AGREEMENT AND PLAN OF MERGER

 

                          AGREEMENT AND PLAN OF MERGER

 

      THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of December

17, 2004 is by and among Center Bancorp, Inc., a New Jersey corporation

("Buyer"), Union Center National Bank, a national bank and a wholly-owned

Subsidiary of Buyer ("Buyer Subsidiary Bank"), and Red Oak Bank, a commercial

bank chartered under the laws of the State of New Jersey (the "Company"). Buyer,

Buyer Subsidiary Bank and the Company are sometimes collectively referred to

herein as the "Constituent Corporations". As used in this Agreement, the word

"Subsidiary" when used with respect to any party means any corporation,

partnership or other organization, whether incorporated or unincorporated, which

is consolidated with such party for financial reporting purposes.

 

                                    RECITALS

 

      A. Buyer desires to acquire the Company and the Company's Board of

Directors has determined, based upon the terms and conditions hereinafter set

forth, that the acquisition is in the best interests of the Company and its

shareholders. The acquisition will be accomplished by (i) merging the Company

with and into Buyer Subsidiary Bank with Buyer Subsidiary Bank as the surviving

corporation (the "Merger") and (ii) the Company's shareholders receiving the

Aggregate Merger Consideration hereinafter set forth. The Boards of Directors of

the Company, Buyer and Buyer Subsidiary Bank have duly adopted and approved this

Agreement and the Board of Directors of the Company has directed that it be

submitted to its shareholders for approval.

 

      B. Concurrently with the execution and delivery of this Agreement, and as

a condition and inducement to Buyer's willingness to enter into this Agreement,

certain shareholders of the Company have entered into a shareholders' agreement

with Buyer (the "Shareholders' Agreement").

 

      C. The parties desire to make certain representations, warranties and

agreements in connection with the Merger and also to prescribe certain

conditions to the Merger.

 

      D. Independent of this Agreement, the Board of Directors of the Company

has declared a 5% stock dividend payable on December 10, 2004 to stockholders of

record as of November 19, 2004 (the "Stock Dividend"). All figures herein

relating to the Company's capitalization and the consideration payable hereunder

have been adjusted to give effect to the Stock Dividend.

 

      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:

 

 

<PAGE>

 

                                    ARTICLE I

 

                                   THE MERGER

 

      1.1 The Merger. Subject to the terms and conditions of this Agreement, in

accordance with applicable banking statutes and regulations, at the Effective

Time (as defined in Section 1.2 hereof) the Company shall merge with and into

Buyer Subsidiary Bank under the charter of Buyer Subsidiary Bank in accordance

with the National Bank Act and the New Jersey Banking Act of 1948, as amended.

Buyer Subsidiary Bank shall be the surviving bank (hereinafter sometimes called

the "Surviving Corporation") in the Merger, and shall continue its corporate

existence under the National Bank Act. The name of the Surviving Corporation

shall continue to be Union Center National Bank. Upon consummation of the

Merger, the separate corporate existence of the Company shall terminate.

 

      1.2 Closing, Closing Date, Determination Date and Effective Time. Unless a

different date, time and/or place are agreed to by the parties hereto, the

closing of the Merger (the "Closing") shall take place at 10:00 a.m., at the

offices of Lowenstein Sandler PC, 65 Livingston Avenue, Roseland, New Jersey

07068, on a date determined by Buyer on at least five business days notice (the

"Closing Notice") given to the Company, which date (the "Closing Date") shall be

not more than ten (10) business days following the receipt of all necessary

regulatory, governmental and shareholder approvals and consents and the

expiration of all statutory waiting periods in respect thereof and the

satisfaction or waiver of all of the conditions to the consummation of the

Merger specified in Article VI hereof (other than the delivery of certificates

and other instruments and documents to be delivered at the Closing). In the

Closing Notice, Buyer shall specify the "Determination Date", which date shall

be the first date on which all bank regulatory approvals (and waivers, if

applicable) necessary for consummation of the Merger have been received

(disregarding any waiting period) and either party has notified the other in

writing that all such approvals (and waivers, if applicable) have been received.

The Merger shall become effective (and be consummated) at the date and time (the

"Effective Time") specified in a notice (the "OCC Notice") to the Office of the

Comptroller of the Currency (the "OCC") which will be filed by Buyer with the

approval of the Company, which approval shall not be unreasonably withheld or

delayed, such filing to occur immediately after the Closing is consummated. In

the event that the parties fail to specify the date and time in the OCC Notice,

the Merger shall become effective upon (and the "Effective Time" shall be) the

time of the filing of the OCC Notice with the OCC.

 

      1.3 Effect of the Merger. At the Effective Time, the Surviving Corporation

shall be considered the same business and corporate entity as each of Buyer

Subsidiary Bank and the Company and thereupon and thereafter, all the property,

rights, privileges, powers and franchises of each of Buyer Subsidiary Bank and

the Company shall vest in the Surviving Corporation and the Surviving

Corporation shall be subject to and be deemed to have assumed all of the debts,

liabilities, obligations and duties of each of Buyer Subsidiary Bank and the

Company and shall have succeeded to all of each of their relationships, as fully

and to the same extent as if such property, rights, privileges, powers,

franchises, debts, liabilities, obligations, duties and relationships had been

originally acquired, incurred or entered into by the Surviving Corporation. In

addition, any reference to either of Buyer Subsidiary Bank and the Company in

any contract or document, whether executed or taking effect before or after the

Effective Time, shall be considered a reference to the Surviving Corporation if

not inconsistent with the other provisions of the contract or document; and any

pending action or other judicial proceeding to which either of Buyer Subsidiary

Bank or the Company is a party shall not be deemed to have abated or to have

discontinued by reason of the Merger, but may be prosecuted to final judgment,

order or decree in the same manner as if the Merger had not been made; or the

Surviving Corporation may be substituted as a party to such action or

proceeding, and any judgment, order or decree may be rendered for or against it

that might have been rendered for or against either of Buyer Subsidiary Bank or

the Company if the Merger had not occurred.

 

 

                                      -2-

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      1.4 Conversion of Company Common Stock.

 

            (a) At the Effective Time, subject to the other provisions of this

Section 1.4, Section 1.5, Section 1.8 and Section 2.2(e), each share of common

stock, par value $5.00 per share, of the Company ("Company Common Stock"),

issued and outstanding immediately prior to the Effective Time (other than (i)

shares of Company Common Stock held in the Company's treasury and (ii) shares of

Company Common Stock held directly or indirectly by Buyer or the Company or any

of their respective Subsidiaries (except for Trust Account Shares and DPC

Shares, as such terms are defined in Section 1.4(b) hereof), shall by virtue of

this Agreement and without any action on the part of the Company, Buyer or the

holder thereof, cease to be outstanding and shall be converted into and become

the right to receive, at the election of the holder thereof as provided in

Section 1.5, either:

 

                  (i) a fraction of a share of common stock, no par value, of

Buyer ("Buyer Common Stock") equal to the quotient of the Per Share Cash

Consideration (as hereinafter defined) divided by $13.07 (such quotient, the

"Exchange Ratio"), such fraction to be rounded to four decimal places; or

 

                  (ii) cash in an amount equal to the Per Share Cash

Consideration.

 

            (b) At the Effective Time, (i) all shares of Company Common Stock

that are owned by the Company as treasury stock and (ii) all shares of Company

Common Stock that are owned directly or indirectly by Buyer or the Company or

any of their respective Subsidiaries (other than shares of Company 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 Buyer Common Stock which are similarly held, whether

held directly or indirectly by Buyer or the Company, as the case may be, being

referred to herein as "Trust Account Shares") or (y) held by Buyer or the

Company or any of their respective Subsidiaries in respect of a debt previously

contracted (any such shares of Company Common Stock, and shares of Buyer Common

Stock which are similarly held, being referred to herein as "DPC Shares")),

shall be canceled and shall cease to exist and no stock of Buyer or other

consideration shall be delivered in exchange therefor. All shares of Buyer

Common Stock that are owned by the Company or any of its Subsidiaries (other

than Trust Account Shares and DPC Shares) shall become treasury stock of Buyer.

 

 

                                      -3-

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            (c) On and after the Effective Time, holders of certificates which

immediately prior to the Effective Time represented outstanding shares of

Company Common Stock (the "Certificates") shall cease to have any rights as

shareholders of the Company, except the right to receive the consideration set

forth in this Article I for each such share held by them. The consideration

which any one Company shareholder may receive pursuant to this Article I is

referred to herein as the "Merger Consideration" and the consideration which all

of the Company shareholders are entitled to receive pursuant to this Article I

is referred to herein as the "Aggregate Merger Consideration".

 

            (d) Notwithstanding any provision herein to the contrary, if,

between the date of this Agreement and the Effective Time, the shares of Buyer

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 a stock dividend thereon shall be

declared with a record date within said period, appropriate adjustments shall be

made to the Exchange Ratio.

 

            (e) For purposes of this Agreement, the following terms shall have

the following meanings:

 

                  (i) "Differential" shall mean the dollar amount, if any, by

which the Metavante Termination Fee exceeds $739,000; provided that in no event

shall the Differential exceed $623,000.

 

                  (ii) "Negative Adjustment" shall mean the Differential divided

by the number of shares of Company Common Stock outstanding immediately prior to

the Effective Time. The Negative Adjustment shall be rounded to the nearest

penny.

 

                  (iii) "Per Share Cash Consideration" shall mean $12.35 minus

the Negative Adjustment, if any.

 

                  (iv) "Metavante Agreement" shall mean that certain Technology

Outsourcing Agreement, dated as of September 30, 2003, by and between the

Company and Metavante Corporation ("Metavante"), and all related agreements and

schedules, including, without limitation, that certain Branch Automation

Agreement, dated as of September 30, 2003, by Metavante and the Company and that

certain StarPC Software License Agreement, dated as of September 30, 2003, by

Metavante and the Company.

 

                  (v) "Metavante Termination Fee" shall mean all fees and

expenses due and payable in connection with the termination of the Metavante

Agreement, as confirmed in writing or invoiced by Metavante.

 

 

                                      -4-

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      1.5 Election Procedures.

 

            (a) Allocation. The allocation of the Aggregate Merger Consideration

between cash and shares of Buyer Common Stock shall be determined pursuant to

this Section 1.5.

 

            (b) Ratio of Buyer Common Stock to Cash. Subject to Section 1.5(j),

the number of shares of Company Common Stock to be converted into the right to

receive the Per Share Cash Consideration in the Merger (the "Cash Election

Number") shall be equal to 50% (the "Cash Percentage") of the number of shares

of Company Common Stock outstanding immediately prior to the Effective Time.

Subject to Section 1.5(j), the number of shares of Company Common Stock to be

converted into the right to receive Buyer Common Stock in the Merger (the "Stock

Election Number") shall be equal to 50% (the "Stock Percentage") of the number

of shares of Company Common Stock outstanding immediately prior to the Effective

Time.

 

            (c) Elections by Holders of Stock or Cash. Subject to the allocation

and election procedures set forth in this Section 1.5, each record holder

immediately prior to the Effective Time of shares of Company Common Stock will

be entitled (i) to elect to receive the Per Share Cash Consideration for a

portion of such holder's shares specified by such holder or all of such shares

(each, a "Cash Election"), (ii) to elect to receive Buyer Common Stock for a

portion of such holder's shares specified by such holder or all of such shares

(each, a "Stock Election"), or (iii) to indicate that such record holder has no

preference as to the receipt of cash or Buyer Common Stock for such shares (a

"Non-Election"). In the event that any such holder makes elections which

together cover more than 100% of the shares of Company Common Stock which such

Person owns as of the Effective Time, such holder shall be deemed to have made a

Stock Election with respect to 50% of such holder's shares and a Cash Election

with respect to 50% of such holder's shares. In the event that any such holder

makes elections which together cover less than 100% of the shares of Company

Common Stock which such Person owns as of the Effective Time, such holder shall

be deemed to have made a Non-Election with respect to the number of shares for

which no Cash Election, Stock Election or Non-Election was made. All such

elections shall be made on a form designed for that purpose (a "Form of

Election") and in form and substance satisfactory to Buyer and the Company.

Holders of record of shares of Company Common Stock who hold such shares as

nominees, trustees or in other representative capacities (a "Representative")

may submit multiple Forms of Election, provided that each such Form of Election

covers all the shares of Company Common Stock held by each Representative for a

particular beneficial owner.

 

            (d) Oversubscription for Cash Election. If the aggregate number of

shares of Company Common Stock covered by Cash Elections (the "Cash Election

Shares") exceeds the Cash Election Number, all shares of Company Common Stock

covered by Stock Elections (the "Stock Election Shares") and all shares of

Company Common Stock covered by Non-Elections (the "Non-Election Shares") shall

be converted into the right to receive Buyer Common Stock, and the Cash Election

Shares shall be converted into the right to receive Buyer Common Stock and cash

in the following manner:

 

 

                                       -5-

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                  (i) the Exchange Agent (as hereinafter defined) will select

from among the holders of Cash Election Shares (other than Dissenting Shares),

on a pro rata basis, a sufficient number of such shares ("Stock Designated

Shares") such that the number of Stock Designated Shares will, when added to the

number of Stock Election Shares and Non-Election Shares, be equal as closely as

practicable to the Stock Election Number, and all Stock Designated Shares shall

be converted into the right to receive Buyer Common Stock; and

 

                  (ii) the Cash Election Shares not so selected as Stock

Designated Shares shall be converted into the right to receive cash.

 

            (e) Oversubscription for Stock Election. If the aggregate number of

Stock Election Shares exceeds the Stock Election Number, all Cash Election

Shares and all Non-Election Shares shall be converted into the right to receive

cash, and all Stock Election Shares shall be converted into the right to receive

Buyer Common Stock or the right to receive cash in the following manner:

 

                  (i) the Exchange Agent will select from among the holders of

Stock Election Shares, on a pro rata basis, a sufficient number of such shares

("Cash Designated Shares") such that the number of Cash Designated Shares will,

when added to the number of Cash Election Shares and Non-Election Shares, be

equal as closely as practicable to the Cash Election Number, and all such Cash

Designated Shares shall be converted into the right to receive cash; and

 

                  (ii) the Stock Election Shares not so selected as Cash

Designated Shares shall be converted into the right to receive Buyer Common

Stock.

 

            (f) Selection of Non-Election Shares If No Oversubscription. In the

event that neither subparagraph (d) nor subparagraph (e) above is applicable,

all Cash Election Shares shall be converted into the right to receive cash, all

Stock Election Shares shall be converted into the right to receive Buyer Common

Stock, and the Non-Election Shares shall be converted into either the right to

receive Buyer Common Stock or the right to receive cash by random selection by

the Exchange Agent so that the Stock Election Number and the Cash Election

Number equal their respective percentages of the number of shares of Company

Common Stock outstanding as closely as possible.

 

            (g) Procedures for Holders' Elections. Elections shall be made by

holders of Company Common Stock by mailing to the Exchange Agent a Form of

Election. To be effective, a Form of Election must be properly completed, signed

and submitted to the Exchange Agent by the holder and accompanied by the

certificates representing the shares of Company Common Stock as to which the

election is being made (or properly completed, signed and submitted to the

Exchange Agent by an appropriate bank or trust company in the United States or a

member of a registered national securities exchange or the National Association

of Securities Dealers, Inc. (the "NASD")). Buyer will have the 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 good faith decision of

Buyer (or the Exchange Agent) in such matters shall be conclusive and binding,

provided that Buyer (and the Exchange Agent) do not act unreasonably. Neither

Buyer nor the Exchange Agent will be under any obligation to, but Buyer and the

Exchange Agent may (if they choose to do so), notify any person of any defect in

a Form of Election submitted to the Exchange Agent. The Exchange Agent shall

also make all computations contemplated by this Section 1.5 and all such

computations shall be conclusive and binding on the holders of Company Common

Stock, provided that the Exchange Agent does not act unreasonably.

 

 

                                      -6-

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            (h) Failure of Holder to Elect. For the purpose hereof, a holder of

Company Common Stock who does not submit a Form of Election which is received by

the Exchange Agent prior to the Election Deadline (as hereinafter defined) shall

be deemed to have made a Non-Election. If Buyer or the Exchange Agent shall

determine that any purported Cash Election or Stock Election was not properly

made, such purported Cash Election or Stock Election shall, unless cured prior

to the Election Deadline (as hereafter defined), be deemed to be of no force and

effect and the shareholder or Representative making such purported Cash Election

or Stock Election shall, for purposes hereof, be deemed to have made a

Non-Election.

 

            (i) Mailing of Election Forms to Holders and Election Deadline.

Buyer and the Company shall each use its best efforts to mail the Form of

Election to all persons who are holders of record of Company Common Stock on the

record date for the Company Shareholders' Meeting (as defined in Section 6.3)

and who become holders of Company Common Stock during the period between the

record date for the Company Shareholders' Meeting and 10:00 a.m. New York time,

on at least the date fifteen calendar days prior to the anticipated Effective

Time and to make the Form of Election available to all persons who become

holders of Company Common Stock subsequent to such day and no later than the

close of business on the Election Deadline. A Form of Election must be received

by the Exchange Agent by the close of business on the third Business Day (as

hereinafter defined) prior to the Closing (the "Election Deadline") in order to

be effective. All elections will be irrevocable. The term "Business Day" shall

mean Monday, Tuesday, Wednesday, Thursday and Friday, other than any such day on

which Buyer Subsidiary Bank is not open for business.

 

            (j) Increase in Stock Election Number Due to Tax Opinion. If the Tax

opinion referred to in Section 7.1(d) and to be delivered at the Closing (the

"Tax Opinion") cannot be rendered (as reasonably determined by Lowenstein

Sandler PC and as reasonably concurred in by McCarter & English) as a result of

the Merger's potentially failing to satisfy continuity of interest requirements

under applicable federal income Tax principles relating to reorganizations under

Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),

then the Stock Percentage shall be automatically increased and the Cash

Percentage shall be automatically decreased to the minimum extent necessary to

enable the Tax Opinion to be rendered.

 

 

                                      -7-

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            (k) Exchange Agent Procedures. The random selection process to be

used by the Exchange Agent pursuant to subparagraph (f) of Section 1.5 will

consist of drawing by lot or such other process (other than pro rata selection)

as the Exchange Agent deems equitable and necessary to effect the allocations

described in such subparagraph. The pro rata selection process to be used by the

Exchange Agent pursuant to subparagraphs (d) and (e) of Section 1.5 shall

consist of such equitable pro ration processes as shall be mutually determined

by the Company and Parent. A selection will be disregarded if, as a consequence,

the Stock Election Number or the Cash Election Number would be exceeded by more

than 1,000 shares.

 

      1.6 Stock Options. All options which may be exercised for issuance of

Company Common Stock (each, a "Stock Option" and collectively the "Stock

Options") are described in Section 1.6 of the Company Disclosure Schedule and

are issued and outstanding pursuant to the Company's 1999 Incentive Stock Option

Plan and the Company's 2004 Incentive Stock Option Plan (the "Company Stock

Option Plans") and the agreements pursuant to which such Stock Options were

granted (each, an "Option Grant Agreement"). True and complete copies of the

Company's Stock Option Plans and all Option Grant Agreements relating to

outstanding Stock Options have been delivered to Buyer. At the Effective Time,

each Stock Option which is outstanding and unexercised immediately prior

thereto, whether or not then vested or exercisable, shall automatically be

converted into an option to purchase Buyer Common Stock (a "New Option") as

follows: (i) the number of shares of Buyer Common Stock covered by each New

Option shall equal the number of shares of Company Common Stock covered by the

corresponding Stock Option immediately prior to the Effective Time multiplied by

the Exchange Ratio and (ii) the exercise price for each New Option shall equal

the exercise price of the corresponding Stock Option immediately prior to the

Effective Time divided by the Exchange Ratio. In substantially all respects, the

terms of each New Option shall otherwise be identical to the terms of the

corresponding Stock Option in effect immediately prior to the consummation of

the Merger, subject to any provisions in the Company Stock Option Plans which

require acceleration of vesting as a result of the consummation of the Merger.

In effecting such conversion, the aggregate number of shares of Buyer Common

Stock to be subject to each New Option will be rounded up or down, if necessary,

to the nearest whole share (with one-half being rounded up) and the aggregate

exercise price shall be rounded up or down, if necessary, to the nearest whole

cent (with one-half being rounded up). At the Effective Time, the Company Stock

Option Plans shall be terminated. The adjustments provided herein with respect

to any Stock Options that are "incentive stock options" (as defined in Section

422 of the Code) shall be effected in such manner as shall not cause a

modification, extension or renewal of the Stock Options, within the meaning of

Section 424(a) of the Code. Prior to the Effective Time, the Company shall take

or cause to be taken all actions required under the Company Stock Option Plans

to provide for the foregoing. At the request of any holder of New Options, Buyer

shall assist such holder in effecting cashless exercises of such New Options

with third-party brokers in the same manner that Buyer assists holders of stock

options granted by Buyer under its stock options plans to effect cashless

exercises of such options with third-party brokers.

 

 

                                      -8-

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      1.7 Buyer Common Stock. Except for shares of Buyer Common Stock owned by

the Company or any of its Subsidiaries (other than Trust Account Shares and DPC

Shares), which shall be converted into treasury stock of Buyer as contemplated

by Section 1.4, the shares of Buyer Common Stock and shares of capital stock of

Buyer Subsidiary Bank issued and outstanding immediately prior to the Effective

Time shall be unaffected by the Merger and such shares shall remain issued and

outstanding.

 

      1.8 Shares of Dissenting Shareholders. Notwithstanding anything in this

Agreement to the contrary, any shares of Company Common Stock that are issued

and outstanding as of the Effective Time and that are held by a shareholder who

has properly exercised his appraisal rights (the "Dissenting Shares") under the

National Bank Act, 12 U.S.C. Section 215a, shall not be converted into the right

to receive the Merger Consideration unless and until the holder shall have

failed to perfect, or shall have effectively withdrawn or lost, his, her or its

right to dissent from the Merger under National Bank Act, 12 U.S.C. Section

215a, and to receive such consideration as may be determined to be due with

respect to such Dissenting Shares pursuant to and subject to the requirements of

National Bank Act, 12 U.S.C. Section 215a. If any such holder shall have failed

to perfect or shall have effectively withdrawn or lost such right, each share of

such holder's Company Common Stock shall thereupon be deemed to have been

converted into and to have become, as of the Effective Time, the right to

receive, without any interest thereon, the Per Share Cash Consideration upon

surrender of the Certificate or Certificates representing such Dissenting

Shares. The Company shall give Buyer (i) prompt notice of any notice or demands

for appraisal or payment for shares of Company Common Stock received by the

Company and (ii) the opportunity to participate in and direct all negotiations

and proceedings with respect to any such demands or notices. The Company shall

not, without the prior written consent of Buyer, make any payment with respect

to, or settle, offer to settle or otherwise negotiate, any such demands. For

purposes of determining how all shares other than Dissenting Shares are to be

treated under Section 1.5, Dissenting Shares shall be deemed to be Cash Election

Shares, provided that no Dissenting Shares shall be treated as Stock Designated

Shares hereunder.

 

      1.9 Articles of Association At the Effective Time, the Articles of

Association of Buyer Subsidiary Bank as they exist immediately prior to the

Effective Time shall continue as the Articles of Association of the Surviving

Corporation, as set forth in Exhibit A annexed hereto, until otherwise amended

as provided by law; provided however, that Buyer Subsidiary Bank shall have the

right, between the date hereof and the Closing, to amend its Articles of

Association in a manner that will not adversely affect the shareholders of the

Company and upon the acceptance of such amendment by the OCC, the Articles of

Association of Buyer Subsidiary Bank as so amended shall be substituted for

Exhibit A.

 

 

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      1.10 By-Laws. At the Effective Time, the By-Laws of Buyer Subsidiary Bank,

as in effect immediately prior to the Effective Time, shall be the By-Laws of

the Surviving Corporation until thereafter amended in accordance with applicable

law.

 

      1.11 Directors and Officers. The directors and officers of Buyer

Subsidiary Bank immediately prior to the Effective Time shall be the directors

and officers of the Surviving Corporation, each to hold office in accordance

with the Articles of Association and By-Laws of the Surviving Corporation until

their respective successors are duly elected or appointed and qualified.

 

      1.12 Tax Consequences. It is intended that the Merger shall constitute a

reorganization within the meaning of Section 368(a) of the Code and that this

Agreement shall constitute a "plan of reorganization" for purposes of Section

368 of the Code.

 

      1.13 Withholding Rights. Buyer shall be entitled to deduct and withhold,

or cause the Exchange Agent to deduct and withhold, from funds provided by the

holder or from the consideration otherwise payable pursuant to this Agreement to

any holder of Company Common Stock, the minimum amounts (if any) that Buyer is

required to deduct and withhold with respect to the making of such payment under

the Code, or any provision of state, local or foreign Tax law. To the extent

that amounts are so withheld by Buyer, such withheld amounts shall be treated

for all purposes of this Agreement as having been paid to the holder of Company

Common Stock in respect of which such deduction and withholding was made by

Buyer.

 

      1.14 Changes in Structure. As executed by the parties, this Agreement

contemplates the merger of the Company into Buyer Subsidiary Bank. In the event

that (a) prior to the date on which the Proxy Statement (as defined in Section

3.4 hereof) is mailed to the Company's shareholders, Buyer proposes an

alternative structure for the transactions contemplated hereby, and (b) such

alternate structure does not adversely affect the Company's shareholders in any

material respect, then the Company shall negotiate in good faith with Buyer and

shall use commercially reasonable efforts to restructure the transactions

contemplated hereby in accordance with such proposal.

 

      1.15 Capital Stock. As of September 30, 2004, Buyer Subsidiary Bank had

capital of $2,000,000, divided into 400,000 shares of common stock, each without

par value, $22,287,000 of surplus, and undivided profits of $45,925,000. As of

September 30, 2004, the Company had capital of $9,898,000, divided into

2,078,727 shares of common stock, each of $5.00 par value, $5,977,000 of

surplus, and $(4,157,000) of undivided profits. At the Effective Time, the

amount of capital stock of the Surviving Corporation shall be $11,898,000,

divided into 400,000 shares of common stock, each of no par value, and the

Surviving Corporation shall have a surplus of $28,264,000 and undivided profits,

including capital reserves, which when combined with the capital and surplus

will be equal to the combined capital structures of Buyer Subsidiary Bank and

the Company as stated in the preceding two sentences, adjusted however, for

earnings and expenses and dividends declared and paid by Buyer Subsidiary Bank

and the Company between September 30, 2004 and the Effective Time.

 

 

                                      -10-

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                                   ARTICLE II

 

                               EXCHANGE OF SHARES

 

      2.1 Buyer to Make Shares Available. The Company and Buyer hereby appoint

Registrar and Transfer Company (or such other transfer agent as Buyer shall

designate in good faith) as the exchange agent (the "Exchange Agent") for

purposes of effecting the conversion of Company Common Stock hereunder. At or

prior to the Effective Time, Buyer shall deposit, or shall cause to be

deposited, with the Exchange Agent, for the benefit of the holders of

Certificates, for exchange in accordance with this Article II, certificates

representing shares of Buyer Common Stock and cash in an amount sufficient to

cover the Aggregate Merger Consideration (such cash and certificates for shares

of Buyer Common Stock, together with any dividends or distributions with respect

thereto, being hereinafter referred to as the "Exchange Fund") to be issued

pursuant to Section 1.4 and paid pursuant to Section 2.2(a) in exchange for

outstanding shares of Company Common Stock.

 

      2.2 Exchange of Shares.

 

            (a) As soon as practicable after the Effective Time, the Exchange

Agent shall mail to each holder of record of a Certificate or Certificates who

has not previously surrendered such Certificate or Certificates with a Form of

Election 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 into which the shares of Company Common Stock represented by such

Certificate or Certificates shall have been converted pursuant to this

Agreement. The Company 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 the Effective Time, upon surrender of a

Certificate for exchange and cancellation to the Exchange Agent, together with

such letter of transmittal, duly executed, the holder of such Certificate shall

be entitled to receive in exchange therefor the Merger Consideration to which

such holder of Company Common Stock shall have become entitled pursuant to the

provisions of Article I, and the Certificate so surrendered shall forthwith be

canceled. No interest will be paid or accrued on any cash constituting Merger

Consideration (including cash to be paid in lieu of fractional shares) or on any

unpaid dividends or distributions, if any, payable to holders of Certificates.

 

            (b) No dividends or other distributions declared after the Effective

Time with respect to Buyer 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 Buyer Common Stock, if any, represented by

such Certificate.

 

 

                                      -11-

<PAGE>

 

            (c) If any certificate representing shares of Buyer 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 Buyer 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.

 

            (d) After the Effective Time, there shall be no transfers on the

stock transfer books of the Company of the shares of Company 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 canceled and exchanged for Merger

Consideration as determined in accordance with Article I and this Article II.

 

            (e) Notwithstanding anything to the contrary contained herein, no

certificates or scrip representing fractional shares of Buyer Common Stock shall

be issued upon the surrender for exchange of Certificates, no dividend or

distribution with respect to Buyer 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

Buyer. In lieu of the issuance of any such fractional share, Buyer shall pay to

each former shareholder of the Company who otherwise would be entitled to

receive a fractional share of Buyer Common Stock an amount in cash determined by

multiplying (i) the closing sale price of one share of Buyer Common Stock on the

Nasdaq/National Market System on the Closing Date by (ii) the fraction of a

share of Buyer Common Stock which such holder would otherwise be entitled to

receive pursuant to Section 1.4.

 

            (f) Any portion of the Exchange Fund that remains unclaimed by the

shareholders of the Company for six months after the Effective Time shall be

paid to Buyer. Any shareholders of the Company who have not theretofore complied

with this Article II shall thereafter look only to Buyer for payment of the

cash, shares of Buyer Common Stock, cash in lieu of fractional shares and unpaid

dividends and distributions on the Buyer Common Stock deliverable in respect of

each share of Company Common Stock such shareholder holds as determined pursuant

to this Agreement, in each case, without any interest thereon. None of Buyer,

the Company, the Exchange Agent or any other person shall be liable to any

former holder of shares of Company Common Stock for any amount properly

delivered to a public official pursuant to applicable abandoned property,

escheat or similar laws.

 

 

                                      -12-

<PAGE>

 

            (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 Buyer, the

posting by such person of a bond in such amount as Buyer may direct as indemnity

against any claim that may be made against it with respect to such Certificate,

the Exchange Agent will issue in exchange for such lost, stolen or destroyed

Certificate the cash and/or shares of Buyer Common Stock and cash in lieu of

fractional shares deliverable in respect thereof pursuant to this Agreement.

 

                                   ARTICLE III

 

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

      References herein to the "Company Disclosure Schedule" shall mean all of

the disclosure schedules, dated as of the date hereof and referenced to the

specific sections and subsections of this Agreement, which have been delivered

on the date hereof by the Company to Buyer. Except as set forth in the Company

Disclosure Schedule, the Company hereby represents and warrants to Buyer as

follows:

 

      3.1 Corporate Organization.

 

            (a) The Company is a state-chartered commercial banking corporation

duly organized and validly existing under the laws of the State of New Jersey.

The deposit accounts of the Company 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. The Company does not have, and has

never had, any Subsidiaries. The Company 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 the location of the properties and assets owned or leased by it

makes such licensing or qualification necessary, except where the failure to be

so licensed or qualified would not have a Material Adverse Effect on the

Company. The Company has delivered to Buyer's counsel true and complete copies

of the Certificate of Incorporation and By-laws of the Company. As used in this

Agreement, the term "Material Adverse Effect" means, with respect to Buyer or

the Company, as the case may be, a material adverse effect on (i) the business,

assets, 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 (A) any change, effect, event or occurrence relating to the

United States economy or financial or securities markets in general, (B) any

change, effect, event or occurrence relating to the financial services industry

to the extent not affecting the Buyer or the Company, as the case may be, to a

materially greater extent than it affects other persons in industries in which

such person competes, (C) any change in banking or similar laws, rules or

regulations of general applicability or interpretations thereof by courts or

governmental authorities, (D) any change in generally accepted accounting

principles ("GAAP") or regulatory accounting principles applicable to commercial

banks or their holding companies generally or (E) any action or omission of the

Company or Buyer or any Subsidiary of either of them taken with the prior

written consent of Buyer (in the case of acts or omissions of the Company) or

the Company (in the case of acts or omissions of Buyer and its Subsidiaries) or

(ii) the ability of such party and its Subsidiaries to consummate the

transactions contemplated hereby.

 

 

                                      -13-

<PAGE>

 

            (b) The minute books of the Company contain true and correct records

of all meetings and other corporate actions held or taken since December 31,

1999 of their respective shareholders and Boards of Directors (including

committees of their respective Boards of Directors).

 

             (c) Except as set forth in Section 3.1(c) of the Company Disclosure

Schedule, the Company does not own or control, directly or indirectly, any

equity interest in any corporation, company, association, partnership, joint

venture or other entity except for shares held by the Company in a fiduciary or

custodial capacity in the normal course of its business (which, except as

disclosed in Section 3.1(c) of the Company Disclosure Schedule, do not in the

aggregate constitute more than 5% of the voting shares or interests in any such

corporation, company, association, partnership, joint ventures or other entity)

and except that which the Company holds pursuant to satisfaction of obligations

due to the Company and which are disclosed in Section 3.1(c) of the Company

Disclosure Schedule. The Company owns no real estate, except real estate used

for its banking premises or acquired pursuant to satisfaction of obligations due

to the Company. All such real estate is listed on Section 3.1(c) of the Company

Disclosure Schedule.

 

      3.2 Capitalization.

 

            (a) The authorized capital stock of the Company consists of Five

Million (5,000,000) shares of Company Common Stock and no shares of preferred

stock. As of the date hereof, there were 2,078,727 shares of Company Common

Stock outstanding, and no shares of Company Common Stock held by the Company as

treasury stock. As of the date hereof, there were (i) no shares of Company

Common Stock reserved for issuance upon exercise of outstanding stock options or

otherwise except for 179,639 shares of Company Common Stock reserved for

issuance pursuant to the Company Stock Option Plans and described in Section

3.2(a) of the Company Disclosure Schedule. All of the issued and outstanding

shares of Company 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. Except as referred to above or

reflected in Section 3.2(a) of the Company Disclosure Schedule, the Company 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 Company Common Stock or any other equity security of

the Company or any securities representing the right to purchase or otherwise

receive any shares of Company Common Stock or any other equity security of the

Company. The names of the optionees, the date of each option to purchase Company

Common Stock granted, the number of shares subject to each such option, the

expiration date of each such option, and the price at which each such option may

be exercised under the Company Stock Option Plans are set forth in Section

3.2(a) of the Company Disclosure Schedule.

 

 

                                      -14-

<PAGE>

 

            (b) As of the date hereof, the parties to the Shareholders'

Agreement own of record or beneficially a total of 574,335 shares of Company

Common Stock.

 

            (c) Section 3.2(c) of the Company Disclosure Schedule sets forth the

number of shares of Company Common Stock beneficially owned (computed in

accordance with Rule 13d-3 of the Securities and Exchange Commission) by each of

the members of the Board of Directors of the Company and by each executive

officer of the Company

 

      3.3 Authority; No Violation.

 

            (a) The Company has full corporate power and authority to execute

and deliver this Agreement and, subject to (x) the parties' obtaining (i) all

bank regulatory approvals required to effectuate the Merger and (ii) the other

approvals listed in Section 3.4 and (y) the approval of the Company's

shareholders as contemplated herein, to consummate the transactions contemplated

hereby. To the Company's knowledge, each party to the Shareholders' Agreement

(other than Buyer) has full power and authority to execute and deliver the

Shareholders' Agreement and to perform such party's obligations thereunder. 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 Company. The Board of Directors of the Company has

directed that this Agreement and the transactions contemplated hereby be

submitted to the Company's shareholders for approval at a meeting of such

shareholders and, except for the adoption of this Agreement by the requisite

vote of the Company's shareholders, no other corporate proceedings on the part

of the Company 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 Company and (assuming due authorization, execution

and delivery by Buyer and Buyer Subsidiary Bank) this Agreement constitutes a

valid and binding obligation of the Company, enforceable against the Company 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 and similar laws affecting creditors' rights and

remedies generally.

 

            (b) Neither the execution and delivery of this Agreement by the

Company, nor the consummation by the Company of the transactions contemplated

hereby, nor compliance by the Company with any of the terms or provisions

hereof, will (i) violate any provision of the Certificate of Incorporation or

By-Laws of the Company, or (ii) assuming that the consents and approvals

referred to in Section 3.4 hereof are duly obtained and except as set forth in

Section 3.3(b) of the Company Disclosure Schedule, (x) violate any statute,

code, ordinance, rule, regulation, judgment, order, writ, decree or injunction

applicable to the Company, 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 properties or

assets of the Company 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 Company is a party, or by which they

or any of their respective properties or assets may be bound or affected,

except, with respect to (x) and (y) above, such as individually or in the

aggregate will not have a Material Adverse Effect on the Company.

 

 

                                      -15-

<PAGE>

 

      3.4 Consents and Approvals. Except for (a) the filing of applications and

notices, as applicable, with the FDIC and Federal Reserve Board and approval of

such applications and notices, (b) the filing of applications and notices, as

applicable, with the Commissioner of Banking of the State of New Jersey (the

"Commissioner") and approval of such applications and notices, (c) the filing

with the Securities and Exchange Commission (the "SEC") of a proxy statement in

definitive form relating to the meeting of the Company's shareholders (and, if

determined by the Buyer to be necessary, the meeting of the Buyer's

shareholders) to be held in connection with this Agreement and the transactions

contemplated hereby (the "Proxy Statement") and the filing and declaration of

effectiveness of the registration statement on Form S-4 (the "S-4") in which the

Proxy Statement will be included as a prospectus, (d) the approval of this

Agreement by the requisite vote of the shareholders of the Company, (e) the

filing of the OCC Notice, (f) approval of the listing of the Buyer Common Stock

to be issued in the Merger on the Nasdaq/NMS, (g) such filings as shall be

required to be made with any applicable state securities bureaus or commissions,

(h) such consents, authorizations, approvals or exemptions under the

Environmental Laws (as defined in Section 3.17) and notices and filings with the

Internal Revenue Service (the "IRS") or the Pension Benefit Guaranty Corporation

(the "PBGC") with respect to employee benefit plans as are described in Section

3.4 of the Company Disclosure Schedule and (i) such other filings,

authorizations or approvals as may be set forth in Section 3.4 of the Company

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 necessary in connection with (1) the execution and delivery by the

Company of this Agreement or (2) the consummation by the Company of the Merger

and the other transactions contemplated hereby.

 

      3.5 Reports. The Company has timely filed all reports, registrations and

statements, together with any amendments required to be made with respect

thereto, that they were required to file since December 31, 1999 with (i) the

Commissioner, (ii) the FDIC and (iii) any other Governmental Entity that

regulates the Company (collectively with the Commissioner and the FDIC, the

"Company Regulatory Agencies"), and have paid all fees and assessments due and

payable in connection therewith. Except for normal examinations conducted by the

Company Regulatory Agencies in the regular course of the business of the

Company, and except as set forth in Section 3.5 of the Company Disclosure

Schedule, no Company Regulatory Agency has initiated any proceeding or, to the

knowledge of the Company, investigation into the business or operations of the

Company since December 31, 1999. There is no unresolved violation, criticism, or

exception by any Company Regulatory Agency with respect to any report or

statement relating to any examinations of the Company.

 

 

                                      -16-

<PAGE>

 

      3.6 Financial Statements.

 

            (a) The Company has previously made available to Buyer copies of (a)

the statements of financial condition of the Company as of December 31, 2002 and

2003, and the related statements of income, changes in shareholders' equity and

cash flows for the years ended December 31, 2001, 2002 and 2003, in each case

accompanied by the audit report of Grant Thornton LLP, independent public

accountants with respect to the Company, and the notes related thereto; and (b)

the statements of financial condition of the Company as of September 30, 2003

and 2004, and the related statements of income and cash flows of the Company for

the nine months ended September 30, 2003 and 2004 (the financial statements

referenced in clauses (a) and (b), the "Company Financial Statements"). Grant

Thornton LLP is independent with respect to the Company to the extent required

by Regulation S-X of the SEC. The statements of financial condition of the

Company (including the related notes, where applicable) included within the

Company Financial Statements fairly present, and the statements of financial

condition of the Company (including the related notes, where applicable) to be

filed with the SEC pursuant to this Agreement will fairly present, the financial

position of the Company as of the dates thereof, and the statements of income,

changes in shareholders' equity and cash flows (including the related notes,

where applicable) included within the Company Financial Statements fairly

present, and the statements of income, changes in shareholders' equity and cash

flows of the Company (including the related notes, where applicable) to be filed

with the SEC pursuant to this Agreement will fairly present, the results of the

operations and financial position of the Company for the respective fiscal

periods therein set forth; each of the Company Financial Statements (including

the related notes, where applicable) complies, and each of such financial

statements (including the related notes, where applicable) to be filed with the

SEC pursuant to this Agreement will comply, with applicable accounting

requirements and with the published rules and regulations of the SEC with

respect thereto, including without limitation Regulation S-X; and each of the

Company Financial Statements (including the related notes, where applicable) has

been, and each of such financial statements (including the related notes, where

applicable) to be filed with the SEC pursuant to this Agreement will be,

prepared in accordance with GAAP consistently applied during the periods

involved, except, in the case of unaudited statements, as permitted by the SEC

with respect to financial statements included on Form 10-Q. The books and

records of the Company have been, and are being, maintained in accordance with

GAAP and any other applicable legal and accounting requirements.

 

            (b) Except as and to the extent reflected, disclosed or reserved

against in the Company Financial Statements (including the notes thereto), as of

December 31, 2003 the Company did not have any liabilities, whether absolute,

accrued, contingent or otherwise, material to the financial condition of the

Company which were required to be so disclosed under GAAP. Since December 31,

2003, the Company has not incurred any liabilities except in the ordinary course

of business consistent with past practice, except as specifically contemplated

by this Agreement.

 

 

                                       -17-

<PAGE>

 

            (c) Since December 31, 2003, there have been no significant changes

in the internal controls utilized by the Company with respect to their financial

records (the "Internal Controls") or in other factors that could significantly

affect the Internal Controls, including any corrective actions with regard to

significant deficiencies and material weaknesses. There are no significant

deficiencies in the design or operation of the Internal Controls which could

adversely affect the ability of the Company to record, process, summarize and

report financial data and there are no material weaknesses in the Internal

Controls. The Company is not aware of any fraud, whether or not material, that

involves management or other employees who have a significant role in preparing

the Company's financial statements.

 

      3.7 Broker's and Other Fees. Neither the Company nor any of its 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 Company has

engaged, and will pay a fee or commission to, Keefe Ventures, LLC and The

Kafafian Group (the "Firms") in accordance with the terms of letter agreements

between the Firms and the Company, true and correct copies of which has been

previously made available by the Company to Buyer. Other than fees payable to

its attorneys and accountants (the names and terms of retention of which are set

forth in Section 3.7 of the Company Disclosure Schedule) and the fees payable to

the Firms (as set forth in the above-mentioned letter agreements), there are no

fees payable by the Company to its financial advisors, attorneys or accountants,

in connection with this Agreement or the transactions contemplated hereby or

which would be triggered by consummation of the Merger or the termination of the

services of such advisors, attorneys or accountants by the Company.

 

      3.8 Absence of Certain Changes or Events.

 

            (a) Except as set forth in Section 3.8(a) of the Company Disclosure

Schedule, since December 31, 2003, the Company has carried on its business in

the ordinary course consistent with past practices.

 

            (b) Except as set forth in Section 3.8(b) of the Company Disclosure

Schedule, since December 31, 2003, the Company has not (i) increased the wages,

salaries, compensation, pension, or other fringe benefits or perquisites payable

to any current or former executive officer, employee, or director from the

amount thereof in effect as of December 31, 2003 (which amounts have been

previously disclosed to Buyer), 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 and bonus payments made in the

ordinary course of business consistent with past practices following the date

hereof), (ii) suffered any strike, work stoppage, slow-down, 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, (iv) had

any union organizing activities or (v) entered into, or amended, any employment,

deferred compensation, consulting, severance, termination or indemnification

agreement with any such current or former executive officer, employee, or

director.

 

 

                                      -18-

<PAGE>

 

            (c) Except as set forth in Section 3.8(c) of the Company Disclosure

Schedule or as expressly contemplated by this Agreement, the Company has not

taken or permitted any of the actions set forth in Section 5.1 between December

31, 2003 and the date hereof and, during that period, the Company has conducted

its business only in the ordinary course, consistent with past practice.

 

            (d) Except for liabilities incurred in connection with this

Agreement or the transactions contemplated hereby, and except as set forth in

Section 3.8(d) of the Company Disclosure Schedule, since December 31, 2003,

there has not been:

 

                  (i) any act, omission or other event which has had a Material

Adverse Effect on the Company, including, but not limited to, any Material

Adverse Effect arising from or relating to fraudulent or unauthorized activity,

 

                  (ii) any issuance of Company Stock Options or restricted

shares of Company Common Stock (in any event, identifying in Section 3.8(d) of

the Company Disclosure Schedule the issue date, exercise price and vesting

schedule, as applicable, for issuances since December 31, 2003),

 

                  (iii) any declaration, setting aside or payment of any

dividend or other distribution (whether in cash, stock or property) with respect

to any of the Company's capital stock,

 

                  (iv) any split, combination or reclassification of any of the

Company's capital stock or any issuance or the authorization of any issuance of

any other securities in respect of, in lieu of or in substitution for shares of

the Company's capital stock, except for issuances of Company Common Stock upon

the exercise of Company Stock Options awarded prior to the date hereof in

accordance with their present terms,

 

                  (v) (A) any granting by the Company to any current or former

director, executive officer or other employee of any increase in compensation,

bonus or other benefits, except for increases to then current employees who are

not directors or executive officers that were made in the ordinary course of

business consistent with past practice, (B) any granting by the Company to any

such current or former director, executive officer or employee of any increase

in severance or termination pay, or (C) any entry by the Company into, or any

amendment of, any employment, deferred compensation, consulting, severance,

termination or indemnification agreement with any such current or former

director, executive officer or any employee,

 

 

                                      -19-

<PAGE>

 

                  (vi) except insofar as may have been required by a change in

GAAP or regulatory accounting principles, any change in accounting methods,

principles or practices by the Company affecting its assets, liabilities or

business, including, without limitation, any reserving, renewal or residual

method, or estimate of practice or policy,

 

                  (vii) any Tax election or change in any Tax election,

amendment to any Tax Return (as defined in Section 3.10(e)), closing agreement

with respect to Taxes, or settlement or compromise of any income Tax liability

by the Company,

 

                  (viii) any material change in investment policies or

practices, or

 

                  (ix) any agreement or commitment (contingent or otherwise) to

do any of the foregoing.

 

      3.9 Legal Proceedings.

 

            (a) Except as set forth in Section 3.9(a) of the Company Disclosure

Schedule, the Company is not a party to any, and there are no pending or, to the

Company's knowledge, threatened, legal, administrative, arbitral or other

proceedings, claims, actions or governmental or regulatory investigations of any

material nature against the Company or challenging the validity or propriety of

the transactions contemplated by this Agreement.

 

            (b) Except as set forth in Section 3.9(b) of the Company Disclosure

Schedule, there is no injunction, order, judgment, decree, or regulatory

restriction imposed upon the Company or the assets of the Company, other than

any such injunction, order, judgment, decree, or regulatory restriction which

would not have a Material Adverse Effect upon the Company.

 

      3.10 Taxes.

 

            (a) Except where a failure to file Tax Returns, a failure of any

such Tax Return to be complete and accurate in any respect or the failure to pay

any Tax, individually or in the aggregate, would not have a Material Adverse

Effect on the Company, (i) the Company has duly filed all Tax Returns required

to be filed by it; (ii) all such filed Tax Returns are complete and accurate in

all respects, and (iii) the Company has duly and timely paid all Taxes (as

defined below) that are required to be paid by it, except with respect to

matters contested in good faith in appropriate proceedings and disclosed to

Buyer in writing. The Company has established as of September 30, 2004, on its

books and records reserves in accordance with GAAP consistently applied that are

adequate in the opinion of management of the Company for the payment of all

federal, state and local Taxes not yet due and payable, but are incurred in

respect of the Company through such date. The Company has not waived any statute

of limitations with respect to any material Taxes or, to the extent related to

such Taxes, agreed to any extension of time with respect to a Tax assessment or

deficiency, in each case to the extent such waiver or agreement is currently in

effect. Except as set forth in Section 3.10(a) of the Company Disclosure

Schedule, the federal, state, local income, franchise, sales and use Tax Returns

of the Company have been examined by the IRS or the appropriate state, local or

foreign Tax authority (or are closed to examination due to the expiration of the

applicable statute of limitations) and no deficiencies were asserted as a result

of such examinations which have not been resolved and paid in full. There is no

action, suit, investigation, audit, claim or assessment pending or proposed or,

to the knowledge of the Company, threatened, with respect to Taxes of the

Company. To the knowledge of the Company, no claim has ever been made by a Tax

authority in a jurisdiction where the Company does not file Tax Returns that the

Company is or may be subject to Taxes assessed by such jurisdiction. The Company

does not have any material liability for any Taxes of any person or entity,

other than the Company, under Treasury Regulation Section 1.1502-6 or any

comparable provision of state, local, or foreign law, as a transferee or

successor, by contract or otherwise. The Company has made available to Buyer

true and correct copies of the United States federal, state, local and foreign

income Tax Returns filed by the Company for taxable years ended after December

31, 1999 and before the date hereof.

 

 

                                      -20-

<PAGE>

 

            (b) Except as set forth in Section 3.10(b) of the Company Disclosure

Schedule, the Company (i) has not requested any extension of time within which

to file any Tax Return which Tax Return has not since been filed, (ii) is not a

party to any agreement providing for the allocation or sharing of Taxes, (iii)

is not required to include in income any adjustment pursuant to Section 481(a)

of the Code, by reason of a voluntary change in accounting method initiated by

the Company (nor does the Company have any knowledge that the IRS has proposed

any such adjustment or change of accounting method) or has any application

pending with the IRS or any other Tax authority requesting permission for any

change in accounting method, (iv) has not filed a consent pursuant to Section

341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply, (v)

has not issued or assumed any obligation under Section 279 of the Code, any high

yield discount obligation as described in Section 163(f)(1) of the Code or any

registration-required obligation within the meaning of Section 163(f)(2) of the

Code that is not in registered form, (vi) is not, or has not been during the

applicable period specified in section 897(c)(1)(A)(ii) of the Code, a United

States real property holding corporation within the meaning of Section 897(c)(2)

of the Code, (vii) is not or has not been a member of an affiliated group

(within the meaning of Section 1504(a) of the Code) filing consolidated United

States federal income Tax Returns (other than such a group the common parent of

which is or was the Company), and (viii) has not been a party to any

distribution occurring during the last three years in which the parties to such

distribution treated the distribution as one to which Section 355 of the Code

(or any similar provision of state, local or foreign law) applied.

 

            (c) Except as set forth in Section 3.10(c) of the Company Disclosure

Schedule, no officer, director, employee or agent (or former officer, director,

employee or agent) of the Company is entitled to now, or will or may be entitled

to as a consequence of this Agreement or the Merger or otherwise, to any payment

or benefit from the Company or from Buyer or any of its Subsidiaries which if

paid or provided would constitute an "excess parachute payment", as defined in

Section 280G of the Code or regulations promulgated thereunder.

 

 

                                      -21-

<PAGE>

 

            (d) The Company (i) has complied in all material respects with all

applicable laws, rules and regulations relating to the payment and withholding

of Taxes from the wages or salaries of employees and independent contractors,

(ii) has paid over to the proper governmental authorities all amounts required

to be so withheld and (iii) is not liable for any Taxes for failure to comply

with such laws, rules and regulations.

 

            (e) For the purposes of this Agreement, (i) the term "Taxes" shall

include any of the following imposed by or payable to any Governmental Entity:

any income, gross receipts, license, payroll, employment, excise, severance,

stamp, business, occupation, premium, windfall profits, environmental (including

taxes under Section 59A of the Code), capital stock, franchise, profits,

withholding, social security (or similar Tax), unemployment, disability, real

property, personal property, sales, use, transfer, registration, or value added

Tax, any alternative or add-on minimum Tax, any estimated Tax, and any levy,

impost, duty, assessment or withholding, in each case including any interest,

penalty, or addition thereto, whether or not disputed; and (ii) the term "Tax

Return" shall mean any return, declaration, report, claim for refund,

information return or statement relating to Taxes, including any schedule or

attachment thereto, and including any amendment thereof, to be filed (whether on

a mandatory or elective basis) with any Governmental Entity responsible for the

collection or imposition of Taxes.

 

      3.11 Employee Benefits.

 

            (a) Except as disclosed in Section 3.11(a) of the Company Disclosure

Schedule, neither the Company nor any ERISA Affiliate (as defined herein)

maintains or contributes to any "employee pension benefit plan", within the

meaning of section 3(2) of the Employee Retirement Income Security Act of 1974,

as amended ("ERISA") ("the Company Pension Plans"), "employee welfare benefit

plan", within the meaning of Section 3(l) of ERISA (the "Company Welfare

Plans"), stock option plan, stock purchase plan, stock appreciation right plan,

deferred compensation plan, severance plan, bonus plan, employment agreement or

other similar plan, program or arrangement, whether formal or informal, written

or unwritten, (the plans, programs and arrangements identified in Section

3.11(a) of the Company Disclosure Schedule being collectively referred to as the

"Company Benefit Plans"). The Company has never had an obligation to contribute

to any "multiemployer plan", within the meaning of sections 3(37) and 4001(a)(3)

of ERISA. As used herein, "ERISA Affiliate" means any entity required to be

aggregated with the Company under Section 414(b), (c), (m) or (o) of the Code or

Section 4001 of ERISA.

 

            (b) The Company has delivered to Buyer a complete and accurate copy

of each of the following with respect to each of the Company Pension Plans and

the Company Welfare Plans: (i) plan document, summary plan description, and

summary of material modifications (or, if not available or unwritten, a detailed

description of the foregoing); (ii) trust agreement or insurance contract, if

any; (iii) most recent IRS determination letter, if any; (iv) three most recent

actuarial reports, if any; and (v) three most recent annual reports on Form

5500, including any schedules and attachments thereto.

 

 

                                      -22-

<PAGE>

 

            (c) At December 31, 2003, the fair value of plan assets of the

Company Pension Plans subject to Title IV of ERISA exceeds the then projected

benefit obligation of each of the Company Pension Plans based upon the actuarial

assumptions used for purposes of the preparation of the Company Financial

Statements for the year ended December 31, 2003.

 

            (d) During the last five years, the PBGC has not asserted any claim

for liability against the Company which has not been paid in full.

 

            (e) All premiums (and interest charges and penalties for late

payment, if applicable) due to the PBGC with respect to each Company Pension

Plan have been paid. All contributions required to be made to each Company

Pension Plan under the terms thereof, ERISA or other applicable law have been

timely made, and all amounts properly accrued to date as liabilities of the

Company which have not been paid have been properly recorded on the books of the

Company.

 

            (f) Except as disclosed in Section 3.11(f) of the Company Disclosure

Schedule, each of the Company Pension Plans, the Company Welfare Plans and each

other plan and arrangement identified in Section 3.11(a) of the Company

Disclosure Schedule has been operated in compliance in all material respects

with the provisions of ERISA, the Code, all regulations, rulings and

announcements promulgated or issued thereunder, and all other applicable

governmental laws and regulations. Furthermore, except as disclosed in Section

3.11(f) of the Company Disclosure Schedule, the IRS has issued a favorable

determination letter with respect to each of the Company Pension Plans and,

except as disclosed in Section 3.11(f) of the Company Disclosure Schedule, no

fact or circumstance exists which could disqualify any such plan that could not

be retroactively corrected (in accordance with the procedures of the IRS). No

event has occurred and no condition exists that could subject the Company or the

fund of any Company Benefit Plan to an excise Tax or penalty, whether by

indemnity or otherwise.

 

            (g) Except as disclosed in Section 3.11(g) of the Company Disclosure

Schedule, no non-exempt prohibited transaction, within the meaning of Section

4975 of the Code or 406 of ERISA, has occurred with respect to any of the

Company Welfare Plans or the Company Pension Plans.

 

            (h) None of the Company Pension Plans or any trust created

thereunder has been terminated, nor have there been any "reportable events"

within the meaning of Section 4043(b) of ERISA, with respect to any of the

Company Pension Plans.

 

            (i) No "accumulated funding deficiency", within the meaning of

Section 412 of the Code and Section 302 of ERISA, has been incurred with respect

to any of the Company Pension Plans.

 

 

                                      -23-

<PAGE>

 

             (j) Except as disclosed in Section 3.11(j) of the Company Disclosure

Schedule, there are no pending, or, to the best knowledge of the Company,

threatened or anticipated claims (other than routine claims for benefits) by, on

behalf of, or against any, of the Company Pension Plans or the Company Welfare

Plans, any trusts related thereto or any other plan or arrangement identified in

any subsection of Section 3.11 of the Company Disclosure Schedule. No assets of

the Company are subject to any lien under Section 412 of the Code.

 

            (k) Except as disclosed in Section 3.11(k) of the Company Disclosure

Schedule, no Company Pension Plan or Company Welfare Plan provides medical or

death benefits (whether or not insured) beyond an employee's retirement or other

termination of service, other than (i) coverage mandated by law, or (ii) death

benefits under any Company Pension Plan.

 

            (l) There are no unfunded benefits obligations which are not

accounted for by reserves shown in the Company Financial Statements and

established under GAAP, or otherwise noted on the Company Financial Statements.

All contributions required to have been made or remitted and all expenses

required to have been paid by the Company with respect to any Company Benefit

Plan or under ERISA or the Code have been paid within the time prescribed by

such Plan, ERISA or the Code. All contributions with respect to each Company

Benefit Plan have been currently deductible under the Code when made.

 

            (m) With respect to each Company Pension Plan and Company Welfare

Plan that is funded wholly or partially through an insurance policy, there will

be no liability of the Company as of the Effective Time under any such insurance

policy or ancillary agreement with respect to such insurance policy in the

nature of a retroactive rate adjustment, loss sharing arrangement or other

actual or contingent liability arising wholly or partially out of events

occurring prior to the Effective Time.

 

            (n) Neither the Company nor any ERISA Affiliates has announced to

employees, former employees or directors an intention to create, or has

otherwise created, a legally binding commitment to adopt any additional Company

Benefit Plans which are intended to cover employees or former employees of the

Company or any ERISA Affiliates or to amend or modify any existing Company

Benefit Plan which covers or has covered employees or former employees of the

Company or any ERISA Affiliate.

 

            (o) No Company Pension Plan subject to Title IV of the Code has been

terminated, and no filing of or notice of intent to terminate or initiation by

the PBGC to terminate has occurred. In addition, there has not been, nor is

there likely to be, a partial termination of a Company Pension Plan within the

meaning of Section 411(d)(3) of the Code.

 

            (p) With respect to the Company Benefit Plans, no event has occurred

and, to the knowledge of the Company, there exists no condition or set of

circumstances in connection with which the Company, or any ERISA Affiliate could

be subject to any liability (other than a liability to pay benefits thereunder)

under the terms of such Company Benefit Plans, ERISA, the Code or any other

applicable law, whether by way of indemnity or otherwise.

 

 

                                       -24-

<PAGE>

 

      3.12 Company Information.

 

            (a) The information relating to the Company to be contained in the

Proxy Statement, as of the date the Proxy Statement is mailed to shareholders of

the Company (and, if applicable, the date on which the Proxy Statement is mailed

to shareholders of the Company), and up to and including the date of the meeting

of shareholders of the Company to which such Proxy Statement relates (and, if

applicable, the date of the meeting of shareholders of the Buyer to which such

Proxy Statement may relate), 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 under which they were made, not misleading. The

Proxy Statement (except for such portions thereof that relate only to Buyer or

any of its Subsidiaries) will comply with the provisions of the Exchange Act and

the rules and regulations thereunder.

 

            (b) The information relating to the Company to be contained in the

Company's applications to the FDIC and the Commissioner will be accurate in all

material respects.

 

      3.13 Compliance with Applicable Law.

 

            (a) General. Except as set forth in Section 3.13(a) of the Company

Disclosure Schedule, the Company holds all material licenses, franchises,

permits and authorizations necessary for the lawful conduct of its business

under and pursuant to each such item, and the Company has complied with and is

not in default in any respect under any applicable law, statute, order, rule,

regulation, policy and/or guideline of any federal, state or local governmental

authority relating to the Company (other than where such defaults or

non-compliance will not, alone or in the aggregate, have a Material Adverse

Effect on the Company) and except as disclosed in Section 3.13(a) of the Company

Disclosure Schedule, the Company has not received notice of violation of, and

does not know of any such violations of, any of the above other than where such

violations will not, alone or in the aggregate, have a Material Adverse Effect

on the Company.

 

            (b) CRA. Without limiting the foregoing, the Company has complied in

all material respects with the Community Reinvestment Act ("CRA") and the

Company has no reason to believe that any person or group would object

successfully to the consummation of the Merger due to the CRA performance of or

rating of the Company. Except as listed in Section 3.13(b) of the Company

Disclosure Schedule, no person or group has materially and adversely commented

in writing to the Company in a manner requiring recording in a file of CRA

communications upon the CRA performance of the Company.

 

 

                                      -25-

<PAGE>

 

      3.14 Certain Contracts.

 

            (a) Except as disclosed in Section 3.14(a) of the Company Disclosure

Schedule (i) the Company is not a party to or bound by any contract or

understanding (whether written or oral) with respect to the employment or

termination of any present or former officers, employees, directors or

consultants. The Company has delivered to Buyer true and correct copies of all

employment agreements and termination agreements with officers, employees,

directors, or consultants to which the Company is a party or is bound.

 

            (b) Except as disclosed in Section 3.14(b) of the Company Disclosure

Schedule, (i) as of the date of this Agreement, the Company is not a party to or

bound by any commitment, agreement or other instrument which is material to the

results of operations or financial condition of the Company, (ii) no commitment,

agreement or other instru