AGREEMENT AND PLAN OF REORGANIZATION

Exhibit 2.1

 

EXECUTION VERSION

 

 

AGREEMENT AND PLAN OF REORGANIZATION

 

by and between

 

PROSPERITY BANCSHARES, INC.

 

and

 

SNB BANCSHARES, INC.

 

Dated as of November 16, 2005

 

TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

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TABLE OF CONTENTS

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TABLE OF CONTENTS

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TABLE OF CONTENTS

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LIST OF EXHIBITS

 

 

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LIST OF SCHEDULES

 

 

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AGREEMENT AND PLAN OF REORGANIZATION

 

This Agreement and Plan of Reorganization (“Agreement”) dated as of November 16, 2005 is by and between Prosperity Bancshares, Inc. (“Prosperity”), a Texas corporation and financial holding company pursuant to the Gramm-Leach-Bliley Act (“GLB Act”) and registered bank holding company under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and SNB Bancshares, Inc. (“SNB”), a Texas corporation and registered bank holding company under the BHC Act.

 

WHEREAS, SNB desires to affiliate with Prosperity, and Prosperity desires to affiliate with SNB in the manner provided in this Agreement; and

 

WHEREAS, the respective Boards of Directors of Prosperity and SNB believe that the acquisition of SNB by Prosperity in the manner provided by, and subject to the terms and conditions set forth in, this Agreement and all exhibits, schedules and supplements hereto and the other transactions contemplated by this Agreement is desirable and in the best interests of their respective shareholders; and

 

WHEREAS, for federal income tax purposes, it is intended that the Merger (as defined below) qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder, and that this Agreement is intended to be and hereby is adopted as a plan of reorganization within the meaning of Section 368(a) of the Code; and

 

WHEREAS, the respective Boards of Directors of Prosperity and SNB have approved this Agreement and the transactions proposed herein substantially on the terms and conditions set forth in this Agreement; and

 

WHEREAS, as a condition and inducement to Prosperity’s willingness to enter into this Agreement, each of the members of the Board of Directors of SNB, certain officers of SNB and holders of more than 10% of the SNB Common Stock or the SNB Class B Stock (both as defined below) has, contemporaneously with the execution of this Agreement, entered into an agreement dated as of the date hereof in the form of Exhibit A attached hereto, pursuant to which he or she agrees to vote the shares of SNB Common Stock and SNB Class B Stock beneficially owned by such person in favor of this Agreement and the transactions contemplated hereby;

 

NOW, THEREFORE, in consideration of such premises and the mutual representations, warranties, covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as set forth below.

INTRODUCTION

 

A. This Agreement provides for the merger of SNB with and into Prosperity, with Prosperity as the surviving entity (the “Merger”), all pursuant to this Agreement. In connection with the Merger, all of the issued and outstanding shares of common stock, $0.01 par value per share, of SNB (“SNB Common Stock”) and all of the issued and outstanding shares of Class B stock, $0.01 par value per share, of SNB (“SNB Class B Stock”, and together with the SNB Common Stock, the “SNB Stock”) shall be exchanged for such consideration as set forth in this Agreement.

 

B. Subject to the terms and conditions of an agreement of merger to be entered into between Prosperity Holdings of Delaware, LLC (“Delaware Company”), a Delaware limited liability company and wholly-owned subsidiary of Prosperity, and SNB Corporation (“SNB Intermediate Company”), a Delaware corporation and wholly-owned subsidiary of SNB, and in accordance with applicable law, it is contemplated that immediately following consummation of the Merger, SNB Intermediate Company shall be merged (the “Intermediate Company Merger”) with and into Delaware Company, with Delaware Company as the surviving entity.

 

C. Subject to the terms and conditions of a plan of merger to be entered into between Southern National Bank of Texas (the “Bank”), a national banking association and wholly-owned subsidiary of SNB, and Prosperity Bank (“Prosperity Bank”), a Texas banking association and wholly-owned subsidiary of Prosperity, and in accordance with Section 32.301 of the Texas Finance Code, it is contemplated that immediately following consummation of the Merger and the Intermediate Company Merger, the Bank shall be merged with and into Prosperity Bank, with Prosperity Bank as the surviving bank.

 

I. THE MERGER

 

Section 1.1. The Merger . Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 8.2 hereof), SNB shall be merged with and into Prosperity (which, as the surviving corporation, is hereinafter referred to as “Continuing Corporation” whenever reference is made to it at or after the Effective Time) pursuant to the provisions of, and with the effect provided for in, Article 5 of the Texas Business Corporation Act (“TBCA”).

 

Section 1.2. Articles of Incorporation, Bylaws and Facilities of Continuing Corporation . At the Effective Time and until thereafter amended in accordance with applicable law, the Articles of Incorporation of Continuing Corporation shall be the Articles of Incorporation of Prosperity as in effect at the Effective Time. Until altered, amended or repealed as therein provided and in the Articles of Incorporation of Continuing Corporation, the Bylaws of Continuing Corporation shall be the Bylaws of Prosperity as in effect at the Effective Time. Unless and until changed by the Board of Directors of Continuing Corporation, the main office of Continuing Corporation shall be the main office of Prosperity as of the Effective Time. The established offices and facilities of SNB immediately prior to the Merger shall become established offices and facilities of Continuing Corporation. Until thereafter changed in accordance with law or the Articles of Incorporation or Bylaws of Continuing Corporation, all corporate acts, plans, policies, contracts, approvals and authorizations of SNB and Prosperity and

 

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their respective shareholders, boards of directors, committees elected or appointed thereby, officers and agents, which were valid and effective immediately prior to the Effective Time, shall be taken for all purposes as the acts, plans, policies, contracts, approvals and authorizations of Continuing Corporation and shall be as effective and binding thereon as the same were with respect to SNB and Prosperity, respectively, as of the Effective Time.

 

Section 1.3. Board of Directors and Officers of Continuing Corporation . At the Effective Time and until thereafter changed in accordance with applicable law or the Articles of Incorporation or Bylaws of Continuing Corporation, the members of the Board of Directors of Prosperity at the Effective Time shall be the Board of Directors of Continuing Corporation. At the Effective Time and until thereafter changed in accordance with the law or the Articles of Incorporation or Bylaws of Continuing Corporation, the senior officers of Prosperity immediately prior to the Effective Time shall be the officers of Continuing Corporation.

 

Section 1.4. Effect of Merger . At the Effective Time, the corporate existence of SNB and Prosperity shall, as provided in the provisions of law heretofore mentioned, be consolidated and continued in Continuing Corporation, and Continuing Corporation shall be deemed to be a continuation in entity and identity of SNB and Prosperity. All rights, franchises and interests of SNB and Prosperity, respectively, in and to any type of property and choses in action shall be transferred to and vested in Continuing Corporation by virtue of such Merger without reversion or impairment, without further act or deed and without any assignment having occurred, but subject to any existing liens or other encumbrances thereon. The Merger shall have all other effects set forth in Article 5.06 of the TBCA.

 

Section 1.5. Liabilities of Continuing Corporation . At the Effective Time, Continuing Corporation shall be liable for all liabilities of SNB and Prosperity. All debts, liabilities, obligations and contracts of SNB and of Prosperity, respectively, matured or unmatured, whether accrued, absolute, contingent or otherwise, and whether or not reflected or reserved against on balance sheets, books of account, or records of SNB or Prosperity, as the case may be, shall be those of Continuing Corporation and shall not be released or impaired by the Merger. All rights of creditors and other obligees and all liens on property of either SNB or Prosperity shall be preserved unimpaired subsequent to the Merger.

 

Section 1.6. Ratification by Shareholders . This Agreement shall be submitted to the shareholders of SNB in accordance with the terms of this Agreement, the applicable provisions of law and the Articles of Incorporation and Bylaws of SNB. SNB and Prosperity shall proceed expeditiously and cooperate fully in the procurement of any other consents and approvals and the taking of any other actions in satisfaction of all other requirements prescribed by law or otherwise necessary for consummation of the Merger on the terms herein provided, including, without limitation, the preparation and submission of all necessary notices, filings, requests for waivers and certificates with the Securities and Exchange Commission (“SEC”), Board of Governors of the Federal Reserve System (“Federal Reserve Board”), the Federal Deposit Insurance Corporation (“FDIC”), the Office of the Comptroller of the Currency (“OCC”) and the Texas Department of Banking (“TDB”).

 

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Section 1.7. Tax Consequences . It is intended by the parties hereto that the Merger shall constitute a reorganization within the meaning of Section 368(a) of the Code, and the parties hereto hereby adopt this Agreement as a “plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the Treasury Regulations promulgated thereunder.

 

Section 1.8. Modification of Structure . Notwithstanding any provision of this Agreement to the contrary, Prosperity may elect, subject to the filing of all necessary applications and the receipt of all required regulatory approvals, to modify the structure of the transactions contemplated hereby so long as (i) there are no material adverse federal income tax consequences to the shareholders of SNB as a result of such modification, (ii) the consideration to be paid to holders of SNB Stock under this Agreement is not thereby changed in kind or reduced in amount solely because of such modification and (iii) such modification will not be likely to materially delay or jeopardize receipt of any required regulatory approvals. In the event of such election, the parties agree to execute an appropriate amendment to this Agreement in order to reflect such election.

 

II. CONSIDERATION AND EXCHANGE PROCEDURES

 

Section 2.1. Merger Consideration .

 

(a) Unless otherwise adjusted as provided in any of Sections 2.2(a) or 2.2(b) hereof, at the Effective Time of the Merger, by virtue of the Merger and without any action on the part of the holders thereof, each share of SNB Stock issued and outstanding as of the Effective Time, other than any Dissenting Shares (as defined in Section 2.5 hereof), shall be converted into and represent the right to receive (i) the Per Share Stock Consideration (as defined below) and (ii) the Per Share Cash Consideration (as defined below). The Per Share Cash Consideration and the Stock Consideration are collectively referred to herein as the “Per Share Merger Consideration”).

 

“Per Share Stock Consideration” shall equal that fraction of a share of Prosperity Common Stock equal to the Exchange Ratio.

 

“Prosperity Common Stock” means the Prosperity common stock, $1.00 par value per share.

 

“Exchange Ratio” shall equal 0.3577, as may be adjusted pursuant to Section 2.2.

 

“Per Share Cash Consideration” shall equal $7.50, as may be adjusted pursuant to Section 2.2.

 

(b) Subject to the provisions of Section 2.5 hereof, at the Effective Time, all such shares of SNB Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each certificate previously representing any such shares shall thereafter represent the right to receive the Merger Consideration.

 

(c) Notwithstanding anything in this Agreement to the contrary, Prosperity will not issue any certificates or scrip representing fractional shares of Prosperity Common Stock otherwise issuable pursuant to the Merger. In lieu of the issuance of any such fractional shares, Prosperity shall pay to each former holder of SNB Stock otherwise entitled to receive such fractional share an amount of cash determined by multiplying (i) the Average Share Price (as

 

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defined below) of Prosperity Common Stock by (ii) the fraction of a share of Prosperity Common Stock which such holder would otherwise be entitled to receive pursuant to Section 2.1(a).

 

“Average Share Price” of Prosperity Common Stock shall be the average of the daily closing price per share of Prosperity Common Stock on The Nasdaq Stock Market, Inc. National Market System (“Nasdaq”) (as reported in The Wall Street Journal or, if not reported thereby, another alternative source as chosen by Prosperity) for the twenty (20) consecutive trading days ending on and including the fifth trading day prior to the Closing Date (as defined in Section 8.1 hereof).

 

Section 2.2. Adjustment to Per Share Merger Consideration .

 

(a) The Exchange Ratio shall be adjusted appropriately to reflect any change in the number of shares of Prosperity Common Stock by reason of any stock dividends or splits, reclassification, reorganization, recapitalization or conversion or other similar change in capitalization with respect to Prosperity Common Stock, received or to be received by holders of Prosperity Common Stock, when the record date or payment occurs prior to the Effective Time.

 

(b) In the event the Average Share Price of Prosperity Common Stock shall be less than $26.73, SNB may give notice of its intent to terminate this Agreement as provided in Section 9.1(h) hereof; subject to Prosperity’s right, in its sole and absolute discretion, to (i) increase the Exchange Ratio (subject to Section 2.4), (ii) increase the Per Share Cash Consideration, or (iii) increase both the Exchange Ratio (subject to Section 2.4) and the Per Share Cash Consideration, so that as a result of such adjustments contemplated in the case of each of clause (i), (ii) and (iii), the Total Merger Consideration (as defined below) shall be no less than $221,802,928. If Prosperity elects to make the Walkaway Counter Offer (as defined in Section 9.1(h) hereof), it shall give prompt written notice to SNB of such election (the “Walkaway Counter Offer Notice”). The Walkaway Counter Offer Notice, if given, shall set forth the adjustments to the Exchange Ratio and/or Per Share Cash Consideration, as the case may be, and shall include a calculation of the adjusted Total Merger Consideration. Any references in this Agreement to “Exchange Ratio” and “Per Share Cash Consideration” shall thereafter be deemed to refer to the Exchange Ratio and the Per Share Cash Consideration after giving effect to any adjustment set forth in the Walkaway Counter Offer Notice.

 

“Total Merger Consideration” shall equal the sum of the Total Stock Consideration, the Total Cash Consideration and the Total Option Consideration.

 

“Total Stock Consideration” shall equal the product determined by multiplying (i) the Average Share Price by (ii) the product of (A) the Exchange Ratio multiplied by (B) the aggregate number of shares of SNB Stock issued and outstanding as of the Effective Time.

 

“Total Cash Consideration” shall equal the product determined by multiplying (i) the Per Share Cash Consideration by (ii) the aggregate number of shares of SNB Stock issued and outstanding as of the Effective Time.

 

“Total Option Consideration” shall equal the sum of the Total Cash Option Consideration and the Total Prosperity Option Consideration.

 

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“Total Cash Option Consideration” shall equal the aggregate amount of Cash Option Consideration (as defined in Section 2.3) paid to the holders of SNB Stock Options.

 

“Total Prosperity Option Consideration” shall equal the product determined by multiplying (i) the aggregate number of Prosperity Options (as defined in Section 2.3) issued to the holders of the SNB Stock Options, by (ii) the difference between (A) the Average Share Price minus (B) the weighted average exercise price of all such Prosperity Options.

 

Section 2.3. Treatment of SNB Stock Options .

 

(a) At the Effective Time, each option to acquire shares of SNB Common Stock which is outstanding and unexercised immediately prior thereto (“SNB Stock Option”) pursuant to the SNB Bancshares, Inc. 2002 Stock Option Plan (“SNB Stock Option Plan”) shall automatically become vested and shall, at the option of the holder, subject to any adjustment to the number of Prosperity Options that may be issued as required by Section 2.4 hereof, either (i) be cancelled and converted into the right to receive the Cash Option Consideration (as defined below), or (ii) be converted (automatically and without any action on the part of the holder thereof) into the right to receive the Prosperity Option Consideration (as defined below).

 

“Cash Option Consideration” shall mean, with respect to each SNB Stock Option, a cash payment equal to the difference between (A) the sum of (1) the Exchange Ratio multiplied by the Average Share Price and (2) the Per Share Cash Consideration and (B) the exercise price of such SNB Stock Option as listed on Schedule 3.2(c).

 

“Prosperity Option Consideration” shall mean an option (a “Prosperity Option”) to purchase shares of Prosperity Common Stock in an amount and at an exercise price determined as provided below (and otherwise subject to the terms of the SNB Stock Option Plan and/or agreements evidencing the grants thereunder):

 

(i) The number of shares of Prosperity Common Stock to be subject to the new option shall be equal to the number of shares of SNB Common Stock subject to the original option multiplied by the Option Exchange Ratio (as defined below); and

 

(ii) The exercise price per share of Prosperity Common Stock under the new option shall be equal to the exercise price per share of SNB Common Stock under the original option divided by the Option Exchange Ratio.

 

(b) The Option Exchange Ratio shall be that number of shares of Prosperity Common Stock determined by (i) dividing the Per Share Cash Consideration by the Average Share Price, and (ii) adding that number to the Exchange Ratio. Based on an assumed Average Share Price of $31.45, Per Share Cash Consideration of $7.50 and no adjustment to the Exchange Ratio, the Option Exchange Ratio would equal 0.5962.

 

(c) Notwithstanding anything in this Agreement to the contrary, Prosperity will not issue a Prosperity Option representing the right to purchase any fractional share of Prosperity Common Stock. In lieu of the issuance of a Prosperity Option to purchase such fractional share, Prosperity shall pay a cash payment determined by multiplying (i) the difference between (A) the Average Share Price and (B) the exercise price of such Prosperity Option by (ii) the fraction of a share of Prosperity Common Stock which such holder would otherwise be entitled to receive upon the exercise of such Prosperity Option.

 

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(d) The adjustment provided herein with respect to any options which are “incentive stock options” as defined in Section 422 of the Internal Revenue Code, shall be and is intended to be effected in a manner which is consistent with section 424(a) of the Internal Revenue Code. The duration and other terms of the new option shall be the same as the original option except that all references to SNB shall be deemed to be references to Prosperity.

 

Section 2.4. Ceiling on Issuance of Prosperity Common Stock and Prosperity Options .

 

(a) Notwithstanding anything in this Agreement to the contrary, in no event shall the aggregate number of shares of Prosperity Common Stock, including Prosperity Options representing the right to purchase shares of Prosperity Common Stock, that Prosperity may issue as consideration in connection with the Merger exceed the Maximum Available Shares (as defined below).

 

The “Maximum Available Shares” shall equal twenty percent (20%) of the number of shares of Prosperity Common Stock outstanding as of the fifth trading day prior to the Closing Date less one (1) share of Prosperity Common Stock.

 

(b) If the aggregate number of shares of Prosperity Common Stock and Prosperity Options that would have otherwise been required to be issued by Prosperity but for Section 2.4(a) exceeds the Maximum Available Shares, the number of Prosperity Options to be issued shall be reduced, on a pro rata basis, and automatically converted into the right to receive the Cash Option Consideration, until the aggregate number of shares of Prosperity Common Stock and Prosperity Options no longer exceeds the Maximum Available Shares.

 

(c) If, after converting all of the Prosperity Options into the right to receive the Cash Option Consideration in accordance with Section 2.4(b), the aggregate number of shares of Prosperity Common Stock to be issued in connection with the Merger still exceeds the Maximum Available Shares, then the number of such shares of Prosperity Common Stock shall be the Maximum Available Shares, and the Per Share Cash Consideration shall be increased so that the Total Merger Consideration shall be no less than $221,802,928.

 

(d) Notwithstanding anything in this Agreement to the contrary, in no event shall the Total Stock Consideration be less than 50% of the amount determined by subtracting the Total Prosperity Option Consideration from the Total Merger Consideration. In the event that this Section 2.4(d) and Section 2.4(a) cannot be mutually satisfied, this Agreement shall be deemed to have been terminated pursuant to Section 9.1(h) and Prosperity shall be deemed to not have made a Walkaway Counter Offer.

 

Section 2.5. Dissenting Shares . Each share of SNB Stock issued and outstanding immediately prior to the Effective Time, the holder of which has not voted in favor of the Merger and who has delivered a written demand for payment of the fair value of such shares within the time and in the manner provided in Article 5.12 of the TBCA, is referred to herein as a “Dissenting Share.” Notwithstanding anything in this Agreement to the contrary, none of the Dissenting Shares shall be converted into or represent the right to receive the Per Share Merger

 

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Consideration pursuant to Section 2.1 of this Agreement and shall be entitled only to such rights as are available to such holder pursuant to the applicable provisions of the TBCA unless and until such holder shall have failed to perfect or shall have effectively withdrawn or lost his right to appraisal and payment under the TBCA. Each holder of Dissenting Shares shall be entitled to receive the value of such Dissenting Shares held by him in accordance with the applicable provisions of the TBCA; provided, such holder complies with the procedures contemplated by and set forth in the applicable provisions of the TBCA. If any holder of Dissenting Shares shall have failed to perfect or shall have effectively withdrawn or lost his dissenter’s rights, each of such holder’s Dissenting Shares shall thereupon be deemed to have been converted into and to have become exchangeable for the right to receive the Per Share Merger Consideration in accordance with the provisions of this Article II, without any interest thereon.

 

Section 2.6. Exchange of Shares .

 

(a) Immediately prior to the Closing Date, Prosperity shall deposit or cause to be deposited in trust with Computershare Investor Services, Inc., Denver, Colorado (the “Exchange Agent”) (i) certificates representing shares of Prosperity Common Stock and (ii) cash in an aggregate amount sufficient to make the appropriate cash payments (A) of the cash portion of the Merger Consideration set forth in Section 2.1 hereof, (B) to holders of Dissenting Shares pursuant to Section 2.5 hereof, if any, and (C) to holders of a fraction of a share of Prosperity Common Stock (such certificates and cash being referred to as the “Exchange Fund”). The Exchange Fund shall not be used for any other purpose, except as provided in this Agreement.

 

(b) As soon as practicable after the Effective Time, Prosperity shall cause the Exchange Agent to mail to each record holder of an outstanding certificate or certificates which as of the Effective Time represented shares of SNB Stock (the “Certificates”), a form letter of transmittal which will specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent and contain instructions for use in effecting the surrender of the Certificates for payment therefor. Upon surrender to the Exchange Agent of a Certificate, together with such letter of transmittal duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash and number of shares of Prosperity Common Stock provided in Section 2.1 hereof, and such Certificate shall forthwith be cancelled. No interest will be paid or accrued with respect to the shares of Prosperity Common Stock or cash payable upon surrender of the Certificates. Until surrendered in accordance with the provisions of this Section 2.5, each Certificate (other than Certificates representing Dissenting Shares) shall represent for all purposes the right to receive the Merger Consideration without any interest thereon.

 

(c) No dividends or other distributions declared after the Effective Time with respect to shares of Prosperity Common Stock and payable to the holders thereof shall be paid to the holder of a Certificate until such holder surrenders such Certificate to the Exchange Agent in accordance with this Section 2.6. After the surrender of a Certificate in accordance with this Section 2.6, the holder thereof shall be entitled to receive any such dividends or other distributions, without interest thereon, which had become payable after the Effective Time with respect to the shares of Prosperity Common Stock represented by such Certificate.

 

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(d) After the Effective Time, the stock transfer ledger of SNB shall be closed and there shall be no transfers on the stock transfer books of SNB of the shares of SNB Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to Prosperity, they shall be promptly presented to the Exchange Agent and exchanged as provided in this Section 2.6.

 

(e) Any portion of the Exchange Fund (including the proceeds of any investments thereof) that remains unclaimed by the shareholders of SNB for six months after the Exchange Agent mails the letter of transmittal pursuant to Section 2.6 shall be returned to Prosperity upon demand, and any shareholders of SNB who have not therefore complied with the exchange procedures in this Article II shall look to Prosperity only, and not the Exchange Agent, for the payment of any Merger Consideration in respect of such shares.

 

(f) If any certificate representing shares of Prosperity 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 appropriately endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form (reasonably satisfactory to Prosperity) 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 Prosperity 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 not payable.

 

(g) None of Prosperity, SNB, the Exchange Agent or any other person shall be liable to any former holder of shares of SNB Stock for any Prosperity Common Stock (or dividends or distributions with respect thereto) or cash properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

 

(h) In the event any Certificate shall have been lost, stolen or destroyed, then 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 Prosperity or the Exchange Agent, the posting by such person of a bond in such amount as Prosperity or the Exchange Agent may direct as indemnity against any claim that may be made against Prosperity with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof pursuant to this Agreement.

 

III. REPRESENTATIONS AND WARRANTIES OF SNB

 

SNB represents and warrants to Prosperity as set forth below. SNB agrees that, on or prior to the date hereof, it shall provide Prosperity with disclosure schedules (“Disclosure Schedules”) referred to in this Article III and that at the Closing it shall provide Prosperity with supplemental Disclosure Schedules reflecting any changes in the information contained in the Disclosure Schedules which have occurred in the period from the date of delivery of such Disclosure Schedules to the date of Closing.

 

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Section 3.1. Organization .

 

(a) SNB is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and a bank holding company registered under the BHC Act, subject to all laws, rules and regulations applicable to bank holding companies. SNB Intermediate Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Bank, a wholly-owned indirect subsidiary of SNB, is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America. Each of SNB, SNB Intermediate Company and the Bank has full power and authority (including all licenses, franchises, permits and other governmental authorizations which are legally required) to own, lease and operate its properties, to engage in the business and activities now conducted by it, except where the failure to be so licensed or qualified would not have a Material Adverse Effect on SNB. SNB owns all of the outstanding capital stock of SNB Intermediate Company free and clear of any lien, charge, claim or other encumbrance and SNB Intermediate Company owns all of the capital stock of the Bank free and clear of any lien, charge, claim or other encumbrance.

 

(b) The Bank is duly authorized to conduct a general banking business, embracing all usual deposit functions of commercial banks as well as commercial, industrial and real estate loans, installment credits, collections and safe deposit facilities subject to the supervision of the OCC. The Bank does not conduct trust activities.

 

(c) The deposit accounts of the Bank are insured by the FDIC through the Bank Insurance Fund to the fullest extent permitted by law, and all premiums and assessments due and owing as of the date hereof required in connection therewith have been paid by the Bank.

 

(d) Other than as set forth in Schedule 3.1(d) , neither SNB nor any of its Subsidiaries (i) has any Subsidiaries or Affiliates (as defined in Section 13.1(a) hereof), (ii) is a general partner or material owner in any joint venture, general partnership, limited partnership, trust or other non-corporate entity, and (iii) knows of any arrangement pursuant to which the stock of any corporation is or has been held in trust (whether express, constructive, resulting or otherwise) for the benefit of all shareholders of SNB.

 

(e) True and complete copies of the Certificate or Articles of Incorporation or Association and Bylaws or other constituent documents of SNB and each Subsidiary, each as amended to date (collectively, the “SNB Constituent Documents”), have been delivered or made available to Prosperity.

 

Section 3.2. Capitalization .

 

(a) The authorized capital stock of SNB consists of (i) 50,000,000 shares of SNB Common Stock, 9,782,878 of which are issued and outstanding as of the date of this Agreement, (ii) 3,216,781 shares of SNB Class B Stock, 2,652,475 of which are issued and outstanding as of the date of this Agreement, and (iii) 20,000,000 shares of SNB preferred stock, none of which are issued and outstanding as of the date of this Agreement. All of the issued and outstanding shares of SNB Stock are validly issued, fully paid and nonassessable, and have not been issued in violation of the preemptive rights of any person or in violation of any applicable federal or state laws.

 

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(b) SNB owns, either directly or indirectly, all of the issued and outstanding capital stock of its Subsidiaries, other than the preferred stock of Trust I, Trust II, Trust III and Trust IV (each as defined in Section 3.24 hereof) (collectively, the “Trusts”). The issued and outstanding shares of the capital stock of, or membership interests in, SNB’s Subsidiaries (i) are duly authorized, validly issued, fully paid and nonassessable, (ii) except with respect to the preferred stock of the Trusts, free and clear of any liens, claims, security interests and encumbrances of any kind and (iii) except with respect to the preferred stock of the Trusts, there are no irrevocable proxies with respect to such shares and there are no outstanding or authorized subscriptions, options, warrants, calls, rights or other agreements or commitments of any kind restricting the transfer of, requiring the issuance or sale of or otherwise relating to any such shares of capital stock to any person.

 

(c) Schedule 3.2(c) contains a list of the exercise prices, vesting schedules, expiration dates, holders, weighted exercise price and numbers of shares of SNB Common Stock subject to SNB Stock Options outstanding as of the date hereof. Except as set forth in Schedule 3.2(c) , all SNB Stock Options (i) have been duly authorized, (ii) were granted at a per share price which was not less than the fair market value per share of SNB Common Stock at the date of grant and (iii) that were intended to qualify as “incentive” stock options under Section 422(b) of the Internal Revenue Code met all the requirements under the Internal Revenue Code for such qualification.

 

(d) Except for the SNB Stock Options and except as set forth in Schedule 3.2(d) , there are no existing options, warrants, calls, convertible securities or commitments of any kind obligating SNB to issue any authorized and unissued SNB Stock.

 

(e) SNB does not have any outstanding commitment or obligation to repurchase, reacquire or redeem any of its outstanding capital stock. Other than pursuant to the Voting Agreement and Irrevocable Proxy attached hereto as Exhibit A, there are no voting trusts, voting agreements, buy-sell agreements or other similar arrangements affecting the SNB Stock to which SNB is a party.

 

Section 3.3. Approvals; Authority .

 

(a) SNB has full corporate power and authority to execute and deliver this Agreement (and any related documents), and SNB and each of its Subsidiaries has full legal capacity, power and authority to perform their respective obligations hereunder and thereunder and to consummate the contemplated transactions.

 

(b) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly, validly and unanimously approved by the Board of Directors of SNB. The Board of Directors of SNB has determined that this Agreement and the transactions contemplated hereby are advisable and in the best interests of SNB and its shareholders, and has directed that the Agreement be submitted to SNB’s shareholders for approval and adoption. Except for the approval of the shareholders of SNB, no further actions or

 

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corporate proceedings on the part of SNB are necessary to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by SNB and is a duly authorized, valid, legally binding agreement of SNB enforceable against SNB in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors’ rights generally and general equitable principles.

 

Section 3.4. Investments . SNB has furnished to Prosperity a complete list, as of September 30, 2005, of all securities, including municipal bonds, owned by SNB (the “Securities Portfolio”). Other than as set forth in Schedule 3.4 , all such securities are owned by SNB (i) of record, except those held in bearer form, and (ii) beneficially, free and clear of all mortgages, liens, pledges and encumbrances. Schedule 3.4 also discloses any entities in which the ownership interest of SNB equals 5% or more of the issued and outstanding voting securities of the issuer thereof. There are no voting trusts or other agreements or understandings with respect to the voting of any of the securities in the Securities Portfolio.

 

Section 3.5. Financial Statements .

 

(a) SNB has furnished or made available to Prosperity true and correct complete copies of its (i) Annual Report on Form 10-K for the year ended December 31, 2004 (“Annual Report”), as filed with the SEC, which contains SNB’s audited consolidated balance sheets as of December 31, 2004 and 2003, and the related audited consolidated statements of income, statements of changes in shareholders’ equity and statements of cash flows for the years ended December 31, 2004, 2003 and 2002, and (ii) Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, as filed with the SEC, which contains SNB’s unaudited consolidated balance sheets and related unaudited consolidated statements of income, statements of changes in shareholders’ equity and statements of cash flows as of and for the nine months ended September 30, 2005 and 2004. SNB has also delivered to Prosperity a true and correct copy of the Consolidated Reports of Condition and Income (“Call Reports”) filed by the Bank as of and for the years ended December 31, 2004, 2003 and 2002 and as of and for the nine months ended September 30, 2005 and 2004. The audited and unaudited financial information and Call Reports referred to in this Section 3.5(a) are collectively referred to in this Agreement as the “SNB Financial Statements.”

 

(b) The SNB Financial Statements fairly present the financial position and results of operations of SNB and its Subsidiaries at the dates and for the periods indicated in conformity with generally accepted accounting principles (“GAAP”), except with respect to the Call Reports which shall be in conformity with regulatory accounting principles, applied on a consistent basis, and except in the case of the unaudited SNB Financial Statements, subject to normally recurring year-end audit adjustments and the absence of notes to such SNB Financial Statements.

 

(c) As of the dates of the SNB Financial Statements referred to above, neither SNB nor any Subsidiary had any liabilities, fixed or contingent, which are material and are not fully shown or provided for in such SNB Financial Statements or otherwise disclosed in this Agreement, or in any of the documents delivered to Prosperity.

 

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Section 3.6. Securities and Exchange Commission Reporting Obligations . Since September 30, 2004, SNB has timely filed all material reports and statements, together with any amendments required to be made with respect thereto, that it was required to file with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As of their respective dates, each of such reports and statements, (or if amended, as of the date so amended), were true and correct and complied in all material respects with the relevant statutes, rules and regulations enforced or promulgated by the SEC and such reports did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

Section 3.7. Loan Portfolio . With respect to SNB’s loan portfolio, (i) all evidences of indebtedness in original principal amount in excess of $100,000 reflected as assets in SNB Financial Statements as of and for the period ended September 30, 2005, were as of such dates the binding obligations of the respective obligors named therein in accordance with their respective terms, (ii) the allowance for loan losses shown on SNB Financial Statements as of and for the period ended September 30, 2005, was, and the allowance for loan losses to be shown on SNB Financial Statements as of any date subsequent to the execution of this Agreement will be, as of such dates, in the reasonable judgment of management of SNB, adequate to provide for possible losses, net of recoveries relating to loans previously charged off, in respect of loans outstanding (including accrued interest receivable) of SNB and other extensions of credit (including letters of credit or commitments to make loans or extend credit) and (iii) the allowance for loan losses described in clause (ii) above has been established in accordance with GAAP as applied to banking institutions and all applicable rules and regulations; provided, however, that no representation or warranty is made as to the sufficiency of collateral securing or the collectibility of such loans.

 

Section 3.8. Certain Loans and Related Matters .

 

(a) Other than as set forth in Schedule 3.8(a) , as of September 30, 2005, SNB is not a party to any written or oral: (i) loan agreement, note or borrowing arrangement (including leases, credit enhancements, commitments or guarantees), other than credit card loans and other loans the unpaid balance of which does not exceed $50,000 per loan, under the terms of which the obligor is sixty (60) days delinquent in payment of principal or interest or in default of any other material provisions, or where such loan agreement, note or borrowing arrangement has been rewritten to accommodate a debtor’s inability to comply with the terms and conditions originally approved and documented; (ii) loan agreement, note or borrowing arrangement which has been classified or, in the exercise of reasonable diligence by SNB or any regulatory agency with supervisory jurisdiction over SNB, should have been classified as “substandard,” “doubtful,” “loss,” “other loans especially mentioned,” “other assets especially mentioned” or any comparable classifications by such persons; (iii) loan agreement, note or borrowing arrangement, including any loan guaranty, with any director or executive officer of SNB, or any 10% or more shareholder of SNB, or any person, corporation or enterprise controlling, controlled by or under common control with any of the foregoing; or (iv) loan agreement, note or borrowing arrangement in violation of any law, regulation or rule applicable to SNB including, but not limited to, those promulgated, interpreted or enforced by any regulatory agency with supervisory jurisdiction over SNB and which violation could have a Material Adverse Effect on SNB.

 

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(b) Schedule 3.8(b) contains the “watch list of loans” of SNB (“Watch List”) as of September 30, 2005. Other than as set forth in Schedule 3.8(b) , to the knowledge of SNB, there is no loan agreement, note or borrowing arrangement which should be included on the Watch List in accordance with SNB’s past practices and consistent with prudent banking principles.

 

Section 3.9. Real Property Owned or Leased .

 

(a) Other than real property acquired through foreclosure or deed in lieu of foreclosure, Schedule 3.9(a) contains a true, correct and complete list of all real property owned or leased by SNB and the Bank (collectively, the “SNB Real Property”). True and complete copies of all deeds, leases and title insurance policies for, or other documentation evidencing ownership of or a leasehold interest in, the properties referred to in Schedule 3.9(a) , and all mortgages, deeds of trust and security agreements to which such property is subject have been or will be furnished or made available to Prosperity.

 

(b) No lease with respect to any SNB Real Property and no deed with respect to any SNB Real Property contains any restrictive covenant that materially restricts the use, transferability or value of such SNB Real Property pertaining to its current primary business purpose. Each of such leases is a legal, valid and binding obligation of SNB or the Bank, as applicable, enforceable in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies), and is in full force and effect; there are no existing defaults by SNB or, to SNB’s knowledge, the other party thereunder and there are no allegations or assertions of such by any party under such agreement or any events that with notice lapse of time or the happening or occurrence of any other event would constitute a default thereunder.

 

(c) To the knowledge of SNB, none of the buildings and structures located on any SNB Real Property, nor any appurtenances thereto or equipment therein, nor the operation or maintenance thereof, violates in any manner any restrictive covenants or encroaches on any property owned by others, nor does any building or structure of third parties encroach upon any SNB Real Property, except for those violations and encroachments which in the aggregate could not reasonably be expected to cause a Material Adverse Effect on SNB. No condemnation proceeding is pending or, to SNB’s knowledge, threatened, which could reasonably be expected to preclude or materially impair the use of any SNB Real Property in the manner in which it is currently being used.

 

(d) SNB and its Subsidiaries have good and indefeasible title to, or a valid and enforceable leasehold interest in, or a contract vendee’s interest in, all SNB Real Property, and such interest is free and clear of all liens, charges or other encumbrances except (i) statutory liens for amounts not yet delinquent or which are being contested in good faith through proper proceedings and (ii) those liens related to real property taxes, local improvement district assessments, easements, covenants, restrictions and other matters of record which do not, individually or in the aggregate, materially adversely affect the use and enjoyment of the relevant real property.

 

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(e) All buildings and other facilities used in the business of SNB and its Subsidiaries are in adequate condition (ordinary wear and tear excepted) and are free from defects which could reasonably be expected to materially interfere with the current or future use of such facilities consistent with past practices.

 

Section 3.10. Personal Property . Except for the personal property set forth on Schedule 3.10 that is owned by the Museum of Southern History, SNB and its Subsidiaries have good title to, or a valid leasehold interest in, all personal property, whether tangible or intangible, used in the conduct of its business (the “SNB Personalty”), free and clear of all liens, charges or other encumbrances and except (i) statutory liens for amounts not yet delinquent or which are being contested in good faith through proper proceedings and (ii) such other liens, charges, encumbrances and imperfections of title as do not individually or in the aggregate materially adversely affect the use and enjoyment of the relevant SNB Personalty. Subject to ordinary wear and tear, SNB Personalty is in good operating condition and repair and is adequate for the uses to which it is being put.

 

Section 3.11. Environmental Laws . To the knowledge of SNB, SNB and its Subsidiaries and any properties or business owned or operated by any of them, whether or not held in a fiduciary or representative capacity, are in material compliance with all terms and conditions of all applicable federal and state Environmental Laws (as defined below) and permits thereunder. Neither SNB nor any of its Subsidiaries has received notice of any violation of any Environmental Laws or generated, stored, or disposed of any materials designated as Hazardous Materials (as defined below) under the Environmental Laws, and they are not subject to any claim or lien under any Environmental Laws. During the term of ownership by SNB or any of its Subsidiaries, no real estate currently owned, operated, or leased (including any property acquired by foreclosure or deeded in lieu thereof) by SNB or its Subsidiaries, or owned, operated, or leased by SNB or any of its Subsidiaries within the ten years preceding the date of this Agreement, has been designated by applicable governmental authorities as requiring any environmental cleanup or response action to comply with Environmental Laws, or has been the site of release of any Hazardous Materials. To the knowledge of SNB or any of its Subsidiaries, (i) no asbestos was used in the construction of any portion of SNB’s or any Subsidiary’s facilities and (ii) no real property currently owned by SNB or any Subsidiary is, or has been, an industrial site or landfill. There are no underground storage tanks at any properties owned or operated by SNB or any of its Subsidiaries, and no underground storage tanks have been closed or removed from any properties owned or operated by SNB or any of its Subsidiaries.

 

“Environmental Laws,” as used in this Agreement, means any applicable federal, state or local statute, law, rule, regulation, ordinance or code now in effect and in each case as amended to date and any controlling judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree, or judgment, relating to the environment, human health or safety, or Hazardous Materials, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601, et seq. ; the Hazardous Materials Transportation Authorization Act, as amended, 49 U.S.C. § 5101, et seq. ; the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. § 6901, et seq. ; the Federal Water Pollution Control Act, as amended, 33 U.S.C. § 1201, et seq. ; the Toxic Substances Control Act, 15 U.S.C. § 2601, et seq. ; the Clean Air Act, 42 U.S.C. § 7401, et seq. ; and the Safe Drinking Water Act, 42 U.S.C. § 300f, et seq.

 

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“Hazardous Materials,” as used in this Agreement, includes, but is not limited to, (a) any petroleum or petroleum products, natural gas, or natural gas products, radioactive materials, asbestos, urea formaldehyde foam insulation, transformers or other equipment that contains dielectric fluid containing levels of polychlorinated biphenyls (PCBs), and radon gas; (b) any chemicals, materials, waste or substances defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,” “contaminants,” or “pollutants,” or words of similar import, under any Environmental Laws; and (c) any other chemical, material, waste or substance which is in any way regulated as hazardous or toxic by any federal, state or local government authority, agency or instrumentality, including mixtures thereof with other materials, and including any regulated building materials such as asbestos and lead.

 

Section 3.12. Litigation and Other Proceedings . Other than as set forth in Schedule 3.12 , there are no legal, quasi-judicial, regulatory or administrative proceedings of any kind or nature now pending or, to the knowledge of SNB or any Subsidiary, threatened before any court or administrative body in any manner against SNB or any Subsidiary, or any of their respective properties or capital stock. SNB will notify Prosperity promptly in writing of any such proceedings threatened or instigated against SNB or its Subsidiaries, or any officer or director thereof, subsequent to the date of this Agreement. SNB does not know of any basis on which any litigation or proceeding could be brought which could reasonably be expected to result in a Material Adverse Effect on SNB or which could question the validity of any action taken or to be taken in connection with this Agreement and the transactions contemplated thereby. Neither SNB nor any of its Subsidiaries is in default with respect to any judgment, order, writ, injunction, decree, award, rule or regulation of any court, arbitrator or governmental agency or instrumentality.

 

Section 3.13. Taxes .

 

(a) For purposes of this Agreement, the following terms shall have the defined meanings as set forth below:

 

“Affiliated Group” means any affiliated group within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”) § 1504(a).

 

“Deferred Intercompany Transaction” has the meaning set forth in Treasury Regulation § 1.1502-13.

 

“Liability” means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes.

 

“Person” means an individual, a partnership, a corporation, an association, a joint stock SNB, a trust, a joint venture, an unincorporated organization or a governmental entity (or any department, agency, or political subdivision thereof).

 

“Security Interest” means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic’s, materialmen’s, and similar liens, (b) liens for Taxes

 

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not yet due and payable or for Taxes that SNB or any Subsidiary is contesting in good faith through appropriate proceedings, if any, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the ordinary course of business and not incurred in connection with the borrowing of money.

 

“Tax” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar) unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

 

“Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

(b) SNB and its Subsidiaries have filed all Tax Returns that each was required to file, including without limitation any Tax Returns of any affiliated, consolidated, combined or unitary group of which either SNB or any Subsidiary is or was a member. At the time of filing, all such Tax Returns were correct and complete in all material respects. All Taxes due and owing by SNB or any Subsidiary and any affiliated, consolidated, combined or unitary group of which either SNB or any Subsidiary is or was a member (whether or not shown on any Tax Return) have been paid. Neither SNB nor any Subsidiary is currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been raised in writing by an authority in a jurisdiction where SNB or any Subsidiary does not file Tax Returns that SNB or any Subsidiary is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of the Bank that arose in connection with any failure (or alleged failure) of SNB or any Subsidiary to pay any Tax.

 

(c) SNB and its Subsidiaries have collected or withheld and duly paid to the appropriate governmental authority all Taxes required to have been collected or withheld in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party.

 

(d) There is no action, suit, proceeding, audit, assessment, dispute or claim concerning any Tax Liability of SNB or any Subsidiary either (i) claimed or raised by any authority in writing or (ii) as to which any of the directors and officers of SNB or any Subsidiary has knowledge based upon personal contact with any agent of such authority. Schedule 3.13(d) lists all federal, state, local, and foreign income Tax Returns filed with respect to SNB or any Subsidiary for taxable periods beginning after December 31, 2000, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. SNB has made available to Prosperity correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by the Bank with respect to all periods beginning after December 31, 2000.

 

(e) SNB has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

 

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(f) SNB has not been a United States real property holding corporation within the meaning of Code § 897(c)(2) during the applicable period specified in Code § 897(c)(1)(A)(ii). Neither SNB nor any of its Subsidiaries is (i) a party to any Tax allocation or sharing agreement, (ii) has been a member of an Affiliated Group filing a consolidated federal income Tax Return (other than the Affiliated Group of which SNB is the common parent) or (iii) has any Liability for the Taxes of any Person (other than SNB and its Subsidiaries) under Reg. § 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.

 

(g) Neither SNB nor its Subsidiaries have a deferred gain or loss arising out of any Deferred Intercompany Transaction.

 

(h) Neither SNB nor any of its Subsidiaries is required to make any adjustment under Code § 481(a) by reason of a change in accounting method or otherwise.

 

Section 3.14. Contracts and Commitments .

 

(a) Other than as set forth in Schedule 3.14 , neither SNB nor any of its Subsidiaries is a party to or bound by any of the following (whether written or oral, express or implied):

 

(i) employment contracts, change-in-control agreements or severance arrangements (including, without limitation, any collective bargaining contract or union agreement or agreement with an independent consultant);

 

(ii) bonus, stock option or other employee benefit arrangement, other than any deferred compensation arrangement disclosed in Schedule 3.21 or any profit-sharing, pension or retirement plan or welfare plan disclosed in Schedule 3.20(a) ;

 

(iii) material lease or license with respect to any property, real or personal, whether as landlord, tenant, licensor or licensee;

 

(iv) contract or commitment for capital expenditures;

 

(v) material contract or commitment made in the ordinary course of business for the purchase of materials or supplies or for the performance of services over a period of more than one hundred (100) days from the date of this Agreement;

 

(vi) contract or option to purchase or sell any real or personal property other than in the ordinary course of business;

 

(vii) contract, agreement or letter with respect to the management or operations of SNB or the Bank imposed by any bank regulatory authority having supervisory jurisdiction over SNB or the Bank;

 

(viii) agreement, contract or indenture related to the borrowing by SNB of money other than those entered into in the ordinary course of business;

 

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(ix) guaranty of any obligation for the borrowing of money, excluding endorsements made for collection, repurchase or resell agreements, letters of credit and guaranties made in the ordinary course of business;

 

(x) agreement with or extension of credit to any executive officer or director of SNB or holder of more than ten percent (10%) of the issued and outstanding SNB Common Stock or SNB Class B Stock, or any affiliate of such person, which is not on substantially the same terms (including, without limitation, in the case of lending transactions, interest rates and collateral) as, and following credit underwriting practices that are not less stringent than, those prevailing at the time for comparable transactions with unrelated parties or which involve more than the normal risk of collectibility or other unfavorable features;

 

(xi) contracts, other than the foregoing, with payments aggregating $50,000 or more not made in the ordinary course of business and not otherwise disclosed in this Agreement, in the Disclosure Schedules or in any document delivered or referred to or described in writing by SNB to Prosperity;

 

(xii) any agreement containing covenants that limit the ability of SNB or any of its Subsidiaries to compete in any line of business or with any person, or that involve any restriction on the geographic area in which, or method by which, SNB (including any successor thereof) or any of its Subsidiaries may carry on its business (other than as may be required by law or any regulatory agency);

 

(xiii) any data processing services agreement or contract which may not be terminated without payment or penalty upon notice of 30 days or less; or

 

(xiv) any agreement pursuant to which SNB or any of its Subsidiaries may become obligated to invest in or contribute capital to any entity.

 

(b) Each contract or commitment set forth in Schedule 3.14 is valid and binding on SNB or any of its Subsidiaries, as the case may be, and is in full force and effect. SNB has in all material respects performed all obligations required to be performed by it to date and is not in default under, and no event has occurred which, with the lapse of time or action by a third party could result in default under, any indenture, mortgage, contract, lease or other agreement to which SNB or any of its Subsidiaries is a party or by which SNB or any of its Subsidiaries is bound or under any provision of the SNB Constituent Documents.

 

Section 3.15. Insurance .

 

(a) A true, correct and complete list of all insurance policies owned or held by or for the benefit or on behalf of either SNB or any of its Subsidiaries (other than credit-life policies), including the insurer, policy numbers, amount of coverage, deductions, type of insurance, effective and termination dates and any pending claims thereunder involving more than $50,000 is set forth in Schedule 3.15(a) .

 

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(b) All policies of general liability, theft, life, fire, workers’ compensation, health, directors and officers, business interruption and other forms of insurance owned or held by SNB or any Subsidiary (i) are in full force and effect and all premiums that are due and payable with respect thereto are currently paid; (ii) are sufficient for compliance with all requirements of applicable laws and of all agreements to which SNB or such Subsidiary is a party; (iii) are adequate for the business conducted by SNB and its Subsidiaries in respect of amounts, types and risks insured (other than the risk of terrorist attacks); (iv) are valid, outstanding and enforceable policies (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies); and (v) will remain in full force and effect through the Effective Time, subject to normal renewal policies and procedures, including, without limitation, the payment of premiums. No insurer under any such policy or bond has canceled or indicated to SNB or any of its Subsidiaries an intention to cancel or not to renew any such policy or bond effective at any time prior to the Effective Time or generally disclaimed liability thereunder. Neither SNB nor any of its Subsidiaries is in default under any such policy or bond, and all material claims thereunder have been filed. Neither SNB nor any of its Subsidiaries has been denied or had revoked or rescinded any policy of insurance during the last three fiscal years.

 

Section 3.16. No Conflict With Other Instruments . The execution and delivery of this Agreement does not, and the performance of this Agreement and the consummation of the transactions contemplated hereby will not, (i) conflict with or violate any provision of SNB Constituent Documents or (ii) assuming all required shareholder and regulatory approvals and consents and the consents of the third parties set forth in Schedule 3.16 are duly obtained, will not (A) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to SNB or any of its Subsidiaries or any of their respective properties or assets or (B) violate, conflict with, result in a breach of any provision of or constitute a default (or an event which, with or without notice or lapse of time, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, cause SNB or any of its Subsidiaries to become subject to or liable for the payment of any tax, or result in the creation of any lien, charge or encumbrance upon any of the properties or assets of SNB under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease agreement, instrument or obligation to which SNB or any of its Subsidiaries is a party, or by which any of its properties or assets may be bound or affected, excluding from the foregoing clause (ii) such violations, conflicts, breaches or defaults which either individually or in the aggregate would not have a Material Adverse Effect on SNB.

 

Section 3.17. Compliance with Laws and Regulatory Filings . SNB and its Subsidiaries are in compliance with all applicable federal, state and local laws, rules, regulations and orders applicable to them, except where such noncompliance would not result in a Material Adverse Effect on SNB. Other than approvals by regulatory authorities having supervisory jurisdiction over SNB and the consents of the third parties set forth in Schedule 3.16 , no prior consent, approval or authorization of, or declaration, filing or registrations with, any person or regulatory authority is required of SNB and its Subsidiaries in connection with the execution, delivery and performance by SNB of this Agreement and the transactions contemplated hereby or the resulting change of control of SNB except for certain instruments necessary to consummate the Merger contemplated hereby. SNB and its Subsidiaries have filed all reports, registrations and

 

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statements, together with any amendments required to be made thereto, that are required to be filed with the Federal Reserve Board, the FDIC, the OCC or any other regulatory authority having supervisory jurisdiction over SNB and its Subsidiaries, and such reports, registrations and statements as finally amended or corrected, are true and correct in all respects.

 

Section 3.18. Absence of Certain Changes . Since September 30, 2005, (i) SNB and its Subsidiaries have conducted their respective businesses in the ordinary and usual course consistent with prudent banking practices (except as otherwise required by this Agreement and excluding the incurrence of expenses related to this Agreement and the transactions contemplated hereby) and (ii) no event has occurred or circumstance arisen that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect on SNB.

 

Section 3.19. Employment Relations . The relations of SNB with its employees is satisfactory. SNB has not received any notice of any controversies with, or organizational efforts or other pending actions by, representatives of its employees. SNB has complied with all laws relating to the employment of labor with respect to its employees, and any independent contractors it has hired, including any provisions thereof relating to wages, hours, collective bargaining and the payment of workman’s compensation insurance and social security and similar taxes, and no person has asserted to SNB that SNB is liable for any arrearages of wages, workman’s compensation insurance premiums or any taxes or penalties for failure to comply with any of the foregoing.

 

Section 3.20. Employee Benefit Plans .

 

(a) Schedule 3.20(a) lists all employee benefit plans or agreements providing benefits to any employees or former employees of SNB that are sponsored or maintained by SNB or to which SNB contributes or