AGREEMENT AND PLAN OF REORGANIZATION

Exhibit 2.1

 

EXECUTION VERSION

 

 

AGREEMENT AND PLAN OF REORGANIZATION

 

by and between

 

TEXAS UNITED BANCSHARES, INC.

 

and

 

NORTHWEST BANCSHARES, INC.

 

Dated as of November 22, 2005

 

TABLE OF CONTENTS

 

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LIST OF SCHEDULES

 

 

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AGREEMENT AND PLAN OF REORGANIZATION

 

This Agreement and Plan of Reorganization (the “Agreement”) dated as of November 22, 2005, is by and between Texas United Bancshares, Inc. (“Texas United”), a Texas corporation and financial holding company pursuant to the Gramm-Leach-Bliley Act and bank holding company registered under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and Northwest Bancshares, Inc. (“Northwest”), a Texas corporation and bank holding company registered under the BHC Act.

 

WHEREAS, Northwest desires to affiliate with Texas United and Texas United desires to affiliate with Northwest by merging Northwest with and into Texas United, with Texas United as the surviving entity (the “Merger”); and

 

WHEREAS, Texas United and Northwest believe that the merger of Northwest into Texas United in the manner provided by, and subject to the terms and conditions set forth in, this Agreement and all exhibits, schedules and supplements hereto is desirable and in the best interests of their respective shareholders; and

 

WHEREAS, for federal income tax purposes, it is intended that the Merger qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations 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 Texas United and Northwest have approved this Agreement and the transactions proposed herein substantially on the terms and conditions set forth in this Agreement; and

 

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, the parties hereto agree as set forth below.

 

INTRODUCTION

 

A. This Agreement provides for the Merger of Northwest with and into Texas United with Texas United as the surviving entity, all pursuant to this Agreement. In connection with the Merger, Texas United will acquire all of the issued and outstanding shares of common stock, $0.01 par value, of Northwest (“Northwest Stock”).

 

B. Subject to the terms and conditions of a plan and agreement of merger to be entered into between Texas United Nevada, Inc., a Nevada corporation (“Nevada Company”), and Northwest Delaware, Inc., a Delaware corporation (“Northwest Intermediate Company”) and in accordance with applicable law, immediately following consummation of the Merger, Northwest Intermediate Company shall be merged (the “Intermediate Company Merger”) with and into Nevada Company, with Nevada Company being the surviving entity.

C. Subject to the terms and conditions of a plan of merger to be entered into between Northwest Bank (the “Bank”), a Texas banking association and wholly-owned subsidiary of Northwest, and GNB Financial, n.a. (“GNB Financial”), a national banking association and wholly-owned subsidiary of Texas United, and in accordance with the National Bank Act, Northwest Bank shall be merged with and into GNB Financial, with GNB Financial 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, Northwest shall be merged with and into Texas United (which, as the surviving corporation, is hereinafter referred to as “Continuing Company” whenever reference is made to it at or after the Effective Time (as defined in Section 8.2 hereof)) pursuant to the provisions of, and with the effect provided in Article 5 of the Texas Business Corporation Act (“TBCA”).

 

Section 1.2 Articles of Incorporation, Bylaws and Facilities of Continuing Company . At the Effective Time and until thereafter amended in accordance with applicable law, the Articles of Incorporation of Continuing Company shall be the Articles of Incorporation of Texas United as in effect immediately prior to the Effective Time. Until altered, amended or repealed as therein provided, the Bylaws of Continuing Company shall be the Bylaws of Texas United as in effect immediately prior to the Effective Time. The established offices and facilities of Northwest immediately prior to the Merger shall become established offices and facilities of Continuing Company. Unless and until changed by the Board of Directors of Continuing Company, the main office of Texas United as of the Effective Time shall become the main office of Continuing Company. Until thereafter changed in accordance with law or the Articles of Incorporation or Bylaws of Continuing Company, all corporate acts, plans, policies, contracts, approvals and authorizations of Northwest and Texas United and 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 Company and shall be as effective and binding thereon as the same were with respect to the Northwest and Texas United, respectively, as of the Effective Time.

 

Section 1.3 Board of Directors and Officers of Continuing Company . At the Effective Time and until thereafter changed in accordance with the law or the Articles of Incorporation or Bylaws of Continuing Company, the members of the Board of Directors of Texas United at the Effective Time and, if then eligible, Bryan Mitchell, a director of Northwest, shall be the Board of Directors of Continuing Company. At the Effective Time and until thereafter changed in accordance with the law or the Articles of Incorporation or Bylaws of Continuing Company, the officers of Texas United immediately prior to the Effective Time shall become the officers of Continuing Company.

 

Section 1.4 Effect of Merger . At the Effective Time, the corporate existence of Northwest and Texas United shall, as provided in the provisions of law heretofore mentioned, be merged and continued in Continuing Company, and Continuing Company shall be deemed to be a continuation in entity and identity of Northwest and Texas United. All rights, franchises and interests of Northwest and Texas United, respectively, in and to any type of property and choses

 

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in action shall be transferred to and vested in Continuing Company 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 Company . At the Effective Time, Continuing Company shall be liable for all liabilities of Northwest and Texas United. All debts, liabilities, obligations and contracts of Northwest and of Texas United, 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 Northwest or Texas United, as the case may be, shall be those of Continuing Company and shall not be released or impaired by the Merger. All rights of creditors and other obligees and all liens on property of either Northwest or Texas United shall be preserved unimpaired subsequent to the Merger.

 

Section 1.6 Ratification by Shareholders . This Agreement shall be submitted to the shareholders of Northwest in accordance with the terms of this Agreement, the applicable provisions of law and the Articles of Incorporation and Bylaws of Northwest. Northwest and Texas United 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 filings, requests for waivers and certificates with the Securities and Exchange Commission (“SEC”), Board of Governors of the Federal Reserve System (“Federal Reserve”), the Office of the Comptroller of the Currency (“OCC”) and the Texas Department of Banking (“TDB”).

 

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, Texas United 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 Northwest as a result of such modification, (ii) the consideration to be paid to holders of Northwest 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.

 

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II. MERGER CONSIDERATION AND EXCHANGE PROCEDURES

 

Section 2.1 Merger Consideration .

 

(a) The aggregate consideration to be paid by Texas United to the shareholders of Northwest in the Merger shall be $31,000,000, consisting of cash in the amount of $12,400,000 (“Cash Consideration”) and shares of Texas United Common Stock valued at $18,600,000 (“Stock Consideration,” and collectively with the Cash Consideration, the “Merger Consideration”).

 

(b) At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, based on 49,995,224 shares of Northwest Stock issued and outstanding as of the date hereof, each share of Northwest Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares (as defined in Section 2.3 hereof)), shall, subject to the conditions hereinafter stated, be converted into and exchanged for (i) an amount of cash equal to $0.2480 (“Per Share Cash Consideration”) and (ii) a number of shares of common stock, par value $1.00 per share, of Texas United (“Texas United Common Stock”), equal to the quotient obtained by dividing $0.3720 by the Average Trading Price (as defined below) of Texas United Common Stock (rounded to nearest ten thousandth). At the Effective Time, all such shares of Northwest 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) The “Average Trading Price” of Texas United Common Stock shall be the average of the closing sale price per share of Texas United 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 Texas United) for the forty (40) consecutive trading days ending on and including the tenth trading day preceding the Closing Date.

 

(d) Each share of Northwest Stock held in the treasury of Northwest and each share of Northwest Stock owned by any direct or indirect wholly owned Subsidiary (as defined in Section 13.1 hereof) of Northwest immediately prior to the Effective Time shall be cancelled without any conversion and no payment or distribution shall be made with respect thereto.

 

(e) Notwithstanding anything in this Agreement to the contrary, Texas United will not issue any certificates or scrip representing fractional shares of Texas United Common Stock otherwise issuable pursuant to the Merger. In lieu of the issuance of any such fractional shares, Texas United shall pay to each former holder of Northwest Stock otherwise entitled to receive such fractional share an amount of cash determined by multiplying (i) the Average Trading Price by (ii) the fraction of a share of Texas United Common Stock which such holder would otherwise be entitled to receive pursuant to this Section 2.1.

 

Section 2.2 Adjustment to Merger Consideration for Equity Capital . In the event that Northwest’s Equity Capital (as defined below) on the last day of the calendar month immediately preceding the Closing Date shall be less than $11,800,000, the Cash Consideration will be

 

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reduced by an amount equal to the difference between Northwest’s Equity Capital on the last day of the calendar month immediately preceding the Closing Date and $11,800,000. For purposes of this Agreement, “Equity Capital” shall equal the sum of the capital stock, capital surplus and retained earnings of the Company, excluding unrealized securities gains or losses, as determined pursuant to generally accepted accounting principles (“GAAP”). For purposes of the definition of Equity Capital, the amount of Equity Capital shall be affected by adjustments made for certain extraordinary items related to this Agreement and the Merger, including those made between the last day of the month preceding the Closing Date and the Closing Date, including, but not limited to, reductions for (i) Northwest’s legal and accounting fees, (ii) the after-tax amount of any premium or additional cost, in excess of $30,000, incurred to provide for the continuation of certain of the Company’s insurance policies pursuant to Section 5.10 hereof, (iii) any amount required to be added to the Allowance for Loan Losses pursuant to Section 10.7 hereof, (iv) the after-tax amount of bonus payments made to certain officers of Northwest as set forth in Schedule 5.2(ii) and (v) the after-tax amount of the loss associated with the check fraud detailed in Schedule 2.2 . Notwithstanding the foregoing, Equity Capital will not be adjusted for any adjustment required by Texas United pursuant to Section 5.9 hereof.

 

Section 2.3 Dissenting Shares . Each share of Northwest 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, Dissenting Shares shall not be converted into or represent the right to receive the corresponding share of the Merger 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, 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 corresponding share of the Merger Consideration in accordance with the provisions of this Article II, without any interest thereon.

 

Section 2.4 Exchange Procedures .

 

(a) Texas United shall deposit or cause to be deposited in trust with U. S. Stock Transfer Corporation (the “Exchange Agent”) (i) certificates representing shares of Texas United Common Stock and (ii) cash in an aggregate amount estimated to be sufficient to make the appropriate cash payments (A) of the cash portion of Merger Consideration set forth in Section 2.1 of this Agreement, (B) to holders of Dissenting Shares pursuant to Section 2.3 hereof, if any, and (C) to holders of a fraction of a share of Texas United Common Stock pursuant to Section 2.1(d) of this Agreement (such certificates and cash being hereinafter referred to as the “Exchange Fund”). The Exchange Fund shall not be used for any other purpose, except as provided in this Agreement.

 

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(b) As soon as practicable following the Effective Time, and after Northwest delivers to the Exchange Agent a list of Northwest shareholders as of the Effective Time in form and substance required by the Exchange Agent, Texas United shall use its best efforts to 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 Northwest 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 Texas United Common Stock provided in Section 2.1 hereof, and such Certificate shall forthwith be canceled. No interest will be paid or accrued with respect to the shares of Texas United Common Stock or the cash payable upon surrender of the Certificates. Until surrendered in accordance with the provisions of this Section 2.4, each Certificate (other than Certificates representing Dissenting Shares) shall represent for all purposes the right to receive the Merger Consideration without any interest thereon. Texas United shall use its commercially reasonable best efforts to cause the Exchange Agent to deliver the Merger Consideration to the shareholders of Northwest as soon as practicable following the Effective Time and the receipt by the Exchange Agent of a list of Northwest shareholders as of the Effective Time in form and substance required by the Exchange Agent.

 

(c) No dividends or other distributions declared after the Effective Time with respect to shares of Texas United 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 2.4. After the surrender of a Certificate in accordance with this Section 2.4, 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 Texas United Common Stock represented by such Certificate.

 

(d) After the Effective Time, the stock transfer ledger of Northwest shall be closed and there shall be no transfers on the stock transfer books of Northwest of the shares of Northwest Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to Texas United, they shall be promptly presented to the Exchange Agent and exchanged as provided in this Section 2.4.

 

(e) Any portion of the Exchange Fund (including the proceeds of any investments thereof) that remains unclaimed by the shareholders of Northwest for six months after the Exchange Agent mails the letter of transmittal pursuant to Section 2.4(b) shall be delivered to Texas United upon demand, and any shareholders of Northwest who have not theretofore complied with the exchange procedures in this Article II shall look to Texas United only, and not the Exchange Agent, for the payment of any Merger Consideration in respect of such shares.

 

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(f) If any certificate representing shares of Texas United 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 Texas United) 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 Texas United Common Stock in any name other than that of the registered holder of the Certificate surrendered, or required for any other reason, or shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable.

 

(g) None of Texas United, Northwest, the Exchange Agent or any other person shall be liable to any former holder of shares of Northwest Stock for any Texas United 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 Texas United or the Exchange Agent, the posting by such person of a bond in such amount as Texas United or the Exchange Agent may direct as indemnity against any claim that may be made against the Continuing Company 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 NORTHWEST

 

Northwest represents and warrants to Texas United as set forth below. Northwest agrees that, at the Closing, it shall provide Texas United with supplemental schedules reflecting any changes in the information contained in the disclosure schedules (“Disclosure Schedules”) which have occurred in the period from the date of delivery of such Disclosure Schedules to the date of Closing.

 

Section 3.1 Organization and Authority .

 

(a) Northwest is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and a registered bank holding company under the BHC Act, subject to all laws, rules and regulations applicable to bank holding companies. Northwest Intermediate Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Northwest Bank is a Texas banking association duly organized, validly existing and in good standing under the laws of the State of Texas. Each of Northwest, Northwest Intermediate Company and Northwest Bank has full power and authority (including all licenses, franchises, permits and other governmental authorizations which are legally required) to own, lease and operate their properties and to engage in the business and activities now conducted by it. Northwest owns all of the outstanding capital stock of Northwest Intermediate Company free and clear of any lien, charge, claim or other encumbrance and Northwest Intermediate Company owns all of the outstanding capital stock of Northwest Bank free and clear of any lien, charge, claim or other encumbrance.

 

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(b) Northwest 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 Federal Deposit Insurance Corporation (“FDIC”) and the TDB. Northwest Bank does not have “trust powers” and does not conduct trust activities.

 

(c) The deposit accounts of Northwest 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 Northwest Bank.

 

(d) Except as set forth in Schedule 3.1(d) , other than each other, neither Northwest nor Northwest Bank, (i) has any Subsidiaries or Affiliates (as defined in Section 13.1 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 Northwest.

 

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

 

Section 3.2 Capitalization .

 

(a) The authorized capital stock of Northwest consists of 100,000,000 shares of Northwest Stock, 49,995,224 shares of which are issued and outstanding as of the date of this Agreement. All of the issued and outstanding shares of Northwest Stock are validly issued, fully paid and nonassessable and were not issued in violation of the preemptive rights of any person or in violation of any applicable federal or state securities laws.

 

(b) The authorized capital stock of Northwest Immediate Company consists of 1,000 shares of common stock, $1.00 par value per share, 1,000 shares of which are issued and outstanding as of the date of this Agreement. The authorized capital stock of Northwest Bank consists of 50,000,000 shares of common stock, $0.01 par value per share, 50,000,000 shares of which are issued and outstanding as of the date of this Agreement.

 

(c) The authorized capital stock of each of Northwest’s Subsidiaries (i) are duly authorized, validly issued, fully paid and nonassessable, (ii) free and clear of any liens, claims, security interests and encumbrances of any kind, (iii) have not been issued in violation of the preemptive rights of any person or in violation of any applicable federal or state laws and (iv) 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.

 

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(d) There are no existing options, warrants, calls, convertible securities or commitments of any kind obligating Northwest to issue any authorized and unissued Northwest Stock.

 

(e) Northwest does not have any outstanding commitment or obligation to repurchase, reacquire or redeem any of its outstanding capital stock. There are no voting trusts, voting agreements, buy-sell agreements or other similar arrangements affecting Northwest Stock to which Northwest is a party.

 

Section 3.3 Authority; Approvals .

 

(a) Northwest has full corporate power and authority to execute and deliver this Agreement (and any related documents), and Northwest and its Subsidiaries have 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 Northwest. The Board of Directors of Northwest has determined that this Agreement and the transactions contemplated hereby are advisable and in the best interests of Northwest and its shareholders, and has directed that the Agreement be submitted to Northwest ‘s shareholders for approval and adoption. Except for the approval of the shareholders of Northwest, no further actions or corporate proceedings on the part of Northwest are necessary to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Northwest and is a duly authorized, valid, legally binding agreement of Northwest enforceable against Northwest 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 . Northwest has furnished to Texas United a complete list, as of September 30, 2005, of all securities, including municipal bonds, owned by Northwest Bank (the “Securities Portfolio”). Except as set forth in Schedule 3.4 , all such securities are owned by Northwest (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 Northwest equals 5% or more of the issued and outstanding voting securities of the issuer thereof. Northwest is not a party to, and to the knowledge of Northwest, 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) Northwest has furnished or made available to Texas United true and complete copies of Northwest’s (i) audited consolidated financial statements as of December 31, 2004, 2003 and 2002, and for the years then ended, together with the notes thereto, and (ii) unaudited consolidated financial statements as of and for the nine months ended September 30, 2005 and 2004. Northwest has also delivered to Texas United a true and correct copy of the Consolidated Reports of Condition and Income (“Call Reports”) filed by Northwest Bank as of

 

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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 consolidated financial statements and Call Reports referred to in this Section 3.5 are collectively referred to herein as the “Northwest Financial Statements.”

 

(b) Each of the Northwest Financial Statements fairly presents the financial position and results of operations of Northwest at the dates and for the periods indicated in conformity with GAAP applied on a consistent basis, except for the Call Reports, which fairly present the financial position of Northwest Bank and the results of operations at the dates and for the periods indicated and are in compliance with regulatory accounting principles.

 

(c) As of the dates of the Northwest Financial Statements referred to above, neither Northwest nor any Northwest Subsidiary had any material obligations or liabilities, fixed or contingent, which are not fully shown or provided for in the Northwest Financial Statements or otherwise disclosed in this Agreement, the Disclosure Schedules or in any of the documents delivered to Texas United.

 

Section 3.6 Real Property Owned or Leased .

 

(a) Other than real property acquired through foreclosure or deed in lieu of foreclosure, Schedule 3.6(a) contains a true, correct and complete list of all real property owned or leased by Northwest or any of its Subsidiaries (the “Northwest Real Property”). True and complete copies of all of its deeds, leases and title insurance policies for, or other documentation evidencing ownership of, the properties referred to in Schedule 3.6(a) and all mortgages, deeds of trust and security agreements to which such property is subject have been furnished or made available to Texas United.

 

(b) Except as set forth in Schedule 3.6(b) , no lease with respect to any Northwest Real Property and no deed with respect to any Northwest Real Property contains any restrictive covenant that materially restricts the use, transferability or value of such Northwest Real Property. Each of such leases described in Schedule 3.6(b) is a legal, valid and binding obligation 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 Northwest or any of its Subsidiaries or the other party thereunder and there are no allegations or assertions of such by any party under such agreement or any events that with or without notice, lapse of time or the happening or occurrence of any other event would constitute a default thereunder.

 

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

 

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(d) Northwest 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 Northwest 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.

 

(e) All buildings and other facilities used in the business of Northwest and its Subsidiaries are adequately maintained and, are free from defects which could reasonably be expected to materially interfere with the current or future use of such facilities.

 

Section 3.7 Personal Property . Northwest 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 their business (the “Northwest Personalty”), 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) 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 Northwest Personalty. Subject to ordinary wear and tear, the Northwest Personalty is in good operating condition and repair and is adequate for the uses to which it is being put.

 

Section 3.8 Environmental Laws . Northwest 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 compliance with all terms and conditions of all applicable federal and state Environmental Laws (as defined below) and permits thereunder, except for such noncompliance as would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect on Northwest. Neither Northwest nor any of its Subsidiaries has received notice of or has knowledge of any violation of any Environmental Laws or of any placement, disposal or release of any materials designated as Hazardous Materials (as defined below) under the Environmental Laws in a manner that would result in a material claim or lien against any of them under any Environmental Laws. During the term of ownership by Northwest 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 Northwest or its Subsidiaries, or owned, operated or leased by Northwest or 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 Northwest or any of its Subsidiaries, (i) no asbestos was used in the construction of any portion of Northwest’s or any Subsidiary’s facilities and (ii) no real property currently owned by Northwest or any Subsidiary is, or has been a heavy industrial site or landfill. There are no underground storage tanks at any of the properties currently owned, operated or leased (including any property acquired by

 

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foreclosure or deeded in lieu thereof) by Northwest or any of its Subsidiaries and no underground storage tanks have been closed or removed from any properties owned or operated by Northwest or any of its Subsidiaries.

 

“Environmental Laws,” as used in this Agreement, means any applicable federal, state or local statute, law, rule, regulation, ordinance, code or rule of common law now in effect and in each case as amended to date and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree, or judgment, relating to pollution, the protection of human health or safety, the environment, or emissions, discharges, releases or threatened releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, handling, or transport of 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.

 

“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, friable asbestos, urea formaldehyde foam insulation, transformers or other equipment that contains dielectric fluid containing levels of polychlorinated biphenyls (PCBs) greater than 500 mg/l, and radon gas in levels above 4 picocures/liter; (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 as of the date hereof by any federal, state or local government authority, agency or instrumentality, including mixtures thereof with other materials.

 

Section 3.9 Litigation and Other Proceedings . Except as set forth in Schedule 3.9 , there are no legal, quasi-judicial, regulatory or administrative proceedings of any kind or nature now pending or, to the knowledge of Northwest, threatened before any court or administrative body in any manner against Northwest or its Subsidiaries, or any of their respective properties or capital stock. Northwest will promptly notify Texas United in writing of any such proceedings, threatened or instigated against Northwest or any of its Subsidiaries subsequent to the date of this Agreement. To Northwest’s knowledge, there is no basis on which any litigation or proceeding could be brought which could reasonably be expected to have a Material Adverse Effect on Northwest or which could question the validity of any action taken or to be taken in connection with this Agreement and the transactions contemplated hereby. Neither Northwest 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.

 

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Section 3.10 Taxes and Tax Returns .

 

(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 (“Reg.”) § 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 company, 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 not yet due and payable or for Taxes that Northwest 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) Northwest 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 Northwest 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 owed by Northwest or any Subsidiary and any affiliated, consolidated, combined or unitary group of which either Northwest or any Subsidiary is or was a member (whether or not shown on any Tax Return) have been paid with respect to periods or any portion of a period ending on or before the Closing Date. Except as set forth in Schedule 3.10(b) , neither Northwest 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

 

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Northwest or any Subsidiary does not file Tax Returns that Northwest 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 the Northwest or any Subsidiary to pay any Tax.

 

(c) Northwest 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) No director or officer (or employee responsible for Tax matters) of either of Northwest or any Subsidiary expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no action, suit, proceeding, audit, assessment, dispute or claim concerning any Tax Liability of Northwest 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 Northwest or any Subsidiary has knowledge based upon personal contact with any agent of such authority. Schedule 3.10(d) lists all federal, state, local and foreign income Tax Returns filed with respect to Northwest or any Subsidiary for taxable periods ended on or after December 31, 2000, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. Northwest has delivered to the Texas United 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) Northwest 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.

 

(f) Northwest 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). Northwest has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code § 6662. Except as set forth in Schedule 3.10(f) , neither Northwest 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 or (iii) has any Liability for the Taxes of any Person 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) Schedule 3.10(g) sets forth the following information with respect to Northwest and its Subsidiaries as of September 30, 2005 (as well as on an estimated pro forma basis as of the Closing Date giving effect to the consummation of the transactions contemplated hereby): (i) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign tax, or excess charitable contribution allocable to Northwest Bank; and (ii) the amount of any deferred gain or loss allocable to Northwest and its Subsidiaries arising out of any Deferred Intercompany Transaction.

 

(h) The unpaid Taxes of Northwest and its Subsidiaries (i) did not, as of September 30, 2005, exceed the current liability accruals for Tax Liability (excluding any

 

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reserves for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Northwest Financial Statements (rather than in any notes thereto) and (ii) do not exceed such current liability accruals for Taxes (excluding reserves any for deferred Taxes) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of Northwest in filing its Tax Returns.

 

(i) Except as set forth in Schedule 3.10(i) , neither Northwest 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 3.11 Loan Portfolio and Reserve for Loan Losses .

 

(a) With respect to the loans of Northwest reflected as assets on the Northwest Financial Statements as of September 30, 2005 and all currently outstanding loans (collectively, the “Loans”), other than as set forth in Schedule 3.11 , (i) each note evidencing a Loan or credit agreement or security instrument related to a Loan was the valid and binding obligation of the obligor named therein, enforceable in accordance with the terms thereof, except where the failure thereof, individually or in the aggregate, would not have had a Material Adverse Effect on Northwest and (ii) there are no oral modifications or amendments or additional agreements related to the Loans that are not reflected in Northwest’s records, and no claim or defense as to the enforcement of any Loan has been asserted and Northwest is not aware of any acts or omissions that would give rise to any claim or right of rescission, set off, counterclaim or defense, except where such claim would not have, individually or in the aggregate, a Material Adverse Effect on Northwest.

 

(b) The allowance for loan losses shown on the Northwest Financial Statements as of September 30, 2005, was, and the allowance for loan losses to be shown on any financial statements or Call Reports of Northwest as of any date subsequent to the execution of this Agreement will be, as of such dates, in the reasonable judgment of management of Northwest, 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 Northwest and other extensions of credit (including letters of credit or commitments to make loans or extend credit), and the allowance for loan losses 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 3.12 Certain Loans and Related Matters .

 

(a) Except as set forth in Schedule 3.12(a) , as of September 30, 2005, neither Northwest nor Northwest Bank is a party to any written or oral: (i) loan agreement, note or borrowing arrangement, other than credit card loans and other loans the unpaid balance of which does not exceed $25,000 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 as of the date hereof; (ii) loan agreement, note or borrowing arrangement which has been classified or, in the exercise of reasonable diligence by Northwest or Northwest Bank or any regulatory agency with supervisory jurisdiction over Northwest or Northwest Bank, should have been

 

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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 Northwest or any of its Subsidiaries, or any 10% or greater shareholder of Northwest, 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 Northwest or any of its Subsidiaries including, but not limited to, those promulgated, interpreted or enforced by any regulatory agency with supervisory jurisdiction over Northwest or its Subsidiaries and which violation could have a Material Adverse Effect on Northwest.

 

(b) Schedule 3.12(b) contains the “watch list of loans” of Northwest Bank (“Watch List”) as of September 30, 2005. Except as set forth in Schedule 3.12(b) , to the knowledge of Northwest, there is no loan agreement, note or borrowing arrangement which should be included on the Watch List in accordance with Northwest’s past practices and prudent banking principles.

 

Section 3.13 Contracts and Commitments .

 

(a) Except as set forth in Schedule 3.13 , neither Northwest 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 contract, severance arrangement, change-in-control agreement or parachute (including without limitation any collective bargaining contract or union agreement or agreement with an independent consultant);

 

(ii) bonus, stock option, deferred compensation or profit-sharing, pension or retirement plan or other employee benefit arrangement, other than any profit-sharing, pension or retirement plan disclosed in Schedule 3.19(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 ninety (90) 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 Northwest or any Subsidiary imposed by any bank regulatory authority having supervisory jurisdiction over Northwest or any Subsidiary;

 

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

 

(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 Northwest or any Subsidiary or holder of more than ten percent (10%) of the issued and outstanding Northwest 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; or

 

(xi) contracts, other than the foregoing, with annual payments aggregating $10,000 or more not made in the ordinary course of business and not otherwise disclosed in this Agreement, the Disclosure Schedules or in any document delivered or referred to or described in writing by Northwest to Texas United.

 

(b) Northwest and its Subsidiaries have in all material respects performed all material obligations required to be performed by them to date and are not in default under, and no event has occurred which, with the lapse of time or action by a third party or both, could reasonably be expected to result in default under any material indenture, mortgage, contract, lease or other agreement to which Northwest or any of its Subsidiaries is a party or by which Northwest or any of its Subsidiaries is bound or under any provision of the Northwest Constituent Documents.

 

Section 3.14 Insurance .

 

(a) A true, correct and complete list of all insurance policies owned or held by or on behalf of either Northwest or any of its Subsidiaries (other than credit life policies), including the insurer, 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 3.14(a) .

 

(b) All policies of general liability, theft, life, fire, workers’ compensation, health, directors and officers, and other forms of insurance owned or held by Northwest or any of its Subsidiaries (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 Northwest or any of its Subsidiaries is a party; (iii) are adequate for the business conducted by Northwest and any of its Subsidiaries in respect of amounts, types and risks insured; (iv) are valid, outstanding and enforceable policies (except as may be limited by bank