AGREEMENT AND PLAN OF REORGANIZATION

 

 

 

 

AGREEMENT AND PLAN OF REORGANIZATION

 

BY AND BETWEEN

 

SECURITY BANK CORPORATION

 

AND

 

NEIGHBORS BANCSHARES, INC.

 

Dated as of November 22, 2005

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

AGREEMENT AND PLAN OF REORGANIZATION

 

THIS AGREEMENT AND PLAN OF REORGANIZATION (this “Agreement”) is made and entered into as of November 22, 2005, by and between SECURITY BANK CORPORATION (“SBKC”), a corporation organized under the laws of the State of Georgia, with its principal office located in Macon, Georgia, and NEIGHBORS BANCSHARES, INC. (“Neighbors”), a corporation organized under the laws of the State of Georgia, with its main office in Alpharetta, Georgia.

 

Preamble

 

The respective Boards of Directors of Neighbors and SBKC are of the opinion that the transactions described herein are in the best interests of the parties to this Agreement and their respective shareholders. This Agreement provides for the merger of Neighbors with and into SBKC, with SBKC being the surviving corporation of the merger.

 

Certain terms used in this Agreement are defined in Section 11.1 of this Agreement.

 

NOW, THEREFORE, in consideration of the above and the mutual warranties, representations, covenants, and agreements set forth herein, the parties agree as follows:

 

ARTICLE 1

TRANSACTIONS AND TERMS OF MERGER

 

1.1           Merge . Subject to the terms and conditions of this Agreement, Neighbors shall be merged with and into SBKC in accordance with the provisions of Section 14-2-1101 et seq. of the GBCC (the “Merger”). SBKC shall be the surviving corporation resulting from the Merger and shall continue to be governed by the Laws of the State of Georgia.

 

1.2           Time and Place of Closing . The closing of the transactions contemplated hereby (the “Closing”) will take place at 9:00 A.M. on the date that the Effective Time occurs (or the immediately preceding day if the Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties, acting through their authorized officers, may mutually agree. The Closing shall be held at the office of Troutman Sanders LLP, 600 Peachtree Street, N.E., Suite 5200, Atlanta, Georgia 30308, or at such location as may be mutually agreed upon by the Parties.

 

1.3           Effective Time . The Merger and other transactions contemplated by this Agreement shall become effective on the date and at the time the Articles or Certificate of Merger reflecting the Merger shall become effective with the Secretary of State of Georgia (the “Effective Time”).

 

 

ARTICLE 2

TERMS OF MERGER

 

2.1           Articles of Incorporation . The Articles of Incorporation of SBKC in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the surviving corporation.

 

2.2           Bylaws . The Bylaws of SBKC in effect immediately prior to the Effective Time shall be the Bylaws of the surviving corporation until duly amended or repealed.

 

2.3           Directors and Officers . The officers and directors of SBKC in office immediately prior to the Effective Time shall serve as the officers and directors of SBKC from and after the Effective Time, provided, that at the Effective Time, one director (the “Appointed Director”) who is serving as a member of the Board of Directors of Neighbors immediately prior to the Effective Time shall be elected as a director of SBKC by the SBKC Board of Directors.

 

ARTICLE 3

MANNER OF CONVERTING SHARES

 

3.1           Conversion of Shares . Subject to the provisions of this Article 3, at the Effective Time, by virtue of the Merger and without any action on the part of SBKC, Neighbors, or the shareholders of either of the foregoing, the shares of the constituent corporations shall be converted as follows:

 

(a)           Each share of capital stock of SBKC issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding from and after the Effective Time.

 

(b)           Subject to the conditions set forth herein, each Neighbors Common Stock Equivalent outstanding immediately prior to the Effective Time, other than shares held by Neighbors or with respect to which the holders thereof have perfected dissenters’ rights under Article 13 of the GBCC (the “Dissenting Shares”), shall automatically be converted at the Effective Time into the right to receive (i) cash in an amount equal to a Pro Rata Share of the Cash Consideration and (ii) a number of shares of SBKC Common Stock equal to a Pro Rata Share of the Stock Consideration. Such Neighbors Common Stock Equivalents to be converted are sometimes referred to herein as the “Outstanding Neighbors Shares.”

 

 

 

(i)          the average closing price of SBKC Common Stock (adjusted proportionately for any stock split, stock dividend, recapitalization, reclassification, or similar transaction that is effected, or for which a record date occurs) for the 20 preceding trading days prior to the date that is five trading days before the proposed Closing Date as reported in The Wall Street Journal (corrected for any typographical errors) (the “Average Closing Price”) is less than or equal to $18.68; and

 

(ii)         the ratio (the “Index Ratio”) of the Average Closing Price to the weighted average closing price (based on market capitalization) for the banks listed in Appendix 1 for the 20 preceding trading days prior to the date that is five trading days before the proposed Closing Date is less than or equal to 80% of the Index Ratio calculated as of the date of the Agreement using $23.35 as the Average Closing Price, then Neighbors shall have the right to renegotiate the Merger Consideration with SBKC. If the Parties are unable to agree upon the Merger Consideration within 15 business days after such proposed Closing Date, then the Agreement will terminate without penalty to either Party.

 

(d)          Notwithstanding any other provision of this Agreement, each holder of Outstanding Neighbors Shares exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of SBKC Common Stock (after taking into account all certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to such fractional part of a share of SBKC Common Stock multiplied by $23.35. No such holder will be entitled to dividends, voting rights, or any other rights as a shareholder in respect of any fractional shares.

 

(e)           Each share of Neighbors Common Stock that is not an Outstanding Neighbors Share as of the Effective Time shall be canceled without consideration therefor.

 

(f)            No Dissenting Shares shall be converted in the Merger. All such shares shall be canceled and the holders thereof shall thereafter have only such rights as are granted to dissenting shareholders under Article 13 of the GBCC; provided, however, that if any such shareholder fails to perfect his or her rights as a dissenting shareholder with respect to his or her Dissenting Shares in accordance with Article 13 of the GBCC or withdraws or loses such holder’s Dissenter’s Rights, such shares held by such shareholder shall be treated the same as all other holders of Neighbors Common Stock who at the Effective Time held Outstanding Neighbors Shares.

 

 

(g)           In the event SBKC or Neighbors changes the number of shares of SBKC Common Stock or Neighbors Common Stock, respectively, issued and outstanding prior to the Effective Time as a result of a stock split, stock dividend or similar recapitalization with respect to such stock and the record date or effective date thereof is prior to the Effective Time, the Merger Consideration shall be proportionately adjusted.

 

ARTICLE 4

EXCHANGE OF SHARES

 

4.1           Exchange Procedures  

 

(a)           Outstanding Shares of Neighbors Common Stock. Prior to the Effective Time, SBKC shall select a transfer agent, bank or trust company to act as exchange agent (the “Exchange Agent”) to effect the delivery of the Merger Consideration to holders of Neighbors Common Stock. At the Effective Time, SBKC shall deliver the Merger Consideration to the Exchange Agent. Promptly following the Effective Time, the Exchange Agent shall send to each holder of Outstanding Neighbors Shares immediately prior to the Effective Time a letter of transmittal (the “Letter of Transmittal”) for use in exchanging certificates previously evidencing shares of Neighbors Common Stock (“Old Certificates”). The Letter of Transmittal will contain instructions with respect to the surrender of Old Certificates and the distribution of cash and certificates representing SBKC Common Stock, which cash and certificates shall be deposited with the Exchange Agent by SBKC as of the Effective Time. If any certificates for shares of SBKC Common Stock are to be issued in a name other than that for which an Old Certificate surrendered or exchanged is issued, the Old Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and the person requesting such exchange shall affix any requisite stock transfer tax stamps to the Old Certificate surrendered or provide funds for their purchase or establish to the satisfaction of the Exchange Agent that such taxes are not payable. Subject to applicable law and to the extent that the same has not yet been paid to a public official pursuant to applicable abandoned property laws, upon surrender of his or her Old Certificates, the holder thereof shall be paid the consideration to which he or she is entitled. All such property, if held by the Exchange Agent for payment or delivery to the holders of unsurrendered Old Certificates and unclaimed at the end of one year after the Effective Time, shall at such time be paid or redelivered by the Exchange Agent to SBKC, and after such time any holder of an Old Certificate who has not surrendered such certificate shall, subject to applicable laws and to the extent that the same has not yet been paid to a public official pursuant to applicable abandoned property laws, look as a general creditor only to SBKC for payment or delivery of such property. In no event will any holder of Neighbors Common Stock exchanged in the Merger be entitled to receive any interest on any amounts held by the Exchange Agent or SBKC of the Merger Consideration.

 

 

(b)           Outstanding Neighbors Stock Options and Warrants. Neighbors shall provide a schedule to the Exchange Agent which sets forth the Neighbors stock options and warrants that are converted in the Merger pursuant to Section 3.1(b). The Exchange Agent shall issue the consideration to which such holder is entitled under this Section 4.1(b) together with any consideration to be delivered to such holder pursuant to Section 4.1(a) upon his or her compliance with the procedures set forth herein. Neighbors shall be required to provide SBKC prior to the Closing Date copies of all agreements evidencing all stock options and warrants listed on the schedule to be provided to the Exchange Agent pursuant to this Section 4.1.

 

4.2           Rights of Former Neighbors Shareholders . At the Effective Time, the stock transfer books of Neighbors shall be closed as to holders of Neighbors Common Stock immediately prior to the Effective Time and no transfer of Neighbors Common Stock by any such holder shall thereafter be made or recognized. Until surrendered for exchange in accordance with the provisions of Section 4.1, each Old Certificate theretofore representing Outstanding Neighbors Shares shall from and after the Effective Time represent for all purposes only the right to receive the consideration provided in Section 3.1 in exchange therefor. To the extent permitted by Law, former shareholders of record of Neighbors shall be entitled to vote after the Effective Time at any meeting of SBKC shareholders the number of whole shares of SBKC Common Stock into which their respective shares of Neighbors Common Stock are converted, regardless of whether such holders have exchanged their Old Certificates for certificates representing SBKC Common Stock in accordance with the provisions of this Agreement.

 

Whenever a dividend or other distribution is declared by SBKC on the SBKC Common Stock, the record date for which is at or after the Effective Time, the declaration shall include dividends or other distributions on all shares of SBKC Common Stock issuable pursuant to this Agreement, but no dividend or other distribution payable to the holders of record of SBKC Common Stock as of any time subsequent to the Effective Time shall be delivered to the holder of any Old Certificate until such holder surrenders such Old Certificate for exchange as provided in Section 4.1. However, upon surrender of such Old Certificate, both the SBKC Common Stock certificate and any undelivered dividends and cash payments payable hereunder (without interest) shall be delivered and paid with respect to each share represented by such Old Certificate.

 

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF NEIGHBORS

 

Neighbors hereby represents and warrants to SBKC as follows:

 

5.1           Organization, Standing, and Power . Neighbors is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Georgia and is duly registered as a bank holding company under the BHC Act, and Neighbors Bank is a bank duly organized, validly existing and in good standing under the Laws of the State of Georgia. Each has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its Assets. Each of the Neighbors Entities is duly qualified or licensed to transact business as a foreign corporation in good standing in the jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed. The minute book and other organizational documents for each of the Neighbors Entities have been made available to SBKC for its review and, except as disclosed in Section 5.1 of the Neighbors Disclosure Memorandum, accurately reflect all amendments thereto and all proceedings of the Board of Directors and shareholders thereof.

 

 

5.2           Authority of Neighbors; No Breach By Agreement .

 

(a)           Neighbors has the corporate power and authority necessary to execute, deliver, and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated herein, including the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of Neighbors. Subject to the requisite approval by Neighbors’ shareholders and any applicable Consents of Regulatory Authorities, this Agreement represents a legal, valid, and binding obligation of Neighbors, enforceable against Neighbors in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors’ rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought).

 

(b)           Neither the execution and delivery of this Agreement by Neighbors, nor the consummation by Neighbors of the transactions contemplated hereby, nor compliance by Neighbors with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of Neighbors’ Articles of Incorporation or Bylaws or any resolution adopted by the board of directors or the shareholders of Neighbors that is currently in effect, or (ii) except as disclosed in Section 5.2(b) of the Neighbors Disclosure Memorandum, constitute or result in a Default under, or require any Consent pursuant to, or result in the creation of any Lien on any Asset of any Neighbors Entity under, any Contract or Permit of the Neighbors Entities, or, (iii) subject to receipt of the requisite Consents referred to in Section 9.1(b), constitute or result in a Default under, or require any Consent pursuant to, any Law or Order applicable to the Neighbors Entities or any of their Assets (including any SBKC Entity or Neighbors Entity becoming subject to or liable for the payment of any Tax or any of the Assets owned by any SBKC Entity or Neighbors Entity being reassessed or revalued by any Taxing authority).

 

 

(c)           Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and other than Consents required from Regulatory Authorities, and other than notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans, no notice to, filing with, or Consent of, any public body or authority is necessary for the consummation by Neighbors of the Merger and the other transactions contemplated in this Agreement.

 

5.3           Capital Stock

 

(a)           The authorized capital stock of Neighbors consists of (i) 10,000,000 shares of $0.50 par value per share Neighbors Common Stock, of which 1,157,800 shares are issued and outstanding and (ii) 10,000,000 shares of no par value per share preferred stock, of which no shares are issued and outstanding. All of the issued and outstanding shares of capital stock of Neighbors are duly and validly issued and outstanding and are fully paid and nonassessable under the GBCC. None of the outstanding shares of capital stock of Neighbors has been issued in violation of any preemptive rights of the current or past shareholders of Neighbors.

 

(b)          The authorized capital stock of Neighbors Bank consists of 10,000,000 shares of $5.00 par value per share common stock, of which 1,180,000 shares are issued and outstanding. All of the issued and outstanding shares of capital stock of Neighbors Bank are duly and validly issued and outstanding and are fully paid and nonassesable, and none of the outstanding shares of capital stock of Neighbors Bank has been issued in violation of any preemptive rights.

 

(c)          Except as set forth in Section 5.3(a) and (b) of this Agreement or in Section 5.3(c) of the Neighbors Disclosure Memorandum, there are no shares of capital stock, preferred stock or other equity securities of Neighbors or Neighbors Bank outstanding and no outstanding Equity Rights relating to the capital stock of any Neighbors Entity. Any outstanding Equity Rights disclosed in Section 5.3(c) of the Neighbors Disclosure Memorandum will either be exercised or cancelled prior to the Closing or cancelled in connection with the conversion of the Neighbors Common Stock Equivalents in the Merger pursuant to Section 3.1(b) of this Agreement.

 

5.4            Neighbors Subsidiaries . Except as described in Section 5.4 of the Neighbors Disclosure Memorandum: (i) Neighbors has no Subsidiaries other than Neighbors Bank and does not own, for its own account, any stocks, options, calls, warrants or rights to acquire stock or other equity in any partnership, limited liability company or corporation; (ii) Neighbors owns all of the issued and outstanding capital stock of Neighbors Bank and (iii) all of such shares are held free and clear of any Lien.

 

 

5.5           SEC Filings; Financial Statements .

 

(a)           Neighbors has timely filed and made available to SBKC all SEC Documents required to be filed by Neighbors since December 31, 2002 (the “Neighbors SEC Reports”). The Neighbors SEC Reports (i) at the time filed, complied in all material respects with the applicable requirements of the Securities Laws and other applicable Laws and (ii) did not, at the time they were filed (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Neighbors SEC Reports or necessary in order to make the statements in such Neighbors SEC Reports, in light of the circumstances under which they were made, not misleading. Neighbors Bank is not required to file any SEC Documents.

 

(b)           Each of the Neighbors Financial Statements (including, in each case, any related notes) contained in the Neighbors SEC Reports, including any Neighbors SEC Reports filed after the date of this Agreement until the Effective Time, complied as to form in all material respects with the applicable published rules and regulations of the SEC with respect thereto, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim statements, as permitted by Form 10-Q SB of the SEC), and fairly presented in all material respects the consolidated financial position of Neighbors and its Subsidiaries as at the respective dates and the consolidated results of operations and cash flows for the periods indicated, except that the unaudited interim consolidated financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount or effect.

 

5.6           Absence of Undisclosed Liabilities . Neighbors has no Liabilities of a nature required to be reflected on a consolidated balance sheet prepared in accordance with GAAP, except Liabilities that are accrued or reserved against in the consolidated balance sheet of Neighbors as of September 30, 2005, included in the Neighbors Financial Statements or reflected in the notes thereto. Neighbors has not incurred or paid any Liability since December 31, 2004, except for such Liabilities incurred or paid (i) in the ordinary course of business consistent with past business practice and that are not reasonably likely to have, individually or in the aggregate, a Neighbors Material Adverse Effect or (ii) in connection with the transactions contemplated by this Agreement.

 

 

5.7           Loan and Investment Portfolio . As of the date of this Agreement, all loans, discounts and financing leases reflected on the Neighbors Financial Statements were, and with respect to the Neighbors Financial Statements delivered as of the dates subsequent to the execution of this Agreement, will be as of the dates thereof, (i) at the time and under the circumstances in which made, made for good, valuable and adequate consideration in the ordinary course of business, (ii) evidenced by genuine notes, agreements or other evidences of indebtedness and (iii) to the extent secured, have been secured by valid liens and security interests that have been perfected. Except as specifically set forth in Section 5.7 of the Neighbors Disclosure Memorandum, no Neighbors Entity is a party to any written or oral loan agreement, note or borrowing arrangement, including any loan guaranty, that was, as of the most recent month-end (i) delinquent by more than 30 days in the payment of principal or interest, (ii) known by the Neighbors Entities to be otherwise in Default for more than 30 days, (iii) classified as “substandard,” “doubtful,” “loss,” “other assets especially mentioned” or any comparable classification by Neighbors, Neighbors Bank, the FDIC or the Georgia Department of Banking and Finance, or (iv) an obligation of any director, executive officer or 10% shareholder of any Neighbors Entity who is subject to Regulation O of the Federal Reserve Board (12 C.F.R. Part 215), or any person, corporation or enterprise controlling, controlled by or under common control with any of the foregoing.

 

5.8           Absence of Certain Changes or Events . Since September 30, 2005, except as disclosed in the Neighbors Financial Statements delivered prior to the date of this Agreement or in Section 5.8 of the Neighbors Disclosure Memorandum or as contemplated in this Agreement, (i) there have been no events, changes, or occurrences which have had, or are reasonably likely to have, individually or in the aggregate, a Neighbors Material Adverse Effect, (ii) Neighbors has not declared, set aside for payment or paid any dividend to holders of, or declared or made any distribution on, any shares of Neighbors Common Stock and (iii) the Neighbors Entities have not taken any action, or failed to take any action, prior to the date of this Agreement, which action or failure, if taken after the date of this Agreement, would represent or result in a material breach or violation of any of the covenants and agreements of the Neighbors Entities provided in Article 7. Except as may result from the transactions contemplated by this Agreement, none of the Neighbors Entities have, since the date of the Neighbors Financial Statements delivered prior to the date of this Agreement:

 

(a)           except as set forth in Section 5.8(a) of the Neighbors Disclosure Memorandum, borrowed any money other than deposits or overnight fed funds or entered into any capital lease or leases; or, except in the ordinary course of business and consistent with past practices: (i) lent any money or pledged any of its credit in connection with any aspect of its business whether as a guarantor, surety, issuer of a letter of credit or otherwise, (ii) mortgaged or otherwise subjected to any Lien any of its assets, sold, assigned or transferred any of its assets in excess of $100,000 in the aggregate or (iv) incurred any other Liability or loss representing, individually or in the aggregate, over $100,000;

 

 

(b)          suffered over $100,000 in damage, destruction or loss to immovable or movable property, whether or not covered by insurance;

 

(c)          experienced any material adverse change in Asset concentrations as to customers or industries or in the nature and source of its Liabilities or in the mix or interest-bearing versus noninterest-bearing deposits;

 

(d)          except as set forth in Section 5.8(d) of the Neighbors Disclosure Memorandum, had any customer with a loan or deposit balance of more than $500,000 terminate, or received notice of such customer’s intent to terminate, its relationship with a Neighbors Entity;

 

(e)           failed to operate its business in the ordinary course consistent with past practices, or failed to use reasonable efforts to preserve its business or to preserve the goodwill of its customers and others with whom it has business relations;

 

(f)           except as set forth in Section 5.8(f) of the Neighbors Disclosure Memorandum, forgiven any debt owed to it in excess of $100,000, or canceled any of its claims or paid any of its noncurrent obligations or Liabilities;

 

(g)          except as set forth in Section 5.8(g) of the Neighbors Disclosure Memorandum, made any capital expenditure or capital addition or betterment in excess of $100,000;

 

(h)          except as set forth in Section 5.8(h) of the Neighbors Disclosure Memorandum, entered into any agreement requiring the payment, conditionally or otherwise, of any salary, bonus, extra compensation (including payments for unused vacation or sick time), pension or severance payment to any of its present or former directors, officers or employees, except such agreements as are terminable at will without any penalty or other payment by it or increased (except for increases of not more than 5% consistent with past practices) the compensation (including salaries, fees, bonuses, profit sharing, incentive, pension, retirement or other similar payments) of any such person whose annual compensation would, following such increase, exceed $100,000;

 

(i)           except as required in accordance with GAAP, changed any accounting practice followed or employed in preparing the Neighbors Financial Statements;

 

(j)           entered into any agreement, contract or commitment to do any of the foregoing; or

 

 

(k)           authorized or issued any additional shares of Neighbors Common Stock, preferred stock, or Equity Rights.

 

5.9           Tax Matters .

 

(a)           All Tax Returns required to be filed by or on behalf of the Neighbors Entities have been timely filed or requests for extensions have been timely filed, granted, and have not expired for all periods ended on or before the date of the most recent fiscal year end immediately preceding the Effective Time and all Tax Returns filed are complete and accurate in all material respects. All Taxes shown on filed Tax Returns have been paid. There is no audit examination, deficiency, or refund Litigation with respect to any Taxes, except as reserved against in the Neighbors Financial Statements delivered prior to the date of this Agreement or as disclosed in Section 5.9 of the Neighbors Disclosure Memorandum. Neighbors’ federal income Tax Returns have not been audited by the IRS. All Taxes and other Liabilities due with respect to completed and settled examinations or concluded Litigation have been paid. There are no Liens with respect to Taxes upon any of the Assets of the Neighbors Entities.

 

(b)           The Neighbors Entities have not executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax due that is currently in effect.

 

(c)           The provision for any Taxes due or to become due for Neighbors for the period or periods through and including the date of the respective Neighbors Financial Statements that has been made and is reflected on such Neighbors Financial Statements is sufficient to cover all such Taxes.

 

(d)           Deferred Taxes of Neighbors have been provided for in accordance with GAAP.

 

(e)           The Neighbors Entities are in compliance with, and their respective records contain all information and documents (including properly completed IRS Forms W-9) necessary to comply with, all applicable information reporting and Tax withholding requirements under federal, state, and local Tax Laws, and such records identify with specificity all accounts subject to backup withholding under Section 3406 of the Internal Revenue Code.

 

(f)           None of the Neighbors Entities have experienced a change in ownership with respect to their respective stock, within the meaning of Section 382 of the Internal Revenue Code, other than the ownership change that will occur as a result of the transactions contemplated by this Agreement.

 

 

5.10          Allowance for Possible Loan Losses . The allowance for possible loan or credit losses (the “Allowance”) shown on the consolidated balance sheets of Neighbors included in the Neighbors Financial Statements and the Allowance shown on the consolidated balance sheets of Neighbors as of dates subsequent to the execution of this Agreement will be, as of the dates thereof, adequate (within the meaning of GAAP and applicable regulatory requirements or guidelines) to provide for all known or reasonably anticipated losses relating to or inherent in the loan and lease portfolios (including accrued interest receivables) of Neighbors and other extensions of credit (including letters of credit and commitments to make loans or extend credit) by Neighbors as of the dates thereof.

 

5.11          Assets .

 

(a)           Except as disclosed in Section 5.11 of the Neighbors Disclosure Memorandum or as disclosed or reserved against in the Neighbors Financial Statements delivered prior to the date of this Agreement, the Neighbors Entities have good and marketable title, free and clear of all Liens, to their respective Assets, except for (i) mortgages and encumbrances that secure indebtedness that is properly reflected in the Neighbors Financial Statements or that secure deposits of public funds as required by law; (ii) Liens for taxes accrued but not yet payable; (iii) Liens arising as a matter of law in the ordinary course of business, provided that the obligations secured by such Liens are not delinquent or are being contested in good faith; (iv) such imperfections of title and encumbrances, if any, as do not materially detract from the value or materially interfere with the present use of any of such properties or Assets or the potential sale of any of such owned properties or Assets; and (v) capital leases and leases, if any, to third parties for fair and adequate consideration. All tangible properties used in the business of the Neighbors Entities are in good condition, reasonable wear and tear excepted, and are usable in the ordinary course of business consistent with such Neighbors Entity’s past practices. All Assets which are material to the Neighbors Entities’ business on a consolidated basis, held under leases or subleases by any of the Neighbors Entities, are held under valid Contracts enforceable against the Neighbors Entities in accordance with their respective terms (except as enforceability may be limited by applicable Bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the enforcement of creditors’ rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceedings may be brought), and each such Contract is in full force and effect.

 

(b)           The Neighbors Entities have paid all amounts due and payable under any insurance policies and guarantees applicable to the Neighbors Entities and their Assets and operations; all such insurance policies and guarantees are in full force and effect, and all the Neighbors Entities’ material properties are insured against fire, casualty, theft, loss, and such other events against which it is customary to insure, all such insurance policies being in amounts and with deductibles that are adequate and are consistent with past practice and experience. None of the Neighbors Entities has received notice from any insurance carrier that (i) any policy of insurance will be canceled or that coverage thereunder will be reduced or eliminated, or (ii) premium costs with respect to such policies of insurance will be substantially increased. There are presently no claims for amounts exceeding in any individual case $10,000 pending under such policies of insurance and no notices of claims in excess of such amounts have been given by any Neighbors Entity under such policies.

 

 

(c)           With respect to each lease of any real property or personal property to which any Neighbors Entity is a party (whether as lessee or lessor), except for financing leases in which a Neighbors Entity is lessor, (i) such lease is in full force and effect in accordance with its terms by the Neighbors Entity; (ii) all rents and other monetary amounts that have become due and payable thereunder have been paid by the Neighbors Entity; (iii) there exists no Default under such lease by the Neighbors Entity; and (iv) upon receipt of the consents described in Section 5.11(c) of the Neighbors Disclosure Memorandum, the Merger will not constitute a default or a cause for termination or modification of such lease.

 

(e)           The Neighbors Entities’ Assets include all material Assets required to operate the business of the Neighbors Entities as presently conducted.

 

5.12          Intellectual Property . The Neighbors Entities own or have a license to use all of the Intellectual Property used by the Neighbors Entities in the course of their business. The Neighbors Entities are the owner of or have a license to any Intellectual Property sold or licensed to a third party by the Neighbors Entities in connection with the Neighbors Entities’ business operations, and the Neighbors Entities have the right to convey by sale or license any Intellectual Property so conveyed. The Neighbors Entities have not received notice of Default under any of their Intellectual Property licenses. No proceedings have been instituted, or are pending or overtly threatened, that challenge the rights of the Neighbors Entities with respect to Intellectual Property used, sold or licensed by the Neighbors Entities in the course of their business, nor has any person claimed or alleged any rights to such Intellectual Property. The conduct of the Neighbors Entities’ business does not infringe any Intellectual Property of any other person. Except as disclosed in Section 5.12 of the Neighbors Disclosure Memorandum, the Neighbors Entities are not obligated to pay any recurring royalties to any Person with respect to any such Intellectual Property. Except as disclosed in Section 5.12 of the Neighbors Disclosure Memorandum, no officer, director or employee of the Neighbors Entities is a party to any Contract that restricts or prohibits such officer, director or employee from engaging in activities competitive with any Person, including any Neighbors Entity.

 

 

5.13          Environmental Matters .

 

(a)           Except as disclosed in Section 5.13(a) of the Neighbors Disclosure Memorandum, the Neighbors Entities, their Participation Facilities, and their Operating Properties are, and have been, in compliance with all Environmental Laws.

 

(b)           Except as disclosed in Section 5.13(b) of the Neighbors Disclosure Memorandum, there is no Litigation pending or overtly threatened before any court, governmental agency, or authority or other forum in which the Neighbors Entities or any of their Operating Properties or Participation Facilities (or Neighbors in respect of such Operating Property or Participation Facility) has been or, with respect to overtly threatened Litigation, may be named as a defendant (i) for alleged noncompliance (including by any predecessor) with any Environmental Law or (ii) relating to the Release into the indoor or outdoor Environment of any Hazardous Material, whether or not occurring in, at, on, under, about, adjacent to, or affecting (or potentially affecting) an Asset currently or formerly owned, leased, or operated by the Neighbors Entities or any of their Operating Properties or Participation Facilities, nor is there any reasonable basis for any Litigation of a type described in this sentence.

 

(c)           During the period of (i) the Neighbors Entities’ ownership or operation of any of its Assets, (ii) the Neighbors Entities’ participation in the management of any Participation Facility, or (iii) the Neighbors Entities’ holding of a security interest in a Operating Property, there has been no Release of any Hazardous Material in, at, on, under, about, adjacent to, or affecting (or potentially affecting) such properties. Prior to the period of (i) the Neighbors Entities’ ownership or operation of any of its Assets, (ii) the Neighbors Entities’ participation in the management of any Participation Facility, or (iii) the Neighbors Entities’ holding of a security interest in a Operating Property, there was no Release of any Hazardous Material in, at, on, under, about, or affecting any such property, Participation Facility or Operating Property. No lead-based paint or asbestos in any form is present in, at, on, under, about, or affecting (or potentially affecting) any Asset.

 

(d)           The Neighbors Entities have delivered to SBKC true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or initiated by Neighbors pertaining to Hazardous Materials in, at, on, under, about, or affecting (or potentially affecting) any Asset, or concerning compliance by the Neighbors Entities or any other Person for whose conduct they are or may be held responsible, with Environmental Laws.

 

 

(e)           There are no aboveground or underground storage tanks, whether in use or closed, in, at, on, under any Asset. Section 5.13(e) of the Neighbors Disclosure Memorandum contains a detailed description of all above-ground or underground storage tanks removed by or on behalf of the Neighbors Entities at or from any Asset. Any such tank removals were performed in accordance with Environmental Laws and no soil or groundwater contamination resulted from the operation or removal of such tanks.

 

5.14          Compliance with Laws . Neighbors Bank is a state bank whose deposits are and will at the Effective Time be insured by the FDIC and has in effect all Permits necessary for it to own, lease, or operate its Assets and to carry on its business as now conducted, and there has occurred no Default under any such Permit. Except as disclosed in Section 5.14 of the Neighbors Disclosure Memorandum, none of the Neighbors Entities are:

 

(a)           in Default under any of the provisions of their respective Articles of Incorporation or Bylaws (or other governing instruments);

 

(b)           in Default under any Laws, Orders, or Permits applicable to their business or employees conducting their respective businesses; or

 

(c)           since January 1, 2005, in receipt of any notification or communication from any agency or department of federal, state, or local government or any Regulatory Authority or the staff thereof (i) asserting that any Neighbors Entity is not in compliance with any of the Laws or Orders which such governmental authority or Regulatory Authority enforces, (ii) threatening to revoke any Permits or (iii) requiring any Neighbors Entity to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment, or memorandum of understanding, or to adopt any board resolution or similar undertaking, which restricts materially the conduct of its respective business or in any manner relates to capital adequacy, credit or reserve policies or management.

 

Copies of all reports, correspondence, notices and other documents relating to any inspection, audit, monitoring or other form of review or enforcement action by a Regulatory Authority have been made available to SBKC.

 

5.15          Labor Relations . The Neighbors Entities are not a party to any Litigation asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act or comparable state law) or seeking to compel it to bargain with any labor organization or other employee representative to wages or conditions of employment, nor are the Neighbors Entities party to any collective bargaining agreement, nor is there any pending or threatened strike, slowdown, picketing, work stoppage or other labor dispute involving any Neighbors Entity. To the Knowledge of Neighbors, there is no activity involving any of Neighbors Entities’ employees seeking to certify a collective bargaining unit or engaging in any other organization activity.

 

 

5.16          Employee Benefit Plans .

 

(a)           The Neighbors Entities have listed in Section 5.16 of the Neighbors Disclosure Memorandum, and have delivered or made available to SBKC prior to the execution of this Agreement copies in each case of, all pension, retirement, profit-sharing, employee stock ownership, deferred compensation, stock option, employee stock ownership, severance pay, vacation, cash or stock bonus, or other incentive plans, all other written employee programs, arrangements, or agreements, all medical, vision, dental, or other health plans, all life insurance plans, and all other employee benefit plans or fringe benefit plans, including “employee benefit plans” as that term is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored in whole or in part by, or contributed to by the Neighbors Entities or ERISA Affiliate thereof for the benefit of employees, former employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries and under which employees, former employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries are eligible to participate (collectively, the “Neighbors Benefit Plans”). Any of the Neighbors Benefit Plans that is an “employee pension benefit plan,” as that term is defined in Section 3(2) of ERISA, is referred to herein as a “Neighbors ERISA Plan.” No Neighbors ERISA Plan is intended to be qualified under Section 401(a) of the Internal Revenue Code.

 

(b)           All Neighbors Benefit Plans are in compliance with the applicable terms of ERISA, the Internal Revenue Code, and any other applicable Laws. The Neighbors Entities have not engaged in a transaction with respect to any Neighbors Benefit Plan that, assuming the taxable period of such transaction expired as of the date hereof, would subject the Neighbors Entities to a Tax imposed by either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA.

 

(c)           Except as disclosed in Section 5.16 of the Neighbors Disclosure Memorandum, the Neighbors Entities have no Liability for retiree health and retiree life benefits under any of the Neighbors Benefit Plans and there are no restrictions on the rights of the Neighbors Entities to amend or terminate any such retiree health or retiree life benefit Plan without incurring any Liability thereunder.

 

(d)           Except as disclosed in Section 5.16 of the Neighbors Disclosure Memorandum, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment (including severance, unemployment compensation, golden parachute, or otherwise) becoming due to any director or any employee of the Neighbors Entities from any of the Neighbors Entities under any Neighbors Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under any Neighbors Benefit Plan, or (iii) result in any acceleration of the time of payment or vesting of any such benefit.

 

 

(e)           The actuarial present values of all accrued deferred compensation entitlements (including entitlements under any executive compensation, supplemental retirement, or employment agreement) of employees and former employees of the Neighbors Entities and their respective beneficiaries, have been fully reflected on the Neighbors Financial Statements to the extent required by and in accordance with GAAP.

 

(f)           Each nonqualified deferred compensation plan, within the meaning of Section 409A of the Internal Revenue Code, maintained by the Neighbors Entities on or after January 1, 2005, has been operated in compliance with the requirements of Section 409A (or an available exemption therefrom) such that amounts of compensation deferred thereunder will not be includible in gross income under Section 409A prior to the distribution of benefits in accordance with the terms of the plan and will not be subject to the additional tax under Section 409A(a)(1)(B)(ii).

 

5.17          Material Contracts . Except as disclosed in Section 5.17 of the Neighbors Disclosure Memorandum or otherwise reflected in the Neighbors Financial Statements, neither the Neighbors Entities nor any of their respective Assets, businesses, or operations that they are a party to, or is bound or affected by, or receives benefits under, (i) any employment, severance, termination, consulting, or retirement Contract, (ii) any Contract relating to the borrowing of money by any Neighbors Entity or the guarantee by any Neighbors Entity of any such obligation (other than Contracts evidencing deposit liabilities, purchases of federal funds, fully-secured repurchase agreements, and Federal Home Loan Bank advances of depository institution Subsidiaries, trade payables and Contracts relating to borrowings or guarantees made in the ordinary course of business), (iii) any Contract that prohibits or restricts the Neighbors Entities from engaging in any business activities in any geographic area, line of business or otherwise in competition with any other Person, (iv) any Contract involving Intellectual Property (other than Contracts entered into in the ordinary course of business with customers), (v) any Contract relating to the provision of data processing, network communication, or other technical services to or by the Neighbors Entities, (vi) any Contract relating to the purchase or sale of any goods or services (other than Contracts entered into in the ordinary course of business and involving payments under any individual Contract not in excess of $100,000), and (vii) any exchange-traded or over-the-counter swap, forward, future, option, cap, floor, or collar financial Contract, or any other interest rate or foreign currency protection Contract not included on its balance sheet that is a financial derivative Contract (the “Neighbors Contracts”). With respect to each Neighbors Contract and except as disclosed in Section 5.17 of the Neighbors Disclosure Memorandum: (i) the Contract is in full force and effect against the applicable Neighbors Entity; (ii) the Neighbors Entity is not in Default thereunder; (iii) the Neighbors Entity has not repudiated or waived any material provision of any such Contract; and (iv) no other party to any such Contract is in Default in any respect, or has repudiated or waived any material provision thereunder. All of the indebtedness of the Neighbors Entities for money borrowed is prepayable at any time by the Neighbors Entities without penalty or premium.

 

 

5.18          Legal Proceedings . There is no Litigation instituted, pending or overtly threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of a material unfavorable outcome) against the Neighbors Entities, or against any employee benefit plan of the Neighbors Entities, or against any Asset, interest, or right of any of them, nor are there any Orders of any Regulatory Authorities, other governmental authorities, or arbitrators outstanding against any Neighbors Entity. Section 5.18 of the Neighbors Disclosure Memorandum contains a summary of all Litigation as of the date of this Agreement to which any Neighbors Entity is a party and that names any Neighbors Entity as a defendant or cross-defendant or for which any Neighbors Entity has any potential Liability in excess of $50,000.

 

5.19          Reports . Since December 31, 2004, the Neighbors Entities have timely filed all reports and statements, together with any amendments required to be made with respect thereto, that they were required to file with Regulatory Authorities. As of their respective dates, each of such reports and documents, including the financial statements, exhibits, and schedules thereto, complied in all material respects with all applicable Laws. As of its respective date, each such report and document did not, in all material respects, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading.

 

5.20          Accounting, Tax and Regulatory Matters . Neighbors has not taken or agreed to take any action and has no Knowledge of any fact or circumstance that is reasonably likely to (i) prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay receipt of any Consents of Regulatory Authorities referred to in Section 9.1(b) or result in the imposition of a condition or restriction of the type referred to in the last sentence of such Section.

 

5.21          Community Reinvestment Act . Neighbors has complied in all material respects with the provisions of the Community Reinvestment Act (“CRA”) and the rules and regulations thereunder, has a CRA rating of not less than “satisfactory,” has received no material criticism from regulators with respect to discriminatory lending practices, and has no Knowledge of any conditions or circumstances that are likely to result in a CRA rating of less than “satisfactory” or material criticism from regulators with respect to discriminatory lending practices.

 

 

5.22          Privacy of Customer Information .

 

(a)           Neighbors Bank is the sole owner or, in the case of participated loans, a co-owner with the other participant(s), of all individually identifiable personal information (“IIPI”) relating to customers, former customers and prospective customers that will be transferred to the SBKC Entities pursuant to this Agreement and the other transactions contemplated hereby. For purposes of this Section 5.22, “IIPI” shall include any information relating to an identified or identifiable natural person.

 

(b)           The collection and use of such IIPI by Neighbors Bank, the transfer of such IIPI to the SBKC Entities, and the use of such IIPI by the SBKC Entities as contemplated by this Agreement complies with all applicable privacy policies, the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act and all other applicable state, federal and foreign privacy law, and any contract or industry standard relating to privacy.

 

5.23          Technology Systems .

 

(a)           Except to the extent indicated in Schedule 5.23 of the Neighbors Disclosure Memorandum, no action will be necessary as a result of the transactions contemplated by this Agreement to enable use of the electronic data processing, information, record keeping, communications, telecommunications, hardware, third party software, networks, peripherals, portfolio trading and computer systems, including any outsourced systems and processes, and Intellectual Property that are used by the Neighbors Entities (collectively, the “Technology Systems”) to continue by the SBKC Entities to the same extent and in the same manner that it has been used by the Neighbors Entities.

 

(b)           The Technology Systems (for a period of 18 months prior to the Effective Date) have not suffered unplanned disruption causing a Neighbors Material Adverse Effect. Except for ongoing payments due under relevant third party agreements, the Technology Systems are free from any Liens. Access to business critical parts of the Technology Systems is not shared with any third party.

 

(c)           Details of Neighbors’ disaster recovery and business continuity arrangements have been provided to SBKC with the Neighbors Disclosure Memorandum.

 

 

(d)           The Neighbors Entities have not received notice of or are aware of any material circumstances including, without limitation, the execution of this Agreement, that would enable any third party to terminate any of the Neighbors Entities’ agreements or arrangements relating to the Technology Systems (including maintenance and support).

 

5.24          Bank Secrecy Act Compliance . The Neighbors Entities are in compliance in all material respects with the provisions of the Bank Secrecy Act of 1970, as amended (the “Bank Secrecy Act”), and all regulations promulgated thereunder including, but not limited to, those provisions of the Bank Secrecy Act that address suspicious activity reports and compliance programs. The Neighbors Entities have implemented a Bank Secrecy Act compliance program that adequately covers all of the required program elements as required by 12 C.F.R. §21.21.

 

5.25          Neighbors Disclosure Memorandum . Neighbors has delivered to SBKC a memorandum (the “Neighbors Disclosure Memorandum”) containing certain information regarding the Neighbors Entities as indicated at various places in this Agreement. All information set forth in the Neighbors Disclosure Memorandum shall be deemed for all purposes of this Agreement to constitute part of the representations and warranties of Neighbors under this Article 5. The information contained in the Neighbors Disclosure Memorandum shall be deemed to be part of and qualify all representations and warranties contained in this Article 5 and the covenants in Article 7 to the extent applicable.

 

5.26          Affiliate Agreements . Each of the directors of Neighbors has executed and delivered to SBKC an agreement in substantially the form of Exhibit “A” (collectively, the “Neighbors Affiliate Agreements”).

 

5.27          Board Recommendation . The Board of Directors of Neighbors, at a meeting duly called and held, has by unanimous vote of the directors present (who constituted all of the directors then in office) (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, and the Neighbors Affiliate Agreements and the transactions contemplated thereby, taken together, are fair to and in the best interests of the shareholders and (ii) resolved to recommend that the holders of the shares of Neighbors Common Stock approve this Agreement.

 

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF SBKC

 

SBKC hereby represents and warrants to Neighbors as follows:

 

6.1           Organization, Standing and Power . SBKC is a corporation duly organized, validly existing, and in good standing under the laws of the State of Georgia, and is duly registered as a Bank holding company under the BHC Act. SBKC has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its Assets. SBKC is duly qualified or licensed to transact business as a foreign corporation in good standing in the jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed.

 

 

6.2           Authority; No Breach By Agreement .

 

(a)           SBKC has the corporate power and authority necessary to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein, including the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of SBKC. Subject to receipt of the requisite Consents of Regulatory Authorities, this Agreement represents a legal, valid, and binding obligation of SBKC, enforceable against SBKC in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors’ rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought).

 

(b)           Neither the execution and delivery of this Agreement by SBKC, nor the consummation by SBKC of the transactions contemplated hereby, nor compliance by SBKC with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of SBKC’s Articles of Incorporation or Bylaws or the certificate or articles of incorporation or bylaws of any SBKC Subsidiary or any resolution adopted by the board of directors or the shareholders of any SBKC Entity that is currently in effect, or (ii) constitute or result in a Default under, or require any Consent pursuant to, or result in the creation of any Lien on any Asset of any SBKC Entity under, any Contract or Permit of any SBKC Entity or, (iii) subject to receipt of the requisite Consents referred to in Section 9.1(b), constitute or result in a Default under, or require any Consent pursuant to, any Law or Order applicable to any SBKC Entity or any of their respective material Assets (including any SBKC Entity or Neighbors becoming subject to or liable for the payment of any Tax or any of the Assets owned by any SBKC Entity or Neighbors being reassessed or revalued by any Taxing authority).

 

(c)           Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and rules of the Nasdaq National Market, and other than Consents required from Regulatory Authorities, and other than notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans, no notice to, filing with, or Consent of any public body or authority is necessary for the consummation by SBKC of the Merger and the other transactions contemplated in this Agreement.

 

 

6.3           Capital Stock .

 

(a)           The authorized capital stock of SBKC consists of 25,000,000 shares of SBKC Common Stock, of which 12,912,427 shares are issued and outstanding. All of the issued and outstanding shares of SBKC Common Stock are, and all of the shares of SBKC Common Stock to be issued in exchange for shares of Neighbors Common Stock upon consummation of the Merger, when issued in accordance with the terms of this Agreement, will be, duly and val