AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

 

among

 

SUSQUEHANNA BANCSHARES, INC.

 

SUSQUEHANNA PATRIOT BANK

 

and

 

MINOTOLA NATIONAL BANK

 

Dated as of November 14, 2005

TABLE OF CONTENTS

 

 

i

TABLE OF CONTENTS

(continued)

 

 

ii

TABLE OF CONTENTS

(continued)

 

 

iii

TABLE OF CONTENTS

(continued)

 

 

Minotola National Bank Disclosure Schedule and Related Exhibits

 

Susquehanna Bancshares, Inc. Disclosure Schedule and Related Exhibits

 

iv

AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of November 14, 2005, among Susquehanna Bancshares, Inc., a Pennsylvania corporation (“Parent”), Susquehanna Patriot Bank, a New Jersey state chartered bank and a wholly-owned subsidiary of Parent (“SPB”), and Minotola National Bank, a national banking association (the “Bank”). SPB and the Bank are sometimes collectively referred to herein as the “Constituent Banks.”

 

WHEREAS, the Boards of Directors of Parent, SPB and the Bank have determined that it is in the best interests of their respective entities and their shareholders to consummate the business combination transaction provided for herein in which the Bank will, subject to the terms and conditions set forth herein, merge (the “Merger”) with and into SPB;

 

WHEREAS, to induce Parent and SPB to enter into this Agreement, certain shareholders of the Bank, who hold approximately 60% of the issued and outstanding shares of common stock of the Bank (the “Principal Shareholders”), have agreed to support the Merger and to vote their shares in favor thereof; and

 

WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger.

 

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

 

ARTICLE I

 

THE MERGER

 

1.1 The Merger . Subject to the terms and conditions of this Agreement, in accordance with the National Bank Act and the New Jersey Banking Act of 1948, as amended (the “NJ Banking Act”), at the Effective Time (as defined in Section 1.2 hereof), the Bank shall merge with and into SPB. SPB shall be the surviving entity (hereinafter sometimes called the “Receiving Bank”) in the Merger, and shall continue its existence as a New Jersey banking corporation under the NJ Banking Act. The name of the Receiving Bank shall continue to be Susquehanna Patriot Bank. Upon consummation of the Merger, the separate existence of the Bank shall cease.

 

1.2 Effective Time . Subject to the provisions of this Agreement, the Bank Merger Agreement (as defined in Section 1.3) and the accompanying certification required by Section 137 of the NJ Banking Act (collectively, the “Certified Bank Merger Agreement”) shall be duly prepared, executed and delivered for filing with the Department of Banking and Insurance of the State of New Jersey (the “Department”), on the Closing Date (as defined in Section 10.1 hereof). The Merger shall become effective (such time, the “Effective Time”) at such time as the Certified Bank Merger Agreement is filed with the Department, or at such later time as may be specified in the Certified Bank Merger Agreement.

 

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1.3 Effects of the Merger . At and after the Effective Time, the Merger shall have the effects set forth in the applicable provisions of the National Bank Act and the NJ Banking Act. In connection with the execution of this Agreement, SPB and the Bank shall execute and deliver a separate merger agreement (the “Bank Merger Agreement”) in the form of Appendix A hereto.

 

1.4 Conversion of Bank Common Stock .

 

(a) At the Effective Time, subject to the other provisions of this Article I, and Sections 2.2(e) and Section 9.1(g) hereof, each share of the common stock, par value $70.00 per share, of the Bank (the “Bank Common Stock”) issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares, as defined below, and shares of Bank Common Stock held directly or indirectly by the Bank or any of its Subsidiaries (as defined below) (except for Trust Account Shares and DPC Shares, as such terms are defined in Section 1.4(d) hereof)) shall, by virtue of this Agreement and without any action on the part of the holder thereof, be converted into and exchangeable for the right to receive, at the election of the holder thereof as provided in and subject to the provisions of Section 1.5, either (i) the Per Share Stock Consideration (as defined below) or (ii) the Per Share Cash Consideration (as defined below). The Per Share Stock Consideration and the Per Share Cash Consideration are referred to herein collectively as the “Merger Consideration.”

 

For purposes of this Agreement:

 

“Per Share Stock Consideration” shall mean a number of shares of common stock, par value $2.00 per share, of Parent (“Parent Common Stock”) equal to the Exchange Ratio.

 

“Per Share Cash Consideration” shall mean $3,226.44.

 

“Exchange Ratio” shall mean 134.

 

“Total Cash Amount” shall equal (x) the product of the Per Share Cash Consideration multiplied by 30% of the outstanding shares of Bank Common Stock as of the close of business on the Determination Date, calculated on a Fully Diluted Basis (as defined below), (y) then reduced by an amount equal to the number of Dissenting Shares multiplied by the Per Share Cash Consideration, and (z) further reduced by an amount equal to all cash paid to former shareholders of the Bank in lieu of fractional shares of Parent Common Stock pursuant to Section 2.2(e). For purposes of this calculation, the term “Fully Diluted Basis” shall mean all outstanding shares of Bank Common Stock (including all outstanding shares of Bank Common Stock issued pursuant to the Bank’s Stock Bonus Plan, whether or not such shares are fully vested), excluding shares of Bank Common Stock held in treasury.

 

“Determination Date” shall mean the third calendar day immediately prior to the Effective Time, or if such calendar day is not a trading day on the NASDAQ/NMS, then the trading day immediately preceding such calendar day.

 

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(b) All of the shares of Bank Common Stock converted into the Merger Consideration pursuant to this Article I shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of a certificate (each a “Certificate”) previously representing any such shares of Bank Common Stock shall thereafter cease to have any rights with respect to such securities, except the right to receive (i) the Merger Consideration, (ii) any dividends and other distributions in accordance with Section 2.2(b) hereof, and (iii) any cash to be paid in lieu of any fractional share of Parent Common Stock in accordance with Section 2.2(e) hereof.

 

(c) If, between the date of this Agreement and the Effective Time, the shares of Parent Common Stock shall be changed into a different number or class of shares by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or similar transaction, or a stock dividend thereon shall be declared with a record date within such period, appropriate adjustments shall be made to the Per Share Stock Consideration.

 

(d) At the Effective Time, all shares of Bank Common Stock that are owned directly or indirectly by the Bank or any of its Subsidiaries (other than shares of Bank Common Stock (x) held directly or indirectly in trust accounts, managed accounts and the like or otherwise held in a fiduciary capacity for the benefit of third parties (any such shares, and shares of Parent Common Stock which are similarly held, whether held directly or indirectly by SPB or the Bank, as the case may be, being referred to herein as “Trust Account Shares”) and (y) held by SPB or the Bank or any of their respective Subsidiaries in respect of a debt previously contracted (any such shares of Bank Common Stock, and shares of Parent Common Stock which are similarly held, whether held directly or indirectly by SPB or the Bank, being referred to herein as “DPC Shares”)) shall be cancelled and shall cease to exist and no stock of Parent, cash or other consideration shall be delivered in exchange therefor. All shares of Parent Common Stock that are owned by the Bank or any of its Subsidiaries (other than Trust Account Shares and DPC Shares) shall be become treasury stock of Parent.

 

(e) At the Effective Time, each award granted by the Bank under its Stock Bonus Plan which is unvested and outstanding immediately prior to date of this Agreement shall vest and become free of any restrictions to which they are subject under the Stock Bonus Plan.

 

(f) The calculations required by Section 1.4(a) shall be prepared jointly by Parent, SPB and the Bank prior to the Closing Date.

 

1.5 Election Procedures .

 

(a) An election form and other appropriate and customary transmittal materials (which shall specify that delivery shall be effected, and risk of loss and title to the certificates theretofore representing shares of Bank Common Stock shall pass, only upon proper delivery of such certificates to the Exchange Agent (as defined below)) in such form as Parent and the Bank shall mutually agree (the “Election Form”) shall be mailed 35 days prior to the anticipated Effective Date or on such other date as the Bank and SPB shall mutually agree (the “Mailing Date”) to each holder of record of Bank Common Stock as of the close of business on the fifth business day prior to the Mailing Date (the “Election Form Record Date”) other than holders of Dissenting Shares.

 

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(b) Each Election Form shall permit the holder (or the beneficial owner through appropriate and customary documentation and instructions) to specify (i) the number of shares of such holder’s Bank Common Stock with respect to which such holder elects to receive the Per Share Stock Consideration (“Stock Election Shares”), (ii) the number of shares of such holder’s Bank Common Stock with respect to which such holder elects to receive the Per Share Cash Consideration (“Cash Election Shares”), or (iii) that such holder makes no election with respect to such holder’s Bank Common Stock (“No Election Shares”). Any Bank Common Stock with respect to which the Exchange Agent has not received an effective, properly completed Election Form on or before 5:00 p.m., on the 33rd day following the Mailing Date (or such other time and date as Parent and the Bank may mutually agree) (the “Election Deadline”) shall also be deemed to be “No Election Shares.”

 

(c) Parent shall make available one or more Election Forms as may reasonably be requested from time to time by all persons who become holders (or beneficial owners) of Bank Common Stock between the Election Form Record Date and the close of business on the business day prior to the Election Deadline (other than holders of Dissenting Shares), and the Bank shall provide to the Exchange Agent all information reasonably necessary for it to perform as specified herein.

 

(d) Any such election shall have been properly made only if the Exchange Agent shall have actually received a properly completed Election Form by the Election Deadline. An Election Form shall be deemed properly completed only if accompanied by one or more certificates (or customary affidavits and indemnification regarding the loss or destruction of such certificates or the guaranteed delivery of such certificates) representing all shares of Bank Common Stock covered by such Election Form, together with duly executed transmittal materials included in the Election Form. Any Election Form may be revoked or changed by the person submitting such Election Form at or prior to the Election Deadline. In the event an Election Form is revoked prior to the Election Deadline, the shares of Bank Common Stock represented by such Election Form shall become No Election Shares, and Parent shall cause the certificates representing such Bank Common Stock to be promptly returned without charge to the person submitting the Election Form upon written request to that effect from the holder who submitted the Election Form. Subject to the terms of this Agreement and of the Election Form, the Exchange Agent shall have reasonable discretion to determine whether any election, revocation or change has been properly or timely made and to disregard immaterial defects in the Election Forms, and any good faith decisions of the Exchange Agent as to such matters shall be binding and conclusive. Neither Parent, SPB nor the Exchange Agent shall be under any obligation to notify any person of any defect in an Election Form.

 

(e) Within ten business days after the Election Deadline, unless the Effective Time has not yet occurred, in which case as soon thereafter as practicable, Parent shall cause the Exchange Agent to effect the allocation among the holders of Bank Common Stock of rights to receive Parent Common Stock or cash in the Merger in accordance with the Election Forms as follows:

 

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(1) Cash Election Shares More Than Total Cash Amount . If the sum of the aggregate cash amount that would be paid upon the conversion in the Merger of the Cash Election Shares (such sum hereinafter, the “Section 1.5(e) Cash Amount”) is greater than the Total Cash Amount, then:

 

(A) all Stock Election Shares and No Election Shares shall be converted into the right to receive the Per Share Stock Consideration,

 

(B) the Exchange Agent shall then select from among the Cash Election Shares, by a pro rata selection process, a sufficient number of shares (“Stock Designated Shares”) such that the aggregate cash amount that will be paid in the Merger equals as closely as practicable the Total Cash Amount, and all Stock Designated Shares shall be converted into the right to receive the Per Share Stock Consideration, and

 

(C) the Cash Election Shares that are not Stock Designated Shares will be converted into the right to receive the Per Share Cash Consideration.

 

(2) Cash Election Shares Less Than Total Cash Amount . If the Section 1.5(e) Cash Amount is less than the Total Cash Amount, then:

 

(A) all Cash Election Shares shall be converted into the right to receive the Per Share Cash Consideration,

 

(B) the Exchange Agent shall then select first from among the No Election Shares and then (if necessary) from among the Stock Election Shares, by a pro rata selection process, a sufficient number of shares (“Cash Designated Shares”) such that the aggregate cash amount that will be paid in the Merger equals as closely as practicable the Total Cash Amount, and all Cash Designated Shares shall be converted into the right to receive the Per Share Cash Consideration, and

 

(C) the Stock Election Shares and the No Election Shares that are not Cash Designated Shares shall be converted into the right to receive the Per Share Stock Consideration.

 

(3) Cash Election Shares Equal to Total Cash Amount . If the Section 1.5(e) Cash Amount is equal or nearly equal (as determined by the Exchange Agent) to the Total Cash Amount, then subparagraphs (1) and (2) above shall not apply and all Cash Election Shares shall be converted into the right to receive the Per Share Cash Consideration and all Stock Election Shares and No Election Shares shall be converted into the right to receive the Per Share Stock Consideration.

 

(f) The pro rata selection process to be used by the Exchange Agent shall consist of such equitable pro ration processes as shall be mutually determined by Parent and the Bank.

 

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1.6 SPB Common Stock . The shares of SPB Common Stock issued and outstanding immediately prior to the Effective Time shall be unaffected by the Merger and such shares shall remain issued and outstanding.

 

1.7 Articles of Incorporation . At the Effective Time, the Articles of Incorporation of SPB, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Receiving Bank.

 

1.8 Bylaws . At the Effective Time, the Bylaws of SPB, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Receiving Bank until thereafter amended in accordance with applicable law.

 

1.9 Directors and Officers .

 

(a) At and after the Effective Time, the directors of SPB shall consist of all of the directors of SPB serving immediately prior to the Effective Time and the additional persons who shall become directors of SPB in accordance with Section 7.13 hereof, each to hold office in accordance with the Articles of Incorporation and Bylaws of the Receiving Bank until their respective successors are duly elected or appointed and qualified.

 

(b) The officers of SPB immediately prior to the Effective Time shall be the officers of the Receiving Bank, each to hold office in accordance with the Articles of Incorporation and Bylaws of the Receiving Bank until their respective successors are duly elected or appointed and qualified.

 

1.10 Dissenters’ Rights . Notwithstanding anything in this Agreement to the contrary, any holder of Bank Common Stock shall have the right to dissent in the manner provided in the National Bank Act, 12 U.S.C. 214a(b), and if all necessary requirements of the National Bank Act are met, such shares shall be entitled to payment in cash from SPB of the fair value of such shares as determined in accordance with the National Bank Act. All shares of Bank Common Stock as to which the holder properly exercises dissenters’ rights in accordance with the National Bank Act constitute “Dissenting Shares” unless and until such rights are waived, by the party initially seeking to exercise such rights.

 

1.11 Tax Consequences . It is intended that the Merger shall constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and that this Agreement shall constitute a plan of reorganization for the purposes of Section 368 of the Code and the Treasury Regulations thereunder.

 

ARTICLE II

 

EXCHANGE OF SHARES

 

2.1 Parent to Make Shares and Cash Available . At or prior to the Effective Time, Parent shall deposit, or shall cause to be deposited, with a bank or trust company (which may be a Subsidiary of Parent) (the “Exchange Agent”) selected by Parent and reasonably satisfactory to the Bank, for the benefit of the holders of Certificates, for exchange in accordance with this Article II, (i) certificates representing the shares of Parent Common Stock to be issued

 

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pursuant to Sections 1.4 and 2.2(a) in exchange for outstanding shares of Bank Common Stock, (ii) such cash as shall be necessary to pay the Per Share Cash Consideration in accordance with Sections 1.4 and 2.2(a) hereof, and (iii) the cash in lieu of fractional shares to be paid in accordance with Section 2.2(e) hereof. Such cash and certificates for shares of Parent Common Stock, together with any dividends or distributions with respect thereto, are hereinafter referred to as the “Exchange Fund.”

 

2.2 Exchange of Shares . (a) As soon as practicable after the Effective Time, and in no event more than three business days thereafter, the Exchange Agent shall mail to each holder of record of a Certificate or Certificates who theretofore has not submitted such holder’s Certificate or Certificates with a properly completed Election Form, a form letter of transmittal (which shall 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) and instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. The Bank shall have the right to review both the letter of transmittal and the instructions prior to the Effective Time and provide reasonable comments thereon. After completion of the allocation procedure set forth in Section 1.5 and upon surrender of a Certificate or Certificates for exchange and cancellation to the Exchange Agent, together with a properly executed letter of transmittal or Election Form, as the case may be, the holder of such Certificate or Certificates shall be entitled to receive in exchange therefor (x) a certificate representing that number of whole shares of Parent Common Stock which such holder of Bank Common Stock became entitled to receive pursuant to the provisions of Article I hereof and/or (y) a check representing the aggregate Per Share Cash Consideration and/or the amount of cash in lieu of fractional shares, if any, which such holder has the right to receive in respect of the Certificate or Certificates surrendered pursuant to the provisions of Article I, and the Certificate or Certificates so surrendered shall forthwith be cancelled. No interest will be paid or accrued on the Per Share Cash Consideration, the cash in lieu of fractional shares or the unpaid dividends and distributions, if any, payable to holders of Certificates.

 

(b) No dividends or other distributions declared after the Effective Time with respect to Parent Common Stock and payable to the holders of record thereof shall be paid to the holder of any unsurrendered Certificate until the holder thereof shall surrender such Certificate in accordance with this Article II. After the surrender of a Certificate in accordance with this Article II, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to shares of Parent Common Stock represented by such Certificate.

 

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

 

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(d) After the Effective Time, there shall be no transfers on the stock transfer books of the Bank of the shares of Bank Common Stock which were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates representing such shares are presented for transfer to the Exchange Agent, they shall be cancelled and exchanged for certificates representing shares of Parent Common Stock or cash or both, as provided in this Article II.

 

(e) Notwithstanding anything to the contrary contained herein, no certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Certificates, no dividend or distribution with respect to Parent Common Stock shall be payable on or with respect to any fractional share, and such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a shareholder of Parent. In lieu of the issuance of any such fractional share, Parent shall pay to each former shareholder of the Bank who otherwise would be entitled to receive a fractional share of Parent Common Stock an amount in cash determined by multiplying (i) $24.00 by (ii) the fraction of a share of Parent Common Stock which such holder would otherwise be entitled to receive pursuant to Section 1.4 hereof.

 

(f) Any portion of the Exchange Fund that remains unclaimed by the shareholders of the Bank for twelve months after the Effective Time shall be paid to Parent. Any shareholders of the Bank who have not theretofore complied with this Article II shall thereafter look only to Parent for payment of the Merger Consideration, the cash in lieu of fractional shares and/or the unpaid dividends and distributions on the Parent Common Stock deliverable in respect of each share of Bank Common Stock such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of Parent, SPB, the Bank, the Exchange Agent or any other person shall be liable to any former holder of shares of Bank Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

 

(g) In the event 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 Parent, the posting by such person of a bond in such amount as Parent may reasonably 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 this Agreement.

 

ARTICLE III

 

DISCLOSURE SCHEDULES

 

Prior to the execution and delivery of this Agreement, the Bank has delivered to Parent and SPB, and Parent has delivered to the Bank, a schedule (in the case of the Bank, the “Bank Disclosure Schedule,” and in the case of Parent, the “Parent Disclosure Schedule”) setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more of such party’s representations or warranties contained in Article IV, in the case of the Bank, or Article V, in the case of Parent, or to one or more of such party’s covenants contained in Article VI.

 

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ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF THE BANK

 

Subject to Article III, the Bank hereby represents and warrants to Parent and SPB as follows:

 

4.1 Corporate Organization . (a) The Bank is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America. The Bank has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be licensed or qualified would not have a Material Adverse Effect (as defined below) on the Bank. The Articles of Association and Bylaws of the Bank, copies of which have previously been made available to SPB, are true and correct copies of such documents as in effect as of the date of this Agreement. The deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation (the “FDIC”) through the Bank Insurance Fund to the fullest extent permitted by law, and all premiums and assessments required to be paid in connection therewith have been paid when due. As used in this Agreement, the term “Material Adverse Effect” means, with respect to Parent or the Bank, as the case may be, a material adverse effect on (i) the business, results of operations or financial condition of such party and its Subsidiaries taken as a whole, other than any such effect attributable to or resulting from (v) any change in banking or similar laws, rules or regulations of general applicability or interpretations thereof by courts or governmental authorities, (w) any change in GAAP or regulatory accounting principles applicable to banks, thrifts or their holding companies generally, (x) changes attributable to or resulting from changes in general economic conditions, including changes in the prevailing level of interest rates, (y) any action or omission of the Bank or Parent or any Subsidiary of either of them taken in accordance with the terms of this Agreement or with the prior written consent of the other party hereto, or (z) any expenses incurred by such party in connection with this Agreement or the transactions contemplated hereby, or (ii) the ability of such party and its Subsidiaries to consummate the transactions contemplated hereby.

 

(b) Each of the Bank’s Subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. Each of the Bank’s Subsidiaries has the corporate (or equivalent) power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or the location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be licensed or qualified would not have a Material Adverse Effect on such Subsidiary. The certificates of incorporation, bylaws and similar governing documents of each Subsidiary of the Bank, copies of which have previously been made available to Parent, are true and correct copies of such

 

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documents as in effect as of the date of this Agreement. As used in this Agreement, the word “Subsidiary” when used with respect to any party means any corporation, limited liability company, partnership or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes.

 

(c) The minute books of the Bank and each of its Subsidiaries contain true and correct records of all meetings and other corporate (or equivalent) actions held or taken since December 31, 2001 through August 31, 2005 of their respective shareholders, members or partners, as the case may be, and Boards of Directors or similar governing authority (including committees thereof).

 

4.2 Capitalization . (a) The authorized capital stock of the Bank consists only of 52,000 shares of Bank Common Stock. As of the date of this Agreement, there were 51,140 shares of Bank Common Stock issued and outstanding. As of the date of this Agreement, there were 860 shares of Bank Common Stock reserved for issuance pursuant to the Bank’s stock bonus plan (the “Stock Bonus Plan”). All of the issued and outstanding shares of Bank Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. The Bank does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of Bank Common Stock or any other equity security of the Bank or any securities representing the right to purchase or otherwise receive any shares of Bank Common Stock or any other equity security of the Bank.

 

(b) Section 4.2(b) of the Bank Disclosure Schedule sets forth a true and correct list of all of the Subsidiaries of the Bank. The Bank owns, directly or indirectly, all of the issued and outstanding shares of the capital stock or other equity interests of each of such Subsidiaries, free and clear of all liens, charges, encumbrances and security interests whatsoever, and all of such shares or equity interests are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. No Subsidiary of the Bank has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity interest of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity interest of such Subsidiary.

 

4.3 Authority; No Violation . (a) The Bank has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of the Bank. The Board of Directors of the Bank has directed that this Agreement and the transactions contemplated hereby be submitted to the Bank’s shareholders for approval at a meeting of such shareholders and, except for the approval and adoption of this Agreement by the requisite vote of the Bank’s shareholders, no other corporate proceedings on the part of the Bank are necessary to approve this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Bank and (assuming due authorization, execution and delivery by Parent and SPB) this Agreement

 

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constitutes a valid and binding obligation of the Bank, enforceable against the Bank in accordance with its terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency, receivership and similar laws affecting creditors’ rights and remedies generally.

 

(b) Except as may be set forth in Section 4.3(b) of the Bank Disclosure Schedule, neither the execution and delivery of this Agreement or the Bank Merger Agreement by the Bank, nor the consummation by the Bank of the transactions contemplated hereby or thereby, nor compliance by the Bank with any of the terms or provisions hereof or thereof, will (i) violate any provision of the Articles of Association or Bylaws of the Bank or the certificates of incorporation, bylaws or similar governing documents of any of its Subsidiaries, or (ii) assuming that the consents and approvals referred to in Section 4.4 hereof are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to the Bank or any of its Subsidiaries, or any of their respective properties or assets, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the respective material properties or assets of the Bank or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Bank or any of its Subsidiaries is a party, or by which they or any of their respective material properties or assets may be bound or affected.

 

4.4 Consents and Approvals . Except for (a) the approval of this Agreement by the requisite vote of the shareholders of the Bank, and (b) such filings, authorizations or approvals as may be set forth in Section 4.4 of the Bank Disclosure Schedule, no consents or approvals of or filings or registrations with any court, administrative agency or commission or other governmental authority or instrumentality (each a “Governmental Entity”) or with any third party are required to be made by the Bank in connection with (1) the execution and delivery by the Bank of this Agreement and (2) the consummation by the Bank of the Merger and the other transactions contemplated hereby.

 

4.5 Regulatory Reports . The Bank and each of its Subsidiaries have timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 2000 with the Comptroller of the Currency (the “Comptroller”), or any other federal or state regulatory authority having or claiming regulatory jurisdiction over them, or any self-regulatory organization (“SRO,” and collectively with the Comptroller and such other regulatory authorities, the “Regulatory Agencies”), and have paid all fees and assessments due and payable in connection therewith. Except for normal examinations conducted by a Regulatory Agency in the regular course of the business of the Bank and its Subsidiaries, and except as may be set forth in Section 4.5 of the Bank Disclosure Schedule, no Regulatory Agency has initiated any proceeding or, to the knowledge of the Bank, investigation into the business or operations of the Bank or any of its Subsidiaries since December 31, 2001. There is no unresolved violation, criticism, or exception by any Regulatory Agency with respect to any report or statement relating to any examinations of the Bank or any of its Subsidiaries.

 

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4.6 Financial Statements . The Bank has previously made available to Parent copies of (a) the consolidated balance sheets of the Bank and its Subsidiaries as of December 31 for the fiscal years 2003 and 2004, and the related consolidated statements of income, stockholders’ equity and cash flows of the Bank and its Subsidiaries for the fiscal years 2003 and 2004, accompanied by the audit report of KPMG LLP, independent public accountants with respect to the Bank (the “2004 Audited Financial Statements”) and (b) the consolidated balance sheet of the Bank and its Subsidiaries as of September 30, 2005, and the related consolidated statements of income, stockholders’ equity and cash flows for the nine-month period then ended (the “September 30 Unaudited Financial Statements” and together with the 2004 Audited Financial Statements, the “Financial Statements”). Each of the December 31, 2004 and September 30, 2005 consolidated balance sheets of the Bank (including the related notes, where applicable) fairly present the consolidated financial position of the Bank and its Subsidiaries as of the date thereof, and the other financial statements referred to in this Section 4.6 (including the related notes, where applicable) fairly present, and the financial statements to be provided to Parent after the date hereof will fairly present (subject, in the case of each of the unaudited statements, to recurring audit adjustments normal in nature and amount), the results of the consolidated operations and consolidated financial position of the Bank and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth; each of such statements (including the related notes, where applicable) complies, and the financial statements to be provided to Parent after the date hereof will comply, in all material respects, with applicable accounting requirements; and each of such statements (including the related notes, where applicable) has been, and the financial statements to be provided to Parent after the date hereof will be, prepared in accordance with generally accepted accounting principles (“GAAP”) consistently applied during the periods involved, except as indicated in the notes thereto. The books and records of the Bank and its Subsidiaries have been, and are being, maintained in accordance with GAAP and any other applicable legal and accounting requirements.

 

4.7 Broker’s Fees . Neither the Bank nor any Subsidiary of the Bank nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with any of the transactions contemplated by this Agreement, except that the Bank has engaged, and will pay a fee or commission to, Milestone Advisors (“Milestone”) and FinPro, Inc. (“FinPro”) in accordance with the terms of letter agreements between Milestone and the Bank, and FinPro and the Bank, true and correct copies of which have been previously made available by the Bank to Parent.

 

4.8 Absence of Certain Changes or Events . (a) Except as may be set forth in Section 4.8(a) of the Bank Disclosure Schedule, or as disclosed in the Financial Statements, since December 31, 2004 there has been no change or development or combination of changes or developments which, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect (as defined herein) on the Bank.

 

(b) Except as may be set forth in Section 4.8(b) of the Bank Disclosure Schedule or as disclosed in the Financial Statements, since December 31, 2004 the Bank and its Subsidiaries have carried on their respective businesses in the ordinary course consistent with their past practices.

 

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(c) Except as may be set forth in Section 4.8(c) of the Bank Disclosure Schedule, since December 31, 2004 neither the Bank nor any of its Subsidiaries has (i) increased the wages, salaries, compensation, pension, or other fringe benefits or perquisites payable to any executive officer, employee, or director from the amount thereof in effect as of December 31, 2004 (other than increases in wages or salaries with respect to any such individual equaling less than 10%), granted any severance or termination pay, entered into any contract to make or grant any severance or termination pay, or paid any bonus (except for salary increases, bonus payments, grants under the Stock Bonus Plan and severance or termination payments made in the ordinary course of business consistent with past practices), (ii) suffered any strike, work stoppage, slowdown, or other labor disturbance, (iii) been a party to a collective bargaining agreement, contract or other agreement or understanding with a labor union or organization, or (iv) had any union organizing activities.

 

4.9 Legal Proceedings . (a) Except as may be set forth in Section 4.9(a) of the Bank Disclosure Schedule, neither the Bank nor any of its Subsidiaries is a party to any, and there are no pending or, to the Bank’s knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against the Bank or any of its Subsidiaries including any such proceeding challenging the validity or propriety of the transactions contemplated by this Agreement.

 

(b) Except as may be set forth in Section 4.9(b) of the Bank Disclosure Schedule, there is no injunction, order, judgment or decree imposed upon the Bank, any of its Subsidiaries or the assets of the Bank or any of its Subsidiaries.

 

4.10 Taxes . (a) Except as may be set forth in Section 4.10(a) of the Bank Disclosure Schedule, each of the Bank and its Subsidiaries has (i) duly and timely filed (including applicable extensions granted without penalty) all material Tax Returns (as hereinafter defined) required to be filed at or prior to the Effective Time, and all such Tax Returns are true, correct, and complete in all material respects, and (ii) paid in full or made adequate provision in the financial statements of the Bank (in accordance with GAAP) for all Taxes (as hereinafter defined) required to be paid by them, whether or not shown to be due on such Tax Returns. Except as set forth in Section 4.10(a) of the Bank Disclosure Schedule, as of the date hereof (i) neither the Bank nor any of its Subsidiaries has requested any extension of time within which to file any Tax Returns in respect of any fiscal year which have not since been filed and no request for waivers of the time to assess any Taxes are pending or outstanding, (ii) with respect to each taxable period of the Bank and its Subsidiaries, the federal and state income Tax Returns of the Bank and its Subsidiaries have been audited by the Internal Revenue Service (“IRS”) or appropriate state tax authorities through December 31, 1991 or the time for assessing and collecting income Tax with respect to such taxable period has closed and such taxable period is not subject to review, and (iii) there are no claims, audits or assessments pending against the Bank or any of its Subsidiaries for any alleged deficiency in Taxes, and the Bank has not been notified in writing of any proposed Tax claims, audits or assessments against the Bank or any of its Subsidiaries (other than, in each case, claims, audits or assessments for which adequate reserves in the financial statements of the Bank have been established). There are no material liens for Taxes upon the assets of the Bank or any of its Subsidiaries, other than liens for current Taxes not yet due and payable. Neither the Bank nor any Subsidiary is a party to any agreement or arrangement that would reasonably be expected to result, as a result of the consummation of

 

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the transactions contemplated hereby (including the Merger), separately or in the aggregate, in the actual or deemed payment by the Bank or any Subsidiary of any “excess parachute payments” within the meaning of Section 280G of the Code, or that would be nondeductible under Section 162(m) of the Code. All Taxes required to be withheld, collected or deposited by or with respect to the Bank and its Subsidiaries have been timely withheld, collected or deposited, as the case may be, and, to the extent required, have been paid to the relevant taxing authority. Neither the Bank nor any of its Subsidiaries is required to include in income any adjustment pursuant to Section 481(a) of the Code (or any similar provision of law or regulations) by reason of a change in accounting method. Neither the Bank nor any of its Subsidiaries has been a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Neither the Bank nor any of its Subsidiaries is a party to any Tax allocation or sharing agreement.

 

(b) For the purposes of this Agreement, “Taxes” shall mean all taxes, charges, fees, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including income, excise, property, sales, transfer, franchise, payroll, withholding, social security or other taxes, including any interest, penalties or additions attributable thereto. For purposes of this Agreement, “Tax Return” shall mean any return, report, information return or other document (including any related or supporting information) with respect to Taxes.

 

4.11 Employees . (a) Section 4.11(a) of the Bank Disclosure Schedule sets forth a true and correct list of each deferred compensation plan, incentive compensation plan, equity compensation plan, “welfare” plan, fund or program (within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)); “pension” plan, fund or program (within the meaning of Section 3(2) of ERISA); each employment, termination or severance agreement; and each other employee benefit plan, fund, program, change in control, executive compensation, agreement or arrangement, in each case, that is sponsored, maintained or contributed to or required to be contributed to by the Bank or of its Subsidiaries or to which the Bank or any of its Subsidiaries has or may have any liability, contingent or otherwise, either directly or as a result of an ERISA Affiliate (as defined below), one or more present or former employees, directors, agents, or independent contractors of the Bank, any of its Subsidiaries or any ERISA Affiliate (the “Plans”). “ERISA Affiliate” means any person that, together with the Bank or any of its Subsidiaries, is or was at any time treated as a single employer under Section 414 of the Code or Section 4001 of ERISA and any general partnership of which the Bank or any of its Subsidiaries is or has been a general partner. For purposes of the following provisions of this Section 4.11, the terms “Bank” and any of its “Subsidiaries” includes any ERISA Affiliate.

 

(b) The Bank has heretofore made available to Parent with respect to each of the Plans true and correct copies of each of the following documents, if applicable: (i) the Plan document and any amendment thereto; (ii) any related trust or other funding vehicle; (iii) the actuarial report for such Plan for the most recent three years for which such reports are available; (iv) the most recent determination letter from the IRS for such Plan, and (v) the most recent summary plan description and related summaries of material modifications.

 

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(c) Except as may be set forth in Section 4.11(c) of the Bank Disclosure Schedule: each of the Plans is in material compliance with the applicable law, including the Code and ERISA; there is no material liability relating to the Plans (with materiality determined with respect to the Plans in the aggregate) that has not been disclosed on the Bank’s financial statements in accordance with GAAP and any other applicable legal and accounting requirements, as described in Section 4.6, and such liability with respect to any Plan will not materially increase as a result of the Merger; each of the Plans intended to be “qualified” within the meaning of Section 401(a) of the Code has received a favorable determination letter from the IRS and, to the Bank’s knowledge, no event has occurred that would reasonably be expected to affect such determination; no Plan has an accumulated or waived funding deficiency within the meaning of Section 412 of the Code; neither the Bank nor any ERISA Affiliate has incurred, directly or indirectly, any liability to or on account of a Plan pursuant to Title IV of ERISA (other than liability for premiums due the Pension Benefit Guaranty Corporation (the “PBGC”) (which premiums have been paid when due)); to the knowledge of the Bank no proceedings have been instituted to terminate any Plan that is subject to Title IV of ERISA; no “reportable event,” as such term is defined in Section 4043(c) of ERISA, has occurred with respect to any Plan (other than a reportable event with respect to which the thirty day notice period has been waived); as of the date of this Agreement, the present value of the accrued benefits of the Bank’s tax-qualified defined benefit plan (using the interest rate applicable to lump sum distributions as of such date) does not exceed the market value of the assets by more than $600,000; neither the Bank nor any of its Subsidiaries has any liability with respect to post-retirement health, medical or life insurance benefits for retired, former or current employees or directors of the Bank or any of its Subsidiaries; and no condition exists that presents a material risk to the Bank of incurring a liability to or on account of a Plan pursuant to Title IV of ERISA (other than liability for premiums due the PBGC); no contract, Plan or arrangement (written or otherwise) (including provisions that become operative by virtue of this Agreement) covering any employee or former employee of the Bank or any of its Subsidiaries provides for payments that would not be deductible under Section 162(m) of the Code; no contract, Plan or arrangement (written or otherwise) (including provisions that become operative by virtue of this Agreement) covering any disqualified individual (within the meaning of Section 280G(c) of the Code) of the Bank or any of its Subsidiaries provides for payments (including but not limited to liability associated with any gross-up payment under any such contract, Plan or arrangement) that will result in any nondeductible compensation under Section 280G(a) of the Code or will result in an excise tax payable by such disqualified individuals under Section 4999 of the Code; no Plan contains any provision or is subject to any law that would prohibit the transactions contemplated by this Agreement or that would give rise to any vesting of benefits, severance, termination, or other payments or liabilities as a result of the transactions contemplated by this Agreement; all Plans that are subject to the requirements to Section 409A of the Code have been operated and maintained in accordance with such requirements and neither the Bank nor any of its Subsidiaries has entered into any agreement with, or has any obligation, direct or indirect, to, any current or former employee, director, independent contractor or agent to indemnify such individual for any excise or other taxes that would result from the failure to operate such Plan in accordance with the requirements of Section 409A of the Code; no Plan is a multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) and no Plan is a multiple employer plan as defined in Section 413 of the Code; and there are no pending or, to the knowledge of the Bank, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the Plans or any trusts related thereto.

 

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4.12 Bank Information . The information relating to the Bank and its Subsidiaries which is provided to Parent by the Bank for inclusion in the proxy statement relating to the meeting of the Bank’s shareholders to be held in connection with this Agreement and the transactions contemplated hereby (the “Proxy Statement”) and the registration statement on Form S-4 (the “S-4”) in which the Proxy Statement will be included as a prospectus, or in any other document filed with any other regulatory agency in connection herewith, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The Proxy Statement (except for such portions thereof provided by Parent or that relate to Parent or any of its Subsidiaries) will comply with the provisions of applicable law.

 

4.13 Compliance with Applicable Law . The Bank and each of its Subsidiaries hold all licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to all, and have complied, in all material respects, with and are not in default in any material respect under, any applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to the Bank or any of its Subsidiaries, and neither the Bank nor any of its Subsidiaries has received notice of any violations of any of the above.

 

4.14 Certain Contracts . (a) Except as set forth in Section 4.14(a) of the Bank Disclosure Schedule, neither the Bank nor any of its Subsidiaries is a party to or bound by any contract (whether written or oral) (i) with respect to the employment of any directors, (ii) which, upon the consummation of the transactions contemplated by this Agreement, will (either alone or upon the occurrence of any additional acts or events) result in any payment or benefits (whether of severance pay or otherwise) becoming due, or the acceleration or vesting of any rights to any payment or benefits, from Parent, SPB, the Bank, the Receiving Bank or any of their respective Subsidiaries to any officer, director or consultant of the Bank or any of its Subsidiaries, (iii) as of the date of this Agreement which is a material contract (as defined in Item 601(b)(10) of Regulation S-K of the Securities and Exchange Commission (the “SEC”)) to be performed after the date of this Agreement, (iv) which is a consulting agreement (including data processing, software programming and licensing contracts) not terminable on 90 days or less notice involving the payment of more than $25,000 per annum in the case of any one such agreement or $50,000 in total payments in the case of any one such agreement, or (v) which materially restricts the conduct of any line of business by the Bank or any of its Subsidiaries. Each contract of the type described in clause (iii) of this Section 4.14(a), whether or not set forth in Section 4.14(a) of the Bank Disclosure Schedule, is referred to herein as a “Bank Contract.” The Bank has previously delivered or made available to Parent true and correct copies of each contract of the type described in this Section 4.14(a).

 

(b) Except as set forth in Section 4.14(b) of the Bank Disclosure Schedule, (i) each Bank Contract is valid and binding and in full force and effect, (ii) the Bank and each of its Subsidiaries has performed all obligations required to be performed by it to date under each Bank Contract, (iii) no event or condition exists which constitutes or, after notice or lapse of time or both, would constitute, a default on the part of the Bank or any of its Subsidiaries under any Bank Contract, and (iv) no other party to any Bank Contract is, to the knowledge of the Bank, in default in any respect thereunder.

 

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(c) Each contract (whether written or oral) between the Bank or any of its Subsidiaries and any officer, director, employee, shareholder or affiliate of the Bank or any of its Subsidiaries (i) is listed in Section 4.14(c) of the Bank Disclosure Schedule, (ii) was entered into on an arm’s length basis and (iii) contains only customary commercial terms and conditions (including financial terms) on a fair market value basis.

 

4.15 Agreements with Regulatory Agencies . Except as may be set forth in Section 4.15 of the Bank Disclosure Schedule, neither the Bank nor any of its Subsidiaries is or since December 31, 2001 has been subject to any cease-and-desist or other order issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of (each, whether or not set forth on Section 4.15 of the Bank Disclosure Schedule, a “Regulatory Agreement”), any Regulatory Agency that restricts the conduct of its business or that in any manner relates to its capital adequacy, its credit policies, its management or its business, nor has the Bank or any of its Subsidiaries been advised by any Regulatory Agency that it is considering issuing or requesting any Regulatory Agreement.

 

4.16 Environmental Matters . Except as may be set forth in Section 4.16 of the Bank Disclosure Schedule:

 

(a) To the knowledge of the Bank, each of the Bank and its Subsidiaries, and each of the Participation Facilities and the Loan Properties (each as hereinafter defined), are in compliance with all applicable federal, state and local laws, inclu