscriptions, options, warrants, calls, rights, convertible securities, commitments or agreements of any character obligating SOFB or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, any additional shares of capital stock of SOFB or obligating SOFB or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right, convertible security, commitment or agreement. As of the date hereof, there are no outstanding contractual obligations of SOFB or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of SOFB or any of its Subsidiaries.

(d) Authority . SOFB has all requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate actions on the part of SOFB’s Board of Directors, and no other corporate proceedings on the part of SOFB are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement other than the approval and adoption of this Agreement by the affirmative vote of the holders of a majority of the outstanding shares of SOFB Common Stock. This Agreement has been duly and validly executed and delivered by SOFB and constitutes a valid and binding obligation of SOFB, enforceable against SOFB in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights and remedies generally and to general principles of equity, whether applied in a court of law or a court of equity.

(e) No Violations . The execution, delivery and performance of this Agreement by SOFB do not, and the consummation of the transactions contemplated by this Agreement will not, (i) assuming all required governmental approvals have been obtained and the applicable waiting periods have expired, violate any law, rule or regulation or any judgment, decree, order, governmental permit or license to which SOFB or any of its Subsidiaries (or any of their respective properties) is subject, (ii) violate the charter or bylaws of SOFB or the similar organizational documents of any of its Subsidiaries or (iii) constitute a breach or violation of, or a default under (or an event which, with due notice or lapse of time or both, would constitute a default under), or result in the termination of, accelerate the performance required by, or result in the creation of any Lien upon any of the properties or assets of SOFB or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, indenture, deed of trust, loan agreement or other agreement, instrument or obligation to which SOFB or any of its Subsidiaries is a party, or to which any of their respective properties or assets may be subject except, in the case of (iii), for any such breaches, violations or defaults that would not, individually or in the aggregate, have a Material Adverse Effect on SOFB.

(f) Consents and Approvals. No consents or approvals of, or filings or registrations with, any Governmental Entity or any third party are required to be made or

 

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obtained in connection with the execution and delivery by SOFB of this Agreement or the consummation by SOFB of the Merger and the other transactions contemplated by this Agreement, including the Bank Merger, except for filings of applications and notices with, receipt of approvals or nonobjections from, and expiration of the related waiting period required by, federal and state banking authorities. As of the date hereof, SOFB has no knowledge of any reason pertaining to SOFB why any of the approvals referred to in this Section 3.2(f) should not be obtained without the imposition of any material condition or restriction described in Section 6.1(b) .

(g) Governmental Filings . SOFB and each of its Subsidiaries has filed all reports, schedules, registration statements and other documents that it has been required to file since December 31, 2004 with the FDIC or any other Governmental Regulator (collectively, “ SOFB’s Reports ”). No administrative actions have been taken or threatened or orders issued in connection with any of SOFB’s Reports. As of their respective dates, each of SOFB’s Reports complied in all material respects with all laws or regulations under which it was filed (or was amended so as to be in compliance promptly following discovery of such noncompliance). Any financial statement contained in any of SOFB’s Reports fairly presented in all material respects the financial position of SOFB on a consolidated basis, SOFB alone or each of SOFB’s Subsidiaries alone, as the case may be, and was prepared in accordance with GAAP or applicable regulations.

(h) Financial Statements . SOFB’s Disclosure Letter contains copies of (i) the consolidated balance sheets of SOFB and its Subsidiaries as of December 31, 2007 and 2006 and related consolidated statements of income, cash flows and changes in stockholders’ equity for each of the years in the two-year period ended December 31, 2007, together with the notes thereto, accompanied by the audit report of SOFB’s independent public auditors and (ii) the unaudited consolidated balance sheet of SOFB and its Subsidiaries as of June 30, 2008 and the related consolidated statements of income and changes in stockholders’ equity for the six months ended June 30, 2008. Such financial statements were prepared from the books and records of SOFB and its Subsidiaries, fairly present the consolidated financial position of SOFB and its Subsidiaries in each case at and as of the dates indicated and the consolidated results of operations, retained earnings and cash flows of SOFB and its Subsidiaries for the periods indicated, and, except as otherwise set forth in the notes thereto, were prepared in accordance with GAAP consistently applied throughout the periods covered thereby; provided , however , that the unaudited financial statements for interim periods are subject to normal year-end adjustments (which will not be material individually or in the aggregate) and lack a statement of cash-flows and footnotes. The books and records of SOFB and its Subsidiaries have been, and are being, maintained in all respects in accordance with GAAP and any other legal and accounting requirements and reflect only actual transactions.

(i) Undisclosed Liabilities . Neither SOFB nor any of its Subsidiaries has incurred any debt, liability or obligation of any nature whatsoever (whether accrued, contingent, absolute or otherwise and whether due or to become due) other than liabilities reflected on or reserved against in the consolidated balance sheet of SOFB as of December 31, 2007, except for (i) liabilities incurred since December 31, 2007 in the ordinary course of business consistent with

 

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past practice that, either alone or when combined with all similar liabilities, have not had, and would not reasonably be expected to have, a Material Adverse Effect on SOFB and (ii) liabilities incurred for legal, accounting, financial advising fees and out-of-pocket expenses in connection with the transactions contemplated by this Agreement.

(j) Absence of Certain Changes or Events . Since December 31, 2007:

(i) SOFB and its Subsidiaries have conducted their respective businesses only in the ordinary and usual course of such businesses consistent with their past practices;

(ii) there has not been any event or occurrence that has had, or is reasonably expected to have, a Material Adverse Effect on SOFB;

(iii) SOFB has not declared, paid or set aside any dividends or distributions with respect to the SOFB Common Stock;

(iv) except for supplies or equipment purchased in the ordinary course of business, neither SOFB nor any of its Subsidiaries have made any capital expenditures exceeding individually or in the aggregate $10,000;

(v) there has not been any write-down by State of Franklin Savings Bank in excess of $25,000 with respect to any of its Loans or other real estate owned;

(vi) there has not been any sale, assignment or transfer of any assets by SOFB or any of its Subsidiaries in excess of $10,000 other than in the ordinary course of business or pursuant to a contract or agreement disclosed in SOFB’s Disclosure Letter;

(vii) there has been no increase in the salary, compensation, pension or other benefits payable or to become payable by SOFB or any of its Subsidiaries to any of their respective directors, officers or employees, other than in conformity with the policies and practices of such entity in the usual and ordinary course of its business;

(viii) neither SOFB nor any of its Subsidiaries has paid or made any accrual or arrangement for payment of bonuses or special compensation of any kind or any severance or termination pay to any of their directors, officers or employees; and

(ix) there has been no change in any accounting principles, practices or methods of SOFB or any of its Subsidiaries other than as required by GAAP.

(k) Litigation. Other than for routine matters incidental to the business of SOFB, which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on SOFB, there are no suits, actions or legal, administrative or arbitration proceedings pending or, to the knowledge of SOFB, threatened against or affecting SOFB or any of its Subsidiaries or any property or asset of SOFB or any of its Subsidiaries. To

 

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the knowledge of SOFB, there are no investigations, reviews or inquiries by any court or Governmental Entity pending or threatened against SOFB or any of its Subsidiaries. There are no judgments, decrees, injunctions, orders or rulings of any Governmental Entity or arbitrator outstanding against SOFB or any of its Subsidiaries that have not been satisfied or that enjoin SOFB or any of its Subsidiaries from taking any action.

(l) Absence of Regulatory Actions . Since December 31, 2004, neither SOFB nor any of its Subsidiaries has been a party to any cease and desist order, written agreement or memorandum of understanding with, or any commitment letter or similar undertaking to, or has been subject to any action, proceeding, order or directive by any Government Regulator, or has adopted any board resolutions at the request of any Government Regulator, or has been advised by any Government Regulator that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such action, proceeding, order, directive, written agreement, memorandum of understanding, commitment letter, board resolutions or similar undertaking. There are no unresolved violations, criticisms or exceptions by any Government Regulator with respect to any report or statement relating to any examinations of SOFB or its Subsidiaries.

(m) Compliance with Laws . SOFB and each of its Subsidiaries conducts its business in compliance with all statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable to it. SOFB and each of its Subsidiaries has all permits, licenses, certificates of authority, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Entities that are required in order to permit it to carry on its business as it is presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect, and no suspension or cancellation of any of them is threatened. Neither SOFB nor any of its Subsidiaries has been given notice or been charged with any violation of, any law, ordinance, regulation, order, writ, rule, decree or condition to approval of any Governmental Entity which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on SOFB.

(n) Taxes . All federal, state, local and foreign Tax returns required to be filed by or on behalf of SOFB or any of its Subsidiaries have been timely filed or requests for extensions have been timely filed and any such extension shall have been granted and not have expired, and all such filed returns are complete and accurate in all material respects. All Taxes shown on such returns, all Taxes required to be shown on returns for which extensions have been granted and all other taxes required to be paid by SOFB or any of its Subsidiaries have been paid in full or adequate provision has been made for any such Taxes on SOFB’s balance sheet (in accordance with GAAP). There is no audit examination, deficiency assessment, tax investigation or refund litigation with respect to any Taxes of SOFB or any of its Subsidiaries, and no claim has been made in writing by any authority in a jurisdiction where SOFB or any of its Subsidiaries do not file Tax returns that SOFB or any such Subsidiary is subject to taxation in that jurisdiction. All Taxes, interest, additions and penalties due with respect to completed and settled examinations or concluded litigation relating to SOFB or any of its Subsidiaries have been paid in full or adequate provision has been made for any such Taxes on SOFB’s balance sheet (in accordance with GAAP). SOFB and its Subsidiaries have not executed an extension or

 

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waiver of any statute of limitations on the assessment or collection of any Tax due that is currently in effect. SOFB and each of its Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party, and SOFB and each of its Subsidiaries has timely complied with all applicable information reporting requirements under Part III, Subchapter A of Chapter 61 of the IRC and similar applicable state and local information reporting requirements. Neither SOFB nor any of its Subsidiaries is a party to any agreement, contract, arrangement or plan that has resulted or would result, individually or in the aggregate, in connection with this Agreement in the payment of any “excess parachute payments” within the meaning of Section 280G of the IRC and neither SOFB nor any of its Subsidiaries has made any payments and is not a party to any agreement, and does not maintain any plan, program or arrangement, that could require it to make any payments (including any deemed payment of compensation upon the exercise of a SOFB Option or upon the issuance of any SOFB Common Stock), that would not be fully deductible by reason of Section 162(m) of the IRC.

(o) Agreements .

(i) SOFB’s Disclosure Letter lists, and contains a complete and correct copy of, any contract, arrangement, commitment or understanding (whether written or oral) to which SOFB or any of its Subsidiaries is a party or is bound:

(A) with any executive officer or other key employee of SOFB or any of its Subsidiaries the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving SOFB or any of its Subsidiaries of the nature contemplated by this Agreement;

(B) with respect to the employment of any directors, officers, employees or consultants;

(C) any of the benefits of which will be increased, or the vesting or payment of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement, or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement (including any stock option plan, phantom stock or stock appreciation rights plan, restricted stock plan or stock purchase plan);

(D) containing covenants that limit the ability of SOFB or any of its Subsidiaries to compete in any line of business or with any person, or that involve any restriction on the geographic area in which, or method by which, SOFB (including any successor thereof) or any of its Subsidiaries may carry on its business (other than as may be required by law or any regulatory agency);

(E) pursuant to which SOFB or any of its Subsidiaries may become obligated to invest in or contribute capital to any entity;

 

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(F) that relates to borrowings of money (or guarantees thereof) by SOFB or any of its Subsidiaries in excess of $50,000, other than advances from the Federal Home Loan Bank of Cincinnati; or

(G) which is a lease or license with respect to any property, real or personal, whether as landlord, tenant, licensor or licensee, involving a liability or obligation as obligor in excess of $25,000 on an annual basis.

(ii) Neither SOFB nor any of its Subsidiaries is in default under (and no event has occurred which, with due notice or lapse of time or both, would constitute a default under) or is in violation of any provision of any note, bond, indenture, mortgage, deed of trust, loan agreement, lease or other agreement to which it is a party or by which it is bound or to which any of its respective properties or assets is subject and, to the knowledge of SOFB, no other party to any such agreement (excluding any loan or extension of credit made by SOFB or any of its Subsidiaries) is in default in any respect thereunder, except for such defaults or violations that would not, individually or in the aggregate, have a Material Adverse Effect on SOFB.

(p) Intellectual Property . SOFB and each of its Subsidiaries owns or possesses valid and binding licenses and other rights to use without payment all patents, copyrights, trade secrets, trade names, service marks and trademarks material to its business. SOFB’s Disclosure Letter sets forth a complete and correct list of all material trademarks, trade names, service marks and copyrights owned by or licensed to SOFB or any of its Subsidiaries for use in its business, and all licenses and other agreements relating thereto and all agreements relating to third party intellectual property that SOFB or any of its Subsidiaries is licensed or authorized to use in its business, including without limitation any software licenses (collectively, the “ Intellectual Property ”). With respect to each item of Intellectual Property owned by SOFB or any of its Subsidiaries, the owner possesses all right, title and interest in and to the item, free and clear of any Lien. With respect to each item of Intellectual Property that SOFB or any of its Subsidiaries is licensed or authorized to use, the license, sublicense or agreement covering such item is legal, valid, binding, enforceable and in full force and effect. Neither SOFB nor any of its Subsidiaries has received any charge, complaint, claim, demand or notice alleging any interference, infringement, misappropriation or violation with or of any intellectual property rights of a third party (including any claims that SOFB or any of its Subsidiaries must license or refrain from using any intellectual property rights of a third party). To the knowledge of SOFB, neither SOFB nor any of its Subsidiaries has interfered with, infringed upon, misappropriated or otherwise come into conflict with any intellectual property rights of third parties and no third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with any intellectual property rights of SOFB or any of its Subsidiaries.

(q) Labor Matters . SOFB and its Subsidiaries are in material compliance with all applicable laws respecting employment, retention of independent contractors, employment practices, terms and conditions of employment, and wages and hours. Neither SOFB nor any of its Subsidiaries is or has ever been a party to, or is or has ever been bound by, any collective

 

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bargaining agreement, contract or other agreement or understanding with a labor union or labor organization with respect to its employees, nor is SOFB or any of its Subsidiaries the subject of any proceeding asserting that it has committed an unfair labor practice or seeking to compel it or any such Subsidiary to bargain with any labor organization as to wages and conditions of employment nor has any such proceeding been threatened, nor is there any strike, other labor dispute or organizational effort involving SOFB or any of its Subsidiaries pending or, to the knowledge of SOFB, threatened.

(r) Employee Benefit Plans .

(i) SOFB’s Disclosure Letter contains a complete and accurate list of all pension, retirement, st