Exhibit 2.1
EXECUTION COPY
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AGREEMENT AND PLAN OF REORGANIZATION
by and between
PROVIDENT BANKSHARES CORPORATION
and
SOUTHERN FINANCIAL BANCORP, INC.
Dated as of November 3, 2003
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TABLE OF CONTENTS
Page
I. THE MERGER ............................................................................... 2
Section 1.1. Merger ..................................................................... 2
Section 1.2. Articles of Incorporation, Bylaws and Facilities of Continuing Corporation . 2
Section 1.3. Board of Directors and Officers of Continuing Corporation .................. 2
Section 1.4. Effect of Merger ........................................................... 2
Section 1.5. Liabilities of Continuing Corporation ...................................... 3
Section 1.6. Ratification by Shareholders ............................................... 3
Section 1.7. Tax Consequences ........................................................... 3
II. CONSIDERATION AND EXCHANGE PROCEDURES .................................................... 4
Section 2.1. Merger Consideration ....................................................... 4
Section 2.2. Treatment of Southern Financial Stock Options .............................. 4
Section 2.3. Dissenting Shares .......................................................... 5
Section 2.4. Exchange of Shares ......................................................... 6
III. REPRESENTATIONS AND WARRANTIES OF SOUTHERN FINANCIAL ..................................... 7
Section 3.1. Organization ............................................................... 8
Section 3.2. Capitalization ............................................................. 8
Section 3.3. Approvals; Authority ....................................................... 9
Section 3.4. Investments ................................................................ 9
Section 3.5. Financial Statements ....................................................... 9
Section 3.6. Loan Portfolio ............................................................. 10
Section 3.7. Certain Loans and Related Matters .......................................... 10
Section 3.8. Real Property Owned or Leased .............................................. 11
Section 3.9. Personal Property .......................................................... 12
Section 3.10. Environmental Laws ......................................................... 12
Section 3.11. Litigation and Other Proceedings ........................................... 13
Section 3.12. Taxes ...................................................................... 13
Section 3.13. Contracts and Commitments .................................................. 14
Section 3.14. Insurance .................................................................. 15
Section 3.15. No Conflict With Other Instruments ......................................... 16
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TABLE OF CONTENTS
(continued)
Page
Section 3.16. Laws and Regulatory Filings ................................................ 16
Section 3.17. Absence of Certain Changes ................................................. 16
Section 3.18. Employment Relations ....................................................... 17
Section 3.19. Employee Benefit Plans ..................................................... 17
Section 3.20. Deferred Compensation Arrangements ......................................... 18
Section 3.21. Brokers and Finders ........................................................ 18
Section 3.22. Accounting Controls ........................................................ 18
Section 3.23. Securities and Exchange Commission Reporting Obligations ................... 19
Section 3.24. Outstanding Trust Preferred Securities of Subsidiary Trusts ................ 19
Section 3.25. Community Reinvestment Act ................................................. 20
Section 3.26. Shareholders' List ......................................................... 20
Section 3.27. Fairness Opinion ........................................................... 20
Section 3.28. Pending Acquisitions ....................................................... 20
Section 3.29. Southern Financial Information ............................................. 20
IV. REPRESENTATIONS AND WARRANTIES OF BANKSHARES ............................................. 21
Section 4.1. Organization ............................................................... 21
Section 4.2. Capitalization ............................................................. 21
Section 4.3. Approvals; Authority ....................................................... 21
Section 4.4. No Conflict With Other Instruments ......................................... 22
Section 4.5. Financial Statements ....................................................... 22
Section 4.6. Litigation and Other Proceedings ........................................... 22
Section 4.7. Securities and Exchange Commission Reporting Obligations ................... 23
Section 4.8. Accounting Controls ........................................................ 23
Section 4.9. Bankshares Employee Benefit Plans .......................................... 23
Section 4.10. Regulatory Approvals; Tax Opinion .......................................... 24
Section 4.11. Taxes ...................................................................... 24
Section 4.12. Absence of Certain Changes ................................................. 24
Section 4.13. Insurance .................................................................. 25
Section 4.14. Laws and Regulatory Filings ................................................ 25
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TABLE OF CONTENTS
(continued)
Page
Section 4.15. Community Reinvestment Act ................................................. 25
Section 4.16. Allowance for Loan Losses .................................................. 25
Section 4.17. Environmental Matters ...................................................... 25
Section 4.18. Brokers and Finders ........................................................ 26
Section 4.19. Ability to Pay Merger Consideration ........................................ 26
Section 4.20. Bankshares Information ..................................................... 26
V. COVENANTS OF SOUTHERN FINANCIAL .......................................................... 26
Section 5.1. Shareholder Approval and Reasonable Best Efforts ........................... 26
Section 5.2. Activities of Southern Financial Pending Closing ........................... 26
Section 5.3. Access to Properties and Records ........................................... 29
Section 5.4. Information for Regulatory Applications and SEC Filings .................... 30
Section 5.5. Standstill Provision ....................................................... 30
Section 5.6. Affiliates' Letters ........................................................ 31
Section 5.7. Certain Policies and Actions of Southern Financial ......................... 31
Section 5.8. Completion of the Essex Merger ............................................. 31
Section 5.9. Trust Preferred Issues ..................................................... 32
VI. COVENANTS OF BANKSHARES .................................................................. 32
Section 6.1. Shareholder Approval and Best Efforts ...................................... 32
Section 6.2. Activities of Bankshares Pending Closing ................................... 32
Section 6.3. Information for Regulatory Applications and Proxy Solicitation ............. 33
Section 6.4. Registration Statement ..................................................... 33
Section 6.5. Applications ............................................................... 34
Section 6.6. Nasdaq Listing ............................................................. 34
Section 6.7. Rule 144 Compliance ........................................................ 34
Section 6.8. Issuance of Bankshares Common Stock ........................................ 34
Section 6.9. Indemnification; Insurance ................................................. 34
Section 6.10. Assumption of Southern Financial Stock Options ............................. 36
Section 6.11. Supplemental Indentures .................................................... 36
Section 6.12. Certain Employee Matters ................................................... 37
Section 6.13. Appointment of Directors ................................................... 37
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TABLE OF CONTENTS
(continued)
Page
VII. MUTUAL COVENANTS OF BANKSHARES AND SOUTHERN FINANCIAL ................................... 37
Section 7.1. Notification; Updated Disclosure Schedules ................................ 37
Section 7.2. Confidentiality ........................................................... 37
Section 7.3. Publicity ................................................................. 38
Section 7.4. Employee Benefit Plans .................................................... 38
VIII. CLOSING 39
Section 8.1. Closing ................................................................... 39
Section 8.2. Effective Time ............................................................ 39
IX. TERMINATION 39
Section 9.1. Termination ............................................................... 39
Section 9.2. Effect of Termination ..................................................... 43
Section 9.3. Termination Fee ........................................................... 43
X. CONDITIONS TO OBLIGATIONS OF BANKSHARES ................................................. 44
Section 10.1. Compliance with Representations and Warranties ............................ 44
Section 10.2. Performance of Obligations ................................................ 44
Section 10.3. The Essex Merger .......................................................... 44
XI. CONDITIONS TO OBLIGATIONS OF SOUTHERN FINANCIAL ......................................... 44
Section 11.1. Compliance with Representations and Warranties ............................ 45
Section 11.2. Performance of Obligations ................................................ 45
XII. CONDITIONS TO RESPECTIVE OBLIGATIONS OF BANKSHARES and SOUTHERN FINANCIAL ............... 45
Section 12.1. Government Approvals ...................................................... 45
Section 12.2. Shareholder Approval ...................................................... 45
Section 12.3. Tax Opinion ............................................................... 45
Section 12.4. Registration of Bankshares Common Stock ................................... 45
Section 12.5. Listing of Bankshares Common Stock ........................................ 46
XIII. MISCELLANEOUS 46
Section 13.1. Definitions ............................................................... 46
Section 13.2. Non-Survival of Representations and Warranties ............................ 46
Section 13.3. Amendments ................................................................ 46
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TABLE OF CONTENTS
(continued)
Page
Section 13.4. Expenses ................................................................. 47
Section 13.5. Notices .................................................................. 47
Section 13.6. Controlling Law .......................................................... 48
Section 13.7. Headings ................................................................. 48
Section 13.8. Modifications or Waiver .................................................. 48
Section 13.9. Severability ............................................................. 48
Section 13.10. Assignment ............................................................... 48
Section 13.11. Consolidation of Agreements .............................................. 48
Section 13.12. Counterparts ............................................................. 48
Section 13.13. Binding on Successors .................................................... 49
Section 13.14. Gender ................................................................... 49
Section 13.15. Disclosures .............................................................. 49
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("Agreement") dated as of
November 3, 2003 is by and among Provident Bankshares Corporation, a Maryland
corporation ("Bankshares"), and Southern Financial Bancorp, Inc., Warrenton,
Virginia, a Virginia corporation ("Southern Financial").
WHEREAS, Southern Financial is a party to an Agreement and Plan of
Reorganization dated as of July 24, 2003 by and among Southern Financial, Essex
Bancorp, Inc. ("Essex") and Essex Home Mortgage Servicing Corporation
("LoanCare") providing for, among other things, the spin-off of LoanCare to the
shareholders of Essex and the merger (the "Essex Merger") of Essex with and into
Southern Financial (the "Essex Merger Agreement"); and
WHEREAS, Southern Financial desires to complete the Essex Merger and to
affiliate with Bankshares, and Bankshares desires to permit the completion of
the Essex Merger and to affiliate with Southern Financial in the manner provided
in this Agreement; and
WHEREAS, Bankshares and Southern Financial believe that the acquisition of
Southern Financial by Bankshares in the manner provided by, and subject to the
terms and conditions set forth in, this Agreement and all exhibits, schedules
and supplements hereto is desirable and in the best interests of their
respective shareholders; and
WHEREAS, Bankshares and Southern Financial intend the Merger to qualify as
a reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations thereunder; and
WHEREAS, the respective Boards of Directors of Bankshares and Southern
Financial have approved this Agreement and the transactions proposed herein
substantially on the terms and conditions set forth in this Agreement; and
WHEREAS, as a condition and inducement to Bankshares' willingness to enter
into this Agreement, each of the members of the Board of Directors of Southern
Financial has entered into an agreement dated as of the date hereof in the form
of Exhibit A pursuant to which he or she will vote his or her shares of Southern
Financial Common Stock in favor of this Agreement and the transactions
contemplated hereby.
NOW, THEREFORE, in consideration of such premises and the mutual
representations, warranties, covenants and agreements contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as set forth below.
INTRODUCTION
This Agreement provides for the merger of Southern Financial with and into
Bankshares with Bankshares as the survivor (the "Merger"), all pursuant to this
Agreement. In connection with the Merger, all of the issued and outstanding
shares of common stock, $0.01 par value, of Southern Financial ("Southern
Financial Common Stock") shall be exchanged for such
consideration as set forth in this Agreement. As soon as practicable after the
execution and delivery of this Agreement, Provident Bank, a wholly owned
subsidiary of Bankshares, and Southern Financial Bank, a wholly owned subsidiary
of Southern Financial, shall enter into a Plan of Bank Merger, pursuant to which
Southern Financial Bank will merge with and into Provident Bank (the "Bank
Merger"). The parties intend that the Bank Merger will become effective
simultaneously with or immediately following the Effective Time.
I. THE MERGER
Section 1.1. Merger. Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time (as defined in Section 8.2 of this
Agreement), Southern Financial shall be merged with and into Bankshares (which,
as the surviving corporation, is hereinafter referred to as "Continuing
Corporation" whenever reference is made to it at or after the Effective Time)
pursuant to the provisions of and with the effect provided for in Maryland
General Corporation Law and the Virginia Stock Corporation Act (the "Virginia
Act").
Section 1.2. Articles of Incorporation, Bylaws and Facilities of Continuing
Corporation. At the Effective Time and until thereafter amended in accordance
with applicable law, the Articles of Incorporation of Continuing Corporation
shall be the Articles of Incorporation of Bankshares as in effect at the
Effective Time. Until altered, amended or repealed as therein provided and in
the Articles of Incorporation of Continuing Corporation, the Bylaws of
Continuing Corporation shall be the Bylaws of Bankshares as in effect at the
Effective Time. Unless and until changed by the Board of Directors of Continuing
Corporation, the main office of Continuing Corporation shall be the main office
of Bankshares as of the Effective Time. The established offices and facilities
of the Southern Financial immediately prior to the Merger shall become
established offices and facilities of Continuing Corporation. Until thereafter
changed in accordance with law or the Articles of Incorporation or Bylaws of
Continuing Corporation, all corporate acts, plans, policies, contracts,
approvals and authorizations of Southern Financial and Bankshares and their
respective shareholders, boards of directors, committees elected or appointed
thereby, officers and agents, which were valid and effective immediately prior
to the Effective Time, shall be taken for all purposes as the acts, plans,
policies, contracts, approvals and authorizations of Continuing Corporation and
shall be as effective and binding thereon as the same were with respect to
Southern Financial and Bankshares, respectively, as of the Effective Time.
Section 1.3. Board of Directors and Officers of Continuing Corporation. At
the Effective Time and until thereafter changed in accordance with the law or
the Articles of Incorporation or Bylaws of Continuing Corporation, the members
of the Board of Directors of Bankshares at the Effective Time and the two
members of the Board of Directors of Southern Financial designated in Section
6.13 hereof to serve on the Board of Directors of Bankshares shall become the
Board of Directors of Continuing Corporation. At the Effective Time and until
thereafter changed in accordance with the law or the Articles of Incorporation
or Bylaws of Continuing Corporation, the senior officers of Bankshares
immediately prior to the Effective Time shall become the officers of Continuing
Corporation.
Section 1.4. Effect of Merger. At the Effective Time, the corporate
existence of Southern Financial and Bankshares shall, as provided in the
provisions of law heretofore
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mentioned, be consolidated and continued in Continuing Corporation, and
Continuing Corporation shall be deemed to be a continuation in entity and
identity of Southern Financial and Bankshares. All rights, franchises and
interests of Southern Financial and Bankshares, respectively, in and to any type
of property and choses in action shall be transferred to and vested in
Continuing Corporation by virtue of such Merger without any deed or other
transfer. Continuing Corporation, without any order or other action on the part
of any court or otherwise, shall hold and enjoy all rights of property,
franchises and interest, including appointments, designations and nominations,
and all other rights and interests as trustee, executor, administrator, transfer
agent or registrar of stocks and bonds, guardian of estates, assignee, receiver
and committee of estates and lunatics, and in every other fiduciary capacity, in
the same manner and to the same extent as such rights, franchises, and interests
were held or enjoyed by Southern Financial and Bankshares, respectively, as of
the Effective Time.
Section 1.5. Liabilities of Continuing Corporation. At the Effective Time
of the Merger, Continuing Corporation shall be liable for all liabilities of
Southern Financial and Bankshares. All deposits, debts, liabilities, obligations
and contracts of Southern Financial and of Bankshares, respectively, matured or
unmatured, whether accrued, absolute, contingent or otherwise, and whether or
not reflected or reserved against on balance sheets, books of account, or
records of Southern Financial or Bankshares, as the case may be, shall be those
of Continuing Corporation and shall not be released or impaired by the Merger.
All rights of creditors and other obligees and all liens on property of either
Southern Financial or Bankshares shall be preserved unimpaired subsequent to the
Merger.
Section 1.6. Ratification by Shareholders. This Agreement shall be
submitted to the shareholders of Southern Financial and the shareholders of
Bankshares in accordance with the terms of this Agreement, the applicable
provisions of law and the respective Articles of Incorporation and Bylaws of
Southern Financial and Bankshares. Southern Financial and Bankshares shall
proceed expeditiously and cooperate fully in the procurement of any other
consents and approvals and the taking of any other actions in satisfaction of
all other requirements prescribed by law or otherwise necessary for consummation
of the Merger on the terms herein provided, including, without limitation, the
preparation and submission of all necessary filings, requests for waivers and
certificates with the Board of Governors of the Federal Reserve System ("Federal
Reserve Board"), the Federal Deposit Insurance Corporation ("FDIC"), the Office
of Thrift Supervision ("OTS"), the Office of the Comptroller of the Currency
("OCC"), the Maryland Commissioner of Financial Regulation or the Virginia State
Corporation Commission.
Section 1.7. Tax Consequences. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section
368(a) of the Code, and the parties hereto hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the Treasury Regulations promulgated thereunder.
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II. CONSIDERATION AND EXCHANGE PROCEDURES
Section 2.1. Merger Consideration.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each share of Southern Financial
Common Stock issued and outstanding immediately prior to the Effective Time,
other than any Dissenting Shares (as defined in Section 2.3 of this Agreement),
shall, subject to the conditions hereinafter stated, be converted into and
represent the right to receive (i) 1.0875 shares (the "Exchange Ratio") of
common stock, $1.00 par value, of Bankshares ("Bankshares Common Stock") (the
"Stock Consideration") and (ii) an aggregate amount of $11.125 in cash without
interest (the "Cash Consideration"). The aggregate of the Cash Consideration and
Stock Consideration payable and/or issuable pursuant to this Agreement is
sometimes collectively referred to as the "Merger Consideration". Subject to the
provisions of Section 2.3, all such shares of Southern Financial Common Stock
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate previously representing any such
shares shall thereafter represent the right to receive the Merger Consideration.
(b) The aggregate number of shares of Bankshares Common Stock to be
exchanged for each share of Southern Financial Common Stock shall be adjusted
appropriately to reflect any change in the number of shares of Bankshares Common
Stock by reason of any stock dividends or splits, reclassification,
reorganization, recapitalization or conversion or other similar change in
capitalization with respect to Bankshares Common Stock, received or to be
received by holders of Bankshares Common Stock, when the record date or payment
occurs prior to the Effective Time.
(c) Notwithstanding anything in this Agreement to the contrary,
Bankshares will not issue any certificates or scrip representing fractional
shares of Bankshares Common Stock otherwise issuable pursuant to the Merger. In
lieu of the issuance of any such fractional shares, Bankshares shall pay to each
former holder of Southern Financial Common Stock otherwise entitled to receive
such fractional share an amount of cash determined by multiplying (i) the
closing price per share of Bankshares Common Stock on Nasdaq (as reported by The
Wall Street Journal or, if not reported thereby, another alternative source as
chosen by Southern Financial) on the third trading day immediately prior to the
day on which the Effective Time occurs by (ii) the fraction of a share of
Bankshares Common Stock which such holder would otherwise be entitled to receive
pursuant to this Section 2.1.
Section 2.2. Treatment of Southern Financial Stock Options.
(a) At the Effective Time, each option to acquire shares of Southern
Financial Common Stock which is outstanding and unexercised immediately prior
thereto ("Southern Financial Stock Option") pursuant to the Southern Financial
Bancorp, Inc. 1993 Stock Option and Incentive Plan, as Amended and Restated, or
the Southern Financial Bancorp, Inc. 2003 Stock Incentive Plan (collectively,
the "Southern Financial Stock Option Plans") shall automatically become vested
and shall, at the option of the holder (i) be cancelled and converted into the
right to receive a cash payment equal to the difference between (A) the sum of
(1) the Exchange Ratio multiplied by the closing price per share of Bankshares
Common Stock on
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Nasdaq on the third trading day immediately prior to the day the Effective Time
occurs and (2) the Cash Consideration and (B) the exercise price of such
Southern Financial Stock Option as listed on Schedule 3.2, or (ii) be converted
(automatically and without any action on the part of the holder thereof) into an
option to purchase shares of Bankshares Common Stock in an amount and at an
exercise price determined as provided below (and otherwise subject to the terms
of the Southern Financial Stock Option Plans and/or agreements evidencing the
grants thereunder):
(i) The number of shares of Bankshares Common Stock to be
subject to the new option shall be equal to the number of shares of
Southern Financial Common Stock subject to the original option multiplied
by the Option Exchange Ratio (as defined below); and
(ii) The exercise price per share of Bankshares Common Stock
under the new option shall be equal to the exercise price per share of
Southern Financial Common Stock under the original option divided by the
Option Exchange Ratio
(b) The Option Exchange Ratio shall be that number of shares of
Bankshares Common Stock determined by (i) dividing the Cash Consideration by the
closing price per share of Bankshares Common Stock on Nasdaq (as reported by The
Wall Street Journal or, if not reported thereby, another alternative source as
chosen by Bankshares) on the third trading day immediately prior to the date on
which the Effective Time occurs by the Exchange Ratio, and (ii) adding that
number to the Exchange Ratio. Based on an assumed closing price per share of
Bankshares Common Stock on the third trading day immediately prior to the day on
which the Effective Time occurs of $30.69 and Cash Consideration of $11.125, the
Option Exchange Ratio would equal 1.45.
(c) The adjustment provided herein with respect to any options which
are "incentive stock options" as defined in Section 422 of the Internal Revenue
Code, shall be and is intended to be effected in a manner which is consistent
with Section 424(a) of the Internal Revenue Code. The duration and other terms
of the new option shall be the same as the original option except that all
references to Southern Financial shall be deemed to be references to Bankshares.
Section 2.3. Dissenting Shares. Each share of Southern Financial Common
Stock issued and outstanding immediately prior to the Effective Time, the holder
of which has not voted in favor of the Merger and who has delivered a written
demand for payment of the fair value of such shares within the time and in the
manner provided in Article 15 of the Virginia Act, is referred to herein as a
"Dissenting Share." Dissenting Shares shall not be converted into or represent
the right to receive the Merger Consideration pursuant to Section 2.1 of this
Agreement unless and until such holder shall have failed to perfect or shall
have effectively withdrawn or lost his right to appraisal and payment under
Article 15 of the Virginia Act. If any such holder shall have so failed to
perfect or shall have effectively withdrawn or lost such right, such holder's
Dissenting Shares shall thereupon be deemed to have been converted into and to
have become exchangeable for, at the Effective Time, the right to receive the
Merger Consideration without any interest thereon.
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Section 2.4. Exchange of Shares.
(a) Immediately prior to the Closing Date (as defined in Section 8.1
of the Agreement), Bankshares shall deposit or cause to be deposited in trust
with EquiServe (the "Exchange Agent") (i) certificates representing shares of
Bankshares Common Stock and (ii) cash in an aggregate amount sufficient to make
the appropriate payments of the Merger Consideration set forth in Section 2.1 of
this Agreement, including the cash payments (A) to holders of Dissenting Shares
pursuant to Section 2.3 hereof, if any, and (B) holders of a fraction of a share
of Bankshares Common Stock pursuant to Section 2.1(c) (such certificates and
cash being referred to as the "Exchange Fund"). The Exchange Fund shall not be
used for any other purpose, except as provided in this Agreement. The Exchange
Agent shall promptly deliver the stock certificates representing shares of
Bankshares Common Stock and the cash payment upon surrender of certificates
representing shares of Southern Financial Common Stock.
(b) Promptly after the Effective Time, the Exchange Agent shall mail
to each record holder of an outstanding certificate or certificates which as of
the Effective Date represented shares of Southern Financial Common Stock (the
"Certificates"), a form letter of transmittal which will specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and contain
instructions for use in effecting the surrender of the Certificates for payment
therefor. Upon surrender to the Exchange Agent of a Certificate, together with
such letter of transmittal duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor the amount of cash and number of
shares of Bankshares Common Stock provided in Section 2.1 hereof, and such
Certificate shall forthwith be cancelled. Bankshares shall provide the Exchange
Agent with certificates for Bankshares Common Stock, as requested by the
Exchange Agent, for the number of shares provided in Section 2.1. No interest
will be paid or accrued with respect to the shares of Bankshares Common Stock or
cash payable upon surrender of the Certificates. Until surrendered in accordance
with the provisions of this Section 2.4, each Certificate (other than
Certificates representing Dissenting Shares) shall represent for all purposes
the right to receive the Merger Consideration without any interest thereon.
(c) Former shareholders of Southern Financial shall be entitled to
vote after the Effective Time at any meeting of Bankshares's shareholders the
number of shares of Bankshares Common Stock into which their shares are
converted, regardless of whether such shareholders of Southern Financial have
surrendered their Certificates in exchange therefor.
(d) No dividends or other distributions declared after the Effective
Time with respect to shares of Bankshares Common Stock and payable to the
holders thereof shall be paid to the holder of a Certificate until such holder
surrenders such Certificate to the Exchange Agent in accordance with this
Section 2.4. After the surrender of a Certificate in accordance with this
Section 2.4, the holder thereof shall be entitled to receive any such dividends
or other distributions, without interest thereon, which had become payable after
the Effective Time with respect to the shares of Bankshares Common Stock
represented by such Certificate.
(e) After the Effective Time, the stock transfer ledger of Southern
Financial shall be closed and there shall be no transfers on the stock transfer
books of Southern Financial of the shares of Southern Financial Common Stock
which were outstanding immediately prior to
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the Effective Time. If, after the Effective Time, Certificates are presented to
Bankshares, they shall be promptly presented to the Exchange Agent and exchanged
as provided in this Section 2.4.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the shareholders of Southern
Financial for six months after the Exchange Agent mails the letter of
transmittal pursuant to Section 2.4 shall be returned to Bankshares upon demand,
and holders of Southern Financial Common Stock not theretofore presented to the
Exchange Agent shall look to Bankshares only, and not the Exchange Agent, for
the payment of any Merger Consideration in respect of such shares.
(g) If any certificate representing shares of Bankshares Common Stock
is to be issued in a name other than that in which the Certificate surrendered
in exchange therefor is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be appropriately endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form (reasonably satisfactory to Bankshares) for transfer, and that the person
requesting such exchange shall pay to the Exchange Agent in advance any transfer
or other taxes required by reason of the issuance of a certificate representing
shares of Bankshares Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or required for any other reason, or
shall establish to the satisfaction of the Exchange Agent that such tax has been
paid or not payable.
(h) None of Bankshares, Southern Financial, the Exchange Agent or any
other person shall be liable to any former holder of shares of Southern
Financial Common Stock for any Bankshares Common Stock (or dividends or
distributions with respect thereto) or cash properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(i) In the event any Certificate shall have been lost, stolen or
destroyed, then upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Bankshares or the Exchange Agent, the posting by such person of a bond in such
amount as Bankshares or the Exchange Agent may direct as indemnity against any
claim that may be made against Bankshares with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable in respect thereof pursuant to
this Agreement.
III. REPRESENTATIONS AND WARRANTIES OF southern financial
Southern Financial represents and warrants to Bankshares that each of the
statements made in this Article III are true and correct in all material
respects. Southern Financial agrees that, on or prior to the date hereof, it
shall provide Bankshares with disclosure schedules ("Disclosure Schedules")
referred to in this Article III and that at the Closing it shall provide
Bankshares with supplemental Disclosure Schedules reflecting any changes in the
information contained in the Disclosure Schedules which have occurred in the
period from the date of delivery of such Disclosure Schedules to the date of
Closing.
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Section 3.1. Organization.
(a) Southern Financial is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia and
a bank holding company duly registered under the Bank Holding Company Act of
1956, as amended ("BHC Act"). Southern Financial Bank, a wholly owned subsidiary
of Southern Financial, is a Virginia banking corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia.
Each of Southern Financial and Southern Financial Bank has full power and
authority (including all licenses, franchises, permits and other governmental
authorizations which are legally required) to own, lease and operate its
properties, to engage in the business and activities now conducted by it, except
where the failure to be so licensed or qualified would not have a Material
Adverse Effect (as defined in Section 13.1(b) of this Agreement) on the
business, assets, operations, financial condition or results of operations (such
business, assets, operations, financial condition or results of operations
hereinafter collectively referred to as the "Condition") of Southern Financial.
Southern Financial owns all of the outstanding capital stock of Southern
Financial Bank free and clear of any lien, charge, claim or other encumbrance.
(b) Southern Financial Bank is duly authorized to conduct a general
banking business, embracing all usual deposit functions of commercial banks as
well as commercial, industrial and real estate loans, installment credits,
collections and safe deposit facilities subject to the supervision of the State
Corporation Commission of Virginia and the Federal Reserve Board. True and
complete copies of the Articles of Incorporation and Bylaws of Southern
Financial and Southern Financial Bank, as amended to date, have been delivered
or made available to Bankshares.
(c) Other than as set forth in Schedule 3.1(c), Southern Financial (i)
does not have any subsidiaries or affiliates, (ii) is not a general partner or
material owner in any joint venture, general partnership, limited partnership,
trust or other non-corporate entity, and (iii) does not know of any arrangement
pursuant to which the stock of any corporation is or has been held in trust
(whether express, constructive, resulting or otherwise) for the benefit of all
shareholders of Southern Financial.
(d) The deposits accounts of Southern Financial Bank are insured by
the Federal Deposit Insurance Corporation ("FDIC") through the Bank Insurance
Fund to the fullest extent permitted by law, and all premiums and assessments
due and owning as of the date hereof required in connection therewith have been
paid by Southern Financial Bank.
Section 3.2. Capitalization. The authorized capital stock of Southern
Financial consists of 20,000,000 shares of Southern Financial Common Stock,
6,074,319 of which are issued and outstanding as of the date of this Agreement
and 699,429 of which are reserved for issuance upon the exercise of stock
options and 1,000,000 shares of Southern Financial preferred stock, none of
which are issued and outstanding as of the date of this Agreement. All of the
issued and outstanding shares of Southern Financial Common Stock are validly
issued, fully paid and nonassessable, and have not been issued in violation of
the preemptive rights of any person or in violation of any applicable federal or
state laws. Schedule 3.2 sets forth all existing options, warrants, calls,
convertible securities or commitments of any kind obligating Southern Financial
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to issue any authorized and unissued Southern Financial Common Stock. Other than
as set forth in Schedule 3.2, Southern Financial does not have any outstanding
commitment or obligation to repurchase, reacquire or redeem any of its
outstanding capital stock. There are no voting trusts, voting agreements,
buy-sell agreements or other similar arrangements affecting Southern Financial
Common Stock to which Southern Financial is a party.
Section 3.3. Approvals; Authority.
(a) Southern Financial has full corporate power and authority to
execute and deliver this Agreement (and any related documents), and Southern
Financial has full legal capacity, power and authority to perform its
obligations hereunder and thereunder and to consummate the contemplated
transactions.
(b) The Board of Directors of Southern Financial has approved this
Agreement and the transactions contemplated herein subject to the approval
thereof by the shareholders of Southern Financial as required by law, and, other
than shareholder approval, no further corporate proceedings of Southern
Financial are needed to execute and deliver this Agreement and consummate the
Merger. This Agreement has been duly executed and delivered by Southern
Financial and, is a duly authorized, valid, legally binding agreement of
Southern Financial enforceable against Southern Financial in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally and
general equitable principles.
Section 3.4. Investments. Southern Financial has furnished to Bankshares a
complete list, as of September 30, 2003, of all securities, including municipal
bonds, owned by Southern Financial (the "Securities Portfolio"). Except as set
forth in Schedule 3.4, all such securities are owned by Southern Financial (i)
of record, except those held in bearer form, and (ii) beneficially, free and
clear of all mortgages, liens, pledges and encumbrances. Schedule 3.4 also
discloses any entities in which the ownership interest of Southern Financial
equals 5% or more of the issued and outstanding voting securities of the issuer
thereof. There are no voting trusts or other agreements or understandings with
respect to the voting of any of the securities in the Securities Portfolio.
Section 3.5. Financial Statements.
(a) Southern Financial has furnished or made available to Bankshares
true and complete copies of its (i) Annual Report on Form 10-K for the years
ended December 31, 2002 and 2001, as filed with the Securities and Exchange
Commission ("SEC"), which contains Southern Financial's audited balance sheets
as of December 31, 2002 and 2001, and the related statements of income and
statements of changes in shareholders' equity and cash flows for the years ended
December 31, 2002, 2001 and 2000, and (ii) Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003, as filed with the SEC, which contains Southern
Financial's unaudited balance sheets and related statements of income and
statements of changes in shareholders' equity and cash flows as of and for the
six months ended June 30, 2003 and June 30, 2002. The Reports referred to in
this Section 3.5(a) are collectively referred to in this Agreement as the
"Southern Financial Statements."
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(b) The Southern Financial Statements fairly present the financial
position of Southern Financial and results of operations at the dates and for
the periods indicated in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis.
(c) As of the dates of the Southern Financial Statements referred to
above, Southern Financial did not have any liabilities, fixed or contingent,
which are material and are not fully shown or provided for in such Southern
Financial Statements or otherwise disclosed in this Agreement, or in any of the
documents delivered to Bankshares. Since June 30, 2003, there have been no
material changes in the financial condition, assets, liabilities or business of
Southern Financial, other than changes in the ordinary course of business, which
individually or in the aggregate, have not had a Material Adverse Effect on the
Condition of Southern Financial.
Section 3.6. Loan Portfolio. (i) All evidences of indebtedness in original
principal amount in excess of $100,000 reflected as assets in the Southern
Financial Statements as of and for the period ended June 30, 2003, were as of
such dates in all material respects the binding obligations of the respective
obligors named therein in accordance with their respective terms, (ii) the
allowance for loan losses shown on the Southern Financial Statements as of and
for the period ended June 30, 2003, was, and the allowance for loan losses to be
shown on the Southern Financial Statements as of any date subsequent to the
execution of this Agreement will be, as of such dates, in the reasonable
judgment of management of Southern Financial, adequate to provide for possible
losses, net of recoveries relating to loans previously charged off, in respect
of loans outstanding (including accrued interest receivable) of Southern
Financial and other extensions of credit (including letters of credit or
commitments to make loans or extend credit), and (iii) the allowance for loan
losses described in clause (ii) above has been established in accordance with
GAAP as applied to banking institutions and all applicable rules and
regulations; provided, however, that no representation or warranty is made as to
the sufficiency of collateral securing or the collectibility of such loans.
Section 3.7. Certain Loans and Related Matters.
(a) Except as set forth in Schedule 3.7(a), as of September 30, 2003,
Southern Financial is not a party to any written or oral: (i) loan agreement,
note or borrowing arrangement, other than credit card loans and other loans the
unpaid balance of which does not exceed $100,000 per loan, under the terms of
which the obligor is sixty (60) days delinquent in payment of principal or
interest or in default of any other material provisions as of the date hereof;
(ii) loan agreement, note or borrowing arrangement which has been classified or,
in the exercise of reasonable diligence by Southern Financial or any regulatory
agency with supervisory jurisdiction over Southern Financial, should have been
classified as "substandard," "doubtful," "loss," "other loans especially
mentioned," "other assets especially mentioned" or any comparable
classifications by such persons; (iii) loan agreement, note or borrowing
arrangement, including any loan guaranty, with any director or executive officer
of Southern Financial, or any 10% or more shareholder of Southern Financial, or
any person, corporation or enterprise controlling, controlled by or under common
control with any of the foregoing; or (iv) loan agreement, note or borrowing
arrangement in violation of any law, regulation or rule applicable to Southern
Financial including, but not limited to, those promulgated, interpreted or
enforced by
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any regulatory agency with supervisory jurisdiction over Southern Financial and
which violation could have a Material Adverse Effect on the Condition of
Southern Financial.
(b) Schedule 3.7(b) contains the "watch list of loans" of Southern
Financial ("Watch List") as of September 30, 2003. Except as set forth in
Schedule 3.7(b), to the knowledge of Southern Financial, there is no loan
agreement, note or borrowing arrangement which should be included on the Watch
List in accordance with Southern Financial's past practices and prudent banking
principles.
Section 3.8. Real Property Owned or Leased.
(a) Other than real property acquired through foreclosure or deed in
lieu of foreclosure, Schedule 3.8(a) contains a true, correct and complete list
of all real property owned or leased by Southern Financial and Southern
Financial Bank (the "Southern Financial Real Property"). True and complete
copies of all deeds, leases and title insurance policies for, or other
documentation evidencing ownership of, the properties referred to in Schedule
3.8(a) and all mortgages, deeds of trust and security agreements to which such
property is subject have been or will be furnished or made available to
Bankshares.
(b) No lease with respect to any Southern Financial Real Property and
no deed with respect to any Southern Financial Real Property contains any
restrictive covenant that materially restricts the use, transferability or value
of such Southern Financial Real Property. Each of such leases is a legal, valid
and binding obligation enforceable in accordance with its terms (except as may
be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and the availability of equitable
remedies), and is in full force and effect; there are no existing defaults by
Southern Financial or the other party thereunder and there are no allegations or
assertions of such by any party under such agreement or any events that with
notice lapse of time or the happening or occurrence of any other event would
constitute a default thereunder.
(c) To the knowledge of Southern Financial, none of the buildings and
structures located on any Southern Financial Real Property, nor any
appurtenances thereto or equipment therein, nor the operation or maintenance
thereof, violates in any material manner any restrictive covenants or encroaches
on any property owned by others, nor does any building or structure of third
parties encroach upon any Southern Financial Real Property, except for those
violations and encroachments which in the aggregate could not reasonably be
expected to cause a Material Adverse Effect on the Condition of Southern
Financial. No condemnation proceeding is pending or, to Southern Financial's
knowledge, threatened, which would preclude or materially impair the use of any
Southern Financial Real Property in the manner in which it is currently being
used.
(d) Southern Financial and its Subsidiaries have good and indefeasible
title to, or a valid and enforceable leasehold interest in, or a contract
vendee's interest in, all Southern Financial Real Property, and such interest is
free and clear of all liens, charges or other encumbrances, except (i) statutory
liens for amounts not yet delinquent or which are being contested in good faith
through proper proceedings and (ii) those liens related to real property taxes,
local improvement district assessments, easements, covenants, restrictions and
other
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matters of record which do not, individually or in the aggregate, materially
adversely affect the use and enjoyment of the relevant real property.
(e) Except as set forth in Schedule 3.8(e), all buildings and other
facilities used in the business of Southern Financial are in adequate condition
(ordinary wear and tear excepted) and, to Southern Financial's knowledge, are
free from defects which could materially interfere with the current or future
use of such facilities consistent with past practices.
Section 3.9. Personal Property. Southern Financial and its Subsidiaries
have good title to, or a valid leasehold interest in, all personal property,
whether tangible or intangible, used in the conduct of its business (the
"Southern Financial Personalty"), free and clear of all liens, charges or other
encumbrances, except (i) statutory liens for amounts not yet delinquent or which
are being contested in good faith through proper proceedings and (ii) such other
liens, charges, encumbrances and imperfections of title as do not individually
or in the aggregate materially adversely affect the use and enjoyment of the
relevant Southern Financial Personalty. Subject to ordinary wear and tear, the
Southern Financial Personalty is in good operating condition and repair and is
adequate for the uses to which it is being put.
Section 3.10. Environmental Laws. To the knowledge of Southern Financial,
Southern Financial and its subsidiaries and any properties or business owned or
operated by any of them, whether or not held in a fiduciary or representative
capacity, are in material compliance with all terms and conditions of all
applicable federal and state Environmental Laws (as defined below) and permits
thereunder. Neither Southern Financial nor any of its subsidiaries has received
notice of any violation of any Environmental Laws or generated, stored, or
disposed of any materials designated as Hazardous Materials (as defined below)
under the Environmental Laws, and they are not subject to any claim or lien
under any Environmental Laws. During the term of ownership by Southern Financial
or any of its subsidiaries no real estate currently owned, operated, or leased
(including any property acquired by foreclosure or deeded in lieu thereof) by
Southern Financial or its subsidiaries, or owned, operated or leased by Southern
Financial or its subsidiaries within the ten years preceding the date of this
Agreement, has been designated by applicable governmental authorities as
requiring any environmental cleanup or response action to comply with
Environmental Laws, or has been the site of release of any Hazardous Materials.
To the knowledge of Southern Financial or any of its subsidiaries, (i) no
asbestos was used in the construction of any portion of Southern Financial's or
any subsidiary's facilities and (ii) to the knowledge of Southern Financial or
any subsidiary, no real property currently owned by it or any subsidiary is, or
has been, an industrial site or landfill. There are no underground storage tanks
at any properties owned or operated by Southern Financial or any of its
subsidiaries and no underground storage tanks have been closed or removed from
any properties owned or operated by Southern Financial or any of its
subsidiaries. Bankshares and its consultants, agents and representatives shall
have the right to inspect Southern Financial's assets for the purpose of
conducting asbestos and other environmental surveys, provided that such
inspection shall be at the expense of Bankshares and at such time as may be
mutually agreed upon between Southern Financial and Bankshares.
"Environmental Laws," as used in this Agreement, means any applicable
federal, state or local statute, law, rule, regulation, ordinance, code, policy
or rule of common law now in effect and in each case as amended to date and any
judicial or administrative interpretation thereof,
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including any judicial or administrative order, consent decree, or judgment,
relating to the environment, human health or safety, or Hazardous Materials,
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 X.X.X.xx. 9601, et seq.;
The Hazardous Materials Transportation Authorization Act, as amended, 49 U.S.C.
ss. 5101, et seq.; the Resource Conservation and Recovery Act of 1976, as
amended, 42 X.X.X.xx. 6901, et seq.; the Federal Water Pollution Control Act, as
amended, 33 X.X.X.xx. 1201, et seq.; the Toxic Substances Control Act, 15
X.X.X.xx. 2601, et seq.; the Clean Air Act, 42 X.X.X.xx. 7401, et seq.; and the
Safe Drinking Water Act, 42 X.X.X.xx. 300f, et seq.
"Hazardous Materials," as used in this Agreement, includes, but is not
limited to, (a) any petroleum or petroleum products, natural gas, or natural gas
products, radioactive materials, asbestos, urea formaldehyde foam insulation,
transformers or other equipment that contains dielectric fluid containing levels
of polychlorinated biphenyls (PCBs), and radon gas; (b) any chemicals,
materials, waste or substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," toxic substances," "toxic
pollutants," "contaminants," or "pollutants," or words of similar import, under
any Environmental Laws; and (c) any other chemical, material, waste or substance
which is in any way regulated as hazardous or toxic by any federal, state or
local government authority, agency or instrumentality, including mixtures
thereof with other materials, and including any regulated building materials
such as asbestos and lead.
Section 3.11. Litigation and Other Proceedings. Except as set forth in
Schedule 3.11, there are no legal, quasi-judicial, regulatory or administrative
proceedings of any kind or nature now pending or, to the knowledge of Southern
Financial or any subsidiary, threatened before any court or administrative body
in any manner against Southern Financial, or any of its properties or capital
stock, which might have a Material Adverse Effect on the Condition of Southern
Financial or the transactions proposed by this Agreement. Southern Financial
does not know of any basis on which any litigation or proceeding could be
brought which is reasonably likely to result in a Material Adverse Effect on the
Condition of Southern Financial or which could question the validity of any
action taken or to be taken in connection with this Agreement and the
transaction contemplated thereby. Neither Southern Financial nor any of its
subsidiaries is in default with respect to any judgment, order, writ,
injunction, decree, award, rule or regulation of any court, arbitrator or
governmental agency or instrumentality.
Section 3.12. Taxes. Southern Financial and its subsidiaries have timely
filed with the appropriate federal, state and local governmental agencies all
Tax Returns and reports required to be filed, and have paid all Taxes (as
defined below) and assessments shown or claimed to be due and payable thereon.
The Tax Returns as filed were correct in all respects. Neither Southern
Financial nor its subsidiaries have executed or filed with the Internal Revenue
Service any agreement extending the period for assessment and collection of any
federal income Tax. None of Southern Financial or its subsidiaries is a party to
any action or proceeding by any governmental authority for assessment or
collection of Taxes, nor has any claim for assessment or collection of Taxes
been asserted against Southern Financial. Southern Financial has not waived any
statute of limitations with respect to any Tax or other assessment or levy, and
all such Taxes and other assessments and levies which Southern Financial or its
subsidiaries is required by law to withhold or to collect have been duly
withheld and collected and have been
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paid over to the proper governmental authorities to the extent due and payable,
or segregated and set aside for such payment and, if so segregated and set aside
will be so paid by Southern Financial or its subsidiaries, as required by law.
True and complete copies of the federal income tax returns of Southern
Financial as filed with the Internal Revenue Service for the years ended
December 31, 2002, 2001 and 2000 have been delivered or made available to
Bankshares.
For purposes of this Agreement, "Taxes" shall mean any and all taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, excise, stamp, real or personal
property, ad valorem, withholding, social security (or similar), unemployment,
occupation, use, production, service, service use, license, net worth, payroll,
franchise, severance, transfer, recording, employment, premium, windfall
profits, environmental (including taxes under Section 59A of the Internal
Revenue Code), customs duties, capital stock, profits, disability, sales,
registration, value added, alternative or add-on minimum, estimated or other
taxes, assessments or charges imposed by any federal, state, local or foreign
governmental entity and any interest, penalties, or additions to tax
attributable thereto. For purposes of this Agreement, "Tax Return" shall mean
any return, declaration, report, form or similar statement required to be filed
with respect to any Tax (including any attached schedules), including, without
limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
Section 3.13. Contracts and Commitments.
(a) Except as set forth in Schedule 3.13, neither Southern Financial
nor any of its Subsidiaries is a party to or bound by any of the following
(whether written or oral, express or implied):
(i) employment contracts, change-in-control agreements or
severance arrangements (including, without limitation, any collective
bargaining contract or union agreement or agreement with an independent
consultant);
(ii) bonus, stock option or other employee benefit arrangement,
other than any deferred compensation arrangement disclosed in Schedule 3.20
or any profit-sharing, pension or retirement plan or welfare plan disclosed
in Schedule 3.19(a);
(iii) material lease or license with respect to any property,
real or personal, whether as landlord, tenant, licensor or licensee;
(iv) contract or commitment for capital expenditures;
(v) material contract or commitment made in the ordinary course
of business for the purchase of materials or supplies or for the
performance of services over a period of more than one hundred twenty (120)
days' from the date of this Agreement;
(vi) contract or option to purchase or sell any real or personal
property other than in the ordinary course of business;
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(vii) contract, agreement or letter with respect to the
management or operations of Southern Financial or Southern Financial Bank
imposed by any bank regulatory authority having supervisory jurisdiction
over Southern Financial or Southern Financial Bank;
(viii) agreement, contract or indenture related to the borrowing
by Southern Financial of money other than those entered into in the
ordinary course of business;
(ix) guaranty of any obligation for the borrowing of money,
excluding endorsements made for collection, repurchase or resell
agreements, letters of credit and guaranties made in the ordinary course of
business;
(x) agreement with or extension of credit to any executive
officer or director of Southern Financial or holder of more than ten
percent (10%) of the issued and outstanding Southern Financial Common
Stock, or any affiliate of such person, which is not on substantially the
same terms (including, without limitation, in the case of lending
transactions, interest rates and collateral) as, and following credit
underwriting practices that are not less stringent than, those prevailing
at the time for comparable transactions with unrelated parties or which
involve more than the normal risk of collectibility or other unfavorable
features;
(xi) contracts, other than the foregoing, with annual payments
aggregating $100,000 or more not made in the ordinary course of business
and not otherwise disclosed in this Agreement, in any schedule attached
hereto or in any document delivered or referred to or described in writing
by Southern Financial to Bankshares;
(xii) any agreement containing covenants that limit the ability
of Southern Financial or any of its subsidiaries to compete in any line of
business or with any person, or that involve any restriction on the
geographic area in which, or method by which, Southern Financial (including
any successor thereof) or any of its subsidiaries may carry on its business
(other than as may be required by law or any regulatory agency); or
(xiii) any agreement pursuant to which Southern Financial or any
of its subsidiaries may become obligated to invest in or contribute capital
to any entity.
(b) Southern Financial has in all material respects performed all
material obligations required to be performed by it to date and is not in
default under, and no event has occurred which, with the lapse of time or action
by a third party could result in default under, any material indenture,
mortgage, contract, lease or other agreement to which Southern Financial is a
party or by which Southern Financial bound or under any provision of its
Articles of Incorporation or Bylaws.
Section 3.14. Insurance. A true and complete list of all insurance policies
owned or held by or on behalf of Southern Financial (other than credit-life
policies), including policy numbers,
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retention levels, insurance carriers, and effective and termination dates, is
set forth in Schedule 3.14. Such policies are (i) in full force and effect and
all premiums that are due and payable with respect thereto are currently paid
and (ii) adequate for the business conducted by Southern Financial and its
subsidiaries in respect of amounts, types and risks insured.
Section 3.15. No Conflict With Other Instruments. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will not (i) conflict with or violate any provision of
Southern Financial's Articles of Incorporation or Bylaws or (ii) assuming all
required shareholder and regulatory approvals and consents and the consents of
the third parties set forth in Schedule 3.15 are duly obtained, will not (A)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to Southern Financial or any of its subsidiaries
or any of their respective properties or assets, or (B) violate, conflict with,
result in a breach of any provision of or constitute a default (or an event
which, with or without notice or lapse of time, would constitute a default)
under, result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, cause Southern Financial or any
subsidiary to become subject to or liable for the payment of any tax, or result
in the creation of any lien, charge or encumbrance upon any of the properties or
assets of Southern Financial under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license, lease agreement,
instrument or obligation to which Southern Financial or any subsidiary is a
party, or by which any of its properties or assets may be bound or affected,
except for such violations, conflicts, breaches or defaults which either
individually or in the aggregate will not have a Material Adverse Effect on the
Condition of Southern Financial.
Section 3.16. Laws and Regulatory Filings. Southern Financial and its
subsidiaries are in material compliance with all applicable federal, state and
local laws, rules, regulations and orders applicable to them. Except for
approvals by regulatory authorities having jurisdiction over Southern Financial
and the consents of the third parties set forth in Schedule 3.15, no prior
consent, approval or authorization of, or declaration, filing or registrations
with, any person or regulatory authority is required of Southern Financial and
its subsidiaries in connection with the execution, delivery and performance by
Southern Financial of this Agreement and the transactions contemplated hereby or
the resulting change of control of Southern Financial except for certain
instruments necessary to consummate the Merger contemplated hereby. Southern
Financial and its subsidiaries have filed all reports, registrations and
statements, together with any amendments required to be made thereto, that are
required to be filed with the Federal Reserve Board, the FDIC, the OCC, the OTS,
the SEC or any other regulatory authority having supervisory jurisdiction over
Southern Financial and its subsidiaries, and such reports, registrations and
statements as finally amended or corrected, are, to the knowledge of Southern
Financial, true and correct in all material respects.
Section 3.17. Absence of Certain Changes. Except as set forth in Schedule
3.17, since June 30, 2003, (i) Southern Financial and its subsidiaries have
conducted their respective businesses in the ordinary and usual course
consistent with past practice (excluding the incurrence of expenses related to
this Agreement and the transactions contemplated hereby) and (ii) no event has
occurred or circumstance arisen that, individually or in the aggregate, has had
or is reasonably likely to have a Material Adverse Effect on Southern Financial.
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Section 3.18. Employment Relations. The relations of Southern Financial
with its employees are satisfactory, and Southern Financial has not received any
notice of any controversies with, or organizational efforts or other pending
actions by, representatives of its employees. Southern Financial has materially
complied with all laws relating to the employment of labor with respect to its
employees, and any independent contractors it has hired, including any
provisions thereof relating to wages, hours, collective bargaining and the
payment of xxxxxxx'x compensation insurance and social security and similar
taxes, and no person has asserted to Southern Financial that Southern Financial
is liable for any arrearages of wages, xxxxxxx'x compensation insurance premiums
or any taxes or penalties for failure to comply with any of the foregoing.
Section 3.19. Employee Benefit Plans.
(a) Schedule 3.19(a) lists all employee benefit plans or agreements
providing benefits to any employees or former employees of Southern Financial
that are sponsored or maintained by Southern Financial to which Southern
Financial contributes or is obligated to contribute on behalf of employees or
former employees of Southern Financial, including, without limitation, any
employee welfare benefit plan within the meaning of Section 3(1) of the
Employment Retirement Income Security Act of 1974, as amended ("ERISA"), any
employee pension benefit plan within the meaning of Section 3(2) of ERISA or any
collective bargaining, bonus, incentive, deferred compensation, stock purchase,
stock option, severance, change of control or fringe benefit plan. There is no
pending or, to the knowledge of Southern Financial, threatened litigation,
administrative action, investigation, audit or similar proceeding relating to
any Southern Financial employee plan. All of the Southern Financial employee
plans comply in all material respects with all applicable requirements of ERISA,
the Code and other applicable laws. There has occurred no "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
with respect to the Southern Financial employee plans which is likely to result
in the imposition of any penalties or taxes upon Southern Financial or any of
its subsidiaries under Section 502(i) of ERISA or Section 4975 of the Code.
(b) Neither Southern Financial nor any of its subsidiaries has any
obligations for post-retirement or post-employment benefits under any Southern
Financial employee plan that cannot be amended or terminated upon 60 days'
notice or less without incurring any liability thereunder, except for coverage
required by Part 6 of Title I of ERISA or Section 4980B of the Code, or similar
state laws, the cost of which is borne by the insured individuals. The Internal
Revenue Service has issued a favorable determination letter with respect to each
benefit plan that is intended to be a "qualified plan" within the meaning of
Section 401(a) of the Code and the Southern Financial has provided or made
available copies of the most recent Form 5500 filings for its applicable
employee benefit plans.
(c) No employee benefit plans of Southern Financial or its ERISA
Affiliates (as defined below) (the "Southern Financial Plans") are
"multiemployer plans" within the meaning of Section 4001(a)(3) of ERISA
("Multiemployer Plans"). None of Southern Financial or any of its respective
ERISA Affiliates has, at any time during the last six years, contributed to or
been obligated to contribute to any Multiemployer Plan, and none of Southern
Financial, or any of its respective ERISA Affiliates has incurred any withdrawal
liability under Part I of Subtitle E of Title IV of ERISA that has not been
satisfied in full.
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(d) There does not now exist, nor, to the knowledge of Southern
Financial, do any circumstances exist that could result in, any Controlled Group
Liability that would be a material liability of Southern Financial now or
following the Closing. "Controlled Group Liability" means (i) any and all
liabilities (A) under Title IV of ERISA, (B) under Section 302 of ERISA, (C)
under Sections 412 and 4971 of the Code, or (D) as a result of a failure to
comply with the continuation coverage requirements of Section 601 et seq. of
ERISA and Section 4980B of the Code, and (E) under corresponding or similar
provisions of foreign laws or regulations; (ii) with respect to any Southern
Financial Plan any other material liability under Title I of ERISA or Chapter 43
or 68 of the Code, and (iii) material unfunded liabilities under any
non-qualified deferred compensation plan for the benefit of any employee or
former employee of Southern Financial.
(e) Schedule 3.19(e) sets forth an accurate list of all contracts,
agreements, plans or arrangements, formal or informal, covering employees,
former employees or directors of Southern Financial under which completion of
the transactions contemplated hereby could result in the accelerated vesting,
funding or delivery of, or increase the amount or value of, any payment or
benefit to any employee, former employee or director of Southern Financial.
Schedule 3.19(e) further sets forth reasonable estimates of severance benefits
payable under the employment or change in control agreements and any amounts
that could be considered "excess parachute payments" within the meaning of
Section 280G of the Code. Except as required by the continuation coverage
requirements of Section 601 et seq. of ERISA and Section 4980B of the Code,
Southern Financial has no liability to provide post-retirement health or
lifetime benefits to any employee or former employee of Southern Financial.
(f) "ERISA Affiliates" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1)
of ERISA that includes the first entity, trade or business, or that is a member
of the same "controlled group" as the first entity, trade or business pursuant
to Section 4001(a)(14) of ERISA.
Section 3.20. Deferred Compensation Arrangements. Schedule 3.20 contains a
list of all deferred compensation arrangements of Southern Financial, if any,
including the terms under which the cash value of any life insurance purchased
in connection with any such arrangement can be realized.
Section 3.21. Brokers and Finders. Except as set forth in Schedule 3.21,
neither Southern Financial nor any of its officers, directors or employees have
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with this Agreement and the
transactions contemplated herein.
Section 3.22. Accounting Controls. Southern Financial has devised and
maintained a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) all material transactions are executed in
accordance with general or specific authorization of the Board of Directors and
the duly authorized executive officers of Southern Financial; (ii) all material
transactions are recorded as necessary to permit the preparation of financial
statements in conformity with GAAP consistently applied with respect to
institutions such as Southern Financial or other criteria applicable to such
financial statements, and to maintain proper
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accountability for items therein; (iii) access to the material properties and
assets of Southern Financial is permitted only in accordance with general or
specific authorization of the Board of Directors and the duly authorized
executive officers of Southern Financial; and (iv) the recorded accountability
for items is compared with the actual levels at reasonable intervals and
appropriate actions taken with respect to any differences.
Section 3.23. Securities and Exchange Commission Reporting Obligations.
Since January 1, 2000, Southern Financial has timely filed all reports and
statements, together with any amendments required to be made with respect
thereto, that it was required to file with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As of their respective
dates, each of such reports and statements, (or if amended, as of the date so
amended), were true and correct and complied in all material respects with the
relevant statutes, rules and regulations enforced or promulgated by the SEC and
such reports did not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Section 3.24. Outstanding Trust Preferred Securities of Subsidiary Trusts.
(a) Southern Financial has issued and has presently outstanding
$23,712,640 in aggregate principal amount of debentures as follows (such
issuances of securities and all documents and instruments related thereto being
herein referred to collectively as the "Trust Preferred Issues"):
(i) $5,154,640 of Junior Subordinated Debt Securities issued by
Southern Financial Capital Trust I ("Capital Trust I") pursuant to a Junior
Subordinated Indenture dated as of May 24, 2000 between Southern Financial
and Wilmington Trust Company, as Trustee ("Capital Trust I Indenture").
Capital Trust I has issued and outstanding $5,000,000 in aggregate
principal amount of trust preferred securities pursuant to the terms of the
Amended and Restated Declaration of Trust dated as of May 18, 2000 among
Southern Financial, Wilmington Trust Company, as Property Trustee and
Delaware Trustee, and the administrative trustees named therein;
(ii) $8,248,000 of Junior Subordinated Deferrable Interest
Debentures issued by Southern Financial Statutory Trust I ("Statutory Trust
I") pursuant to an Indenture dated as of September 7, 2000 between Southern
Financial and State Street Bank and Trust Company of Connecticut, National
Association, as Institutional Trustee ("Statutory Trust I Indenture ").
Statutory Trust I has issued and outstanding $8,000,000 in aggregate
principal amount of trust preferred securities pursuant to the terms of the
Amended and Restated Declaration of Trust dated as of September 7, 2000
among Southern Financial, State Street Bank and Trust Company of
Connecticut, National Association and Xxxxxxx X. Xxxxxxx and R. Xxxxxxxx
Xxxxxx, as administrators; and
(iii) $10,310,000 of Floating Rate Junior Subordinated Debt
Securities due 2033 issued by Southern Financial Capital Trust III ("Trust
III") pursuant to an Indenture dated as of April 10, 2003 between Southern
Financial and Wilmington Trust Company ("Trust III Indenture"). Trust III
has issued and outstanding $10,000,000 in aggregate principal amount of
trust preferred securities pursuant to the terms of the
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Amended and Restated Declaration of Trust dated as of April 10, 2003 among
Southern Financial, Wilmington Trust Company, as Delaware Trustee,
Wilmington Trust Company, as Institutional Trustee, and the administrators
named therein.
(b) All representations and warranties as made by Southern Financial
in the documents related to the Trust Preferred Issues were true in all material
respects when made. The Trust Preferred Issues were created, offered and sold in
compliance with all applicable legal requirements in all material respects.
Section 3.25. Community Reinvestment Act. Southern Financial Bank is in
material compliance with the Community Reinvestment Act (12 U.S.C. ss. 2901 et
seq.) (the "CRA") and all regulations promulgated thereunder, and Southern
Financial Bank has supplied Bankshares with copies of Southern Financial Bank's
current CRA Statement, all support papers therefor, all letters and written
comments received by Southern Financial Bank since January 1, 2000 pertaining
thereto and any responses by Southern Financial Bank to such comments. Southern
Financial Bank has a rating of "satisfactory" as of its most recent CRA
compliance examination and knows of no reason why it would not receive a rating
of "satisfactory" or better pursuant to its next CRA compliance examination or
why the FDIC or any other governmental entity may seek to restrain, delay or
prohibit the transactions contemplated hereby as a result of any act or omission
of Southern Financial under the CRA.
Section 3.26. Shareholders' List. Southern Financial has provided or made
available to Bankshares a list of the holders of shares of Southern Financial
Common Stock as of October 3, 2003, containing for Southern Financial's
shareholders the names, addresses and number of shares held of record, which
shareholders' list is in all respects accurate as of such date and will be
updated prior to Closing.
Section 3.27. Fairness Opinion. Southern Financial has received an oral
opinion from Sandler X'Xxxxx & Partners, L.P. dated as of the date of this
Agreement, to the effect that, subject to the terms, conditions and
qualifications set forth therein, as of the date hereof, the Merger
Consideration to be received by the shareholders of Southern Financial pursuant
to this Agreement is fair to such shareholders from a financial point of view.
Section 3.28. Pending Acquisitions. Schedule 3.28 sets forth a description
of all pending acquisition agreements to which Southern Financial is a party.
Section 3.29. Southern Financial Information. The information regarding
Southern Financial and its subsidiaries to be supplied by Southern Financial for
inclusion in the Registration Statement (as defined in Section 6.4), any filings
or approvals under applicable federal or state banking laws or regulations or
state securities laws, or any filing pursuant to Rule 165 or Rule 425 under the
Securities Act of 1933, as amended (the "Securities Act"), will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
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IV. REPRESENTATIONS AND WARRANTIES OF BANKSHARES
Bankshares represents and warrants to Southern Financial that the
statements contained in this Article IV are true and correct in all material
respects.
Section 4.1. Organization. Bankshares is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland
and a bank holding company duly registered under the BHC Act. Bankshares owns
100% of the issued and outstanding capital stock of Provident Bank. Provident
Bank is a bank duly organized, validly existing and in good standing under the
laws of the State of Maryland. Provident Bank is an insured bank as defined in
the Federal Deposit Insurance Act. Bankshares and Provident Bank have full power
and authority (including all licenses, franchises, permits and other
governmental authorizations which are legally required) to own, lease and
operate their properties, to engage in the business and activities now conducted
by them, except where the failure to be so licensed or qualified would not have
a Material Adverse Effect on the Condition of Bankshares and Provident Bank,
considered as a consolidated whole. Provident Bank is sometimes referred to
herein as the "Subsidiary".
Section 4.2. Capitalization.
(a) The authorized capital stock of Bankshares consists of 100,000,000
shares of Bankshares Common Stock, 32,178,352 of which are issued and 24,527,035
of which are outstanding as of the date of this Agreement and 2,109,885 of which
are reserved for issuance upon the exercise of stock options, and 5,000,000
shares of preferred stock, $1.00 par value, none of which are issued and
outstanding. All of the issued and outstanding shares of Bankshares Common Stock
and Provident Bank capital stock are validly issued, fully paid and
nonassessable, and have not been issued in violation of the preemptive rights of
any person or in violation of any applicable federal or state laws. There are no
voting trusts, voting agreements or other similar arrangements affecting the
Bankshares Common Stock.
(b) At the Effective Time, the shares of Bankshares Common Stock
issued pursuant to the Merger will be duly authorized, validly issued, fully
paid and nonassessable, and not issued in violation of any preemptive rights.
Section 4.3. Approvals; Authority.
(a) Bankshares has full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby.
(b) The Board of Directors of Bankshares has approved this Agreement
and the transactions contemplated herein subject to any approval thereof by the
shareholders of Bankshares as required by law, and, other than such shareholder
approval, no further corporate proceedings of Bankshares are needed to execute
and deliver this Agreement and consummate the Merger. This Agreement has been
duly executed and delivered by Bankshares and is a duly authorized, valid,
legally binding agreement of Bankshares enforceable against Bankshares in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization,
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moratorium or other similar laws relating to creditors' rights generally and
general equitable principles.
Section 4.4. No Conflict With Other Instruments. The execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby will not (i) violate any provision of the respective
Articles of Incorporation or Association or Bylaws of Bankshares or (ii)
assuming all required shareholder and regulatory consents and approvals are duly
obtained, will not (A) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Bankshares or any of
its properties or assets, or (B) violate, conflict with, result in a breach of
any provision of or constitute a default (or an event which, with or without
notice or lapse of time, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, cause Bankshares to become subject to or liable for the
payment of any tax, or result in the creation of any lien, charge or encumbrance
upon any of the properties or assets of Bankshares under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease agreement, instrument or obligation to which Bankshares is a
party, or by which any of its properties or assets may be bound or affected,
except for such violations, conflicts, breaches or defaults which either
individually or in the aggregate will not have a Material Adverse Effect on the
Condition of Bankshares.
Section 4.5. Financial Statements.
(a) Bankshares has furnished or made available to Southern Financial
true and complete copies of its (i) Annual Report on Form 10-K for the years
ended December 31, 2002 and 2001, as filed with the SEC, which contains
Bankshares's audited balance sheets as of December 31, 2002 and 2001, and the
related statements of income and statements of changes in shareholders' equity
and cash flows for the years ended December 31, 2002, 2001 and 2000, and (ii)
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, as filed with
the SEC, which contains its unaudited balance sheets and related statements of
income and statements of changes in shareholders' equity and cash flows as of
and for the six months ended June 30, 2003 and 2002. The financial statements
referred to in this Section 4.5(a) are collectively referred to herein as the
"Bankshares Financial Statements."
(b) The Bankshares Financial Statements fairly present the financial
position and results of operations of Bankshares at the dates and for the
periods indicated in conformity with GAAP applied on a consistent basis.
(c) As of the dates of the Bankshares' Financial Statements referred
to above, Bankshares did not have any liabilities, fixed or contingent, which
are material and are not fully shown or provided for in the Bankshares Financial
Statements or otherwise disclosed in this Agreement, or in any of the documents
delivered to Southern Financial. Since June 30, 2003, there have been no
material changes in the financial condition, assets, liabilities or business of
Bankshares, other than changes in the ordinary course of business, which
individually or in the aggregate, have not had a Material Adverse Effect on the
Condition of Bankshares.
Section 4.6. Litigation and Other Proceedings. There are no legal,
quasi-judicial or administrative proceedings of any kind or nature now pending
or, to the knowledge of
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Bankshares, threatened before any court or administrative body in any manner
against Bankshares, or any of its properties or capital stock, which might have
a Material Adverse Effect on the Condition of Bankshares or the transactions
proposed by this Agreement. Bankshares knows of no basis on which any litigation
or proceeding could be brought which is reasonably likely to result in a
Material Adverse Effect on the Condition of Bankshares or which could question
the validity of any action taken or to be taken in connection with this
Agreement and the transactions contemplated hereby. Bankshares is not in default
with respect to any judgment, order, writ, injunction, decree, award, rule or
regulation of any court, arbitrator or governmental agency or instrumentality.
Section 4.7. Securities and Exchange Commission Reporting Obligations.
Since January 1, 2000, Bankshares has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that it
was required to file with the SEC pursuant to the Exchange Act ("Bankshares' SEC
Reports"). As of their respective dates, each of such reports and statements,
(or if amended, as of the date so amended), were true and correct and complied
in all material respects with the relevant statutes, rules and regulations
enforced or promulgated by the SEC and such reports did not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
Section 4.8. Accounting Controls. Bankshares has devised and maintained a
system of internal accounting controls sufficient to provide reasonable
assurances that: (i) all material transactions are executed in accordance with
general or specific authorization of the Board of Directors and the duly
authorized executive officers of Bankshares; (ii) all material transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP consistently applied with respect to institutions such as
Bankshares or other criteria applicable to such financial statements, and to
maintain proper accountability for items therein; (iii) access to the material
properties and assets of Bankshares is permitted only in accordance with general
or specific authorization of the Board of Directors and the duly authorized
executive officers of Bankshares; and (iv) the recorded accountability for items
is compared with the actual levels at reasonable intervals and appropriate
actions taken with respect to any differences.
Section 4.9. Bankshares Employee Benefit Plans.
(a) No employee benefit plans of Bankshares or its ERISA Affiliates
(as defined in Section 3.19 hereof) (the "Bankshares Plans") are "multiemployer
plans" within the meaning of Section 4001(a)(3) of ERISA ("Multiemployer
Plans"). None of Bankshares or any of its respective ERISA Affiliates has, at
any time during the last six years, contributed to or been obligated to
contribute to any Multiemployer Plan, and none of Bankshares, or any of its
respective ERISA Affiliates has incurred any withdrawal liability under Part I
of Subtitle E of Title IV of ERISA that has not been satisfied in full.
(b) There does not now exist, nor, to the knowledge of Bankshares, do
any circumstances exist that could result in, any Controlled Group Liability
that would be a material liability of Bankshares now or following the Closing.
"Controlled Group Liability" means (i) any and all liabilities (A) under Title
IV of ERISA, (B) under Section 302 of ERISA, (C) under Sections 412 and 4971 of
the Code, or (D) as a result of a failure to comply with the
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continuation coverage requirements of Section 601 et seq. of ERISA and Section
4980B of the Code, and (E) under corresponding or similar provisions of foreign
laws or regulations; (ii) with respect to any Bankshares Plan any other material
liability under Title I of ERISA or Chapter 43 or 68 of the Code, and (iii)
material unfunded liabilities under any non-qualified deferred compensation plan
for the benefit of any employee or former employee of Bankshares.
(c) Each Bankshares Plan has been operated and administered in all
material respects in compliance with ERISA, since ERISA became applicable with
respect thereto. None of the Bankshares Plans nor any of their respective
related trusts have been terminated (except the termination of any Bankshares
Plan which is in compliance with the requirements of ERISA and which will not
result in any additional liability to Bankshares), and there has been no
"reportable event," as that term is defined in Section 4043 of ERISA, required
to be reported since the effective date of ERISA which has not been reported,
and none of such Bankshares Plans nor their respective related trusts have
incurred any "accumulated funding deficiency," as such term is defined in
Section 302 of ERISA (whether or not waived), since the effective date of ERISA.
(d) The Bankshares Plans are the only employee pension benefit plans
covering employees of Bankshares and its Subsidiary. Bankshares and its
Subsidiary will not have any material liabilities with respect to employee
pension benefits, whether vested or unvested as of the Closing Date, for any of
their employees other than under the Bankshares Plans, and as of the date hereof
the actuarial present value of Bankshares Plan assets of each Bankshares Plan is
not less (and as of the Effective Time of the Merger such present value will not
be less) than the present value of all benefits payable or to be payable
thereunder.
Section 4.10. Regulatory Approvals; Tax Opinion. Bankshares has no reason
to believe that it cannot obtain (i) all requisite regulatory approvals
referenced in Section 12.1 hereof and (ii) the tax opinion referenced in Section
12.3 hereof.
Section 4.11. Taxes. Bankshares and its Subsidiary have timely filed with
the appropriate federal, state and local governmental authorities all material
Tax Returns and reports required to be filed, and have paid all Taxes and
assessments shown or claimed to be due and payable thereon. At the time of
filing, all such Tax Returns were correct in all material respects. Neither
Bankshares nor its Subsidiary has executed or filed with the Internal Revenue
Service any agreement extending the period for assessment and collection of any
federal income Tax. None of Bankshares or its Subsidiary is a party to any
pending action or proceeding by any governmental authority for assessment or
collection of Taxes, nor has any written claim for assessment or collection of
Taxes been asserted against Bankshares or its Subsidiary. All Taxes which
Bankshares or its Subsidiary is or was required by law to withhold or to collect
have been duly withheld and collected and have been paid over to the proper
authorities to the extent due and payable, or segregated and set aside for such
payment and, if so segregated and set aside will be so paid by Bankshares or its
Subsidiary, as required by applicable law.
Section 4.12. Absence of Certain Changes. Except as set forth in
Bankshares' SEC Reports, since June 30, 2003 (i) Bankshares and its Subsidiary
have conducted their respective businesses in the ordinary and usual course
consistent with past practice (excluding the incurrence of expenses related to
this Agreement and the transactions contemplated hereby) and
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(ii) no event has occurred or circumstance arisen that, individually or in the
aggregate, has had or is reasonably likely to have a Material Adverse Effect on
Bankshares.
Section 4.13. Insurance. Bankshares currently maintains insurance in
amounts reasonably necessary for its operations. In the judgment of the Board of
Directors of Bankshares, such insurance policies in respect of amounts, types
and risks insured are adequate to insure against risks to which Bankshares and
its assets are normally exposed in the operation of its business, subject to
customary deductibles and policy limits. Bankshares has no reason to believe
that existing insurance coverage cannot be renewed as and when the same shall
expire upon terms and conditions as favorable as those presently in effect,
other than possible increases in premiums or unavailability of coverage that
does not result from any extraordinary loss experience on the part of
Bankshares.
Section 4.14. Laws and Regulatory Filings. Bankshares and its Subsidiary
are in material compliance with all applicable federal, state and local laws,
rules, regulations and orders applicable to them. Except for approvals by
regulatory authorities having supervisory jurisdiction over Bankshares and its
Subsidiary, no prior consent, approval or authorization of, or declaration,
filing or registrations with, any person or regulatory authority is required of
Bankshares and its Subsidiary in connection with the execution, delivery and
performance by Bankshares of this Agreement and the transactions contemplated
hereby, except for certain instruments necessary to consummate the Merger
contemplated hereby. Bankshares and its subsidiaries have filed all reports,
registrations and statements, together with any amendments required to be made
thereto, that are required to be filed with the Federal Reserve Board, the FDIC,
the OCC, the OTS or any other regulatory authority having supervisory
jurisdiction over Bankshares and its Subsidiary, and such reports, registrations
and statements, as finally amended or corrected, are, to the knowledge of
Bankshares and its Subsidiary, true and correct in all material respects.
Section 4.15. Community Reinvestment Act. Provident Bank is in material
compliance with the CRA and all regulations promulgated thereunder. Provident
Bank has a rating of "satisfactory" as of its most recent CRA compliance
examination and, knows of no reason why it would not receive a rating of
"satisfactory" or better pursuant to its next CRA compliance examination or why
the FDIC, the Maryland Commissioner of Financial Regulation or any other
governmental entity may seek to restrain, delay or prohibit the transactions
contemplated hereby as a result of any act or omission of the Provident Bank
under the CRA.
Section 4.16. Allowance for Loan Losses. The allowance for loan losses
reflected on the Bankshares Financial Statements, as of their respective dates,
has been established in accordance with GAAP as applied to banking institutions
and all applicable laws and regulations.
Section 4.17. Environmental Matters. To the knowledge of Bankshares,
Bankshares and Provident Bank are in material compliance with all terms and
conditions of all applicable federal and state Environmental Laws (as defined in
Section 3.10 hereof) and permits thereunder. Neither Bankshares nor Provident
Bank has received any communication alleging that Bankshares or Provident Bank
is not in such material compliance and, to the knowledge of Bankshares, there
are no present circumstances that would prevent or interfere with the
continuation of such material compliance.
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Section 4.18. Brokers and Finders. Other than as set forth on Schedule
4.18, neither Bankshares nor any of its officers, directors or employees have
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with this Agreement.
Section 4.19. Ability to Pay Merger Consideration. Bankshares has, and will
have available to it at the Effective Time, sources of capital sufficient to pay
the aggregate Cash Consideration and to effect the transactions contemplated
hereby.
Section 4.20. Bankshares Information. The information regarding Bankshares
and its subsidiaries to be supplied by Bankshares for inclusion in the
Registration Statement, any filings or approvals under applicable federal or
state banking laws or regulations or state securities laws, or any filing
pursuant to Rule 165 or Rule 425 under the Securities Act will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
V. COVENANTS OF SOUTHERN FINANCIAL
Southern Financial covenants and agrees with Bankshares as follows:
Section 5.1. Shareholder Approval and Reasonable Best Efforts. Southern
Financial will, as soon as practicable, take all steps under applicable laws and
its Articles of Incorporation and Bylaws to call, give notice of, convene and
hold a meeting of its shareholders at such time as may be mutually agreed to by
the parties for the purpose of approving this Agreement and the transactions
contemplated hereby and for such other purposes consistent with the complete
performance of this Agreement as may be necessary and desirable. The Board of
Directors of Southern Financial will recommend to its shareholders the approval
of this Agreement and the transactions contemplated hereby, unless otherwise
required by their fiduciary duties under applicable law, and Southern Financial
will use its best efforts to obtain the necessary approvals by its shareholders
of this Agreement and the transactions contemplated hereby. If the transaction
is approved by such shareholders, Southern Financial will take all reasonable
action to aid and assist in the consummation of the Merger, and will use its
best efforts to take or cause to be taken all other actions necessary, proper or
advisable to consummate the transactions contemplated by this Agreement,
including such actions as it and Bankshares reasonably considers necessary,
proper or advisable in connection with filing applications and registration
statements with, or obtaining approvals from, all governmental entities having
jurisdiction over the transactions contemplated by this Agreement.
Section 5.2. Activities of Southern Financial Pending Closing.
(a) From the date hereof to and including the Closing Date, as long as
this Agreement remains in effect, Southern Financial shall (i) conduct its
affairs (including, without limitation, the making of or agreeing to make any
loans or other extensions of credit) only in the ordinary course of business
consistent with past practices and prudent banking principles; (ii) use its best
efforts to preserve intact its present business organizations, keep available
the services of its present officers, directors, key employees and agents and
preserve its relationships and
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goodwill with customers and advantageous business relationships; and (iii)
except as required by law or regulation or expressly permitted by this
Agreement, take no action which would adversely affect or delay the ability of
Southern Financial or Bankshares to obtain any approvals from any regulatory
agencies or other approvals required for consummation of the transactions
contemplated hereby or to perform its obligations and agreements under this
Agreement.
(b) From the date hereof to and including the Closing Date, except (1)
as expressly contemplated or permitted by this Agreement, (2) as reflected in a
Southern Financial Disclosure Schedule delivered on or prior to the date hereof
specifically referenced to the applicable subparagraph below, (3) as required by
law or regulation or (4) to the extent Bankshares consents in writing (which
consent shall not be unreasonably withheld), Southern Financial shall not, and
shall not permit any of its Subsidiaries to:
(i) make or agree to make or renew any loans or other extensions
of credit to any borrower in excess of $1,000,000 (except (A) pursuant to
commitments made prior to the date of this Agreement that are listed in
Schedule 5.2(b)(i) (B) loans fully secured by a certificate of deposit at
Southern Financial and (C) renewals, extensions and consolidations of any
loans other than those loans listed in Schedule 3.7); provided, that in the
event that Southern Financial desires to make or renew any such loan to any
borrower in excess of $1,000,000, it shall so advise Bankshares via e-mail
transmission. Bankshares shall notify Southern Financial via e-mail
transmission within two (2) business days of receipt of such notice whether
Bankshares consents to such loan or extension of credit, provided that if
Bankshares fails to notify Southern Financial with such time frame,
Bankshares shall be deemed to have consented to such loan or extension of
credit;
(ii) issue or sell or obligate itself to issue or sell any shares
of its capital stock or any warrants, rights or options to acquire, or any
securities convertible into, any shares of its capital stock, except that
Southern Financial may issue shares of Southern Financial Common Stock upon
the exercise of outstanding stock options;
(iii) open, close or relocate any branch office, or acquire or
sell or agree to acquire or sell, any branch office or any deposit
liabilities, other than the opening of the Downtown Richmond banking office
of Southern Financial to be located at the intersection of 10th and Main in
Richmond, Virginia or as set forth in Schedule 5.2(b)(iii);
(iv) enter into, amend or terminate any agreement of the type
that would be required to be disclosed in Schedule 3.13, or any other
material agreement, or acquire or dispose of any material amount of assets
or liabilities or make any change in any of its leases, except in the
ordinary course of business consistent with past practices;
(v) grant any severance or termination pay (other than pursuant
to Southern Financial's policies in effect on the date hereof) to, or enter
into any employment, consulting, noncompetition, retirement, parachute,
severance or indemnification agreement with, any officer, director,
employee or agent of Southern
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Financial or any of its Subsidiaries, either individually or as part of a
class of similarly situated persons;
(vi) increase in any manner the compensation or fringe benefits
of any of its employees or directors other then in the ordinary course of
business consistent with past practice and pursuant to policies currently
in effect or pay any bonus or incentive compensation, except that (A)
Southern Financial and its Subsidiaries may pay semi-annual incentive
bonuses in the ordinary course of business consistent with past practice in
January 2004 and July 2004; provided that if the Closing occurs prior to
the date for payment of the incentive bonuses in July 2004, such bonuses
shall be paid on a pro rata basis on the business day immediately prior to
Closing and (B) Southern Financial and its Subsidiaries may pay retention
bonuses as provided in Section 6.12(b);
(vii) declare, pay or set aside for payment any dividend or other
distribution with respect to the Southern Financial Common Stock, other
than (A) the payment of dividends from Southern Financial Bank to Southern
Financial or (B) Southern Financial's regular quarterly cash dividends at a
rate not to exceed the dividend rate in effect as of the date hereof;
(viii) make any change in accounting methods, principles and
practices, except as may be required by GAAP or any governmental authority;
(ix) sell, transfer, convey, mortgage, encumber or otherwise
dispose of any material properties or assets (including "other real estate
owned") or interest therein;
(x) foreclose upon or otherwise acquire any commercial real
property prior to receipt and approval by Bankshares of a Phase I
environmental review thereof;
(xi) increase or decrease the rate of interest paid on deposit
accounts, except in a manner and pursuant to policies consistent with
Southern Financial's past practices;
(xii) establish any new subsidiary;
(xiii) materially deviate from policies and procedures existing
as of the date of this Agreement with respect to (A) classification of
assets, (B) the allowance for loan losses and (C) accrual of interest on
assets, except as otherwise required by the provisions of this Agreement,
applicable law or regulation or any governmental authority;
(xiv) amend or change any provision of Southern Financial's
Articles of Incorporation or Bylaws;
(xv) make any capital expenditure which would exceed an aggregate
of $500,000, except pursuant to commitments made prior to the date of this
Agreement or as set forth in Schedule 5.2(b)(xv);
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(xvi) modify any outstanding loan or acquire any loan
participation, unless such modification is made in the ordinary course of
business, consistent with past practice;
(xvii) incur or modify any indebtedness for borrowed money in
excess of $5,000,000 or with a final maturity of greater than five years;
(xviii) purchase any brokered certificates of deposit with a
final maturity of greater than one year;
(xix) prepay any indebtedness or other similar arrangements so as
to cause Southern Financial to incur any prepayment penalty thereunder,
other than any mandatory redemption of any of the Trust Preferred Issues;
(xx) except pursuant to contracts or agreements in force at the
date of or permitted by this Agreement, make any equity investment in, or
purchase outside the ordinary course of business any property or assets of,
any other individual, corporation or other entity;
(xxi) voluntarily accelerate the vesting of, or the lapsing of
restrictions with respect to, any stock options or other stock-based
compensation;
(xxii) settle any claim, action or proceeding involving payment
by it of money damages in excess of $50,000 or impose any material
restriction on its operations or the operations of any of its subsidiaries;
(xxiii) restructure or materially change its investment
securities portfolio or its interest rate risk position, through purchases,
sales or otherwise, or the manner in which the portfolio is classified or
reported; or
(xxiv) make any investment in any debt security, including
mortgage-backed and mortgage-related securities, other than U.S. government
and U.S. government agency or agency-backed securities with final
maturities or durations of one year or less; provided that with respect to
any other investment in the ordinary course of business Bankshares shall
notify Southern Financial via e-mail transmission within six (6) hours of
receipt of notice regarding Southern Financial's intent to make such
investment whether Bankshares consents to such investment and that if
Bankshares fails to notify Southern Financial within such time frame,
Bankshares shall be deemed to have consented to such investment.
Section 5.3. Access to Properties and Records.
(a) To the extent permitted by applicable law, Southern Financial
shall and shall cause each of its Subsidiaries, upon reasonable notice from
Bankshares to Southern Financial to: (i) afford the employees and officers and
authorized representatives (including legal counsel, accountants and
consultants) of Bankshares full access to the properties, books, records of
Southern Financial and its Subsidiaries during normal business hours in order
that Bankshares
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may have full opportunity to make such reasonable investigation as it shall
desire to make of the affairs of Southern Financial and its Subsidiaries, and
(ii) furnish Bankshares with such additional financial and operating data and
other information as to the business and properties of Southern Financial as
Bankshares shall, from time to time, reasonably request.
(b) As soon as practicable after they become available, Southern
Financial will deliver or make available to Bankshares all reports filed by
Southern Financial with the appropriate federal or state banking or regulatory
authority after the date of this Agreement. All such financial statements shall
be prepared in accordance with GAAP applied on a consistent basis with previous
accounting periods. In the event of the termination of this Agreement,
Bankshares will return to Southern Financial all documents and other information
obtained pursuant hereto and will keep confidential any information obtained
pursuant to this Agreement. In the event of the termination of this Agreement,
Bankshares will return to Southern Financial all documents and other information
obtained pursuant hereto and will keep confidential any information obtained
pursuant to Section 7.2 of this Agreement.
Section 5.4. Information for Regulatory Applications and SEC Filings. To
the extent permitted by law, Southern Financial will furnish Bankshares with all
information concerning Southern Financial required for inclusion in (i) any
application, filing, statement or document to be made or filed by Bankshares
with any federal or state regulatory or supervisory authority in connection with
the transactions contemplated by this Agreement during the pendency of this
Agreement and (ii) any filings with the SEC, including the Registration
Statement, and any applicable state securities authorities. Southern Financial
agrees at any time, upon the request of Bankshares, to furnish to Bankshares a
written letter or statement confirming the accuracy of the information with
respect to Southern Financial contained in any report or other application or
statement referred to in this Agreement, and confirming that the information
with respect to Southern Financial and Southern Financial Bank contained in such
document or draft was furnished by Southern Financial expressly for use therein
or, if such is not the case, indicating the inaccuracies contained in such
document or indicating the information not furnished by Southern Financial
expressly for use therein.
Section 5.5. Standstill Provision. So long as this Agreement is in effect,
neither Southern Financial nor any of its subsidiaries shall and Southern
Financial agrees to use its reasonable best efforts to cause its and each of its
subsidiaries' directors, officers, employees, agents and representatives not to
entertain, solicit or encourage any inquiries, or provide any information to or
negotiate with any other party any proposal which could reasonably be expected
to lead to the merger, consolidation, acquisition, or sale of all or
substantially all of the assets or any shares of capital stock of Southern
Financial, except where the Board of Directors of Southern Financial determines,
based on the advice of counsel, that the failure to furnish such information or
participate in such negotiations or discussions would or could reasonably be
deemed to constitute a breach of the fiduciary or legal obligations of Southern
Financial's Board of Directors to its shareholders. Southern Financial agrees to
notify Bankshares of any such unsolicited acquisition proposal orally, within
one business day and in writing within three business days of its receipt, and
provide reasonable detail as to the identity of the proposed acquiror and the
nature of the proposed transaction. Southern Financial will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore that relate to any such unsolicited
acquisition proposal. Southern Financial
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will take the necessary steps to inform the appropriate individuals or entities
referred to in this Section 5.5 of the obligations undertaken in this Section
5.5. Southern Financial will promptly request each person (other than Bankshares
and Essex) that has executed a confidentiality agreement prior to the date
hereof in connection with its consideration of a business combination with
Southern Financial or any of its subsidiaries to return or destroy all
confidential information previously furnished to such person by or on behalf of
Southern Financial or any of its Subsidiaries. Southern Financial shall not
release any third party from, or waive any provisions of, any confidentiality
agreements or standstill agreement to which it or any of its subsidiaries is a
party.
Section 5.6. Affiliates' Letters. No later than the fifteenth (15th) day
following the date of execution of this Agreement, Southern Financial shall
deliver to Bankshares, after consultation with legal counsel, a list of names
and addresses of those persons who are then "affiliates" of Southern Financial
within the meaning of Rule 144 under the Securities Act. There shall be added to
such list the names and addresses of any other person (within the meaning of
Rule 144) which Bankshares identifies (by written notice to Southern Financial
within three business days after receipt of such list) as possibly being a
person who may be deemed to be an "affiliate" of Southern Financial within the
meaning of Rule 144. Southern Financial shall use all reasonable efforts to
deliver, or cause to be delivered, to Bankshares not later than the thirtieth
(30th) day following the date of execution of this Agreement from each of the
"Affiliates" of Southern Financial identified as aforesaid who own Southern
Financial Common Stock and will acquire Bankshares Common Stock in the Merger, a
letter dated as of the date of delivery thereof in the form of Exhibit B
attached hereto.
Section 5.7. Certain Policies and Actions of Southern Financial. At the
request of Bankshares, Southern Financial shall cause Southern Financial Bank to
modify and change its loan, litigation and real estate valuation policies and
practices (including loan classifications and levels of reserves) so as to be
consistent with those of Provident Bank; provided, however, that Southern
Financial shall not be required to take such action prior to the date on which
the conditions set forth in Sections 12.1 and 12.2 have been satisfied, and
until after receipt of written confirmation from Bankshares that it is not aware
of any fact or circumstance that would prevent completion of the Merger, and
provided further, that such policies and procedures are not prohibited by GAAP
or any applicable laws and regulations. Southern Financial's representations,
warranties and covenants contained in this Agreement shall not be deemed to be
untrue or breached in any respect for any purpose as a consequence of any
modifications or changes undertaken solely on account of this Section 5.7.
Section 5.8. Completion of the Essex Merger. Subject to the terms and
conditions of the Essex Merger Agreement, Southern Financial agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all actions
and to do promptly, or cause to be done promptly, all things necessary, proper
or advisable to consummate the Essex Merger. Bankshares shall have the right to
review in advance any filing made with, or written materials submitted to, any
regulatory authority or the SEC in connection with the Essex Merger, provided
that such review shall be completed in an expeditious manner, and shall have the
right to approve any information regarding Bankshares or this Agreement
contained in any such filing or written materials.
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Section 5.9. Trust Preferred Issues. As soon as practicable following the
execution of this Agreement, Southern Financial shall hereof notify the trustees
with respect to the Trust Preferred Issues, or any successor trustee named for
purposes of the Trust Preferred Issues, of the execution of this Agreement and
shall use every commercially reasonable effort to obtain from such trustees
confirmation that (i) no Default or Event of Default (as those terms are defined
in (A) the Capital Trust I Indenture and the related Guarantee Agreement, each
dated May 24, 2000, (B) the Statutory Trust I Indenture and the related
Guarantee Agreement, each dated September 7, 2000 and (C) the Trust III
Indenture and the related Guarantee Agreement, each dated April 10, 2003) exists
or is continuing; (ii) no Default or Event of Default will occur as a result of
the execution, delivery and performance by Southern Financial of its obligations
under the terms of this Agreement; and (iii) Southern Financial has not elected
to exercise its right to commence an Extended Interest Payment Period as that
term is defined in the Indentures and the Guarantee Agreements referred to in
clause (i) of this Section 5.9.
VI. COVENANTS OF BANKSHARES
Bankshares covenants and agree with Southern Financial as follows:
Section 6.1. Shareholder Approval and Best Efforts. Bankshares will, as
soon as practicable, take all steps under applicable law and its Articles of
Incorporation and Bylaws, to call, give notice of, convene and hold a meeting of
its shareholders at such time as may be mutually agreed to by the parties for
the purpose of approving this Agreement and the transactions contemplated hereby
and for such other purposes consistent with the complete performance of this
Agreement as may be necessary and desirable. The Board of Directors of
Bankshares will recommend to its shareholders the approval of this Agreement and
the transactions contemplated hereby, unless otherwise required by their
fiduciary duties under applicable law, Bankshares will use its best efforts to
obtain the necessary approvals by its shareholders of this Agreement and the
transactions contemplated hereby. If the transaction is approved by such
shareholders, Bankshares will take all reasonable action to aid and assist in
the consummation of the Merger and the transactions contemplated hereby, and
will use its best efforts to take or cause to be taken all other actions
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement, including such actions which it reasonably considers necessary,
proper or advisable in connection with filing applications with, or obtaining
approvals from, all regulatory authorities having jurisdiction over the
transactions contemplated by this Agreement.
Section 6.2. Activities of Bankshares Pending Closing.
(a) From the date hereof to and including the Closing Date, as long as
this Agreement remains in effect Bankshares shall (i) conduct its affairs
(including, without limitation, the making of or agreeing to make any loans or
other extensions of credit) only in the ordinary course of business consistent
with past practices and prudent banking principles; (ii) use its best efforts to
preserve intact its present business organizations, keep available the services
of its present officers, directors, key employees and agents and preserve its
relationships and goodwill with customers and advantageous business
relationships; and (iii) except as required by law or regulation or expressly
permitted by this Agreement, take no action which would adversely affect or
delay the ability of Southern Financial or Bankshares to obtain any approvals
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from any regulatory agencies or other approvals required for consummation of the
transactions contemplated hereby or to perform its obligations and agreements
under this Agreement.
(b) From the date hereof to and including the Closing Date, except (1)
as expressly contemplated or permitted by this Agreement, (2) as required by law
or regulation or (3) to the extent Southern Financial consents in writing (which
consent shall not be unreasonably withheld), Bankshares shall not, and shall not
permit any of its Subsidiaries to:
(i) declare, pay or set aside for payment any dividends on or
make any distributions in respect of its capital stock, other than its
regular quarterly dividends;
(ii) take or cause to be taken any action which would adversely
affect or delay the ability of Southern Financial to obtain any approvals
from any regulatory agencies or other approvals required for the
consummation of the pending acquisition set forth in Schedule 3.28 or
otherwise adversely affect the consummation of such pending acquisition;
(iii) make any change in accounting methods, principles and
practices, except as may be required by GAAP or any governmental authority;
or
(iv) take or cause to be taken any action which would reasonably
be expected to prevent the Merger from qualifying as a reorganization under
Section 368(a) of the Code.
Section 6.3. Information for Regulatory Applications. To the extent
permitted by law, Bankshares will furnish Southern Financial with all
information concerning Bankshares required for inclusion in any application,
filing, statement or document to be made or filed by Southern Financial with any
federal or state regulatory or supervisory authority in connection with the
transactions contemplated by this Agreement during the pendency of this
Agreement. Bankshares agrees, upon the request of Southern Financial, to furnish
to Southern Financial a written letter or statement confirming to the best of
its knowledge the accuracy of the information with respect to Bankshares
contained in any report or other application or statement referred to in
Sections 6.4 or 6.5 of this Agreement, and confirming that the information with
respect to Bankshares contained in such document or draft was furnished
expressly for use therein or, if such is not the case, indicating the
inaccuracies contained in such document or indicating the information not
furnished by Bankshares or Provident Bank expressly for use therein.
Section 6.4. Registration Statement. As soon as practicable after the
execution of this Agreement, Bankshares will prepare and file with the SEC a
Registration Statement on Form S-4 under the Securities Act (the "Registration
Statement") and any other applicable documents, relating to the shares of
Bankshares Common Stock to be delivered to the shareholders of Southern
Financial pursuant to this Agreement, and will use its best efforts to cause the
Registration Statement to become effective. Southern Financial and its counsel
shall be given the opportunity to participate in the preparation of the
Registration Statement and shall have the right to approve the content of the
Registration Statement with respect to Southern Financial and the Southern
Financial meeting of shareholders. At the time the Registration Statement
becomes
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effective, the Registration Statement will comply in all material respects with
the provisions of the Securities Act and the published rules and regulations
thereunder, and will not 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 therein not false or misleading, and at the time of mailing thereof
to Southern Financial's shareholders, at the time of the Southern Financial
Shareholders' Meeting held to approve the Merger, and at the Effective Time of
the Merger, the prospectus included as part of the Registration Statement (the
"Prospectus") will not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not false or
misleading; provided, however, that none of the provisions of this subparagraph
shall apply to statements in or omissions from the Registration Statement or the
Prospectus made in reliance upon and in conformity with information furnished by
Southern Financial for use in the Registration Statement or the Prospectus.
Section 6.5. Applications. Bankshares will file all necessary regulatory
notices and applications as soon as practicable after the execution of this
Agreement and will provide Southern Financial with a copy of the
non-confidential portions of notices, applications, statements or correspondence
submitted to or received from regulatory authorities in connection with the
Merger.
Section 6.6. Nasdaq Listing. Bankshares will file all documents required to
be filed to have the shares of Bankshares Common Stock to be issued pursuant to
the Agreement included for quotation on Nasdaq and use its best efforts to
effect said listing.
Section 6.7. Rule 144 Compliance. For a period of not less than two years
after the date hereof (or such shorter period of time as may be applicable for
"Affiliates" of Southern Financial to sell shares of Bankshares Common Stock in
accordance with Rule 145 of the Securities Act), Bankshares shall use its best
efforts to file in a timely manner all reports with the SEC required to be filed
by it pursuant to Section 13 and Section 15(d) of the Exchange Act.
Section 6.8. Issuance of Bankshares Common Stock. The shares of Bankshares
Common Stock to be issued by Bankshares to the shareholders of Southern
Financial pursuant to this Agreement will, on the issuance and delivery to such
shareholders pursuant to this Agreement, be duly authorized, validly issued,
fully paid and nonassessable. The shares of Bankshares Common Stock to be
delivered to the shareholders of Southern Financial pursuant to this Agreement
are and will be free of any preemptive rights of the shareholders of Bankshares
or any other person, firm or entity.
Section 6.9. Indemnification; Insurance.
(a) For a six-year period following the Effective Time, Bankshares
(the "Indemnifying Party") shall indemnify and hold harmless each present and
former director and officer of Southern Financial or an Southern Financial
Subsidiary, as applicable, determined as of the Effective Time (the "Indemnified
Parties") against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed prior
to, at or after the Effective Time, arising in
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whole or in part out of or pertaining to the fact that he or she was a director,
officer, employee, fiduciary or agent of Southern Financial or any Southern
Financial Subsidiary or is or was serving at the request of Southern Financial
or any of the Subsidiaries of Southern Financial as a director, officer,
employee, fiduciary or agent of another corporation, partnership, limited
liability company joint venture, trust or other enterprise, including without
limitation matters related to the negotiation, execution and performance of this
Agreement or any of the transactions contemplated hereby, to the fullest extent
which such Indemnified Parties would be entitled under the Articles of
Incorporation of Southern Financial or the equivalent document of any Southern
Financial Subsidiary, as applicable, in each case as in effect on the date
hereof. Without limiting the foregoing, Bankshares also agrees that limitations
on liability existing in favor of the Indemnified Parties as provided in the
Articles of Incorporation of Southern Financial or the equivalent document of
any Subsidiary of Southern Financial as in effect on the date hereof with
respect to matters occurring prior to the Effective Time shall survive the
Merger and the Bank Merger and shall continue in full force and effect from and
after the Effective Time.
(b) Any Indemnified Party wishing to claim indemnification under this
Section 6.9, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Indemnifying Party, but the failure to
so notify shall not relieve the Indemnifying Party of any liability it may have
to such Indemnified Party if such failure does not actually prejudice the
Indemnifying Party. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) the
Indemnifying Party shall have the right to assume the defense thereof and the
Indemnifying Party shall not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently incurred by such
Indemnified Parties in connection with the defense thereof, except that if the
Indemnifying Party elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between the Indemnifying Party and the Indemnified Parties, the
Indemnified Parties may retain counsel which is reasonably satisfactory to the
Indemnifying Party, and the Indemnifying Party shall pay, promptly as statements
therefor are received, the reasonable fees and expenses of such counsel for the
Indemnified Parties (which may not exceed one firm in any jurisdiction), (ii)
the Indemnified Parties will cooperate in the defense of any such matter, (iii)
the Indemnifying Party shall not be liable for any settlement effected without
its prior written consent and (iv) the Indemnifying Party shall have no
obligation hereunder in the event that indemnification of an Indemnified Party
in the manner contemplated hereby is prohibited by applicable laws and
regulations.
(c) Prior the Effective Time, Bankshares shall use its best efforts to
cause the persons serving as directors and officers of Southern Financial
immediately prior to the Effective Time to be covered by the directors' and
officers' liability insurance policy maintained by Southern Financial (provided
that Bankshares may substitute therefor policies of at least the same coverage
and amounts containing terms and conditions which are not materially less
advantageous than such policy or single premium tail coverage with policy limits
equal to the existing coverage limits of Southern Financial) for a six-year
period following the Effective Time with respect to acts or omissions occurring
prior to the Effective Time which were committed by such directors and officers
in their capacities as such, provided that in no event shall Bankshares be
required to expend for any one year an amount in excess of 175% of the
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annual premium currently paid by Southern Financial for such insurance (the
"Insurance Amount"), and further provided that if Bankshares is unable to
maintain or obtain the insurance called for by this Section 6.8(c) as a result
of the preceding provision, Bankshares shall use its reasonable best efforts to
obtain as much comparable insurance as is available for the Insurance Amount.
(d) If Bankshares or any of its successors or assigns shall
consolidate with or merge into any other entity and shall not be the continuing
or surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any other entity, then and in each case, the
successors and assigns of Bankshares shall assume the obligations set forth in
this Section 6.9.
Section 6.10. Assumption of Southern Financial Stock Options.
(a) At the Effective Time, each outstanding and unexercised Southern
Financial Stock Option which the holder thereof has elected to be converted into
options to acquire shares of Bankshares Common Stock shall be assumed by
Bankshares as provided in Section 2.2 hereof.
(b) Bankshares shall take all corporate action necessary to reserve
for issuance at all times after the Effective Time a sufficient number of shares
of Bankshares Common Stock for delivery upon exercise of Southern Financial
Stock Options assumed by Bankshares in accordance with Section 2.2. Immediately
following the Effective Time, Bankshares shall file a registration statement on
Form S-8 (or any successor or other appropriate form) with respect to the shares
of Bankshares Common Stock subject to such options and shall use its best
efforts to maintain the effectiveness of the registration statement (and
maintain the current status of the prospectus contained therein) for so long as
such options remain outstanding. With respect to those individuals who
subsequent to the Merger will be subject to the reporting requirements under
Section 16(a) of the Exchange Act, where applicable, Bankshares shall administer
the Southern Financial Stock Option Plan in a manner that complies with Rule
16b-3 promulgated under the Exchange Act.
Section 6.11. Supplemental Indentures. Bankshares agrees that at or prior
to the Effective Time it will enter into (i) a supplemental indenture to the
Capital Trust I Indenture dated May 24, 2000 assuming the obligations and
performance of the covenants of Southern Financial under the Capital Trust I
Indenture at the Effective Time in accordance with Section 9.01 of Capital Trust
I Indenture, (ii) a supplemental indenture to the Statutory Trust I Indenture
dated September 7, 2000 assuming the obligations and performance of the
covenants of Southern Financial under the Statutory Trust I Indenture at the
Effective Time in accordance with Section 9.1 of Statutory Trust I Indenture,
and (iii) a supplemental indenture to the Trust III Indenture dated April 10,
2003 assuming the obligations and performance of the covenants of Southern
Financial under the Trust III Indenture at the Effective Time in accordance with
Section 9.01 of Trust II Indenture.
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Section 6.12. Certain Employee Matters.
(a) Bankshares shall pay any employee of Southern Financial or any of
its Subsidiaries who is not otherwise covered by a specific employment,
termination, severance or change in control agreement and who is terminated by
Bankshares or Provident Bank for reasons other than cause (which shall mean
gross negligence or dereliction in the performance of such employee's duties,
dishonesty or commission of a crime), the severance benefits in accordance with
Bankshares' severance policy then in effect, provided that such employee shall
be credited with his prior service with Southern Financial for the purposes of
determining the severance benefits available to such employee.
(b) Southern Financial shall prepare a list of retention bonuses to be
paid to key employees of Southern Financial and its Subsidiaries who will not be
offered continuing positions with Bankshares or its Subsidiaries, in order to
help retain such key employees through the Effective Time, provided that the
aggregate amount of any such retention bonuses shall not exceed $300,000.
Bankshares agrees that at or prior to the Effective Time, Southern Financial
may, with the prior approval of Bankshares, which approval shall not be
unreasonably withheld, pay such retention bonuses.
Section 6.13. Appointment of Directors. Bankshares agrees, at the Effective
Time, to take all actions necessary to (i) increase by two (2) the number of
positions on the Bankshares Board of Directors and (ii) cause each of Xxxxxxx X.
Xxxxxxx and R. Xxxxxxxx Xxxxxx to be elected or appointed as a director of
Bankshares at the Effective Time, if each is still a member of the Southern
Financial Board of Directors immediately prior to the Effective Time and if each
is willing and eligible to serve as a director of Bankshares.
VII. MUTUAL COVENANTS OF BANKSHARES
AND SOUTHERN FINANCIAL
Section 7.1. Notification; Updated Disclosure Schedules. Southern Financial
shall give prompt notice to Bankshares, and Bankshares shall give prompt notice
to Southern Financial, of (i) any representation or warranty made by it in this
Agreement becoming untrue or inaccurate in any material respect, including,
without limitation, as a result of any change in a Schedule, or (ii) the failure
by it to comply with or satisfy in any material respect any covenant, condition
or agreement to be complied with or satisfied by it under this Agreement;
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
Section 7.2. Confidentiality. Neither Bankshares nor Southern Financial
will, directly or indirectly, before or after the consummation or termination of
this Agreement, disclose any confidential information, whether written or oral
("Subject Information") acquired from the other party to any person, firm,
corporation, association or other entity for any reason or purpose whatsoever,
other than in connection with the regulatory notice and application process or,
after termination of this Agreement pursuant to Section 9.1 hereof, use such
Subject Information for its own purposes or for the benefit of any person, firm,
corporation, association, or other entity under any circumstances. The term
"Subject Information" does not include any information that (i) at the time of
disclosure or thereafter is generally available to and known to the public,
other
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than by a breach of this Agreement by the disclosing party, (ii) was available
to the disclosing party on a nonconfidential basis from a source other than the
nondisclosing party or (iii) was independently acquired or developed without
violating any obligations of this Agreement.
Section 7.3. Publicity. Except as otherwise required by applicable law or
in connection with the regulatory application process, as long as this Agreement
is in effect, neither Bankshares nor Southern Financial shall, nor shall they
permit any of their officers, directors or representatives to, issue or cause
the publication of any press release or public announcement with respect to, or
otherwise make any public announcement concerning, the transactions contemplated
by this Agreement without the consent of the other party, which consent shall
not be unreasonably withheld or delayed.
Section 7.4. Employee Benefit Plans.
(a) Southern Financial shall execute and deliver such instruments and
take such other actions as Bankshares may reasonably require in order to cause
the amendment or termination of any of its employee benefit plans on terms
satisfactory to Bankshares and in accordance with applicable law and effective
as of the Closing Date. Bankshares agrees that the employees of Southern
Financial who continue their employment after the Closing Date (the "Southern
Financial Employees") will be entitled to participate as newly hired employees
in the employee benefit plans and programs maintained for employees of
Bankshares and Provident Bank, in accordance with the respective terms of such
plans and programs, and Bankshares shall take all actions necessary or
appropriate to facilitate coverage of the Southern Financial Employees in such
plans and programs from and after the Closing Date, subject to paragraphs (b)
and (c) of this Section 7.4.
(b) Each Southern Financial Employee will be entitled to credit for
prior service with Southern Financial for all purposes under the employee
welfare benefit plans and other employee benefit plans and programs (including
any severance programs but excluding stock option plans), sponsored by
Bankshares or Provident Bank to the extent Southern Financial sponsored a
similar type of plan in which the Southern Financial Employees participated
immediately prior to the Closing Date. Any eligibility waiting period and
pre-existing condition exclusion applicable to such plans and programs shall be
waived with respect to each Southern Financial Employee and their eligible
dependents. For purposes of determining Southern Financial Employee's benefit
for the calendar year in which the Merger occur under Bankshares' vacation
program, any vacation taken by the Southern Financial Employee immediately
preceding the Closing Date for the calendar year in which the Merger occur will
be deducted from the total Bankshares vacation benefit available to such
Southern Financial Employee for such calendar year. Bankshares further agrees to
credit each Southern Financial Employee and their eligible dependents for the
year during which coverage under Bankshares' group health plan begins, with any
deductibles already incurred during such year, under Southern Financial's group
health plan.
(c) Each Southern Financial Employee shall be entitled to credit for
past service with Southern Financial for the purpose of satisfying any
eligibility or vesting periods applicable to Bankshares' employee benefit plans
which are subject to Sections 401(a) and
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501(a) of the Code (including, without limitation, Bankshares' 401(k) Profit
Sharing Plan), except for Bankshares' cash balance pension plan.
VIII. CLOSING
Section 8.1. Closing. Subject to the other provisions of this Article VIII,
on a mutually acceptable date ("Closing Date") as soon as practicable within a
thirty (30) day period commencing with the latest of the following dates:
(a) the receipt of shareholder approval and the last approval from any
requisite regulatory or supervisory authority and the expiration of any
statutory or regulatory waiting period which is necessary to effect the Merger;
or
(b) if the transactions contemplated by this Agreement are being
contested in any legal proceeding and Bankshares or Southern Financial, pursuant
to Section 12.1 herein, have elected to contest the same, then the date that
such proceeding has been brought to a conclusion favorable, in the judgment of
each of Bankshares and Southern Financial, to the consummation of the
transactions contemplated herein, or such prior date as each of Bankshares and
Southern Financial shall elect whether or not such proceeding has been brought
to a conclusion.
A meeting ("Closing") will take place at which the parties to this Agreement
will deliver the certificates and other documents required to be delivered under
Articles X, XI and XII hereof and any other documents and instruments as may be
necessary or appropriate to effect the transactions contemplated by this
Agreement. The Closing shall take place at the offices of Xxxxxxxxx & Xxxxxxxxx,
L.L.P. in Reston, Virginia, or at such other place to which the parties hereto
may mutually agree.
Section 8.2. Effective Time. Subject to the terms and upon satisfaction of
all requirements of law and the conditions specified in this Agreement
including, among other conditions, the receipt of any requisite approvals of the
shareholders of Southern Financial and the regulatory approvals of the Federal
Reserve Board, FDIC, OTS, OCC and any other federal or state regulatory agency
whose approval must be received in order to consummate the Merger, the Merger
shall become effective, and the effective time of the Merger shall occur, at the
date and time specified in the articles of merger to be filed with the Maryland
State Department of Assessments and Taxation and the State Corporation
Commission of Virginia ("Effective Time").
IX. TERMINATION
Section 9.1. Termination.
(a) This Agreement may be terminated by action of the Board of
Directors of Bankshares or Southern Financial at any time prior to the Effective
Time if:
(i) any court of competent jurisdiction in the United States or
other United States (federal or state) governmental body shall have issued
an order, decree or
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ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall
have been final and non-appealable;
(ii) any of the transactions contemplated by this Agreement are
disapproved by any regulatory authority or other person whose approval is
required to consummate any of such transactions; or
(iii) the Merger shall not have become effective on or before
September 30, 2004, or such later date as shall have been approved in
writing by the Boards of Directors of Bankshares and Southern Financial;
provided, however, that the right to terminate under this Section
9.1(a)(iii) shall not be available to any party whose failure to fulfill
any material obligation under this Agreement has been the cause of, or has
resulted in, the failure of the Merger to become effective on or before
such date.
(b) This Agreement may be terminated at any time prior to the Closing
by the Board of Directors of Southern Financial if (i) Bankshares shall fail to
comply in any material respect with any of its covenants or agreements contained
in this Agreement, or if any of the representations or warranties of Bankshares
contained herein shall be inaccurate in any material respect or (ii) if the
conditions set forth in Article XI have not been met or waived by Southern
Financial. In the event the Board of Directors of Southern Financial desires to
terminate this Agreement because of an alleged breach or inaccuracy or change as
provided in (i) above, such Board of Directors must notify Bankshares in writing
of its intent to terminate stating the reason therefor. Bankshares shall have
fifteen (15) days from the receipt of such notice to cure the alleged breach or
inaccuracy, subject to the approval of Southern Financial (which approval shall
not be unreasonably withheld).
(c) This Agreement may be terminated at any time prior to the Closing
by action of the Board of Directors of Bankshares if (i) Southern Financial
shall fail to comply in any material respect with any of its covenants or
agreements contained in this Agreement, or if any of the representations or
warranties of Southern Financial contained herein shall be inaccurate in any
material respect or (ii) if the conditions set forth in Article X have not been
met or waived by Bankshares. In the event the Board of Directors of Bankshares
desires to terminate this Agreement because of an alleged breach or inaccuracy
or change as provided in (i) above, the Board of Directors must notify Southern
Financial in writing of its intent to terminate stating the cause therefor.
Southern Financial shall have fifteen (15) days from the receipt of such notice
to cure the alleged breach or inaccuracy, subject to the approval of Bankshares
(which approval shall not be unreasonably withheld).
(d) This Agreement may be terminated at any time prior to the Closing
by either Bankshares or Southern Financial if the approval of the shareholders
of Bankshares or Southern Financial contemplated by this Agreement shall not
have been obtained by reason of the failure to obtain the required vote at the
meeting of shareholders of Bankshares or Southern Financial at which they
consider the Agreement.
(e) This Agreement may be terminated at any time prior to the Closing
upon the mutual written consent of Bankshares and Southern Financial and the
approval of such action by their respective Boards of Directors.
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(f) This Agreement may be terminated at any time prior to the Closing
by the Board of Directors of Southern Financial if prior to the Effective Time,
Southern Financial shall have received a bona fide Acquisition Proposal (as
defined in Section 9.3(c)) and the Southern Financial Board of Directors
determines in its good faith judgment and in the exercise of its fiduciary
duties, based as to legal matters on the written advice of independent legal
counsel and as to financial matters on the written advice of Sandler X'Xxxxx &
Partners, L.P. or an investment banking firm of national reputation, that such
alternative Acquisition Proposal (if consummated pursuant to its terms) is a
Superior Proposal (as defined in Section 9.3(d)) and that the failure to
terminate this Agreement and accept such Superior Proposal would be inconsistent
with the proper exercise of such fiduciary duties; provided, however, that
termination under this clause (f) shall not be deemed effective until payment of
the Termination Fee required by Section 9.3.
(g) This Agreement may be terminated at any time prior to the Closing
by the Board of Directors of Bankshares if the Southern Financial Board of
Directors shall have (i) resolved to accept an Acquisition Proposal, (ii)
recommended to the shareholders of Southern Financial that they tender their
shares in a tender or exchange offer commenced by a third party or (iii)
withdrawn or modified, in any manner that is adverse to Bankshares, its
recommendation or approval of this Agreement or the Merger or recommended to the
Southern Financial shareholders acceptance or approval of any alternative
Acquisition Proposal, or shall have resolved to do the foregoing.
(h) This Agreement may be terminated any time prior to Closing by the
Board of Directors of Southern Financial at any time during the five-day period
following the Determination Date (as defined below), if:
(1) the Average Closing Price (as defined below) shall be
less than the product of 0.80 and the Starting Price (as defined
below); and
(2) (a) the number obtained by dividing the Average Closing
Price (as defined below) by the Starting Price (such number being
referred to herein as the "Bankshares Ratio") shall be less than (b)
the number obtained by dividing the Index Price (as defined below) on
the Determination Date by the Index Price on the Starting Date (as
defined below) and subtracting 0.20 from such quotient;
subject to the following. If Southern Financial elects to exercise its
termination right pursuant to the immediately preceding sentence, it shall give
prompt written notice to Bankshares; provided that such notice of election to
terminate may be withdrawn at any time within the aforementioned five-day
period. During the five-day period commencing with its receipt of such notice,
Bankshares shall have the option of increasing the Exchange Ratio and/or the
Cash Consideration in a manner such that the conditions set forth in either
clauses (1) or (2) above shall be deemed not to exist; provided, however, that
the Cash Consideration shall not be increased in a manner that would cause the
failure of the conditions set forth in Section 12.3 hereof. For purposes hereof,
the condition set forth in clause (1) above shall be deemed not to exist if the
Exchange Ratio and/or the Cash Consideration is increased so that the Per Share
Consideration (as defined below) after such increase is not less than the Per
Share Consideration that would have been in effect if the condition set forth in
clause (1) above did not exist. For purposes hereof, the condition set forth in
clause (2) above shall be deemed not to exist if the
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Exchange Ratio and/or the Cash Consideration is increased so that the Per Share
Consideration after such increase is not less than the Per Share Consideration
that would have been in effect if the condition set forth in clause (2) above
did not exist. If Bankshares makes this election, within such five-day period,
it shall give prompt written notice to Southern Financial of such election and
the revised Exchange Ratio and/or Cash Consideration, whereupon no termination
shall have occurred pursuant to this Section 9.1(h) and this Agreement shall
remain in effect in accordance with its terms (except as the Exchange Ratio
and/or Cash Consideration shall have been so modified), and any references in
this Agreement to "Exchange Ratio" and "Cash Consideration" shall thereafter be
deemed to refer to the Exchange Ratio and Cash Consideration after giving effect
to any adjustment made pursuant to this Section 9.1(h). For purposes of this
Section 9.1(h) and the following Section 9.1(i), the following terms shall have
the meanings indicated:
"Average Closing Price" means the average of the last reported sale prices
per share of Bankshares Common Stock as reported on the Nasdaq (as reported in
The Wall Street Journal or, if not reported therein, in another mutually agreed
upon authoritative source) for the 20 consecutive trading days ending on the
Determination Date.
"Determination Date" shall mean the date on which the last approval,
consent or waiver of any Governmental Entity required to permit consummation of
the transactions contemplated by this Agreement is received, without regard to
any requisite waiting period in respect thereof.
"Index Price" on a given date means the closing value of the Nasdaq Bank
Index.
"Per Share Consideration" shall mean the sum of (A) the Exchange Ratio
multiplied by the Average Closing Price and (B) the Cash Consideration.
"Starting Price" shall mean last reported sale prices per share of
Bankshares Common Stock as reported on the Nasdaq (as reported in The Wall
Street Journal or, if not reported therein, in another mutually agreed upon
authoritative source) on the Starting Date.
"Starting Date" shall mean the second full trading day after the
announcement by press release of the Merger.
If Bankshares declares or effects a stock dividend, reclassification,
recapitalization, split-up, combination, exchange of shares or similar
transaction between the Starting Date and the Determination Date, the prices for
the common stock of Bankshares shall be appropriately adjusted for the purposes
of applying this Section 9.1(h) and the following Section 9.1(i).
(i) This Agreement may be terminated any time prior to Closing by the
Board of Directors of Southern Financial at any time during the three-day period
following the Determination Date, if:
(1) the Average Closing Price shall be less than the product
of 0.70 and the Starting Price; and
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(2) (a) the number obtained by dividing the Average Closing
Price by the Starting Price shall be less than (b) the number obtained
by dividing the Index Price on the Determination Date by the Index
Price on the Starting Date and subtracting 0.30 from such quotient.
Section 9.2. Effect of Termination. In the event of termination of this
Agreement by either Bankshares or Southern Financial as provided in Section 9.1
or the abandonment of the Merger without breach by any party hereto, this
Agreement (other than Section 7.2) shall become void and have no effect, without
any liability on the part of any party or its directors, officers or
shareholders. Nothing contained in this Section 9.2 shall relieve any party
hereto of any liability for a breach of this Agreement.
Section 9.3. Termination Fee. To compensate Bankshares for entering into
this Agreement, taking actions to consummate the transactions contemplated
hereunder and incurring the costs and expenses related thereto and other losses
and expenses, including foregoing the pursuit of other opportunities by
Bankshares, Southern Financial and Bankshares agree as follows:
(a) Provided that Bankshares shall not be in material breach of any
covenant or obligation under this Agreement (which breach has not been cured
promptly following receipt of written notice thereof by Southern Financial
specifying in reasonable detail the basis of such alleged breach), Southern
Financial shall pay to Bankshares the sum of $10,000,000 (the "Termination Fee")
if this Agreement is terminated (i) by Southern Financial under the provisions
of Section 9.1(f), (ii) by either Bankshares or Southern Financial under the
provisions of Section 9.1(d), if at the time of any failure by the shareholders
of Southern Financial to approve and adopt this Agreement and the Merger there
shall exist an Acquisition Proposal with respect to Southern Financial and,
within twelve months of the termination of this Agreement, Southern Financial
enters into a definitive agreement with any third party with respect to any
Acquisition Proposal or (iii) by Bankshares under the provisions of Section
9.1(g).
(b) Any payment required by paragraph (a) of this Section 9.3 shall
become payable within two (2) business days after receipt by the non-terminating
party of written notice of termination of this Agreement.
(c) For purposes of this Agreement, "Acquisition Proposal" means a
written offer or proposal which contains a fixed price per share or a
mathematically ascertainable formula for calculating a price per share for the
Southern Financial Common Stock regarding any of the following (other than the
transactions contemplated by this Agreement) involving Southern Financial or any
Subsidiary: (i) any merger, reorganization, consolidation, share exchange,
recapitalization, business combination, liquidation, dissolution or other
similar transaction involving any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of, all or substantially all of the assets or
equity securities or deposits of, Southern Financial or any Subsidiary, in a
single transaction or series of related transactions which could reasonably be
expected to impede, interfere with, prevent or materially delay the completion
of the Merger; (ii) any tender offer or exchange offer for 50% or more of the
outstanding shares of capital stock of Southern Financial or the filing of a
registration statement under the Securities Act in connection
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therewith; or (iii) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
(d) For purposes of this Agreement, "Superior Proposal" means a bona
fide Acquisition Proposal made by a third person that the Board of Directors of
Southern Financial determines in its good faith judgment to be more favorable to
Southern Financial's shareholders than the Merger (taking into account, in good
faith, the written opinion, with only customary qualifications, of Southern
Financial's independent financial advisor that the value of the consideration to
Southern Financial's shareholders provided for in such proposal exceeds the
value of the consideration to Southern Financial's shareholders provided for in
the Merger) and for which financing, to the extent required, is then committed
or which, in the good faith judgment of the Board of Directors of Southern
Financial (taking into account, in good faith, the written advice of Southern
Financial's independent financial advisor), is reasonably capable of being
obtained by such third person.
X. CONDITIONS TO OBLIGATIONS OF BANKSHARES
The obligation of Bankshares under this Agreement to consummate the Merger
is subject to the satisfaction, at or prior to the Closing Date of the following
conditions, which may be waived by Bankshares in its sole discretion:
Section 10.1. Compliance with Representations and Warranties. The
representations and warranties made by Southern Financial in this Agreement must
have been true in all material respects when made and shall be true in all
material respects as of the Closing Date with the same force and effect as if
such representations and warranties were made at and as of the Closing Date,
except to the extent such representations and warranties are by their express
provisions made as of a specified date, and Bankshares shall have been furnished
with a certificate, executed by an appropriate representative of Southern
Financial and dated as of the Closing Date, to the foregoing effect.
Section 10.2. Performance of Obligations. Southern Financial shall have
performed or complied in all material respects with all covenants and
obligations required by this Agreement to be performed and complied with prior
to or at the Closing. Bankshares shall have received a certificate signed by the
by an appropriate representative of Southern Financial to that effect.
Section 10.3. The Essex Merger. The Essex Merger shall have been
consummated or the Essex Merger Agreement shall have been terminated in
accordance with its terms and, if the Essex Merger Agreement shall have been
terminated, no action or proceeding shall have been instituted against Southern
Financial by any person or entity to obtain damages or other relief in
connection with the termination of the Essex Merger Agreement that, if decided
adversely to Bankshares, would have, or which may reasonably be foreseen to
have, a Material Adverse Effect on Bankshares.
XI. CONDITIONS TO OBLIGATIONS OF SOUTHERN FINANCIAL
The obligation of Southern Financial under this Agreement to consummate the
Merger is subject to the satisfaction, at or prior to the Closing Date, of the
following conditions, which may be waived by Southern Financial in its sole
discretion:
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Section 11.1. Compliance with Representations and Warranties. The
representations and warranties made by Bankshares in this Agreement must have
been true in all materials respects when made and shall be true in all material
respects as of the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date, except
to the extent such representations and warranties are by their express
provisions made as of a specified date, and Southern Financial shall be
furnished with a certificate, executed by an appropriate representative of
Bankshares and dated as of the Closing Date, to the foregoing effect.
Section 11.2. Performance of Obligations. Bankshares shall have performed
or complied in all material respects with all covenants and obligations required
by this Agreement to be performed and complied with prior to or at the Closing.
Southern Financial shall have received a certificate signed by the by an
appropriate representative of Bankshares to that effect.
XII. CONDITIONS TO RESPECTIVE OBLIGATIONS OF BANKSHARES
AND SOUTHERN FINANCIAL
The respective obligations of Bankshares and Southern Financial under this
Agreement are subject to the satisfaction of the following conditions which may
be waived by Bankshares and Southern Financial, respectively, in their sole
discretion:
Section 12.1. Government Approvals. Bankshares shall have received the
approval, or waiver of approval, of the transactions contemplated by this
Agreement from all necessary governmental agencies and authorities, including
the Federal Reserve Board and any other regulatory agency whose approval must be
received in order to consummate the Merger, which approvals shall not impose any
restrictions on the operations of Bankshares or the Continuing Corporation which
are unacceptable to Bankshares, and such approvals and the transactions
contemplated hereby shall not have been contested by any federal or state
governmental authority or any third party (except shareholders asserting
dissenters' rights) by formal proceeding. It is understood that, if any such
contest is brought by formal proceeding, Bankshares or Southern Financial may,
but shall not be obligated to, answer and defend such contest or otherwise
pursue the Merger over such objection.
Section 12.2. Shareholder Approval. The shareholders of Southern Financial
and Bankshares shall have approved this Agreement by the requisite vote.
Section 12.3. Tax Opinion. Southern Financial and Bankshares shall have
received an opinion of counsel to Bankshares to the effect that on the basis of
certain facts, representations and opinions set forth in such opinion that the
Merger will qualify as a reorganization under Section 368(a) of the Internal
Revenue Code. In rendering such opinion, such counsel may require and rely upon
and may incorporate by reference representations and covenants, including those
contained in certificates of officers and/or directors of Southern Financial,
Bankshares and others.
Section 12.4. Registration of Bankshares Common Stock. The Registration
Statement covering the shares of Bankshares Common Stock to be issued in the
Merger shall have become effective under the Securities Act and no stop orders
suspending such effectiveness shall be in
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effect, and no action, suit, proceeding or investigation by the SEC to suspend
the effectiveness of the Registration Statement shall have been initiated or
continuing, or have been threatened and be unresolved, and all necessary
approvals under state's securities laws relating to the issuance or trading of
the Bankshares Common Stock to be issued in the Merger shall have been received.
Section 12.5. Listing of Bankshares Common Stock. The shares of Bankshares
Common Stock to be delivered to the shareholders of Southern Financial pursuant
to this Agreement shall have been authorized for listing on Nasdaq.
XIII. MISCELLANEOUS
Section 13.1. Definitions. Except as otherwise provided herein, the
capitalized terms set forth below shall have the following meanings:
(a) "Affiliate" means any natural person, corporation, general
partnership, limited partnership proprietorship, other business organization,
trust, union, association or governmental authority that directly, or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with the person specified.
(b) "Material Adverse Effect" with respect to any party means any
effect that is material and adverse to (i) the financial position, business or
results of operations or financial performance of such party and its
subsidiaries, taken as a whole, or (ii) the ability of such party to perform its
obligations under this Agreement or to consummate the Merger and the other
transactions contemplated by this Agreement; provided, however, that Material
Adverse Effect shall not be deemed to include the impact of (i) changes in
banking and similar laws of general applicability or interpretations thereof by
governmental authorities, (ii) changes in GAAP or regulatory accounting
requirements applicable to savings associations or banks generally, (iii)
changes in general economic conditions affecting savings associations and banks
generally, (iv) any modifications or changes to valuation policies and practices
in connection with the transactions contemplated hereby or restructuring charges
taken in connection with the transactions contemplated hereby, in each case in
accordance with GAAP, (v) reasonable expenses incurred in connection with the
transactions contemplated hereby and (vi) the effects of any action or omission
taken pursuant to this Agreement or with the prior consent of Bankshares.
Section 13.2. Non-Survival of Representations and Warranties. The
representations, warranties, covenants and agreements of Bankshares and Southern
Financial contained in this Agreement shall terminate at the Closing, other than
covenants that by their terms are to be performed after the Effective Time
(including, without limitation, Sections 6.8, 6.9, 6.11, 7.2 and 7.4 hereof),
which shall survive the Closing. Notwithstanding anything in the foregoing to
the contrary, no representations, warranties, agreements and covenants contained
in this Agreement shall be deemed to be terminated or extinguished so as to
deprive a party hereto or any of its affiliates of any defense at law or in
equity which otherwise would be available against the claims of any person, firm
or entity, including without limitation any shareholder or former shareholder.
Section 13.3. Amendments. This Agreement may be amended only by a writing
signed by Bankshares and Southern Financial at any time prior to the Effective
Time with respect to any
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of the terms contained herein; provided, however, that the Merger Consideration
to be received by the shareholders of Southern Financial pursuant to this
Agreement shall not be decreased subsequent to the approval of the transactions
contemplated by the Agreement without the further approval by such shareholders.
Section 13.4. Expenses. Whether or not the transactions provided for herein
are consummated, each party to this Agreement will pay its respective expenses
incurred in connection with the preparation and performance of its obligations
under this Agreement. Similarly, each party agrees to indemnify the other
parties against any cost, expense or liability (including reasonable attorneys'
fees) in respect of any claim made by any party for a broker's or finder's fee
in connection with this transaction other than one based on communications
between the party and the claimant seeking indemnification.
Section 13.5. Notices. Except as explicitly provided herein, any notice
given hereunder shall be in writing and shall be delivered in person or mailed
by first class mail, postage prepaid or sent by facsimile, courier or personal
delivery to the parties at the following addresses unless by such notice a
different address shall have been designated:
If to Bankshares:
Provident Bankshares Corporation
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Fax No. (000) 000-0000
Attention: Xx. Xxxx X. Xxxxxx
With a copy to:
Xxxxxxx Xxxxxx & Xxxxxxxx LLP
0000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Fax No. (000) 000-0000
Attention: Xx. Xxxx X. Xxxxxxx
If to Southern Financial:
Southern Financial Bancorp, Inc.
00 Xxxx Xxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Fax No. (000) 000-0000
Attention: Xx. Xxxxxxx X. Xxxxxxx
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With a copy to:
Xxxxxxxxx & Xxxxxxxxx, L.L.P.
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Fax No. (000) 000-0000
Attention: Xx. Xxxxxxx X. Xxxxxx XX
All notices sent by mail as provided above shall be deemed delivered three (3)
days after deposit in the mail. All notices sent by courier as provided above
shall be deemed delivered one day after being sent and all notices sent by
facsimile shall be deemed delivered upon confirmation of receipt. All other
notices shall be deemed delivered when actually received. Any party to this
Agreement may change its address for the giving of notice specified above by
giving notice as herein provided. Notices permitted to be sent via e-mail shall
be deemed delivered only if sent to such persons at such e-mail addresses as may
be set forth in writing.
Section 13.6. Controlling Law. All questions concerning the validity,
operation and interpretation of this Agreement and the performance of the
obligations imposed upon the parties hereunder shall be governed by the laws of
the State of Maryland and, to the extent applicable, by the laws of the United
States of America.
Section 13.7. Headings. The headings and titles to the sections of this
Agreement are inserted for convenience only and shall not be deemed a part
hereof or affect the construction or interpretation of any provision hereof.
Section 13.8. Modifications or Waiver. No termination, cancellation,
modification, amendment, deletion, addition or other change in this Agreement,
or any provision hereof, or waiver of any right or remedy herein provided, shall
be effective for any purpose unless specifically set forth in a writing signed
by the party or parties to be bound thereby. The waiver of any right or remedy
in respect to any occurrence or event on one occasion shall not be deemed a
waiver of such right or remedy in respect to such occurrence or event on any
other occasion.
Section 13.9. Severability. Any provision hereof prohibited by or unlawful
or unenforceable under any applicable law or any jurisdiction shall as to such
jurisdiction be ineffective, without affecting any other provision of this
Agreement, or shall be deemed to be severed or modified to conform with such
law, and the remaining provisions of this Agreement shall remain in force,
provided that the purpose of the Agreement can be effected. To the fullest
extent, however, that the provisions of such applicable law may be waived, they
are hereby waived, to the end that this Agreement be deemed to be a valid and
binding agreement enforceable in accordance with its terms.
Section 13.10. Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assigned by any party without the prior written
consent of the other parties.
Section 13.11. Consolidation of Agreements. All understandings and
agreements heretofore made between the parties hereto are merged in this
Agreement which (together with
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any agreements executed by the parties hereto contemporaneously with or
subsequent to the execution of this Agreement) shall be the sole expression of
the agreement of the parties respecting the Merger. Except for the Indemnified
Parties' right to enforce Bankshares' obligation under Section 6.9, which are
expressly intended to be for the irrevocable benefit of, and shall be
enforceable by, each Indemnified Party and his or her heirs and representatives,
nothing in this Agreement, expressed or implied, is intended to confer upon any
person, other than the parties hereto or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
Section 13.12. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
be deemed to constitute one and the same instrument.
Section 13.13. Binding on Successors. Except as otherwise provided herein,
this Agreement shall be binding upon, and shall inure to the benefit of, the
parties and their respective heirs, executors, trustees, administrators,
guardians, successors and assigns.
Section 13.14. Gender. Any pronoun used herein shall refer to any gender,
either masculine, feminine or neuter, as the context requires.
Section 13.15. Disclosures. Any disclosure made in any document delivered
pursuant to this Agreement or referred to or described in writing in any section
of this Agreement or any schedule attached hereto shall be deemed to be
disclosure for purposes of any section herein or schedule hereto.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
PROVIDENT BANKSHARES CORPORATION
By: /s/ Xxxx X. Xxxxxx
--------------------------------
ATTEST:
By: /s/ Xxxxxx X. Xxxxx
----------------------
SOUTHERN FINANCIAL BANCORP, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
--------------------------------
ATTEST:
By: /s/ Xxxxxxx X. Xxxxxx
----------------------
[Signature Page to Agreement and Plan of Reorganization]
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EXHIBIT A
____________, 2003
Provident Bankshares Corporation
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Board of Directors
To the Board of Directors:
The undersigned is a director of Southern Financial Bancorp, Inc.
("Southern Financial") and the beneficial holder of shares of common stock of
Southern Financial (the "Southern Financial Common Stock").
Provident Bankshares Corporation ("Provident") and Southern Financial
are considering the execution of an Agreement and Plan of Reorganization (the
"Agreement") contemplating the acquisition of Southern Financial through the
merger of Southern Financial with and into Provident (the "Merger"). The
execution of the Agreement by Provident is subject to the execution and delivery
of this letter agreement.
In consideration of the substantial expenses that Provident will incur
in connection with the transactions contemplated by the Agreement and to induce
Provident to execute the Agreement and to proceed to incur such expenses, the
undersigned agrees and undertakes, in his capacity as a shareholder of Southern
Financial, and not in his capacity as a director or officer of Southern
Financial, as follows:
1. While this letter agreement is in effect the undersigned shall not,
directly or indirectly, (a) sell or otherwise dispose of or encumber prior to
the record date of Southern Financial's shareholder meeting any or all of his
shares of Southern Financial Common Stock, except (i) transfers by will or by
operation of law, in which case this Agreement shall bind the transferee, (ii)
transfers in connection with estate and tax planning purposes, including
transfers to relatives, trusts and charitable organizations, subject to the
transferee agreeing in writing to be bound by the terms of this Agreement, or
(iii) transfers of shares acquired upon the exercise of stock options after the
date of this Agreement or in connection with the vesting of restricted stock, or
(b) deposit any shares of Southern Financial Common Stock into a voting trust or
enter into a voting agreement or arrangement with respect to any shares of
Southern Financial Common Stock or grant any proxy with respect thereto, other
than to other members of the Board of Directors of Southern Financial for the
purpose of voting to approve the Agreement and the Merger and matters related
thereto.
2. While this letter agreement is in effect the undersigned shall vote
or cause to be voted all of the shares of Southern Financial Common Stock that
the undersigned shall be entitled to so vote, whether such shares are
beneficially owned by the undersigned on the date of this letter agreement or
are subsequently acquired: (a) for the approval of the Agreement and the
Merger at Southern Financial's shareholder meeting; and (b) against (i) any
extraordinary corporate transaction (other than the Merger and the proposed
merger with Essex Bancorp, Inc.), such as a merger, consolidation, business
combination, reorganization, recapitalization or liquidation involving Southern
Financial or any of its subsidiaries; or (ii) the sale or transfer of a material
amount of the assets of Southern Financial or any of its subsidiaries.
3. The undersigned acknowledges and agrees that any remedy at law for
breach of the foregoing provisions shall be inadequate and that, in addition to
any other relief which may be available, Provident shall be entitled to
temporary and permanent injunctive relief without having to prove actual
damages.
4. The foregoing restrictions shall not apply to shares with respect to
which the undersigned may have voting power as a fiduciary for others. In
addition, this letter agreement shall only apply to actions taken by the
undersigned in his capacity as a shareholder of Southern Financial and, if
applicable, shall not in any way limit or affect actions the undersigned may
take in his capacity as a director or officer of Southern Financial.
5. This letter agreement shall automatically terminate upon the earlier
of (i) the favorable vote of Southern Financial's stockholders with respect to
the approval of the Agreement and the Merger, (ii) the termination of the
Agreement in accordance with its terms or (iii) the Effective Time (as that term
is defined in the Agreement) of the Merger.
6. As of the date hereof, the undersigned has voting power with respect
to _______ shares of Southern Financial Common Stock.
IN WITNESS WHEREOF, the undersigned has executed this agreement as of
the date first above written.
Very truly yours,
-----------------------------
-----------------------------
Print Name
Accepted and agreed to as of the date first above written:
Provident Bankshares Corporation
-----------------------------
Name:
Title:
EXHIBIT B
_______________, 2003
Provident Bankshares Corporation
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx
Attn: Board of Directors
To the Board of Directors:
I have been advised that I may be deemed to be, but do not admit that I
am, an "affiliate" of Southern Financial Bancorp, Inc., a Virginia corporation
("Southern Financial"), as that term is defined in Rule 144 and used in Rule 145
promulgated by the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"). I understand that
pursuant to the terms of the Agreement and Plan of Reorganization, dated as of
November ___, 2003 (the "Merger Agreement"), by and between Southern Financial
and Provident Bankshares Corporation, a Maryland corporation ("Provident"),
Southern Financial plans to merge with and into Provident (the "Merger").
I further understand that as a result of the Merger, I will receive
shares of common stock, par value $1.00 per share, of Provident ("Provident
Common Stock") in exchange for shares of common stock, par value $0.01 per
share, of Southern Financial ("Southern Financial Common Stock").
I have carefully read this letter and reviewed the Merger Agreement and
discussed their requirements and other applicable limitations upon my ability to
sell, transfer, or otherwise dispose of Provident Common Stock, to the extent I
felt necessary, with my counsel or counsel for Southern Financial.
I represent, warrant and covenant with and to Provident that with
regard to any shares of Provident Common Stock that I receive as a result of the
Merger:
1. I shall not make any sale, transfer, or other disposition of such
shares of Provident Common Stock unless (i) such sale, transfer or other
disposition has been registered under the Securities Act, (ii) such sale,
transfer or other disposition is made in conformity with the provisions of Rule
145 under the Securities Act (as such rule may be amended from time to time), or
(iii) in the opinion of counsel in form and substance reasonably satisfactory to
Provident, or under a "no-action" letter obtained by me from the staff of the
SEC, such sale, transfer or other disposition will not violate the registration
requirements of, or is otherwise exempt from registration under, the Securities
Act.
2. I understand that Provident is under no obligation to register the
sale, transfer or other disposition of shares of Provident Common Stock by me or
on my behalf under the Securities Act or to take any other action necessary to
make compliance with an exemption from such registration available.
3. I understand that stop transfer instructions will be given to
Provident's transfer agent with respect to shares of Provident Common Stock
issued to me as a result of the Merger and that there will be placed on the
certificates for such shares, or any substitutions therefor, a legend stating in
substance:
"The shares represented by this certificate were issued as a result of
the merger of Southern Financial Bancorp, Inc. with and into Provident
Bankshares Corporation on ______________, 2004, in a transaction to
which Rule 145 promulgated under the Securities Act of 1933 applies.
The shares represented by this certificate may be transferred only in
accordance with the terms of a letter agreement between the registered
holder hereof and Provident Bankshares Corporation, a copy of which
agreement is on file at the principal offices of Provident Bankshares
Corporation."
4. I understand that, unless transfer by me of the Provident Common
Stock issued to me as a result of the Merger has been registered under the
Securities Act or such transfer is made in conformity with the provisions of
Rule 145(d) under the Securities Act, Provident reserves the right, in its sole
discretion, to place the following legend on the certificates issued to my
transferee:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and were acquired from [SHAREHOLDER]
who, in turn, received such shares as a result of the merger of
Southern Financial Bancorp, Inc. with and into Provident Bankshares
Corporation on ______________, 2004, in a transaction to which Rule 145
under the Securities Act of 1933 applies. The shares have been acquired
by the holder not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933
and may not be offered, sold, pledged or otherwise transferred except
in accordance with an exemption from the registration requirements of
the Securities Act of 1933."
It is understood and agreed that the legends set forth in paragraphs
(3) and (4) above shall be removed by delivery of substitute certificates
without such legends if I shall have delivered to Provident (i) a copy of a "no
action" letter from the staff of the SEC, or an opinion of counsel in form and
substance reasonably satisfactory to Provident, to the effect that such legend
is not required for purposes of the Act, or (ii) evidence or representations
satisfactory to Provident that Provident Common Stock represented by such
certificates is being or has been sold in conformity with the provisions of Rule
145(d).
I further understand and agree that the provisions of Rule 145 shall
apply to all shares of Provident Common Stock that my spouse, any relative of
mine, or any relative of my spouse, any one of whom has the same home as me,
receives as a result of the Merger and I further represent, warrant and covenant
with and to Provident that I will have, and will cause each of such persons to
have, all shares of Southern Financial Common Stock owned (other than shares
held through tax-qualified retirement or benefit plans) by me or such persons
registered in my name or the name of such persons, as applicable, prior to the
effective date of the Merger and not in the name of any bank, broker or dealer,
nominee or clearing house.
Very truly yours,
By: ________________________________
Name:
Accepted this ____ day of _____________ 2003.
Provident Bankshares Corporation
By: ______________________________________
Name:
Title:
