AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 15, 2005
BY AND BETWEEN
FIRST HORIZON NATIONAL CORPORATION
AND
WEST METRO FINANCIAL SERVICES, INC.
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TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER . . . . . . . . . . . .
. . . . . . . . . . . . . . . 1
ARTICLE II ACTIONS PENDING MERGER. . . . . .
. . . . . . . . . . . . . . . 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
SELLER . . . . . . . . . . . 8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
FHNC. . . . . . . . . . . . . 15
ARTICLE V COVENANTS. . . . . . . . . . . . .
. . . . . . . . . . . . . . . 18
ARTICLE VI CONDITIONS TO CONSUMMATION. . . .
. . . . . . . . . . . . . . . 23
ARTICLE VII TERMINATION. . . . . . . . . . . .
. . . . . . . . . . . . . . 26
ARTICLE VIII OTHER MATTERS . . . . . . . . . .
. . . . . . . . . . . . . . 27
EXHIBITS:
Exhibit A: Form of Bank Merger Agreement
Exhibit B: Form of Option and Warrant
Letter
Exhibit C: Form of Affiliate Letter
Exhibit D: Form of Employment Agreement
Exhibit E: Form of Consulting Agreement
Exhibit F: Form of Non-Compete Agreement
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AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT
AND PLAN OF MERGER, dated as of March 15,
2005, by and between
FIRST HORIZON NATIONAL CORPORATION ("FHNC") and
WEST METRO FINANCIAL SERVICES,
INC. ("Seller"). Capitalized terms used in this
Agreement are defined below in
Article VIII.
RECITALS
(A) SELLER.
Seller is a bank holding company registered under the
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BHCA, and is the beneficial owner and
holder of record of all of the issued and
outstanding shares of capital stock of Seller Bank.
The board of directors
of
Seller deems it in the best interest of Seller, Seller Bank, and
Seller's
shareholders to merge Seller with and into
FHNC, with FHNC surviving the merger
on the terms and conditions set forth in this Agreement (the "Merger").
(B) FHNC.
FHNC is a financial holding company registered under
the
----
BHCA, and the board of directors of FHNC deems the Merger
to be in the best
interest of FHNC and the shareholders of FHNC.
(C) INTENTION
OF THE PARTIES. It is the intention of the parties
to
----------------------------
this Agreement that for federal income tax purposes the Merger
qualify as a
"reorganization" within the meaning of Section 368 of the Code.
In consideration of their mutual promises and
obligations hereunder, and
intending to be legally bound hereby, FHNC and Seller adopt and make this
Agreement and prescribe the terms and conditions of this Agreement and
the
manner and basis of carrying it into effect, which shall be as follows:
ARTICLE I
THE MERGER
(A) THE MERGER.
On the Effective Date,
Seller will merge with and into
----------
FHNC, with FHNC being the Surviving
Corporation, pursuant to the provisions of,
and with the effects provided in, the
Tennessee Business Corporation Act and the
Georgia Business Corporation Code. At the Effective Time, the charter and
bylaws of FHNC (as the Surviving
Corporation) shall be the charter and bylaws of
FHNC in effect immediately prior to the
Effective Time. At the
Effective Time,
the directors and officers of FHNC shall be the
directors and officers of the
Surviving Corporation.
(B) EFFECTIVE DATE
AND EFFECTIVE TIME. On
the last Business Day of the
---------------------------------
month during which the expiration of all applicable waiting periods in
connection with governmental approvals occurs and all conditions to the
consummation of this Agreement are
satisfied or waived or, at FHNC's option, the
first Business Day of the next succeeding month, or on
such earlier or later
date as may be agreed by the parties, articles
of merger shall be executed in
accordance with Applicable Law and shall be
filed as required by Applicable Law,
and the Merger provided for herein
shall become effective upon the date of such
filing (the "Effective
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Date"). The "Effective Time" of the Merger shall be 4:01
p.m. in the State of
Tennessee on the Effective Date (or such
other time on the Effective Date as may
be agreed by the parties and set forth in the articles of merger).
(C) CONVERSION
OF SHARES.
By virtue of the Merger,
automatically and
---------------------
without any action on the part of the
holder thereof, at the Effective Time, all
of the Seller Common Stock issued and outstanding immediately prior
to the
Effective Time (other than shares held
directly or indirectly by FHNC, except in
a fiduciary capacity or in satisfaction of a debt
previously contracted, and
other than shares held in the treasury of Seller, which shares shall be
canceled, retired and cease to exist by virtue of the Merger
and without any
payment made in respect thereof) shall be
converted into the right to receive
cash and shares of FHNC Common Stock, as described below
(collectively, the
"Merger Consideration"):
(1)
Each Seller
Shareholder may elect to take all or a portion of
the consideration to be received in the Merger in cash; subject to
the
aggregate
limitation
set forth in Article I(C)(3) (the "Cash
Consideration").
If a Seller Shareholder elects to receive in cash all or a
portion
of the Merger
Consideration, the amount of cash to be delivered in
exchange
for each share of Seller Common Stock shall be determined
by
multiplying
the number of shares
of Seller Common Stock held by the Seller
Shareholder for
which it elects to receive cash by the Price Per Share. The
Price
Per Share is $22.44.
(2)
Each Seller
Shareholder may elect to take all or a portion of
the Merger
Consideration to be received in the Merger in FHNC Common
Stock,
subject
to the aggregate limitation set forth in Article I(C)(3) (the
"Stock
Consideration").
If a Seller
Shareholder elects to receive in FHNC
Common
Stock all or a portion of the Merger
Consideration, the number of
shares of FHNC
Common Stock to be exchanged for each share of Seller Common
Stock
shall be determined by multiplying the number of
shares of Seller
Common
Stock held by the
Seller Shareholder for which it elects to receive
FHNC
Common Stock by the Conversion Price. The Conversion
Price is the
quotient
of (i) the Price Per Share divided by
(ii) the FHNC Common Stock
Average
Price. The FHNC Common Stock Average Price
shall be equal to the
average
of the closing prices of the FHNC Common Stock on the
NYSE, as
reported
by the Wall Street Journal for the twenty (20) Business
Days
immediately
prior to the fifth Business Day preceding
the Effective Date
(the
"Calculation
Period"). Solely for purposes of this definition, a
Business
Day shall be a day on which the NYSE is open for trading.
(3)
The aggregate
Cash Consideration to be paid pursuant to
Article
I(C)(1) above shall not be less than $11,000,000 (the "Cash
Threshold")
or more than $13,000,000 (the "Cash Cap"). For purposes
of
determining
the Cash Threshold and
Cash Cap, Dissenting Shareholders shall
be deemed to have elected to receive Cash Consideration unless such
Dissenting
Shareholders shall effectively withdraw or lose (through
failure
to perfect or
otherwise) their right to payment as a dissenting shareholder
under
Applicable
Law at or prior to the Effective Time.
In addition, for
purposes of
calculating the Cash Threshold and the Cash Cap, the cash to be
received
by holders of Options
and Warrants pursuant to Article I(F) shall
be included in the calculation.
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(4)
Each share of FHNC
Common Stock issued and outstanding at the
Effective
Time shall remain outstanding and unchanged
as a result of the
Merger
and, together with the shares of FHNC
Common Stock issuable in the
Merger,
shall as of the Effective Time constitute all
of the issued and
outstanding
shares of the common capital stock of FHNC.
(5)
Subsequent to
the date of this Agreement but prior to
the
Effective
Date, if the outstanding shares of FHNC Common
Stock shall be
increased,
decreased,
changed into or
exchanged for a different number or
class
of shares by reason of
any reclassification, recapitalization, stock
split or reverse
stock split, split-up or if a stock dividend thereon shall
be declared with a record date within such period, or by reason of a
combination
or exchange of shares in a transaction in which FHNC is
effectively
acquired, or other
like changes in FHNC's capitalization shall
have occurred,
the Merger Consideration shall be adjusted accordingly. This
subsection
(5) does not apply to transactions in
which FHNC or one of its
subsidiaries
is effectively the acquiring entity.
(6)
No fractional shares
of FHNC Common Stock and no certificates
or scrip or other evidence of ownership will be issued in the
Merger.
Instead,
FHNC shall pay to each Seller
Shareholder who would otherwise be
entitled to a
fractional share, an amount in cash determined by multiplying
such
holder's fractional interest by the FHNC
Common Stock Average Price.
(D) ELECTION
OF MERGER CONSIDERATION.
-----------------------------------
(1)
Each Seller
Shareholder
may elect whether to receive Cash
Consideration,
Stock Consideration,
or a combination of Cash Consideration
and Stock Consideration. Such elections shall be made on a Form of
Election.
Holders of record of
shares of Seller Common Stock who hold such
shares
as nominees, trustees or in other representative capacities
(a
"Representative") may submit multiple Forms of Election, provided
that such
Representative
certifies that each such Form of Election covers all
the
shares
of Seller Common Stock held by each such Representative for a
particular
beneficial
owner.
(2)
FHNC and Seller shall mail the Form of Election to all Persons
who are holders of Seller Common Stock
on the record date for the Seller's
meeting of its
shareholders to vote upon this Agreement. A Form of Election
must
be received by the Exchange Agent in the manner
described below no
later
than by the close of business on the Business Day
which is three
Business
Days immediately prior to the Effective Time (the "Election
Deadline")
in order to be effective. All elections will
be irrevocable.
(3)
Elections shall
be made by holders of
Seller Common Stock by
mailing,
faxing or otherwise
delivering to the Exchange Agent, in a manner
reasonably
acceptable to FHNC, a
Form of Election. To be effective, a Form
of Election must be properly completed, signed and submitted to the
Exchange
Agent. FHNC will have the reasonable discretion, which
it may
delegate
in whole or in part to the Exchange Agent,
to determine whether
Forms of
Election have been properly completed, signed and submitted and
to
disregard
immaterial defects in Forms of Election. The decision of FHNC
(or
the Exchange Agent) in such matters shall be conclusive and binding.
Neither
FHNC nor the
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Exchange
Agent will be under any obligation to notify any
Person of any
defect
in a Form of Election.
(4)
A holder of Seller
Common Stock who does not submit a Form of
Election
which is received by the Exchange Agent prior to the
Election
Deadline
shall be deemed to have made an election
for Cash Consideration
for 37.5% of the shares of Seller
Common Stock and Stock Consideration for
62.5%
of the shares of Seller Common Stock
held by the Seller Shareholder
(a "Combination Election"), unless such
Combination Election would result
in violating either Cash Cap or the Cash
Threshold. In either such event,
those
shareholders
who either do not
timely or correctly submit a Form of
Election,
shall be deemed to
have made an election for that combination of
Stock
Consideration and Cash Consideration which is not violative of
either
the Cash Cap or the Cash Threshold,
after taking into effect the elections
of those shareholders who have timely and
correctly submitted their Forms
of Election. If FHNC or the Exchange Agent shall determine that any
purported
election was not
properly made, such purported election shall be
deemed
to be of no force and effect and the holder of
shares of Seller
Common
Stock making such purported election shall for
purposes hereof be
deemed
to have made a Combination Election.
(5)
All shares
of Seller Common Stock in which a Seller
Shareholder
has elected Cash
Consideration are referred to herein as "Cash
Election Shares." All shares of Seller Common Stock in which a Seller
Shareholder
has elected Stock Consideration are referred to herein as
"Stock Election
Shares." If, after the results of the Forms of Election are
calculated,
the number of shares of Seller Common Stock to
be converted
into
Cash Consideration exceeds the Cash Cap, the Exchange Agent
shall,
after
the Election Deadline
but prior to the Effective Time, determine the
number of Cash
Election Shares which must be redesignated as Stock Election
Shares
in order to reduce the number of such shares electing Cash
Consideration
to the Cash Cap. All holders who have
Cash Election Shares
shall,
on a pro rata basis,
have such number of their Cash Election Shares
redesignated as
Stock Election Shares so that the Cash Cap is not exceeded.
If, after the results of the Forms of
Election are calculated, the number
of shares of
Seller Common Stock to be converted into Cash Consideration is
below
the Cash Threshold, the Exchange
Agent, after the Election Deadline
but prior to the Effective Time, shall determine the number of Stock
Election Shares
which must be redesignated as Cash Election Shares in order
to increase the amount of such cash
to the Cash Threshold. All holders who
have
Stock Election Shares
shall, on a pro rata basis, have such number of
their
Stock Election Shares redesignated as Cash
Election Shares so that
the Cash Threshold is achieved. Notwithstanding the foregoing, no
redesignation
shall be effected for a holder who has made
an election to
receive
Cash Consideration but, as a result of such
redesignation, would
receive
fewer than 10 shares of FHNC Common Stock in
exchange for all of
such
holder's shares of Seller Common Stock unless such
redesignation is
necessary
for the Merger to qualify as a
reorganization under Section 368
of the Code. In this event, the Cash Election Shares of the
remaining
holders
of shares of Seller Common Stock shall be
redesignated on a pro
rata
basis to reduce the aggregate Cash Consideration to
the Cash Cap.
Holders who make
Combination Elections will be subject to the redesignation
procedures
set forth in Article I(D)(4) hereinabove. Dissenting
Stockholders
who are deemed to have made an election for Cash
4
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Consideration
shall not be subject to the redesignation procedure described
herein. The
Exchange Agent shall make all computations contemplated by this
Article
and all such computations shall be
conclusive and binding on the
holders
of Seller Common Stock.
(E) DISSENTING
SHARES. No outstanding share of Seller
Common Stock as
-------------------
to which a Dissenting Shareholder has exercised dissenters rights under
Applicable Law shall be converted into or represent a right to receive
the
Merger Consideration, and the Dissenting Shareholder
shall be entitled only to
such rights as are granted by Applicable Law.
Seller shall give FHNC
prompt
notice upon receipt by Seller of any such written demands
for payment of the
fair value of the shares of Seller Common Stock and of
withdrawals of such
demands and any other instruments provided pursuant to
Applicable Law from a
Dissenting Shareholder. FHNC shall direct all negotiations
and proceedings with
respect to such Dissenting Shareholder. Seller shall not, without the
prior
written consent of FHNC, make any payment with
respect to, or settle, offer to
settle or otherwise negotiate, any such
demands. If any
Dissenting Shareholder
shall effectively withdraw or lose his right to such
payment prior to or after
the Effective Time, such holder's shares of Seller Common Stock shall be
automatically converted into the right to receive the Merger
Consideration in
accordance with this Agreement, without any
interest, as if such holder had made
a Combination Election.
(F) STOCK
OPTIONS AND WARRANTS.
Seller has issued
options to purchase
----------------------------
113,000 shares of Seller Common Stock ("Options") and warrants to
purchase
300,000 shares of Seller Common Stock ("Warrants"). Prior to the Effective
Time, Seller shall cause each holder of an Option or Warrant to
execute and
deliver an agreement in substantially the form of
EXHIBIT B pursuant to which
such holder agrees to sell to FHNC,
effective at the Effective Time, such Option
for cash or, in the case of a holder
of a Warrant, for either cash or shares of
FHNC Common Stock. The cash payment shall be
calculated as an amount equal to
the number of shares of Seller Common
Stock specified in such Warrant or Option
times the Price Per Share less the aggregate
exercise price for all shares of
Seller Common Stock specified in such Warrant or Option, subject
to required
withholding taxes, if any. If a holder of a Warrant elects to
receive shares of
FHNC Common Stock in lieu of cash, the number of shares
of FHNC Common Stock
shall be calculated as the number of shares equal to the
number of shares of
Seller Common Stock specified in such Warrant times
the Conversion Price less
the aggregate exercise price for all
shares of Seller Common Stock specified in
such Warrant, subject to required withholding taxes, if any.
(G) PROCEDURES.
Certificates
which represent shares of Seller
Common
----------
Stock that are outstanding at the Effective
Time (each, a "Certificate") and are
converted into the right to receive the Merger
Consideration pursuant to the
Merger shall, after the Effective Time, be
exchangeable by the holders thereof
in the manner provided in the transmittal materials described below.
(1)
As promptly as practicable after the Effective Date, FHNC or a
third
party employed to act as exchange agent
(the "Exchange Agent"), who
if a third party shall be reasonably
acceptable to Seller, shall send to
each
holder of record of shares of Seller
Common Stock outstanding at the
Effective Time
transmittal materials for use in exchanging the Certificates
for the Merger Consideration. Upon surrender of a Certificate,
together
with
a duly executed letter of transmittal and any other reasonably
5
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required
documents,
the holder of such Certificate shall be
entitled to
receive, in
exchange for the Certificate, the Merger Consideration to which
such
holder is entitled, and such Certificate
shall be cancelled. If any
such
delivery is to be made
in whole or in part to a Person other than the
Person in whose
name a surrendered Certificate is registered, it shall be a
condition
to such delivery or exchange that the Certificate
surrendered
shall
be properly endorsed or shall be otherwise in proper form for
transfer
and that the Person requesting such delivery or
exchange shall
have
paid any transfer and
other taxes required by reason of such delivery
or exchange in a name other than that of the registered holder
of the
Certificate
surrendered
or shall have established to the reasonable
satisfaction
of FHNC or its agent
that such tax either has been paid or is
not payable.
(2)
No holder of Seller Common Stock who elects Stock
Consideration
shall be entitled to
exercise any rights as a shareholder of
FHNC
until such holder shall have properly
surrendered its Certificate(s)
(together
with all required documents) as set
forth above. No dividend or
other
distribution
payable after the Effective Time with respect to
the
FHNC
Common Stock shall be paid to the holder of any unsurrendered
Certificate
until the holder properly surrenders such Certificate (together
with
all required documents), at which time
such holder shall receive all
dividends
and distributions, without interest, previously withheld
from
such
holder pursuant to this Agreement. After the
Effective Time, there
shall
be no transfers on the stock transfer
books of Seller of shares of
Seller Common
Stock which were issued and outstanding at the Effective Time
and converted pursuant to the provisions of the Merger
into the right to
receive the
Merger Consideration. If after the Effective Time, Certificates
are presented
for transfer to Seller, they shall be cancelled and exchanged
for the Merger
Consideration in accordance with the procedures set forth in
this
Article.
(3)
After the Effective Time, holders of Seller Common Stock shall
cease
to be, and shall have no rights as,
shareholders of Seller, other
than
to receive the Merger Consideration.
(4)
Notwithstanding the foregoing, neither FHNC nor Seller nor any
other
Person shall be liable to any former holder of shares of
Seller
Common
Stock for any amount properly delivered to a public official
pursuant
to applicable abandoned property, escheat or
similar Applicable
Laws.
(5)
In the event any Certificate shall have
been lost, stolen or
destroyed,
upon receipt of appropriate evidence as
to such loss, theft or
destruction and
to the ownership of such Certificate by the Person claiming
such Certificate
to be lost, stolen or destroyed and the receipt by FHNC of
appropriate
and customary
indemnification including, when appropriate, the
posting
of bond, FHNC will issue in exchange for such lost, stolen
or
destroyed
certificate
the Merger Consideration, deliverable in respect
thereof
as determined in accordance with this Article I.
(H) BANK
MERGER. FHNC and Seller will take all action
necessary and
------------
appropriate to cause their respective
subsidiaries FTB and Seller Bank to enter
into a merger agreement and to merge (the
"Bank Merger") simultaneously with or,
if such Bank Merger cannot be effected
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simultaneously with, immediately after the
consummation of the Merger, pursuant
to the provisions of Applicable Law. A form of the Bank Merger
Agreement is
attached hereto as EXHIBIT A. At the effective time of the Bank
Merger (the
"Effective Time"), the articles of association and bylaws
of FTB shall be the
articles of association and bylaws immediately prior to
the Effective Time of
the Bank Merger, until duly amended in accordance with their
terms. At the
Effective Time of the Bank Merger, the directors and
officers of FTB shall be
the directors and officers of FTB
immediately prior to the Effective Time of the
Bank Merger.
(I) RIGHT
TO REVISE THE
STRUCTURE OF THE TRANSACTION. FHNC shall have
-------------------------------------------------
the right, in its sole discretion to revise
the structure of the Merger in order
to achieve tax benefits or for any other
reason which FHNC may deem advisable;
provided, however, that FHNC shall not have the
right, without the approval of
the board of directors of Seller, to make
any revision to the structure of the
Merger which (i) changes the amount, form
or nature of the Merger Consideration,
including specifically the registered nature of any Stock
Consideration; (ii)
changes the intended tax-deferred effect of the Merger; or (iii)
materially
impedes or delays consummation of the transactions contemplated by this
Agreement. FHNC may exercise this right of
revision by giving written notice to
Seller in the manner provided in this Agreement.
ARTICLE II
ACTIONS PENDING MERGER
Prior to the
earlier of the Effective Time or termination of this Agreement
by either party,
(A) Without
the prior written consent of FHNC, Seller will not:
(1)
make, declare
or pay any dividend on Seller Common
Stock or
declare
or make any distribution on, or directly or
indirectly combine,
redeem,
reclassify,
purchase or otherwise acquire, any shares of its
capital
stock (other than in a fiduciary
capacity or in respect of a debt
previously
contracted in good
faith) or authorize the creation or issuance
of or issue or sell any additional shares of
Seller's capital stock, or
grant
any Rights to subscribe for or acquire
shares of its capital stock;
(2)
merge or consolidate
or permit any Seller Subsidiary to merge
or consolidate with any other entity
or engage in any similar transaction.
(B) Without
the prior written consent of FHNC,
which consent will not
be unreasonably withheld, delayed, or
conditioned, Seller will not and will not
permit any Seller Subsidiary to:
(1)
pay any bonus to, or increase the rate of compensation of, any
of its directors, officers or employees,
except in the ordinary course of
business
consistent
with past practice, or enter into any employment
contracts
with any Persons;
(2)
enter into or modify
or permit any Seller Subsidiary to enter
into
or modify (except as
may be required by Applicable Law and except for
the renewal of any existing plan or
arrangement in the ordinary course of
business
consistent
with past
7
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practice)
any pension, retirement, stock option,
stock purchase, savings,
profit
sharing, deferred compensation, consulting,
bonus, group insurance
or other employee benefit, incentive or welfare contract, plan or
arrangement,
or any trust agreement related
thereto, in respect of any of
its directors, officers or other employees, except as expressly
contemplated
by this Agreement;
(3)
substantially modify the manner in which Seller and the Seller
Subsidiaries
have heretofore conducted their business, taken as a whole, or
amend
their articles of
incorporation, articles of association, or bylaws;
(4)
except for
transactions in the ordinary course of its banking
business,
sell, dispose of or discontinue or
permit any Seller Subsidiary
to sell, dispose or discontinue any of its business, assets
(including
investment
securities)
or property;
(5)
except for the acquisition of loans, investment securities and
cash
equivalent
assets in the ordinary course of its banking
business,
acquire (other
than through foreclosure or satisfaction in whole or in part
of indebtedness owed Seller) any assets or business that is
material to
such
party;
(6)
except in the ordinary course of its banking
business, enter
into
off-balance
sheet transactions;
(7)
take any other action not in the ordinary
course of business
of it and its subsidiaries, taken as a whole; or
(8)
directly or
indirectly
agree to take any of the foregoing
actions.
In the event Seller requests FHNC's consent to
any such action, and FHNC
has not replied to Seller by refusing such consent,
together with reasonable
supporting information for such refusal, within five business days
of FHNC's
receipt of its request for approval, such
action shall be deemed consented to by
FHNC.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as
disclosed in the Seller Disclosure Letter, Seller represents
and
warrants to FHNC the following:
(A) ORGANIZATION.
Seller is a corporation duly organized, validly
-------------
existing, and in good standing under the laws of the
State of Georgia.
Each
Seller Subsidiary is duly organized,
validly existing and in good standing under
the laws of the jurisdiction of its incorporation. The deposit accounts of
Seller Bank are insured by the FDIC through the Bank Insurance
Fund to the
fullest extent permitted by Applicable Law, and all premiums
and assessments
required to be paid in connection with such
insurance have been paid when due.
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(B) AUTHORITY AND
QUALIFICATION. Seller
and each Seller Subsidiary has
---------------------------
the power and authority, and is duly
qualified in all jurisdictions (except for
such qualifications the absence of which
either individually or in the aggregate
will not have a Material Adverse Effect)
where such qualification is required,
to carry on its business as it is now being conducted and to own all
its
material properties and assets, and it has all federal, state, local, and
foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its
business as it is now being conducted,
except for such powers and authorizations the absence of which, either
individually or in the aggregate, would not have a Material Adverse
Effect.
(C) CAPITALIZATION.
As of the date of this Agreement, Seller has
---------------
2,000,000 authorized shares of preferred
stock, no par value, with no shares of
preferred stock outstanding, 10,000,000 authorized
shares of common stock, par
value $1.00 per share, of which
1,200,000 shares are issued and outstanding and
113,000 shares are reserved for issuance pursuant to Seller's 2001 Stock
Incentive Plan, as amended, and 300,000 shares are reserved for issuance
pursuant to organizer warrants (no other class of capital stock being
authorized). Other than the shares of Seller Common Stock
reserved under the
2001 Stock Incentive Plan, as amended, and
the organizer warrants, Seller has no
shares of its capital stock reserved for
issuance, and there are no outstanding
Rights to subscribe for or acquire from
Seller any shares of its capital stock.
Seller and each Seller Subsidiary's
outstanding shares of capital stock are duly
authorized, validly issued and outstanding, fully paid
and non-assessable, and
subject to no preemptive rights.
(D) OWNERSHIP
OF SELLER SUBSIDIARIES. Seller has identified each
------------------------------------
Seller Subsidiary in the Seller Disclosure Letter. Seller owns all of the
issued and outstanding shares of common stock of each of the Seller
Subsidiaries. The shares of capital stock of each Seller
Subsidiary are owned
by Seller free and clear of all
liens, claims, encumbrances and restrictions on
transfer (other than those imposed by Applicable Law)
and there are no rights
with respect to such capital stock.
(E) CORPORATE BOOKS
AND RECORDS. The
respective minute books of Seller
----------------------------
and each Seller Subsidiary accurately record, in all material respects,
all
material corporate actions of their respective shareholders and boards of
directors through the date of this Agreement.
(F) VALIDITY OF
AGREEMENT. This
Agreement has been validly approved by
----------------------
the board of directors of Seller.
Subject to approval of
this Agreement by the
Seller Shareholders and subject to receipt of Required Regulatory
Authority
Approvals, this Agreement is a valid and
binding agreement of Seller enforceable
against it in accordance with its terms, subject to bankruptcy,
insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights
and to general equity
principles.
(G) NO BREACHES OR
VIOLATIONS. The
execution, delivery and performance
--------------------------
of this Agreement by Seller does not, and
the consummation of the transactions
contemplated hereby by it will not, constitute
(l) a breach or violation of, or
a default under, any Applicable Law, which breach, violation or default,
individually or collectively, will have a
Material Adverse Effect, or enable any
Person to enjoin any of the transactions
contemplated hereby or (2) a breach or
violation of, or a default under, the
certificate or articles of incorporation
(or articles of association) or bylaws of
Seller or any Seller Subsidiary; and
the consummation of the
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transactions contemplated hereby will not
require any consent or approval under
any such law, rule, regulation,
judgment, decree, order, governmental permit or
license, other than the Required Regulatory
Authority Approvals and the approval
of the Seller Shareholders and other than
any consents and approvals the absence
of which will not have a Material Adverse Effect.
(H) REPORTS.
As of their respective dates, neither Seller's Annual
--------
Report on Form 10-K for the fiscal year
ended December 31, 2003, nor any other
document filed subsequent to December 31, 2003
under the Exchange Act with the
SEC nor, Seller's interim unaudited monthly
consolidated financial report for
the period ended September 30, 2004, nor
any call reports filed with the FDIC or
financial reports filed with the Federal Reserve (collectively the
"Seller
Reports") contained any untrue statement of
a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under
which they were
made, not misleading. Each of the balance sheets in or incorporated by
reference into the Seller Reports (including the
related notes and schedules)
fairly presents the financial position of the entity or entities
to which it
relates as of its date and each of the statements of
operations and retained
earnings and of cash flow and changes in financial position or
equivalent
statements in or incorporated by reference into its
Seller Reports (including
any related notes and schedules) fairly presents the results of
operations,
retained earnings and cash flows and
changes in financial position, as the case
may be, of the entity or entities to
which it relates for the periods set forth
therein (subject, in the case of unaudited interim
statements or reports, to
normal year-end audit adjustments that are
not material in amount or effect), in
each case in accordance with GAAP (or,
with respect to the Seller Reports filed
with the applicable Regulatory Authority, in accordance with regulatory
accounting principles), consistently
applied during the periods involved, except
as may be noted therein.
(I) INTERNAL
CONTROLS. Seller and each Seller Subsidiary has
-------------------
maintained a system of internal accounting
and disclosure controls sufficient to
provide reasonable assurances that (i) transactions
are executed in accordance
with management's general or specific authorizations, (ii) transactions
are
recorded as necessary to permit preparation
of the Seller Reports in conformity
with GAAP (or, with respect to the Seller Reports filed with
the applicable
Regulatory Authority, in accordance with regulatory
accounting principles) and
to maintain accountability for
assets, (iii) access to assets is permitted only
in accordance with management's
general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals, and appropriate action is taken with respect to any
differences.
(J) ABSENCE
OF UNDISCLOSED LIABILITIES.
Seller has no
obligations or
-------------------------------------
liabilities (whether absolute, accrued, contingent or
otherwise) which are not
disclosed in the Seller Reports, the omission of
which would singly or in the
aggregate have a Material Adverse Effect. Since the date of Seller's most
recent Seller Reports filed with the SEC,
it has not incurred any liabilities or
obligations (whether absolute, accrued, contingent or
otherwise) of any nature
except liabilities or obligations incurred
in the ordinary course of business or
which would not singly or in the aggregate have a Material
Adverse Effect.
(K) NO MATERIAL ADVERSE CHANGE. There has been no adverse change
in
------------------------------
the financial condition of Seller and Seller Subsidiaries,
taken as a whole,
since December 31, 2004 which has had a Material Adverse Effect.
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(L) INSURANCE.
True and correct copies of all insurance policies
----------
presently in force covering the Seller, any Seller Subsidiary, or their
officers, directors, employee, or properties have
previously been disclosed to
FHNC and are listed in the Seller
Disclosure Letter (the "Insurance Policies").
The Insurance Policies (i) provide adequate insurance
coverage for the assets
and the operations of Seller and Seller Subsidiaries for the
risks normally
insured against by businesses conducting comparable lines of
business as the
Seller; (ii) are sufficient for compliance
with all contractual requirements to
which the Seller and the Seller
Subsidiaries are parties; (iii) will continue in
full force and effect following the
consummation of the Merger; and (iv) do not
provide for any retrospective premium adjustment or other experience based
liability on the part of the Seller or the
Seller Subsidiaries.
Seller has not
received notice from any insurance carrier
that (i) such Insurance Policies will
be canceled or that coverage will be reduced or eliminated, or
(ii) premium
costs with respect to the Insurance Policies will be materially
increased.
(M) LOANS.
Each loan reflected as an asset of Seller in the most
------
recent Seller Report or acquired or originated since
that date, is the legal,
valid, and binding obligation of the obligor named therein, enforceable
in
accordance with its terms, subject to applicable bankruptcy,
insolvency, or
other similar laws affecting the
enforceability of creditors' rights generally,
and no loan is subject to any asserted
defense, offset, or counterclaim known to
Seller. Except as previously disclosed to
FHNC in the Seller Disclosure Letter,
Seller Bank does not have any loan which has been (or should have
been in
management's reasonable opinion) classified as "Other Assets Especially
Mentioned," Substandard," "Doubtful" or "Loss," or similar classification.
(N) INVESTMENTS.
Except for investments
classified as held-to-maturity
------------
as prescribed under the Financial Accounting Standards
Board Statement Number
115, and pledges to secure public or trust deposits,
none of the investments
reflected in the Seller Reports is subject to any restriction, whether
contractual or statutory, that materially
impairs the ability of Seller and the
Seller Subsidiaries freely to dispose of such investments at any
time, other
than may be imposed by Applicable Law. With respect to all repurchase
agreements to which Seller or the Seller
Subsidiaries are a party, Seller or the
Seller Subsidiaries, as the case may be, have a valid,
perfected first lien or
security interest in the collateral securing such
repurchase agreement which
equals or exceeds the amount of debt secured by such collateral
under such
agreement.
(O) INTELLECTUAL
PROPERTY. Seller and the Seller Subsidiaries
own, or
-----------------------
are licensed or otherwise possess legally enforceable rights to use all
Intellectual Property that are used in their
businesses as currently conducted.
Seller has not received notice of and does not have any knowledge of any
potential claim of any infringement on any of its Intellectual Property.
(P) RELATED
PARTY TRANSACTIONS. Except as described in the Seller
-----------------------------
Reports, neither Seller nor any Seller
Subsidiary is a party to any transaction
with any Affiliate of Seller (except a Seller Subsidiary). All such
transactions identified in the Seller Reports (i) were made in the
ordinary
course of business, (ii) were made on substantially
the same terms, including
interest rates and collateral, as those prevailing at
the time for comparable
transactions with other Persons, and (iii) did
not involve more than the normal
risk of collectibility or present other
unfavorable features.
No loan or credit
accommodation to any Affiliate of Seller is
presently in default or, during the
three year period prior to the date of this
Agreement, has been in default or
has been restructured, modified or extended.
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(Q) TAXES.
All material federal,
state, local, and foreign tax returns
------
required to be filed by or on behalf of Seller or any
Seller Subsidiary have
been timely filed or requests for
extensions have been timely filed and any such
extension shall have been granted and not have expired, and
all such returns
filed are complete and accurate in all material respects.
All taxes owed by
Seller have been paid in full or adequate
provision has been made for any such
taxes on its balance sheet (in accordance with
GAAP). As of the date
of this
Agreement, there is no audit examination,
deficiency, or refund litigation with
respect to any taxes of Seller and Seller is not aware of
any basis for the
assertion of any claim for any tax deficiency
for which adequate provision has
not been made on its balance sheet that would
result in a determination that
would have a Material Adverse Effect. All taxes, interest, additions,
and
penalties due with respect to completed and settled
examinations or concluded
litigation relating to Seller have been paid in full
or adequate provision has
been made for any such taxes on its balance sheet
(in accordance with GAAP).
Seller has not executed an extension or
waiver of any statute of limitations on
the assessment or collection of any material tax due that is currently in
effect.
(R) ABSENCE
OF LITIGATION OR REGULATORY ACTIONS.
-------------------------------------------------
(1)
No litigation,
proceeding or
controversy before any court or
governmental
agency is pending, and there is no pending
claim, action or
proceeding
against Seller or any Seller Subsidiary, which in the
reasonable
judgment of
Seller's management is likely to have a Material Adverse Effect
or to prevent
consummation of the transactions contemplated hereby, and, to
Seller's
knowledge,
no such litigation,
proceeding, controversy, claim or
action
has been threatened or
is contemplated, and, to Seller's knowledge,
there
are no facts or circumstances which
could form the reasonable basis
for any claim,
action or proceeding (including, but not limited to, a claim
for violation of any state or federal fair lending laws
or regulations)
which
is likely to have a Material Adverse
Effect or prevent consummation
of the transactions contemplated hereby.
(2)
Neither Seller
nor any Seller Subsidiary is subject to
any
cease
and desist order, written agreement or
memorandum of understanding
with,
or 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 is subject to any board
resolutions
at the request of the
applicable Regulatory Authority, nor has
it been advised by any Regulatory Authority that it is contemplating
issuing
or requesting (or is
considering the appropriateness of issuing or
requesting)
any such order, directive, written agreement,
memorandum of
understanding,
extraordinary
supervisory letter,
commitment letter, board
resolutions
or similar undertaking.
(S) MATERIAL
CONTRACTS.
Except for this Agreement and arrangements
--------------------
made in the ordinary course of business, neither Seller nor any Seller
Subsidiary is bound by any Material Contract to be performed
after the date
hereof that has not been filed with or
incorporated by reference in the Seller
Reports. Each of the Material Contracts is in full
force and effect.
Neither
Seller nor any Seller Subsidiary (nor, to
Seller's knowledge, any other party)
has breached any provision or is in default of any Material Contract.
(T) EMPLOYEE
BENEFIT PLANS. All "employee benefit plans", as
defined
-------------------------
in Section 3(3) of ERISA, that cover Seller's or any Seller Subsidiary's
employees comply in all
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material respects with all applicable
requirements of ERISA, the Code and other
Applicable Laws and no event has occurred and, to its
knowledge, no fact or
circumstance exists with
