EXHIBIT 2.7
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
STERLING BANCSHARES, INC.,
STERLING BANCORPORATION, INC.
AND
COMMUNITY BANCSHARES, INC.
DATED AS OF OCTOBER 1, 2001
TABLE OF CONTENTS
ARTICLE I CERTAIN DEFINITIONS.......................................................................... 2
Section 1.01 Certain Definitions................................................................... 2
ARTICLE II THE MERGER AND RELATED TRANSACTIONS......................................................... 8
Section 2.01 Merger................................................................................ 8
Section 2.02 Time and Place of Closing............................................................. 8
Section 2.03 Effective Time........................................................................ 8
Section 2.04 Reservation of Right to Revise Transaction; Further Actions........................... 8
Section 2.05 Tax-Free Reorganization............................................................... 9
ARTICLE III MERGER CONSIDERATION; EXCHANGE PROCEDURES.................................................. 9
Section 3.01 Merger Consideration.................................................................. 9
Section 3.02 Determination and Adjustment of Acquisition Amount and Exchange Ratio................. 10
Section 3.03 Company Stock Options................................................................. 12
ARTICLE IV EXCHANGE OF SHARES.......................................................................... 12
Section 4.01 Exchange Agent........................................................................ 12
Section 4.02 Exchange Procedures................................................................... 12
Section 4.03 Voting and Dividends.................................................................. 13
Section 4.04 No Further Ownership Rights in Company Common Stock................................... 14
Section 4.05 No Fractional Shares.................................................................. 14
Section 4.06 Termination of Exchange Fund.......................................................... 14
Section 4.07 Escheat of Exchange Fund.............................................................. 14
Section 4.08 Lost Certificates..................................................................... 15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................ 15
Section 5.01 Organization, Standing and Authority.................................................. 15
Section 5.02 Company Common Stock.................................................................. 15
Section 5.03 Subsidiaries.......................................................................... 16
Section 5.04 Authorization of Merger and Related Transactions...................................... 17
Section 5.05 Financial Statements and Regulatory Reports........................................... 18
Section 5.06 Absence of Undisclosed Liabilities.................................................... 19
Section 5.07 Tax Matters........................................................................... 19
Section 5.08 Allowance for Credit Losses........................................................... 20
Section 5.09 Other Regulatory Matters.............................................................. 20
Section 5.10 Properties............................................................................ 21
Section 5.11 Compliance with Laws.................................................................. 21
Section 5.12 Employee Benefit Plans................................................................ 22
Section 5.13 Commitments and Contracts............................................................. 23
Section 5.14 Material Contract Defaults............................................................ 24
Section 5.15 Legal Proceedings..................................................................... 25
Section 5.16 Absence of Certain Changes or Events.................................................. 25
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Section 5.17 Reports............................................................................... 26
Section 5.18 Insurance............................................................................. 26
Section 5.19 Labor................................................................................. 27
Section 5.20 Material Interests of Certain Persons................................................. 27
Section 5.21 Registration Obligations.............................................................. 27
Section 5.22 Brokers and Finders and Executive Bonus............................................... 27
Section 5.23 State Takeover Laws................................................................... 27
Section 5.24 Environmental Matters................................................................. 27
Section 5.25 Loans................................................................................. 29
Section 5.26 Fiduciary Responsibilities............................................................ 29
Section 5.27 Patents, Trademarks and Copyrights.................................................... 29
Section 5.28 Company Action........................................................................ 29
Section 5.29 Dissenting Shareholders............................................................... 29
Section 5.30 Company Indebtedness.................................................................. 30
Section 5.31 Statements True and Correct........................................................... 30
Section 5.32 Representations Not Misleading........................................................ 30
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF STERLING.................................................. 30
Section 6.01 Organization, Standing and Authority.................................................. 31
Section 6.02 Sterling Capital Stock................................................................ 31
Section 6.03 Authorization of Merger and Related Transactions...................................... 31
Section 6.04 Financial Statements.................................................................. 32
Section 6.05 Sterling SEC Reports.................................................................. 32
Section 6.06 Regulatory Matters.................................................................... 33
Section 6.07 Legal Proceedings..................................................................... 33
Section 6.08 Compliance with Laws.................................................................. 33
Section 6.09 Sterling Employee Benefit Plans....................................................... 33
Section 6.10 Representations Not Misleading........................................................ 34
Section 6.11 Brokers and Finders................................................................... 34
Section 6.12 Merger Consideration.................................................................. 34
ARTICLE VII CONDUCT OF THE COMPANY'S BUSINESS.......................................................... 34
Section 7.01 Conduct of Business Prior to the Effective Time....................................... 34
Section 7.02 Forbearances.......................................................................... 35
ARTICLE VIII ADDITIONAL AGREEMENTS..................................................................... 38
Section 8.01 Access and Information................................................................ 38
Section 8.02 Registration Statement and Proxy Statement............................................ 39
Section 8.03 Company Shareholder's Meeting......................................................... 40
Section 8.04 Filing of Regulatory Approvals........................................................ 40
Section 8.05 Press Releases........................................................................ 41
Section 8.06 Company Options....................................................................... 41
Section 8.07 Miscellaneous Agreements and Consents................................................. 41
Section 8.08 Affiliates Letters.................................................................... 42
Section 8.09 Indemnification....................................................................... 42
Section 8.10 Certain Change of Control Matters..................................................... 43
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Section 8.11 Employee Benefits..................................................................... 43
Section 8.12 Certain Actions....................................................................... 44
Section 8.13 No Solicitation....................................................................... 44
Section 8.14 Termination Fee....................................................................... 45
Section 8.15 Accruals.............................................................................. 46
Section 8.16 Certain Agreements.................................................................... 46
Section 8.17 Release Agreements.................................................................... 47
Section 8.18 Nasdaq Listing........................................................................ 47
Section 8.19 Post-Closing Actions.................................................................. 47
Section 8.20 Banker's and Finder's Fees and Executive Bonus........................................ 47
Section 8.21 Notification; Updated Disclosure Schedules............................................ 47
Section 8.22 Closing Date.......................................................................... 47
ARTICLE IX CONDITIONS TO MERGER........................................................................ 47
Section 9.01 Conditions to Each Party's Obligation to Effect the Merger............................ 47
Section 9.02 Conditions to Obligations of the Company to Effect the Merger......................... 48
Section 9.03 Conditions to Obligations of Sterling and Bancorporation to Effect the Merger......... 49
ARTICLE X TERMINATION.................................................................................. 51
Section 10.01 Termination........................................................................... 51
Section 10.02 Effect of Termination................................................................. 52
Section 10.03 Non-Survival of Representations, Warranties and Covenants............................. 53
ARTICLE XI GENERAL PROVISIONS.......................................................................... 53
Section 11.01 Expenses.............................................................................. 53
Section 11.02 Entire Agreement; Parties in Interest................................................. 53
Section 11.03 Amendments............................................................................ 53
Section 11.04 Waivers............................................................................... 53
Section 11.05 No Assignment......................................................................... 54
Section 11.06 Notices............................................................................... 54
Section 11.07 Specific Performance.................................................................. 54
Section 11.08 Governing Law......................................................................... 55
Section 11.09 Counterparts.......................................................................... 55
Section 11.10 Captions.............................................................................. 55
Section 11.11 Severability.......................................................................... 55
Attachments:
Annex A. Agreement and Irrevocable Proxy.
Annex B. Form of Noncompete Agreement.
Annex C. Form of Affiliate Letter.
Annex D. Form of Release Agreement.
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of October 1,
2001, is by and among STERLING BANCSHARES, INC. ("Sterling"), a Texas
corporation and a registered bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), STERLING BANCORPORATION, INC., a Delaware
corporation and a wholly owned subsidiary of Sterling ("Bancorporation"), and
COMMUNITY BANCSHARES, INC., a Texas corporation and a registered bank holding
company under the BHCA (the "Company"). Capitalized terms not otherwise defined
herein shall have the meanings set forth in Article I.
W I T N E S S E T H:
WHEREAS, pursuant to the terms and subject to the conditions of this
Agreement, Sterling will acquire the Company through the merger of the Company
with and into Bancorporation, or by such other means as provided for herein (the
"Merger"); and
WHEREAS, pursuant to the Merger, and upon the terms and subject to the
conditions of this Agreement, each issued and outstanding share of Company
Common Stock (other than the Dissenting Shares) will be converted into the right
to receive cash and/or shares of Sterling Common Stock; and
WHEREAS, (i) the respective Boards of Directors of Sterling, Bancorporation
and the Company have each determined that this Agreement, the Merger and the
transactions contemplated hereby are in the best interests of their respective
companies and shareholders and have approved this Agreement, the Merger and the
other transactions contemplated hereby, (ii) the Board of Directors of the
Company has unanimously (a) determined, based upon such factors as it considers
material and the opinion of Xxxx Xxxxxxxxxx & Co. Investment Banking, its
financial advisor, that the consideration to be paid for the outstanding shares
of Company Common Stock is fair to the shareholders of the Company and (b)
resolved to recommend to the shareholders of the Company that they vote in favor
of adoption of this Agreement, and (iii) Sterling, as the parent of
Bancorporation, has approved and adopted this Agreement, the Merger and the
transactions contemplated hereby; and
WHEREAS, to induce Sterling to enter into this Agreement (i) the Company
Specified Shareholders have agreed, concurrently with the execution of this
Agreement, to execute and deliver to Sterling an Agreement and Irrevocable Proxy
in the form set forth as Annex A to this Agreement, and (ii) the Key Company
Officials have agreed, concurrently with the execution of this Agreement, to
execute and deliver their respective Noncompete Agreements to Sterling;
WHEREAS, after the Merger, Sterling intends to effect the merger (the "Bank
Merger") of Community Bank, a wholly owned subsidiary of Community Bancshares of
Delaware, Inc., a Delaware corporation (the "Delaware Company") and an indirect
wholly owned subsidiary of the Company (the "Bank"), with and into Sterling
Bank, a wholly owned subsidiary of Bancorporation and an indirect wholly owned
subsidiary of Sterling ("Sterling Bank"), with Sterling Bank as the surviving
bank;
WHEREAS, for federal income tax purposes, the Merger is intended to qualify
as a tax-free reorganization, pursuant to Section 368 of the Code; and
WHEREAS, Sterling and the Company desire to provide for certain
undertakings, conditions, representations, warranties and covenants in
connection with the Merger and the related transactions contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein, the
benefits to be derived by each party hereunder and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Certain Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Acquisition Proposal" shall have the meaning set forth in Section 8.13.
"Acquisition Transaction" shall have the meaning set forth in Section 8.13.
"Adjusted Exchange Ratio" shall have the meaning set forth in Section 3.02.
"Affiliate" shall mean, with respect to any Person, any Person that,
directly or indirectly, controls or is controlled by or is under common control
with such Person.
"Affiliate Letter" shall have the meaning set forth in Section 8.08.
"Agreement" shall have the meaning set forth in the introduction hereto.
"Approvals" shall mean any and all filings, permits, consents,
authorizations and approvals of any governmental or regulatory authority or of
any other third person necessary to give effect to the arrangement contemplated
by this Agreement or necessary to consummate the Merger.
"Authorizations" shall have the meaning set forth in Section 5.01.
"BHCA" shall have the meaning set forth in the introduction to this
Agreement.
"Bancorporation" shall have the meaning set forth in the introduction to
this Agreement.
"Bank" shall have the meaning set forth in the recitals to this Agreement.
"Bank Merger" shall have the meaning set forth in the recitals to this
Agreement.
"Business Day" shall mean any day that is not a Saturday, Sunday or other
day on which commercial banks in Houston, Texas are authorized or required by
law to remain closed.
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"Certificates" shall have the meaning set forth in Section 4.02.
"Closing" shall have the meaning set forth in Section 2.02.
"Closing Date" shall have the meaning set forth in Section 2.02.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Commissioner" shall mean the Texas Banking Commissioner.
"Company" shall have the meaning set forth in the introductory paragraph to
this Agreement.
"Company Benefit Plans" shall have the meaning set forth in Section 5.12.
"Company Board" shall mean the Board of Directors of the Company.
"Company Common Stock" shall mean the common stock, par value $1.00 per
share, of the Company.
"Company Disclosure Schedule" shall mean that document containing the
written detailed information required to be furnished pursuant to the terms of
this Agreement prepared and delivered by the Company to Sterling prior to the
execution of this Agreement.
"Company ERISA Plan" shall have the meaning set forth in Section 5.12.
"Company Financial Statements" shall have the meaning set forth in Section
5.05.
"Company Indebtedness" shall mean all liabilities, indebtedness or
obligations of the Company, and its Subsidiaries, on a consolidated basis (i)
for borrowed money or loans, (ii) constituting an obligation to pay the deferred
purchase price of property or services, (iii) which (A) under GAAP should be
shown on the Company's balance sheet as a liability, and (B) are payable more
than one year from the date of creation, or (iv) constituting principal under
leases capitalized in accordance with GAAP; provided that the term shall not
include deposits of Community Bank.
"Company Material Adverse Effect" shall have the meaning set forth in
Section 5.01.
"Company Options" shall have the meaning set forth in Section 3.03(a).
"Company Shareholders' Meeting" shall have the meaning set forth in Section
5.31.
"Company Shares Number" shall mean the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time (including all shares
of Company Common Stock issued upon the exercise of any options to purchase
shares of the Company Common Stock) less any Dissenting Shares and any shares of
Company Common Stock cancelled pursuant to Section 3.01(c).
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"Company Specified Shareholders" shall mean Xxxxx X. Xxxx, Xxxxxxx X.
Xxxxxx, Xxxxx X. Xxxxxxx and Xxxx Xxxxxxxxxx.
"Company Stock Plan" shall have the meaning set forth in Section 5.12.
"Condition" shall have the meaning set forth in Section 5.01.
"DGCL" shall mean the Delaware General Corporation Law, as amended.
"Dissenting Share" shall have the meaning set forth in Section 3.01.
"Effective Time" shall have the meaning set forth in Section 2.03.
"Employee" shall mean any current or former employee, officer or director,
independent contractor or retiree of the Company, its Subsidiaries and any
dependent or spouse thereof.
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
Regulatory Authority relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of any substance presently listed,
defined, designated or classified as a Hazardous Substance, or otherwise
regulated, whether by type or by quantity, including any material containing any
such substance as a component.
"ERISA" shall have the meaning set forth in Section 5.12.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall have the meaning set forth in Section 4.01.
"Exchange Fund" shall have the meaning set forth in Section 4.01.
"Executive Bonus" shall mean the bonus payable by the Company to Xxxxxxx X.
Xxxxxx, Xxxx X. Xxxxxxxxxx and Xxxxx X. Xxxxxxx as described in Section 5.22 of
the Company Disclosure Schedule.
"Expenses" shall have the meaning set forth in Section 8.14.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System and any Federal Reserve Bank.
"Final Closing Price" shall mean the closing price per share of the
Sterling Common Stock (rounded to the nearest cent) on the Nasdaq (as reported
in The Wall Street Journal or, if
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not reported thereby, another authoritative source as chosen by Sterling) on the
trading day during which the Effective Time occurs.
"GAAP" shall mean generally accepted accounting principles in the United
States, applied on a consistent basis.
"Hazardous Substances" shall mean those substances included within the
statutory or regulatory definitions, listings or descriptions of "pollutant,"
"hazardous material," "contaminant," "toxic waste," "hazardous substance,"
"hazardous waste," "solid waste," or "regulated substance" pursuant to
applicable Environmental Laws and shall include, without limitation, any
material, waste or substance which is or contains explosives, radioactive
materials, oil or any fraction thereof, asbestos, or formaldehyde.
"Indemnified Party" shall have the meaning set forth in Section 8.09.
"Initial Acquisition Amount" shall have the meaning set forth in Section
3.02(a).
"Initial Closing Price" shall mean the average closing price per share of
the Sterling Common Stock (rounded to the nearest cent) on the NASDAQ (as
reported in The Wall Street Journal or, if not reported thereby, another
authoritative source as chosen by Sterling) for the ten consecutive trading days
in which such shares are quoted on the NASDAQ ending on the trading day
immediately prior to the date of this Agreement.
"Initial Exchange Ratio" shall have the meaning set forth in Section
3.02(a)
"Key Company Officials" shall mean Xxxxxxx X. Xxxxxx, Xxxxx X. Xxxxxxx and
Xxxxxx X. Xxxxxx.
"Law" shall mean any United States (federal, state or local) or foreign
law, statute, ordinance, rule, regulation, order, judgment or decree;
"Liens" shall have the meaning set forth in Section 5.03.
"Maximum Amount" shall have the meaning set forth in Section 8.09.
"Merger" shall have the meaning set forth in the recitals to this
Agreement.
"Merger Consideration" shall have the meaning set forth in Section 3.01(b).
"Minimum Stock Amount" shall have the meaning set forth in Section 3.02(c).
"Nasdaq" shall mean the Nasdaq National Market of the National Association
of Securities Dealers, Inc.
"Noncompete Agreements" shall mean the Noncompete Agreements in the form of
Annex B attached hereto executed by the Key Company Officials.
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"Order" shall mean any decree, judgment, injunction, ruling, writ or other
order (whether temporary, preliminary or permanent).
"Permitted Liens" shall mean (i) Liens for current taxes not yet due and
payable and incurred in the ordinary course of business, (ii) with respect to a
lease, the interest of the lessor thereunder, including any Liens on the
interest of such lessor, and (iii) such imperfections of title, Liens,
restrictions and easements that do not materially impair the use or value of the
properties or assets or otherwise materially impair the current operations
relating to the business of the Company or its Subsidiaries or the Company's
consolidated financial condition or consolidated results of operations.
"Per Share Consideration" shall have the meaning set forth in Section
3.02(a).
"Person" or "person" shall mean any individual, corporation, limited
liability company, association, partnership, group (as defined in Section
13(d)(3) of the Exchange Act), joint venture, trust or unincorporated
organization, or a government or any agency or political subdivision thereof.
"Proxy Statement" shall have the meaning set forth in Section 5.31.
"Registration Statement" shall have the meaning set forth in Section 5.31.
"Regulatory Agreement" shall have the meaning set forth in Section 5.11.
"Regulatory Authorities" shall have the meaning set forth in Section 5.11.
"Regulatory Reporting Document" shall have the meaning set forth in Section
5.05.
"Remedies Exception" shall mean any bankruptcy, reorganization, insolvency,
fraudulent conveyance or transfer, moratorium or similar law affecting
creditors' rights generally and general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity).
"Reports" shall have the meaning set forth in Section 5.17.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Sterling" shall have the meaning set forth in the introduction to this
Agreement.
"Sterling Bank" shall have the meaning set forth in the recitals to this
Agreement.
"Sterling Common Stock" shall mean the common stock, par value $1.00 per
share of Sterling.
"Sterling Financial Statements" shall have the meaning set forth in Section
6.04.
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"Sterling Material Adverse Effect" shall have the meaning set forth Section
6.01.
"Sterling SEC Reports" shall have the meaning set forth in Section 6.05.
"Subsidiary" shall mean, in the case of either Sterling or the Company, any
corporation, association or other entity in which it owns or controls, directly
or indirectly, 25% or more of the outstanding voting securities or 25% or more
of the total equity interest; provided, however, that the term shall not include
any such entity in which such voting securities or equity interest is owned or
controlled in a fiduciary capacity, without sole voting power, or was acquired
in securing or collecting a debt previously contracted in good faith.
"Superior Proposal" shall have the meaning set forth in Section 10.01.
"Surviving Corporation" shall have the meaning set forth in Section 2.01.
"Tax" or "Taxes" shall mean all federal, state, local and foreign taxes,
charges, fees, levies, imposts, duties or other assessments, including, without
limitation, income, gross receipts, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duties, capital
stock, paid up capital, profits, withholding, Social Security, single business
and unemployment, disability, real property, personal property, registration, ad
valorem, value added, alternative or add-on minimum, estimated, or other tax or
governmental fee of any kind whatsoever, imposed or required to be withheld by
the United States or any state, local, foreign government or subdivision or
agency thereof, including, without limitation, any interest, penalties or
additions thereto.
"Taxable Period" shall mean any period prescribed by any governmental
authority, including, but not limited to, the United States or any state, local,
foreign government or subdivision or agency thereof for which a Tax Return is
required to be filed or Tax is required to be paid.
"Tax Return" shall mean any report, return, information return or other
information required to be supplied to a taxing authority in connection with
Taxes, including, without limitation, any return of an affiliated or combined or
unitary group that includes the Company or any of its Subsidiaries.
"TBCA" shall mean the Texas Business Corporation Act, as amended.
"Termination Fee" shall have the meaning set forth in Section 8.14.
"Total Consideration" shall mean the sum of (i) the product of (1) the
Final Closing Price and (2) the number of shares of Sterling Common Stock
actually issued to the holders of Company Common Stock in the Merger, (ii) the
amount of cash actually issued to holders of Company Common Stock in the Merger
pursuant to Section 3.01(b), (iii) the amount of cash actually issued to holders
of Company Common Stock in the Merger in lieu of fractional shares of Sterling
Common Stock, (iv) an amount equal to the number of shares of Dissenting Shares
as to which the holders' demand to exercise dissenter's right shall not have
been withdrawn as of
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the Effective Time multiplied by the sum of (1) the Per Share Cash Consideration
and (2) the product of the Initial Exchange Ratio or Adjusted Exchange Ratio, as
applicable, and the Final Closing Price and (v) the Executive Bonus.
ARTICLE II
THE MERGER AND RELATED TRANSACTIONS
Section 2.01 Merger.
(a) Upon the terms and subject to the conditions set forth in this
Agreement and in accordance with the TBCA, at the Effective Time, the Company
shall be merged with and into Bancorporation. As a result of the Merger, the
separate existence of the Company shall thereupon cease, and Bancorporation
shall continue as the surviving corporation of the Merger (the "Surviving
Corporation") and as a subsidiary of Sterling.
(b) The certificate of incorporation of Bancorporation as in effect
immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation.
(c) The bylaws of Bancorporation as in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation.
(d) The directors of Bancorporation immediately prior to the Effective Time
shall become the directors of the Surviving Corporation and the officers of
Bancorporation immediately prior to the Effective Time shall become the officers
of the Surviving Corporation, in each case until their respective successors are
duly elected and qualified.
(e) The Merger shall have the effects set forth in the DGCL and the TBCA.
Section 2.02 Time and Place of Closing. The closing of the transactions
contemplated hereby (the "Closing") will take place at the offices of Xxxxxxx &
Xxxxx L.L.P. in Houston, Texas on the date (the "Closing Date") that the
Effective Time occurs, or at such other time, and at such place, as may be
agreed to in writing by the parties hereto.
Section 2.03 Effective Time. On the Business Day selected by Sterling
occurring within ten (10) Business Days following the date on which the
expiration of all applicable waiting periods in connection with approvals of
governmental authorities necessary to effectuate the Merger occurs and all
conditions to the consummation of this Agreement are satisfied or waived, unless
an earlier or later date has been agreed by the parties, appropriate articles
and certificates of merger shall be executed and filed in accordance with the
DGCL and the TBCA, and the Merger provided for herein shall become effective
upon such filing or at such time as may be specified in such articles and
certificates of merger. The time of such filing or such later effective time is
herein called the "Effective Time."
Section 2.04 Reservation of Right to Revise Transaction; Further Actions.
(a) Notwithstanding anything to the contrary provided elsewhere in this
Agreement, if Sterling notifies the Company in writing prior to the Closing that
Sterling prefers to change the
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method of effecting the acquisition of the Company by Sterling (including,
without limitation, the provisions as set forth in Article II) the parties
hereto shall forthwith execute an appropriate amendment or restatement of this
Agreement to reflect such changes; provided, however, that no such change shall
(i) alter or change the amount or the kind of the consideration to be received
by the holders of Company Common Stock as provided for in this Agreement, (ii)
take the form of an asset purchase, (iii) adversely affect the tax treatment to
the Company shareholders as a result of receiving the Merger Consideration, (iv)
adversely affect the timing of the Closing of the Merger, or (v) place
additional obligations, warranties or conditions on the Company.
(b) In addition, the parties hereto agree that if Sterling so determines,
each of the parties will execute such additional agreements and documents and
take such other actions as Sterling determines necessary or appropriate to
facilitate the Merger and the acquisition of the Company by Sterling, including,
without limitation, entering into agreements to facilitate the Bank Merger.
Section 2.05 Tax-Free Reorganization. The parties hereto intend that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. The parties hereto 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.
ARTICLE III
MERGER CONSIDERATION; EXCHANGE PROCEDURES
Section 3.01 Merger Consideration.
(a) Subject to the terms and conditions of this Agreement, each share of
Company Common Stock that is outstanding immediately prior to the Effective Time
(excluding any Dissenting Shares and any shares of Company Common Stock
cancelled pursuant to Section 3.01(b)) shall be converted into and become the
right to receive cash and shares of Sterling Common Stock as set forth in this
Article III.
(b) Subject to the terms and conditions of this Agreement including,
without limitation, the provisions of Section 3.02 below, each share of Company
Common Stock (other than the shares of Company Common Stock to be cancelled as
set forth in Section 3.01(c) or Dissenting Shares) will be converted into and
represent the right to receive consideration consisting of a combination of (i)
that number of shares of Sterling Common Stock equal to the Initial Exchange
Ratio or Adjusted Exchange Ratio, as applicable, and (ii) an amount of cash
equal to the Per Share Cash Consideration. The consideration provided in this
Section 3.01(b), together with the consideration provided for in Section 4.05
hereinbelow with respect to fractional shares, is referred to herein as the
"Merger Consideration."
(c) Each share of Company Common Stock held in the treasury of the Company
and each share of Company Common Stock owned by Sterling, Bancorporation or any
direct or indirect wholly owned Subsidiary of Sterling or the Company
immediately prior to the Effective Time shall be canceled without any conversion
and no payment or distribution shall be made with respect thereto.
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(d) Each of the shares of common stock of Bancorporation issued and
outstanding immediately before the Effective Time shall continue to be issued
and outstanding as one share of common stock of the Surviving Corporation and
shall constitute the only outstanding shares of capital stock of the Surviving
Corporation.
(e) Notwithstanding any other provision of this Agreement, each holder of
shares of Company Common Stock exchanged pursuant to the Merger, who would
otherwise have been entitled to receive a fraction of a share of Sterling Common
Stock (after taking into account all certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in accordance with
Section 4.05 hereof. No such holder will be entitled to dividends, voting rights
or other rights as a shareholder in respect of any fractional share.
(f) Notwithstanding anything in this Agreement to the contrary, no share of
Company Common Stock, the holder of which shall have complied with the
provisions of Article 5.12 of the TBCA as to appraisal rights (a "Dissenting
Share"), shall be deemed converted into and to represent the right to receive
the Merger Consideration hereunder, and the holders of Dissenting Shares, if
any, shall be entitled to payment, solely from the Surviving Corporation, of the
appraised value of such Dissenting Shares to the extent permitted by and in
accordance with the provisions of Article 5.12 of the TBCA; provided, however,
that (i) if any holder of Dissenting Shares shall, under the circumstances
permitted by the TBCA, subsequently deliver a written withdrawal of his or her
demand for appraisal of such Dissenting Shares, (ii) if any holder fails to
establish his or her entitlement to rights to payment as provided in such
Article 5.12, or (iii) if neither any holder of Dissenting Shares nor the
Surviving Corporation has filed a petition demanding a determination of the
value of all Dissenting Shares within the time provided in such Article 5.12,
such holder or holders (as the case may be) shall forfeit such right to payment
for such Dissenting Shares pursuant to such Article 5.12 and each such
Dissenting Share shall thereupon be converted into and shall represent the right
to receive the Merger Consideration therefor. The Company shall give Sterling
(i) prompt notice of any written objections to the Merger submitted to the
Company in accordance with Article 5.12, attempted withdrawals of such
objections, and any other instruments served pursuant to applicable law received
by the Company relating to shareholders' rights of appraisal and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the TBCA. The Company shall not, except with the prior
written consent of Sterling, voluntarily make any payment with respect to any
demands for appraisals of Company Common Stock, offer to settle or settle any
such demands or approve any withdrawal of any such demands.
Section 3.02 Determination and Adjustment of Acquisition Amount and
Exchange Ratio.
(a) Subject to the terms and conditions of this Agreement including the
other provisions of this Section 3.02, if the Final Closing Price is (i) equal
to the Initial Closing Price, (ii) greater than the Initial Closing Price but
not greater than 1.1 times the Initial Closing Price, or (iii) less than the
Initial Closing Price but not less than .90 times the Initial Closing Price, the
aggregate consideration payable by Sterling in exchange for the shares of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (excluding any Dissenting Shares and any shares of Company Common Stock
cancelled pursuant to Section 3.01(c)) shall
10
be $34,000,000 (the "Initial Acquisition Amount") of which (i) $14,552,000 shall
be paid in cash, and (ii) $19,448,000 shall be paid in an aggregate number of
shares of Sterling Common Stock obtained by dividing $19,448,000 by the Final
Closing Price.
For purposes of this Agreement and subject to the other provisions of this
Section 3.02, the "Initial Exchange Ratio" shall mean the quotient (calculated
to the nearest three (3) decimal places) obtained by dividing (x) $19,448,000 by
(y) the Final Closing Price, and by dividing the quotient computed thereby by
the Company Shares Number.
For purposes of this Agreement and subject to the other provisions of this
Section 3.02 below, the "Per Share Cash Consideration" shall be the quotient
(calculated to the nearest three (3) decimal places) obtained by dividing (x)
$14,552,000 by (y) the Company Shares Number. (Assuming the Company Shares
Number is 430,075, the Per Share Cash Consideration shall be $33.836 per share
of Company Common Stock.)
(b) Subject to the terms and conditions of this Agreement, including the
other provisions of this Section 3.02, if the Final Closing Price is greater
than 1.1 times the Initial Closing Price, then the number of shares of Sterling
Common Stock into which a share of Company Common Stock shall be converted shall
be the "Adjusted Exchange Ratio" determined in accordance with the following
formula:
($19,448,000 / (1.1 x the Initial Closing Price)) / the Company Shares
Number
(c) Subject to the terms and conditions of this Agreement, including the
other provisions of this Section 3.02, if the Final Closing Price is less than
0.9 times the Initial Closing Price, the number of shares of Sterling Common
Stock into which a share of Company Common Stock shall be converted shall be the
Adjusted Exchange Ratio determined in accordance with the following formula:
($19,448,000 / (.90 x the Initial Closing Price)) / the Company Shares
Number
(d) Notwithstanding any other provision of this Agreement, if the aggregate
value of the shares of Sterling Common Stock that would be issued pursuant to
the Merger, valued at the Final Closing Price, is less than fifty percent (50%)
of the Total Consideration as defined in Section 1.01, Sterling shall be
authorized to reallocate the Per Share Cash Consideration and the number of
shares of Sterling Common Stock into which each share of Company Common Stock
will be converted in the Merger, in a manner such that the number of shares of
Sterling Common Stock to be issued in the Merger shall not be less than the
Minimum Stock Amount, as herein defined, or more than the Maximum Stock Amount,
as herein defined, provided, however, that such reallocation shall not (i)
affect the aggregate Merger Consideration payable with respect to the shares of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (exclusive of any Dissenting Shares and any shares of Company Common Stock
cancelled pursuant to Section 3.01(c), or (ii) reduce the aggregate
consideration due for each share of the Company Common Stock pursuant to Section
3.02(b) or Section 3.02(c) as applicable. For purposes of this Agreement, the
term "Minimum Stock Amount" shall mean the lowest whole number of shares of
Sterling Common Stock which, if multiplied by the Final Closing Price,
11
results in a dollar amount at least equal to fifty percent (50%) of the Total
Consideration. For purposes of this Agreement, the term "Maximum Stock Amount"
shall mean the highest whole number of shares of Sterling Common Stock which, if
multiplied by the Final Closing Price, results in a dollar amount at most equal
to fifty two percent (52%) of the Total Consideration.
Section 3.03 Company Stock Options.
(a) Prior to the Closing Date, the Company shall (i) cause each unexpired
and unexercised option as set forth in Section 5.02 of the Company Disclosure
Schedule ("Company Options") to either be (a) exercised and fully paid at an
exercise price of $18.00 per share and converted into shares of Company Common
Stock, or (b) terminated, and (ii) cause the Company's 1998 Stock Option Plan to
be terminated. The Company shall not permit any holder of the Company Options to
exercise such Company Option by any means other than the payment of the exercise
price thereof in cash, unless the Company is contractually obligated to do so.
With respect to any such holder, the Company shall use its best efforts to
encourage such holder to exercise such Company Option by payment in cash.
(b) The Company shall take all actions necessary or reasonably requested by
Sterling to ensure that following the Effective Time, no holder of any Company
Option will have any right thereunder to acquire any equity securities of the
Company, Sterling or any of their respective Subsidiaries or any right to
payment in respect of any such securities of the Company except for payment of
the Merger Consideration with respect to the shares of Company Common Stock into
which such Company Options are converted prior to the Effective Time.
ARTICLE IV
EXCHANGE OF SHARES
Section 4.01 Exchange Agent. As of the Effective Time, Sterling shall
deposit with a bank or trust company designated by Sterling and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the holders
of shares of Company Common Stock, for exchange in accordance with this Article
IV, (i) certificates representing the shares of Sterling Common Stock and (ii)
cash, each in an amount sufficient to make all payments of the Merger
Consideration pursuant to Article III. Such shares of Sterling Common Stock and
cash, together with any dividends or distributions with respect thereto paid in
respect of a record date after the Effective Time, being hereinafter referred to
as the "Exchange Fund". The Exchange Agent shall, pursuant to irrevocable
instructions from Sterling, deliver the Merger Consideration contemplated to be
issued pursuant hereto out of the Exchange Fund. The Exchange Fund shall not be
used for any other purpose.
Section 4.02 Exchange Procedures. Promptly after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which, immediately prior to the Effective Time, represented
outstanding shares of Company Common Stock (the "Certificates"), other than
shares canceled in accordance with Section 3.01(c): (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates theretofore representing shares of Company Common Stock
shall pass, only upon proper delivery of such Certificates to the Exchange
Agent, and shall be in such form and have
12
such other provisions as Sterling shall specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Exchange
Agent (or to such other agent or agents as may be appointed by Sterling),
together with such letter of transmittal, duly executed, and any other required
documents, the holder of such Certificate(s) shall be entitled to receive in
exchange therefor (i) shares of Sterling Common Stock representing, in the
aggregate, the whole number of shares that such holder has the right to receive
pursuant to Section 3.02, (ii) a check in the amount equal to the cash portion
of the Merger Consideration that such holder has the right to receive pursuant
to Section 3.02, and (iii) a check in the amount equal to the cash, if any, that
such holder has the right to receive pursuant to the provisions of Article III
other than Section 3.02, including cash in lieu of any fractional shares of
Sterling Common Stock pursuant to Section 4.05, and the Certificate(s) so
surrendered shall forthwith be cancelled. No interest will be paid or will
accrue on any cash payable pursuant to the provisions of Article III or this
Section 4.02. In the event of a transfer of ownership of Company Common Stock
that is not registered in the transfer records of the Company, one or more
certificates of Sterling Common Stock evidencing, in the aggregate, the proper
number of shares of Sterling Common Stock pursuant to Section 3.02, a check in
the proper amount of the cash portion of the Merger Consideration pursuant to
Section 3.02 and a check in the proper amount of cash in lieu of any fractional
shares of Sterling Common Stock pursuant to Section 4.05, may be issued to a
transferee if the Certificate(s) representing such Company Common Stock is
presented to the Exchange Agent accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
4.02, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender Merger Consideration as
provided in Article III and cash in lieu of any fractional shares of Sterling
Common Stock as contemplated by Section 3.01(e) and Section 4.05. The
Certificate(s) for Company Common Stock so surrendered shall be duly endorsed as
the Exchange Agent may require. Sterling shall not be obligated to deliver the
consideration to which any former holder of Company Common Stock is entitled as
a result of the Merger until such holder surrenders his Certificate(s) formerly
representing shares of Company Common Stock for exchange as provided in this
Article IV. In addition, certificates surrendered for exchange by any person
constituting an "affiliate" of Company for purposes of Rule 145(c) under the
Securities Act shall not be exchanged for certificates representing whole shares
of Sterling Common Stock until Sterling has received a written agreement from
such person as provided in Section 8.08.
Section 4.03 Voting and Dividends. Former shareholders of record of the
Company shall be entitled to vote after the Effective Time at any meeting of
Sterling shareholders the number of whole shares of Sterling Common Stock into
which their respective shares of Company Common Stock are converted, regardless
of whether such holders have exchanged their Certificates representing Company
Common Stock for certificates representing Sterling Common Stock in accordance
with the provisions of this Agreement. Until surrendered for exchange in
accordance with the provisions of Section 4.01, each Certificate theretofore
representing shares of the Company Common Stock (other than shares to be
canceled pursuant to Section 3.01) shall from and after the Effective Time
represent for all purposes only the right to receive the Merger Consideration,
as set forth in this Agreement. Former shareholders of record of the Company
shall be entitled to any dividends paid to holders of record of Sterling Common
13
Stock after the Effective Time, provided that no dividend or other distribution
payable to the holders of record of Sterling Common Stock, at or as of any time
after the Effective Time, shall be paid to the holder of any Certificate
representing shares of Company Common Stock issued and outstanding at the
Effective Time until such holder physically surrenders such Certificate for
exchange as provided in Section 4.02, promptly after which time all such
dividends or distributions shall be paid (without interest).
Section 4.04 No Further Ownership Rights in Company Common Stock. All
shares of Sterling Common Stock issued upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof (including any cash
paid in lieu of fractional shares of Sterling Common Stock pursuant to Section
3.01(e) and Section 4.05) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and after the Effective Time there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the shares of
Company Common Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article IV.
Section 4.05 No Fractional Shares. No certificates or scrip representing
fractional shares of Sterling Common Stock shall be issued upon the surrender
for exchange of certificates for Company Common Stock pursuant to this Article
IV, and no dividend or other distribution, stock split or interest shall relate
to any such fractional security, and such fractional interests shall not entitle
the owner thereof to any voting or other rights of a security holder of
Sterling. In lieu of any fractional security, each holder of shares of Company
Common Stock who would otherwise have been entitled to a fraction of a share of
Sterling Common Stock upon surrender of the certificate(s) for such Company
Common Stock for exchange pursuant to this Article IV will be paid an amount in
cash (without interest) equal to the product of (i) such fractional part of a
share of Sterling Common Stock multiplied by (ii) the Final Closing Price.
Section 4.06 Termination of Exchange Fund. Any portion of the Exchange Fund
that remains undistributed to the former shareholders of the Company for six
months after the Effective Time shall be delivered to Sterling upon demand, and
any shareholders of the Company who have not theretofore complied with this
Article IV shall thereafter look only to Sterling for payment of their claim for
the Merger Consideration.
Section 4.07 Escheat of Exchange Fund. None of Sterling, Bancorporation,
the Company, or the Exchange Agent shall be liable to any person in respect of
any Merger Consideration from the Exchange Fund delivered to a public office
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificates representing shares of Company Common Stock shall not have been
surrendered immediately prior to the date on which any Merger Consideration in
respect of such Certificate would otherwise escheat to or become the property of
any government authority, any such Merger Consideration in respect of such
Certificate shall, at such time and to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any Person previously entitled thereto.
14
Section 4.08 Lost Certificates. If any Certificates 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 Sterling or the Exchange Agent, the posting by such Person of a bond
in such reasonable amount as Sterling or the Exchange Agent may direct as
indemnity against any claim that may be made against the Surviving Corporation
with respect to such Certificate, the Exchange Agent will pay in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration to be paid
in respect of the shares of Company Common Stock represented by such
Certificate, as contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Sterling and Bancorporation as
follows:
Section 5.01 Organization, Standing and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. The Company is duly qualified to do business and in good
standing in all jurisdictions (whether federal, state, local or foreign) where
its ownership or leasing of property or the conduct of its business requires it
to be so qualified and in which the failure to be duly qualified would have a
material adverse effect on the financial condition, results of operations,
business, properties (the "Condition") of the Company and any of its
Subsidiaries or on the ability of the Company or its Subsidiaries to consummate
the transactions contemplated hereby (a "Company Material Adverse Effect"). The
Company has all requisite corporate power and authority (i) to carry on its
business as now conducted, (ii) to own, lease and operate its assets, properties
and business and (iii) to execute and deliver this Agreement and perform the
terms of this Agreement. The Company is duly registered as a bank holding
company under the BHCA. The Company has in effect all federal, state, local and
foreign governmental, regulatory and other authorizations, franchises, permits
and licenses (collectively, "Authorizations") necessary for it to own or lease
its properties and assets and to carry on its business as now conducted. The
Company has heretofore furnished to Sterling a complete and correct copy of its
Articles of Incorporation and bylaws, as amended or restated to the date hereof.
Such Articles of Incorporation and bylaws, as amended, are in full force and
effect and the Company is not in violation of any of the provisions of its
Articles of Incorporation or bylaws.
Section 5.02 Company Common Stock.
(a) The authorized capital stock of the Company consists of 5,000,000
shares of Company Common Stock, par value $1.00 per share. As of the date
hereof, (i) 426,275 shares of Company Common Stock were issued and outstanding,
(ii) 13,340 shares of Company Common Stock were held by the Company in its
treasury, and (iii) 3,800 shares of Company Common Stock were reserved for
issuance pursuant to stock options granted and outstanding under the Company's
1998 Stock Option Plan and options issued outside of any plan. All of the issued
and outstanding shares of Company Common Stock are, and all shares of the
Company Common Stock which may be issued upon the exercise or conversion of the
Company Options will be, when issued, duly authorized, validly issued and fully
paid and nonassessable. None of the outstanding shares of Company Common Stock
has been, nor will any shares of the Company
15
Common Stock which may be issued upon the exercise or conversion of the Company
Options be issued, in violation of any preemptive rights or any provision of the
Company's Articles of Incorporation or bylaws. As of the date of this Agreement,
no shares of Company Common Stock have been reserved for any purpose except as
set forth above or in Section 5.02 of the Company Disclosure Schedule.
(b) Except as set forth in Section 5.02(a) above or Section 5.02 of the
Company Disclosure Schedule, there are no (i) equity securities of the Company
outstanding, (ii) outstanding options, warrants, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of the Company
or contracts, commitments, understandings or arrangements by which the Company
is or may be bound to issue additional shares of its capital stock or options,
warrants or rights to purchase or acquire any additional shares of its capital
stock, (iii) outstanding notes, bonds, debentures or other indebtedness of the
Company having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which shareholders of the
Company have the right to vote, or (iv) outstanding stock appreciation rights or
other rights to redeem for cash any options, warrants or other securities of the
Company. Except as set forth in Section 5.02 of the Company Disclosure Schedule,
there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may be bound to transfer any shares of
the capital stock of any Subsidiary of the Company, and there are no agreements,
understandings or commitments relating to the right of the Company or any of its
Subsidiaries to vote or to dispose of any such shares.
(c) Except as set forth in Section 5.02(a) above or of the Company
Disclosure Schedule, there are no securities required to be issued by the
Company under any Company Stock Plan, dividend reinvestment or similar plan.
(d) Except for the proxies evidenced by the Agreements and Irrevocable
Proxies executed by the Company Specified Shareholders and as set forth in
Section 5.02 of the Company Disclosure, there are no voting trusts, proxies or
other agreements, commitments or understandings of any character to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound with respect to the voting of any shares of capital
stock of the Company or any of its Subsidiaries. There are no agreements,
arrangements or commitments with any character pursuant to which any Person is
or may be entitled to cause the Company or any of its Subsidiaries to file a
registration statement under the Securities Act or which otherwise relate to the
registration of any securities of the Company or any of its Subsidiaries.
(e) There are no restrictions applicable to the payment of dividends on any
shares of the Company Common Stock except pursuant to the TBCA and applicable
banking laws and regulations and all dividends and distributions declared prior
to the date hereof have been fully paid.
Section 5.03 Subsidiaries. Section 5.03 of the Company Disclosure Schedule
contains a complete list of the Company's Subsidiaries. All of the outstanding
shares of each Subsidiary are owned by the Company and no equity securities are
or may be required to be issued by
16
reason of any options, warrants, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable for, shares of any Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any Subsidiary is bound to
issue additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock. All of the
shares of capital stock of each Subsidiary are duly authorized, validly issued,
fully paid and nonassessable and are owned by the Company free and clear of any
claim, lien, pledge or encumbrance of whatsoever kind ("Liens"). Each Subsidiary
(i) is duly organized, validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated or organized, (ii) is duly
qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Company Material Adverse Effect, (iii)
has all requisite corporate power and authority to own or lease its properties
and assets and to carry on its business as now conducted, and (iv) has in effect
all Authorizations necessary for it to own or lease its properties and assets
and to carry on its business as now conducted. The Company has heretofore
furnished to Sterling a complete and correct copy of each of its Subsidiaries'
certificates or articles of incorporation and bylaws, or equivalent
organizational documents, as amended or restated to the date hereof. Such
certificates or articles or incorporation and bylaws, as amended, and equivalent
organizational documents of Subsidiary are in full force and effect. None of the
Subsidiaries is in violation of any provision of its certificate or articles of
incorporation or bylaws or equivalent organizational documents. Except for the
capital stock of its Subsidiaries and as set forth in Section 5.03 of the
Company Disclosure Schedule, the Company does not own, directly or indirectly,
any capital stock or other ownership interests in any corporation, limited
liability company, partnership, joint venture or other entity.
Section 5.04 Authorization of Merger and Related Transactions.
(a) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby (including, without limitation, the
consummation of the Merger) have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of the Company,
including unanimous approval of the Merger by the Company Board, subject to the
approval of the Merger by the shareholders of the Company to the extent required
by applicable law. The only shareholder approval required for the approval of
the Merger is the approval of a majority of the outstanding shares of Company
Common Stock. This Agreement, subject to any requisite shareholder approval
hereof with respect to the Merger, represents a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as such enforcement may be limited by the Remedies Exception.
(b) Neither the execution and delivery of this Agreement by the Company,
the consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) conflict
with or result in a breach of any provision of the Articles of Incorporation or
bylaws of the Company or the comparable documents of any of its Subsidiaries,
(ii) constitute or result in a breach or violation of any term, condition or
provision of, or constitute a default (or an event which with notice or lapse of
time
17
or both would become a default) under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
Lien upon, any property or assets of the Company or any of its Subsidiaries
pursuant to any note, bond, mortgage, indenture, license, agreement, lease or
other instrument or obligation to which any of them is a party or by which any
of them or any of their properties or assets may be subject or (iii) subject to
receipt of the requisite approvals referred to in Section 9.01 of this
Agreement, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or its Subsidiaries or any of their
properties or assets.
(c) Other than (i) the consents, authorizations, approvals or exemptions
required from (A) the Commissioner, the FDIC, the Federal Reserve Board or other
applicable governmental authority, and (B) the Persons described in Section 5.04
of the Company Disclosure Schedule, and (ii) the filing of articles and
certificates of merger in accordance with the DGCL and the TBCA, no notice to,
filing with, authorization of, exemption by, or consent or approval of any
governmental body, authority or any other Person is necessary for the
consummation by the Company of the Merger, the resulting change of control of
its Subsidiaries, and the other transactions contemplated by this Agreement.
Section 5.05 Financial Statements and Regulatory Reports.
(a) The Company (i) has delivered to Sterling copies of the audited
consolidated balance sheets and the related audited consolidated statements of
income, shareholders' equity and cash flows (including related notes and
schedules) of the Company and its consolidated Subsidiaries as of and for the
periods ended December 31, 1999 and December 31, 2000, together with the report
thereof of March 13, 2001 and of the unaudited balance sheet and the related
unaudited statement of income, as of and for the six (6) months ended June 30,
2001 (the "Company Financial Statements"), and (ii) has furnished Sterling with
a true and complete copy of each material report filed by the Company with the
Federal Reserve Board or by any of its Subsidiaries with any Regulatory
Authorities from and after January 1, 1997 (each a "Regulatory Reporting
Document"), which are all the material documents that the Company or any of its
Subsidiaries was required to file with the Regulatory Authorities since such
date and all of which complied when filed in all material respects with all
applicable laws and regulations.
(b) The Company Financial Statements (as of the dates thereof and for the
periods covered thereby) (i) are in accordance with the books and records of the
Company and its Subsidiaries, which are complete and accurate in all material
respects and which have been maintained in accordance with good business
practices, and (ii) present fairly the consolidated financial position and the
consolidated results of operations, changes in shareholders' equity and cash
flows of the Company and its Subsidiaries as of the dates and for the periods
indicated, in accordance with GAAP, subject in the case of unaudited interim
financial statements for the six (6) months ended June 30, 2001 to normal
recurring year-end adjustments and except for the absence of certain footnote
information in such unaudited interim financial statements. Neither Xxxxxx &
Xxxxxxx Company, nor any other firm of independent certified public accountants
has prepared or delivered to the Company any management letters that express any
material concerns or issues regarding the Company's internal controls,
accounting practices or financial conditions since January 1, 1997.
18
Section 5.06 Absence of Undisclosed Liabilities. Except as set forth in
Section 5.06 of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries has any obligations or liabilities (contingent or otherwise) in
an amount equal to, or in excess of, $50,000, in the aggregate, except
obligations and liabilities (i) which are fully accrued or reserved against in
the consolidated balance sheet of the Company and its Subsidiaries as of June
30, 2001, included in the Company Financial Statements or reflected in the notes
thereto, or (ii) which were incurred after June 30, 2001, in the ordinary course
of business consistent with past practice and have been fully accrued and
reserved for on the books of the Company as of the date hereof. Since June 30,
2001, neither the Company nor any of its Subsidiaries has incurred or paid any
obligation or liability which would have a Company Material Adverse Effect.
Section 5.07 Tax Matters. Except as set forth in Section 5.07 of the
Company Disclosure Schedule:
(a) All Tax Returns required to be filed by or on behalf of the Company or
any of its Subsidiaries have been timely filed, or requests for extensions have
been timely filed, granted and have not expired, all such Tax Returns filed are
complete and accurate in all material respects and all Taxes payable by or with
respect to the Company and its Subsidiaries for the periods covered by such Tax
Returns have been timely paid in full or are adequately reserved for in
accordance with GAAP on the June 30, 2001 financial statements included in the
Company Financial Statements. With respect to the periods for which Tax Returns
have not been filed, the Company and its Subsidiaries have established adequate
reserves determined in accordance with GAAP for the payment of all Taxes.
(b) No deficiencies for any Taxes have been proposed, asserted or assessed
against the Company or any of its Subsidiaries that are not adequately provided
for on the Company Financial Statements and no request for waivers of the time
to assess any such Taxes has been granted or are pending. Neither the Company
nor any Subsidiary is involved in any audit examination, deficiency or refund
litigation or matter in controversy with respect to any Taxes. All Taxes due
with respect to completed and settled examinations or concluded litigation have
been paid or adequately reserved for.
(c) Neither the Company nor any of its Subsidiaries has executed an
extension or waiver of any statute of limitations on the assessment or
collection of any Tax due that is currently in effect.
(d) Adequate provision for any Taxes due or to become due for the Company
and any of its Subsidiaries for any period or periods through and including June
30, 2001, has been made, in accordance with GAAP, and is reflected on the June
30, 2001 financial statements included in the Company Financial Statements.
Deferred Taxes of the Company and its Subsidiaries have been provided for in the
Company Financial Statements in accordance with GAAP. None of the assets or
properties of the Company or any of its Subsidiaries is subject to any material
Tax lien, other than such liens for Taxes which are not due and payable, which
may thereafter be paid without penalty or the validity of which are being
contested in good faith by appropriate proceedings and for which adequate
provisions are being maintained in accordance with GAAP.
19
(e) The Company and its Subsidiaries have collected and withheld all Taxes
which they have been required to collect or withhold and have timely submitted
all such collected and withheld amounts to the appropriate authorities. The
Company and its Subsidiaries are in compliance with the back-up withholding and
information reporting requirements under (i) the Code, and (ii) any state, local
or foreign laws, and the rules and regulations, thereunder.
(f) Neither the Company nor any of its Subsidiaries has made any payments,
is obligated to make any payments, or is a party to any contract, agreement or
other arrangement that could obligate it to make any payments that would not be
deductible under Section 280G of the Code.
(g) No consent has been filed under Section 341(f) of the Code with respect
to the Company or any of its Subsidiaries; neither the Company nor any of its
Subsidiaries owns any interest in an entity or arrangement characterized as a
partnership for United States federal income tax purposes; none of the assets of
the Company or any of its Subsidiaries is required to be treated as being owned
by some other person pursuant to Section 168(f)(8) of the Code; neither the
Company nor any of its Subsidiaries is a United States real property holding
company under Section 897 of the Code; and no debt of the Company or any of its
Subsidiaries is "corporate acquisition indebtedness" within the meaning of
Section 279(b) of the Code.
(h) The Company, with the requisite consent of its shareholders, has
validly elected to be treated as an S corporation under Section 1362 of the Code
and under the corresponding provisions of applicable state and local laws where
it files income Tax Returns, which election was effective on January 1, 1999 and
for each year of existence of the Company (and any predecessor thereof).
(i) The Company would not be liable for any Tax under Section 1374 of the
Code if its assets (or the assets of any qualified subchapter S subsidiary) were
sold for their fair market value as of the Closing Date. Neither the Company nor
any qualified subchapter S subsidiary of the Company has, in the past ten (10)
years, (i) acquired assets from another corporation in a transaction in which
the Company's tax basis for the acquired assets was determined, in whole or in
part, by reference to the Tax basis of the acquired assets (or any other
property) in the hands of the transferor, or (ii) acquired the stock of any
corporation which is a qualified subchapter S subsidiary.
Section 5.08 Allowance for Credit Losses. Each allowance for credit losses
shown in the consolidated balance sheets of the Company and its Subsidiaries as
of December 31, 2000, and as of June 30, 2001 and included in the Company
Financial Statements, complies in all material respects with GAAP. The reserves
for possible loan losses shown on the June 30, 2001 call reports filed with a
Regulatory Agency for the Bank are adequate to provide for possible losses, net
of recoveries relating to loans previously charged off, on loans outstanding
(including accrued interest receivable) as of June 30, 2001.
Section 5.09 Other Regulatory Matters. Neither the Company nor any of its
Subsidiaries has taken or agreed to take any action or has any knowledge of any
fact or
20
circumstance that would materially impede or delay receipt of any approval
referred to in Section 9.01(b).
Section 5.10 Properties. Except as set forth in Section 5.10 of the
Company's Disclosure Schedule, the Company and its Subsidiaries have good and
indefeasible title, free and clear of all Liens except Permitted Liens, to all
their properties and assets whether tangible or intangible, real, personal or
mixed, including, without limitation, all the properties and assets reflected in
the Financial Statements except for those properties and assets disposed of for
fair market value in the ordinary course of business and consistent with prudent
banking practices since the date of the Financial Statements. All buildings, and
all fixtures, equipment and other property and assets which are material to its
business on a consolidated basis, held under leases or subleases by any of the
Company or its Subsidiaries are held under valid instruments enforceable in
accordance with their respective terms, subject to the Remedies Exception. All
of the Company's and its Subsidiaries' equipment in regular use has been well
maintained and is in good, serviceable condition, reasonable wear and tear
excepted, except where a failure to so maintain or to be in such condition would
not have a Company Material Adverse Effect.
Section 5.11 Compliance with Laws. Except as set forth in Section 5.11 of
the Company Disclosure Schedule:
(a) Each of the Company and its Subsidiaries is in compliance with all
laws, rules, regulations, policies, guidelines, reporting and licensing
requirements and orders applicable to its business or to its employees
conducting its business, and with its internal policies and procedures, except
for failures to comply which will not result in a Company Material Adverse
Effect.
(b) Neither the Company nor any of its Subsidiaries has received any
notification or communication from any agency or department of any federal,
state or local government, including the Federal Reserve Board, the FDIC, the
Commissioner, the SEC and the staffs thereof (collectively, the "Regulatory
Authorities") (i) asserting that since January 1, 1997, the Company or any of
its Subsidiaries is not in compliance with any of the statutes, regulations, or
ordinances which such agency, department or Regulatory Authority enforces, or
the internal policies and procedures of the Company or its Subsidiaries, (ii)
threatening to revoke any license, franchise, permit or governmental
authorization which is material to the Condition of the Company or any of its
Subsidiaries, (iii) requiring or threatening to require the Company or any of
its Subsidiaries, or indicating that the Company or any of its Subsidiaries may
be required, to enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or limiting or purporting to
restrict or limit in any manner the operations of the Company or any of its
Subsidiaries, including, without limitation, any restriction on the payment of
dividends, or (iv) directing, restricting or limiting, or purporting to direct,
restrict or limit in any manner the operations of the Company or any of its
Subsidiaries, including, without limitation, any restriction on the payment of
dividends (any such notice, communication, memorandum, agreement or order
described in this sentence being herein referred to as a "Regulatory
Agreement"). Neither the Company nor any Subsidiary has received or been made
aware of any complaints or inquiries under the Community Reinvestment Act, the
Fair Housing Act, the Equal Credit Opportunity Act or any other state or federal
anti-discrimination fair
21
lending law and, to the knowledge of the Company and its Subsidiaries, there is
no fact or circumstance that would form the basis of any such complaint or
inquiry.
(c) Since January 1, 1997, neither the Company nor any of its Subsidiaries
has been a party to any effective Regulatory Agreement.
(d) Neither the Company nor any of its Subsidiaries is required by Section
32 of the Federal Deposit Insurance Act to give prior notice to a federal
banking agency of the proposed addition of an individual to the Company Board or
the employment of an individual as a senior executive officer.
Section 5.12 Employee Benefit Plans. Except as set forth in Section 5.12 of
the Company Disclosure Schedule:
(a) The Company has delivered to Sterling prior to the execution of this
Agreement true and complete copies (and, in the case of each material plan,
financial data with respect thereto) of all pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus or other incentive plans, all other employee programs,
arrangements or agreements, all material medical, vision, dental or other health
plans, all life insurance plans and all other material employee benefit plans or
fringe benefit plans, including, without limitation, all "employee benefit
plans" as that term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), whether or not terminated, and trust
agreements and insurance contracts under or with respect to which the Company or
any of its Subsidiaries has or could have any liability, contingent, secondary
or otherwise (collectively, the "Company Benefit Plans"). Any of the Company
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "Company ERISA
Plan." Any of the Company Benefit Plans pursuant to which the Company is or may
become obligated to, or obligated to cause any of its Subsidiaries or any other
Person to, issue, deliver or sell shares of capital stock of the Company or any
of its Subsidiaries, or grant, extend or enter into any option, warrant, call,
right, commitment or agreement to issue, deliver or sell shares, or any other
interest in respect of capital stock of the Company or any of its Subsidiaries,
is referred to herein as a "Company Stock Plan." No Company Benefit Plan is or
has been a multi-employer plan within the meaning of Section 3(37) of ERISA. The
Company has set forth in Section 5.12 of the Company Disclosure Schedule (i) a
list of all of the Company Benefit Plans, (ii) a list of the Company Benefit
Plans that are Company ERISA Plans, (iii) a list of the Company Benefit Plans
that are Company Stock Plans and (iv) a list of the number of shares covered by,
exercise prices for, and holders of, all stock options granted and available for
grant under Company Stock Plans.
(b) From their inception, all the Company Benefit Plans have been and are
in compliance with the applicable terms of ERISA and the Code and any other
applicable laws, rules and regulations, including the terms of such plans, the
breach or violation of which, individually or in the aggregate, could reasonably
be expected to result in a Company Material Adverse Effect.
22
(c) All liabilities (contingent or otherwise) under any Company Benefit
Plan are fully accrued or reserved against in the Company Financial Statements
in accordance with GAAP. No Company ERISA Plan is or has ever been subject to
Title IV of ERISA or Section 412 of the Code.
(d) Neither the Company nor any of its Subsidiaries has any obligations for
retiree health or other welfare benefits under any Company Benefit Plan or
otherwise. There are no restrictions on the rights of the Company or its
Subsidiaries to unilaterally amend or terminate any such Company Benefit Plan at
any time without incurring any material liability thereunder.
(e) Except as disclosed in Section 5.12 of the Company Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, golden parachute or otherwise) becoming due to
any person under any Company Benefit Plan or otherwise, (ii) increase any
benefits otherwise payable under any Company Benefit Plan or (iii) result in any
acceleration of the time of payment or vesting of any such benefits. No amounts
payable under any Company Benefit Plan will be nondeductible pursuant to either
Section 280G or 162(m) of the Code.
(f) Neither the Company, any Subsidiary, nor any plan fiduciary of any
Company Benefit Plan has engaged in any transaction in violation of Section 406
of ERISA (for which transaction no exemption exists under Section 408 of ERISA)
or in any "prohibited transaction" as defined in Section 4975(c)(1) of the Code
(for which no exemption exists under Section 4975(c)(2) or 4975(d) of the Code).
(g) All Company Benefit Plans, related trust agreements or annuity
contracts (or any other funding instruments), are legally valid and binding and
in full force and effect and there are no written agreements or, to the
Company's knowledge, any oral agreements, regarding increases in benefits
(whether expressed or implied) under any of these plans, nor, to the Company's
knowledge, any obligations, commitments, or understanding to continue any of
these plans (whether expressed or implied) except as required by Section 4980B
of the Code and Sections 601-608 of ERISA.
(h) There are no claims pending with respect to, or under, any Company
Benefit Plan other than routine claims for plan benefits, and there is no
litigation pending, or to the knowledge of the Company or any Subsidiary, any
disputes or litigation threatened with respect to any such plans.
Section 5.13 Commitments and Contracts. Except as set forth in Section 5.13
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party or subject to, or has amended or waived any rights
under, any of the following (whether written or oral, express or implied):
(a) any employment contract or understanding (including any understandings
or obligations with respect to severance or termination pay liabilities or
fringe benefits) with any Employee, including in any such person's capacity as a
consultant (other than those which either
23
(i) are terminable at will by the Company or such Subsidiary without requiring
any payment by the Company or (ii) do not involve payments with a present value
of more than $10,000 individually or $50,000 in the aggregate by the Company or
such Subsidiary during the remaining term thereof (without giving effect to
extensions or renewals of the existing term thereof) which payments may be made
at the election or with the consent or concurrence of the Company;
(b) any labor contract or agreement with any labor union;
(c) any contract not made in the usual, regular and ordinary course of
business containing non-competition covenants which limit the ability of the
Company or any of its Subsidiaries to compete in any line of business or which
involve any restriction of the geographical area in which the Company or any of
its Subsidiaries may carry on its business (other than as may be required by law
or applicable Regulatory Authorities);
(d) any other contract or agreement for which the Company or any Subsidiary
was or is required to obtain the approval of any Regulatory Authority prior to
becoming bound or to consummating the transactions contemplated thereby;
(e) any lease, sublease, license, contract and agreement which obligates or
may obligate the Company or any Subsidiary for an amount in excess of $5,000
annually or which have a current term of one year or longer; provided, however,
that the foregoing shall not include (i) loans made by, repurchase agreements
made by, bankers acceptances of, agreements with Bank customers for trust
services, or deposits by the Company and any of its Subsidiaries, and (ii) any
lease, sublease, license, contract or agreement which may be terminated by the
Company, without penalty, upon thirty (30) day's or less prior written notice;
(f) any contract requiring the payment of any penalty, termination or other
additional amounts as "change of control" payments or otherwise as a result of
the transactions contemplated by this Agreement, or providing for the vesting or
accrual of benefits or rights upon a "change of control" or otherwise as a
result of the transactions contemplated by this Agreement;
(g) any agreement with respect to (i) the acquisition of any bank, bank
branch or other assets or stock of another financial institution or any other
Person or (ii) the sale of one or more bank branches;
(h) any outstanding interest rate exchange or other derivative contracts;
or
(i) any buy back, recourse or guaranty obligation with respect to
participation loans sold by the Company or any Subsidiary which create
contingent or direct liabilities of the Company or any of its Subsidiaries.
Section 5.14 Material Contract Defaults. Except as set forth in Section
5.14 of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is, or has received any notice or has any knowledge that any party
is, in breach, violation or default in any respect under any contract,
agreement, commitment, arrangement, lease, insurance policy or
24
other instrument to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries or the assets, business or
operations thereof may be bound or affected or under which it or its respective
assets, business or operations receives benefits, except for those breaches,
violations or defaults which would not have, individually or in the aggregate, a
Company Material Adverse Effect; and there has not occurred any event that with
the lapse of time or the giving of notice or both would constitute such a
default.
Section 5.15 Legal Proceedings. Except as set forth in Section 5.15 of the
Company Disclosure Schedule, there are no claims or charges filed with, or
proceedings or investigations by, Regulatory Authorities or actions or suits
instituted or pending or, to the knowledge of the Company's management,
threatened against the Company or any of its Subsidiaries, or against any
property, asset, interest or right of any of them, that might reasonably be
expected to result in a judgment in excess of $10,000 or that might reasonably
be expected to threaten or impede the consummation of the transactions
contemplated by this Agreement. Neither the Company nor any of its Subsidiaries
is a party to any agreement or instrument or is subject to any charter or other
corporate restriction or any Law or Order that, individually or in the
aggregate, might reasonably be expected to have a Company Material Adverse
Effect or might reasonably be expected to threaten or impede the consummation of
the transactions contemplated by this Agreement.
Section 5.16 Absence of Certain Changes or Events.
(a) Since January 1, 1997, except (i) as disclosed in any Regulatory
Reporting Document filed since January 1, 1997 and prior to the date hereof or
(ii) as set forth in Section 5.16 of the Company Disclosure Schedule, neither
the Company nor any of its Subsidiaries has (a) incurred any liability which has
had a Company Material Adverse Effect, (b) suffered any change in its Condition
which would have a Company Material Adverse Effect, other than changes after the
date hereof which affect the banking industry as a whole, (c) failed to operate
its business, in all material respects, in the ordinary course consistent with
past practice and prudent banking practices or (d) changed any accounting
practices.
(b) Except as set forth in Section 5.16 of the Company Disclosure Schedule,
since December 31, 2000, neither the Company nor any of its Subsidiaries has:
(i) entered into any agreement, commitment or transaction other than in
the ordinary course of business consistent with prudent banking practices;
(ii) incurred, assumed or become subject to, whether directly or by way
of any guaranty or otherwise, any obligations or liabilities (absolute,
accrued, contingent or otherwise) other than in the ordinary course of
business and consistent with prudent banking practices;
(iii) permitted or allowed any of its property or assets to become
subject to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind (other than Permitted Liens) other than
in the ordinary course of business and consistent with prudent banking
practices;
25
(iv) except in the ordinary course of business consistent with prudent
banking practices, canceled any debts, waived any claims or rights, or
sold, transferred or otherwise disposed of any its properties or assets;
(v) except for regular salary increases granted in the ordinary course
of business consistent with prior practice, granted any increase in
compensation or paid or agreed to pay or accrue any bonus, percentage
compensation, service award, severance payment or like benefit to or for
the credit of any director, officer, employee or agent, or entered into any
employment or consulting contract or other agreement with any director,
officer or employee or adopted, amended or terminated any Company Benefit
Plan;
(vi) directly or indirectly declared, set aside or paid any dividend or
made any distribution in respect with capital stock, or redeemed, purchased
or otherwise acquired any shares of its capital stock or other of its
securities, except for dividends paid to the Company by its Subsidiaries;
(vii) organized or acquired any capital stock or any other equity
securities or acquired any equity or ownership interest in any Person
(except for settlement of indebtedness, foreclosure or the exercise of
creditors' remedies or in a fiduciary capacity, the ownership of which does
not expose the Company or its Subsidiaries to any liability from the
business, operations or liabilities of such Person);
(viii) except for the transactions contemplated by this Agreement or as
otherwise permitted hereunder, entered into any transaction, or entered
into, modified or amended any contract or commitment, other than in the
ordinary course of business and consistent with prudent banking practices;
or
(ix) agreed, whether in writing or otherwise, to take any action the
performance of which would change the representations contained in this
Section 5.16(b) in the future so that any such representation would not be
true in all material respects as of the Closing.
Section 5.17 Reports. Since January 1, 1997, the Company and each of its
Subsidiaries have filed on a timely basis all reports and statements, together
with all amendments required to be made with respect thereto (collectively
"Reports"), that they were required to file with any Regulatory Authority. No
Regulatory Reporting Document with respect to periods beginning on or after
January 1, 1997, contained any information that was false or misleading with
respect to any material fact or omitted to state any material fact necessary in
order to make the statements therein not misleading.
Section 5.18 Insurance. The Company and each of its Subsidiaries are
presently insured, and during each of the past four calendar years have been
insured, for reasonable amounts against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured. To the knowledge of the Company's management, the policies of fire,
theft, liability (including directors and officers liability insurance) and
other insurance set forth in Section 5.18 of the Company Disclosure Schedule and
26
maintained with respect to the assets or businesses of the Company and its
Subsidiaries provide adequate coverage against all pending or threatened claims,
and the fidelity bonds in effect as to which any of the Company or any of its
Subsidiaries is a named insured are sufficient for their purpose. Except as set
forth in Section 5.18 of the Company Disclosure Schedule, there have been no
claims under such fidelity bonds within the last four calendar years and neither
the Company nor its Subsidiaries have knowledge of any facts which would form
the basis of a claim under such bonds.
Section 5.19 Labor. No material work stoppage involving the Company or its
Subsidiaries is pending or, to the knowledge of the Company's management,
threatened. Neither the Company nor any of its Subsidiaries is involved in, or,
to the knowledge of the Company's management, threatened with or affected by,
any labor or other employment-related dispute, arbitration, lawsuit or
administrative proceeding. Employees of the Company and its Subsidiaries are not
represented by any labor union, and, to the knowledge of the Company's
management, no labor union is attempting to organize employees of the Company or
any of its Subsidiaries.
Section 5.20 Material Interests of Certain Persons. Except as set forth in
Section 5.20 of the Company Disclosure Schedule, no officer or director of the
Company, or any "associate" (as such term is defined in Rule 14a-1 under the
Exchange Act) of any such officer or director, has any interest in any contract
or property (real or personal), tangible or intangible, used in or pertaining to
the business of the Company or any of its Subsidiaries.
Section 5.21 Registration Obligations. Neither the Company nor any of its
Subsidiaries is under any obligation, contingent or otherwise, presently in
effect or which will survive the Merger by reason of any agreement to register
any of its securities under the Securities Act.
Section 5.22 Brokers and Finders and Executive Bonus. Except as set forth
in Section 5.22 of the Company Disclosure Schedule (which shall identify the
broker, finder or other Person and amount of compensation payable), neither the
Company nor any of its Subsidiaries nor any of their respective officers,
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, no other broker, finder or other Person has acted directly or
indirectly for the Company or any of its Subsidiaries in connection with this
Agreement or the transactions contemplated hereby, and no other amount is
payable based upon the consummation of the transaction contemplated by this
Agreement.
Section 5.23 State Takeover Laws. The transactions contemplated by this
Agreement are exempt from any applicable charter or contractual provision
containing change of control or anti-takeover provisions and, to the knowledge
of the Company, from any applicable state takeover law.
Section 5.24 Environmental Matters. Except as set forth in Section 5.24 of
the Company Disclosure Schedule:
27
(a) The Company, its Subsidiaries and any Property (as herein defined)
owned or operated by any of them have been and are in compliance with all
applicable Environmental Laws. There is no present event, condition or
circumstance, or to the knowledge of the Company or any Subsidiary, any past
event, condition or circumstance (i) that could interfere with the conduct of
the business of the Company or its Subsidiaries in any manner now conducted
relating to such entities' compliance with Environmental Laws, (ii) that could
constitute a violation of, or serve as the basis of liability pursuant to, any
Environmental Law, or (iii) relating to the compliance with any Environmental
Law which would have a Company Material Adverse Effect.
(b) The Company, its Subsidiaries and its Properties have not been, and
are not now subject to any actual or, to the knowledge of the Company or any
Subsidiary, potential or threatened claim or proceeding pursuant to any
Environmental Law and neither the Company nor any Subsidiary have received any
notice from any Person of any actual or alleged violation, or liability pursuant
to, any Environmental Law.
(c) There is no Controlled Property (as herein defined) for which the
Company or any Subsidiary is, or to its knowledge was, required to obtain any
permit, license or authorization under any Environmental Law.
(d) Neither the Company nor any Subsidiary has generated any Hazardous
Substances for which it was required under any Environmental Law to execute any
Hazardous Disposal Manifest.
(e) There are no underground or above ground storage tanks on or under any
Property nor any Hazardous Substances (at, in, on, under or emanating from any
Property) in any quantity or concentration exceeding any standard or limit
established pursuant to applicable Environmental Law.
(f) To the knowledge of the Company or any Subsidiary, there is no
asbestos containing material ("ACM") present in any Controlled Property except
non-friable ACM which can be managed in place in compliance with Environmental
Law without air monitoring, removal or encapsulation which is managed under and
in compliance with an operations and maintenance program.
(g) For purposes of this Section 5.24, "Property" includes (i) any
property (whether real or personal) which the Company or any of its Subsidiaries
currently or in the past has leased, operated, owned or managed in any manner
including, without limitation, any property acquired by foreclosure or deed in
lieu thereof (a "Controlled Property") and (ii) property now held as security
for a loan or other indebtedness by the Company or any of its Subsidiaries or
property currently proposed as security for loans or other credit the Company or
any of its Subsidiaries is currently evaluating to extend or has committed to
extend ("Collateral Property"). With respect to any Collateral Property, the
representations of this Section 5.24 shall be limited to the knowledge of the
Company and its Subsidiaries. With respect to any past conditions, events, facts
or circumstances concerning any Controlled Property which conditions, events,
facts or circumstances existed or occurred prior to the earliest date of any
leasehold interest, operation,
-28-
ownership or management of such Controlled Property by the Company or any of its
Subsidiaries, the representations of this Section 5.24 shall be limited to the
knowledge of the Company and its Subsidiaries.
Section 5.25 Loans. Each loan reflected as an asset in the Financial
Statements is the legal, valid and binding obligation of the obligor of each
loan, enforceable in accordance with its terms, subject to the Remedies
Exception; provided, however, that no representation or warranty is made as to
the collectibility of such loans. The Company's Subsidiaries do not have in
their portfolios any loan exceeding their legal lending limit, and except as
disclosed in Section 5.25 of the Company Disclosure Schedule, there are no
significant delinquent, substandard, doubtful, loss, nonperforming or problem
loans.
Section 5.26 Fiduciary Responsibilities. The Company and its
Subsidiaries have performed in all material respects all of their respective
duties as a trustee, custodian, guardian or as an escrow agent in a manner which
complies in all respects with all applicable laws, regulations, orders,
agreements, instruments and common law standards.
Section 5.27 Patents, Trademarks and Copyrights.
(a) Except as set forth in Section 5.27 of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries require the use of any
material patent, patent application, trademark (whether registered or
unregistered), trademark application, trade name, service xxxx, copyright, or
material trade secret for the business or operations of the Company or its
Subsidiaries. The Company and/or its Subsidiaries own or are licensed or
otherwise have the right to use the items listed in Section 5.27 of the Company
Disclosure Schedule.
(b) The Company and/or its Subsidiaries own all right, title and
interest in and to, or hold valid licenses or sub-licenses to use, all of the
computer software used by the Company and/or its Subsidiaries in their
respective operations, free and clear of any liens, claims or encumbrances of
any kind or nature (excluding the rights of the owner or licensor in the case of
software licensed or sub-licensed by the Company and/or its Subsidiaries from
others). Except as specified on in Section 5.27 of the Company Disclosure
Schedule, all computer software owned by the Company or its Subsidiaries was
developed by the Company or the respective Subsidiary entirely through its own
efforts and for its own account. The use by the Company and/or its Subsidiaries
of computer software licensed to the Company from third parties (including the
sublicensing of such licensed software to customers) does not violate the terms
of the respective license agreements with respect to such licensed software.
(c) No director, officer or employee of the Company or any Subsidiary
owns, directly or indirectly, in whole or in part, any computer software or
other intellectual property right which the Company is using or which is
necessary for the business of the Company or any Subsidiary as now conducted.
Section 5.28 Company Action. The Company Board, at a meeting duly
called and held on October 1, 2001, unanimously (i) determined, based upon such
factors as the Company Board deemed appropriate and the opinion of Xxxx
Xxxxxxxxxx & Co. Investment Banking, its financial
-29-
advisor, that the Merger is fair to and in the best interests of the
Company and its shareholders, (ii) approved this Agreement and the Merger in
accordance with the TBCA, (iii) resolved to recommend approval and adoption of
this Agreement and the Merger and the other transactions contemplated hereby by
the Company's shareholders and (iv) directed that this Agreement and the Merger
be submitted to the Company's shareholders for approval.
Section 5.29 Dissenting Shareholders. The Company and its Subsidiaries
have no knowledge of any plan or intention on the part of any Company
shareholder to exercise any appraisal rights under the TBCA or otherwise make
written demand for payment of the fair value of any Company Common Stock in the
manner provided in the TBCA.
Section 5.30 Company Indebtedness. Except as set forth in Section 5.30
of the Company Disclosure Schedule, the Company has no Company Indebtedness. The
Company has delivered to Sterling true and complete copies of all loan documents
(the "Company Loan Documents") related to all Company Indebtedness and any
indebtedness of the Bank and the Company's other Subsidiaries, other than
deposits, and made available to Sterling all material correspondence concerning
the status of such indebtedness.
Section 5.31 Statements True and Correct. The proxy statement to be
used by the Company to solicit any required approval of its shareholders as
contemplated by this Agreement (the "Proxy Statement") will not (i) when it is
first mailed to the shareholders of the Company, contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which such
statements are made, not misleading, or (ii) at the time of the meeting of the
shareholders of the Company to be held pursuant to Section 8.03 of this
Agreement, including any adjournments thereof (the "Company Shareholders'
Meeting"), be false or misleading with respect to any material fact or omit to
state any material fact necessary to correct any statement or remedy any
omission in any earlier communication with respect to the solicitation of any
proxy for the Company Shareholders' Meeting. All documents that the Company is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all respects with the
provisions of applicable law. The information which is deemed to be set forth in
the Company Disclosure Schedule by the Company for the purposes of this
Agreement is true and accurate in all material respects.
Section 5.32 Representations Not Misleading. No representation or
warranty by the Company in this Agreement, nor any statement, summary, exhibit
or schedule furnished to Sterling by the Company or any of its Subsidiaries
under and pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which they are made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF STERLING
Each of Sterling and Bancorporation represent and warrant to the Company as
follows:
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Section 6.01 Organization, Standing and Authority.
(a) Sterling is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas. Bancorporation is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Sterling is duly qualified to do business and in good
standing in all jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and in which the failure
to be duly qualified would have a material adverse effect on the Condition of
Sterling and its Subsidiaries taken as a whole or on the ability of Sterling or
Bancorporation to consummate the transactions contemplated hereby (a "Sterling
Material Adverse Effect"). Each of Sterling and Bancorporation has all requisite
corporate power and authority to carry on its business as now conducted and to
own, lease and operate its assets, properties and business, and to execute and
deliver this Agreement and perform the terms of this Agreement. Each of Sterling
and Bancorporation is duly registered as a bank holding company under the BHCA.
Each of Sterling and Bancorporation has in effect all Authorizations necessary
for it to own or lease its properties and assets and to carry on its business as
now conducted, except for those Authorizations the absence of which, either
individually or in the aggregate, would not have a Sterling Material Adverse
Effect.
Section 6.02 Sterling Capital Stock.
(a) The authorized capital stock of Sterling consists of 50,000,000
shares of Sterling Common Stock and 1,000,000 shares of preferred stock, par
value $1.00 per share, issuable in series. As of the date hereof, there were
outstanding approximately 42,316,668 shares of Sterling Common Stock and 39,000
shares of Series H Convertible Preferred Stock and no other shares of capital
stock of any class.
(b) The authorized capital stock of Bancorporation consists of 3,000
shares of common stock, par value of $0.01 per share, of which 1,000 shares are
issued and outstanding and owned by Sterling.
(c) At the Effective Time, the shares of Sterling 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 6.03 Authorization of Merger and Related Transactions.
(a) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action in respect thereof on the part of each of
Sterling and Bancorporation, to the extent required by applicable law. This
Agreement represents a valid and legally binding obligation of each of Sterling
and Bancorporation, enforceable against Sterling and Bancorporation in
accordance with its terms except as such enforcement may be limited by the
Remedies Exception.
(b) Neither the execution and delivery of this Agreement by Sterling or
Bancorporation, the consummation by Sterling or Bancorporation of the
transactions
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contemplated hereby nor compliance by Sterling or Bancorporation with any of the
provisions hereof will (i) conflict with or result in a breach of any provision
of Sterling's Articles of Incorporation or bylaws or the Certificate of
Incorporation or bylaws of Bancorporation, (ii) constitute or result in a breach
or violation of any term, condition or provision of, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give rise to any right of termination, cancellation or acceleration
with respect to, or result in the creation of any Lien upon any property or
assets of Sterling or Bancorporation pursuant to any note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation to which
it is a party or by which it or any of its properties or assets may be subject,
and that would, individually or in the aggregate, have a Sterling Material
Adverse Effect or (iii) subject to receipt of the requisite approvals referred
to in Section 9.01(b) of this Agreement, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Sterling or Bancorporation or
any of its properties or assets.
Section 6.04 Financial Statements. Sterling has delivered to the Company
copies of the audited consolidated balance sheets and the related audited
consolidated statements of income, consolidated statements of shareholders'
equity and consolidated statements of cash flows (including related notes and
schedules) of Sterling and its consolidated Subsidiaries as of and for the
periods ended December 31, 1999 and December 31, 2000, and its unaudited
consolidated balance sheet at June 30, 2001, and the related unaudited
consolidated statements of income, shareholders' equity and cash flows for the
six months then ended and included in its annual report filed on Form 10-K for
the year ended December 31, 2000 and its quarterly report filed on Form 10-Q for
the quarter ended June 30, 2001, respectively, filed by Sterling pursuant to the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
(collectively, the "Sterling Financial Statements"). The Sterling Financial
Statements (as of the dates thereof and for the periods covered thereby) (a) are
in accordance with the books and records of Sterling and its consolidated
Subsidiaries, are complete and accurate in all material respects and, have been
maintained in accordance with good business practices, and (b) present fairly
the consolidated financial position and the consolidated statements of income,
changes in shareholders' equity and cash flows of Sterling and its Subsidiaries
as of the dates and for the periods indicated, in accordance with GAAP, subject
in the case of unaudited interim financial statements to normal recurring year-
end adjustments and except for the absence of certain footnote information in
the unaudited interim financial statements.
Section 6.05 Sterling SEC Reports. Since January 1, 1998, Sterling has
filed on a timely basis all reports and statements, together with all amendments
required to be made with respect thereto, that as an issuer it is required to
file with the SEC pursuant to the Exchange Act (the "Sterling SEC Reports").
Such Sterling SEC Reports did not, as of their respective dates (or if amended
by a filing prior to the date hereof, then as of the date of such amendment)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent superseded by a Sterling SEC Report filed
subsequently and prior to the date hereof.
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Section 6.06 Regulatory Matters. Neither Sterling nor any of its
Subsidiaries has taken or agreed to take any action or has any knowledge of any
fact or circumstance that would materially impede or delay receipt of any
approval referred to in Section 9.01(b).
Section 6.07 Legal Proceedings. There are no claims or charges filed
with, or proceedings or investigations by, Regulatory Authorities or actions or
suits instituted or pending or, to the knowledge of Sterling's management,
threatened against Sterling or any of its Subsidiaries, or against any property,
asset, interest or right of any of them, that might reasonably be expected to
threaten or impede the consummation of the transactions contemplated by this
Agreement. Neither Sterling nor any of its Subsidiaries is a party to any
agreement or instrument or is subject to any charter or other corporate
restriction or any Law or Order that, individually or in the aggregate, might
reasonably be expected to have a Sterling Material Adverse Effect or might
reasonably be expected to threaten or impede the consummation of the
transactions contemplated by this Agreement.
Section 6.08 Compliance with Laws.
(a) Each of Sterling and its Subsidiaries is, in all material respects, in
compliance with all laws, rules, regulations, policies, guidelines, reporting
and licensing requirements and orders applicable to this business or to its
employees conducting its business, and with its internal policies and
procedures.
(b) Since January 1, 1998, neither Sterling, Bancorporation nor Sterling
Bank has received or been a party to any Regulatory Agreement. Neither Sterling,
Bancorporation nor Sterling Bank has received or been made aware of any
complaints or inquiries under the Community Reinvestment Act, the Fair Housing
Act, the Equal Credit Opportunity Act or any other state or federal anti-
discrimination fair lending law and, to the knowledge of Sterling,
Bancorporation nor Sterling Bank, there is no fact or circumstance that would
form the basis of any such complaint or inquiry.
(c) Neither Sterling nor any of its Subsidiaries is required by
Section 32 of the Federal Deposit Insurance Act to give prior notice to a
federal banking agency of the proposed addition of an individual to its Board of
Directors or the employment of an individual as a senior executive officer.
Section 6.09 Sterling Employee Benefit Plans. For purposes of this
Section 6.09, the term "Sterling Plan" means all employee benefit plans as
defined in Section 3(3) of ERISA, to which Sterling contributes, sponsors, or
otherwise has any obligations.
(a) No Sterling Plan is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
(b) Each Sterling Plan is and has been in all material respects operated
and administered in accordance with its provisions and applicable law,
including, if applicable, ERISA and the Code.
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(c) Each Sterling Plan intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the Internal Revenue
Service stating that the Sterling Plan (including all amendments) is tax
qualified under Section 401(a) of the Code and Sterling knows of no reason that
any such Sterling Plan is not qualified within the meaning of Section 401(a) of
the Code and knows of no reason that each related Sterling Plan trust is not
exempt from taxation under Section 501(a) of the Code.
(d) All contributions, premium payments and other payments required to
be made in connection with the Sterling Plans as of the date of this Agreement
have been made or adequate provisions have been made for the payment thereof.
(e) Sterling has no plan that is subject to Title IV of ERISA,
Section 301 or ERISA or Section 412 of the Code.
Section 6.10 Representations Not Misleading. No representation or
warranty by Sterling in this Agreement, nor any statement, summary, exhibit or
schedule furnished to the Company by Sterling or any of its Subsidiaries under
and pursuant to this Agreement contains or will contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading.
Section 6.11 Brokers and Finders. Neither Sterling nor any of its
Subsidiaries nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder's fees and no broker or
finder has acted directly or indirectly for Sterling or any of its Subsidiaries
in connection with this Agreement or the transactions contemplated hereby.
Section 6.12 Merger Consideration. Sterling has sufficient cash
available to fund the cash portion of the Merger Consideration.
ARTICLE VII
CONDUCT OF THE COMPANY'S BUSINESS
Section 7.01 Conduct of Business Prior to the Effective Time. During the
period from the date of this Agreement until the earlier of the Effective Time
or the termination of this Agreement, and except as otherwise contemplated by
this Agreement, the Company shall, and shall cause each of its Subsidiaries to:
(i) operate and conduct its business in the usual, regular and
ordinary course, consistent with past practice and prudent banking
practices;
(ii) preserve intact the Company's and each of its Subsidiaries'
corporate existence, business organization, assets, licenses, permits,
authorizations, and business opportunities;
(iii) comply with all material contractual obligations applicable to
business operations of the Company and/or its Subsidiaries;
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(iv) maintain all of its properties and assets in good repair,
order and condition, reasonable wear and tear excepted, and maintain the
insurance coverages described in Section 5.18 or obtain comparable
insurance coverages from reputable insurers, which, in respect to amounts,
types and risks insured, are adequate for the business conducted by the
Company and its Subsidiaries and consistent with the existing insurance
coverages;
(v) in good faith and in a reasonable manner (a) cooperate with
Sterling in satisfying the conditions in this Agreement, (b) assist
Sterling in obtaining as promptly as possible all consents, approvals,
authorizations and rulings, whether regulatory, corporate or otherwise, as
are necessary to carry out and consummate the transactions contemplated by
this Agreement, (c) upon the written request of Sterling, furnish
information concerning the Company and its Subsidiaries not previously
provided to Sterling required for inclusion in any filings or applications
that may be necessary in that regard, and (d) perform all acts and execute
and deliver all documents necessary to cause the transactions contemplated
by this Agreement to be consummated at the earliest date that is reasonably
possible;
(vi) timely file all Reports required to be so filed by the Company
or any of its Subsidiaries with any Regulatory Authority and to the extent
permitted by applicable law, promptly thereafter deliver to Sterling copies
of all such Reports required to be so filed;
(vii) comply in all material respects with all applicable laws and
regulations, domestic and foreign;
(viii) promptly notify Sterling upon obtaining knowledge of any
default, event of default or condition with which the passage of time or
giving of notice would constitute a default or an event of default under
the Company Loan Documents and promptly notify and provide copies to
Sterling of any material written communications concerning the Company Loan
Documents;
(ix) promptly give written notice to Sterling of (a) any material
change in its business, operations or prospects, (b) any complaints,
investigations or hearings (or communications indicating that the same may
be contemplated) of any Regulatory Authority, (c) the institution or the
threat of any material litigation against the Company, or (d) any event or
condition that would cause any of the representations or warranties of the
Company contained in this Agreement to be untrue or misleading in any
material respect for which would otherwise cause a Company Material Adverse
Effect; and
(x) use its best efforts to maintain current customer relationship
and preserve intact its business organization, employees, advantageous
business relationships and retain the services of its officers and
Employees.
Section 7.02 Forbearances. During the period from the date of this
Agreement to the earlier of the Effective Time or the termination of this
Agreement, and except as set forth in Section 7.02 of the Company Disclosure
Schedule, the Company shall not, and shall not permit any of its Subsidiaries
to, without the prior written consent of Sterling (and the Company shall
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provide Sterling with prompt notice of any events referred to in this Section
7.02 occurring after the date hereof):
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness and indebtedness of
the Company or any of its Subsidiaries to the Company or any of its
Subsidiaries; it being understood and agreed that incurrence of indebtedness in
the ordinary course of business shall include, without limitation, the creation
of deposit liabilities, purchases of federal funds, and sales of certificates of
deposit), assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other Person, or make any loan or advance
other than in the ordinary course of business consistent with past practice and
prudent banking practices;
(b) adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend or make any other distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, provided, however, that the Company may, consistent
with past practices, make tax and other distributions to its shareholders in an
amount not in excess of eighty percent (80%) of the Company's earnings during
the period commencing July 1, 2001 and ending on the earlier of the Effective
Time or termination of this Agreement; grant any stock options or stock awards,
or grant any Person any right to acquire any shares of its capital stock; or
issue any additional shares of capital stock (except upon exercise and
conversion of Company Options, as provided in Section 3.02(a) and Section 8.06),
or any securities or obligations convertible into or exchangeable for any shares
of its capital stock;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of its
properties or assets to any Person, or cancel, release or assign any
indebtedness to such Person or any claims held by any such Person, except in the
ordinary course of business consistent with past practice and prudent banking
practices or pursuant to contracts or agreements in force at the date of this
Agreement;
(d) make any material investment (other than trades in investment
securities in the ordinary course) either by purchase of stock or securities,
contributions to capital, property transfers, or purchase of any property or
assets of any other Person;
(e) enter into, terminate or fail to exercise any material right under,
any contract or agreement involving annual payments in excess of $10,000 and
which cannot be terminated without penalty upon 30 days' notice, or make any
change in, or extension of (other than automatic extensions) any of its leases
or contracts involving annual payments in excess of $10,000 and which cannot be
terminated without penalty upon 30 days' notice;
(f) make, renegotiate, renew, increase, extend or purchase any (i) loan,
lease (credit equivalent), advance, credit enhancement or other extension of
credit, except (A) in conformity with existing lending practices of the Company
in amounts not to exceed $400,000 to any individual borrower, (B) loans or
advances as to which the Company or any Subsidiary has a legally binding
obligation to make such loan or advances as of the date hereof, (C) loans fully
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secured by a certificate of deposit at the Bank, and (D) consumer loans in
amounts less than $40,000; provided, however, that the Company and its
Subsidiaries may not make, renegotiate, renew, increase, extend or purchase any
loan that is underwritten based on no verification of income or loans commonly
known or referred to as "no documentation loans," or (ii) loans, advances or
commitments to directors, officers or other affiliated parties of the Company or
any of its subsidiaries;
(g) modify the terms of any Company Benefit Plan (including any
severance pay plan) or increase or modify in any manner the compensation or
fringe benefits of any of its Employees (including, without limitation, entering
into any commitment to pay any "stay bonuses" or similar benefits) or pay any
pension or retirement allowance not required by any existing plan or agreement
to any such Employees, or become a party to, amend or commit itself to any
pension, retirement, profit-sharing or welfare benefit plan or agreement or
employment agreement with or for the benefit of any Employee other than routine
adjustments in compensation and fringe benefits in the ordinary course of
business consistent with past practice or accelerate the vesting of any stock
options or other stock-based compensation, provided, that the Company may pay
accrued bonuses in an amount not to exceed $340,000 prior to the Closing;
(h) settle any claim, action or proceeding involving the payment of money
damages in excess of $10,000;
(i) amend its Articles of Incorporation or its bylaws;
(j) fail to maintain its Regulatory Agreements, material Authorizations
or to file in a timely fashion all federal, state, local and foreign Tax
Returns;
(k) make any capital expenditures of more than $10,000 individually or
$50,000 in the aggregate;
(l) fail to maintain or administer each Company Benefit Plan in
accordance with applicable Law or timely make all contributions or accruals
required thereunder in accordance with GAAP;
(m) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue at any time prior to the Effective Time, or in any of
the conditions to the Merger set forth in Article X not being satisfied or in a
violation of any provision of this Agreement, except, in every case, as may be
required by applicable law;
(n) change any methods or policies of accounting from those used in the
Company Financial Statements;
(o) take or cause or permit to be taken any action, whether before or
after the Effective Time, which would disqualify the Merger as a tax-free
reorganization within the meaning of Section 368 of the Code (subject to
required recognition of gain or loss with respect to cash paid for fractional
shares pursuant hereto); or
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(p) agree, or make any commitment, to take, in writing or otherwise, any
of the actions described in clauses (a) through (p) of this Section 7.02.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.01 Access and Information.
(a) During the period from the date of this Agreement through the
Effective Time:
(i) the Company shall, and shall cause its Subsidiaries to, afford
Sterling and its accountants, counsel and other representatives full access
during normal business hours to the properties, books, contracts, Tax
Returns, Reports, commitments and records of the Company and its
Subsidiaries at any time, and from time to time, for the purpose of
conducting any review or investigation reasonably related to this Agreement
or the Merger, and the Company and its Subsidiaries will cooperate fully
with all such reviews and investigations provided that Sterling provides
the Company with reasonable notice of Sterling's on-site visits and that
Sterling does not unreasonably interfere with the business operations of
the Company during the course of such visits; and
(ii) Sterling shall upon reasonable notice make personnel and copies
of the Sterling SEC Reports and other information reasonably related to
Sterling's operations or financial performance available to the Company and
its advisors for purposes of any review or report to the Company Board in
evaluating the Merger.
(b) During the period from the date of this Agreement through the
Effective Time, the Company shall furnish to Sterling (i) all Reports which are
filed after the date hereof promptly upon the filing thereof, (ii) a copy of
each Tax Return filed by it after the date hereof, and (iii) monthly and other
interim financial statements in the form prepared by the Company for its
internal use. During this period, the Company shall notify Sterling promptly of
any material change in the Condition of the Company or any of its Subsidiaries.
(c) During the period from the date of this Agreement through the
Effective Time, the Company shall provide Sterling such additional information
as Sterling may request from time to time regarding the loans, credit facilities
and/or collateral therefor as may be specified by Sterling. The Company shall
also make available to Sterling its loan files, correspondence and other records
regarding any such specified loans, credit facilities and/or collateral.
(d) Notwithstanding the foregoing provisions of this Section 8.01, no
investigation by any party hereto made heretofore or hereafter shall affect the
representations and warranties of the other parties which are contained herein
and each such representation and warranty shall survive such investigation.
(e) Sterling agrees that it will keep confidential any information
furnished to it by the Company in connection with the transactions contemplated
by this Agreement which is reasonably designated as confidential at the time of
delivery, except to the extent that such information (i) was already known to
Sterling and was received from a source other than the
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Company or any of its Subsidiaries, directors, officers, employees or agents,
(ii) thereafter was lawfully obtained from another source or was publicly
disclosed by the Company or its agent or representative, or (iii) is required to
be disclosed to any Regulatory Authority, or is otherwise required to be
disclosed by law. Sterling agrees not to use such confidential information, and
to implement safeguards and procedures that are reasonably designed to prevent
such confidential information from being used, for any purpose other than in
connection with the transactions contemplated by this Agreement. Upon any
termination of this Agreement, Sterling will return to the Company or will
destroy all documents furnished Sterling for its review and all copies of such
documents made by Sterling. The Company agrees to keep confidential, in
accordance with the provisions of this Section 8.01(e), any information
furnished to it by Sterling in connection with the transactions contemplated by
this Agreement that is reasonably designated as confidential at the time of
delivery. The Company agrees not to use any such confidential information, and
to implement safeguards and procedures that are reasonably designed to prevent
such confidential information from being used, for any purpose other than in
connection with the transactions contemplated by this Agreement. Upon any
termination of this Agreement, the Company will return to Sterling or will
destroy all documents containing any such confidential information furnished to
the Company for its review and all copies of such documents made by the Company.
Section 8.02 Registration Statement and Proxy Statement.
(a) As promptly as practicable after the execution of this Agreement, the
Company shall (i) prepare and mail to its shareholders and (ii) if required by
applicable law file with the appropriate Regulatory Authorities a proxy or
information statement (the "Proxy Statement") relating to the Company
Shareholders' Meeting. Sterling shall furnish all information concerning
Sterling and its Subsidiaries as the Company may reasonably request in
connection with and the preparation of the Proxy Statement. The Company shall
give Sterling and its counsel the opportunity to review the Proxy Statement and
each document to be incorporated by reference therein prior to mailing the Proxy
Statement to its shareholders.
(b) Unless otherwise required pursuant to the applicable fiduciary duties
of the Company Board (as determined in good faith by the Company Board based
upon the advice of its outside counsel), no amendment or supplement to the Proxy
Statement will be made by the Company without the approval of Sterling, which
approval shall not be unreasonably withheld.
(c) The information supplied by the Company for inclusion in the Proxy
Statement shall not, at (i) the time the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to the stockholders of the
Company and (ii) the time of the Company Shareholders' Meeting, 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 not
misleading.
(d) The information supplied or to be supplied by Sterling for inclusion
in the Proxy Statement will not, at the time it is supplied to the Company,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein not misleading.
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(e) The shares of Sterling Common Stock to be issued as the Merger
Consideration will be issued under Sterling's effective shelf registration
statement on Form S-4 (Registration No.333-46345) ("Registration Statement")
under the Securities Act. Rule 145 under the Securities Act will be available to
the Company Shareholders who receive these shares of Sterling Common Stock under
Article III to sell these shares without further registration under the
Securities Act. As of its effective date, the Registration Statement complied as
to form in all material respect with the applicable requirements of the
Securities Act. The prospectus (the "Prospectus"), included in the Registration
Statement, at the time of delivery to Company stockholders and at the time of
the Company Stockholders Meeting, has complied and will comply as to form in all
material respects with the applicable requirements of the Securities Act. The
Registration Statement and Prospectus do 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 made therein, in the light of the
circumstances under which they were made, not misleading.
Section 8.03 Company Shareholder's Meeting. The Company, acting through
the Company Board, shall, in accordance with applicable law, duly call, give
notice of, convene and hold a special meeting of its shareholders as soon as
practicable for the purpose of approving and adopting this Agreement and
approving the Merger. The Company shall cause the Company Shareholder's Meeting
to occur within 45 days after the Proxy Statement is completed; provided,
however, that the Company Shareholder's Meeting shall occur no later than
December 15, 2001. Subject to the fiduciary duties of the Company Board under
applicable law as determined by such directors in good faith after consultation
with and based upon the advice of outside counsel, the Company shall include in
the Proxy Statement of the Company for use in connection with the Company
Shareholders' Meeting, the recommendation of the Company Board that the Company
shareholders vote in favor of the approval and adoption of the Merger, this
Agreement and the consummation of the transactions contemplated hereby. The
Company agrees to use its best efforts to obtain the approval and adoption of
the Merger and this Agreement by the Company shareholders. The Company (i)
acknowledges that a breach of its covenant contained in this Section 8.03 to
convene a meeting of its shareholders and call for a vote thereat with respect
to the approval of this Agreement, the Merger and the transactions contemplated
hereby and thereby will result in irreparable harm to Sterling which will not be
compensable in monetary damages and (ii) agrees that such covenant shall be
specifically enforceable and that specific performance and injunctive relief
shall be a remedy properly available to Sterling for a breach of such covenant.
Section 8.04 Filing of Regulatory Approvals. As soon as reasonably
practicable, but in any event within twenty (20) Business Days of the execution
of this Agreement, Sterling and the Company shall file all notices and
applications to the applicable Regulatory Authorities which Xxxxxxxx xxxxx
necessary or appropriate to complete the transaction contemplated herein,
including the Bank Merger. Sterling and the Company each agree to deliver to the
other copies of all non-confidential portions of any such applications. The
Company shall cooperate, and shall cause its Subsidiaries, accountants, counsel
and other representatives to cooperate, with Sterling and its accountants,
counsel and other representatives, in connection with the preparation by
Sterling of any applications and documents required to obtain the Approvals
which cooperation shall include providing all information, documents and
appropriate
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representations as may be necessary in connection therewith and, when requested
by Sterling, preparing and filing regulatory applications.
Section 8.05 Press Releases. Prior to the public dissemination of any
press release or other public disclosure of information about this Agreement,
the Merger or any other transaction contemplated hereby, the parties to this
Agreement shall mutually agree as to the form and substance of such release or
disclosure, except as otherwise provided by applicable law or by rules of the
NASDAQ.
Section 8.06 Company Options.
(a) As soon as practicable after the execution of this Agreement, the
Company shall notify each holder of a Company Option of the execution of this
Agreement and the terms and conditions contained herein requiring the exercise
of the Company Options. The Company shall use its best efforts to cause each
Company Option to either be (i) exercised into shares of Company Common Stock,
or (ii) terminated prior to the Effective Time as more specifically provided in
Section 3.03(a).
(b) With respect to any Company Options, the Company shall not permit any
holder of the Company Options to exercise such Company Option by any means other
than the payment of the exercise price thereof in cash, unless the Company is
contractually obligated to do so. With respect to any such holder, the Company
shall use its best efforts to encourage such holder to exercise such Company
Option by payment in cash.
(c) The Company shall, in accordance with the terms thereof, cause all
Company Stock Plans (including, without limitation, the Company's Nonqualified
Stock Option Plan), to be terminated at and as of the Effective Time and without
further action by any party.
Section 8.07 Miscellaneous Agreements and Consents. Subject to the terms
and conditions of this Agreement, each of the parties hereto agrees to use its
respective commercially reasonable efforts to satisfy, or cause to be satisfied,
all conditions to their respective obligations under this Agreement and to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement as
expeditiously as reasonably practicable, including, without limitation, using
their respective commercially reasonable efforts to lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby. Sterling and
the Company shall, and shall cause each of their respective Subsidiaries to, use
their commercially reasonable efforts to obtain consents of all third parties
and Regulatory Authorities necessary or, in the reasonable opinion of Sterling
or the Company, desirable for the consummation of the transactions contemplated
by this Agreement including the Merger and the Bank Merger. While this Agreement
is in effect, neither Sterling nor the Company shall take any actions, or omit
to take any actions, which would cause this Agreement to become unenforceable in
accordance with its terms. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and
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directors of Sterling shall be deemed to have been granted authority in the name
of the Company to take all such necessary or desirable action.
Section 8.08 Affiliates Letters. Within ten (10) days of the execution
of this Agreement, the Company shall deliver to Sterling a letter identifying
all persons who are then "affiliates" of the Company for purposes of Rule 145
under the Securities Act. Within ten (10) days of any person becoming an
affiliate of the Company after the Company's delivery of the letter referred to
above, the Company shall provide to Sterling an updated letter identifying all
persons who are then "affiliates." The Company shall cause each person so
identified to deliver to Sterling prior to the Effective Time a written
agreement substantially in the form attached hereto as Annex C (an "Affiliate
Letter"). For a period of not less than two years after the date hereof (or such
shorter period of time as may be applicable for such "affiliates" to sell shares
of Sterling Common Stock in accordance with Rule 144 of the Securities Act),
Sterling will continue to file in a timely manner all securities reports
required to be filed by it pursuant to Section 13 and Section 15(d) of the
Exchange Act.
Section 8.09 Indemnification.
(a) Sterling shall indemnify, defend and hold harmless the directors,
officers, employees, and agents of the Company and its Subsidiaries (each, an
"Indemnified Party") against all losses, expenses (including reasonable
attorneys' fees), claims, damages or liabilities and amounts paid in settlement
arising out of actions or omissions or alleged acts or omissions occurring at or
prior to the Effective Time (including the transactions contemplated by this
Agreement) to the full extent permitted under the TBCA and by the Company's
Articles of Incorporation and bylaws as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of any
proceeding to the full extent permitted by the TBCA upon receipt of any
undertaking required by the TBCA, except that the right to indemnification shall
not arise in those instances in which the party seeking indemnification has
participated in the breach of any covenant or agreement contained herein or
knowingly caused any representation or warranty of the Company contained herein
to be false or inaccurate in any respect and the claim arises principally from
such breach or the falsity or inaccuracy of such representation or warranty.
Without limiting the foregoing, in any case in which a determination by Sterling
is required to effectuate any indemnification, Sterling shall direct, at the
election of the Indemnified Party, that the determination shall be made by
independent counsel mutually agreed upon between Sterling and the Indemnified
Party.
(b) Sterling shall use its commercially reasonable efforts (and the
Company shall cooperate prior to the Effective Time in these efforts) to
maintain in effect for a period of four years after the Effective Time the
Company's existing directors' and officers' liability insurance policy (provided
that Sterling may substitute therefor (i) policies of at least the same coverage
and amounts containing terms and conditions which are substantially no less
advantageous in the aggregate or (ii) with the consent of the Company given
prior to the Effective Time, any other policy) with respect to claims arising
from facts or events which occurred prior to the Effective Time and covering
persons who are currently covered by such insurance; provided, however, that
Sterling shall not be obligated to make premium payments for such four-year
period in respect of such policy (or coverage replacing such policy) which
exceed, for the portion related
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to the Company's directors and officers, 100% of the annual premium payments on
the Company's current policy in effect as of the date of this Agreement (the
"Maximum Amount"). If the amount of the premiums necessary to maintain or
procure such insurance coverage exceeds the Maximum Amount, Sterling shall use
its commercially reasonable efforts to maintain the most advantageous policies
of directors' and officers' liability insurance obtainable for a premium equal
to the Maximum Amount.
(c) If Sterling shall consolidate with or merge into any other person
and shall not be the continuing or surviving person of such consolidation or
merger or shall transfer all or substantially all of its assets to any person,
then and in each case, proper provision shall be made so that the successors and
assigns of Sterling shall assume the obligations set forth in this Section 8.09.
(d) The provisions of this Section 8.09 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, and his or her
heirs and representatives.
(e) Sterling shall pay all expenses, including reasonable attorneys' fees,
that may be incurred by any Indemnified Party in successfully enforcing the
indemnity and other obligations provided for in this Section 8.09 if Sterling
has been finally determined to have acted in bad faith in refusing such
indemnity. The Indemnified Party shall pay all expenses, including reasonable
attorneys' fees, incurred by Sterling if the indemnification or other
obligations provided in this Section 8.09 are denied by a court of competent
jurisdiction by final and nonappealable order.
Section 8.10 Certain Change of Control Matters. From and after the date
hereof, the Company shall take all action necessary so that none of the
execution and delivery of this Agreement, the consummation of the Merger or the
consummation of the other transactions contemplated hereby will either increase,
or accelerate the payment of, any benefits otherwise payable under any Company
Benefit Plan other than the payment of the Executive Bonus and the acceleration
of the vesting of the Company Options.
Section 8.11 Employee Benefits. As soon as practicable following the
Effective Time, Sterling shall provide generally to officers and employees of
the Company and its Subsidiaries employee benefits, including without limitation
health and welfare benefits, life insurance and vacation arrangements, on terms
and conditions which when taken as a whole are substantially similar, in the
good faith opinion of Sterling, to those provided from time to time by Sterling
and its Subsidiaries to their similarly situated officers and employees. In that
regard, such officers and employees of the Company shall be credited under the
employee benefit plans of Sterling for their years of "eligibility service" and
"vesting service" earned under the Company Benefit Plans as if such service had
been earned with Sterling. Such officers and employees of the Company shall be
credited with "benefit service" under the employee benefit plans of Sterling
only with respect to their period of employment with Sterling and its
Subsidiaries after the Effective Time in accordance with the terms and
conditions of such employee benefit plans. As of the Effective Time, the
employees and their dependents, if any, previously covered as of the Effective
Time under the Company's health insurance plan shall be covered under Sterling's
health insurance plan and, to the extent possible under the terms of Sterling's
then current health insurance plan, will not be subject to any pre-existing
condition limitations or exclusions, except those excluded
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under Sterling's health insurance plan. The Company's employees shall not be
required to satisfy the deductible and employee payments required by Sterling's
comprehensive medical and/or dental plans for the calendar year of the Effective
Time to the extent of amounts previously credited during such calendar year
under comparable plans maintained by the Company. Nothing in this Agreement
shall operate or be construed as requiring Sterling or any of its Subsidiaries
to continue to maintain or to terminate any Company Benefit Plan or any employee
benefit plan of Sterling or to limit in any way Sterling's ability to amend any
such plan.
Section 8.12 Certain Actions. No party shall take any action which
would adversely affect or delay the ability of either Sterling or the Company to
obtain any necessary approvals of any Regulatory Authority or other governmental
authority required for the transactions contemplated hereby or to perform its
covenants and agreements under this Agreement.
Section 8.13 No Solicitation.
(a) Neither the Company nor any of its Subsidiaries shall, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to initiate, solicit,
encourage (including by way of furnishing information), or take any other action
to facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal (as defined
herein), or enter into or maintain or continue discussions or negotiate with any
person in furtherance of such inquiries or to obtain an Acquisition Proposal, or
agree to or endorse any Acquisition Proposal, and the Company shall notify
Sterling orally (within one business day) and in writing (as promptly as
practicable), in reasonable detail, as to any inquiries and proposals which it
or any of its Subsidiaries or any of their respective representatives or agents
may receive; provided, however, that (i) the Company may furnish or cause to be
furnished confidential and non-public information concerning the Company and its
businesses, properties or assets to a third party (subject to execution by such
third party of a confidentiality agreement containing confidentiality provisions
substantially similar to those of the letter agreement entered into between the
Company and Sterling dated May 22, 2001), (ii) following the execution of such a
confidentiality agreement, the Company may engage in discussions or negotiations
with a third party executing such an agreement, (iii) following receipt of an
Acquisition Proposal, the Company may take and disclose to its shareholders a
position with respect to such Acquisition Proposal, including, if such
Acquisition Proposal is a tender offer, the Company Board may take and disclose
to the Company's shareholders a position contemplated by Rule 14e-2 under the
Exchange Act, and/or (iv) following receipt of an Acquisition Proposal, the
Company Board may withdraw or modify its recommendation referred to in Section
5.28, but in each case referred to in the foregoing clauses (i) through (iv)
only to the extent that the Company Board shall conclude in good faith (on the
basis of advice from outside counsel) that such action is required in order for
the Company Board to satisfy its fiduciary obligations under applicable law;
provided, further, that the Company Board shall not take any of the foregoing
actions referred to in clauses (i) through (iv) until after reasonable notice to
and consultation with Sterling with respect to such action and that the Company
Board shall continue to consult with Sterling after taking such action and, in
addition, if the Company Board receives an Acquisition Proposal or any request
for confidential
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and non-public information or for access to the properties, books or records of
the Company or any Subsidiary for the purpose of making, or in connection with,
an Acquisition Proposal, then the Company shall promptly inform Sterling as
provided above of the terms and conditions of such proposal or request and the
identity of the person making it. As used herein, the term "Acquisition
Proposal" means: (x) any proposal, inquiry or offer from any person relating to,
or any agreement to engage in, any acquisition or purchase of a significant
amount of the assets of the Company and its Subsidiaries on a consolidated
basis, or any equity interest in the Company or any of its Subsidiaries or any
take-over bid or tender offer (including an issuer bid or self-tender offer) or
exchange offer, merger, plan of arrangement, reorganization, consolidation,
business combination, sale of substantially all of the assets, sale of
securities, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries (other than the transactions
contemplated by this Agreement) or any other transaction the consummation of
which would or could reasonably be expected to impede, interfere with, prevent
or materially delay the consummation of the Merger or which would or could
reasonably be expected to materially dilute the benefits to Sterling of the
transactions contemplated hereby or (y) any public announcement of, or written
communication to the Company of, any proposal, plan or intention to do any of
the foregoing. The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. "Acquisition Transaction" means
the transaction(s) by which an Acquisition Proposal is consummated. Nothing in
this Section 8.13 shall (a) permit the Company to terminate this Agreement or
(b) permit the Company or any of its Subsidiaries to enter into any written
agreement with respect to an Acquisition Proposal during the term of this
Agreement (it being agreed that during the term of this Agreement neither the
Company nor any of its Subsidiaries shall enter into any written agreement with
any person that provides for, or in any way facilitates, an Acquisition
Proposal, other than a confidentiality agreement in the form referred to above),
it being understood that Section 10.01 sets forth the rights of the Company to
terminate this Agreement.
(b) Without limiting the foregoing, it is understood that any violation
of the restrictions set forth in the first sentence of Section 8.13(a) by any
employee, officer or director or authorized employee, agent or representative of
the Company or any of its Subsidiaries (including, without limitation, any
investment banker, financial advisor, attorney or accountant or other
representative retained by the Company or any of its Subsidiaries) or otherwise
shall be deemed to be a breach of Section 8.13(a) by the Company.
Section 8.14 Termination Fee. To compensate Sterling 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
Sterling, the Company and Sterling agree as follows:
(a) Provided that neither Sterling nor Bancorporation shall be in material
breach of its obligations under this Agreement (which breach has not been cured
promptly following receipt of written notice thereof by the Company specifying
in reasonable detail the basis of such alleged breach), the Company shall pay to
Sterling the sum of $2,000,000 (the "Termination Fee"), plus reasonable out-of-
pocket expenses, not in excess of $500,000 (including, without limitation,
amounts paid or payable to banks and investment bankers, fees and expenses of
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counsel and printing expenses) (such expenses are hereinafter referred to as the
"Expenses") incurred by Sterling or any of its Affiliates in connection with or
arising out of the transactions contemplated by this Agreement, regardless of
when those expenses are incurred, if this Agreement is terminated (i) by the
Company under the provisions of Section 10.01(e), (ii) by either Sterling or the
Company under the provisions of Section 10.01(f) due to the failure of the
Company's shareholders to approve and adopt this Agreement and the Merger, if at
the time of such failure to so approve and adopt this Agreement and the Merger
there shall exist an Acquisition Proposal with respect to the Company and,
within nine months of the termination of this Agreement, the Company enters into
a definitive agreement with any third party with respect to any Acquisition
Proposal with respect to the Company or (iii) by Sterling under the provisions
of Section 10.01(g). Sterling shall provide the Company with an itemization of
Expenses.
(b) Any payment required by clauses (i) and (iii) of paragraph (a) of this
Section 8.14 shall become payable within two Business Days after termination of
this Agreement or, in the case of reimbursement to Sterling of the Expenses,
promptly after (but in no event later than three Business Days following)
delivery to the Company of the itemization of Expenses. Any payment of the
Termination Fee required by clause (ii) of paragraph (a) of this Section 8.14
shall become payable within two (2) Business Days of the Company's entry into
the definitive agreement referred to in clause (ii) provided, however, that any
payment of Expenses required by such clause (ii) shall be payable upon the
termination of this Agreement.
(c) The Company acknowledges that the agreements contained in this
Section 8.14 are an integral part of the transactions contemplated in this
Agreement, and that, without these agreements, Sterling would not enter into
this Agreement; accordingly, if the Company fails to promptly pay the
Termination Fee or Expenses when due, the Company shall in addition thereto pay
to Sterling all costs and expenses (including fees and disbursements of counsel)
incurred in collecting such Termination Fee or Expenses, as the case may be,
together with interest on the amount of the Termination Fee or Expenses (or any
unpaid portion thereof) from the date such payment was required to be made until
the date such payment is received by Sterling at the prime rate as reported in
The Wall Street Journal as in effect from time to time during such period.
Section 8.15 Accruals. At the request of Sterling, the Company shall,
consistent with GAAP, immediately prior to the Closing establish and take such
reserves and accruals as Sterling shall reasonably request to conform the Bank's
loan, accrual and reserve policies and practices to the policies of Sterling
Bank, provided, however, that no such adjustment shall constitute or be deemed
to be a breach, violation or failure to satisfy any representation, warranty,
covenant, condition or other provision or constitute grounds for termination of
this Agreement. No adjustment shall require any prior filing with or approval
from any governmental agency or regulatory authority or violate any law, rule or
regulation applicable to the Company or any Subsidiary.
Section 8.16 Certain Agreements. Neither the Company nor any Subsidiary
(nor any of their agents or representatives) will waive any provision of any
confidentiality or standstill or similar agreement to which it is a party
without the prior written consent of Sterling, unless the Company Board or the
board of directors of such Subsidiary concludes in good faith (based upon advice
from outside counsel) that waiving such provision is necessary or appropriate in
order for
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such board of directors to act in a manner which is consistent with its
fiduciary obligations under applicable law. The Company will immediately advise
Sterling of the termination or waiver of any confidentiality or standstill or
similar agreement to which it is a party by the other party or parties to such
agreement.
Section 8.17 Release Agreements. The Company shall use its best efforts,
on behalf of Sterling and pursuant to the request of Sterling, to cause each
Company Specified Shareholder, Key Company Official and such other Person as may
be reasonably required by Sterling to execute and deliver to Sterling a written
release and waiver satisfactory in form and substance to Sterling in its sole
discretion and in substantially the form attached hereto as Annex D (the
"Release Agreements") prior to the Effective Time, providing for, among other
things, the release of the Company, Bank, Sterling and the Surviving Corporation
and their respective affiliates from any and all claims, known and unknown, that
such Person has or may have against any of the foregoing through the Effective
Time.
Section 8.18 Nasdaq Listing. Sterling shall use its commercially
reasonable efforts to have the shares of Sterling Common Stock to be issued to
the holders of the Company Common Stock in the Merger included for quotation on
the Nasdaq prior to the Effective Time.
Section 8.19 Post-Closing Actions. None of the parties shall take, or
permit any of their Subsidiaries or Affiliates to take, any action after the
Closing that would disqualify the Merger as a reorganization within the meaning
of Section 368(a) of the Code.
Section 8.20 Banker's and Finder's Fees and Executive Bonus. The Company
shall pay (i) all broker's and finder's fees to the parties identified on
Section 5.22 of the Company Disclosure Schedule (including, without limitation,
the Executive Bonus) and (ii) the Executive Bonus, such payments to be paid
prior to the Closing Date and in such a manner so as not to constitute an
expense or liability of Sterling which Sterling would be required to include in
any of its consolidated statements of income.
Section 8.21 Notification; Updated Disclosure Schedules. The Company
shall give prompt notice to Sterling, and Sterling shall give prompt notice to
the Company, of (i) any representation or warranty made by it in this Agreement
becoming untrue or inaccurate in any respect, including, without limitation, as
a result of any change in the Company Disclosure 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 8.22 Closing Date. The Company, Sterling and Bancorporation
shall each use commercially reasonable efforts to consummate the Merger on or
before December 31, 2001.
ARTICLE IX
CONDITIONS TO MERGER
Section 9.01 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger and the other
transactions contemplated
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hereby shall be subject to the fulfillment or waiver at or prior to the
Effective Time of the following conditions:
(a) The Company shareholders shall have approved and adopted all matters
relating to this Agreement, the Merger and the transactions contemplated hereby
and as required under the TBCA and the Company's Articles of Incorporation at
the Company Shareholders' Meeting.
(b) This Agreement, the Merger, the Bank Merger and the other transactions
contemplated hereby shall have been approved by the Federal Reserve Board, the
Commissioner, the FDIC and any other Regulatory Authorities whose approval is
required for consummation of the transactions contemplated hereby (other than
the Bank Merger) and all applicable waiting periods shall have expired. No such
approval or consent shall be conditioned or restricted in any manner (including
requirements relating to the disposition of assets) which in the good faith
judgment of Sterling would so adversely impact the economic or business benefits
of the transactions contemplated by this Agreement that, had such condition or
restriction been known, it would not have entered into this Agreement.
(c) Neither Sterling, Bancorporation nor the Company shall be subject to
any litigation which seeks any order, decree or injunction of a court or agency
of competent jurisdiction to enjoin or prohibit the consummation of the Merger
or the other transactions contemplated by this Agreement.
(d) The Shares of Sterling Common Stock issuable pursuant to the Merger
shall have been approved for listing on the Nasdaq.
Section 9.02 Conditions to Obligations of the Company to Effect the
Merger. The obligations of the Company to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Effective Time of the following
additional conditions:
(a) Representations and Warranties. The representations and warranties of
Sterling and Bancorporation set forth in Article VI hereof shall be true and
correct in all respects as of the date of this Agreement and as of the Effective
Time (as though made on and as of the Effective Time except to the extent such
representations and warranties are by their express provisions made as of a
specified date) and the Company shall have received a certificate signed by the
chairman, president or other duly authorized officer of each of Sterling and
Bancorporation to that effect.
(b) Performance of Obligations. Each of Sterling and Bancorporation
shall have performed in all material respects all obligations required to be
performed by it under this Agreement prior to the Effective Time, and the
Company shall have received a certificate signed by the chairman, president or
other duly authorized officer of each of Sterling and Bancorporation to that
effect and as to the absence of litigation as described in Section 9.01(c).
(c) Material Adverse Change. Prior to the Closing, there shall not have
occurred any material adverse change in the financial condition, business,
operations or properties of Sterling or any of its Subsidiaries, taken as a
whole, nor shall any event have occurred which, with the lapse of time, may
cause or create any material or adverse change in the financial condition,
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business, operations or properties of Sterling and its Subsidiaries, taken as a
whole, in the reasonable and good faith judgment of the Company Board; provided,
however, that a decrease in the market price of Sterling Common Stock as quoted
on NASDAQ in and of itself shall not be deemed to be a material adverse change.
(d) Tax Opinion. The Company shall have received an opinion of
Xxxxxxxxx & Xxxxxxxxx, LLP, counsel to the Company, in form and substance
reasonably satisfactory to the Company to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code and no
gain or loss will be recognized by the shareholders of the Company to the extent
that they receive Sterling Common Stock solely in exchange for their Company
Common Stock in the Merger. The parties to this Agreement agree to make such
reasonable representations as requested by such counsel for the purpose of
rendering such opinion.
(e) Opinion of Counsel. The Company shall have received an opinion of
Xxxxxxx & Xxxxx L.L.P., counsel for Sterling, addressed to the Company and in
form reasonably satisfactory to it as to the validity of the approvals of the
Merger by the board of directors of Sterling and by the board of directors and
shareholder of Bancorporation.
(f) Opinion of Financial Advisor. The Company shall have received a
written opinion from Xxxx Xxxxxxxxxx & Co. Investment Banking dated as of the
date of this Agreement and reaffirmed as of the date of the Proxy Statement that
the Merger Consideration is fair to the Company shareholders from a financial
point of view.
Section 9.03 Conditions to Obligations of Sterling and Bancorporation to
Effect the Merger. The obligations of Sterling and Bancorporation to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following additional conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in Article V hereof shall be true and correct in all
respects as of the date of this Agreement and as of the Effective Time (as
though made on and as of the Effective Time except to the extent such
representations and warranties are by their express provisions made as of a
specified date) and Sterling and Bancorporation shall have received a
certificate signed by the chairman, chief executive officer, president or other
duly authorized officer of the Company to that effect.
(b) Performance of Obligations. The Company shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Time, and Sterling and Bancorporation shall
have received a certificate signed by the chairman and chief executive officer,
president or other duly authorized officer of the Company to that effect and as
to the absence of litigation as described in Section 9.01(c).
(c) Material Adverse Change. Prior to the Closing, there shall not have
occurred any material adverse change in the Condition of the Company and any of
its Subsidiaries, taken as a whole, nor shall any event have occurred which,
with the lapse of time, may cause or create any material adverse change in the
Condition of the Company and any of its Subsidiaries, taken as a
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whole, in the reasonable and good faith judgment of the Board of Directors of
Sterling, and Sterling and Bancorporation shall have received a certificate
signed by the chairman, chief executive officer, president or other duly
authorized officer of the Company to that effect.
(d) Opinion of Counsel. Sterling and Bancorporation shall have received
an opinion of Xxxxxxxxx & Xxxxxxxxx, L.L.P., counsel for the Company, addressed
to Sterling and Bancorporation and in form reasonably satisfactory to it as to
the validity of the approvals of the Merger by the Company Board and the
shareholders of the Company.
(e) Opinion of Tax Counsel. Sterling and Bancorporation shall have
received an opinion of Xxxxxxx & Xxxxx L.L.P., counsel to Sterling and
Bancorporation, in form and substance reasonably satisfactory to Sterling and
Bancorporation, to the effect that, based on the facts, representations and
assumptions set forth in such opinion, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and such opinion
shall have not been withdrawn. The parties to this Agreement agree to make such
reasonable representations as requested by such counsel for the purpose of
rendering such opinion.
(f) Dissenting Shares. The number of Dissenting Shares shall not exceed
ten percent (10%) of the total issued and outstanding shares (as of the
Effective Time) of Company Common Stock.
(g) Release Agreements. Sterling shall have received Release Agreements,
substantially in the form of Annex D, executed and delivered by each of the
Company Specified Shareholders, Key Company Officials and such additional
Persons identified by Sterling pursuant to Section 8.17.
(h) Affiliate Agreements. Each person who is an "affiliate" (for
purposes of Rule 145 under the Securities Act) of the Company at the time this
Agreement is submitted to the approval of the shareholders of the Company shall
deliver to Sterling an Affiliate Letter.
(i) Company Options. All of the Company Options shall have been fully and
completely exercised or terminated and the Company Stock Plan shall have been
terminated.
(j) Noncompete Agreements. Sterling shall have received Noncompete
Agreements executed and delivered by each of the Key Company Officials.
(k) Broker's and Finder's Fees and Expenses. The Company shall have
fully paid all of the broker's, finder's and other fees and expenses together
with the Executive Bonus in accordance with Section 8.20 and shall provide to
Sterling satisfactory evidence of the payment, in full, of all such fees and
expenses.
(l) Consents Obtained. All consents, authorizations and approvals
required to be received from, or given to, any Person (other than the matters
described in Section 9.01(b)) by the Company for the authorization, execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, those identified in Section
5.04 of the Company Disclosure Schedule, shall have been obtained or made by the
Company.
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ARTICLE X
TERMINATION
Section 10.01 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement, the Merger and
the transactions contemplated hereby by the shareholders of the Company, this
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time:
(a) by mutual consent of the Board of Directors of Sterling and the
Company; or
(b) by the Company Board or the Board of Directors of Sterling if (i) the
Federal Reserve, the FDIC or the Commissioner has denied approval of the Merger
or the Bank Merger and such denial has become final and nonappealable or has
approved the Merger subject to conditions that in the judgment of Sterling would
restrict it or its Subsidiaries or Affiliates in their respective spheres of
operations and business activities after the Effective Time or (ii) the
Effective Time does not occur by February 15, 2002, provided, however, that the
right to terminate this Agreement under clause (ii) of this Section 10.01(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure of the
Effective Time to occur prior to such date; or
(c) by Sterling (if it is not in breach of any of its obligations
hereunder) pursuant to notice in the event of a breach or failure by the Company
that would cause a failure of the conditions in Section 9.03, which breach or
failure has not been, or cannot be, cured within 30 days after written notice of
such breach is given to the Company; or
(d) by the Company (if it is not in breach of any of its obligations
hereunder) pursuant to notice in the event of a breach or failure by Sterling
that would cause a failure of the conditions in Section 9.02, which breach or
failure has not been, or cannot be, cured within 30 days after written notice of
such breach is given to Sterling; or
(e) by the Company if (i) there shall not have been a breach of any
covenant or agreement on the part of the Company under this Agreement and (ii)
prior to the Effective Time, the Company shall have received a bona fide
Acquisition Proposal and the Company Board determines in its good faith judgment
and in the exercise of its fiduciary duties, based as to legal matters on the
written opinion of independent legal counsel and as to financial matters on the
written opinion of an investment banking firm of national reputation, that such
alternative Acquisition Proposal (if consummated pursuant to its terms) would
result in an alternative Acquisition Transaction that is more favorable to the
Company shareholders than the Merger ("Superior Proposal") and that the failure
to terminate this Agreement and accept such alternative Acquisition Proposal
would be inconsistent with the proper exercise of such fiduciary duties;
provided, however, that termination under this clause (ii) shall not be deemed
effective until payment of the Termination Fee and Expenses required by Section
8.14; or
(f) by either Sterling or the Company, if the Merger and this Agreement
shall fail to receive the requisite vote for approval and adoption at the
Company Shareholders' Meeting; or
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(g) by Sterling if the Company Board shall have (i) resolved to accept a
Superior Proposal, or (ii) recommended to the shareholders of the Company 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 Sterling
or Bancorporation, its recommendation or approval of this Agreement or the
Merger or recommended to the Company shareholders acceptance or approval of any
alternative Acquisition Proposal, or shall have resolved to do the foregoing; or
(h) by the Company, if the Company Board so determines by a vote of a
majority of its members, at any time during the five (5) trading day period
preceding the anticipated Closing Date if both of the following conditions are
satisfied:
(i) the number obtained by dividing the Average Closing Price by
the Initial Closing Price (the "Sterling Ratio") shall be less than .90;
and
(ii) the Sterling Ratio shall be less than the number obtained by
dividing the Final Index Value by the Index Value on the Starting Date and
subtracting 0.10 from the quotient in this clause (ii).
For purposes of this Section 10.01(h), the following terms shall have the
meanings indicated below:
"Average Closing Price" shall mean the average closing price per share of
the Sterling Common Stock (rounded to the nearest cent) on the Nasdaq (as
reported in The Wall Street Journal or, if not reported thereby, another
authoritative source as chosen by Sterling) for the ten (10) consecutive trading
days in which such shares are quoted on the Nasdaq ending on the trading day
immediately prior to the Determination Date.
"Determination Date" shall mean any one of the five (5) trading days
preceding the anticipated Closing Date during which the Company may elect to
terminate this Agreement pursuant to this Section 10.01(h).
"Final Index Value" shall mean the average of the Index Values for the ten
(10) consecutive trading days ending on the trading day immediately prior to the
Determination Date.
"Index Value," on a given date, shall mean the index value on such date of
the Nasdaq Composite Bank Index, as such index is reported by Bloomberg News
Service on such date.
"Starting Date" shall mean the last trading day immediately preceding the
date of this Agreement.
If Sterling 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 Sterling
Common Stock shall be appropriately adjusted for purposes of applying this
Section 10.01(h).
Section 10.02 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.01, this Agreement shall
become void and have no effect,
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except that (i) the provisions of this Section 10.02 and Section 8.01(e),
Section 8.14 and Section 11.01 shall survive any such termination and
abandonment; and (ii) no party shall be relieved or released from any liability
arising out of an intentional breach of any provision of this Agreement.
Section 10.03 Non-Survival of Representations, Warranties and Covenants.
Except for Article III and Article IV and Section 8.09, Section 8.19, and
Section 11.01, none of the respective representations, warranties, obligations,
covenants and agreements of the parties shall survive the Effective Time.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 Expenses. Except as provided in Section 8.14, each party
hereto shall bear its own expenses incident to preparing, entering into and
carrying out this Agreement and consummating the Merger, Sterling shall pay all
printing expenses and filing fees incurred in connection with this Agreement,
the Registration Statement and the Proxy Statement; provided that the Company
shall pay all expenses relating to the mailing of the Proxy Statement.
Section 11.02 Entire Agreement; Parties in Interest. Except as otherwise
expressly provided herein, this Agreement contains the entire agreement between
the parties hereto with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereto,
written or oral. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors. Other than Section 8.09, nothing in this Agreement, expressed or
implied, is intended to confer upon any individual, corporation or other entity
(including, without limitation, any employee or shareholder of the Company),
other than Sterling, Bancorporation and the Company or their respective
successors, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
Section 11.03 Amendments. To the extent permitted by law, this
Agreement may be amended by a subsequent writing signed by each Sterling,
Bancorporation and the Company; provided however, that the provisions hereof
relating to the amount of the Merger Consideration shall not be amended after
the Company Shareholders' Meeting without any requisite approval of the holders
of the issued and outstanding shares of Company Common Stock entitled to vote
thereon.
Section 11.04 Waivers. Prior to or at the Effective Time, each of
Sterling, Bancorporation and the Company shall have the right to waive any
default in the performance of any term of this Agreement by the other, to waive
or extend the time for the compliance or fulfillment by any other party of any
and all of such other party's obligations under this Agreement and to waive any
or all of the conditions precedent to its obligations under this Agreement,
except any condition which, if not satisfied, would result in the violation of
any law or applicable governmental regulation.
-53-
Section 11.05 No Assignment. None of the parties hereto may assign any
of its rights or delegate any of its obligations under this Agreement to any
other person or entity without the prior written consent of the other parties to
this Agreement; provided, however, that Sterling may assign its rights and
obligations or those of Bancorporation to any direct or indirect, wholly-owned
subsidiary of Sterling, but no such assignment shall relieve Sterling of its
obligations hereunder if such assignee does not perform such obligations.
Section 11.06 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by courier, by facsimile transmission, or by registered or certified mail,
postage prepaid to the persons at the addressees set forth below (or at such
other address as may be provided hereunder), and shall be deemed to have been
delivered as of the date so delivered:
Company: Community Bancshares, Inc
00000 Xxxx Xxxxxxx
Xxxx, Xxxxx 00000-0000
Attention: Xxxxx X. Xxxx, Chairman and
Chief Executive Officer
Telecopy: (000) 000-0000
With a copy to: Bracewell & Xxxxxxxxx, L.L.P.
Suite 2900, 000 Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxxx XX
Telecopy: (000) 000-0000
Sterling: Sterling Bancshares, Inc.
0000 Xxxxx Xxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx Xxxxxxxx, Chairman
Xxxxx X. Xxxxxxx, Xx., General Counsel
Telecopy: (000) 000-0000
With a copy to: Xxxxxxx & Xxxxx L.L.P.
00000 Xxxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. XxXxxxxx
Telecopy: (000) 000-0000
Section 11.07 Specific Performance. The parties hereby acknowledge and
agree that the failure of either party to fulfill any of its covenants and
agreements hereunder, including the failure to take all such actions as are
necessary on its part to cause the consummation of the Merger, will cause
irreparable injury for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of the other
party's obligations and to the granting by any such court of the remedy of
specific performance hereunder.
-54-
Section 11.08 Governing Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the state of Texas
applicable to contracts executed and to be performed in that state. All actions
and proceedings arising out of or relating to this Agreement shall be heard and
determined in any state or federal court sitting in Houston, Xxxxxx County,
Texas.
Section 11.09 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to constitute an original but
all of which together shall constitute one and the same instrument.
Section 11.10 Captions. The captions contained in this Agreement are
for reference purposes only and are not part of this Agreement.
Section 11.11 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Merger is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
Merger be consummated as originally contemplated to the fullest extent possible.
[Remainder of Page Intentionally Left Blank]
-55-
IN WITNESS WHEREOF, Sterling Bancorporation and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
STERLING BANCSHARES, INC.
By: /s/ X. Xxxxxx Bridgwater
---------------------------------------
X. Xxxxxx Bridgwater, President
STERLING BANCORPORATION, INC.
By: /s/ X. Xxxxxx Bridgwater
---------------------------------------
X. Xxxxxx Bridgwater, President
COMMUNITY BANCSHARES, INC.
By: /s/ Xxxxx X. Xxxx
---------------------------------------
Xxxxx X. Xxxx, Chairman and Chief Executive
Officer
[Signature page to Agreement and Plan of Merger]
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger (this "Amendment") dated as
of November 20, 2001, is entered into by and among STERLING BANCSHARES, INC.
("Sterling"), a Texas corporation and a registered bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHCA"), STERLING
BANCORPORATION, INC., a Delaware corporation which is a registered bank holding
company and a wholly owned subsidiary of Sterling ("Bancorporation"), and
COMMUNITY BANCSHARES, INC., a Texas corporation and a registered bank holding
company under the BHCA (the "Company").
WHEREAS, Sterling, Bancorporation and the Company entered into an Agreement
and Plan of Merger dated as of October 1, 2001 (the "Merger Agreement");
WHEREAS, the parties hereto are desirous of amending certain provisions of
the Merger Agreement and pursuant to Section 11.03 thereof, the parties hereby
execute this Amendment for the purpose of evidencing such amendments.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in the Merger Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Capitalized terms used herein and not defined herein shall have the
meanings set forth in the Merger Agreement.
2. The undersigned parties hereby expressly agree to amend the Merger
Agreement as follows:
2.1 Section 7.01 is hereby amended by adding the following:
"(xi) promptly inform Sterling of any proposal to make, renegotiate,
renew, increase, extend or purchase (or to enter into any commitment to
take any such action) any loan, lease (credit equivalent), advance,
credit enhancement or other extension of credit in an amount in excess
of $400,000 to any individual borrower and within five days of the
closing of any such transaction, the Company shall, or shall cause its
Subsidiary to, provide Sterling with copies of the Loan
Presentation/Worksheet including the Bank's credit and collateral
analysis."
2.2 Section 7.02(f) is hereby deleted in its entirety and is amended
to read as follows:
"(f) make, renegotiate, renew, increase, extend or purchase any (i)
loan, lease (credit equivalent), advance, credit enhancement or other
extension of credit, except (A) in conformity with existing lending
practices of the Company, (B) loans or advances as to which the Company
or any Subsidiary has a legally binding
obligation to make such loan or advances as of the date hereof, and (C)
loans fully secured by a certificate of deposit at the Bank; provided,
however, that the Company and its Subsidiaries may not make,
renegotiate, renew, increase, extend or purchase any loan that is
underwritten based on no verification of income or loans commonly known
or referred to as "no documentation loans," or (ii) loans, advances or
commitments to directors, officers or other affiliated parties of the
Company or any of its subsidiaries;"
3. Except as herein provided, the terms of the Merger Agreement shall
remain in full force and effect.
4. This Amendment may be executed in several counterparts, and all such
counterparts, when so executed and delivered, shall constitute but one and the
same agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
STERLING BANCSHARES, INC.
By: /s/ X. Xxxxxx Bridgwater
---------------------------------------
X. Xxxxxx Bridgwater, President
STERLING BANCORPORATION, INC.
By: /s/ X. Xxxxxx Bridgwater
---------------------------------------
X. Xxxxxx Bridgwater, President
COMMUNITY BANCSHARES, INC.
By: /s/ Xxxxx X. Xxxx
---------------------------------------
Xxxxx X. Xxxx, Chairman and Chief
Executive Officer
2
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Second Amendment to Agreement and Plan of Merger (this "Amendment")
dated as of December 10, 2001, is entered into by and among STERLING BANCSHARES,
INC. ("Sterling"), a Texas corporation and a registered bank holding company
under the Bank Holding Company Act of 1956, as amended (the "BHCA"), STERLING
BANCORPORATION, INC., a Delaware corporation which is a registered bank holding
company and a wholly owned subsidiary of Sterling ("Bancorporation"), and
COMMUNITY BANCSHARES, INC., a Texas corporation and a registered bank holding
company under the BHCA (the "Company").
WHEREAS, Sterling, Bancorporation and the Company entered into an Agreement
and Plan of Merger dated as of October 1, 2001;
WHEREAS, Sterling, Bancorporation and the Company entered into that certain
Amendment to Agreement and Plan of Merger dated as of November 20, 2001 (the
Agreement and Plan of Merger, as amended, is referred to as the "Merger
Agreement");
WHEREAS, the parties hereto desire to enter into this Amendment for the
purpose of setting forth their agreement with respect to certain provisions of
the Merger Agreement as more specifically set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in the Merger Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Capitalized terms used herein and not defined herein shall have the
meanings set forth in the Merger Agreement.
2. The Merger Agreement provides in Article IV thereof that Sterling shall
deposit the Escrow Fund with the Escrow Agent and that the Escrow Agent shall
deliver the Merger Consideration out of the Escrow Fund. The Company hereby
agrees, notwithstanding the express provisions of Article IV of the Merger
Agreement, that Sterling may designate Sterling Bank to act in the capacity of
the Escrow Agent. If Sterling designates Sterling Bank to act in the capacity
of Exchange Agent, Sterling and Bancorporation shall, subject to the exchange
procedures set forth in Article IV including, without limitation, the delivery
by the Company shareholders of the Certificates for cancellation and duly
executed letters of transmittal, deliver the Merger Consideration by:
(i) causing an amount equal to the cash portion of the Merger
Consideration that each such holder of the Company Common Stock has the
right to receive pursuant to Section 3.02 of the Merger Agreement to be
delivered to each holder in accordance with the instructions provided by
such holder in a duly executed letter of transmittal;
(ii) irrevocably authorizing and directing Sterling's transfer agent to
issue and deliver directly to each such holder one or more certificates
representing the number of shares of Sterling Common Stock that each holder
of the Company Common Stock has the right to receive pursuant to Section
3.02 of the Merger Agreement, such shares to be
issued and delivered to each holder in accordance with the instructions
provided by such holder in a duly executed letter of transmittal; and
(iii) causing an amount equal to the cash, if any, that each such
holder has the right to receive in lieu of any fractional shares of
Sterling Common Stock pursuant to Section 4.05 of the Merger Agreement to
be delivered to each holder in accordance with the instructions provided by
such holder in a duly executed letter of transmittal.
3. Except as herein provided, the terms of the Merger Agreement, as
previously amended, shall remain in full force and effect.
4. This Amendment may be executed in several counterparts, and all such
counterparts, when so executed and delivered, shall constitute but one and the
same agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
STERLING BANCSHARES, INC.
By: /s/ X. Xxxxxx Bridgwater
-------------------------------
X. Xxxxxx Bridgwater, President
STERLING BANCORPORATION, INC.
By: /s/ X. Xxxxxx Bridgwater
-------------------------------
X. Xxxxxx Bridgwater, President
COMMUNITY BANCSHARES, INC.
By: /s/ Xxxxx X. Xxxx
-------------------------------
Xxxxx X. Xxxx, Chairman and Chief
Executive Officer
2
