AGREEMENT AND PLAN OF MERGER

 

AGREEMENT

 

TABLE OF CONTENTS

 

BACKGROUND

 

AGREEMENT

 

ARTICLE I

 

THE MERGER

 

Section 1.01	Definitions	2
Section 1.02	The Merger	8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF GRAYSTONE
Section 2.01	Organization	13
Section 2.02	Capitalization	14
Section 2.03	Authority; No Violation	15
Section 2.04	Consents	16
Section 2.05	Financial Statements	17
Section 2.06	Taxes	17
Section 2.07	No Material Adverse Effect	17
Section 2.08	Contracts	18
Section 2.09	Ownership of Property; Insurance Coverage	19
Section 2.10	Legal Proceedings	19
Section 2.11	Compliance With Applicable Law	20
Section 2.12	Employee Benefit Plans	20
Section 2.13	Labor Matters	23
Section 2.14	Brokers, Finders and Financial Advisors	23
Section 2.15	Environmental Matters	23
Section 2.16	Allowance for Loan Losses	23
Section 2.17	Related Party Transactions	23
Section 2.18	Loans	24
Section 2.19	Graystone Information	24
Section 2.20	“Well Capitalized”	25
Section 2.21	Investment Securities	25
Section 2.22	Equity Plans and Agreements	25
Section 2.23	Fairness Opinion	25
Section 2.24	Quality of Representations	25

 

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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TOWER
Section 3.01	Organization	26
Section 3.02	Capitalization	26
Section 3.03	Authority; No Violation	27
Section 3.04	Consents	28
Section 3.05	Financial Statements	29
Section 3.06	Taxes	30
Section 3.07	No Material Adverse Effect	30
Section 3.08	Contracts	30
Section 3.09	Ownership of Property; Insurance Coverage	31
Section 3.10	Legal Proceedings	32
Section 3.11	Compliance With Applicable Law	32
Section 3.12	Employee Benefit Plans	33
Section 3.13	Labor Matters	35
Section 3.14	Brokers, Finders and Financial Advisors	35
Section 3.15	Environmental Matters	35
Section 3.16	Allowance for Loan Losses	35
Section 3.17	Related Party Transactions	36
Section 3.18	Loans	36
Section 3.19	Tower Information	36
Section 3.20	“Well Capitalized”	37
Section 3.21	Investment Securities	37
Section 3.22	Equity Plan and Agreements	37
Section 3.23	Fiduciary Accounts	37
Section 3.24	Fairness Opinion	37
Section 3.25	Securities Documents	37
Section 3.26	Quality of Representations	38
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.01	Conduct of Graystone’s and Tower’s Business	38
Section 4.02	Access; Confidentiality	41
Section 4.03	Regulatory Matters and Consents	41
Section 4.04	Taking of Necessary Action	42
Section 4.05	Indemnification; Insurance	42
Section 4.06	No Other Bids and Related Matters	43
Section 4.07	Duty to Advise; Duty to Update Disclosure Schedule	44
Section 4.08	Current Information	44
Section 4.09	Phase I Environmental Audit	45
Section 4.10	Shareholders Meetings	45
Section 4.11	Public Announcements	45
Section 4.12	Maintenance of Insurance	46

 

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Section 4.13	Maintenance of Books and Records	46
Section 4.14	Taxes	46
Section 4.15	Employee Benefits	46
Section 4.16	Affiliate Letters	47
Section 4.17	Severance Pay	47
Section 4.18	Conduct of the Parties	47
Section 4.19	Greencastle Pre-Effective Dividend	47
Section 4.20	Tower Pre-Effective Dividend	48
Section 4.21	Dividends	48
Section 4.22	Capital Purchase Program	48
Section 4.23	Corporate Name	48
Section 4.24	Bank Name	48
Section 4.25	PDB Consent	48
Section 4.26	Change of Control Agreement	49
ARTICLE V
CONDITIONS
Section 5.01	Conditions to Graystone’s Obligations under this Agreement	49
Section 5.02	Conditions to Tower’s Obligations under this Agreement	50
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
Section 6.01	Termination	53
Section 6.02	Effect of Termination	54
ARTICLE VII
MISCELLANEOUS
Section 7.01	Expenses	54
Section 7.02	Non-Survival of Representations and Warranties	57
Section 7.03	Amendment, Extension and Waiver	57
Section 7.04	Entire Agreement	57
Section 7.05	No Assignment	57
Section 7.06	Notices	57
Section 7.07	Captions	58
Section 7.08	Counterparts	58
Section 7.09	Severability	59
Section 7.10	Governing Law	59

 

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Exhibit 1		Graystone Letter Agreement
Exhibit 2		Tower Letter Agreement
Exhibit 3		Jeffrey B. Shank, Employment Agreement
Exhibit 4		Mark Merrill, Employment Agreement
Exhibit 5		Jane Tompkins, Employment Agreement
Exhibit 6		Carl Lundblad, Employment Agreement
Exhibit 7		Andrew Samuel, Employment Agreement Amendment
Exhibit 8		Janak Amin, Employment Agreement Amendment
Exhibit 9		Jeffrey Renninger, Employment Agreement Amendment
Exhibit 10		David Hornberger, Employment Agreement Amendment
Exhibit 11		Franklin Klink, Change of Control Agreement Amendment
Exhibit 12		Form of Bank Plan of Merger
Exhibit 13		Form of Amended and Restated Tower Bancorp, Inc. Articles of Incorporation
Exhibit 14		Form of Amended and Restated Tower Bancorp, Inc. Bylaws

 

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AGREEMENT

 

THIS AGREEMENT AND PLAN OF MERGER, dated as of November 12, 2008, is made by and between TOWER BANCORP, INC., (“Tower”) a Pennsylvania corporation, having its principal place of business in Greencastle, Pennsylvania, and GRAYSTONE FINANCIAL CORP., (“Graystone”), a Pennsylvania corporation, having its principal place of business in Harrisburg, Pennsylvania.

 

BACKGROUND

 

1.             Tower and Graystone have each determined that it is advisable and in each of their respective best interests, and consistent with and in furtherance of their respective business strategies and goals for Graystone to merge with and into Tower (the “Merger”), with Tower surviving such Merger, in accordance with this Agreement and the applicable laws of the United States of America and the Commonwealth of Pennsylvania.

 

2.             Tower and Graystone desire that the merger of Tower and Graystone constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue IRC of 1986, as amended.

 

3.             Tower is the parent bank holding company and sole shareholder of The First National Bank of Greencastle (“Greencastle”) and Graystone is the parent bank holding company and sole shareholder of Graystone Bank (“Graystone Bank”).

 

4.             As an inducement to Tower’s willingness to enter into this Agreement, directors and certain officers of Graystone are executing a Graystone Letter Agreement in the form attached hereto as Exhibit 1 .

 

5.             As an inducement to Graystone’s willingness to enter into this Agreement, certain directors and certain officers of Tower are executing a Tower Letter Agreement in the form attached hereto as Exhibit 2 .

 

7.             As an inducement to Tower’s and Graystone’s willingness to enter into this Agreement, Tower has entered into employment agreements with Jeffrey B. Shank, Mark Merrill, Jane Tompkins, and Carl Lundblad and amendments to employment agreements with Andrew Samuel, Janak Amin, Jeffrey Renninger, and David Hornberger, in the forms attached hereto as Exhibits 3, 4, 5, 6, 7, 8, 9, and 10 respectively and a change of control agreement with Franklin Klink, substantially in the form attached hereto as Exhibit 11 , to be effective upon the Effective Date as defined herein (the “Executive Employment Agreements”).

 

8.             Tower and Graystone desire to merge Greencastle with and into Graystone Bank, in accordance with the Bank Plan of Merger in the form attached hereto as Exhibit 12 .

 

9.             Tower and Graystone desire to provide the terms and conditions governing the transactions contemplated herein.

 

 

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

 

ARTICLE I

THE MERGER

 

Section 1.01 Definitions .  As used in this Agreement, the following terms shall have the indicated meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

 

Acquisition Proposal means any inquiry, proposal, indication of interest, term sheet, offer, signed agreement or disclosure of an intention to do any of the foregoing from any Person or group of Persons relating to any (i) merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving Graystone or Tower or any Subsidiary of Graystone or Tower, except the other party, where the assets, revenue or income of such Subsidiary constitutes more than 20% of the consolidated assets, net revenue or net income of Graystone or Tower, respectively; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets (including for this purpose the outstanding capital stock of any Subsidiary of Graystone or Tower and the capital stock of any entity surviving any merger or business combination involving any Subsidiary of Graystone or Tower) and/or liabilities where the assets being disposed of constitute 20% or more of the consolidated assets, net revenue or net income of Graystone or Tower and its Subsidiaries taken as a whole, either in a single transaction or series of transactions; or (iii) any direct or indirect purchase or other acquisition or tender offer or exchange offer that, if consummated, would result in a Person or group of Persons acting in concert beneficially owning 20% or more (excluding any Person or group of Persons beneficially owning 20% on the date of this Agreement, but only in connection with shares beneficially owned as of the date hereof and not shares that may be acquired after the date hereof which when added to shares previously held, the total shares would exceed the 20% beneficial ownership amount) of the outstanding shares of the common stock of Graystone or Tower or any Subsidiary of Graystone or Tower where that Subsidiary represents more than 20% of the consolidated assets, net revenue or net income of Graystone or Tower, in each case other than the transactions contemplated by this Agreement.

 

Affiliate means, with respect to any Person, any Person who directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person and, without limiting the generality of the foregoing, includes any executive officer or director of such Person and any Affiliate of such executive officer or director.

 

Agreement means this agreement, including any amendment or supplement hereto.

 

Applications means the applications for regulatory approval which are required by the transactions contemplated hereby.

 

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Articles of Merger means the articles of merger to be executed by Tower and Graystone and to be filed with PDS, in accordance with the BCL.

 

Bank Merger means the merger of Greencastle with and into Graystone Bank.

 

BCL means the Pennsylvania Business Corporation Law of 1988, as amended.

 

BHCA means the Bank Holding Company Act of 1956, as amended.

 

Capital Purchase Program means the voluntary capital purchase program where the U.S. Treasury Department will purchase senior preferred stock of certain financial institutions with funds from the Troubled Asset Relief Program created under the Economic Stabilization Act of 2008.

 

Closing Date means the tenth business day following the satisfaction or waiver, to the extent permitted hereunder, of the conditions to the consummation of the Merger specified in Article V of this Agreement (other than the delivery of certificates, opinions and other instruments and documents to be delivered at the Closing), or such other date as Tower and Graystone may mutually agree.

 

Dissenting Shares means shares of Graystone Common Stock and Tower Common Stock, respectively, as to which appraisal rights are perfected under the BCL.

 

DOJ means the United States Department of Justice.

 

Effective Date means the date upon which the Articles of Merger shall be filed in the PDS, and shall be the same as the Closing Date.

 

Environmental Law means any federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any Regulatory Authority relating to (i) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface soil, subsurface soil, plant and animal life or any other natural resource), and/or (ii) the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, whether by type or by quantity, including any material containing any such substance as a component.  The term Environmental Law includes without limitation, (i) the comprehensive Environmental Response, Compensation and Disability Act as amended, 42 U.S.C. 9601, et seq; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901, et seq.; the Clean Air Act, as amended, 42 U.S.C. 7401, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251, et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. 9601, et seq.; the Emergency Planning and Community Right to Know Act, 42 U.S.C. 1101, et seq.; the Safe Drinking Water Act, 42 U.S.C. 300f, et seq.; and all comparable state and local laws, and (ii) any common law, (including common law that may impose strict

 

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liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Materials.

 

ERISA means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

 

Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated from time to time thereunder.

 

FDIA means the Federal Deposit Insurance Act, as amended.

 

FDIC means the Federal Deposit Insurance Corporation.

 

FINRA means the Financial Industry Regulatory Authority.

 

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

 

GAAP means generally accepted accounting principles in the United States as in effect at the relevant date.

 

Graystone Benefit Plans shall have the meaning set forth in Section 2.12(a).

 

Graystone Common Stock means the common stock of Graystone described in Section 2.02(a).

 

Graystone Disclosure Schedule means a disclosure schedule delivered by Graystone to Tower pursuant to Article II of this Agreement.

 

Graystone Financials means the audited balance sheets for fiscal years ending December 31, 2006 and 2007, statements of income, statements of shareholders equity, and cash flows for fiscal years ending December 31, 2005, 2006, and 2007, as set forth in Graystone’s annual report for fiscal year end December 31, 2007, and all other reports, proxy statements, information statements or call reports filed or to be filed by it with the FDIC subsequent to December 31, 2007.

 

Graystone Regulatory Reports means the annual and quarterly reports of Graystone or Graystone Bank filed with the FDIC, FRB, or PDB since December 31, 2007 through the Closing Date, and the financial reports of Graystone Bank and accompanying schedules for each calendar quarter filed with the FDIC, since the quarter ended December 31, 2007 through the Closing Date.

 

Graystone Stock-Based Awards means the awards granted pursuant to the Graystone Stock-Based Plans.

 

Graystone Stock-Based Plans means the Graystone 2007 Stock Incentive Plan and 2006 Restricted Stock Plan.

 

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Graystone Stock Options means options to acquire shares of Graystone Common Stock issued under the Graystone Stock-Based Plans.

 

Graystone Subsidiaries means any corporation, 50% or more of the capital stock of which is owned, either directly or indirectly, by Graystone, except any corporation, the stock of which is held in the ordinary course of the lending activities of Graystone Bank.

 

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

 

IRS means the Internal Revenue Service.

 

Joint Proxy Statement/Prospectus means the joint proxy statement/prospectus, together with any amendments and supplements thereto, to be transmitted to holders of Graystone Common Stock and Tower Common Stock in connection with the transactions contemplated by this Agreement.

 

Knowledge of Graystone means the actual knowledge of Graystone’s officers and directors.

 

Knowledge of Tower means the actual knowledge of Tower’s officers and directors.

 

Material Adverse Effect means a change, circumstance, event or effect that has or would be reasonably expected to have a material adverse effect on (a) the business, financial condition, results of operations, or business prospects of Graystone on a consolidated basis (when such term is used in Article II hereof) or Tower on a consolidated basis (when such term is used in Article III hereof) (including with out limitation, in the case of Tower, the entry by Tower or Greencastle into a Regulatory Agreement imposing restrictions in excess of or in addition to those currently imposed on Tower or Greencastle by the MOU and including without limitation in the case of Graystone, the entry by Graystone or Graystone Bank into a Regulatory Agreement) other than, in each case, any change, circumstance, event or effect relating to (i) changes in general economic or political conditions affecting banking institutions generally, including, but not limited to, changes in interest rates, but not if such changes disproportionally affect Graystone or Tower when compared to other banking institutions, (ii) expenses incurred in connection with this Agreement and the transactions contemplated hereby, (iii) any action or omission of a party (or any of its Subsidiaries) taken pursuant to the terms of this Agreement or taken or omitted to be taken with the express written permission of the other party, (iv) any effect with respect to a party hereto caused, in whole or in substantial part, by the other party and (v) reasonable expenses, including expenses associated with the retention of legal, financial, or other advisors, incurred by Graystone or Tower in connection with the negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, or (b) the ability of such party or its Subsidiary to consummate the transactions contemplated hereby on a timely basis.  Provided, however, that any actions taken by Tower or Greencastle in furtherance of or in connection with compliance with the MOU and the direct and indirect costs, consequences, or effects thereof shall not be deemed a Material Adverse Effect.

 

MOU means that certain Memorandum of Understanding dated August 27, 2008 by and between the OCC and Greencastle.

 

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OCC means the Office of the Comptroller of Currency.

 

PDB means the Pennsylvania Department of Banking.

 

PDS means the Department of State of the Commonwealth of Pennsylvania.

 

Person means any individual, corporation, partnership, joint venture, association, trust or “group” (as that term is defined in Section 13(d)(3) of the Exchange Act).

 

Registration Statement means the registration statement on Form S-4, including any pre-effective or post-effective amendments or supplements thereto, as filed with the SEC under the Securities Act with respect to the Tower Common Stock to be issued in connection with the transactions contemplated by this Agreement.

 

Regulatory Agreement has the meanings given to that term in Sections 2.11 and 3.11 of this Agreement.

 

Regulatory Authority means any banking agency or department of any federal or state government, including without limitation the FRB, the FDIC, the OCC, the SEC, the PDB or the PDS, or the respective staffs thereof.

 

Rights means warrants, options, rights, convertible securities and other capital stock equivalents which obligate an entity to issue its securities.

 

SEC means the Securities and Exchange Commission.

 

Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated from time to time thereunder.

 

Securities Documents means all registration statements, schedules, statements, forms, reports, proxy materials, and other documents required to be filed under the Securities Laws.

 

Securities Laws means the Securities Act, the Exchange Act, the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, the Trust Indenture Act of 1939, as amended, and in each case the rules and regulations promulgated from time to time thereunder.

 

Subsidiary means any corporation or partnership, 50% or more of the capital stock or partnership interests of which is owned, either directly or indirectly, by another entity, except any corporation or partnership the stock or partnership interests of which is held in the ordinary course of the lending activities of a bank.

 

Tower Benefit Plans shall have the meaning set forth in Section 3.12(a).

 

Tower Common Stock has the meaning given to that term in Section 3.02(a) of this Agreement.

 

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Tower Disclosure Schedule means a disclosure schedule delivered by Tower to Graystone pursuant to Article III of this Agreement.

 

Tower Financials means the audited balance sheets for fiscal year end December 31, 2006 and 2007, statements of income, statements of shareholder equity, and cash flows for fiscal year end December 31, 2005, 2006, and 2007 and as set forth on the annual report for fiscal year end December 31, 2007 and all other reports, proxy statements, information statements or call reports filed or to be filed subsequent to December 31, 2007 with the SEC.

 

Tower Market Share Price means the numeric average of the daily high bid and low ask quotations for a share of Tower Common Stock as reported on FINRA’s OTC Bulletin Board Service for each of the consecutive twenty (20) trading days ending on and including the tenth day prior to the Effective Date.  If no bid or ask quotations are available for any date, then the price for such date shall be the price of the last reported trade.

 

Tower Regulatory Reports means the annual and quarterly reports of Tower filed with the SEC since December 31, 2006 through the Closing Date, and the financial reports of Greencastle and accompanying schedules for each calendar quarter filed with the OCC, since the quarter ended December 31, 2006 through the Closing Date.

 

Tower Stock-Based Plans means the Tower 1995 Non-Qualified Stock Option Plan and Tower Stock Option Plan for Outside Directors.

 

Tower Subsidiaries means any corporation, 50% or more of the capital stock of which is owned, either directly or indirectly, by Tower, except any corporation the stock of which is held in the ordinary course of the lending activities of a bank.

 

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Section 1.02 The Merger .

 

(a)                                   Closing .  The closing will take place at 10:00 a.m. on the Closing Date at the offices of Bybel Rutledge LLP, Lemoyne, Pennsylvania, unless another time and place are agreed to by the parties hereto; provided, in any case, that all conditions to closing set forth in Article V (other than the delivery of certificates, opinions and other instruments and documents to be delivered at the Closing) have been satisfied or waived at or prior to the Closing Date. On the Closing Date, Graystone and Tower shall cause the Articles of Merger to be duly executed and to be filed with the PDS.

 

(b)                                  The Merger .  Subject to the terms and conditions of this Agreement, on the Effective Date, Graystone shall merge with and into Tower in accordance with the provisions Section 1921 of the BCL, the separate existence of Graystone shall cease, and Tower shall survive and continue to exist as a corporation incorporated under the BCL.  From and after the Effective Date, the Merger shall have the effects set forth in Section 1929 of the BCL.

 

(c)                                   Tower’s Articles of Incorporation and Bylaws .  On and after the Effective Date, the articles of incorporation of Tower, shall be amended and restated as of the Effective Date as provided in Exhibit 13 and shall remain in full force and effect until amended in accordance with its terms and applicable law.  On and after the Effective Date, the bylaws of Tower shall be amended and restated as of the Effective Date as provided in Exhibit 14 and shall remain in full force and effect until amended in accordance with its terms and applicable law.

 

 (d)                               Board of Directors and Officers of Tower .

 

(i)                                      On the Effective Date, the total number of persons serving on the board of directors of Tower shall be twenty (20).  Ten (10) of the twenty (20) persons to serve initially on the board of directors of Tower at the Effective Date shall be selected by Tower board of directors and ten (10) of the twenty (20) persons shall be selected by the Graystone board of directors from among the current directors of Graystone and Tower, respectively, who meet the eligibility requirements for a director under the Tower bylaws, as amended pursuant to Section 1.02(c) above. Provided however, that since Tower has only nine (9) directors as of the date hereof, Tower shall be permitted, after consultation with Graystone, to select one (1) additional director who meets the eligibility requirements for a director under the Tower bylaws, as amended pursuant to Section 1.02(c) above, to serve on the Tower board of directors.  The directors from each Tower and Graystone shall be evenly distributed as close as possible among the three (3) classes, A, B, and C, of Tower after the Effective Date with two (2) classes having seven (7) directors and one (1) class having six (6) directors each to serve until their successors are duly elected and qualified in accordance with applicable law, the articles of incorporation, and the bylaws of Tower, as amended pursuant to Section 1.02(c) above.  In the event that, prior to the Effective Date, any person so selected to serve on the board of directors of Tower after the Effective Date is unable or unwilling to serve in such position, the respective board of directors from which such person was selected shall designate another person to serve in such person’s stead in accordance with the provisions of this Section 1.02(d).  If, at the Effective Date or within three (3) years after the Effective Date a director formerly of Tower, prior to the Effective Date, (or appointed by Tower in accordance with this Section 1.02(d)) or Graystone, prior to the

 

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Effective Date, is unable or unwilling to continue to serve on the board of directors of Tower, then a successor to such person shall be chosen by a majority of the remaining directors who are then on the board of directors of Tower and who previously served on the board of directors from which the director who is unable or unwilling to continue to serve previously served. The directors of Tower then serving shall appoint or nominate such individual.  Each person who serves as a director of Tower will be compensated in accordance with the policies of Tower.  This Section 1.02(d) shall survive Closing and shall remain in effect for three (3) years after the Effective Date in accordance with Exhibit 14 , unless the board of directors of Tower after the Effective Date, shall determine otherwise upon the approval of at least 80% of the board of directors.  For three (3) years after the Effective Date, the resulting Tower board agrees to nominate and recommend for election by the shareholders the directors selected, nominated or appointed pursuant to and in furtherance of this Section 1.02(d).  The directors of Tower and Graystone agree that for three years after the Effective Date, to vote in a manner necessary so that Tower will vote, as sole shareholder of the resulting Subsidiary bank, for the directors nominated and recommended by the resulting Subsidiary bank, unless the board of directors of Tower after the Effective Date shall determine otherwise upon the approval of 80% of the directors of the entire board of directors.

 

(ii)                                   For three (3) years following the Effective Date, all committees of Tower and its Subsidiaries shall have equal representation of directors formerly of Tower and Graystone (or appointed by Tower or Graystone in accordance with Section 1.02(d)(i)), unless the board of directors of Tower after the Effective Date, shall determine otherwise upon the approval of at least 80% of the board of directors.  The bylaws of Tower as amended and restated in Exhibit 14 shall provide for this provision.

 

(iii)                                For three (3) years following the Effective Date, the Executive Committee of Tower after the Effective Date shall be comprised of: Kermit Hicks, Jeffrey Shank, Frederic Frederick, Terry L. Randall (or if unable to serve, a director of Tower who is serving on the board of directors of Tower as of the date hereof, or appointed pursuant to 1.02(d) hereof) and four (4) directors of Graystone who are serving on the board of directors of Graystone as of the date hereof or appointed pursuant to Section 1.02(d)(i) unless the board of directors of Tower after the Effective Date shall determine otherwise upon the approval of 80% of the directors of the entire board of directors.

 

(iv)                               On the Effective Date, Kermit Hicks shall be the Chairman of the Board of Tower and shall serve as Chairman until the expiration of his term in 2011, at which time the board of directors shall elect a new chair.  On the Effective Date, the following shall be among the executive officers of Tower:

 

(A)                               Andrew Samuel - President and Chief Executive Officer

(B)                                 Mark Merrill - Executive Vice President-Chief Financial Officer

(C)                                 Jeffrey Renninger - Executive Vice President-Chief Operating Officer

(D)                                Jeffrey Shank – Executive Vice President

 

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Each executive officer of Tower shall hold office until his or her successor is elected and qualified or otherwise in accordance with applicable law, the articles of incorporation, and the bylaws of Tower, and such person’s respective employment agreement.

 

(e)                                   Bank Merger .  Tower and Graystone shall use their best efforts to cause Greencastle to merge with and into Graystone Bank, with Graystone Bank surviving such merger, concurrently with, or as soon as practicable after the Merger on the Effective Date.  Concurrently with the execution and delivery of this Agreement, Tower shall cause Greencastle, and Graystone shall cause Graystone Bank, to execute and deliver the Bank Plan of Merger.

 

(f)                                     Conversion of Shares .

 

(i)                                      Subject to the provisions of subparagraphs (ii), (iii), and (iv) of this Section 1.02(f) and Section 1.02(i), each share of Graystone Common Stock issued and outstanding immediately prior to the Effective Date shall, on the Effective Date, by reason of the Merger and without any action on the part of the holder thereof, be converted into and become a right to receive 0.42 shares of fully paid and nonassessable shares of Tower Common Stock (the “Exchange Ratio”).

 

(ii)                                   Each share of Graystone Common Stock issued and held in treasury of Graystone or by any Graystone Subsidiary (other than trust account shares or shares acquired in connection with debts previously contracted) as of the Effective Date, if any, shall be cancelled.

 

(iii)                                No fraction of a whole share of Tower Common Stock and no scrip or certificates therefor shall be issued in connection with the Merger. Any former holder of Graystone Common Stock who would otherwise be entitled to receive a fraction of a share of Tower Common Stock shall receive, in lieu thereof, cash in an amount equal to such fraction of a share multiplied by the Tower Market Share Price.

 

(iv)                               Each outstanding share of Tower or Graystone Common Stock the holder of which has perfected his right to dissent under the BCL and has not effectively withdrawn or lost such right as of the Effective Date shall not be converted into or represent a right to receive, or shall remain, shares of Tower Common Stock hereunder, respectively, and the holder thereof shall be entitled only to such rights as are granted by the BCL. The parties shall give each other prompt notice upon receipt of any such written demands for payment of the fair value of such shares of Tower or Graystone Common Stock, resepectively (“Dissenting Shares”) and of withdrawals of such demands and any other instruments provided pursuant to the BCL (any shareholder duly making such demand being hereinafter called a “Dissenting Shareholder”). If any Dissenting Shareholder shall effectively withdraw or lose (through failure to perfect or otherwise) his right to such payment at any time, such holder’s shares of Graystone Common Stock shall be converted into the right to receive Tower Common Stock in accordance with Section 1.02(f)(i) of this Agreement or such holder’s shares of Tower Common Stock shall remain shares of Tower Common Stock. Any payments made in respect of Dissenting Shares shall be made by Tower, as the continuing corporation after the Merger.

 

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(g)                                  Stock Options .

 

(i)                                                      At the Effective Date, each Graystone Stock Option which is outstanding and unexercised immediately prior to the Effective Date, whether or not then vested and exercisable, shall cease to represent a right to acquire shares of Graystone Common Stock and shall be converted automatically into an option to purchase shares of Tower Common Stock, and Tower shall assume each Graystone Stock Option, in accordance with the terms of the applicable Graystone Stock-Based Plan or other agreement by which it is evidenced, except that from and after the Effective Date, (i) Tower and a disinterested committee of the Tower board of directors shall be substituted for Graystone and the committee of the Graystone board of directors (including, if applicable, the entire Graystone board of directors) administering such Graystone Stock Plan, (ii) each Graystone Stock Option assumed by Tower may be exercised solely for shares of Tower Common Stock, (iii) the number of shares of Tower Common Stock subject to such Graystone Stock Option shall be equal to the number of shares of Graystone Common Stock subject to such Graystone Stock Option immediately prior to the Effective Date multiplied by the Exchange Ratio, provided that any fractional shares of Tower Common Stock resulting from such multiplication shall be rounded down to the nearest share, and (iv) the per share exercise price under each such Graystone Stock Option shall be adjusted by dividing the per share exercise price under each such Graystone Stock Option by the Exchange Ratio, provided that such exercise price shall be rounded up to the nearest cent.  Notwithstanding clauses (iii) and (iv) of the preceding sentence, each Graystone Stock Option which is an “incentive stock option” shall be adjusted as required by Sections 409A and 424 of the IRC, and the regulations and guidance promulgated thereunder, so as not to constitute a modification, extension or renewal of the option within the meaning of Sections 409A and 424(h) of the IRC.  Tower and Graystone agree to take all necessary steps to effect the foregoing provisions of this Section 1.02(g), including in the case of Tower taking all corporate action necessary to reserve for issuance a sufficient number of shares of Tower Common Stock for delivery upon exercise of the options to issue shares of Tower Common Stock issued in accordance herewith.

 

(ii)                                                   As soon as practicable after the Effective Date, Tower shall use its reasonable efforts to file a registration statement on Form S-3 or Form S-8, as the case may be (or any successor or other appropriate forms), with respect to the shares of Tower Common Stock subject to the options referred to in paragraph (i) of this Section 1.02(g) and shall use its reasonable efforts to maintain the current status of the prospectus or prospectuses contained therein for so long as such options remain outstanding in the case of a Form S-8 or, in the case of a Form S-3, until the shares subject to such options may be sold without a further holding period under Rule 144 under the Securities Act.

 

(iii)                                                As soon as practicable after the Effective Date, Tower shall deliver to the holders of Graystone Stock Options at the Effective Date appropriate notices setting forth the effect of the adjustments described in Section 1.02(g) and advising of the registration of the shares of Tower Common Stock issuable upon exercise thereof after consummation of the Merger.

 

(iv)                                               With respect to those individuals who, subsequent to the Merger, will be subject to the reporting requirements under Section 16(a) of the Exchange Act, where applicable, Tower

 

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shall administer the Graystone Stock-Based Plans in a manner consistent with the exemptions provided by Rule 16b-3 promulgated under the Exchange Act.

 

(h)                                  Surrender and Exchange of Graystone Stock Certificates .

 

(i)                                      Exchange of Certificates . Each holder of shares of Graystone Common Stock who surrenders to Tower (or its agent) the certificate or certificates representing such shares will be entitled to receive, as soon as practicable after the Effective Date, in exchange therefor a certificate or certificates for the number of whole shares of Tower Common Stock into which such holder’s shares of Graystone Common Stock have been converted pursuant to the Merger, together with a check for cash in lieu of any fractional share in accordance with Section 1.02(f)(iii).

 

(ii)                                   Rights Evidenced by Certificates .  Each certificate for shares of Tower Common Stock issued in exchange for certificates for Graystone Common Stock pursuant to Section 1.02(h)(i) hereof will be dated the Effective Date and be entitled to dividends and all other rights and privileges pertaining to Tower Common Stock from and after the Effective Date. Until surrendered, each certificate theretofore evidencing shares of Graystone Common Stock, from and after the Effective Date, will evidence solely the right to receive certificates for shares of Tower Common Stock pursuant to Section 1.02(h)(i) hereof and a check for cash in lieu of any fractional share in accordance with Section 1.02(f)(iii), as the case may be. If certificates for shares of Graystone Common Stock are exchanged for Tower Common Stock at a date following one or more record dates for the payment of dividends or of any other distribution on the shares of Tower Common Stock, Tower will pay cash in an amount equal to dividends theretofore payable on such Tower Common Stock and pay or deliver any other distribution to which holders of shares of Tower Common Stock have theretofore become entitled. No interest will accrue or be payable in respect of dividends or cash otherwise payable under this Section 1.02(h) upon surrender of certificates for shares of Tower Common Stock.

 

Notwithstanding the foregoing, no party hereto will be liable to any holder of Graystone Common Stock or any holder of Tower Common Stock, for any amount paid in good faith to a public official or agency pursuant to any applicable abandoned property, escheat or similar law.  Until certificates for shares of Graystone Common Stock are surrendered by a Graystone shareholder to Tower for exchange, Tower shall have the right to withhold dividends or any other distributions on the shares of Tower Common Stock issuable to such shareholder.

 

(iii)                                Exchange Procedures . Each certificate for shares of Graystone Common Stock delivered for exchange under this Section 1.02(h) must be endorsed in blank by the registered holder thereof or be accompanied by a power of attorney to transfer such shares endorsed in blank by such holder. If more than one certificate is surrendered at one time and in one transmittal package for the same shareholder account, the number of whole shares of Tower Common Stock for which certificates will be issued pursuant to this Section 1.02(h) will be computed on the basis of the aggregate number of shares represented by the certificates so surrendered.  If shares of Tower Common Stock or payments of cash are to be issued or made to a person other than the one in whose name the surrendered certificate is registered, the certificate so surrendered must be properly endorsed in blank, with signature(s) guaranteed, or otherwise in

 

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proper form for transfer, and the person to whom certificates for shares of Tower Common Stock is to be issued or to whom cash is to be paid shall pay any transfer or other taxes required by reason of such issuance or payment to a person other than the registered holder of the certificate for shares of Graystone Common Stock which are surrendered. As promptly as practicable after the Effective Date, Tower shall send or cause to be sent to each shareholder of record of Graystone Common Stock transmittal materials for use in exchanging certificates representing Graystone Common Stock for certificates representing Tower Common Stock into which the Graystone Common Stock have been converted in the Merger. Certificates representing shares of Tower Common Stock and checks for cash in lieu of fractional shares shall be mailed to former shareholders of Graystone as soon as reasonably possible but in no event later than twenty (20) business days following the receipt of certificates representing former shares of Graystone Common Stock duly endorsed or accompanied by the materials referenced herein and delivered by certified mail, return receipt requested (but in no event earlier than the second business day following the Effective Date).

 

(iv)                               Closing of Stock Transfer Books; Cancellation of Graystone Certificates . Upon the Effective Date, the stock transfer books for Graystone Common Stock will be closed and no further transfers of shares of Graystone Common Stock will thereafter be made or recognized. All certificates for shares of Graystone Common Stock surrendered pursuant to this Section 1.02(h) will be cancelled by Tower.

 

(i)                                      Anti-Dilution Provisions . If Tower has, at any time after the date hereof and before the Effective Date, (i) issued a dividend in shares of Tower Common Stock, (ii) combined the outstanding shares of Tower Common Stock into a smaller number of shares, (iii) subdivided the outstanding shares of Tower Common Stock, respectively, or (iv) reclassified the shares of Tower Common Stock, then the number of shares of Tower Common Stock to be delivered to Graystone shareholders who are entitled to receive shares of Tower Common Stock in exchange for shares of Graystone Common Stock shall be adjusted so that each Graystone shareholder shall be entitled to receive such number of shares of Tower Common Stock as such shareholder would have been entitled to receive if the Effective Date had occurred prior to the happening of such event.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF GRAYSTONE

 

Graystone hereby represents and warrants to Tower that, except as specifically set forth in the Graystone Disclosure Schedule delivered to Tower by Graystone on the date hereof:

 

Section 2.01 Organization .

 

(a)                                   Graystone is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania.  Graystone is a bank holding company duly registered under the BHCA.  Graystone has the corporate power and authority to carry on its business and operations as now being conducted and to own and operate the properties and assets now owned and being operated by it.  Graystone is not qualified or licensed to do business as a foreign corporation in any other jurisdiction and is not required to be so qualified or licensed as

 

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the result of the ownership or leasing of property or the conduct of its business except where the failure to be so qualified or licensed would not have a Material Adverse Effect on Graystone.

 

(b)                                  Graystone Bank is a Pennsylvania state-chartered bank duly authorized and validly existing under the laws of the Commonwealth of Pennsylvania. Graystone Bank has the corporate power and authority to carry on its business and operations as now being conducted and to own and operate the properties and assets now owned and being operated by it.

 

(c)                                   There are no Graystone Subsidiaries other than Graystone Bank and those identified in the Graystone Disclosure Schedule.

 

(d)                                  The deposits of Graystone Bank are insured by the Deposit Insurance Fund of the FDIC to the extent provided in the FDIA and Graystone Bank is a participant in and has not opted out of the FDIC Transaction Account Guarantee Program.

 

(e)                                   The respective minute books of Graystone and Graystone Bank and each other Graystone Subsidiary accurately record, in all material respects, all material corporate actions of their respective shareholders and boards of directors and trustees, (including committees) in each case in accordance with the normal business practice of Graystone and each such Graystone Subsidiary.

 

(f)                                     Prior to the date of this Agreement, Graystone has delivered to Tower true and correct copies of the articles of incorporation and bylaws of Graystone and the articles of incorporation and bylaws of Graystone Bank as in effect on the date hereof.

 

Section 2.02 Capitalization .

 

(a)                                   The authorized capital stock of Graystone consists of One Hundred Million (100,000,000) shares of common stock, no par value (“Graystone Common Stock”), of which 6,506,585 shares are outstanding, validly issued, fully paid and nonassessable and Two Million (2,000,000) shares of Preferred Stock, no par value, of which no shares are issued and outstanding. Except as provided on the Graystone Disclosure Schedule, neither Graystone nor Graystone Bank, nor any other Graystone Subsidiary has or is bound by any subscription, option, warrant, call, commitment, agreement, plan or other Right of any character relating to the purchase, sale or issuance or voting of, or right to receive dividends or other distributions on any shares of Graystone Common Stock or any other security of Graystone or any securities representing the right to vote, purchase or otherwise receive any shares of Graystone Common Stock, or any other security of Graystone.

 

(b)                                  The authorized capital stock of Graystone Bank consists of Five Million (5,000,000) shares of common stock, par value of $1.00 per share (“Graystone Bank Common Stock”), of which 1,760,000 shares are outstanding, validly issued, fully paid, nonassessable, free of preemptive rights and owned by Graystone. Neither Graystone nor any Graystone Subsidiary has or is bound by any subscription, option, warrant, call, commitment, agreement or other Right of any character relating to the purchase, sale or issuance or voting of, or right to receive dividends or other distributions on any shares of the capital stock of any Graystone Subsidiary or any other

 

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security of any Graystone Subsidiary or any securities representing the right to vote, purchase or otherwise receive any shares of the capital stock or any other security of any Graystone Subsidiary. Except as set forth in the Graystone Disclosure Schedule, either Graystone or Graystone Bank owns all of the outstanding shares of capital stock of each Graystone Subsidiary free and clear of all liens, security interests, pledges, charges, encumbrances, agreements and restrictions of any kind or nature.

 

(c)                                   Except as set forth in the Graystone Disclosure Schedule, neither (i) Graystone, (ii) Graystone Bank nor (iii) any other Graystone Subsidiary, owns any equity interest, directly or indirectly, other than treasury stock, in any other company or controls any other company, except for equity interests held in the investment portfolios of Graystone and Graystone Subsidiaries, equity interests held by Graystone Subsidiaries in a fiduciary capacity, and equity interests held in connection with the commercial loan activities of Graystone Subsidiaries. There are no subscriptions, options, warrants, calls, commitments, agreements or other Rights outstanding and held by Graystone or Graystone Bank with respect to any other company’s capital stock or the equity of any other person.

 

(d)                                  To the Knowledge of Graystone, except as disclosed in the Graystone Disclosure Schedules, no person or “group” (as that term is used in Section 13(d)(3) of the Exchange Act), is the beneficial owner (as defined in Section 13(d) of the Exchange Act) of 5% or more of the outstanding shares of any class of Graystone Common Stock.

 

Section 2.03 Authority; No Violation .

 

(a)                                   Except as provided in this Section 2.03, Graystone has full corporate power and authority to execute and deliver this Agreement and to complete the transactions contemplated hereby. Graystone Bank has full corporate power and authority to execute and deliver the Bank Plan of Merger and to consummate the Bank Merger. The execution and delivery of this Agreement by Graystone and the completion by Graystone of the transactions contemplated hereby have been duly and validly approved by the board of directors of Graystone and, except for approval and adoption by the shareholders of Graystone as required under the BCL, and Graystone’s articles of incorporation and bylaws, no other corporate proceedings on the part of Graystone are necessary to complete the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Graystone and, subject to approval and adoption of the shareholders of Graystone as required under the BCL, Graystone’s articles of incorporation and bylaws and receipt of the required approvals from Regulatory Authorities described in Section 2.04 hereof, and the requisite actions of the shareholders of Graystone in furtherance of this Agreement, constitutes the valid and binding obligation of Graystone, enforceable against Graystone in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.

 

The Bank Plan of Merger, upon its execution and delivery by Graystone Bank concurrently with the execution and delivery of this Agreement, will constitute the valid and binding obligation of Graystone Bank, enforceable against Graystone Bank in accordance with its terms, subject to required approvals of Regulatory Authorities, and subject to applicable

 

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conservatorship or receivership provisions of the FDIA, or insolvency and similar laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.

 

(b) (i)   The execution and delivery of this Agreement by Graystone, (ii) the execution and delivery of the Bank Plan of Merger by Graystone Bank, (iii) subject to receipt of approvals from the Regulatory Authorities referred to in Section 2.04 hereof and Graystone’s and Tower’s compliance with any conditions contained therein, the completion of the transactions contemplated hereby, and (iv) compliance by Graystone or Graystone Bank with any of the terms or provisions hereof or of the Bank Plan of Merger, will not (A) conflict with or result in a breach of any provision of the articles of incorporation or other organizational document or bylaws of Graystone or any Graystone Subsidiary; (B) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Graystone or any Graystone Subsidiary or any of their respective properties or assets; or (C) except as set forth in the Graystone Disclosure Schedule, violate, conflict with, result in a breach of any provisions of, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of, accelerate the performance required by, or result in a right of termination or acceleration or the creation of any lien, security interest, charge or other encumbrance upon any of the properties or assets of Graystone or any Graystone Subsidiary under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement, commitment or other instrument or obligation to which Graystone or any Graystone Subsidiary is a party, or by which they or any of their respective properties or assets may be bound or affected, except for such violations, conflicts, breaches or defaults under clause (B) or (C) hereof which, either individually or in the aggregate, will not have a Material Adverse Effect on Graystone.

 

Section 2.04 Consents . Except for the consents, approvals, filings and registrations with the FRB, the FDIC, the OCC, the PDB, the DOJ, the SEC, the PDS, FINRA, and state “blue sky” authorities, and compliance with any conditions contained therein, and the approval of this Agreement by the shareholders of Graystone under the BCL, Graystone’s articles of incorporation and bylaws, and the approval of the Bank Plan of Merger by Graystone as sole shareholder of Graystone Bank under the Banking Code of 1965, as amended, and by the Graystone board of directors, and except as disclosed in the Graystone Disclosure Schedule, no consents or approvals of, or filings or registrations with, any public body or authority are necessary, and no consents or approvals of any third parties are necessary, or will be, in connection with (a) the execution and delivery of this Agreement by Graystone or the Bank Plan of Merger by Graystone Bank, and (b) the completion by Graystone of the transactions contemplated hereby or by Graystone Bank of the Bank Merger. As of the date hereof, except for matters relating to the MOU, Graystone has no reason to believe that (i) any required consents or approvals will not be received or will be received with conditions, limitations or restrictions unacceptable to it or which would adversely impact Graystone’s or Graystone Bank’s ability to complete the transactions contemplated by this Agreement or that (ii) any public body or authority, the consent or approval of which is not required or any filing with which is not required, will object to the completion of the transactions contemplated by this Agreement.

 

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Section 2.05 Financial Statements .

 

(a)           Graystone made the Graystone Regulatory Reports through September 30, 2008 available to Tower.  The Graystone Regulatory Reports have been, or will be, prepared in all material respects in accordance with applicable regulatory accounting principles and practices throughout the periods covered by such statements, and fairly present, or will fairly present in all material respects, the financial position, results of operations and changes in shareholders’ equity of Graystone or Graystone Bank, as the case may be, as of and for the periods ended on the dates thereof, in accordance with applicable regulatory accounting principles applied on a consistent basis.

 

(b)           Graystone has previously delivered to Tower the Graystone Financials as of the date hereof and will deliver all the Graystone Financials after the date hereof. The Graystone Financials have been, or will be, prepared in accordance with GAAP applied on a consistent basis throughout the periods covered by such statements, except as noted therein, and fairly present, or will fairly present, the consolidated financial position, results of operations and cash flows of Graystone as of and for the periods ending on the dates thereof, in accordance with GAAP applied on a consistent basis, except as noted therein.

 

(c)           At the date of each balance sheet included in the Graystone Financials or the Graystone Regulatory Reports, neither Graystone nor Graystone Bank (as the case may be) had, or will have any liabilities, obligations or loss contingencies of any nature (whether absolute, accrued, contingent or otherwise) of a type required to be reflected in such Graystone Financials or Graystone Regulatory Reports or in the footnotes thereto which are not fully reflected or reserved against therein or fully disclosed in a footnote thereto, except for liabilities, obligations and loss contingencies which are not material in the aggregate to Graystone and which are incurred in the ordinary course of business, consistent with past practice and except for liabilities, obligations and loss contingencies which are within the subject matter of a specific representation and warranty herein and subject, in the case of any unaudited statements, to normal, recurring audit adjustments and the absence of footnotes.

 

Section 2.06 Taxes .  Graystone and the Graystone Subsidiaries are members of the same affiliated group within the meaning of IRC Section 1504(a). Graystone has duly filed, and will file, all federal, state and local tax returns required to be filed by or with respect to Graystone and all Graystone Subsidiaries on or prior to the Closing Date (all such returns being accurate and correct in all material respects) and has duly paid or will pay, or made or will make, provisions for the payment of all federal, state and local taxes which have been incurred by or are due or claimed to be due from Graystone and any Graystone Subsidiary by any taxing authority or pursuant to any tax sharing agreement or arrangement (written or oral) on or prior to the Closing Date other than taxes which (i) are not delinquent or (ii) are being contested in good faith.

 

Section 2.07 No Material Adverse Effect . Graystone has not suffered any Material Adverse Effect since December 31, 2007.

 

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Section 2.08 Contracts .

 

(a)           Except as described in the Graystone Disclosure Schedule, neither Graystone nor any Graystone Subsidiary is a party to or subject to: (i) any employment, consulting or severance contract or arrangement with any past or present officer, director or employee of Graystone or any Graystone Subsidiary, except for “at will” arrangements; (ii) any plan, arrangement or contract providing for bonuses, pensions, options, deferred compensation, retirement payments, profit sharing or similar arrangements for or with any past or present officers, directors or employees of Graystone or any Graystone Subsidiary; (iii) any collective bargaining agreement with any labor union relating to employees of Graystone or any Graystone Subsidiary; (iv) any agreement which by its terms limits the payment of dividends by any Graystone Subsidiary; (v) any instrument evidencing or related to indebtedness for borrowed money whether directly or indirectly, by way of purchase money obligation, conditional sale, lease purchase, guaranty or otherwise, in respect of which Graystone or any Graystone Subsidiary is an obligor to any person, which instrument evidences or relates to indebtedness other than deposits, repurchase agreements, Federal Home Loan Bank advances, bankers acceptances and “treasury tax and loan” accounts established in the ordinary course of business and transactions in “federal funds” or which contains financial covenants or other restrictions (other than those relating to the payment of principal and interest when due) which would be applicable on or after the Closing Date to Tower; or (vi) any contract (other than this Agreement) limiting the freedom of any Graystone Subsidiary to engage in any type of banking or bank-related business permissible under law.

 

(b)           True and correct copies of agreements, plans, arrangements and instruments referred to in Section 2.08(a) have been made available to Tower on or before the date hereof, are listed on the Graystone Disclosure Schedule and are in full force and effect on the date hereof and neither Graystone nor any Graystone Subsidiary (nor, to the Knowledge of Graystone, any other party to any such contract, plan, arrangement or instrument) has breached any provision of, or is in default in any respect under any term of, any such contract, plan, arrangement or instrument which breach or default has resulted in or will result in a Material Adverse Effect with respect to Graystone. Except as set forth in the Graystone Disclosure Schedule, no party to any material contract, plan, arrangement or instrument will have the right to terminate any or all of the provisions of any such contract, plan, arrangement or instrument as a result of the transactions contemplated by this Agreement. Except as set forth in the Graystone Disclosure Schedule, none of the employees (including officers) of Graystone or any Graystone Subsidiary possess the right to terminate their employment as a result of the execution of this Agreement. Except as set forth in the Graystone Disclosure Schedule, no plan, employment agreement, termination agreement, or similar agreement or arrangement to which Graystone or any Graystone Subsidiary is a party or under which Graystone or any Graystone Subsidiary may be liable contains provisions which permit an employee or independent contractor to terminate it without cause and continue to accrue future benefits thereunder. Except as set forth in the Graystone Disclosure Schedule, no such agreement, plan or arrangement (i) provides for acceleration in the vesting of benefits or payments due thereunder upon the occurrence of a change in ownership or control of Graystone or any Graystone Subsidiary absent the occurrence of a subsequent event; (ii) provides for benefits which may cause the disallowance of a federal income tax deduction under IRC Section 280G;

 

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or (iii) requires Graystone or any Graystone Subsidiary to provide a benefit in the form of Graystone Common Stock or determined by reference to the value of Graystone Common Stock.

 

Section 2.09 Ownership of Property; Insurance Coverage .

 

(a)           Graystone and the Graystone Subsidiaries have, or will have as to property acquired after the date hereof, good and, as to real property, marketable title to all assets and properties owned by Graystone or any Graystone Subsidiary in the conduct of their businesses, whether such assets and properties are real or personal, tangible or intangible, including assets and property reflected in the balance sheets contained in the Graystone Regulatory Reports and in the Graystone Financials or acquired subsequent thereto (except to the extent that such assets and properties have been disposed of for fair value, in the ordinary course of business, since the date of such balance sheets), subject to no encumbrances, liens, mortgages, security interests or pledges, except (i) those items which secure repurchase agreements and liabilities for borrowed money from a Federal Home Loan Bank, (ii) statutory liens for amounts not yet delinquent or which are being contested in good faith, (iii) items permitted under Article IV, and (iv) the items disclosed in the Graystone Disclosure Schedule. Graystone and the Graystone Subsidiaries, as lessee, have the right under valid and subsisting leases of real and personal properties used by Graystone and its Subsidiaries in the conduct of their businesses to occupy or use all such properties as presently occupied and used by each of them. Except as disclosed in the Graystone Disclosure Schedule, such existing leases and commitments to lease constitute or will constitute operating leases for both tax and financial accounting purposes and the lease expense and minimum rental commitments with respect to such leases and lease commitments are as disclosed in the notes to the Graystone Financials.

 

(b)           With respect to all agreements pursuant to which Graystone or any Graystone Subsidiary has purchased securities subject to an agreement to resell, if any, Graystone or such Graystone Subsidiary, as the case may be, has a valid, perfected first lien or security interest in the securities or other collateral securing the repurchase agreement, and the value of such collateral equals or exceeds the amount of the debt secured thereby.

 

(c)           Graystone and the Graystone Subsidiaries currently maintain insurance considered by Graystone to be reasonable for their respective operations and similar in scope and coverage to that maintained by other businesses similarly engaged.  Neither Graystone nor any Graystone Subsidiary has received notice from any insurance carrier that (i) such insurance will be cancelled or that coverage thereunder will be reduced or eliminated, or (ii) premium costs with respect to such policies of insurance will be substantially increased. Except as set forth on the Graystone Disclosure Schedule, there are presently no material claims pending under such policies of insurance and no notices have been given by Graystone or Graystone Bank under such policies. All such insurance is valid and enforceable and in full force and effect, and within the last ten years Graystone has received each type of insurance coverage for which it has applied and during such periods has not been denied indemnification for any material claims submitted under any of its insurance policies.

 

Section 2.10 Legal Proceedings . Except as set forth in the Graystone Disclosure Schedule, neither Graystone nor any Graystone Subsidiary is a party to any, and there are no pending or, to

 

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the Knowledge of Graystone, threatened legal, administrative, arbitration or other proceedings, claims (whether asserted or unasserted), actions or governmental investigations or inquiries of any nature (i) against Graystone or any Graystone Subsidiary, (ii) to which Graystone or any Graystone Subsidiary’s assets are or may be subject, (iii) challenging the validity or propriety of any of the transactions contemplated by this Agreement, or (iv) which could adversely affect the ability of Graystone to perform under this Agreement, except for any proceedings, claims, actions, investigations or inquiries referred to in clauses (i) or (ii) which, if adversely determined, individually or in the aggregate, could not be reasonably expected to have a Material Adverse Effect on Graystone.

 

Section 2.11 Compliance With Applicable Law .

 

(a)           Except as set forth in the Graystone Disclosure Schedule, Graystone and Graystone Subsidiaries hold all licenses, franchises, permits and authorizations necessary for the lawful conduct of their businesses under, and have complied in all material respects with, applicable laws, statutes, orders, rules or regulations of any federal, state or local governmental authority relating to them, other than where such failure to hold or such noncompliance will neither result in a limitation in any material respect on the conduct of their businesses nor otherwise have a Material Adverse Effect on Graystone.

 

(b)           Except as set forth on the Graystone Disclosure Schedule, neither Graystone nor any Graystone Subsidiary has received any notification or communication from any Regulatory Authority:  (i) asserting that Graystone or any Graystone Subsidiary is not in compliance with any of the statutes, regulations or ordinances which such Regulatory Authority enforces; (ii) threatening to revoke any license, franchise, permit or governmental authorization which is material to Graystone or any Graystone Subsidiary; (iii) requiring or threatening to require Graystone or any Graystone Subsidiary, or indicating that Graystone or any Graystone Subsidiary may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement restricting or limiting, or purporting to restrict or limit, in any manner the operations of Graystone or any Graystone Subsidiary, including without limitation any restriction on the payment of dividends; or (iv) directing, restricting or limiting, or purporting to direct, restrict or limit, in any manner the operations of Graystone or any Graystone Subsidiary, including without limitation any restriction on the payment of dividends (any such notice, communication, memorandum, agreement or order described in this sentence is hereinafter referred to as a “Regulatory Agreement”). Neither Graystone nor any Graystone Subsidiary has consented to or entered into any Regulatory  Agreement, except as heretofore disclosed in the Graystone Financials or in the Graystone Disclosure Schedule.

 

Section 2.12 Employee Benefit Plans .

 

(a)           Graystone has previously made available to Tower true and complete copies of all employee pension benefit plans which Graystone or Graystone Bank currently maintains within the meaning of ERISA Section 3(2), profit sharing plans, stock purchase plans, deferred compensation and supplemental income plans, supplemental executive retirement plans, employment agreements, annual or long term incentive plans, severance plans, policies and agreements, group insurance plans, and all other employee welfare benefit plans within the

 

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meaning of ERISA Section 3(1) (including vacation pay, sick leave, short-term disability, long-term disability, and medical plans) and all other employee benefit plans, policies, agreements and arrangements, all of which are set forth in the Graystone Disclosure Schedule, maintained or contributed to for the benefit of the employees or former employees (including retired employees) and any beneficiaries thereof or directors or former directors of Graystone or any Graystone Subsidiary (the “Graystone Benefit Plans”), together with (i) the most recent actuarial (if any) and financial reports relating to those plans which constitute “qualified plans” under IRC Section 401(a), (ii) the most recent annual reports relating to such plans filed by them, respectively, with any government agency, and (iii) all rulings and determination letters which pertain to any such plans. Neither Graystone, any Graystone Subsidiary nor any pension plan maintained by Graystone or any Graystone Subsidiary, has incurred, directly or indirectly, within the past six (6) years any liability under Title IV of ERISA (including to the Pension Benefit Guaranty Corporation) or to the IRS with respect to any pension plan qualified under IRC Section 401(a) which liability has resulted in or will result in a Material Adverse Effect with respect to Graystone, except liabilities to the Pension Benefit Guaranty Corporation pursuant to ERISA Section 4007, all of which have been fully paid, nor has any reportable event under ERISA Section 4043 occurred with respect to any such pension plan.  With respect to each of such plans that is subject to Title IV of ERISA, the present value of the accrued benefits under such plan, based upon the actuarial assumptions used for funding purposes in the plan’s most recent actuarial report did not, as of its latest valuation date, exceed the then current value of the assets of such plan allocable to such accrued benefits. Neither Graystone nor any Graystone Subsidiary has incurred or is subject to any liability under ERISA Section 4201 for a complete or partial withdrawal from a multi-employer plan. All “employee benefit plans,” as defined in ERISA Section 3(3), comply and within the past six (6) years have complied in all material respects with (i) relevant provisions of ERISA and (ii) in the case of plans intended to qualify for favorable income tax treatment, provisions of the IRC relevant to such treatment. To the Knowledge of Graystone, no prohibited transaction (which shall mean any transaction prohibited by ERISA Section 406 and not exempt under ERISA Section 408 or any transaction prohibited under IRC Section 4975) has occurred within the past six (6) years with respect to any employee benefit plan maintained by Graystone or any Graystone Subsidiary which would result in the imposition, directly or indirectly, of an excise tax under IRC Section 4975 or other penalty under ERISA or the IRC, which, individually or in the aggregate, has resulted in or will result in a Material Adverse Effect with respect to Graystone. Graystone and the Graystone Subsidiaries provide continuation coverage under group health plans for separating employees and “qualified beneficiaries” in accordance with the provisions of IRC Section 4980B(f). Such group health plans are in compliance with Section 1862(b)(1) of the Social Security Act. Neither Graystone nor any Graystone Subsidiary is aware of any existing or contemplated audit of any of its employee benefit plans by the IRS or U.S. Department of Labor.

 

(b)           No liability under Title IV of ERISA has been or to the Knowledge of Graystone is presently expected to be incurred by Graystone 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 Graystone under Section 4001 of ERISA or Section 414 of the IRC (an “ERISA Affiliate”). Graystone has not contributed to any “multi employer plan” as defined in Section 3(37) of ERISA.

 

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(c)           All contributions required to be made under the terms of any Graystone Benefit Plan have been timely made and all anticipated contributions and binding obligations are accrued monthly on Graystone’s consolidated financial statements to the extent required and in accordance with GAAP. Graystone 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 Graystone nor an ERISA Affiliate has an “accumulated funding deficiency,” whether or not waived, within the meaning of Section 412 of the IRC or Section 302 of ERISA and neither Graystone nor an ERISA Affiliate has an outstanding funding waiver. The fair market value of the assets of each Graystone Benefit Plan exceeds the present value of the “benefit liabilities” as defined in Section 4001(a)(16) of ERISA under such Graystone Benefit Plan as of the end of the most recent plan year with respect to the respective Graystone 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 Graystone 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 the Graystone Disclosure Schedule, Graystone has not 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 IRC.

 

(d)           Except as set forth in the Graystone Disclosure Schedule, none of the execution of this Agreement, shareholder approval of this Agreement or consummation of the Transaction will, except as set forth in the Graystone Disclosure Schedule, (i) entitle any employee, consultant or director of Graystone to severance pay or any increase in severance pay upon any termination of employment after the date hereof, (ii) 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 Graystone Benefit Plans, (iii) result in any breach or violation of, or a default under, any of the Graystone Benefit Plans or (iv) result in any payment that would be a “parachute payment” to a “disqualified individual” as those terms are defined in Section 280G of the IRC, without regard to whether such payment is reasonable compensation for personal services performed or to be performed in the future.

 

(e)           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 Graystone Benefit Plan. All required tax filings with respect to each Graystone Benefit Plan have been made, and any taxes due in connection with such filings have been paid.

 

(f)            Graystone does not maintain any Graystone Benefit Plan covering employees who are not United States residents.

 

(g)           Graystone does not maintain any Graystone Benefit Plan or other compensation program or arrangement under which payment is reasonably likely to become non-deductible, in whole or

 

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in part, for tax reporting purposes as a result of the limitations under Section 162(m) of the IRC and the regulations issued thereunder.

 

(h)           All Graystone Benefit Plans are in compliance or will be in compliance prior to December 31, 2008 with Section 409A of the IRC.

 

2.13  Labor Matters . Graystone is not a party to nor is bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is Graystone the subject of a proceeding asserting that it has committed an unfair labor practice within the meaning of the National Labor Relations Act or seeking to compel Graystone to bargain with any labor organization as to wages or conditions of employment, nor is there any strike or other labor dispute involving it, pending or, to the Knowledge of Graystone, threatened, nor is Graystone aware of any activity involving its employees seeking to certify a collective bargaining unit or engaging in other organizational activity.

 

Section 2.14 Brokers, Finders and Financial Advisors . Except for Graystone’s engagement of Cedar Hill Advisors, LLC in connection with the transactions contemplated by this Agreement, neither Graystone nor any Graystone Subsidiary, nor any of their respective officers, directors, employees or agents, has employed any broker, finder or financial advisor in connection with the transactions contemplated by this Agreement or in connection with any transaction other than the Merger, or, except for its commitments disclosed in the Graystone Disclosure Schedule, incurred any liability or commitment for any fees or commissions to any such person in connection with the transactions contemplated by this Agreement or in connection with any transaction other than the Merger, which has not been reflected in the Graystone Financials. The Graystone Disclosure Schedule shall contain as an exhibit the engagement letter between Graystone and Cedar Hill Advisors, LLC.

 

Section 2.15 Environmental Matters . Except as set forth in the Graystone Disclosure Schedule, to the Knowledge of Graystone, neither Graystone nor any Graystone Subsidiary, nor any properties owned or occupied by Graystone or any Graystone Subsidiary have been or is in violation of or liable under any Environmental Law which violation or liability, individually or in the aggregate, resulted in, or will result, in a Material Adverse Effect with respect to Graystone. There are no actions, suits or proceedings, or demands, claims, notices or investigations (including without limitation notices, demand letters or requests for information from any environmental agency) instituted or pending, or to the Knowledge of Graystone, threatened, relating to the liability of any property owned or occupied by Graystone or any Graystone Subsidiary under any Environmental Law.

 

Section 2.16 Allowance for Loan Losses . The allowance for loan losses reflected, and to be reflected, in the Graystone Regulatory Reports, and shown, and to be shown, on the balance sheets contained in the Graystone Financials have been, and will be, establish