STOCK PURCHASE AGREEMENT

Exhibit 2

 

STOCK PURCHASE AGREEMENT

 

BY AND BETWEEN

 

BANKFINANCIAL CORPORATION,

A MARYLAND CORPORATION

 

AND

 

UNIVERSITY BANCORPORATION, INC.,

AN ILLINOIS CORPORATION

 

November 29, 2005

TABLE OF CONTENTS

 

 

i

 

ii

 

LIST OF EXHIBITS

 

 

iii

 

iv

STOCK PURCHASE AGREEMENT

 

This Stock Purchase Agreement (“ Agreement ”) is made and entered into as of the 29th day of November, 2005, by and between BankFinancial Corporation, a Maryland corporation having its principal business office at 15W060 North Frontage Road, Burr Ridge, Illinois (“ Purchaser ”), and University Bancorporation, Inc., an Illinois corporation having its principal place of business at 1354 East 55 ^th Street, Chicago, Illinois (“ Shareholder ”).

 

R E C I T A L S :

 

A. Shareholder owns all of the issued and outstanding shares of capital stock of University National Bank, Chicago, Illinois (the “ Bank ”).

 

B. Shareholder desires to sell, and the Purchaser desires to purchase, all of the issued and outstanding shares of the capital stock of the Bank as provided in this Agreement.

 

A G R E E M E N T S :

 

In consideration of the representations, warranties, covenants and agreements contained in this Agreement, Shareholder and Purchaser agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1. Definitions . In addition to capitalized terms separately defined herein, the following capitalized terms, as used in this Agreement, shall have the following meanings:

 

“ Action ” means any litigation, claim, action, suit, citation or charge, and any inquiry, hearing, proceeding, arbitration or investigation initiated, by or pending before any Applicable Governmental Authority.

 

“ Adjusted Equity Capital, ” means the Bank’s Total Equity Capital, adjusted to exclude the effects of (a) any increases or decreases in the Bank’s Total Equity Capital after June 30, 2005 that result solely from the application of SFAS No. 115 to the Bank’s available for sale Investment Securities; (b) earnings accrued and retained in connection with gains resulting from the sale of any Investment Securities or other assets occurring after June 30, 2005, other than earnings accrued and retained in connection with gains on the sale of any Excluded Assets; (c) any Closing Adjustments made at Purchaser’s request pursuant to Section 7.4(e) . In determining Adjusted Equity Capital, there will be no positive or negative adjustments for (i) any loan loss reserves that exceed the reserves required by SFAS 5 and SFAS 114; and (ii) any Loan write-offs or Loan reclassifications for which the Bank has established an adequate specific reserve pursuant to SFAS 114, or that are covered by general reserves established by the Bank in excess of the general reserves required by SFAS 5.

 

“ Affiliate ” means, with respect to a Person specified, another Person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.

 

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“ Allocation Statement ” shall have the meaning provided in Section 8.3 .

 

“ BankFinancial ” means BankFinancial, F.S.B., Purchaser’s wholly-owned subsidiary.

 

“ Applicable Governmental Authorities ” means, with respect to a Person, the Regulatory Authorities, the IRS and any other federal, state, county or local governmental instrumentality, agency, board or official having authority or jurisdiction to enforce or adjudicate any Applicable Law and Regulation, Action, Claim or Tax, or any court or arbitral body having jurisdiction over the Person.

 

“ Applicable Laws and Regulations ” means, with respect to a Person, all statutes, laws, ordinances, regulations, rules and rulings, and all published guidelines, interpretive letters, advisories or bulletins, of any Applicable Governmental Authority that apply to or binding upon such Person, the conduct of its business, any of its assets or Liabilities, including Taxes.

 

“ Bank Asset Purchase ” shall have the meaning provided in Section 8.1 .

 

“ Bank Benefit Plans ” means each profit sharing, group insurance, hospitalization, stock option, pension, retirement, bonus, deferred compensation, stock bonus, stock purchase or other employee welfare or benefit agreement, and any other plan or arrangement constituting an “employee benefit plan” as defined in Section 3(3) of ERISA, now or hereafter established, maintained, sponsored, undertaken or contributed to by the Bank for the benefit of the officers, directors or employees of the Bank, including each trust or other agreement with any custodian or any trustee for funds held under any such agreement, plan or arrangement, and all other contracts or arrangements under which pensions, deferred compensation or other retirement benefits are being paid or may become payable by the Bank.

 

“ Bank Financial Statements ” shall have the meaning provided in Section 4.8.

 

“ BHCA ” means the Bank Holding Company Act of 1956.

 

“ Bank Material Adverse Effect ” means an effect that is or could reasonably be expected (a) to be material and adverse to the financial condition, assets, properties, business, earnings, results of operations of the Bank, excluding the effects of any event or circumstance for which a Purchase Price adjustment is not permitted under Section 2.2(a) ; or (b) to materially and adversely affect the ability of the Bank or Shareholder to consummate the Transaction. An event or effect will not be considered a Bank Material Adverse Effect if it is of a fixed and certain amount and will not reduce the Bank’s Adjusted Equity Capital below the Minimum Capital Level at Closing.

 

“ Bank Merger ” means the merger of the Bank into BankFinancial pursuant to the Bank Merger Agreement.

 

“ Bank Merger Agreement ” shall have the meaning provided in Section 7.7 .

 

“ Bank OREO ” means any “other real estate owned” by the Bank as defined by the rules and regulations of the OCC.

 

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“ Bank Permitted Liens ” means (a) liens for Taxes, assessments, and other governmental charges or levies, the payment of which is not past due; (b) liens or pledges to secure payments of worker’s compensation, unemployment insurance, or the performance of bids, leases, public or statutory obligations or similar obligations arising in the ordinary course of business; (c) zoning restrictions, easements, licenses and other restrictions on the use of real property or any interest therein, or minor irregularities in title, that do not materially impair the use of such property in the operation of the Bank’s business or its merchantability or value; (d) financing leases or other purchase money or vendor’s liens or security interests; (e) liens for current property Taxes not yet due and payable or being contested in good faith; (f) pledges and liens given to secure public fund deposits and other Liabilities of the Bank arising in the ordinary course of business, including pledges and liens arising in connection with Federal Home Loan Bank borrowings permitted hereunder; and (g) pledges related to the Bank’s treasury, tax and loan account.

 

“ Bank Properties ” means (a) all real estate owned or leased by the Bank, and any buildings, fixtures and appurtenances located thereon; (b) any Bank OREO; and (c) any real estate upon which the Bank is in the process of foreclosing.

 

“ Bank Regulatory Reports ” shall have the meaning provided in Section 4.7 .

 

“ Bank Stock ” shall have the meaning provided in Section 4.6(a) .

 

“ Best Efforts ” means commercially reasonable good faith efforts, but not requiring either party to waive any condition to its obligations under this Agreement or to incur any substantial cost not otherwise required.

 

“ Business Day ” means any day other than a Saturday, a Sunday or any other day that the Bank is authorized or required to be closed for business.

 

“ Claims ” means any and all options, proxies, voting trusts, voting agreements, judgments, pledges, charges, escrows, rights of first refusal or first offer, mortgages, indentures, claims, transfer restrictions, liens, security interests and other encumbrances of every kind and nature whatsoever, whether arising by agreement, operation of law or otherwise.

 

“ Closing ” means the actions required to consummate the Stock Purchase, which shall take place as provided in Article II after the satisfaction or waiver of all of the conditions set forth in Article IX .

 

“ Closing Adjustments ” shall means any of the following actions taken by the Bank pursuant to Section 7.4(e) : (a) any accounting adjustments or entries to the Bank’s books and records; (b) any changes to the Bank’s accounting methods; (c) the sale or transfer of any Investment Securities; (d) the charge-off any Loan or portion thereof; (e) the establishment of new reserves or additional reserves for any Loan; (f) providing notice under any insurance policy or bond; (g) the acceleration, deferral or accrual or any actual or anticipated obligation, expense or income item; and (h) and such other actions or adjustments that would affect the financial reporting of the Bank after the Closing.

 

“ Closing Date ” means the date the Closing occurs.

 

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“ Closing Financial Statements ” shall have the meaning provided in Section 2.2(b) .

 

“ Code ” means the Internal Revenue Code of 1986.

 

“ Deposit Schedule ” shall have the meaning provided in Section 4.16 .

 

“ Disclosure Schedule ” means the schedules, agreements, lists and other documentation described or referred to in this Agreement as part of the Disclosure Schedule, as delivered to Purchaser on November 29, 2005, and as subsequently updated pursuant to Section 7.5(b).

 

“ Disclosure Schedule Updates ” shall have the meaning provided in Section 7.5(b) .

 

“ Effective Time ” means the time the Stock Purchase is deemed effective by Purchaser and Shareholder.

 

“ Election ” shall have the meaning provided in Section 8.2 .

 

“ Environmental Law ” means any law, regulation, rule, ordinance or similar requirement that governs or protects the environment enacted or promulgated by the United States, any state, or any county, city or agency or subdivision of the United States or any state.

 

“ Environmental Site Assessment ” means the Phase I Environmental Site Assessment of the main Bank premises dated November 8, 2005 and prepared by Gabriel Environmental Services.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

 

“ Excluded Assets ” means (a) the Bank’s real estate located at 5482 Ridgewood Court, Chicago, Illinois; (b) the Bank’s 1953 Cessna 195 aircraft; and (c) the automobile the Bank currently provides to its Chief Executive Officer.

 

“ FDI Act ” means the Federal Deposit Insurance Act.

 

“ FDIC ” means the Federal Deposit Insurance Corporation.

 

“ Federal Reserve ” means the Board of Governors of the Federal Reserve System.

 

“ GAAP ” means generally accepted accounting principles in the United States of America as historically applied by the Bank on a consistent basis.

 

“ Hazardous Material(s) ” means any material or substance: (a) that is a “hazardous substance,” “pollutant” or “contaminant” pursuant to the Comprehensive Environmental Response Compensation and Liability Act; (b) containing gasoline, oil, diesel fuel or other petroleum product; (c) that is “hazardous waste” pursuant to the Federal Resource Conservation and Recovery Act; (d) containing polychlorinated biphenyls; (e) containing asbestos; (f) that is radioactive; (g) that contains hazardous mold; (h) the presence of which requires investigation or remediation under any Environmental Law; or (i) that is defined or identified as a “hazardous waste,” “hazardous substance,” “pollutant,” “contaminant,” or “biologically hazardous material” under any Environmental Law.

 

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“ Insider Loan ” means any Loan that is subject to the restrictions and requirements of Regulation O of the Federal Reserve or Section 23A or 23B of the Federal Reserve Act.

 

“ Intellectual Property ” shall have the meaning provided in Section 4.18(c) .

 

“ Investment Securities ” shall have the meaning provided in Section 4.15(a) .

 

“IRS” means the Internal Revenue Service.

 

“ Knowledge ” or “ to the Knowledge of ” means (a) in the case of Shareholder, the actual knowledge of any of the executive officers and Directors of Shareholder or the Bank, and (b) in the case of Purchaser, the actual knowledge of any of the executive officers and Directors of Purchaser.

 

“ Liabilities ” means, with respect to a Person, all obligations or liabilities of such Person, whether accrued, absolute, fixed or contingent, liquidated or unliquidated, due or becoming due, and regardless of when asserted, that arise out of or are based upon any transactions, events or occurrences heretofore entered into or occurring, that are required to be reflected, disclosed or reserved against in such Person’s financial statements under GAAP.

 

“ Loan Standards ” shall have the meaning provide on Exhibit A hereto.

 

“ Loans ” shall have the meaning provided in Section 4.14(a) .

 

“ Material Agreement ” shall have the meaning provided in Section 4.17 .

 

“ Minimum Capital Level ” means Adjusted Equity Capital of $7,981,000.

 

“ OCC ” means the Office of the Comptroller of the Currency.

 

“OTS ” means the Office of Thrift Supervision.

 

“ Person ” means any individual, corporation, limited liability company, business trust, association, partnership, joint venture, government, governmental department or agency, government sponsored entity, and any other entity of any kind or type.

 

“ Problem Loan ” shall have the meaning provided in Section 4.15(b) .

 

“ Purchase Price ” shall have the meaning provided in Section 2.2(a) .

 

“ Purchaser Material Adverse Effect ” means an effect that is or could reasonably be expected to materially and adversely affect the ability of Purchaser to consummate the Transaction.

 

“ QSSS ” means a qualified subchapter S subsidiary (“QSSS”) within the meaning and requirements of Sections 1361 and 1362 of the Code.

 

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“ Regulatory Action ” means any civil monetary penalty, cease-and-desist order or other enforcement order, directive or supervisory letter or action issued by, or any written agreement, consent agreement, memorandum of understanding, commitment letter or similar undertaking provided by the Bank to, any Regulatory Authority or other Applicable Governmental Authority.

 

“ Regulatory Applications ” means all applications, notices, requests and other documents or information that must be submitted to seek and obtain the Regulatory Approvals.

 

“ Regulatory Approvals ” means the approval, non-objection or waiver of the OTS, the OCC, the United States Department of Justice and any other Applicable Governmental Authorities whose approval, non-objection or waiver is necessary consummate the Transaction.

 

“ Regulatory Authorities ” means the OTS, the OCC, the Federal Reserve and the FDIC.

 

“ Shareholder’s Group ” means Shareholder and the Bank, collectively.

 

“ Shareholder Material Adverse Effect ” means an effect that is or could reasonably be expected to materially and adversely affect the ability of Shareholder to consummate the Transaction.

 

“ SFAS ” means Statement of Financial Accounting Standards, as adopted or promulgated in or with respect to the United States by the Financial Accounting Standards Board.

 

“ Stock Purchase ” means the series of transactions contemplated in this Agreement including and resulting in the purchase by Purchaser of all of the Bank Stock.

 

“ Tax ” means any tax (including any income, capital gains, built-in gains, employment, excise, replacement, sales, property or franchise tax), levy, assessment, tariff, deficiency or other tax-related fee, and any related charge or amount (including any fine, penalty, interest or addition to a tax), imposed, assessed or collected by or under the authority of the IRS or any other Applicable Governmental Authority, or payable pursuant to any tax-sharing agreement or any other contract relating to the sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency or tax-related fee.

 

“ Tax Return ” means any return (including any information return), report, statement, schedule, notice, election, form or other document or information filed with or submitted to, or required to be filed with or submitted to, the IRS or any other Applicable Governmental Authority in connection with the determination, assessment, collection or payment of any Tax, or in connection with the administration, implementation, or enforcement of or compliance with the Code and any other Applicable Laws or Regulations relating to any Tax.

 

“ Termination Date ” means June 30, 2006, or such other date as Shareholder and Purchaser shall have agreed to in writing.

 

“Total Equity Capital” means, at any specified time, the sum of the Bank’s capital stock, surplus, undivided profits and accumulated other comprehensive income, as defined by the OCC in its instructions to national banks for preparing the Reports of Condition. Total Equity Capital includes earnings accrued and retained from Bank operations in accordance with GAAP.

 

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“ Transaction ” means the Stock Purchase and Bank Merger.

 

“ Transaction Documents ” means this Agreement and all other documents to be executed or delivered in connection with this Agreement and the Transaction.

 

“ Updated Allocation Statement ” shall have the meaning provided in Section 8.3 .

 

1.2. Principles of Construction . In this Agreement, unless otherwise stated or the context otherwise requires, the following usages shall apply: (a) in computing periods from a specified date to a later specified date, the words “from,” “commencing on” and similar terms mean “from and including,” and the words “to,” “until,” “ending on” and similar terns mean “to and including;” (b) headings are inserted for convenience of reference only and are not a part of, nor shall they affect any construction or interpretation of, this Agreement; (c) all indications of a time of day mean Chicago, Illinois, time; (d) references to a statute shall refer to the statute, any amendments to the statute and any successor statute, and to all regulations promulgated thereunder, as in effect at the relevant time; (e) “including” means “including, but not limited to;” (f) unless the context requires otherwise, all words used in this Agreement (including terms defined in Section 1.1 ) in the singular number shall include the plural, and the plural number shall include the singular, and all words in any gender shall include all genders; (g) any reference to a document or the rights and obligations of the parties to such document means such document or documents as amended from time to time, and any and all modifications, extensions, renewals, substitutions or replacements thereof; (h) unless the context indicates otherwise, all references to “Articles,” “Sections,” “Subsections” and “clauses” shall refer to the Articles, Sections, Subsections and clauses of this Agreement; and (i) all references to “Schedules” shall refer to the Schedules to the Disclosure Schedule.

 

ARTICLE II

STOCK PURCHASE; PAYMENT; CLOSING

 

2.1. Sale and Purchase . At the Closing, and in accordance with the terms and subject to the conditions set forth in this Agreement, including the conditions set forth in Article IX , Purchaser shall purchase the Bank Stock from Shareholder, and Shareholder shall sell, transfer and convey the Bank Stock to Purchaser, free and clear of all Claims.

 

2.2. Purchase Price .

 

(a) The purchase price (the “Purchase Price”) for the Bank Stock shall be $23,943,000, plus, on a dollar for dollar basis, the extent, if any, that the Bank’s Adjusted Equity Capital, as reflected in the Closing Financial Statements approved by Purchaser pursuant to Section 2.2(b) , exceeds the Bank’s Minimum Capital Level.

 

(b) The Bank shall prepare, and shall provide to Purchaser at least two (2) Business Days prior to the scheduled Closing Date, (i) Bank Financial Statements as of the close of business on the last day of the month preceding the Closing Date, using fair and reasonable estimates of revenues and expenses where actual amounts are not available (the “Closing Financial Statements” ); and (ii) a written calculation of the Purchase Price, based on the Bank’s Adjusted Equity Capital, and the extent, if any, to which the Bank’s Adjusted Equity Capital exceeds the Bank’s Minimum Capital Level, in each case as reflected on the Closing Financial

 

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Statements. The Closing Financial Statements, the foregoing calculations and all documentation requested by Purchaser in support thereof shall be subject to the review and approval of Purchaser and its accountants as a condition to the Closing.

 

(c) The Purchase Price does not take into account the extent, if any, to which the fair market value of the Excluded Assets exceeded their book value at June 30, 2005. The Bank may transfer any or all of the Excluded Assets to Shareholder or to another Person prior to the Closing Date through any lawful means (including through a special dividend to Shareholder), but only if such transfers would not, in and of themselves or in combination with other factors, cause the Bank’s Adjusted Equity Capital to be less than the Bank’s Minimum Capital Level on the Closing Date.

 

2.3. Closing. The Closing shall take place on a date, time and place that are mutually agreed to by Purchaser and Shareholder, provided that, in the absence of such an agreement, the Closing shall take place at 10:00 A.M. at the offices of Purchaser’s counsel on the later of: the third Business Day of the calendar month following the calendar month during which all the conditions set forth in Article IX have been satisfied or waived, or April 5, 2006.

 

2.4. Purchaser’s Deliveries at Closing. At the Closing, Purchaser shall deliver or cause to be delivered the following items to Shareholder:

 

(a) Purchaser shall pay the amount of the Purchase Price to Shareholder by a wire transfer made in accordance with instructions provided by Shareholder to Purchaser.

 

(b) A certificate of Purchaser dated the Closing Date certifying that the conditions set forth in Sections 9.2(a) through (c)  have been satisfied;

 

(c) Copies of each of the Regulatory Approvals;

 

(d) A legal opinion of Purchaser’s counsel, substantially in the form set forth in Exhibit B , and dated as of the Effective Time; and

 

(e) Such other documents as the Bank or its counsel shall reasonably request.

 

2.5. Shareholder’s Deliveries at Closing. At the Closing, Shareholder shall deliver or cause to be delivered the following items to Purchaser:

 

(a) Certificates representing all of the Bank Stock together with duly executed stock powers;

 

(b) A certificate of corporate existence for the Bank issued by the OCC and dated not more than fifteen (15) Business Days prior to the Closing Date;

 

(c) A copy of the charter of the Bank certified by the OCC as of a date that is not more than fifteen (15) Business Days prior to the Closing Date;

 

(d) A certificate of the Secretary of the Bank dated the Closing Date certifying a copy of the bylaws of the Bank;

 

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(e) A certificate executed by Shareholder dated the Closing Date certifying that the conditions set forth in Sections 9.1(a) through (h)   have been satisfied;

 

(f) Evidence that any actions requested by Purchaser pursuant to Section 7.4(e) have been taken as requested;

 

(g) A legal opinion of counsel to Shareholder, substantially in the form set forth in Exhibit C , and dated as of the Effective Time;

 

(h) Resignations from the Bank’s Directors as of at the Effective Time; and

 

(i) Such other documents as Purchaser or its counsel shall reasonably request.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser represents and warrants to Shareholder that each of the following statements is true and correct on the date hereof and will be true and correct at Closing:

 

3.1. Organization. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has all requisite corporate power and authority to own, operate and lease its assets, properties and businesses, and to carry on its businesses substantially as they have been and are now being conducted. Purchaser is duly qualified to do business and is in good standing in each jurisdiction where the character of the properties owned or leased or the nature of the business transacted by it requires that it be so qualified, except where the failure to so qualify would not have a Purchaser Material Adverse Effect. Purchaser has all requisite corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is a party and, upon the receipt of all Regulatory Approvals, to consummate the Transaction.

 

3.2. Authorization. The execution, delivery and performance of the Transaction Documents and the consummation of the Stock Purchase by Purchaser have been duly approved and authorized by all requisite corporate action. The Transaction Documents have been, or where applicable, will be, duly executed and delivered by Purchaser, and subject to the Regulatory Approvals, will constitute the valid and binding obligations of Purchaser, except to the extent that enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles and doctrines.

 

3.3. No Conflicts; Approvals. The execution and delivery of the Transaction Documents do not, and the consummation of the Transaction will not, conflict with or result in any violation of the articles of incorporation and bylaws of Purchaser. The execution and delivery of the Transaction Documents do not, and the consummation of the Transaction will not, conflict with or result in any violation, breach or termination of, or default or loss of a material benefit under, or permit the acceleration of, any obligation or result in the creation of any material lien, charge or encumbrance on any of Purchaser’s property or assets under any provision of any mortgage, indenture, lease, agreement or other instrument, permit, concession, grant, franchise, license, judgment, order, decree or Applicable Law and Regulation, other than any such conflicts, violations, defaults or losses of benefits that individually or in the aggregate

 

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do not have a Purchaser Material Adverse Effect, or that will be cured prior to the Closing Date. Except for the Regulatory Approvals, no consent, approval, order or authorization of, or registration, declaration or filing with, any Applicable Governmental Authority is required by or with respect to Purchaser in connection with the execution and delivery of the Transaction Documents or the consummation of the Transaction, the absence of which would have a Purchaser Material Adverse Effect.

 

3.4. Litigation. There is no Action pending or threatened against or affecting Purchaser, any of its assets or any of its officers, directors, employees or agents, in their capacities as such, which, if adversely determined, would have a Purchaser Material Adverse Effect, or which is seeking to enjoin consummation of the Stock Purchase or to obtain other relief in connection with this Agreement or the Stock Purchase, nor is there any judgment, decree, injunction, rule or order of any Applicable Governmental Authority outstanding against Purchaser, any of its assets or any of its officers, directors, employees or agents, in their capacities as such, having, or which could reasonably be expected to have, a Purchaser Material Adverse Effect.

 

3.5. Approval Delays. To Purchaser’s Knowledge, there is no reason why the granting of any of the Regulatory Approvals that Purchaser is required to obtain to consummate the Transaction would be denied or unduly delayed.

 

3.6. Financial Ability. Purchaser has the financial capability to consummate the Stock Purchase as contemplated in this Agreement.

 

3.7. Environmental Matters . Purchaser has received and reviewed the Environmental Site Assessment.

 

3.8. Bank Reserve Methodology . Purchaser has reviewed, understands and accepts for purposes of the Transaction the methodology used by the Bank to determine the amount of its general reserves required under SFAS 5 as of June 30, 2005.

 

3.9. Purchaser’s Investigation . Purchaser has made an investigation and analysis of all facts and data which it has deemed necessary or appropriate in its decision to, and without reliance upon written or oral information conveyed to Purchaser by or on behalf of Shareholder (except specific representations and warranties expressly set forth in this Agreement and information provided to Purchaser in the Disclosure Schedules), enter into this Agreement and acquire the Bank Stock. Purchaser is relying on its own plan of operations and financial forecasts for the Bank, and is not relying on any forecasted operating results or budgets prepared by or for the Bank.

 

3.10. Special Disclosure . Purchaser has no Knowledge of any basis on which the representations and warranties of Shareholder under Article IV are, or with the passage of time will become, untrue or inaccurate in any material respect.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER

 

Shareholder represents and warrants to Purchaser that each of the following statements is true and correct on the date hereof and will be true and correct at Closing:

 

4.1. Organization. Shareholder is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois and has all requisite corporate power and authority to own, operate and lease its assets, properties and businesses and to carry on its businesses substantially as they have been and are now being conducted. Shareholder is duly qualified to do business and is in good standing in each jurisdiction where the character of the properties owned or leased by it or the nature of the business transacted by it requires that it be so qualified, except where the failure to so qualify would not have a Bank Material Adverse Effect. Shareholder has all requisite corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is a party and, upon the receipt of all Regulatory Approvals, to consummate the Stock Purchase.

 

4.2. Authorization. The execution, delivery and performance of the Transaction Documents and the consummation of the Stock Purchase by Shareholder have been duly approved and authorized by the shareholders of Shareholder, and all other requisite corporate action. The Transaction Documents have been, or where applicable, will be, duly executed and delivered by Shareholder, and, subject to the Regulatory Approvals, will constitute the valid and binding obligations of Shareholder, except to the extent that enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles and doctrines.

 

4.3. Bank Stock. Shareholder is the record owner of and has good and valid title to all of the shares of Bank Stock and such shares of Bank Stock are not subject to any Claims whatsoever, except for a pledge of the Bank Stock to LaSalle Bank, N.A. to secure a loan in the principal amount of $700,000, which pledge shall be released prior to Closing. The Bank Stock constitutes, and at Closing will constitute, all of the issued and outstanding capital stock of the Bank. During the period from the date of this Agreement to the earlier of the Closing or the termination of this Agreement as provided herein, Shareholder will not sell, assign, pledge, transfer or dispose of any shares of the Bank Stock except as expressly provided in this Agreement.

 

4.4. Bank Organization. The Bank is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America and its deposits are insured by the FDIC to the full extent permitted under the FDI Act. The Bank has all requisite power and authority, to own, operate and lease its assets, properties and businesses and to carry on its businesses substantially as they have been and are now being conducted. The Bank is duly qualified to do business and is in good standing in each jurisdiction where the character of the properties owned or leased by it or the nature of the business transacted by it requires that it be so qualified, except where the failure to so qualify would not have a Bank Material Adverse Effect. The Bank holds all licenses, certificates, permits, franchises and rights from all Applicable Governmental Authorities necessary for the conduct of its business, except where the failure to so hold would not have a Bank Material Adverse Effect. Schedule 4.4 contains complete and correct copies of the Bank’s charter and bylaws.

 

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4.5. No Conflicts; Approvals. The execution and delivery of the Transaction Documents do not, and the consummation of the Stock Purchase will not, conflict with or result in any violation of charter or bylaws of the Bank, or the articles of incorporation and bylaws of Shareholder. Except as disclosed in the Material Agreements described in Schedule 4.17 , the execution and delivery of the Transaction Documents do not, and the consummation of the Transaction will not, conflict with or result in any violation, breach or termination of, or default or loss of a material benefit under, or permit the acceleration of, any obligation or result in the creation of any material lien, charge or encumbrance on the Bank Stock or any of the Bank’s property or assets under any provision of any mortgage, indenture, lease, agreement or other instrument, permit, concession, grant, franchise, license, judgment, order, decree or Applicable Law and Regulation, other than, in the case of property other than the Bank Stock, such conflicts, violations, defaults or losses of benefits that individually or in the aggregate do not have a Bank Material Adverse Effect, or will be cured prior to the Closing Date. Except for the Regulatory Approvals, no consent, approval, order or authorization of, or registration, declaration or filing with, any Applicable Governmental Authority is required by or with respect to Shareholder and the Bank in connection with the execution and delivery of the Transaction Documents or the consummation of the Transaction, the absence of which would have a Shareholder Material Adverse Effect.

 

4.6. Bank Capitalization.

 

(a) The authorized capital stock of the Bank consists of 40,000 shares of common stock, $10.00 par value (the “Bank Stock” ), of which 40,000 shares are issued and outstanding. All of the issued and outstanding shares of the Bank Stock have been duly and validly authorized and issued, and are fully paid and non-assessable. None of the outstanding shares of the Bank Stock are subject to any preemptive rights of the current or past shareholders of the Bank. Except for the Bank Stock, there are no shares of capital stock or other equity securities of the Bank outstanding and no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of the capital stock of the Bank, or contracts, commitments, understandings, or arrangements by which the Bank is or may be bound to issue additional shares of its capital stock or to issue options, warrants, or rights to purchase or acquire any additional shares of its capital stock.

 

(b) The Bank does not have outstanding any indebtedness that entitles the holder or holders thereof to exercise voting rights in connection with the election of its Directors or the approval of the Stock Purchase or the Bank Merger, nor are there outstanding any options, warrants, calls, rights, commitments or agreements of any kind obligating the Bank to issue or sell any such indebtedness. There are no outstanding contractual obligations of the Bank to repurchase, redeem or otherwise acquire any shares of its capital stock or any of its indebtedness.

 

(c) The Bank has no subsidiaries and, except as set forth on Schedule 4.6(c) , does not directly or indirectly own any equity securities or any debt securities that are convertible into equity securities of, or any other proprietary interest in, any Person.

 

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4.7. Bank Regulatory Reports. The Bank has delivered or made available to Purchaser complete and accurate copies of all reports that the Bank has filed with the Federal Financial Institutions Examination Council (FFIEC) since January 1, 2003, and will provide Purchaser with the reports required by Section 7.2(a) (collectively, the “Bank Regulatory Reports” ). Except as set forth on Schedule 4.7 , as of their respective dates, each of the Bank Regulatory Reports (a) is true and correct in all material respects, (b) complies in all material respects with applicable rules and regulations of the OCC applied on a consistent basis, and (c) fairly present the financial condition of the Bank.

 

4.8. Financial Statements. Section 4.8 contains complete and accurate copies of the Bank’s unaudited balance sheet and detailed statement of earnings for the fiscal years ended 2004, 2003 and 2002, and for the nine months ended September 30, 2005 (and for any subsequent month-end and quarter-end that occurred prior to the date hereof), and will provide Purchaser with the financial statements required by Section 7.2 (collectively, the “Bank Financial Statements” ). The Bank Financial Statements have been prepared in accordance with GAAP in all material respects, applied on a consistent basis during the periods involved, except for recurring year-end adjustments normal in nature and amount for the current year, and for all years, the absence of footnotes. The Bank Financial Statements fairly present the financial position and results of operation of the Bank as of the dates thereof and for the periods then ended. Since December 31, 2004, the Bank has not undergone, suffered or experienced any Bank Material Adverse Effect, and to Shareholder’s Knowledge, there are no facts or circumstances from which the Bank might or could undergo, suffer or experience a Bank Material Adverse Effect.

 

4.9. Regulatory Investigations. Except for examinations conducted by the OCC in the ordinary course of the business and those matters disclosed on Schedule 4.9 , no Applicable Governmental Authority has initiated any Regulatory Action or investigation into the business or operations of the Bank within the past five (5) years. There is no unresolved violation, criticism or exception by the OCC or any other Applicable Governmental Authority that would have a Bank Material Adverse Effect. The Bank not been advised by any Regulatory Authority or other Applicable Governmental Authority that it is considering issuing, initiating, ordering or requesting any Regulatory Action.

 

4.10. Compliance with Laws. The business of the Bank is not being conducted in violation of any Applicable Laws and Regulations, except for possible violations that either individually or in the aggregate do not and will not have a Bank Material Adverse Effect.

 

4.11. Litigation. Except as disclosed in Schedule   4.11 , there is no Action pending or threatened against or affecting the Bank, any of its assets, any of its officers, directors, employees or agents in their capacities as such, Shareholder or the Bank Stock. None of the matters disclosed in Schedule 4.11 has or will have a Bank Material Adverse Effect, or is seeking to enjoin the consummation of any aspect of the Transaction or obtain damages or other relief in connection with the Transaction. No judgment, decree, injunction, rule or order of any court or other Applicable Governmental Authority is outstanding against Shareholder or the Bank or any of its officers, directors, employees or agents, in their capacities as such.

 

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4.12. Licenses. The Bank holds all licenses, certificates, permits, franchises and all Intellectual Property and rights thereto, and adequate authorizations, and has obtained all approvals, consents, licenses, clearances and orders or registrations from or with Applicable Governmental Authorities, that are material to the conduct of the Bank’s business.

 

4.13. Insurance and Bonds. Schedule 4.13 contains complete and accurate list of all insurance policies and bonds presently maintained by the Bank with respect to its business, operations, properties, assets and Liabilities, and copies of such policies have been provided separately to Purchaser. All such insurance policies and bonds are in full force and effect, and the Bank is not in default of any of its obligations under any of them. Schedule 4.13 summarizes any notices and claims that the Bank has filed under such insurance policies and bonds, all of which were filed within any applicable time limits.

 

4.14. Loans.

 

(a) Except as disclosed in Schedule 4.14(a) , each loan, loan agreement, note, lease or other borrowing agreement, any participation therein, and any guaranty, renewal or extension thereof (collectively, “Loans” ) reflected as an asset on any of the Bank Financial Statements or Bank Regulatory Reports is evidenced by appropriate and sufficient documentation in all material respects and constitutes the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, except to the extent enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors rights generally or equitable principles or doctrines. To Shareholder’s Knowledge, no obligor named therein is seeking to avoid the enforceability of any term of any Loan under any such laws or equitable principles or doctrines, and no Loan is subject to any defense, offset or counterclaim. All Loans originated or purchased by the Bank were made or purchased in accordance with the policies of the Board of Directors of the Bank and in the ordinary course of the business, except for exceptions approved by the Directors and noted in the Board of Directors’ reports. Neither this provision nor any other provision of this Agreement shall be construed as a guaranty by Shareholder of the collectibility of any Loan.

 

(b) Except as disclosed in Schedule 4.14(b) , the Bank is not a party to any Loan (i) under the terms of which the obligor is more than thirty (30) days delinquent in payment of principal or interest or in default of any other material provision as of the dates shown thereon or for which the Bank has discontinued the accrual of interest; (ii) that has been classified as “substandard,” “doubtful,” “loss,” “other loans especially mentioned” or any comparable classifications by the Bank or the OCC, (iii) that has been listed on any “watch list” or similar internal report of the Bank; or (iv) to an Affiliate of an obligor under any Loan described in clause (i), (ii) or (iii) hereof (a Loan meeting any of the criteria set forth in clause (i), (ii), (iii) or (iv) hereof is referred to herein as a “Problem Loan” ).

 

(c) The allowance for loan and lease losses reflected in the Bank Financial Statements and the Bank Regulatory Reports was determined on the basis of the Bank’s continuing review and evaluation of the Loan portfolio, and is adequate in the judgment of Bank management in all material respects as of their respective dates under SFAS No. 5, SFAS 114 and the rules and regulations of the OCC. The allowance for loan losses is maintained through a

 

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provision for loan losses charged to expense. The allowance represents an amount, which in management’s judgment, will be adequate to absorb losses on loans that may become uncollectible. Management’s judgment in determining the adequacy of the allowance is based on evaluations which take into consideration such factors as risk inherent in the loan portfolio, current and prospective economic conditions that may affect the borrower’s ability to pay, and other factors as, in management’s judgment, deserve recognition in estimating loan losses.

 

(d) Except as disclosed on Schedule 4.14(d) , the Bank owns no OREO or material repossessed property.

 

(e) All guaranties of indebtedness owed to the Bank, including those of the FHA, the SBA, Sallie Mae, Fannie Mae, Freddie Mac and other state and federal agencies or government sponsored entities, are, to Shareholder’s Knowledge, valid and enforceable, except to the extent enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors rights generally or equitable principles or doctrines, and to Shareholder’s Knowledge, no grounds exist for the termination, forfeiture, rescission or cancellation of any such guaranties.

 

(f) In servicing Loans for its own account and for the account of others, the Bank has complied with all Applicable Laws and Regulations and servicing contracts.

 

(g) Except as disclosed in Schedule 4.14(g) , the Bank has no Insider Loans.

 

(h) Schedule 4.14(b) contains a list and description of each outstanding letter of credit and each commitment to issue or confirm a letter of credit to which the Bank is a party.

 

4.15. Investments.

 

(a) Schedule 4.15(a) contains a complete and accurate list of all securities of every type that the Bank owns as of October 31, 2005, including debt securities, mortgage-backed and related securities, marketable equity securities and securities purchased under agreements to resell (which, together with any other securities hereafter acquired by the Bank, are referred to herein as the “Investment Securities” ).

 

(b) Except as disclosed on Schedule 4.15(b) , the Investment Securities are not subject to any restriction, whether contractual or statutory, that impairs the ability of the Bank freely to dispose of them at any time.

 

(c) Schedule 4.15(c) contains a complete and accurate list of all repurchase agreements to which the Bank is a party, and with respect to each repurchase agreement pursuant to which the Bank is the seller of securities, the Bank has a valid, perfected first lien or security interest in the securities securing such repurchase agreement, and the value of the collateral securing such repurchase agreement equals or exceeds the amount of the obligation secured.

 

(d) All Investment Securities that are classified as “held to maturity,” “available for sale” and “trading” have been classified and accounted for in accordance with SFAS 115 and the intentions of the Bank’s management.

 

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(e) The Bank is not a party to, and none of its assets is subject to or bound by, any interest rate swaps, caps, floors, option agreements or similar arrangements.

 

4.16. Deposits. Schedule 4.16 contains as of the end of the last full calendar month preceding the date of this Agreement, the following information concerning the Bank’s deposit accounts: (a) for each account type, the number of accounts and aggregate account balances; (b) the interest rates payable by account type, and how such rates are determined; and (c) a list of certificates of deposit showing maturity dates, interest rates and amounts; (d) a list of deposits in excess of $100,000, showing balances by account type; and (e) a list of any brokered deposits, by amount, interest rate, broker and maturity date (the “Deposit Schedule” ).

 

4.17. Material Agreements. Schedule 4.17 contains a description of all material contracts, agreements or commitments, or amendments thereto, to which the Bank is a party, including each contract, agreement or commitment that has any provisions or effects set forth on Exhibit D (each of which shall constitute a “Material Agreement” for the purposes of this Agreement).

 

4.18. Bank Properties and Other Assets.

 

(a) Schedule 4.18(a) contains a list of all the Bank Properties. The Bank has good, sufficient and marketable title to the Bank Properties, except for Bank Permitted Liens that, in the aggregate, are not material. Title to the Bank’s main office is held in fee simple. All buildings, structures, fixtures and appurtenances on the Bank Properties are in good operating condition, ordinary wear and tear excepted. The Bank has title or other rights to its assets sufficient in all material respects for the conduct of its businesses as presently conducted, all of which are free and clear of any Claims other than Bank Permitted Liens.

 

(b) Schedule 4.18(b) contains complete and accurate list of all leases of real and personal property to which the Bank is a party as lessee. All such leases are valid, effective and enforceable against the lessor in accordance with their respective terms, except to the extent enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors rights generally or equitable principles or doctrines.

 

(c) Schedule 4.18(c) contains a list of all trademarks, trade names, service marks, patents and copyrights that the Banks owns or licenses from a Person, excluding computer software with an original cost of less than $25,000 ( “Intellectual Property” ). To Shareholder’s Knowledge and except as disclosed on Schedule 4.18(c) , the Bank possesses all right, title and interest in and to the Intellectual Property free and clear of any Claim. To Shareholder’s Knowledge, there is no Action pending or threatened alleging that the Bank’s interfered with, infringed upon or misappropriated any Person’s intellectual property rights.

 

(d) Shareholder has provided Purchaser with all environmental reports, surveys, architectural drawings, building consultant reports and space plans that have been prepared over the past ten (10) years concerning any of the Bank Property.

 

(e) Except for securities repurchase agreements disclosed in Schedule 4.15(c) , the Bank has not sold or otherwise disposed of any asset in a transaction in which the acquiror of such asset or other Person has the right, either conditionally or absolutely, to require the Bank to repurchase or reacquire such asset.

 

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4.19. Environmental Matters. Except as disclosed in the Environmental Site Assessment, to the Knowledge of Shareholder, there are no present or past conditions on the Bank Properties involving or resulting from a past or present storage, spill, discharge, leak, emission, injection, escape, dumping or release of any kind whatsoever of any Hazardous Materials or from any generation, transportation, treatment, storage, disposal, use or handling of any Hazardous Materials, and the Bank is in compliance in all material respects with all applicable Environmental Laws. The Bank has not received notice of, nor, to the Knowledge of Shareholder, are there any pending or threatened, public or private claims, suits, citations, penalties, unsatisfied abatement obligations or notices or orders of non-compliance relating to the environmental condition of the Bank Properties. No Bank Properties are currently undergoing remediation or cleanup of Hazardous Materials or other environmental conditions.

 

4.20. ADA Claims. To the Knowledge of Shareholder, there are no Actions pending or threatened against the Bank alleging that the Bank, any Bank Properties or any other Bank assets are not in compliance with the Americans with Disabilities Act, the ATBCB Accessibility Guidelines for Buildings and Facilities, or any other local, state or federal law concerning accessibility for individuals with disabilities.

 

4.21. Fiduciary Activities. The Bank does not have trust powers and has not exercised trust powers or acted as a fiduciary for any Person or account during the past ten (10) years, except for fiduciary activities that do not require trust powers.

 

4.22. Employment Matters. All payroll, bonuses, commissions, overtime, employment Taxes, or vacation pay, sick pay or severance pay or benefits, and other charges, claims or obligations concerning the Bank’s past and present employees will be on the Closing Date, properly recorded and accrued on the Bank Financial Statements. There are outstanding no judgments, orders, injunctions, court decrees or settlement agreements relating to the labor, employment or human rights practices or decisions of the Bank, nor, to Shareholder’s Knowledge, are there any Actions pending or threatened with respect thereto.

 

4.23. Compliance with ERISA. Schedule 4.23 contains a complete and accurate list of all Bank Benefit Plans. Except as set forth on Schedule 4.23 , all Bank Benefit Plans are, and since their inception have been, in compliance with all applicable requirements of ERISA, and all applicable requirements of the Code as necessary to qualify for any material Tax benefits the Code permits with respect to the Bank Benefit Plans. Any Bank Benefit Plans that is required to be funded has been funded in accordance with Section 412 of the Code, and no Bank Benefit Plan has, or as of the Closing Date will have, any unfunded benefit liabilities for which the Bank would be liable under Title IV of ERISA upon termination of such Bank Benefit Plan.

 

4.24. Indemnifica