AGREEMENT AND PLAN OF REORGANIZATION

 

Table of Contents

 

ARTICLE I. DEFINITIONS AND INTERPRETATION		1
1.1.	Definitions	1
1.2.	Terms Defined Elsewhere	5
1.3.	Interpretation	5
ARTICLE II. PLAN OF MERGER		5
2.1.	The Merger	5
2.2.	Effective Time and Effects of the Merger	5
2.3.	Conversion of PFI Common Stock	6
2.4.	Articles of Incorporation and Bylaws	6
2.5.	Payment for Shares	6
2.6.	Stock Options	8
2.7.	Computation of Merger Consideration	8
2.8.	Determination of Final Stockholders’ Costs	9
ARTICLE III. DISCLOSURE SCHEDULES; STANDARDS FOR REPRESENTATIONS AND WARRANTIES		10
3.1.	Disclosure Schedules	10
3.2.	Subsidiaries	11
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PFI		11
4.1.	Corporate Organization	11
4.2.	Capitalization	12
4.3.	Authority	13
4.4.	Consents and Approvals	13
4.5.	No Violations	13
4.6.	Licenses, Franchises and Permits	14
4.7.	Regulatory Reports	14
4.8.	Financial Statements	14
4.9.	Deposits	15
4.10.	Broker’s Fees	15
4.11.	Properties	15
4.12.	Undisclosed Liabilities	16
4.13.	Intellectual Property	16
4.14.	Condition of Fixed Assets and Equipment	17
4.15.	Absence of Certain Changes or Events	17
4.16.	Proceedings	18
4.17.	Taxes	18
4.18.	Employees	20
4.19.	Certain Contracts.	23
4.20.	Agreements with Regulatory Agencies	26
4.21.	Environmental Matters	26
4.22.	[Intentionally Omitted]	27
4.23.	Opinion	27

 

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4.24.	Insurance	27
4.25.	[Intentionally Omitted]	27
4.26.	Loan and Investment Portfolio	28
4.27.	State Takeover Laws and Charter Provisions	29
4.28.	Sole Agreement	29
4.29.	Disclosure	29
4.30.	Absence of Undisclosed Liabilities	30
4.31.	Allowance for Loan Losses	30
4.32.	Compliance with Laws	30
4.33.	Material Contract Defaults	31
4.34.	Certain Regulatory Matters	31
4.35.	PFI Information	31
4.36.	Offices and ATMs	31
4.37.	Vote Required	32
4.38.	Power of Attorney	32
4.39.	Facts Affecting Regulatory Approvals	32
4.40.	Derivative Transactions	32
4.41.	Trust Powers	33
4.42.	Registration Obligation	33
4.43.	Controls and Procedures	33
4.44.	CRA, Anti-Money Laundering, OFAC and Customer Information Security	34
4.45.	Investment Management and Related Activities	34
4.46.	Marine Loan Portfolio	35
4.47.	[Intentionally Left Blank]	35
4.48.	Core Deposits	35
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER AND NEWCO		35
5.1.	Corporate Organization	35
5.2.	Authority; No Violation	36
5.3.	Consents and Approvals	36
5.4.	Funds	37
5.5.	Broker’s Fees	37
5.6.	Legal Proceedings	37
5.7.	Buyer Information	37
5.8.	Ownership of PFI Common Stock	37
5.9.	Approvals	37
5.10.	Disclosure	37
5.11.	Capitalization, Regulatory Issues	38
5.12	Employment of Directors and Executive Officers of PFI or Pelican	38
ARTICLE VI. COVENANTS RELATING TO CONDUCT OF BUSINESS		38
6.1.	Covenants of PFI	38
6.2.	Covenants of Buyer	42
ARTICLE VII. ADDITIONAL AGREEMENTS		42
7.1.	Regulatory Matters	42

 

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7.2.	Access to Information	43
7.3.	Certain Actions	44
7.4.	Indemnification of PFI Directors and Officers	45
7.5.	Stockholder Meeting	45
7.6.	Legal Conditions to Merger	45
7.7.	Accounting Matters	45
7.8.	Employee Benefit Plans; Existing Agreements	46
7.9.	Additional Agreements	47
7.10.	[Intentionally Omitted]	47
ARTICLE VIII. CONDITIONS PRECEDENT		47
8.1.	Conditions to Each Party’s Obligation To Effect the Merger	47
8.2.	Conditions to Obligations of Buyer	48
8.3.	Conditions to Obligations of PFI	48
ARTICLE IX. TERMINATION AND AMENDMENT		49
9.1.	Termination	49
9.2.	Effect of Termination; Termination Fee	50
9.3.	Amendment	51
9.4.	Extension; Waiver	51
9.5.	Due Diligence Period, Preferred Stock Purchase	52
ARTICLE X. GENERAL PROVISIONS		52
10.1.	Closing	52
10.2.	Nonsurvival of Representations, Warranties and Agreements	52
10.3.	Expenses	53
10.4.	Notices	53
10.5.	Counterparts	54
10.6.	Entire Agreement	54
10.7.	Governing Law	54
10.8.	Severability	54
10.9.	Publicity	54
10.10.	Assignment; No Third Party Beneficiaries	54
10.11.	Jurisdiction	54
10.12.	Waiver of Jury Trial	55
10.13.	Attorneys’ Fees	55

 

Exhibit A	Form of Acceptance Certificate
Exhibit B	Escrow Agreement
Exhibit C	Designation of Preferred Stock Terms
Exhibit D	MK Contract
Exhibit E	Form of Opinion

 

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AGREEMENT AND PLAN OF REORGANIZATION

 

This AGREEMENT AND PLAN OF REORGANIZATION (this “Agreement”), is made and dated as of November 30, 2005, among Stark Bank Group, Ltd., a Iowa Corporation (“Buyer”), SBG II, Ltd. an Iowa corporation and a wholly owned subsidiary of Buyer (“Newco”), and Pelican Financial, Inc., a Delaware corporation (“PFI”).

 

RECITALS

 

PFI owns all of the issued and outstanding stock of Pelican National Pelican, a national banking association (“Pelican”).

 

The Boards of Directors of Buyer, Newco and PFI have determined that it is in the best interests of their respective companies and their stockholders to consummate the business combination transaction provided for herein in which, subject to the terms and conditions set forth herein, PFI will merge with and into Newco (the “Merger”).

 

As an inducement and condition to Buyer and Newco entering into this Agreement, certain of the stockholders of PFI have agreed to vote all of their shares of PFI common stock which they are entitled to vote in favor of the transactions contemplated by this Agreement at the meeting of PFI Stockholders at which this Agreement is considered as set forth in the form attached hereto.

 

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

 

AGREEMENT

 

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

 

ARTICLE I.  DEFINITIONS AND INTERPRETATION

 

1.1.                               Definitions .  The following terms shall have the indicated definitions.

 

Acquisition Proposal .  A proposed tender offer, written agreement, understanding or other proposal of any nature pursuant to which any Person or group, other than Buyer or any Buyer Subsidiary, would directly or indirectly (i) acquire or participate in a merger, share exchange, consolidation or any other business combination involving PFI or any PFI Subsidiary; (ii) acquire the right to vote 20% or more of the outstanding voting securities of PFI or any PFI Subsidiary; (iii) acquire 20% or more of the assets or earning power of PFI or of any PFI Subsidiary; or (iv) acquire in excess of 20% of any class of capital stock of PFI or any Subsidiary.

 

Affiliate .  With respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person.  For the purposes of this definition, “control” means, when used with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the

 

 

management and policies of such Person, whether through the ownership of voting securities, by contract, or otherwise, and the terms “controlling” and “controlled” have correlative meanings.

 

BHC Act .  The Bank Holding Company Act of 1956, as amended.

 

Certificate of Merger .  The certificate of merger complying with the DGCL and IGCL reflecting the merger of PFI with and into Newco.

 

DGCL .  The Delaware General Corporation Law, as amended.

 

Effective Time .  The effective time of the Merger as specified in the Certificate of Merger.

 

ERISA .  The Employee Retirement Income Security Act of 1974, as amended.

 

Exchange Act .  The Securities Exchange Act of 1934, as amended.

 

Exchange Agent .  The current stock transfer agent of PFI, which shall be responsible for the payment of the Merger Consideration in exchange for the surrender of PFI Common Stock in accordance with Section 2.6 hereof.

 

Expenses .  All reasonable in amount and reasonably incurred out-of-pocket expenses (including all reasonable fees and reasonable expenses of counsel, accountants, investment Bankers, experts and consultants to the applicable Party and its Affiliates) incurred by or on behalf of a Party to this Agreement in connection with this Agreement or the transactions contemplated by this Agreement.

 

FDIC .  The Federal Deposit Insurance Corporation.

 

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

 

GAAP .  United States generally accepted accounting principles consistently applied during the periods involved.

 

Governmental Entity .  Any court, administrative agency or commission or other governmental authority or instrumentality.

 

IGCL .  The Iowa Business Corporation Act, as amended.

 

Intellectual Property .  (i) trademarks, service marks, trade names, Internet domain names, designs, logos, slogans, and general intangibles of like nature, together with all goodwill, registrations and applications related to the foregoing; (ii) patents and industrial designs (including any continuations, divisionals, continuations-in-part, renewals, reissues, and applications for any of the foregoing); (iii) copyrights (including any registrations and applications for any of the foregoing); (iv) Software; and (v) technology, trade secrets and other confidential information, know-how, proprietary processes, formulae, algorithms, models, and methodologies.

 

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IRS .  The Internal Revenue Service.

 

Knowledge .  Any term of similar import means, (i) with respect to PFI, the actual knowledge of each director and executive officer of PFI or any PFI Subsidiary, and (ii) with respect to Buyer, the actual knowledge of each director and executive officer of Buyer or any Buyer Subsidiary.

 

Loan Property .  Any property in which PFI holds a security interest, and, where required by the context, such term means the owner or operator of such property.

 

Material Adverse Effect .  With respect to Buyer or PFI, as the case may be, a material adverse effect on (i) the business, results of operations or financial condition of such party and its Subsidiaries taken as a whole, other than any such effect attributable to or resulting from (t) any change in banking or similar laws, rules or regulations of general applicability or interpretations thereof by courts or governmental authorities, (u) any change in GAAP or regulatory accounting principles applicable to banks, thrifts or their holding companies generally, (v) any action or omission of the parties taken pursuant to or in accordance with this Agreement, or with the prior written consent of the other parties hereto, or at the written request of the other party hereto, (w) any events, conditions or trends in business or financial conditions affecting the banking industry, (x) any change or development in financial or securities markets or the economy in general, including changes in interest rates, (y) the announcement or execution of this Agreement, including any impact on relationships with customers or employees, or (z) charges and expenses contemplated in connection with the Merger and not otherwise in violation of this Agreement, including those related to employment contracts and severance payments; legal, accounting and investment banking fees; data processing conversion costs; and accounting changes or charges taken pursuant to this Agreement or (ii) the ability of the parties to consummate the transactions contemplated hereby.

 

Merger Consideration .  As calculated in accordance with Section 2.7 hereof.

 

NBA .  The National Banking Act, as amended.

 

OCC .  The Office of the Comptroller of the Currency.

 

PFI Common Stock or PFI Stock .  The common stock, par value $0.01 per share, of PFI.

 

PFI Option Plan .  The PFI Stock Option and Incentive Plan for officers, directors and key employees.

 

PFI Real Properties .  Any real property owned, leased, occupied or operated by PFI or any PFI Subsidiary.

 

PFI Stock Certificate .  A certificate, which previous to the Merger represented any shares of PFI Common Stock.

 

Per Share Merger Consideration .  The Merger Consideration divided by the number of outstanding shares of PFI Common Stock on the Effective Time rounded to the nearest $.01.

 

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Person .  An individual, partnership (general or limited), corporation, joint venture, business trust, limited liability company, cooperative association or other form of business organization, trust, estate or any other entity.

 

Regulatory Agencies .  The OCC, the FRB, the FDIC and any other regulatory authority or applicable self-regulatory organization with jurisdiction over the Merger.

 

Rights .  Subscriptions, options, warrants, calls, commitments or agreements of any character to purchase capital stock.

 

SEC .  The Securities and Exchange Commission.

 

SEC Reports .  All reports, proxy statements, registration statements, information statements and other documents filed with the SEC.

 

Software .  Computer programs, whether in source code or object code form (including any and all software implementation of algorithms, models and methodologies), databases and compilations (including any and all data and collections of data), and all documentation (including user manuals and training materials) related to the foregoing.

 

Subsidiary .  The word “Subsidiary” or “Subsidiaries” when used with respect to PFI or Buyer shall mean any corporation, partnership or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes or which the holder owns or controls more than 50% of the voting or equity securities.

 

Surviving Corporation .  The surviving corporation to the Merger, which shall be Newco.

 

Taxes .  Taxes shall mean all taxes, charges, fees, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including, but not limited to income, excise, property, sales, transfer, franchise, payroll, withholding, social security or other taxes, including any interest, penalties or additions attributable thereto.

 

Tax Return .  Any return, report, information return or other document (including any related or supporting information) with respect to Taxes.

 

Termination Date .  The Termination Date shall be the later of: (a) April 1, 2006 or (b) 60 days following expiration of the MK Look Back Period.  Provided however, that the Termination Date shall in no event extend beyond May 30, 2006 without the express written consent of the parties hereto.

 

1.2.                 Terms Defined Elsewhere .  The capitalized terms set forth below are defined as set forth in the Agreement.

 

1.3.                 Interpretation .  When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of or Exhibit or Schedule to this Agreement unless otherwise indicated.  The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Whenever the words “include”, “includes” or “including” are used in this Agreement, they

 

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shall be deemed to be followed by the words “without limitation”.  The phrases “the date hereof” and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date of this Agreement.  No provision of this Agreement shall be construed to require PFI, Buyer or any of their respective Affiliates to take any action that would violate any applicable law (including common law), rule or regulation.

 

ARTICLE II.  PLAN OF MERGER

 

2.1.                 The Merger .  Subject to the terms and conditions of this Agreement, in accordance with the DGCL and IGCL, at the Effective Time, PFI shall merge with and into Newco.  Newco shall be the Surviving Corporation, and shall continue its corporate existence under the laws of the State of Iowa.  The name of the Surviving Corporation shall continue to be “SBG II Co.”  Upon consummation of the Merger, the separate corporate existence of PFI shall terminate.

 

2.2.                             Effective Time and Effects of the Merger .

 

(a)                               Subject to the provisions of this Agreement, on the Closing Date, the Certificate of Merger shall be duly prepared, executed and delivered for filing with the Secretary of State of the State of Delaware and the laws of the State of Iowa. The Merger shall become effective at the Effective Time.  At and after the Effective Time, the Merger shall have the effects set forth in the DGCL and laws of the State of Iowa.

 

(b)          At the Effective Time, the separate existence of PFI shall cease, and Newco, as the Surviving Corporation, shall thereupon and thereafter possess all of the assets, rights, privileges, appointments, powers, licenses, permits and franchises of the two merged corporations, whether of a public or a private nature, and shall be subject to all of the liabilities, restrictions, disabilities and duties of PFI.

 

(c)           At the Effective Time, all rights, assets, licenses, permits, franchises and interests of PFI in and to every type of property, whether real, personal, or mixed, whether tangible or intangible, and choses in action shall be deemed to be vested in Newco as the Surviving Corporation by virtue of the Merger becoming effective and without any deed or other instrument or act of transfer whatsoever.

 

(d)                              At the Effective Time, the Surviving Corporation shall become and be liable for all debts, liabilities, obligations and contracts of PFI whether the same shall be matured or unmatured; whether accrued, absolute, contingent or otherwise; and whether or not reflected or reserved against in the balance sheets, other financial statements, books of account or records of PFI.

 

2.3.                 Conversion of PFI Common Stock .

 

(a)                               At the Effective Time, each share of PFI Common Stock issued and outstanding immediately prior to the Effective Time (other than shares of PFI Common Stock held directly or indirectly by PFI, Buyer or any of Buyer’s Subsidiaries) shall, by virtue of this

 

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Agreement and without any action on the part of the holder thereof, be converted into and exchangeable for the right to receive, the Per Share Merger Consideration.

 

(b)                              At the Effective Time, all of the shares of PFI Common Stock converted into the Per Share Merger Consideration pursuant to this Article II shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of PFI Stock Certificates shall thereafter cease to have any rights with respect to such securities, except the right to receive for each share the Per Share Merger Consideration.

 

(c)                               At the Effective Time, all shares of PFI Common Stock that are owned directly or indirectly by PFI, Buyer or any of Buyer’s Subsidiaries shall be cancelled and shall cease to exist and cash or other consideration shall be delivered in exchange therefor.

 

2.4.                               Articles of Incorporation and Bylaws .  At the Effective Time, the Articles of Incorporation of Newco, as in effect immediately prior to the Effective Time, shall be the Articles of the Surviving Corporation.  At the Effective Time, the Bylaws of Newco, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended in accordance with applicable law.

 

(a)                               Directors and Officers .  The directors and officers of Newco immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation at and after the Effective Time, each to hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation until their respective successors are duly elected or appointed and qualified.

 

(b)                              At the Effective Time of the Merger, each issued and outstanding share of capital stock of Newco shall be the sole outstanding shares of the Surviving Corporation.

 

2.5.                               Payment for Shares .

 

(a)                                       At the Effective Time, each share of PFI Common Stock issued and outstanding immediately prior to the Effective Time shall, without any action on the part of the holder thereof, become and be converted into the right to receive the Per Share Merger Consideration.  PFI Stock Certificates representing outstanding PFI Common Stock shall, after the Effective Time, represent only the right to receive the Per Share Merger Consideration from Newco.  Buyer or Newco shall make available or cause to be made available to the Exchange Agent amounts sufficient in the aggregate to provide all funds necessary for the Exchange Agent to make payments of the Merger Consideration to holders of PFI Common Stock issued and outstanding immediately prior to the Effective Time.  Promptly after the Effective Time, Buyer or Newco shall cause to be mailed to each person who was, at the Effective Time, a holder of record of issued and outstanding PFI Common Stock, a letter of transmittal and instructions for use in effecting the surrender of PFI Stock Certificates which, immediately prior to the Effective Time, representing such holder’s ownership of PFI Common Stock.

 

(b)                                      Each holder of PFI Common Stock, upon surrender to the Exchange Agent in proper form for cancellation of PFI Stock Certificates representing such holder’s ownership of PFI Common Stock, shall be entitled to receive a check from the Exchange Agent representing the appropriate amount of Merger Consideration which such holder has the right to receive in

 

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respect of the PFI Common Stock owned by such holder.  The PFI Stock Certificates so surrendered shall forthwith be cancelled.  No interest will be paid or accrued on the Merger Consideration, payable to holders of PFI Common Stock.

 

(c)                                       After the Effective Time, there shall be no transfers on the stock transfer books of PFI of the shares of PFI Common Stock which were issued and outstanding immediately prior to the Effective Time.  If, after the Effective Time, PFI Stock Certificates representing such shares are presented for transfer to the Exchange Agent, they shall be cancelled and exchanged for the Per Share Merger Consideration, as provided in this Article II.

 

(d)                                      In the event any PFI Stock Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such PFI Stock Certificate to be lost, stolen or destroyed and the posting by such person of a bond in such amount as the Exchange Agent may direct as indemnity against any claim that may be made against it with respect to such PFI Stock Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed PFI Stock Certificate the Per Share Merger Consideration deliverable in respect thereof pursuant to this Agreement.

 

(e)                                       Any portion of the Merger Consideration that remains unclaimed by the stockholders of PFI for twelve months after the Effective Time shall be paid to Newco.  Any stockholders of PFI who have not theretofore complied with this Article II shall thereafter look only to Newco for payment of the Per Share Merger Consideration deliverable in respect of each share of PFI Common Stock such stockholder holds as determined pursuant to this Agreement, without any interest thereon.  Notwithstanding the foregoing, none of Buyer, Newco, PFI, the Exchange Agent or any other person shall be liable to any former holder of shares of PFI Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

 

(f)                                         If after the date hereof and on or prior to the Effective Time, the outstanding shares of PFI shall be changed into a different number of shares by reason of any reclassification, recapitalization or combination, stock split, reverse stock split, stock dividend or rights issued in respect of such stock, or any similar event shall occur, the Merger Consideration per share shall be adjusted accordingly to provide to the holders of PFI stock the same economic effect as contemplated by this Agreement prior to such event.

 

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2.6.                               Stock Options .  At the Effective Time, (a) each option granted by PFI under the PFI Option Plan (whether vested or unvested), which is outstanding and unexercised immediately prior thereto, shall cease to represent a right to acquire shares of PFI Common Stock, and (b) without any action on the part of the holders thereof, any option with an exercise price less than the Per Share Merger Consideration shall become and be converted into the right to receive the difference between the Per Share Merger Consideration and the applicable per share option exercise price less $.20 per share plus an amount pursuant to Section 2.8(d) if applicable, which amount shall be deposited in the Escrow Agreement and distributed in accordance with the terms thereof.  Within ten (10) business days after the Effective Time, Buyer and Newco shall issue a check to each holder of such options representing the amount payable thereunder pursuant to this Section.

 

2.7.                               Computation of Merger Consideration .  The Merger Consideration shall be equal to $6.00 per share multiplied by the number of outstanding shares of the PFI Common Stock at the Effective Time subject to adjustment as provided below:

 

(a)                                   (i) In the event that the PFI Final Stockholders Costs are in excess of $3,000,000.00, the Merger Consideration shall be reduced by the amount that the PFI Final Stockholders Costs are in excess of $3,000,000; and (ii) if any loans have been repurchased by Pelican pursuant to the MK Contract prior to the Closing Date and are still owned by Pelican at the Closing Date, at the option of PFI, in lieu of including such loan in the computation of PFI Final Shareholder Costs, the Merger Consideration shall be reduced by the amount paid by Pelican for the repurchase of said loans and the amount paid by Pelican to repurchase said loans shall be deposited in the Escrow Agreement and distributed in accordance with the terms thereof.

 

(b)           “PFI’s Final Stockholders Costs” shall mean the all of the following out of pocket costs incurred by PFI or its Subsidiaries since June 30, 2005 and costs reasonable anticipated to occur, arising out of or in connection with any of the following:

 

(i)                                      All legal accounting, consulting fees and expenses incurred by PFI or any Subsidiary in connection with the negotiation, approval, execution or compliance with this Agreement or the Escrow Agreement (including but not limited to costs associated with the preparation and negotiation of this and other agreements entered into in connection with this agreement; the preparation and filing of any regulatory approvals; preparation printing, filing fees and mailing of documents to shareholders seeking approval for the transaction; costs of any consultants related to fairness or other opinions sought by PFI in connection with the transaction), and in the case of the Escrow Agreement, at the option of PFI, the fees of the escrow agent under the Escrow Agreement;

 

(ii)                                   All broker fees and expenses incurred by PFI or its Subsidiaries in connection with this transaction (including but not limited to any fees payable to Hovde Financial LLC).

 

(iii)                                Any costs or expenses incurred by the PFI or its Subsidiaries as a result of the (a) change in control, (b) stay bonus, (c) bonus,  (d) incentive compensation or (e) other compensation that accrues as a result of the closing of the transaction contemplated herein including but not limited to any compensation due to Mr. Howard Montgomery or Mr. Howard Nathan pursuant to employment contacts dated August 1, 2004 and September 27, 2004,

 

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respectively, provided, however, that any stay bonuses or similar compensation approved in writing or granted by Buyer shall not be included in the calculation of PFI’s Final Stockholder Costs.

 

(iv)                               The difference between the Per Share Merger Consideration and the exercise price for any options exercised between January 1, 2005 and the Effective Time

 

(v)                                  The costs or expenses related to the settlement of outstanding stock options to be paid by Newco pursuant to Section 2.6 hereof.

 

(vi)                               Any cost or expenses related to the termination of any leases listed on Schedule 2.7(b)(vi) and agreed to by Buyer prior to the expiration of the Due Diligence Period.

 

(vii)                            Any and all costs or expenses and anticipated costs and expenses for insurance related to coverage required to be provided by Buyer pursuant to Section 7.4 hereof.

 

(viii)                         Any and all loss, discount or reserve incurred by PFI or any PFI Subsidiary as a result of: (a) the sale of the Marine Loan Portfolio, or (b) pursuant to Section 4.46 hereof.

 

(ix)                                 The payment of any compensation to any officer or employee of the marine lending department of Pelican on or after November 28, 2005.

 

(c)                                   The Merger Consideration shall be reduced by an amount equal to $.20 multiplied by the number of outstanding shares of the PFI Common Stock at the Effective Time plus an amount pursuant to Section 2.8(d) if applicable.  The amount of the reduction provided for in the preceding sentence, together with the amount with held from persons holding unexercised options pursuant to Section 2.6, shall be deposited with a third party escrow agent at the Effective Time, to hold and distribute in accordance with the Escrow Agreement attached hereto as Exhibit B.

 

2.8.                               Determination of Final Stockholders’ Costs .

 

(a)                                   PFI Calculation .   As soon as practicable, but in no event later than 15 days prior to closing, PFI shall prepare and deliver to Buyer a calculation of the Final Stockholders’ Costs.

 

(b)                                  Disputes .  After receipt of the calculation of the Final Stockholders’ Costs, Buyer shall have 7 days (the “Review Period”) to review the calculation of the Final Stockholders’ Costs, together with the work papers used in the preparation thereof.  Buyer may dispute items reflected in the calculation of the Final Stockholders’ Costs.  Unless Buyer delivers written notice to PFI on or prior to the end of the Review Period specifying in reasonable detail the amount, nature and basis of each disputed item, Buyer shall be deemed to have accepted and agreed to the calculation of the Final Stockholders’ Costs.  If Buyer so notifies PFI of its objection to the calculation of the Final Stockholders’ Costs, Buyer and PFI must, within 5 days (or such longer period as the Parties may agree) following such notice (the “Resolution Period”),

 

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attempt to resolve their differences and any resolution by them as to any disputed amounts is final, binding and conclusive on the Parties.

 

(c)                                   Arbitrators .  If, at the conclusion of the Resolution Period, there are any amounts remaining in dispute as to the Final Stockholders’ Costs, then all amounts remaining in dispute shall be submitted to McGladrey and Pullen or such other accounting firm mutually selected by the Parties (the “Arbitrators”) within ten days after the expiration of the Resolution Period.  Each Party shall execute, if requested by the Arbitrators, a reasonable engagement letter.  All fees and expenses relating to the work, if any, to be performed by the Arbitrators shall be pro rata as between PFI (via purchase price adjustment) on the one hand and Buyer on the other in proportion to the allocation of the dollar amount of the amounts remaining in dispute between PFI and Buyer made by the Arbitrators such that the prevailing Party shall pay the lesser proportion of such fees and expenses.  The Arbitrators shall act as an arbitrator to determine, based solely on the provisions of this Agreement and the presentations by PFI and Buyer, and not by independent review, only those issues still in dispute and only as to whether such amounts were arrived at in accordance with this Agreement.  The Arbitrators’ determination must be made within 15 days of their selection, must be set forth in a written statement delivered to PFI and Buyer and shall be final, binding and conclusive on the Parties.

 

(d)                                  Deposit in Escrow .  Notwithstanding the forgoing paragraphs (b) and (c), at the option of PFI, the amount of any disputed item may be withheld from (i) the Merger Consideration and (ii) the amount payable with respect to options pursuant to section 2.6, and shall be deposited into the escrow fund established by the Escrow Agreement and shall be released in accordance with the provisions thereof.

 

ARTICLE III.  DISCLOSURE SCHEDULES; STANDARDS FOR

REPRESENTATIONS AND WARRANTIES

 

3.1.                               Disclosure Schedules .  In connection with the execution and delivery of this Agreement, PFI has delivered to Buyer and Newco disclosure schedules (the “PFI Disclosure Schedule”) setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more of PFI’s representations or warranties contained in Article IV, or to one or more of PFI’s covenants contained in Article VI (it being understood and agreed that if an item is properly set forth in a section of the PFI Disclosure Schedule, it shall be deemed to be set forth in any other relevant section of the PFI Disclosure Schedule), provided , however, that notwithstanding anything in this Agreement to the contrary the mere inclusion of an item in a Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by a party that such item represents a material exception or material fact, event or circumstance or that such item has had or would have a Material Adverse Effect with respect to PFI.

 

3.2.                               Subsidiaries .  Where the context permits, “Buyer” shall refer to Buyer and each of its Subsidiaries and “PFI “shall refer to PFI and each of its Subsidiaries.

 

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ARTICLE IV.  REPRESENTATIONS AND WARRANTIES OF PFI

 

Subject to Article III, PFI hereby represents and warrants to Buyer and Newco as follows:

 

4.1.                               Corporate Organization .

 

(a)                               PFI is a Bank Holding Company (as defined in the BHC Act) duly organized, validly existing and in good standing under the laws of the State of Delaware and a member of the FRB.  PFI 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, holds properties and assets only of the types permitted by the laws of the State of Delaware, the United States, the rules and regulations promulgated by the Regulatory Agencies for insured depository institutions, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary.  The Certificate of Incorporation and Bylaws of PFI, copies of which have previously been made available to Buyer, are true and correct copies of such documents as in effect as of the date hereof.

 

(b)                              Pelican is duly organized, validly existing and in good standing under the laws of the United States. The Articles of Association and Bylaws of Pelican, copies of which have previously been made available to Buyer, are true and correct copies of such documents as in effect as of the date hereof.  Pelican has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary.  PFI owns all of the issued and outstanding stock of Pelican. The deposit accounts of Pelican are insured by the FDIC through the Bank Insurance Fund to the fullest extent permitted by law, and all premiums and assessments required in connection therewith have been paid when due.

 

(c)                               PFI has no, and since December 31, 2004, PFI has not had any, Subsidiaries other than Pelican.  PFI’s Subsidiaries that existed after January 1, 2000 and prior to December 31, 2004 are listed in the PFI Disclosure Schedules.  PFI neither owns nor controls, directly or indirectly 5% or more of the outstanding equity securities, either directly or indirectly, of any Person, except Pelican.

 

(d)                              The minute books of PFI contain true and correct records, in all material respects, of all meetings and other corporate actions held or taken since January 1, 2000 of its stockholders and Board of Directors (including committees of the Board of Directors).  PFI has provided to Buyer true, correct and complete copies of the charter documents of PFI and each PFI subsidiary.

 

4.2.                               Capitalization .

 

(a)                                   The authorized capital stock of PFI consists of 10,000,000 shares of common stock, par value $0.01 per share, and 200,000 shares of preferred stock, par value $0.10 per share.  As of the date hereof, (a) there are 4,494,365 shares of PFI Common Stock issued and outstanding (b) no shares of preferred stock of PFI outstanding on the date hereof and no shares of preferred stock will be outstanding at Effective Time other than those shares of the Series A

 

10

 

Convertible Preferred Stock contemplated to be issued pursuant to the provision of Section 9.5 hereof, and (c) no shares of PFI Common Stock held by PFI as treasury stock.  Except as set forth on Section 4.2 of the PFI Disclosure Schedule, as of the date hereof, there were no shares of PFI Common Stock reserved for issuance for any reason or purpose.  All of the issued and outstanding shares of PFI 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 set forth on the PFI Disclosure Schedule, PFI does not have and is not bound by any outstanding Rights calling for the purchase or issuance of any shares of PFI Common Stock or any other equity security of PFI or any securities representing the right to purchase or otherwise receive any shares of PFI Common Stock or any other equity security of PFI and PFI is not obligated to issue any additional shares of its common stock or any additional options, warrants or other Rights in or with respect to the unissued shares of such stock or any other securities convertible into or exchangeable for such stock.

 

(b)                                  The authorized capital stock of Pelican consists of 1,000,000 shares of common stock, par value $5.00 per share, and 100,000 Shares of preferred stock, par value $1.00 per share.  As of the date hereof, (a) there are 200,000 shares of Pelican Common Stock issued and outstanding (b) no shares of preferred stock of Pelican outstanding, and (c) no shares of Pelican Common Stock held by Pelican as treasury stock.  Except as set forth on Section 4.2 of the PFI Disclosure Schedule, as of the date hereof, there were no shares of Pelican Common Stock reserved for issuance for any reason or purpose.  All of the issued and outstanding shares of Pelican 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 set forth on the PFI Disclosure Schedule, Pelican does not have and is not bound by any outstanding Rights calling for the purchase or issuance of any shares of Pelican Common Stock or any other equity security of Pelican or any securities representing the right to purchase or otherwise receive any shares of Pelican Common Stock or any other equity security of Pelican and Pelican is not obligated to issue any additional shares of its common stock or any additional options, warrants or other Rights in or with respect to the unissued shares of such stock or any other securities convertible into or exchangeable for such stock.

 

(c)                                   Neither PFI nor any PFI Subsidiary has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character providing for the purchase, sale, or issuance of any shares of capital stock or any other equity security of any PFI Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such PFI Subsidiary, other than the PFI Stock Options.

 

(d)                                  No bonds, debentures, notes or other indebtedness having the right generally to vote on any matters on which stockholders of PFI may vote are issued and outstanding.

 

4.3.                               Authority .  PFI has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of PFI.  The Board of Directors of PFI has directed that this Agreement and the transactions contemplated hereby be submitted to PFI’s stockholders for approval at a meeting of such stockholders and, except for the adoption of this

 

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Agreement by the requisite vote of PFI’s stockholders, no other corporate proceedings on the part of PFI are necessary to approve this Agreement and to consummate the transactions contemplated hereby.  This Agreement has been duly and validly executed and delivered by PFI (assuming due authorization, execution and delivery by Buyer) this Agreement constitutes a valid and binding obligation of PFI, enforceable against PFI 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.

 

4.4.                               Consents and Approvals .  Except for (a) the filing with the SEC of the a proxy statement, relating to the meeting of PFI’s stockholders to be held in connection with the transactions contemplated herein (the “Proxy Statement”) and the completion of the SEC’s review process, (b) the approval of this Agreement by the requisite vote of the stockholders of PFI, (c) the filing of applications and notices, as applicable, with the FRB under the Bank Merger Act, and approval of such applications and notices, (d) the filing of such other applications, filings, authorizations, orders and approvals as may be required under applicable Federal and state law (the items referenced in clauses (c) and (d) are collectively referred to as “Banking Approvals”) and (e) any other consents or approvals listed in Section 4.4 of the PFI Disclosure Schedule, no consents or approvals of or filings or registrations with any Governmental Entity or with any third party are required to be made by PFI in connection with the execution and delivery by PFI of this Agreement or the consummation by PFI of the Merger and the other transactions contemplated hereby.

 

4.5.                               No Violations .  Except as may be set forth in Section 4.5 of the PFI Disclosure Schedule, neither the execution and delivery of this Agreement by PFI, nor the consummation by PFI of the transactions contemplated hereby, nor compliance by PFI with any of the terms or provisions hereof, will (i) violate any provision of the Certificate of Incorporation, Articles of Association or Bylaws of PFI or Pelican, or (ii) assuming that the consents and approvals referred to in Section 4.4 hereof are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to PFI or Pelican or any of their 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 properties or assets of PFI or Pelican 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 PFI or Pelican is a party, or by which it or its properties or assets may be bound or affected.

 

4.6.                               Licenses, Franchises and Permits .  PFI and each PFI Subsidiary holds all licenses, licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses, except where the failure to hold such licenses, franchises, permits and authorizations would not reasonably be expected to have a Material Adverse Effect.  All of such licenses, franchises, permits and authorizations are in full force and effect and are transferable to a successor to PFI or any PFI Subsidiary in connection with or subsequent to the Closing of the transactions contemplated herein without any Consent, other than the Banking Approvals, subject to the legal right and authority of such successor to engage in the activities licensed, franchised, permitted or authorized thereby and except where the failure of such licenses,

 

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franchises, permits and authorizations to be in full force and effect and transferable to a successor to PFI or a PFI Subsidiary would not reasonably be expected to have a Material Adverse Effect.  Neither PFI nor any PFI Subsidiary has received notice of any Proceeding for the suspension or revocation of any such license, franchise, permit, or authorization and no such Proceeding is pending or, to PFI’s Knowledge, has been threatened by any Governmental Authority.

 

4.7.                               Regulatory Reports .  Except as provided in the PFI Disclosure Schedules, PFI and each PFI Subsidiary has timely filed by the date due or any extension thereof all reports, registrations and statements, together with any amendments required to be made with respect thereto, that it was required to file since January 1, 2002 with the Regulatory Agencies and has paid all fees and assessments due and payable in connection therewith.  Except for normal examinations conducted by a Regulatory Agency in the regular course of the business of PFI and each PFI Subsidiary, no Regulatory Agency has initiated any proceeding or, to the Knowledge of PFI, investigation into the business or operations of PFI or any PFI Subsidiary since January 1, 2002.  To PFI’s Knowledge, there is no unresolved violation or exception by any Regulatory Agency with respect to any report or statement relating to any examinations of PFI or any PFI Subsidiary.

 

4.8.                               Financial Statements .  Set forth in:

 

(a)                                   PFI’s Annual Report on Form 10-K for the year ended December 31, 2004 as filed with the SEC are the consolidated balance sheets of PFI as of December 31 for the fiscal years 2003 and 2004, and the related consolidated statements of earnings, stockholders’ equity and cash flows for the fiscal years 2002 through 2004, inclusive, accompanied by the audit reports of Crowe Chizek and Company, LLC, independent public accountants with respect to PFI, and (b) PFI’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 as filed with the SEC are the unaudited balance sheets and the related statements of earnings and stockholders’ equity of PFI at and for the quarters ended June 30, 2005 and June 30, 2004  (collectively, the “PFI Financial Statements”).  Subject, in the case of the unaudited statements, to audit adjustments reasonable in nature and amount, the PFI Financial Statements fairly present in all material respects the financial position of PFI as of the dates indicated therein.  Subject, in the case of the unaudited statements, to audit adjustments reasonable in nature and amount, each of the PFI Financial Statements (including the related notes, where applicable) complies with applicable accounting requirements in all material respects; and each of such statements (including the related notes, where applicable) has been prepared in accordance with GAAP, except as indicated in the notes thereto.  The books and records of PFI have been, and are being, maintained, in all material respects, in accordance with GAAP and any other applicable legal and accounting requirements.

 

(b)                                  The consolidated reports of condition and income of Pelican as of December 31, 2002, 2003 and 2004, and as of March 31, 2005, as filed with the OCC (the “Pelican Financial Statements”).  Subject, to audit adjustments reasonable in nature and amount, the Pelican Financial Statements fairly present in all material respects the financial position of Pelican as of the dates indicated therein.  Subject to audit adjustments reasonable in nature and amount, each of the Pelican Financial Statements (including the related notes, where applicable) complies with applicable reporting requirements in effect on the date prepared.  The books and

 

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records of Pelican have been, and are being, maintained, in all material respects, in accordance with GAAP and any other applicable legal and accounting requirements.

 

4.9.                               Deposits .  Except as provided in the PFI Disclosure Schedules, as of September 30, 2005, none of Pelican’s deposits (consisting of certificates of deposit, savings accounts, NOW accounts, money market accounts and checking accounts), is a brokered deposit.

 

4.10.                         Broker’s Fees .  Neither PFI 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 for Hovde Financial, Inc.

 

4.11.                         Properties. 

 

(a)                               Personal Property.  PFI and each PFI Subsidiary has good title to all its material properties and assets, other than real property, owned or stated to be owned by PFI or PFI Subsidiary, free and clear of all Encumbrances except:  (a) as set forth in the Financial Statements of PFI; (b) for Encumbrances for current taxes not yet due or taxes being contested in good faith by appropriate proceedings (any such contests existing as of the date hereof being reflected in the PFI Disclosure Schedule); (c) for Encumbrances incurred or properties or assets sold in the ordinary course of business; or (d) for Encumbrances that are not substantial in character, amount or extent and that do not materially detract from the value, or interfere with present use, of the property subject thereto or affected thereby, or otherwise materially impair the conduct of business of PFI or PFI Subsidiary. All leases of personal property material to PFI or any PFI Subsidiary under which PFI or any PFI Subsidiary is a lessee are valid and binding in accordance with their respective terms (other than due to the ordinary expiration of the term thereof), there is not under such lease any material existing default by PFI or such PFI Subsidiary or any event which with notice or lapse of time or both would constitute such a default, except as would not reasonably be expected to have, in the aggregate, a Material Adverse Effect.

 

(b)                              Real Estate. Schedule 4.11 of the PFI Disclosure Schedule contains a true and complete list of all real property leased or owned by PFI or PFI Subsidiary.  Except as provided in the PFI Disclosure Schedule, PFI and each PFI Subsidiary has duly recorded or caused to be recorded, in the appropriate county, all recordable interests in all material real property, including leaseholds and other interests in such real property (other than easements or security interests) owned or, if recordable by the PFI or any PFI Subsidiary under applicable law, leased by PFI or any the PFI Subsidiary. Either PFI or PFI Subsidiary has good and marketable title to such real property, and valid leasehold interests in such leaseholds, free and clear of all Encumbrances, except (a) for rights of lessors, co-lessees or sublessees in such matters that are reflected in the lease identified in the Disclosure Schedule; (b) for current taxes not yet due and payable or taxes being contested in good faith by appropriate proceedings (any such contests existing as of the date hereof being reflected in the PFI Disclosure Schedule); or (c) for such Encumbrances, if any, as do not materially detract from the value of or materially interfere with the present use, occupancy or operation of such property. All leases of real property material to PFI or any PFI Subsidiaries under which PFI or any PFI Subsidiary is a lessee are valid and binding in accordance with their respective terms (other than due to the ordinary expiration of the term thereof), there is not under such lease any material existing default by PFI or such PFI Subsidiary or any event which with notice or lapse of time or both would constitute such a

 

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default, and PFI or such PFI Subsidiary quietly enjoys the premises provided for in such lease, except as would not reasonably be expected to have, in the aggregate, a Material Adverse Effect.

 

4.12.                         Undisclosed Liabilities .  Except for liabilities or obligations which do not have, or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, neither PFI nor any PFI Subsidiaries to their Knowledge, has any liabilities or obligations, either accrued or contingent, that have not been:  (a) fully reflected or reserved against in the PFI Financial Statements; (b) incurred subsequent to June 30, 2005 in the ordinary course of business consistent with past practices; or (c) disclosed in the PFI Disclosure Schedule.

 

4.13.                         Intellectual Property .  Section 4.13 of the PFI Disclosure Schedule contains a true and complete list of all material PFI Intellectual Property.  Either PFI or one of the PFI Subsidiaries own or have a valid license to use all PFI Intellectual Property, free and clear of all liens, encumbrances, royalty or other payment obligations (except for royalties or payments with respect to Software licensed in the ordinary course of business).  To the Knowledge of PFI and the PFI Subsidiaries, the PFI Intellectual Property constitutes all of the Intellectual Property necessary to carry on the business of PFI and the PFI Subsidiaries as currently conducted, except where the failure to have such property individually or in aggregate would not reasonably be expected to have a Material Adverse Effect.  Other than in respect of Intellectual Property licensed in the ordinary course of business, neither PFI nor any PFI Subsidiary has any obligation to compensate any Person for the use of any of the PFI Intellectual Property and neither PFI nor any PFI Subsidiary has granted to any Person any license, option or other rights to use in any manner any of the PFI Intellectual Property, whether requiring the payment of royalties or not. To PFI’s Knowledge, the PFI Intellectual Property is valid and has not been cancelled, forfeited, expired or abandoned, and neither PFI nor any PFI Subsidiary has received any notice challenging the validity or enforceability of PFI Intellectual Property, other than as would not reasonably be expected, individually or in aggregate to have a Material Adverse Effect.  To PFI’s Knowledge, the conduct of the business of PFI and the PFI Subsidiaries does not violate, misappropriate or infringe upon the Intellectual Property rights of any third Person.  The consummation of the transactions contemplated by this Agreement will not result in the loss or material impairment of the right of PFI or any PFI Subsidiary to own or use any of the PFI Intellectual Property, and the Surviving Company and its Subsidiaries will have substantially the same rights to own or use the PFI Intellectual Property following the consummation of such transactions as PFI and the PFI Subsidiaries had prior to the consummation of such transactions, except such rights as would not reasonably be expected to have a Material Adverse Effect.

 

4.14.                         Condition of Fixed Assets and Equipment .  Section 4.14 of the PFI Disclosure Schedule contains a list of all material fixed assets and equipment used in the conduct of the business of PFI and the PFI Subsidiaries as of the Balance Sheet Date.  Each such item of fixed assets and equipment having a net book value in excess of $25,000 is, to PFI’s Knowledge, in good operating condition and repair, normal wear and tear excepted.

 

4.15.                         Absence of Certain Changes or Events .

 

(a)                               Except as disclosed in any SEC Reports or in Section 4.15(a) of the PFI Disclosure Schedule, since December 31, 2004,

 

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(i)                                  there has been no change or development or combination of changes or developments which, individually or in the aggregate, has had a Material Adverse Effect on PFI including but not limited to any of the following:

 

(1)                               any change in any of the assets, liabilities, results of operations, permits, methods of accounting or accounting practices, business, or manner of conducting business, of PFI or any PFI Subsidiary or any other event or development that has had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

 

(2)                               any damage, destruction or other casualty loss (whether or not covered by insurance) that has had, or would reasonably be expected to have, a Material Adverse Effect;

 

(3)                               any amendment, modification or termination of any existing, or entry into any new, material contract or permit that has had, or would reasonably be expected to have, a Material Adverse Effect;

 

(4)                               any disposition by PFI or any the PFI Subsidiaries of an asset the lack of which has had, or would reasonably be expected to have, a Material Adverse Effect; or

 

(5)                               any direct or indirect redemption, purchase or other acquisition by PFI or the PFI Subsidiaries of any equity securities or any declaration, setting aside or payment of any dividend or other distribution on or in respect of PFI Stock whether consisting of money, other personal property, real property or other things of value.

 

and

 

(ii)                                   PFI and the PFI Subsidiaries have carried on their business in the ordinary course of business consistent with past practices.

 

(b)                                  Except as may be set forth in to the SEC Reports filed for periods on or after January 1, 2004 or as may be set forth in Section 4.15(b) of the PFI Disclosure Schedule, since December 31, 2004 and solely with respect to executive officers (as defined in SEC rule 403 of Regulation C promulgated under the Securities Act of 1933) and directors, PFI and each PFI Subsidiary has not (i) increased the wages, salaries, compensation, pension, or other fringe benefits or perquisites payable to any such person from the amount thereof in effect as of December 31, 2004, (ii) granted any severance or termination pay to such person or entered into any contract to make or grant any severance or termination pay to such person, (iii) paid any bonus to such person or (iv) entered into any employment or compensation-related agreement with such person.

 

4.16.                         Proceedings .  Except as may be set forth in the exhibits of the SEC Reports filed for periods on or after January 1, 2004 or Section 4.16 of the PFI Disclosure Schedule, (a) PFI and each PFI Subsidiary is not a party to any pending, and to PFI’s Knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against PFI or challenging the validity or propriety of the

 

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transactions contemplated by this Agreement nor is there any judgment, decree, injunction, rule or order of any Governmental Entity outstanding against PFI or any PFI Subsidiary; (b) to PFI’s Knowledge, there is no injunction, order, judgment or decree imposed upon PFI or its assets; and (c) there is no injunction, order, judgment or decree imposed upon PFI or any PFI Subsidiary with respect to the transactions contemplated by this Agreement.

 

4.17.                         Taxes . Except as set forth in Section 4.17 of the PFI Disclosure Schedule:

 

(a)                                   (i) All Tax Returns which could be of material financial significance to PFI and each PFI Subsidiary required to be filed by or on behalf of PFI or the PFI Subsidiaries or the Affiliated Group(s) of which any of them is or was a member, have been duly and timely filed with the appropriate taxing authorities in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such filed Tax Returns were true, complete and correct in all material respects; (ii) all Taxes due and payable by or on behalf of PFI or the PFI Subsidiaries, either directly, as part of an Affiliated Group Tax Return, or otherwise, have been fully and timely paid, except to the extent adequately reserved therefor in accordance with GAAP and/or applicable regulatory accounting principles or banking regulations consistently applied on PFI’s balance sheet, and adequate reserves or accruals for Taxes have been provided in PFI’s balance sheet with respect to any period through the date thereof for which Tax Returns have not yet been filed or for which Taxes are not yet due and owing; and (iii) no agreement, waiver or other document or arrangement extending or having the effect of extending the period for assessment or collection of Taxes (including, but not limited to, any applicable statute of limitation) has been executed or filed with any taxing authority by or on behalf of PFI, the PFI Subsidiaries or any of their Subsidiaries, or any Affiliated Group(s) of which any of them is or was a member.

 

(b)                              To the Knowledge of PFI and the PFI Subsidiaries, PFI and the PFI Subsidiaries have complied in all material respects with all applicable Laws relating to the payment and withholding of Taxes and have duly and timely withheld from any salaries, wages or other compensation paid to any employee or independent contractor, and have paid over to the appropriate taxing authorities, all amounts required to be so withheld and paid over for all periods under all applicable Laws.

 

(c)                               PFI has furnished to Buyer true and correct copies of (i) all income or franchise Tax Returns of PFI and the PFI Subsidiaries relating to all taxable periods beginning after December 31, 1999, and (ii) any audit report issued within the last three years relating to any Taxes due from or with respect to PFI or the PFI Subsidiaries with respect to their respective income, assets or operations.

 

(d)                              No claim has been made by a taxing authority in a jurisdiction where PFI or the PFI Subsidiaries do not file an income or franchise Tax Return such that PFI or the PFI Subsidiaries are or may be subject to income or franchise taxation by that jurisdiction.

 

(e)                               (i) All deficiencies asserted or assessments made as a result of any examinations by any taxing authority of the Tax Returns of or covering or including PFI or the PFI Subsidiaries have been fully paid, and, to the best of PFI’s knowledge, there are no other audits or investigations by any taxing authority in progress, nor have PFI or the PFI Subsidiaries received any written notice from any taxing authority that it intends to conduct such an audit or

 

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investigation; (ii) no issue has been raised by any taxing authority in any current or prior examination which, by application of the same or similar principles, could reasonably be expected to result in a material proposed deficiency against PFI or the PFI Subsidiaries for any subsequent taxable period.

 

(f)                                 Neither PFI or the PFI Subsidiaries nor any other Person on behalf of PFI or the PFI Subsidiaries has (i) filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by PFI or the PFI Subsidiaries, (ii) agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign Law by reason of a change in accounting method initiated by PFI or the PFI Subsidiaries or has any knowledge that the IRS has proposed in writing any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of PFI or the PFI Subsidiaries, or (iii) executed or entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign Law with respect to PFI or the PFI Subsidiaries.

 

(g)                              No property owned by PFI or the PFI Subsidiaries is (i) property required to be treated as being owned by another Person pursuant to provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986, (ii) constitutes “tax exempt use property” within the meaning of Section 168(h)(1) of the Code or (iii) is “tax-exempt bond financed property” within the meaning of Section 168(g)(5) of the Code.

 

(h)                              Neither PFI (except with the PFI Subsidiaries) nor any of the PFI Subsidiaries (except with PFI and the PFI Subsidiaries) is a party to any tax allocation, indemnification or sharing agreement (or similar agreement or arrangement), whether written or not written, pursuant to which it will have any obligation to make any payments after the Closing.

 

(i)                                  Neither PFI nor any of the PFI Subsidiaries has been a member of an Affiliated Group (other than a group whose common parent was PFI).

 

(j)                                  Neither PFI nor any of the PFI Subsidiaries has any liability for the Taxes of any person (other than PFI and any of the PFI Subsidiaries) under Section 1.1502-6 of the Treasury Regulations (or any similar provision of state, local or foreign Law), as a transferee or successor, by contract, or otherwise.

 

(k)                               Neither PFI nor any of the PFI Subsidiaries has any request for a ruling or determination letter in respect of Taxes pending between PFI or any PFI Subsidiary and any taxing authority.

 

(l)                                  There are no material liens as a result of any due and unpaid Taxes upon any of the assets of PFI or the PFI Subsidiaries.

 

(m)                            PFI and PFI Subsidiaries have disclosed on all relevant Tax Returns all positions taken therein that could reasonably be expected to give rise to a substantial

 

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underpayment penalty within the meaning of Section 6662 of the Code (or comparable provisions of applicable state income tax Laws). Neither PFI nor any PFI Subsidiary has participated in any “reportable transaction” or “listed transaction,” as those terms are defined in Section 6707A(c) of the Code (or comparable provisions of applicable state income tax laws).

 

4.18.                         Employees .

 

(a)                                   Other than as disclosed in Section 4.18 of the PFI Disclosure Schedule, there are no controversies pending or, to the best of PFI’s knowledge, threatened between either PFI or the PFI Subsidiaries and any of their respective officers, directors or employees.  Neither PFI nor any of the PFI Subsidiaries is a party to any collective bargaining agreement with respect to any of their respective employees or any labor organization to which their respective employees or any of them belong.

 

(b)                                  PFI has previously made available to Buyer copies of each “employee benefit plan,” as defined in Section 3(3) of ERISA, of which PFI or any of the PFI Subsidiaries is a sponsor or participating employer or as to which PFI or any of the PFI Subsidiaries makes contributions or is required to make contributions and which is subject to any provision of ERISA and covers any employee, whether active or retired, of PFI or any of the PFI Subsidiaries, together with all amendments thereto, all currently effective and related summary plan descriptions, the determination letter from the IRS, the annual reports for the most recent three years (Form 5500 including, if applicable, Schedule B thereto, and Form 11-K, if applicable) and a summary of material modifications prepared in connection with any such plan. Such plans are hereinafter referred to collectively as the “Employee Plans,” and are listed in Section 4.18 of the PFI Disclosure Schedule. No Employee Plan is a “multiemployer plan” within the meaning of Section 3(37) of ERISA. To the Knowledge of PFI, each Employee Plan that is intended to be qualified in form and operation under Section 401(a) of the Code has received a favorable determination letter from the IRS and the associated trust for each such Employee Plan is exempt from tax under Section 501(a) of the Code. To the Knowledge of PFI, no event has occurred that will subject such Employee Plans to a material amount of tax under Section 511 of the Code. To the Knowledge of PFI, all amendments required to bring each Employee Plan into conformity with all of the applicable provisions of ERISA, the Code and all other applicable Laws have been made, except to the extent that such amendments may be retroactively adopted under Section 401(b) of the Code and the regulations issued thereunder. Except as disclosed in the PFI Disclosure Schedule, all Employee Plans were in effect prior to January 1, 2005, and there has been no material amendment thereof (other than amendments required to comply with applicable Law).

 

(c)                                   PFI has previously made available to Buyer copies or descriptions of each employment agreement, plan or arrangement maintained or otherwise contributed to by PFI or any PFI Subsidiaries which is not an Employee Plan and which (exclusive of base salary and base wages and any benefit required solely under the Law of any state) provides for any form of current or deferred compensation, bonus, stock option, stock awards, stock-based compensation or other forms of incentive compensation or post-termination benefits or insurance, profit sharing, benefit, retirement, severance, change-in-control, group health or insurance, disability, workers’ compensation, vacation benefits, welfare or similar benefits to or for the benefit of any employee or class of employees, or former employees or class of former employees, or directors or former directors, whether active or retired, of PFI or any of the PFI Subsidiaries. Such plans

 

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and arrangements are hereinafter collectively referred to as “Benefit Arrangements” and are listed in Section 4.18 of the PFI Disclosure Schedule. Except as disclosed in the PFI Disclosure Schedule, all Benefit Arrangements which are in effect were commenced or in effect prior to January 1, 2003. Except as disclosed in the PFI Disclosure Schedule, there has been no amendment thereof since January 1, 2005.

 

(d)                                      With respect to all Employee Plans and Benefit Arrangements, PFI and the PFI Subsidiaries are in compliance (other than noncompliance the cost or liability for which would not have, or would not reasonably be expected to have, a Material Adverse Effect) with the requirements prescribed by any and all statutes, governmental or court orders, or governmental rules or regulations currently in effect, including but not limited to ERISA and the Code, applicable to such plans or arrangements. To the Knowledge of PFI, all government reports and filings required by Law have been properly and timely filed and all information required to be distributed to participants or beneficiaries has been distributed with respect to each Employee Plan and Benefit Arrangement, including, if applicable, Form S-8 registration statements, Forms 11-K and prospectus disclosures with respect to PFI Stock offered under any Employee Plan and Benefit Arrangement (other than noncompliance the cost or liability for which would not have, or would not reasonably be expected to have, a Material Adverse Effect). PFI and the PFI Subsidiaries have performed all of their obligations under all such Employee Plans and Benefit Arrangements in all material aspects.  Except as disclosed in Section 4.18 of the Disclosure Schedule, there is no pending or, to the best of PFI’s or PFI Subsidiaries’ knowledge, threatened legal action, proceeding or investigation against or involving any Employee Plan or Benefit Arrangement, other than routine claims for benefits (other than claims which would not have, or would not reasonably be expected to have, a Material Adverse Effect). No condition exists that could constitute grounds for the termination of any Employee Plan under Section 4042 of ERISA.  No “prohibited transaction,” as defined in Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Employee Plan, or any other employee benefit plan maintained by PFI or any of the PFI Subsidiaries which is covered by Title I of E