AGREEMENT AND PLAN OF MERGER by and between Community Banks, Inc. and CommunityBanks, on the one hand and East Prospect State Bank, on the other hand Dated: September 12, 2006
AGREEMENT
AND PLAN OF MERGER
by
and between
Community
Banks, Inc. and CommunityBanks, on the one hand
and
East
Prospect State Bank, on the other hand
Dated:
September 12, 2006
TABLE
OF CONTENTS
|
|||
Page
|
|||
ARTICLE
I - GENERAL
|
2
|
||
1.01
|
Definitions
|
2
|
|
1.02
|
The
Merger
|
11
|
|
ARTICLE
II- CONSIDERATION; EXCHANGE PROCEDURES
|
13
|
||
2.01
|
CMTY
Common Stock
|
13
|
|
2.02
|
East
Prospect Common Stock
|
13
|
|
2.03
|
Cancellation
of Certain Common Stock
|
18
|
|
2.04
|
Fractional
Shares
|
18
|
|
2.05
|
Dissenting
East Prospect Shareholders
|
18
|
|
2.06
|
Surrender
and Exchange of East Prospect Stock Certification
|
19
|
|
2.07
|
Anti-Dilution
Provisions
|
22
|
|
ARTICLE
III- REPRESENTAION AND WARRANTIES OF EAST PROSPECT
|
23
|
||
3.01
|
Organization
|
23
|
|
3.02
|
Capitalization
|
23
|
|
3.03
|
Authority;
No Violation
|
24
|
|
3.04
|
Consents
|
25
|
|
3.05
|
Financial
Statements
|
26
|
|
3.06
|
No
Material Adverse Change
|
26
|
|
3.07
|
Taxes
|
26
|
|
3.08
|
Contracts
|
27
|
|
3.09
|
Ownership
of Property; Insurance Coverage
|
29
|
|
3.10
|
Legal
Proceedings
|
31
|
|
3.11
|
Compliance
with Applicable Law and Agreements
|
31
|
|
3.12
|
ERISA
|
33
|
|
3.13
|
Brokers
and Finders
|
35
|
|
3.14
|
Environmental
Matters
|
35
|
|
3.15
|
Business
of East Prospect
|
36
|
|
3.16
|
CRA
Compliance
|
36
|
|
3.17
|
Information
to be Supplied
|
37
|
|
3.18
|
Related
Party Transactions
|
37
|
|
3.19
|
Loans
|
38
|
|
3.20
|
Allowance
for Loan Losses
|
38
|
|
3.21
|
Reorganization
|
38
|
|
3.22
|
Fairness
Opinion
|
38
|
|
3.23
|
Shareholder
Documents
|
38
|
|
3.24
|
“Well
Capitalized”
|
39
|
|
3.25
|
Quality
of Representations
|
39
|
|
ARTICLE
IV- REPRESENTATIONS AND WARRANTIES OF CMTY
|
39
|
||
4.01
|
Organization
|
39
|
(i)
4.02
|
Capitalization
|
40
|
|
4.03
|
Authority;
No Violation
|
41
|
|
4.04
|
Consents
|
42
|
|
4.05
|
Financial
Statements
|
43
|
|
4.06
|
No
Material Adverse Change
|
43
|
|
4.07
|
Taxes
|
43
|
|
4.08
|
Contracts
|
44
|
|
4.09
|
Ownership
of Property; Insurance Coverage
|
44
|
|
4.10
|
Financing
|
46
|
|
4.11
|
Legal
Proceedings
|
46
|
|
4.12
|
Compliance
with Applicable Law and Agreements
|
47
|
|
4.13
|
ERISA
|
49
|
|
4.14
|
Brokers
and Finders
|
50
|
|
4.15
|
Information
to be Supplied
|
50
|
|
4.16
|
Reorganization
|
51
|
|
4.17
|
CMTY
Common Stock
|
51
|
|
4.18
|
Securities
Documents
|
51
|
|
4.19
|
Rights
Agreement
|
52
|
|
4.20
|
“Well
Capitalized”
|
52
|
|
4.21
|
Quality
of Representations
|
52
|
|
ARTICLE
V- COVENANTS OF THE PARTIES
|
52
|
||
5.01
|
Conduct
of East Prospect’s Business
|
52
|
|
5.02
|
Access;
Confidentiality
|
55
|
|
5.03
|
Regulatory
Matters
|
56
|
|
5.04
|
Taking
of Necessary Actions
|
57
|
|
5.05
|
No
Solicitation
|
57
|
|
5.06
|
Update
of Disclosure Schedules
|
58
|
|
5.07
|
Other
Undertakings by CMTY and East Prospect
|
58
|
|
ARTICLE
VI- CONDITIONS
|
65
|
||
6.01
|
Conditions
to the Obligations of East Prospect under this Agreement
|
65
|
|
6.02
|
Conditions
to the Obligations of the Community Parties under this
Agreement
|
67
|
|
ARTICLE
VII- TERMINATION
|
69
|
||
7.01
|
Termination
prior to the Closing Date
|
69
|
|
7.02
|
Effect
of Termination
|
71
|
|
ARTICLE
VIII- MISCELLANEOUS
|
71
|
||
8.01
|
Expenses
and Other Fees
|
71
|
|
8.02
|
Non-Survival
of Representations and Warranties; Disclosure Schedules
|
72
|
|
8.03
|
Amendment,
Extension and Waiver
|
72
|
|
8.04
|
Entire
Agreement
|
73
|
|
8.05
|
No
Assignment
|
73
|
|
8.06
|
Notices
|
73
|
|
8.07
|
Disclosure
Schedules
|
74
|
|
8.08
|
Tax
Disclosure
|
75
|
(ii)
8.09
|
Captions
|
75
|
|
8.10
|
Counterparts
|
75
|
|
8.11
|
Severability
|
75
|
|
8.12
|
Governing
Law
|
75
|
(iii)
EXHIBITS:
|
||
Exhibit 1
|
-
|
Form
of Letter Agreement
|
SCHEDULES:
|
||
East
Prospect Schedule 3.02(b)
|
-
|
Equity
Interests
|
East
Prospect Schedule 3.02(c)
|
-
|
Beneficial
Owners
|
East
Prospect Schedule 3.03
|
-
|
Adverse
Effects of Merger
|
East
Prospect Schedule 3.04
|
-
|
Third
Party Consents
|
East
Prospect Schedule 3.05(b)
|
-
|
Liabilities
and Obligations
|
East
Prospect Schedule 3.08(a)
|
-
|
Employment
Agreements and Material
|
Contracts
|
||
East
Prospect Schedule 3.09(a)
|
-
|
Collateral
for Obligations
|
East
Prospect Schedule 3.11(c)
|
-
|
Regulatory
Investigations
|
East
Prospect Schedule 3.11(d)
|
-
|
Regulatory
Agreements
|
East
Prospect Schedule 3.11(f)
|
-
|
Unresolved
Matters re: Regulatory
|
Agreements
|
-
|
|
East
Prospect Schedule 3.12(a)
|
-
|
ERISA
|
East
Prospect Schedule 3.12(f)
|
-
|
Services
Performed under ERISA
|
East
Prospect Schedule 3.14(a)
|
-
|
Environmental
Matters
|
East
Prospect Schedule 3.18
|
-
|
Related
Party Transactions
|
CMTY
Schedule 4.08
|
-
|
Contracts
|
CMTY
Schedule 4.09
|
-
|
Titles
to Properties
|
CMTY
Schedule 4.11
|
-
|
Legal
Proceedings
|
CMTY
Schedule 4.13
|
-
|
ERISA
|
(iv)
AGREEMENT
AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER, dated as of September 12, 2006 (“Agreement”), is
made by and between CommunityBanks (“Community”), a Pennsylvania chartered bank
and trust company, having its headquarters at 000 Xxxxxx Xxxxxx, Xxxxxxxxxxx,
Xxxxxxxxxxxx 00000 and Community Banks, Inc. (“CMTY”), a financial holding
company and Pennsylvania business corporation having its corporate headquarters
at 000
Xxxx Xxxx Xx., Xxxxxxxxxx, Xxxxxxxxxxxx, 00000,
on the one hand; and East Prospect State Bank (“East Prospect”), a Pennsylvania
chartered banking institution, having its headquarters at X.X. Xxx 000, Xxxx
Xxxxxxxx, XX 00000-0000, on the other hand. CMTY, Community and East Prospect
are sometimes referred to in this Agreement collectively as the “Parties” or
individually as a “Party.” CMTY and Community are referred to from time to time
as the “Community Parties.”
BACKGROUND
A.
CMTY owns directly all of the outstanding capital stock of CommunityBanks,
a
bank and trust company chartered by the Commonwealth of Pennsylvania.
B.
The
Parties desire for East Prospect to merge with and into Community, with
Community surviving such merger, in accordance with the applicable laws of
the
Commonwealth
of Pennsylvania and this Agreement.
C.
As a condition and inducement to CMTY and Community to enter into this
Agreement, the directors of East Prospect are each concurrently executing a
letter agreement in the form attached hereto as Exhibit 1 (the “Letter
Agreement”).
D.
Each of the Parties, by signing this Agreement, adopts it as a plan of
reorganization as defined in IRC Section 368(a), and intends the Merger to
be a reorganization as defined in IRC Section 368(a).
E.
The Parties desire to provide the terms and conditions governing the
transactions contemplated herein.
1
NOW
THEREFORE, in consideration of the premises and of the mutual covenants,
agreements, representations and warranties herein contained, the Parties,
intending to be legally bound, hereby agree as follows:
ARTICLE
I- GENERAL
1.01 Definitions.
As used in this Agreement, the following terms shall have the indicated meanings
(such meanings to be equally applicable to both the singular and plural forms
of
the terms defined):
“Acquisition
Proposal” has the meaning given to that term in Section 5.05 of this
Agreement.
“Acquisition
Transaction” shall mean one of the following transactions with a party other
than Community: (i) a merger or consolidation, or any similar transaction,
involving East Prospect, (ii) a purchase, lease or other acquisition of all
or a
substantial portion of the assets or liabilities of East Prospect or (iii)
a
purchase or other acquisition (including by way of share exchange, tender offer,
exchange offer or otherwise) of 24.9% or more of any class or series of equity
securities of East Prospect .
“Acquisition
Transaction Notice” has the meaning given to that term in Section 7.01(d)
of this Agreement.
“Affiliate”
means, with respect to any corporation, any person that directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such corporation and, without limiting the generality
of
the foregoing, includes any executive officer, director or 10% equity owner
of
such corporation.
“Aggregate
Cash Consideration” has the meaning given to that term in Section 2.02(a) of
this Agreement.
“Aggregate
Common Stock Consideration” has the meaning given to that term in Section
2.02(a) of this Agreement.
2
“Agreement”
means this Agreement and Plan of Merger, including any amendment or supplement
hereto.
“Application”
means an application for regulatory approval which is required by the
Contemplated Transactions.
“Articles
of Merger” mean the articles of merger to be executed by Community and East
Prospect and to be filed in the PDS in accordance with the applicable laws
of
the Commonwealth of Pennsylvania.
“Banking
Code” means the Pennsylvania Banking Code of 1965, as amended.
“BCL”
means the Pennsylvania Business Corporation Law of 1988, as amended.
“BHC
Act” means the Bank Holding Company Act of 1956, as amended.
“Business
Day” means any day other than (i) a Saturday, Sunday or federal holiday or
(ii) a day on which Community is authorized or obligated by law or
executive order to close.
“Cash
Consideration” has the meaning given to that term in Section 2.02(a)(ii)of
this Agreement.
“Cash
Election Shares” has the meaning given to such term in Section
2.02(b)(ii).
“CERCLA”
has the meaning given to that term in Section 3.14(b) of this
Agreement.
“Closing”
has the meaning given to that term in Section 1.02(a) of this Agreement.
“Closing
Date” means the date mutually agreed to by the parties as soon as practicable
after the last condition precedent provided in this Agreement (other than those
conditions which are to be fulfilled at the Closing) has been fulfilled or
waived.
“CMTY”
means Community Banks, Inc.
“CMTY
Acquisition Transaction” means a person or group (as those terms are defined in
Section 13(d) of the Exchange Act and the rules and regulations thereunder)
(A)
acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of 24.9% or
3
more
of the then outstanding shares of Community Common Stock; or (B) enters into
an
agreement or a publicly announced letter of intent or memorandum of
understanding with CMTY pursuant to which such person or group or any affiliate
of such person or group would: (1) merge or consolidate, or enter into any
similar transaction with CMTY or Community, in which CMTY or Community is not
the surviving entity; (2) acquire all or substantially all of the assets or
liabilities of CMTY or Community; or (3) acquire beneficial ownership of
securities representing, or the right to acquire beneficial ownership or to
vote
securities representing, 24.9% or more, of the then outstanding shares of
Community Common Stock.
“CMTY
Benefit Plans” has the meaning given to that term in Section 4.13(a) of
this Agreement.
“CMTY
Certificate” has the meaning given to that term in Section 2.06(c) of this
Agreement.
“CMTY
Common Stock” means the shares of common stock of CMTY, with such par value as
is set forth in CMTY’s Articles of Incorporation.
“CMTY
Disclosure Schedules” means, collectively, the disclosure schedules delivered by
the Community Parties to East Prospect at or prior to the execution and delivery
of this Agreement.
“CMTY
ERISA Affiliate” has the meaning given to that term in Section 4.13(a) of
this Agreement.
“CMTY
Financials” means (a) the audited consolidated financial statements of CMTY
as of December 31, 2005 and for each of the three years in the period ended
December 31, 2005, including the notes thereto and (b) the unaudited
interim consolidated financial statements of CMTY for each calendar quarter
after December 31, 2005.
“CMTY
Market Value” means, as of any date, the average of the closing sales price of a
share of CMTY Common Stock, as reported on Nasdaq, for the ten (10) consecutive
trading days ending on the second trading day preceding the date as of which
the
CMTY Market Value is determined.
4
“CMTY
Subsidiary” means each direct and indirect Subsidiary of CMTY and Community
Banks.
“Common
Stock Consideration” has the meaning given to that term in
Section 2.02(a)(i) of this Agreement.
“Common
Stock Election Shares” has the meaning given to such term in Section
2.02(b)(i).
“Community
Parties” means CMTY and Community.
“Comparable
Employment” has the meaning given to that term in Section 5.07(c)(i)(A) of
this Agreement.
“Confidentiality
Agreement” means the confidentiality agreement, dated June 9, 2006, between CMTY
and East Prospect.
“Contemplated
Transactions” means all of the transactions contemplated by this Agreement,
including: (a) the Merger; and (b) the performance by the Parties of
their respective covenants and obligations under this Agreement.
“CRA”
means the Community Reinvestment Act of 1977, as amended, and the rules and
regulations promulgated from time to time thereunder.
“D&O
Insurance” has the meaning given to that term in Section 5.07(c)(iii)(C)(1)
of this Agreement.
“Dissenting
East Prospect Shares” has the meaning given to that term in Section 2.05(a) of
this Agreement.
“East
Prospect” has the meaning given to that term in the first paragraph of this
Agreement.
“East
Prospect Benefit Plans” has the meaning given to that term in
Section 3.12(a) of this Agreement.
5
“East
Prospect Certificate” has the meaning given to that term in Section 2.02(b)
of this Agreement.
“East
Prospect Common Stock” has the meaning given to that term in
Section 3.02(a) of this Agreement.
“East
Prospect Disclosure Schedules” means, collectively, the disclosure schedules
delivered by East Prospect to CMTY and Community at or prior to the execution
and delivery of this Agreement.
“East
Prospect ERISA Affiliate” has the meaning given to that term in
Section 3.12(a) of this Agreement.
“East
Prospect Financials” means (a) the audited consolidated financial
statements of East Prospect as of December 31, 2005 and for each of the
three years in the period ended December 31, 2005, including the notes
thereto, and (b) the unaudited interim consolidated financial statements of
East Prospect for each calendar quarter after December 31, 2005.
“East
Prospect SEP” has the meaning given to that term in section 5.07(c)(ii)(C) of
this Agreement.
“East
Prospect Shareholders Meeting” has the meaning given to that term in
Section 5.07(a)(i) of this Agreement.
“Effective
Date” means the date upon which the Articles of Merger shall be filed in the PDS
and shall be the same as the Closing Date or as soon thereafter as is
practicable.
“Election”
means an election to receive Common Stock Consideration, an election to receive
Cash Consideration or a Mixed Election.
“Election
Deadline” means 5:00 p.m., prevailing Eastern Time, on the day that is five (5)
Business Days prior to the Closing Date.
“Election
Form” means a form, in such form as CMTY and East Prospect shall mutually agree,
on which holders of East Prospect Common Stock shall make an
Election.
6
“Eligible
East Prospect Employee” has the meaning given to that term in
Section 5.07(c)(i)(C) of this Agreement.
“Environmental
Law” means any federal, state or local 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 hazardous, toxic, radioactive or dangerous, or
otherwise regulated for the protection of human health, safety or the
environment, whether by type or by quantity, including any material containing
any such substance as a component.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated from time to time thereunder.
“Exchange
Agent” means the agent designated by CMTY (as soon as practicable following
execution of this Agreement) to act as the exchange agent for purposes of
conducting exchange procedure described in Section 2.06.
“Exchange
Fund” has the meaning given to that term in Section 2.06(a) of this
Agreement.
“Expenses”
has the meaning given to that term in Section 8.01(b) of this
Agreement.
“FDIC”
means the Federal Deposit Insurance Corporation.
“FHLB”
means the Federal Home Loan Bank.
“Fixed
Exchange Ratio” means 27.5752
7
“Floating
Exchange Ratio” means a quotient (a) whose numerator is $565.80 and (b) whose
denominator is the CMTY Market Value on the Effective Date, provided
however,
that in no event shall the Floating Exchange Ratio be greater than 27.5752.
“FRB”
means the Board of Governors of the Federal Reserve System.
“GAAP”
means accounting principles generally accepted in the United States.
“Indemnified
Party” has the meaning given to that term in Section 5.07(c)(iii)(A) of
this Agreement.
“IRC”
means the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.
“IRS”
means the Internal Revenue Service.
“Knowledge
of CMTY” means the actual knowledge of CMTY’s and Community’s executive officers
and directors.
“Knowledge
of East Prospect” means the actual knowledge of East Prospect ’s executive
officers and directors.
“Letter
Agreement” has the meaning given to that term in Background Section C of this
Agreement.
“Material
Adverse Effect” means a material adverse effect on (a) the business,
financial condition or results of operations of East Prospect on a consolidated
basis or CMTY on a consolidated basis other than, in each case, any change,
circumstance or effect relating to (i) any change in the value of the
respective assets and liabilities of CMTY or East Prospect resulting from a
change in interest rates generally, (ii) any change occurring after the
date hereof in any federal or state law, rule or regulation or in GAAP, which
change affects banking institutions generally, including any change affecting
the Deposit Insurance Fund, (iii) changes in general economic (except in
the context of determining a Material Adverse Effect for purposes of asset
quality), legal, regulatory or political conditions affecting banking
institutions generally, (iv) reasonable expenses (including reasonable
legal fees, costs and expenses relating to any
8
litigation
arising as a result of the Contemplated Transactions) incurred in connection
with this Agreement and the transactions contemplated hereby, (v) actions
or omissions of a party (or any of its Subsidiaries) taken pursuant to the
terms
of this Agreement with the prior written consent of the other party in
contemplation of the transactions contemplated hereby (including without
limitation any actions taken by East Prospect pursuant to Section 5.07 of
this Agreement), (vi) any transaction in which CMTY or any Affiliate of CMTY
is
the surviving institution and (vii) any effect with respect to a party
hereto caused, in whole or in substantial part, by the other party, or
(b) the ability of a party to consummate the Contemplated Transactions.
“Material
Contract” means a material contract as described in 17 C.F.R. §229.601(b)(10).
“Maximum
Amount” has the meaning given to that term in Section 5.07(c)(iii)(C) of
this Agreement.
“Merger”
means the merger of East Prospect with and into Community, with Community as
the
surviving institution, contemplated by this Agreement.
“Merger
Consideration” means Cash Consideration and Common Stock Consideration.
“Mixed
Election” has the meaning given to that term in Section 2.02(c) of this
Agreement.
“NASD”
means the National Association of Securities Dealers, Inc.
“Nasdaq”
means the National Market tier of The Nasdaq Stock Market operated by the NASD.
“Xxxxxx”
means Xxxxx X. Xxxxxx, the president of East Prospect.
“PDB”
means the Department of Banking of the Commonwealth of Pennsylvania.
“PDS”
means the Department of State of the Commonwealth of Pennsylvania.
“Prospectus/Proxy
Statement” means the prospectus/proxy statement, together with any supplements
thereto, to be sent to holders of East Prospect Common Stock in connection
with
the Contemplated Transactions.
9
“Prior
Acts” has the meaning given to that term in Section 5.07(c)(iii)(A) of this
Agreement.
“Reallocated
Cash Shares” has the meaning given to that term in Section 2.02(e)(i)(c) of this
Agreement.
“Reallocated
Common Stock Shares” has the meaning given to that term in Section
2.02(e)(ii)(B) of this Agreement.
“Registration
Statement” means the registration statement on Form S-4, including any
pre-effective or post-effective amendments or supplements thereto, as filed
with
the SEC under the Securities Act with respect to the CMTY Common Stock to be
issued in connection with the Contemplated Transactions.
“Regulatory
Agreement” has the meaning given to that term in Sections 3.11(d)(iv) and
4.12(d)(iv) of this Agreement.
“Regulatory
Authority” means any agency or department of any federal, state or local
government or of any self-regulatory organization, including without limitation
the SEC, the PDB, the FRB, the FDIC, the NASD, and the respective staffs
thereof.
“Required
Meeting Notice” has the meaning given to that term in Section 7.01(d) of
this Agreement.
“Rights”
means warrants, options, rights, convertible securities and other capital stock
equivalents which obligate an entity to issue its securities.
“Rights
Agreement” means the rights agreement dated February 28, 2002, between CMTY
and Community, as rights agent.
“Xxxx
Xxxx” means Xxxx Xxxx & Co., Inc.
“SEC”
means the Securities and Exchange Commission.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations
promulgated from time to time thereunder.
10
“Securities
Documents” means all registration statements, schedules, statements, forms,
reports, proxy material, and other documents required to be filed with the
SEC
under the Securities Laws.
“Securities
Laws” means the Securities Act and the Exchange Act and the rules and
regulations promulgated from time to time thereunder.
“Subsidiary”
means any corporation or limited liability company, 25% or more of the capital
stock or membership interests of which is owned, either directly or indirectly,
by another entity, except any corporation the stock of which is held in the
ordinary course of the lending activities of a bank.
“Termination
Fee” means $860,000.
“Well
Capitalized” has the meaning given to that term in Sections 3.24 and 4.20
of this Agreement.
1.02 The
Merger.
(a)
Closing.
The closing of the transactions contemplated by this Agreement (the “Closing”)
will take place on the Closing Date at a time and place to be agreed upon by
the
parties hereto; provided, in any case, that all conditions to closing set forth
in Article VI of this Agreement (other than the delivery of certificates,
opinions, and other instruments and documents to be delivered at the Closing)
have been satisfied or waived at or prior to the Closing Date. On the Closing
Date, Community and East Prospect shall cause the Articles of Merger to be
duly
executed and filed with the PDS.
(b)
The
Merger.
Subject to the terms and conditions of this Agreement and in accordance with
the
Banking Code, on the Effective Date:
(i)
East
Prospect shall merge with and into Community;
(ii)
the
separate existence of East Prospect shall cease;
(iii)
Community
shall be the surviving institution in the Merger; and
11
(iv)
all
of the property (real, personal and mixed), rights, powers, duties, obligations
and liabilities of East Prospect shall be taken and deemed to be transferred
to
and vested in Community, as the surviving institution in the Merger, without
further act or deed; all in accordance with the applicable laws of the
Commonwealth of Pennsylvania and the United States of America.
(c)
Change
to Structure of Merger.
The Parties may at any time change the method of effecting the combination
(including by providing for the merger of East Prospect and a wholly owned
subsidiary of CMTY) if and to the extent requested by either Party and consented
to by the other Party (such consent not to be unreasonably
withheld); provided,
however, that no such change shall (i) alter or change the amount or kind of
Merger Consideration, (ii) adversely affect the tax treatment of East Prospect’s
shareholders as a result of receiving the Merger Consideration or the tax
treatment of either Party pursuant to this Agreement or (iii) materially impede
or delay completion of the transactions contemplated by this
Agreement.
(d)
Community’s
Articles of Incorporation and Bylaws.
On and after the Effective Date, the articles of incorporation and bylaws of
Community, as in effect immediately prior to the Effective Date, shall
automatically be and remain the articles of incorporation and bylaws of
Community, as the surviving institution in the Merger, until thereafter altered,
amended or repealed.
(e)
Board
of Directors and Officers of Community.
(i)
On
and after the Effective Date, the (A) officers of Community duly appointed
and holding office immediately prior to the Effective Date and (B) such
officers of East Prospect as are offered and accept positions of employment
with
Community shall be the officers of Community, as the surviving institution
in
the Merger, each to hold office until his or her successor is appointed and
qualified or otherwise in accordance with applicable law, the articles of
incorporation and bylaws of Community.
12
(ii)
On and after the Effective Date, the Board of Directors of Community, as the
surviving institution in the Merger, shall consist of those persons holding
such
office immediately prior to such effective date.
ARTICLE
II- CONSIDERATION;
EXCHANGE PROCEDURES
2.01 CMTY
Common Stock.
(a)
Outstanding
Shares.
Each share of CMTY Common Stock issued and outstanding immediately prior to
the
Effective Date shall, on and after the Effective Date, continue to be issued
and
outstanding as an identical share of CMTY Common Stock.
(b)
Treasury
Stock.
Each share of CMTY Common Stock issued and held in the treasury of CMTY
immediately prior to the Effective Date, if any, shall, on and after the
Effective Date, continue to be issued and held in the treasury of CMTY.
2.02 East
Prospect Common Stock.
(a)
Conversion
Alternatives.
Subject to Sections 2.03, 2.04 and 2.05 below with respect to treasury stock,
fractional shares and dissenting shares of East Prospect Common Stock, each
share of East Prospect Common Stock issued and outstanding immediately prior
to
the Effective Date, shall, on the Effective Date, by reason of the Merger and
without any action on the part of the holder thereof, cease to be outstanding
and be converted into the right to receive, at the election of the holder
thereof:
(i)
a
number of shares of CMTY Common Stock calculated on the basis of the Floating
Exchange Ratio (unless prior to the Effective Date there has occurred a CMTY
Acquisition Transaction, in which event the Fixed Exchange Ratio shall be used
in lieu of the Floating Exchange Ratio), including the associated rights to
purchase securities pursuant to the Rights Agreement, subject to adjustment
as
provided in Section 2.07 below (the “Common Stock Consideration”); or
(ii)
$565.80
(the “Cash Consideration” and, collectively with the Common Stock Consideration,
the “Merger Consideration”).
13
Notwithstanding
the foregoing, (i) the number of shares of East Prospect Common Stock to be
converted into the right to receive the Common Stock Consideration on the
Effective Date (the “Aggregate Common Stock Consideration”) shall be equal,
subject to the determination by CMTY in its sole discretion as of a date at
least five (5) Business Days prior to the mailing of the Prospectus/Proxy
Statement, to a minimum of fifty percent (50%) and a maximum of seventy-five
percent (75%) of the total number of shares of East Prospect Common Stock issued
and outstanding on the Effective Date and (ii) the number of shares of East
Prospect Common Stock to be converted into the right to receive the Cash
Consideration on the Effective Date shall be equal, subject to the determination
by CMTY in its sole discretion as of a date at least five (5) Business Days
prior to the mailing of the Prospectus/Proxy Statement, to a maximum of fifty
percent (50%) and a minimum of twenty-five percent (25%) of the total number
of
shares of East Prospect Common Stock issued and outstanding on the Effective
Date, minus (A) the number of shares of East Prospect Common Stock, if any,
with
respect to which dissenters’ rights have been duly exercised and (B)
the aggregate number of shares with respect to which cash is paid in lieu of
fractional shares pursuant to Section 2.04 (the “Aggregate Cash
Consideration”).
(b)
Election
Procedures.
CMTY and East Prospect shall cause the Exchange Agent to mail an Election Form
to holders of East Prospect Common Stock not more than sixty (60) Business
Days
and not less than twenty (20) Business Days prior to the Election Deadline.
Each
Election Form shall permit the holder (or in the case of nominee record holders,
the beneficial owner through proper instructions and
documentation):
(i)
to
elect to receive the Common Stock Consideration with respect to all or a portion
of their shares of East Prospect Common Stock (the “Common Stock Election
Shares”);
(ii)
to
elect to receive the Cash Consideration with respect to all or a portion of
their shares of East Prospect Common Stock (the “Cash Election Shares”);
or
(iii)
to
state no preference between Common Stock Consideration and Cash
Consideration.
The
Exchange Agent shall use reasonable efforts to make the Election Form available
to all persons who become holders of East Prospect Common Stock during the
period between the
14
record
date for the mailing of the Election Form and the Election Deadline. Any
holder’s election shall have been properly made only if the Exchange Agent shall
have received at its designated office, by the Election Deadline, a properly
completed and signed Election Form (or
Election Forms, in the event that a holder elects to submit different Election
Forms for each beneficial owner) accompanied
by certificates that immediately prior to the Effective Date represented issued
and outstanding shares of East Prospect Common Stock (the “East Prospect
Certificates”) to which such Election Form relates, in form acceptable for
transfer (or by an appropriate guarantee of delivery of such East Prospect
Certificates as set forth in such Election Form from a firm which is an
“eligible guarantor institution” (as defined in Rule 17Ad-15 under the Exchange
Act) provided that such East Prospect Certificates are in fact delivered to
the
Exchange Agent by the time set forth in such guarantee of delivery). If a holder
of East Prospect Common Stock either: (i) does not submit a properly completed
Election Form before the Election Deadline; (ii) revokes an Election Form prior
to the Election Deadline and does not resubmit a properly completed Election
Form prior to the Election Deadline; (iii) fails to perfect his, her or its
dissenters’ rights pursuant to subsection 2.05 of this Agreement or
(iv) affirmatively states that the holder does not have a preference between
Cash Consideration and Common Stock Consideration,
the shares of East Prospect Common Stock held by such holder shall be designated
“No-Election Shares.” Nominee record holders who hold East Prospect Common Stock
on behalf of multiple beneficial owners shall be required to indicate how many
of the shares held by them are Common Stock Election Shares, Cash
Election
Shares
and No-Election Shares. For purposes of this Section 2.02, any Dissenting East
Prospect Shares shall be deemed to be Cash Election Shares and, with respect
to
such shares, the holders thereof shall in no event be classified as holders
of
Reallocated Common Stock Shares.
(c)
Mixed
Election.
Subject to the immediately following sentence, each record holder of shares
of
East Prospect Common Stock immediately prior to the Effective Date shall be
entitled to elect to receive shares of CMTY Common Stock for a portion of such
holder’s shares of East Prospect Common Stock and cash for the remaining portion
of such holder’s shares of East Prospect Common Stock (the “Mixed Election”).
With respect to each holder of East Prospect Common Stock who makes a Mixed
Election, the shares of East Prospect Common Stock that such holder elects
to be
converted into the right to receive the Common Stock
15
Consideration
shall be treated as Common Stock Election Shares and the shares such holder
elects to be converted into the right to receive the Cash Consideration shall
be
treated as Cash Election Shares.
(d)
Effective
Election.
Any Election shall be properly made only if the Exchange Agent shall have
actually received a properly completed Election Form (or
Election Forms, in the event that a holder elects to submit different Election
forms for each beneficial owner) by
the Election Deadline. Any Election Form may be revoked or changed by the person
submitting such Election Form to the Exchange Agent by written notice to the
Exchange Agent only if such written notice is actually received by the Exchange
Agent at or prior to the Election Deadline. The Exchange Agent shall have
reasonable discretion to (i) determine whether any election, modification or
revocation is received, (ii) determine whether any election, modification or
revocation has been properly made, and (iii) disregard immaterial defects in
any
Election Form. Good faith determinations made by the Exchange Agent regarding
such matters shall be binding and conclusive. Neither CMTY, East Prospect nor
the Exchange Agent shall be under any obligation to notify any person of any
defect in an Election Form.
(e)
Allocation.
The Exchange Agent shall effect the allocation among the holders of East
Prospect Common Stock of rights to receive CMTY Common Stock or cash in
accordance with the Election Forms as follows:
(i)
Aggregate
Cash Consideration Undersubscribed.
If the amount of cash represented by the aggregate Cash Election Shares is
less
than the Aggregate Cash Consideration, then:
(A)
all
Cash Election Shares (subject to Section 2.05 with respect to Dissenting East
Prospect Shares) shall be converted into the right to receive cash;
(B)
No-Election
Shares shall be deemed to be Cash Election Shares to the extent necessary to
have the amount of cash represented by the aggregate Cash Election Shares equal
the Aggregate Cash Consideration. If less than all of the No-Election Shares
need to be treated as Cash Election Shares, then the Exchange Agent shall select
which No-Election Shares shall be treated as Cash Election Shares in such manner
as the Exchange Agent, in its sole
16
discretion,
shall determine. All remaining No-Election Shares shall thereafter be treated
as
Common Stock Election Shares;
(C)
If
all of the No-Election Shares are treated as Cash Election Shares under the
preceding subsection and the amount of cash represented by the aggregate Cash
Election Shares remains less than the Aggregate Cash Consideration, then the
Exchange Agent shall convert, on a pro rata basis described in subsection
2.02(e)(iv) below, a sufficient number of Common Stock Election Shares into
Cash
Election Shares (“Reallocated Cash Shares”) such that the amount of cash
represented by the aggregate Cash Election Shares, including the Reallocated
Cash Shares, equals the Aggregate Cash Consideration, and thereafter all
Reallocated Cash Shares will be converted into the right to receive cash;
and
(D)
the
Common Stock Election Shares which are not Reallocated Cash Shares shall be
converted into the right to receive CMTY Common Stock.
(ii)
Aggregate
Cash Consideration Oversubscribed.
If the amount of cash represented by the aggregate Cash Election Shares is
more
than the Aggregate Cash Consideration, then:
(A)
all
Common Stock Election Shares and No-Election Shares shall be converted into
the
right to receive CMTY Common Stock;
(B)
the
Exchange Agent shall convert, on a pro rata basis described in subsection
2.02(e)(iv) below, a sufficient number of Cash Election Shares (excluding
Dissenting East Prospect Shares) into Common Stock Election Shares (“Reallocated
Common Stock Shares”) such that the amount of cash represented by the remaining
aggregate Cash Election Shares equals the Aggregate Cash Consideration, and
thereafter all Reallocated Common Stock Shares will be converted into the right
to receive CMTY Common Stock; and
(C)
the
Cash Election Shares (subject to Section 2.05 with respect to Dissenting East
Prospect Shares) which are not Reallocated Common Stock Shares shall be
converted into the right to receive cash.
17
(iii)
Aggregate
Cash Consideration and Aggregate Common Stock Consideration
Satisfied.
If the amount of cash represented by the aggregate Cash Election Shares is
equal
to the Aggregate Cash Consideration, then subsections (e)(i) and (ii) shall
not
apply, and all Cash Election Shares (subject to Section 2.05 with respect to
Dissenting East Prospect Shares) shall be converted into the right to receive
cash and all Common Stock Election Shares and all No-Election Shares shall
be
converted into the right to receive CMTY Common Stock.
(iv)
Pro
Rata Reallocations.
If the Exchange Agent is required pursuant to subsection 2.02(e)(i)(C) to
convert some Common Stock Election Shares into Reallocated Cash Shares, each
holder of Common Stock Election Shares shall be allocated a pro rata portion
of
the total Reallocated Cash Shares. If the Exchange Agent is required pursuant
to
subsection 2.02(e)(ii)(B) to convert some Cash Election Shares into Reallocated
Common Stock Shares, each holder of Cash Election Shares shall be allocated
a
pro rata portion of the total Reallocated Common Stock Shares.
2.03 Cancellation
of Certain Common Stock.
Each share of East Prospect Common Stock which is owned by CMTY, East Prospect
or any of their Subsidiaries on the Effective Date (other than shares that
are
held in trust, managed, custodial or nominee accounts and the like and which
are
beneficially owned by third parties) shall be canceled and cease to be issued
and outstanding, and no consideration shall be delivered therefor.
2.04 Fractional
Shares.
No fractional shares of CMTY Common Stock and no scrip or certificates therefor
shall be issued in connection with the Merger. Any former holder of East
Prospect Common Stock who would otherwise be entitled to receive a fraction
of a
share of CMTY Common Stock shall receive, in lieu thereof, cash in an amount
equal to such fraction of a share multiplied by the CMTY Market Value on the
Effective Date (“Cash Consideration”).
2.05 Dissenting
East Prospect Shareholders.
(a)
The
outstanding shares of East Prospect Common Stock, the holders of which have
timely filed written notices of an intention to demand appraisal for their
shares (“Dissenting East Prospect Shares”) pursuant to Subchapter D of the BCL
and have not effectively withdrawn or lost their dissenters' rights under the
BCL, shall not be converted into or represent a right to
18
receive
the Merger Consideration under this Agreement, and the holders thereof shall
be
entitled only to such rights as are granted by Subchapter D of the
BCL.
(b)
If
any such holder of East Prospect Common Stock shall have failed to perfect
or
effectively shall have withdrawn or lost such right, and if such holder shall
have delivered a properly completed Election Form to the Exchange Agent by
the
Election Deadline, the Dissenting East Prospect Shares held by such holder
shall
be converted into a right to receive the Common Stock Consideration or the
Cash
Consideration in accordance with the applicable provisions of this Agreement.
If
any such holder of East Prospect Common Stock shall have failed to perfect
or
effectively shall have withdrawn or lost such right, and if such holder shall
not have delivered a properly completed Election Form to the Exchange Agent
by
the Election Deadline, the Dissenting East Prospect Shares held by such holder
shall be designated No-Election Shares and shall be converted on a share by
share basis into either the right to receive the Common Stock Consideration
or
the Cash Consideration in accordance with the applicable provisions of this
Agreement.
(c)
All
payments in respect of Dissenting East Prospect Shares, if any, will be made
by
CMTY.
2.06 Surrender
and Exchange of East Prospect Stock Certificates.
(a)
Exchange
Fund.
On or prior to the Effective Date, CMTY shall deposit with the Exchange Agent,
in trust for the benefit of holders of shares of East Prospect Common Stock,
sufficient cash and certificates representing shares of CMTY Common Stock to
make all payments and deliveries to shareholders of East Prospect pursuant
to
this Article II. Any cash and certificates for CMTY Common Stock deposited
with the Exchange Agent shall hereinafter be referred to as the “Exchange Fund.”
(b)
Exchange
Procedures.
As soon as reasonably practicable after the Effective Date (and in any case
no
later than ten (10) Business Days thereafter), CMTY shall cause the Exchange
Agent to mail to each record holder of East Prospect Common Stock immediately
prior to the Effective Date,
other than those holders who already submitted Election Forms accompanied by
East Prospect Certificates, a
letter of transmittal which shall specify that
19
delivery
of the certificates for shares of East Prospect Common Stock (each, a “East
Prospect Certificate”) shall be effected, and risk of loss and title to the East
Prospect Certificates shall pass, only upon delivery of the East Prospect
Certificates to the Exchange Agent, and which letter shall be in customary
form
and have such other provisions as CMTY may reasonably specify and instructions
for effecting the surrender of such East Prospect Certificates in exchange
for
the Merger Consideration, as the case may be. Upon surrender of an East Prospect
Certificate to the Exchange Agent together with such letter of transmittal
or
Election Form, as the case may be, duly executed and completed in
accordance with the instructions thereto, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such East Prospect
Certificate shall be entitled to receive within ten (10) Business Days
thereafter and in exchange therefor (i) documentary evidence representing,
in
the aggregate, the whole number of shares of CMTY Common Stock that such
holder
has the right to receive pursuant to this Article II and (ii) a check in
the
amount equal to any cash that such holder has the right to receive pursuant
to
this Article II. No interest will be paid or will accrue on any cash payment
pursuant to this Section 2.06.
(c)
Each
certificate for shares of CMTY Common Stock (each, a “CMTY Certificate”) issued
in exchange for East Prospect Certificates pursuant to this Section 2.06
shall be dated as of the date the certificate is issued and be entitled to
dividends, distributions and all other rights and privileges pertaining to
such
shares of CMTY Common Stock from the Effective Date. Until surrendered, each
East Prospect Certificate shall, from and after the Effective Date, evidence
solely the right to receive the Merger Consideration.
(d)
If
an East Prospect Certificate is exchanged on a date following one or more record
dates after the Effective Date for the payment of dividends or any other
distribution on shares of CMTY Common Stock, CMTY shall pay to the holder of
such East Prospect Certificate cash in an amount equal to dividends payable
on
the shares of CMTY Common Stock issued in exchange therefor and pay or deliver
any other distribution to which such shareholder is entitled. Upon surrender
of
certificates for shares of East Prospect Common Stock in exchange for
certificates for CMTY Common Stock, CMTY also shall pay any dividends to which
such holder of East Prospect Common Stock may be entitled as a result of the
declaration of a dividend on the East Prospect Common Stock by East Prospect
in
accordance with the terms of
20
this
Agreement with a record date prior to the Effective Date and a payment date
after the Effective Date. No interest shall accrue or be payable in respect
of
dividends or any other distribution otherwise payable under this
Section 2.06(d) upon surrender of East Prospect Certificates.
Notwithstanding the foregoing, no party hereto shall be liable to any holder
of
East Prospect Common Stock for any amount paid in good faith to a public
official or agency pursuant to any applicable abandoned property, escheat or
similar law. Until such time as East Prospect Certificates are surrendered
to
CMTY for exchange, CMTY shall have the right to withhold dividends or any other
distributions on the shares of CMTY Common Stock issuable to such shareholder.
(e)
Upon
the Effective Date, the stock transfer books for East Prospect Common Stock
will
be closed and no further transfers of East Prospect Common Stock will thereafter
be made or recognized. All East Prospect Certificates surrendered pursuant
to
this Section 2.06 will be cancelled.
(f)
If
there is a transfer of ownership of East Prospect Common Stock which is not
registered in the transfer records of East Prospect , one or more CMTY
Certificates evidencing, in the aggregate, the proper number of shares of CMTY
Common Stock, a check in the proper amount of cash in lieu of any fractional
shares and any dividends or other distributions to which such holder is entitled
pursuant to Section 2.07(d), as applicable and appropriate, may be issued
with respect to such East Prospect Common Stock to such a transferee if the
East
Prospect Certificate representing such shares of East Prospect Common Stock
is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(g)
If
any East Prospect Certificate shall have been lost, stolen or destroyed, the
Exchange Agent shall deliver in exchange for such lost, stolen or destroyed
East
Prospect Certificate, upon the making of a sworn affidavit of that fact by
the
holder thereof in form satisfactory to the Exchange Agent, the Merger
Consideration, and any dividends or other distributions to which such holder
is
entitled pursuant to this Section 2.06 as may be required pursuant to this
Agreement; provided, however, that the Exchange Agent may, in its sole
discretion and as a condition precedent to the delivery of the Merger
Consideration to which the
21
holder
of such East Prospect Certificate is entitled as a result of the Merger, require
the owner of such lost, stolen or destroyed East Prospect Certificate to deliver
a bond in such amount as it may direct as indemnity against any claim that
may
be made against East Prospect , CMTY or the Exchange Agent or any other party
with respect to the East Prospect Certificate alleged to have been lost, stolen
or destroyed.
2.07 Anti-Dilution
Provisions.
If CMTY shall, at any time before the Effective Date:
(a)
declare
a dividend in shares of CMTY Common Stock with a record date on or prior to
the
Closing Date;
(b)
combine
the outstanding shares of CMTY Common Stock into a smaller number of shares;
(c)
resolve
to effect a split or subdivide the outstanding shares of CMTY Common Stock
with
a record date on or prior to the Closing Date; or
(d)
reclassify
the shares of CMTY Common Stock; then, in any such event, the number of shares
of CMTY Common Stock to be delivered to East Prospect shareholders who are
entitled to receive shares of CMTY Common Stock in exchange for shares of East
Prospect Common Stock shall be adjusted so that each East Prospect shareholder
shall be entitled to receive such number of shares of CMTY Common Stock as
such
shareholder would have been entitled to receive if the Effective Date had
occurred prior to the happening of such event. In addition, in the event that,
prior to the Effective Date, CMTY enters into an agreement pursuant to which
shares of CMTY Common Stock would be converted into shares or other securities
or obligations of another corporation, proper provision shall be made in such
agreement so that each East Prospect shareholder entitled to receive shares
of
CMTY Common Stock in the Merger shall be entitled to receive such number of
shares or other securities or amount or obligations of such other corporation
as
such shareholder would be entitled to receive if the Effective Date had occurred
immediately prior to the happening of such event.
22
ARTICLE
III- REPRESENTATIONS
AND WARRANTIES OF EAST PROSPECT
East
Prospect hereby represents and warrants, on the date hereof and on the Closing
Date, to CMTY and Community that:
3.01 Organization.
(a)
East
Prospect is a banking institution duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. East Prospect
has
the corporate power and authority to carry on its businesses and operations
as
now being conducted and to own and operate the properties and assets now owned
and being operated by it. East Prospect is duly licensed, registered or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing, registration or qualification
necessary, except where the failure to be so licensed, registered or qualified
would not have a Material Adverse Effect, and all such licenses, registrations
and qualifications are in full force and effect in all material respects.
(b)
The
deposits of East Prospect are insured by the Deposit Insurance Fund of the
FDIC
to the extent provided in the Federal Deposit Insurance Reform Act of 2005.
(c)
East
Prospect has no direct or indirect Subsidiaries.
(d)
The
minute books of East Prospect accurately reflect all material corporate actions
of its shareholders and board of directors, including committees, in each case
in accordance with normal business practice of East Prospect.
(e)
East
Prospect has delivered or made available to CMTY true and correct copies of
the
articles of incorporation and bylaws of East Prospect, each as in effect on
the
date hereof.
3.02 Capitalization.
(a)
The
authorized capital stock of East Prospect consists of 120,000 shares of common
stock, par value $10.00 per share (“East Prospect Common Stock”), of which at
the date hereof 38,000 shares are validly issued and outstanding, fully paid
and
nonassessable, and
23
free
of preemptive rights, and no shares are held as treasury shares. East Prospect
has not issued, nor is East Prospect bound by, any subscription, option,
warrant, call, commitment, agreement or other Right of any character relating
to
the purchase, sale, or issuance of, or right to receive dividends or other
distributions on, any shares of East Prospect Common Stock or any other security
of East Prospect or any securities representing the right to vote, purchase
or
otherwise receive any shares of East Prospect Common Stock or any other security
of East Prospect.
(b)
East
Prospect does not possess, directly or indirectly, any material equity interest
in any corporation, except for equity interests in its investment portfolio,
equity interests held in connection with East Prospect ’s commercial loan
activities, or as set forth in East
Prospect Disclosure Schedule 3.02(b).
(c)
To
the Knowledge of East Prospect, no person or group is the beneficial owner
of 5%
or more of the outstanding shares of East Prospect Common Stock (the terms
“person,” “group” and “beneficial owner” are as defined in Section 13(d) of
the Exchange Act, and the rules and regulations thereunder), except as set
forth
on East
Prospect Disclosure Schedule 3.02(c).
3.03 Authority;
No Violation.
(a)
East
Prospect has full corporate power and authority to execute and deliver this
Agreement and to consummate the Contemplated Transactions. The execution and
delivery of this Agreement by East Prospect and the consummation by East
Prospect of the Contemplated Transactions have been duly and validly approved
by
the Board of Directors of East Prospect and, except for approval by the
shareholders of East Prospect as required by the Banking Code, no other
corporate proceedings on the part of East Prospect are necessary to consummate
the Merger. This Agreement has been duly and validly executed and delivered
by
East Prospect and, subject to approval by the shareholders of East Prospect
and
subject to receipt of the required approvals of Regulatory Authorities described
in Section 4.04 hereof, constitutes the valid and binding obligation of
East Prospect , enforceable against East Prospect in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors’ rights generally and subject, as to enforceability, to general
principles of equity.
24
(b)
Subject
to (i) receipt of approval from the shareholders of East Prospect ,
(ii) receipt of approvals from the Regulatory Authorities referred to in
Section 4.04 hereof and (iii) East Prospect ’s and CMTY’s compliance
with any conditions contained therein, the execution and delivery of this
Agreement by East Prospect , the consummation of the Merger, and compliance
by
East Prospect with any of the terms or provisions hereof, do not and will not:
(A)
conflict
with or result in a breach of any provision of the articles of incorporation
or
bylaws of East Prospect;
(B)
violate
any statute, rule, regulation, judgment, order, writ, decree or injunction
applicable to East Prospect or any of its properties or assets; or
(C)
except
as described in East
Prospect Disclosure Schedule 3.03,
violate, conflict with, result in a breach of any provisions of, constitute
a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, or acceleration
of,
the performance required by, or result in a right of termination or acceleration
or the creation of any lien, security interest, charge or other encumbrance
upon
any of the properties or assets of East Prospect under any of the terms or
conditions of any note, bond, mortgage, indenture, license, lease, agreement,
commitment or other instrument or obligation to which East Prospect is a party,
or by which it or any of its properties or assets may be bound or affected,
excluding from clauses (B) and (C) hereof, any items which, in the
aggregate, would not have a Material Adverse Effect.
3.04 Consents.
Except as described in Section 4.04 of this Agreement, no consents or
approvals of, or filings or registrations with, any public body or authority
are
necessary and, except as described in East
Prospect Disclosure Schedule 3.04 or
where the failure to obtain any consent or approval would constitute a Material
Adverse Effect, no consents or approvals of any third party to a Material
Contract are (or will be ) necessary in connection with the execution and
delivery of this Agreement by East Prospect or, subject to the consents,
approvals, filings and registrations from or with the Regulatory Authorities
referred to in Section 4.04 hereof and compliance with any conditions
contained therein and subject to the approval of this Agreement by the
shareholders of East Prospect as required under the Banking Code, the
consummation by East Prospect of the Contemplated Transactions.
25
3.05 Financial
Statements.
(a)
The
East Prospect Financials fairly present, in all material respects, the financial
position, results of operations and cash flows of East Prospect as of and for
the periods ended on the dates thereof, in accordance with GAAP consistently
applied, except in each case as may be noted therein.
(b)
To
the Knowledge of East Prospect and except as set forth in East
Prospect Disclosure Schedule 3.05(b),
East Prospect did not, as of June 30, 2006, have any liabilities or obligations
of any nature, whether absolute, accrued, contingent or otherwise, which are
not
fully reflected or reserved against in the balance sheets included in the East
Prospect Financials at the date of such balance sheets which would have been
required to be reflected therein in accordance with GAAP consistently applied
or
disclosed in a footnote thereto, except for liabilities and obligations which
were incurred in the ordinary course of business consistent with past practice,
and except for liabilities and obligations which are within the subject matter
of a specific representation and warranty herein or which otherwise have not
had
a Material Adverse Effect.
3.06 No
Material Adverse Change.
East Prospect has not suffered any adverse change in its assets, business,
financial condition or results of operations since June 30, 2006, which change
has had a Material Adverse Effect.
3.07 Taxes.
(a)
East
Prospect has filed, and will file, all material federal, state and local tax
returns required to be filed by, or with respect to, East Prospect on or prior
to the Closing Date, except to the extent that any failure to file or any
inaccuracies would not, individually or in the aggregate, have a Material
Adverse Effect, and has paid or will pay, or made or will make, provisions
for
the payment of all federal, state and local taxes which are shown on such
returns to be due for the periods covered thereby from East Prospect to any
applicable taxing authority, on or prior to the Closing Date, other than taxes
which (i) are not delinquent or are being contested in good faith,
(ii) have not been finally determined, or (iii) the failure to pay
would not, individually or in the aggregate, have a Material Adverse Effect.
26
(b)
No
consent pursuant to IRC Section 341(f) has been filed, or will be filed
prior to the Closing Date, by or with respect to East Prospect.
(c)
To
the Knowledge of East Prospect, there are no material disputes pending, or
claims asserted in writing, for taxes or assessments upon East Prospect, nor
has
East Prospect been requested in writing to give any currently effective waivers
extending the statutory period of limitation applicable to any federal, state,
county or local income tax return for any period.
(d)
Proper
and accurate amounts have been withheld by East Prospect from its employees
for
all prior periods in compliance in all material respects with the tax
withholding provisions of applicable federal, state and local laws, except
where
failure to do so is not reasonably likely to have a Material Adverse Effect.
3.08 Contracts.
(a)
Except
as described in East
Prospect Disclosure Schedule 3.08(a),
East Prospect is not a party to or subject to:
(i)
any
employment, consulting, severance, “change-in-control” or termination contract
or arrangement with any officer, director, employee, independent contractor,
agent or other person, except for “at will” arrangements;
(ii)
any
plan, arrangement or contract providing for bonuses, pensions, options, deferred
compensation, retirement payments, profit sharing or similar arrangements for
or
with any officer, director, employee, independent contractor, agent or other
person;
(iii)
any
collective bargaining agreement with any labor union relating to employees;
(iv)
any
agreement which by its terms limits the payment of dividends by East Prospect;
(v)
except
in the ordinary course of business, any material instrument evidencing or
related to indebtedness for borrowed money, whether directly or indirectly,
by
way of purchase money obligation, conditional sale, lease purchase, guaranty
or
otherwise, in respect
27
(vi)
any
contract, other than this Agreement, which restricts or prohibits it from
engaging in any type of business permissible under applicable law;
(vii)
any
contract, plan or arrangement which provides for payments or benefits in certain
circumstances which, together with other payments or benefits payable to any
participant therein or party thereto, might render any portion of any such
payments or benefits subject to disallowance of deduction therefor as a result
of the application of Section 280G of the IRC;
(viii)
any
lease for real property;
(ix)
any
contract or arrangement with any broker-dealer or investment adviser;
(x)
any
investment advisory contract with any investment company registered under the
Investment Company Act of 1940;
(xi)
any
contract or arrangement with, or membership in, any local clearing house or
self-regulatory organization;
(xii)
any
contract or arrangement for the acquisition of, or any payment in connection
with the acquisition of, any equity interest in, or substantially all the assets
of, any business organization; or
(xiii)
any
Material Contract.
(b)
(i)
All the contracts, plans, arrangements and instruments listed in East
Prospect Disclosure Schedule 3.08(a)
are in full force and effect on the date hereof, and neither East Prospect,
nor,
to the Knowledge of East Prospect , any other party to any such contract,
28
(ii)
Except as otherwise described in East
Prospect Disclosure Schedule 3.08(a),
no plan, employment agreement, termination agreement or similar agreement or
arrangement to which East Prospect is a party or by which East Prospect may
be
bound:
(A)
contains
provisions which permit an employee or an independent contractor to terminate
it
without cause and continue to accrue future benefits thereunder;
(B)
provides
for acceleration in the vesting of benefits thereunder upon the occurrence
of a
change in ownership or control or merger or other acquisition of East Prospect;
or
(C)
requires
East Prospect to provide a benefit in the form of East Prospect Common Stock
or
determined by reference to the value of East Prospect Common Stock.
3.09 Ownership
of Property; Insurance Coverage.
(a)
East
Prospect has, and will have as to property acquired after the date hereof,
good,
and as to real property, marketable, title to all material assets and properties
owned by East Prospect, whether real or personal, tangible or intangible,
including securities, assets and properties reflected in the balance sheets
contained in the East Prospect Financials or acquired subsequent thereto (except
to the extent that such securities are held in any fiduciary or agency capacity
and except to the extent that such assets and properties have been disposed
of
for fair value, in the ordinary course of business, or have been disposed of
as
obsolete since the date of such balance sheets), subject to no encumbrances,
liens, mortgages, security interests or pledges, except:
(i)
those
items that secure liabilities for borrowed money and that are described in
East
Prospect Disclosure Schedule 3.09(a)
or permitted under Article V hereof;
29
(ii)
statutory
liens for amounts not yet delinquent or which are being contested in good faith;
(iii)
liens
for current taxes not yet due and payable;
(iv)
pledges
to secure deposits and other liens incurred in the ordinary course of banking
business;
(v)
such
imperfections of title, easements and encumbrances, if any, as are not material
in character, amount or extent; and
(vi)
dispositions and encumbrances for adequate consideration in the ordinary course
of business.
East
Prospect has the right under leases of material properties used by it in the
conduct of its business to occupy and use all such properties in all material
respects as presently occupied and used by it.
(b)
With
respect to all agreements pursuant to which East Prospect has purchased
securities subject to an agreement to resell, if any, East Prospect has a valid,
perfected first lien or security interest in the securities or other collateral
securing the repurchase agreement, and the value of such collateral equals
or
exceeds the amount of the debt secured thereby, except to the extent that any
failure to obtain such a lien or maintain such collateral would not,
individually or in the aggregate, have a Material Adverse Effect.
(c)
East
Prospect maintains insurance in amounts considered by East Prospect to be
reasonable for its operations, and such insurance is similar in scope and
coverage in all material respects to that maintained by other businesses
similarly situated. East Prospect has not received notice from any insurance
carrier that:
(i)
such
insurance will be cancelled or that coverage thereunder will be reduced or
eliminated; or
30
(ii)
premium
costs with respect to such insurance will be substantially increased; except
to
the extent such cancellation, reduction, elimination or increase would not
have
a Material Adverse Effect.
(d)
East
Prospect maintains such fidelity bonds, directors’ and officers’ liability
insurance and errors and omissions insurance as may be customary or required
under applicable laws or regulations.
3.10 Legal
Proceedings.
East Prospect is not a party to any, and there are no pending or, to the
Knowledge of East Prospect , threatened, legal, administrative, arbitration
or
other proceedings, claims, actions, customer complaints, or governmental
investigations or inquiries of any nature:
(a)
against
East Prospect;
(b)
to
which the assets of East Prospect are subject;
(c)
challenging
the validity or propriety of any of the Contemplated Transactions;
or
(d)
which
could have a Material Adverse Effect on the ability of East Prospect to perform
its obligations under this Agreement; except for any proceedings, claims,
actions, investigations, or inquiries referred to in clauses (a) or (b) of
this Section 3.10 which, individually or in the aggregate, would not have a
Material Adverse Effect.
3.11 Compliance
with Applicable Law and Agreements.
(a)
East
Prospect holds all licenses, franchises, permits and authorizations necessary
for the lawful conduct of its business under, and have complied in all material
respects with, applicable laws, statutes, orders, rules or regulations of any
Regulatory Authority relating to it, other than where such failure to hold
or
such noncompliance will neither result in a limitation in any material respect
on the conduct of its business or otherwise have a Material Adverse Effect.
31
(b)
East
Prospect have filed all reports, registrations and statements, together with
any
amendments required to be made with respect thereto, that they were required
to
file with any Regulatory Authority, and have filed all other reports and
statements required to be filed by them, including without limitation any report
or statement required to be filed pursuant to the laws, rules or regulations
of
the United States, any state or any Regulatory Authority, and have paid all
fees
and assessments due and payable in connection therewith, except where the
failure to file such report, registration or statement or to pay such fees
and
assessments, either individually or in the aggregate, would not have a Material
Adverse Effect.
(c)
Except
as set forth on East
Prospect Disclosure Schedule 3.11(c),
no Regulatory Authority has initiated any proceeding or, to the Knowledge of
East Prospect , investigation into the business or operations of East Prospect,
except where any such proceedings or investigations will not, individually
or in
the aggregate, have a Material Adverse Effect, or such proceedings or
investigations have been terminated or otherwise resolved.
(d)
Except
as set forth on East
Prospect Disclosure Schedule 3.11(d),
East Prospect has not received any notification or communication from any
Regulatory Authority:
(i)
asserting
that East Prospect is not in substantial compliance with any of the statutes,
regulations or ordinances which such Regulatory Authority enforces, unless
such
assertion has been waived, withdrawn or otherwise resolved;
(ii)
threatening
to revoke any license, franchise, permit or governmental authorization which
is
material to East Prospect;
(iii)
requiring
or threatening to require East Prospect, or indicating that East Prospect 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 East Prospect, 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 East Prospect (any such notice, communication,
memorandum, agreement or order described in this sentence herein referred to
as
a “Regulatory Agreement”).
32
(e)
East
Prospect has not consented to or entered into any pending Regulatory Agreement.
(f)
To
the Knowledge of East Prospect, except as set forth in East
Prospect Disclosure Schedule 3.11(f),
there is no unresolved violation, criticism, or exception by any Regulatory
Authority with respect to any Regulatory Agreement which if resolved in a manner
adverse to East Prospect would have a Material Adverse Effect.
(g)
There
is no injunction, order, judgment or decree imposed upon East Prospect or the
assets of East Prospect which has had, or, to the Knowledge of East Prospect,
would have, a Material Adverse Effect.
(h)
East
Prospect has not breached or defaulted on any agreement, contract, commitment,
arrangement or other instrument to which it is a party or by which it may be
bound, other than any breach or default that would not have a Material Adverse
Effect.
3.12 ERISA.
(a)
East
Prospect has made available or delivered to CMTY true and complete copies of
any
employee pension benefit plans within the meaning of ERISA Section 3(2),
profit sharing plans, stock purchase plans, deferred compensation and
supplemental income plans, supplemental executive retirement plans, annual
incentive plans, group insurance plans, and all other employee welfare benefit
plans within the meaning of ERISA Section 3(1) (including vacation pay,
sick leave, short-term disability, long-term disability, and medical plans)
and
all other employee benefit plans, policies, agreements and arrangements, all
of
which are listed in East
Prospect Disclosure Schedule 3.12(a),
currently maintained or contributed to for the benefit of the employees or
former employees (including retired employees) and any beneficiaries thereof
or
directors or former directors of East Prospect or any other entity (an “East
Prospect ERISA Affiliate”) that, together with East Prospect , is treated as a
single employer under IRC Sections 414(b), (c), (m) or (o) (collectively,
the “East Prospect Benefit Plans”), together with:
(i)
the
most recent actuarial reports (if any) and financial reports relating to those
East Prospect Benefit Plans which constitute “qualified plans” under IRC
Section 401(a);
33
(ii)
the
most recent Form 5500 (if any) relating to such East Prospect Benefit Plans
filed by them, respectively, with the IRS; and
(iii)
the
most recent IRS determination letters which pertain to any such East Prospect
Benefit Plans.
(b)
Neither
East Prospect nor any East Prospect ERISA Affiliate, and no pension plan (within
the meaning of ERISA Section 3(2)) maintained or contributed to by East
Prospect or any East Prospect ERISA Affiliate, has incurred any liability to
the
Pension Benefit Guaranty Corporation or to the IRS with respect to any pension
plan qualified under IRC Section 401(a), except liabilities to the Pension
Benefit Guaranty Corporation pursuant to ERISA Section 4007, all of which
have been fully paid, nor has any reportable event under ERISA
Section 4043(b) (with respect to which the 30 day notice requirement
has not been waived) occurred with respect to any such pension plan.
(c)
Neither
East Prospect nor any East Prospect ERISA Affiliate has ever contributed to
or
otherwise incurred any liability with respect to a multi-employer plan (within
the meaning of ERISA Section 3(37)).
(d)
Each
East Prospect Benefit Plan has been maintained, operated and administered in
compliance in all respects with its terms and related documents or agreements
and the applicable provisions of all laws, including ERISA and the IRC, except
where any such non-compliance would not have a Material Adverse Effect.
(e)
There
is no existing, or, to the Knowledge of East Prospect , contemplated, audit
of
any East Prospect Benefit Plan by the IRS, the U.S. Department of Labor, the
Pension Benefit Guaranty Corporation or any other governmental authority. In
addition, there are no pending or threatened claims by, on behalf of or with
respect to any East Prospect Benefit Plan, or by or on behalf of any individual
participant or beneficiary of any East Prospect Benefit Plan, alleging any
violation of ERISA or any other applicable laws, or claiming benefits (other
than claims for benefits not in dispute and expected to be granted promptly
in
the ordinary course of business), nor to the Knowledge of East Prospect , is
there any basis for such claim.
34
(f)
Except
as set forth in East
Prospect Disclosure Schedule 3.12(f),
with respect to any services which East Prospect may provide as a record-keeper,
consultant, administrator, custodian, fiduciary, trustee or otherwise for any
plan, program, or arrangement subject to ERISA (other than any East Prospect
Benefit Plan), to the Knowledge of East Prospect , East Prospect:
(i)
has
correctly computed all contributions, payments or other amounts in accordance
with the applicable documents of any such plan, program or arrangement;
(ii)
has
not engaged in any prohibited transactions (as defined in ERISA Section 406
for which an exemption does not exist);
(iii)
has
not breached any duty imposed on East Prospect acting as a record-keeper,
consultant, administrator, custodian, fiduciary or trustee by ERISA: and
(iv)
has
not otherwise incurred any liability to the IRS, the Department of Labor, the
Pension Benefit Guaranty Corporation, or to any beneficiary, fiduciary or
sponsor of any ERISA plan in the performance (or non-performance) of services;
except where any such action or inaction would not have a Material Adverse
Effect.
3.13 Brokers
and Finders.
Neither East Prospect, nor any of its officers, directors, employees,
independent contractors or agents, has employed any broker, finder, investment
banker or financial advisor, or incurred any liability for any fees or
commissions to any such person, in connection with the Contemplated
Transactions, except for Xxxx Xxxx.
3.14 Environmental
Matters.
(a)
Except
as set forth in East
Prospect Disclosure Schedule 3.14(a),
to the Knowledge of East Prospect, neither East Prospect, nor any property
owned
or operated by East Prospect , has been or is in violation of or liable under
any Environmental Law, except for such violations or liabilities that,
individually or in the aggregate, would not have a Material Adverse Effect.
There are no actions, suits or proceedings, or demands, claims or notices,
including without limitation notices, demand letters or requests for information
from any Regulatory Authority, instituted or pending, or to the Knowledge of
East Prospect , threatened, or any
35
(b)
To
the Knowledge of East Prospect, no property, now or formerly owned or operated
by East Prospect or on which East Prospect holds or held a mortgage or other
security interest or has foreclosed or taken a deed in lieu of foreclosure,
has
been listed or proposed for listing on the National Priority List under the
Comprehensive Environmental Response Compensation and Liability Act of 1980,
as
amended (“CERCLA”), on the Comprehensive Environmental Response Compensation and
Liabilities Information System, or any similar state list, or which is the
subject of federal, state or local enforcement actions or other investigations
which may lead to claims against East Prospect for response costs, remedial
work, investigation, damage to natural resources or for personal injury or
property damage claim, including, but not limited to, claims under CERCLA,
which
would have a Material Adverse Effect.
3.15 Business
of East Prospect .
Since June 30, 2006, neither East Prospect has, in any material
respect:
(a)
increased
the wages, salaries, compensation, pension or other employee benefits payable
to
any executive officer, employee or director, except as is permitted in Section
5.01(d);
(b)
terminated
any material employee benefit plans;
(c)
deferred
routine maintenance of real property or leased premises;
(d)
eliminated
a reserve where the liability related to such reserve has remained;
(e)
failed
to depreciate capital assets in accordance with past practice or to eliminate
capital assets which are no longer used in its business; or
(f)
had
extraordinary reduction or deferral of ordinary or necessary expenses.
3.16 CRA
Compliance.
East Prospect is in material compliance with the applicable provisions of the
CRA, and, as of the date hereof, East Prospect has received a CRA rating
of
36
3.17 Information
to be Supplied.
(a)
The
information supplied by East Prospect for inclusion in the Registration
Statement (including the Prospectus/Proxy Statement) will not, at the time
the
Registration Statement is declared effective pursuant to the Securities Act,
and
as of the date the Prospectus/Proxy Statement is mailed to shareholders of
East
Prospect, and up to and including the date of the East Prospect Shareholders
Meeting, 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 the
light of the circumstances in which they were made, not misleading.
(b)
The
information supplied by East Prospect for inclusion in the Applications will,
at
the time each such document is filed with any Regulatory Authority and up to
and
including the dates of any required regulatory approvals or consents, as such
Applications may be amended by subsequent filings, be accurate in all material
respects.
3.18 Related
Party Transactions.
(a)
Except
as set forth on East
Prospect Disclosure Schedule 3.18,
or as disclosed in the footnotes to the East Prospect Financials, as of the
date
hereof, East Prospect is not a party to any transaction (including any loan
or
other credit accommodation but excluding deposits in the ordinary course of
business) with any Affiliate of East Prospect, and all such transactions were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other “persons”
(as defined in Section 13(d) of the Exchange Act, and the rules and
regulations thereunder), except with respect to variations in such terms as
would not, individually or in the aggregate, have a Material Adverse Effect.
(b)
Except
as set forth in East
Prospect Disclosure Schedule 3.18,
as of the date hereof, no loan or credit accommodation to any East Prospect
Affiliate is presently in default or, during the three-year period prior to
the
date of this Agreement, has been in material default or
37
3.19 Loans.
To the Knowledge of East Prospect, all loans reflected as assets in the East
Prospect Financials are evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and correct, and to the extent secured,
are
secured by valid liens and security interests which have been perfected,
excluding loans as to which the failure to satisfy the foregoing standards
would
not have a Material Adverse Effect.
3.20 Allowance
for Loan Losses.
The allowance for loan losses shown, and to be shown, on the balance sheets
contained in the East Prospect Financials have been, and will be, established
in
accordance with GAAP and all applicable regulatory criteria.
3.21 Reorganization.
As of the date hereof, East Prospect does not have any reason to believe that
the Merger will fail to qualify as a reorganization under Section 368(a) of
the IRC. East Prospect shall not take any action which would preclude the Merger
from qualifying as a reorganization within the meaning of Section 368 of the
IRC.
3.22 Fairness
Opinion.
East Prospect has received a written opinion from Xxxx Xxxx to the effect that,
as of the date hereof, the transaction is fair to the East Prospect shareholders
from a financial point of view.
3.23 Shareholder
Documents.
(a)
East
Prospect has delivered or made available to CMTY copies of the annual reports
to
shareholders for the years 2003, 2004 and 2005 that were delivered with its
proxy statements for such years.
(b)
East
Prospect’s annual reports and proxy materials used in connection with its
meetings of shareholders held in 2006 and 2005 complied, in all material
respects, with the BCL and the Banking Code, to the extent applicable thereto,
and all such reports and proxy materials did not, at the time of their filing,
contain any untrue statement of a material fact or omit to state
38
3.24 “Well
Capitalized”.
East Prospect is “well capitalized” within the meaning of the FRB’s and FDIC’s
regulations. East Prospect will be “well capitalized” on the Closing
Date.
3.25 Quality
of Representations.
To the Knowledge of East Prospect , no representation made by East Prospect
in
this Agreement contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
ARTICLE
IV- REPRESENTATIONS
AND WARRANTIES OF CMTY
The
Community Parties hereby jointly and severally represent and warrant, on the
date hereof and on the Closing Date, to East Prospect that:
4.01 Organization.
(a)
CMTY
is a corporation duly incorporated, validly existing and in good standing under
the laws of the Commonwealth of Pennsylvania. CMTY is a bank holding company
duly registered under the BHC Act and has made a valid financial holding company
election. CMTY has the corporate power to carry on its businesses and operations
as now being conducted and to own and operate the properties and assets now
owned and being operated by it. CMTY is duly licensed, registered or qualified
to do business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets owned
or leased by it makes such licensing, registration or qualification necessary,
except where the failure to be so licensed, registered or qualified will not
have a Material Adverse Effect, and all such licenses, registrations and
qualifications are in full force and effect in all material respects.
(b)
Community
is a bank and trust company duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. Community has
the
corporate power to carry on its business and operations as now being conducted
and to own and operate the properties and assets now owned and being operated
by
it. Community is duly licensed, registered or qualified to do business in each
jurisdiction in which the nature of the
39
(c)
The
deposits of Community are insured by the Deposit Insurance Fund of the FDIC
to
the extent provided in the Federal Deposit Insurance Reform Act of 2005.
(d)
The
respective minute books of CMTY and each CMTY Subsidiary accurately reflect
all
material corporate actions of their respective shareholders and boards of
directors, including committees, in each case in accordance with the normal
business practice of CMTY and each CMTY Subsidiary.
(e)
CMTY
has made available to East Prospect true and correct copies of the respective
articles of incorporation, articles of association and bylaws of CMTY and each
CMTY Subsidiary, as in effect on the date hereof.
(f)
Each
CMTY Subsidiary is (i) duly organized, validly existing and in good
standing under the laws of either the United States of America or of the
Subsidiary’s state of organization, (ii) has the corporate power and
authority to carry on its business and operations as now being conducted and
to
own and operate the properties and assets now owned and being operated by it,
(iii) is duly licensed, registered or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing, registration or qualification necessary, except where the
failure to be so licensed, registered or qualified would not have a Material
Adverse Effect, and all such licenses, registrations and qualifications are
in
full force and effect in all material respects.
4.02 Capitalization.
(a)
The
authorized capital stock of CMTY consists of (a) 50,000,000 shares of common
stock, par value of $5.00 (“CMTY Common Stock”), of which 1,019,202 shares are
validly issued and held by CMTY as treasury stock and 24,478,472 shares are
validly issued and outstanding, fully paid and nonassessable and free of
preemptive rights, and (b) 500,000 shares
40
(b)
CMTY
owns, directly or indirectly, all of the capital stock of Community and the
capital stock and membership interests of the other CMTY Subsidiaries, free
and
clear of any liens, security interests, pledges, charges, encumbrances,
agreements and restrictions of any kind or nature. There are no subscriptions,
options, warrants, calls, commitments, agreements or other Rights outstanding
with respect to the capital stock of Community Banks or any other CMTY
Subsidiary. Except for the CMTY Subsidiaries, CMTY does not possess, directly
or
indirectly, any material equity interest in any corporation, except for equity
interests in the investment portfolios of CMTY’s Subsidiaries, equity interests
held by CMTY or CMTY’s Subsidiaries in a fiduciary capacity, and equity
interests held in connection with the commercial loan activities of Community
Banks.
4.03 Authority;
No Violation.
(a)
The
Community Parties have full corporate power and authority to execute and deliver
this Agreement and to consummate the Contemplated Transactions. The execution
and delivery of this Agreement by the Community Parties and the consummation
by
the Community Parties of the Contemplated Transactions have been duly and
validly approved by the respective Boards of Directors of the Community Parties,
and no other corporate proceedings on the part of the Community Parties are
necessary to consummate the Merger. This Agreement has been duly and validly
executed and delivered by the Community Parties and, subject to the required
approvals of Regulatory Authorities described in Section 4.04 hereof,
constitutes the valid and binding obligation of the Community Parties,
enforceable against the Community Parties in
41
(b)
Subject
to (i) receipt of approvals from the Regulatory Authorities referred to in
Section 4.04 hereof and (ii) the Parties’ compliance with any
conditions contained therein, the execution and delivery of this Agreement
by
the Community Parties, the consummation of the Contemplated Transactions, and
compliance by the Community Parties with any of the terms or provisions hereof,
do not and will not:
(A)
conflict
with or result in a breach of any provision of the respective articles of
incorporation, articles of association or bylaws of CMTY or any CMTY Subsidiary;
(B)
violate
any statute, rule, regulation, judgment, order, writ, decree or injunction
applicable to CMTY or any CMTY Subsidiary or any of their respective properties
or assets; or
(C)
violate,
conflict with, result in a breach of any provisions of, constitute a default
(or
an event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, or acceleration of the performance
required by, or result in a right of termination or acceleration or the creation
of any lien, security interest, charge or other encumbrance upon any of the
properties or assets of CMTY or any CMTY Subsidiary under, any of the terms
or
conditions of any note, bond, mortgage, indenture, license, lease, agreement,
commitment or other instrument or obligation to which CMTY or any CMTY
Subsidiary is a party, or by which they or any of their respective properties
or
assets may be bound or affected, excluding from clauses (B) and
(C) any such items which, in the aggregate, would not have a Material
Adverse Effect.
4.04 Consents.
Except
for consents and approvals of, or filings with, the SEC, the FRB, the FDIC,
the
PDB, the PDS, the NASD and state securities authorities, no consents or
approvals of, or filings or registrations with, any public body or authority
are
necessary and, except where the failure to obtain any consent or approval would
constitute a Material Adverse Effect, no consents or
42
4.05 Financial
Statements.
(a)
CMTY
has filed the CMTY Financials with the SEC, except those pertaining to quarterly
periods commencing after June 30, 2006, which it will file on or before the
applicable deadline. The filed CMTY Financials fairly present, in all material
respects, the consolidated financial position, results of operations and cash
flows of CMTY as of and for the periods ended on the dates thereof, in
accordance with GAAP consistently applied, except in each case as may be noted
therein, and subject to normal year-end adjustments and as permitted by Form
10-Q in the case of unaudited statements.
(b)
To
the Knowledge of CMTY, CMTY did not have any liabilities or obligations of
any
nature, whether absolute, accrued, contingent or otherwise, which are not fully
reflected or reserved against in the balance sheets included in the CMTY
Financials as of June 30, 2006, which would have been required to be reflected
therein in accordance with GAAP consistently applied or disclosed in a footnote
thereto, except for liabilities and obligations which were incurred in the
ordinary course of business consistent with past practice, and except for
liabilities and obligations which are within the subject matter of a specific
representation and warranty herein or which otherwise have not had a Material
Adverse Effect.
4.06 No
Material Adverse Change.
Neither CMTY nor any CMTY Subsidiary has suffered any adverse change in their
respective assets, financial condition or results of operations since June
30,
2006 which change has had a Material Adverse Effect.
4.07 Taxes.
(a)
CMTY
and the CMTY Subsidiaries are members of the same affiliated group within the
meaning of IRC Section 1504(a) of which CMTY is the common parent. CMTY has
filed, and will file, all material federal, state and local tax returns required
to be filed by, or with respect to, CMTY and the CMTY Subsidiaries on or prior
to the Closing Date, except to the
43
(b)
No
consent pursuant to IRC Section 341(f) has been filed, or will be filed
prior to the Closing Date, by or with respect to CMTY or any CMTY
Subsidiary.
(c)
To
the Knowledge of CMTY, there are no material disputes pending, or claims
asserted in writing, for taxes or assessments upon CMTY or any CMTY Subsidiary,
nor has CMTY nor any CMTY Subsidiary been requested in writing to give any
currently effective waivers extending the statutory period of limitation
applicable to any federal, state, county or local income tax return for any
period.
(d)
Proper
and accurate amounts have been withheld by CMTY and each CMTY Subsidiary from
their employees for all prior periods in compliance in all material respects
with the tax withholding provisions of applicable federal, state and local
laws,
except where failure to do so is not reasonably likely to have a Material
Adverse Effect.
4.08 Contracts.
Except as described on CMTY
Disclosure Schedule 4.08
or in documents listed as exhibits to CMTY’s Securities Documents, neither CMTY
nor any CMTY Subsidiary is a party to or subject to: (i) any agreement
which by its terms limits the payment of dividends by CMTY or any CMTY
Subsidiary, (ii) any contract, other than this Agreement, which restricts
or prohibits it from engaging in any type of business permissible under
applicable law or (iii) any agreement which may adversely affect the ability
of
CMTY or any CMTY Subsidiary to consummate the Contemplated
Transactions.
4.09 Ownership
of Property; Insurance Coverage.
(a)
CMTY
and each CMTY Subsidiary has, and will have as to property acquired after the
date hereof, good, and as to real property, marketable, title to all material
assets and
44
(i)
those
items that secure liabilities for borrowed money and that are described in
CMTY
Disclosure Schedule 4.09
or permitted under Article V hereof;
(ii)
statutory
liens for amounts not yet delinquent or which are being contested in good faith;
(iii)
liens
for current taxes not yet due and payable;
(iv)
pledges
to secure deposits and other liens incurred in the ordinary course of banking
business;
(v)
such
imperfections of title, easements and encumbrances, if any, as are not material
in character, amount or extent; and
(vi)
dispositions
and encumbrances for adequate consideration in the ordinary course of business.
CMTY
and each CMTY Subsidiary have the right under leases of material properties
used
by CMTY or such CMTY Subsidiary in the conduct of their respective businesses
to
occupy and use all such properties in all material respects as presently
occupied and used by them.
(b)
With
respect to all agreements pursuant to which CMTY or any CMTY Subsidiary has
purchased securities subject to an agreement to resell, if any, CMTY or such
CMTY Subsidiary has a valid, perfected first lien or security interest in the
securities or other collateral securing the repurchase agreement, and the value
of such collateral equals or exceeds the amount of the debt secured thereby,
except to the extent that any failure to obtain such a lien
45
(c)
CMTY
and each CMTY Subsidiary maintain insurance in amounts considered by CMTY to
be
reasonable for their respective operations, and such insurance is similar in
scope and coverage in all material respects to that maintained by other
businesses similarly situated. Neither CMTY nor any CMTY Subsidiary has received
notice from any insurance carrier that:
(i)
such
insurance will be cancelled or that coverage thereunder will be reduced or
eliminated; or
(ii)
premium
costs with respect to such insurance will be substantially increased; except
to
the extent such cancellation, reduction, elimination or increase would not
have
a Material Adverse Effect.
(d)
CMTY
and each CMTY Subsidiary maintain such fidelity bonds, directors’ and officers’
liability insurance and errors and omissions insurance as may be customary
or
required under applicable laws or regulations.
4.10 Financing.
At the Effective Date, CMTY will have available cash sufficient to pay the
amounts required to pay the Cash Consideration pursuant to this Agreement and
shares available and reserved to pay the Common Stock Consideration, upon
consummation of the Merger.
4.11 Legal
Proceedings.
Except as set forth in CMTY
Disclosure Schedule 4.11,
neither CMTY nor any CMTY Subsidiary is a party to any, and there are no pending
or, to the Knowledge of CMTY, threatened, legal, administrative, arbitration
or
other proceedings, claims, actions, customer complaints, or governmental
investigations or inquiries of any nature:
(a)
against
CMTY or any CMTY Subsidiary;
(b)
to
which the assets of CMTY or any CMTY Subsidiary are subject;
(c)
challenging
the validity or propriety of any of the Contemplated Transactions; or
46
(d)
which
could materially adversely affect the ability of CMTY or any other CMTY
Subsidiary to perform their respective obligations under this Agreement and
the
Bank Plan of Merger; except for any proceedings, claims, actions,
investigations, or inquiries referred to in clauses (a) or (b) which,
individually or in the aggregate, would not have a Material Adverse Effect.
4.12 Compliance
with Applicable Law and Agreements.
(a)
CMTY
and each CMTY Subsidiary hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under, and have complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any Regulatory Authority relating
to
them, other than where such failure to hold or such noncompliance will neither
result in a limitation in any material respect on the conduct of their
respective businesses nor otherwise have a Material Adverse Effect.
(b)
CMTY
and each CMTY Subsidiary have filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that
they
were required to file with any Regulatory Authority, and have filed all other
reports and statements required to be filed by them, including without
limitation any report or statement required to be filed pursuant to the laws,
rules or regulations of the United States, any state or any Regulatory
Authority, and have paid all fees and assessments due and payable in connection
therewith, except where the failure to file such report, registration or
statement or to pay such fees and assessments, either individually or in the
aggregate, would not have a Material Adverse Effect.
(c)
No
Regulatory Authority has initiated any proceeding or, to the Knowledge of CMTY,
investigation into the businesses or operations of CMTY or any of its
Subsidiaries, except where any such proceedings or investigations will not,
individually or in the aggregate, have a Material Adverse Effect, or such
proceedings or investigations have been terminated or otherwise resolved.
(d)
Neither
CMTY nor any CMTY Subsidiary has received any notification or communication
from
any Regulatory Authority:
47
(i)
asserting
that CMTY or any CMTY Subsidiary is not in substantial compliance with any
of
the statutes, regulations or ordinances which such Regulatory Authority
enforces, unless such assertion has been waived, withdrawn or otherwise
resolved;
(ii)
threatening
to revoke any license, franchise, permit or governmental authorization which
is
material to CMTY or any CMTY Subsidiary;
(iii)
requiring
or threatening to require CMTY or any CMTY Subsidiary, or indicating that CMTY
or any CMTY Subsidiary 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
CMTY or any CMTY Subsidiary, 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 CMTY or any CMTY Subsidiary (any such notice,
communication, memorandum, agreement or order described in this sentence herein
referred to as a “Regulatory Agreement”); in each case except as heretofore
disclosed to East Prospect .
(e)
Neither
CMTY nor any CMTY Subsidiary has received, consented to, or entered into any
pending Regulatory Agreement.
(f)
To
the Knowledge of CMTY, there is no unresolved violation, criticism, or exception
by any Regulatory Authority with respect to any Regulatory Agreement which
if
resolved in a manner adverse to CMTY or any CMTY Subsidiary would have a
Material Adverse Effect.
(g)
There
is no injunction, order, judgment or decree imposed upon CMTY or any CMTY
Subsidiary or the assets of CMTY or any CMTY Subsidiary which has had, or,
to
the Knowledge of CMTY, would have, a Material Adverse Effect.
(h)
Neither
CMTY nor any CMTY Subsidiary has breached or defaulted on any agreement,
contract, commitment, arrangement or other instrument to which any of them
is a
party or by which any of them may be bound, other than any breach or default
that would not have a Material Adverse Effect.
48
4.13 ERISA.
(a)
CMTY
has delivered or made available to East Prospect true and complete copies of
any
employee pension benefit plans within the meaning of ERISA Section 3(2),
profit sharing plans, stock purchase plans, deferred compensation and
supplemental income plans, supplemental executive retirement plans, annual
incentive plans, group insurance plans, and all other employee welfare benefit
plans within the meaning of ERISA Section 3(1) (including vacation pay,
sick leave, short-term disability, long-term disability, and medical plans)
and
all other employee benefit plans, policies, agreements and arrangements, all
of
which are listed in CMTY
Disclosure Schedule 4.13,
currently maintained or contributed to for the benefit of the employees or
former employees (including retired employees) and any beneficiaries thereof
or
directors or former directors of CMTY or any other entity (a “CMTY ERISA
Affiliate”) that, together with CMTY, is treated as a single employer under IRC
Sections 414(b), (c), (m) or (o) (collectively, the “CMTY Benefit Plans”),
together with:
(i)
the
most recent actuarial reports (if any) and financial reports relating to those
CMTY Benefit Plans which constitute “qualified plans” under IRC
Section 401(a);
(ii)
the
most recent Form 5500 (if any) relating to such CMTY Benefit Plans filed by
them, respectively, with the IRS; and
(iii)
the
most recent IRS determination letters which pertain to any such CMTY Benefit
Plans.
(b)
Neither
CMTY nor any CMTY ERISA Affiliate, and no pension plan (within the meaning
of
ERISA Section 3(2)) maintained or contributed to by CMTY or any CMTY ERISA
Affiliate, has incurred any liability to the Pension Benefit Guaranty
Corporation or to the IRS with respect to any pension plan qualified under
IRC
Section 401(a), except liabilities to the Pension Benefit Guaranty
Corporation pursuant to ERISA Section 4007, all of which have been fully
paid, nor has any reportable event under ERISA Section 4043(b) (with
respect to which the 30 day notice requirement has not been waived) occurred
with respect to any such pension plan.
49
(c)
Neither
CMTY nor any CMTY ERISA Affiliate has ever contributed to or otherwise incurred
any liability with respect to a multi-employer plan (within the meaning of
ERISA
Section 3(37)).
(d)
Each
CMTY Benefit Plan has been maintained, operated and administered in compliance
in all respects with its terms and related documents or agreements and the
applicable provisions of all laws, including ERISA and the IRC, except where
any
such non-compliance would not have a Material Adverse Effect.
(e)
There
is no existing, or, to the Knowledge of CMTY, contemplated, audit of any CMTY
Benefit Plan by the IRS, the U.S. Department of Labor, the Pension Benefit
Guaranty Corporation or any other governmental authority. In addition, there
are
no pending or threatened claims by, on behalf of or with respect to any CMTY
Benefit Plan, or by or on behalf of any individual participant or beneficiary
of
any CMTY Benefit Plan, alleging any violation of ERISA or any other applicable
laws, or claiming benefits (other than claims for benefits not in dispute and
expected to be granted promptly in the ordinary course of business), nor to
the
Knowledge of CMTY, is there any basis for such claim.
4.14 Brokers
and Finders.
Neither CMTY, any CMTY Subsidiary, nor any of their respective officers,
directors, employees, independent contractors or agents, has employed any
broker, finder, investment banker or financial advisor, or incurred any
liability for any fees or commissions to any such person, in connection with
the
Contemplated Transactions.
4.15 Information
to be Supplied.
(a)
The
information supplied by the Community Parties for inclusion in the Registration
Statement (including the Prospectus/Proxy Statement) will not, at the time
the
Registration Statement is declared effective pursuant to the Securities Act,
and
as of the date the Prospectus/Proxy Statement is mailed to shareholders of
East
Prospect, and up to and including the date of the East Prospect Shareholders
Meeting, 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 the
light of the circumstances in which they were made, not misleading.
50
(b)
The
information supplied by the Community Parties for inclusion in the Applications
will, at the time each such document is filed with any Regulatory Authority
and
up to and including the dates of any required regulatory approvals or consents,
as such Applications may be amended by subsequent filings, be accurate in all
material respects.
4.16 Reorganization.
As of the date hereof, CMTY does not have any reason to believe that the Merger
will fail to qualify as a reorganization under Section 368(a) of the IRC.
CMTY shall not take any action which would preclude the Merger from qualifying
as a reorganization within the meaning of Section 368 of the
IRC.
4.17 CMTY
Common Stock.
The shares of CMTY Common Stock to be issued and delivered to East Prospect
shareholders in accordance with this Agreement, when so issued and delivered,
will be validly authorized and issued and fully paid and non-assessable, and
no
shareholder of CMTY shall have any pre-emptive right with respect
thereto.
4.18 Securities
Documents.
CMTY has delivered to or made available to East Prospect copies of:
(a)
the
annual reports to shareholders for the years 2003, 2004 and 2005 that were
delivered with its proxy statements for such years;
(b)
all
other reports, registration statements and filings of CMTY filed with the SEC
since January 1, 2006; and
(c)
CMTY’s
proxy materials used in connection with its meetings of shareholders held in
2006 and 2005.
Such
reports and proxy materials complied, in all material respects, and any future
SEC reports, filings, and proxy materials will comply, in all material respects,
with the rules and regulations of the SEC to the extent applicable thereto.
All
such SEC reports, filings and proxy materials did not and will not, at the
time
of their filing, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading.
51
4.19 Rights
Agreement.
No event or circumstance has occurred resulting in, and neither the execution
nor consummation of this Agreement by CMTY will result in the grant, issuance
or
triggering of any right or entitlement or the obligation to grant or issue
any
interest in CMTY Common Stock or enable or allow any right or other interest
associated with the Rights Agreement to be exercised, distributed or
triggered.
4.20 “Well
Capitalized”.
CMTY and Community are “well capitalized” within the meaning of the FRB’s and
FDIC’s regulations, respectively. CMTY and Community will be “well capitalized”
on the Closing Date.
4.21 Quality
of Representations.
To the Knowledge of CMTY, no representation made by the Community Parties in
this Agreement contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
ARTICLE
V- COVENANTS
OF
THE PARTIES
5.01 Conduct
of East Prospect’s Business.
Through the Closing Date, East Prospect shall, in all material respects, conduct
its business and engage in transactions only in the ordinary course and
consistent with past practice, except as otherwise required or contemplated
by
this Agreement or with the written consent of the Community Parties. East
Prospect shall use its reasonable good faith efforts to preserve its business
organization intact, maintain good relationships with employees, and preserve
the good will of customers of East Prospect and others with whom business
relationships exist. Through the Closing Date, except as otherwise consented
to
in writing by the Community Parties (such consent shall not be unreasonably
withheld) or as permitted by this Agreement, East Prospect shall
not:
(a)
change
any provision of its articles of incorporation or of its bylaws;
(b)
change
the number of authorized or issued shares of its capital stock; repurchase
any
shares of capital stock; or issue or grant any option, warrant, call,
commitment, subscription, Right or agreement of any character relating to its
authorized or issued capital stock or any securities convertible into shares
of
capital stock; declare, set aside or pay any dividend or other distribution
in
respect of capital stock; or redeem or otherwise acquire any shares of East
52
(c)
grant
any severance or termination pay to or enter into or amend any employment,
consulting, severance, “change-in-control” or termination contract or
arrangement with any officer, director, employee, independent contractor, agent
or other person associated with East Prospect;
(d)
grant
job promotions or increase the rate of compensation of, or pay any bonus to,
any
director, officer, employee, independent contractor, agent or other person
associated with East Prospect , except for:
(i)
routine
periodic pay increases, selective merit pay increases and pay raises in
connection with promotions, all in accordance with past practice; provided,
however, that such pay increases and raises shall not exceed five percent (5%)
in the aggregate;
(ii)
subject
to the approval of CMTY, which shall not be unreasonably withheld, annual
bonuses in the ordinary course for 2006, determined consistently with past
practice, to be payable on or before December 31, 2006, to persons
designated by East Prospect; and
(e)
merge
or consolidate with any other corporation; sell or lease all or any substantial
portion of its assets or businesses; make any acquisition of all or any
substantial portion of the business or assets of any other person, firm,
association, corporation or business organization; enter into a purchase and
assumption transaction with respect to deposits, loans or liabilities; relocate
or surrender its certificate of authority to maintain, or file an application
for
53
(f)
sell
or otherwise dispose of any material asset, other than in the ordinary course
of
business, consistent with past practice; subject any asset to a lien, pledge,
security interest or other encumbrance, other than in the ordinary course of
business consistent with past practice; modify in any material manner the manner
in which it has heretofore conducted its business or enter into any new line
of
business; incur any indebtedness for borrowed money, except in the ordinary
course of business, consistent with past practice;
(g)
take
any action which would result in any of the conditions set forth in Article
VI
hereof not being satisfied;
(h)
change
any method, practice or principle of accounting, except as required by changes
in GAAP concurred in by its independent certified public accountants; or change
any assumption underlying, or any method of calculation of, depreciation of
any
type of asset or establishment of any reserve;
(i)
waive,
release, grant or transfer any rights of material value or modify or change
in
any material respect any existing material agreement to which it is a party,
other than in the ordinary course of business, consistent with past practice;
(j)
implement
any pension, retirement, profit-sharing, bonus, welfare benefit or similar
plan
or arrangement that was not in effect on the date of this Agreement, or except
as may otherwise be provided for herein, amend any existing plan or arrangement
except as required by law;
(k)
amend
or otherwise modify its underwriting and other lending guidelines and policies
in effect as of the date hereof or otherwise fail to conduct its lending
activities in the ordinary course of business consistent with past practice;
54
(l)
enter
into, renew, extend or modify any other transaction with any Affiliate, other
than deposit and loan transactions in the ordinary course of business and which
are in compliance with the requirements of applicable laws and regulations;
(m)
enter
into any interest rate swap, floor or cap or similar commitment, agreement
or
arrangement;
(n)
take
any action that would accelerate any right of payment to any individual under
any employment agreement, except (i) in the ordinary course of business
consistent with past practice or (ii) for the execution of this Agreement;
(o)
purchase
any security for its investment portfolio rated less than “AAA” or higher by
either Standard & Poor’s Corporation or higher by Xxxxx’x Investor Services,
Inc.;
(p)
except
as approved by CMTY, which approval shall not be unreasonably withheld, make
any
capital expenditure of $25,000 or more; or undertake or enter into any lease,
contract or other commitment for its account, other than in the ordinary course
of business, involving an unbudgeted expenditure by East Prospect of more than
$25,000, or extending beyond twelve (12) months from the date hereof;
(q)
take
any action that would preclude the Merger from qualifying as a reorganization
within the meaning of Section 368 of the IRC; or
(r)
agree
to do any of the foregoing.
5.02 Access;
Confidentiality.
Through the Closing Date:
(a)
Each
Party hereto shall afford to the other, including its authorized agents and
representatives, reasonable access to its and its Subsidiaries’ businesses,
properties, assets, books and records and personnel, at reasonable hours and
after reasonable notice; and the officers of each party shall furnish the other
party making such investigation, including its authorized agents and
representatives, with such financial and operating data and other information
with respect to such businesses, properties, assets, books and records and
personnel as the party making such investigation, or its authorized agents
and
representatives, shall from time to time reasonably request.
55
(b)
Each
Party hereto agrees that it, and its authorized agents and representatives,
will
conduct such investigation and discussions hereunder in a confidential manner
and otherwise in a manner so as not to interfere unreasonably with the other
party’s normal operations and customer and employee relationships. Neither East
Prospect, the Community Parties, nor any CMTY Subsidiary, shall be required
to
provide access to or disclose information where such access or disclosure would
violate or prejudice the rights of customers, jeopardize attorney-client
privilege or similar privilege with respect to such information or contravene
any law, rule, regulation, decree, order, fiduciary duty or agreement entered
into prior to the date hereof.
(c)
All
information furnished to CMTY or East Prospect by the other in connection with
the Contemplated Transactions, whether prior to the date of this Agreement
or
subsequent hereto, shall be held in confidence to the extent required by, and
in
accordance with, the Confidentiality Agreement.
5.03 Regulatory
Matters.
Through the Closing Date:
(a)
CMTY
and East Prospect shall cooperate with one another in the preparation of the
Registration Statement (including the Prospectus/Proxy Statement) and all
Applications and the making of all filings for, and shall use their reasonable
best efforts to obtain, as promptly as practicable, all necessary permits,
consents, approvals, waivers and authorizations of all Regulatory Authorities
necessary or advisable to consummate the Contemplated Transactions. CMTY and
East Prospect shall each give the other reasonable time to review any
Application to be filed by it prior to the filing of such Application with
the
relevant Regulatory Authority, and each shall consult the other with respect
to
the substance and status of such filings. The Registration Statement shall
be
filed within 90 days of the date hereof.
(b)
East
Prospect and the Community Parties shall each promptly furnish the other with
copies of written communications to, or received by them from, any Regulatory
Authority in respect of the Contemplated Transactions.
(c)
East
Prospect and the Community Parties shall cooperate with each other in the
foregoing matters and shall furnish the other with all information concerning
itself as may be
56
5.04 Taking
of Necessary Actions.
Through the Closing Date, in addition to the specific agreements contained
herein, each Party hereto shall use reasonable best efforts to take all actions,
and to do all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the Contemplated Transactions
including, if necessary, appealing any adverse ruling in respect of any
Application.
5.05 No
Solicitation.
East Prospect shall not, 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 to:
(a)
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 an Acquisition Proposal (as defined herein);
(b)
enter
into or maintain or continue discussions or negotiate with any person in
furtherance of an Acquisition Proposal, unless the failure to do so, in the
good
faith judgment of the East Prospect Board of Directors, after consultation
with
its legal counsel, could reasonably constitute a breach of fiduciary duty by
the
directors of East Prospect under the laws of the Commonwealth of Pennsylvania;
or
(c)
agree
to or endorse any Acquisition Proposal, unless the failure to do so, in the
good
faith judgment of the East Prospect Board of Directors, after consultation
with
its legal counsel, could reasonably constitute a breach of fiduciary duty by
the
directors of East Prospect under the laws of the Commonwealth of
Pennsylvania.
East
Prospect shall notify CMTY as promptly as practicable, in reasonable detail,
as
to any inquiries and proposals which it or any of its representatives or agents
may receive.
57
As
used herein, the term “Acquisition Proposal” means a bona fide proposal
(including a written communication) from a party other than CMTY or an Affiliate
of CMTY for: (A) any merger, consolidation or acquisition of all or
substantially all the assets or liabilities of East Prospect, or any other
business combination involving East Prospect; or (B) a transaction
involving the transfer of beneficial ownership of securities representing,
or
the right to acquire beneficial ownership or to vote securities representing,
24.9% or more of the then outstanding shares of East Prospect Common
Stock.
5.06 Update
of Disclosure Schedules.
Through the Closing Date, East Prospect shall update the East Prospect
Disclosure Schedules, and the Community Parties shall update the CMTY Disclosure
Schedules, as promptly as practicable after the occurrence of any event which,
if such event had occurred prior to the date hereof, would have been disclosed
on such schedule.
5.07 Other
Undertakings by CMTY and East Prospect .
(a)
Undertakings
of East Prospect .
(i)
Shareholder
Approval.
East Prospect shall submit this Agreement to its shareholders for approval
at a
meeting (the “East Prospect Shareholders Meeting”) with the recommendation
(unless it believes, after consultation with its legal counsel, that such
recommendation could reasonably violate the fiduciary duties of the East
Prospect Board of Directors) of its Board of Directors to such shareholders
to
approve this Agreement. The East Prospect Shareholders Meeting shall be held
not
later than 45 days (subject to the effectiveness of the Registration Statement)
after all consents of Regulatory Authorities have been received and all other
conditions have been satisfied or waived (other than those conditions which
are
to be fulfilled at the Closing). In the event East Prospect receives an
Acquisition Proposal and it has not violated Section 5.05 of this Agreement,
nothing set forth in this Agreement shall prohibit East Prospect from submitting
an Acquisition Proposal to its shareholders for consideration.
(ii)
Phase
I Environmental Audit.
East Prospect shall permit the Community Parties, if they elect to do so, at
their own cost and expense, to cause a “Phase I environmental audit” to be
performed at any physical location owned or occupied by East Prospect.
58
(b)
Undertakings
of the Community Parties and East Prospect .
(i)
Filings
and Approvals.
The Community Parties and East Prospect shall cooperate with each other in
the
preparation and filing, as soon as practicable, of:
(A)
the
Applications;
(B)
the
Registration Statement (including the Prospectus/Proxy Statement) and related
filings, if any, under state securities laws relating to the Merger; and
(C)
all
other documents necessary to obtain any other approvals and consents required
to
effect consummation of the Contemplated Transactions.
(ii)
Public
Announcements.
The Community Parties and East Prospect shall agree upon the form and substance
of any press release related to this Agreement and the Contemplated
Transactions, but nothing contained herein shall prohibit either party,
following notification to the other party, from making any disclosure which
its
counsel deems necessary under applicable law.
(iii)
Maintenance
of Insurance.
The Community Parties and East Prospect shall maintain insurance in such amounts
as the Community Parties and East Prospect, respectively, believe are reasonable
to cover such risks as are customary in relation to the character and location
of their respective properties and the nature of their respective businesses.
(iv)
Maintenance
of Books and Records.
The Community Parties and East Prospect shall maintain books of account and
records on a basis consistent with past practice.
(v)
Taxes.
The Community Parties and East Prospect shall file all federal, state, and
local
tax returns required to be filed by them on or before the date such returns
are
due, including any extensions, and pay all taxes shown to be due on such returns
on or before the dates such payments are due, except those being contested
in
good faith.
(vi)
Integration
Team.
The Community Parties and East Prospect shall cooperate with each other in
the
selection of an integration team, which team shall plan and
59
(vii)
In-House
Operations.
The Community Parties and East Prospect shall, subject to applicable legal
requirements, cooperate with each other in an orderly, cost-effective
consolidation of operations.
(viii)
Delivery
of Financial Statements.
CMTY and East Prospect shall each deliver to the other, as soon as practicable
after the end of each month and after the end of each calendar quarter prior
to
the Effective Date, commencing with the month ended August 31, 2006, an
unaudited consolidated balance sheet as of such date and related unaudited
consolidated statements of income for the periods then ended, which financial
statements shall fairly present, in all material respects, its consolidated
financial condition, results of operations for the periods then ended in
accordance with GAAP, subject to year-end audit adjustments and footnotes.
(c)
Undertakings
of CMTY.
(i)
Employee
Severance Policy.
(A)
After
consultation with East Prospect, prior to or soon after the Closing Date, inform
each East Prospect employee of the likelihood of such employee having continued
employment with CMTY, Community or any other CMTY Subsidiary following the
Closing, and will permit any East Prospect employee to apply for any employment
position posted as available with CMTY, Community Banks or any other CMTY
Subsidiary. If CMTY elects to eliminate a position or does not offer the
employee a position of substantially similar job descriptions or
responsibilities at substantially the same salary level in a work location
within fifteen (15) miles of East Prospect, Pennsylvania (referred to herein
as
“Comparable Employment”), CMTY will make severance payments to the displaced
employee as set forth in this Section 5.07(c)(i)
and will make reasonable efforts to place each displaced employee in open
positions with CMTY, Community or another CMTY Subsidiary.
(B)
Subject
to the following minimum benefits, CMTY will grant an eligible full-time
employee, who was exempt as of the date of this Agreement, two weeks of
severance pay (at his/her then current pay rate) for each year of service with
East Prospect prior
60
(C)
All
employees of East Prospect as of the Closing Date to whom CMTY does not offer
Comparable Employment (each, an “Eligible East Prospect Employee”) will be
eligible for severance benefits set forth in this Section 5.07(c)(i).
(D)
Each
Eligible East Prospect Employee will remain eligible for such benefits if his
or
her employment is terminated, other than for “cause,” within twelve months after
the Effective Date.
(E)
For
purposes of this Section 5.07(c)(i), “cause” means the employer’s good
faith reasonable belief that the employee (1) committed fraud, theft or
embezzlement; (2) falsified corporate records; (3) disseminated
confidential information concerning customers, CMTY, any CMTY Subsidiary or
any
of its or their employees in violation of any applicable confidentiality
agreement or policy; (4) had documented unsatisfactory job performance; or
(5) violated CMTY’s Code of Conduct.
(ii)
Employee
Benefits
(A)
As
of the Effective Date, each employee of East Prospect who becomes an employee
of
CMTY or of any CMTY Subsidiary shall be entitled to full credit for each year
of
service with East Prospect for purposes of determining eligibility for
participation and vesting and other appropriate benefits, but not benefit
accrual, in CMTY’s, or as appropriate, in the CMTY Subsidiary’s, employee
benefit plans, programs and policies. CMTY shall use the original date of hire
by East Prospect in making these determinations.
(B)
The
employee benefits provided to former employees of East Prospect after the
Effective Date shall be equivalent in the aggregate to the employee benefits
provided by
61
(C)
East
Prospect Simplified Employee Pension Plan (the “East Prospect
SEP”).
Prior to the Effective Date, East Prospect shall terminate the East Prospect
SEP, notify the employees in the East Prospect SEP regarding the termination.
Prior to the Effective Date, contributions to the East Prospect SEP shall be
made consistently with past practices on the regularly scheduled payment dates
for the period prior to the Effective Date.
(D)
Subject
to the other provisions of this Section 5.07(c)(ii) and Section 2.05,
after the Effective Date, CMTY may discontinue, amend, convert to, or merge
with, an CMTY or CMTY Subsidiary plan any East Prospect Benefit Plan, subject
to
such plan’s provisions and applicable law.
(E)
Each
employee of East Prospect who remains an employee of East Prospect, or CMTY
or a
CMTY Subsidiary, as applicable, until or after the Effective Date, shall be
entitled to receive a cash payment equal to such employee’s accrued but unused
East Prospect vacation time (determined as of the Effective Date) and accrued
but unused CMTY vacation time (from the Effective Date through the date of
termination of employment) upon termination of employment with East Prospect,
or
CMTY or a CMTY Subsidiary, as applicable. Each employee of East Prospect who
becomes an employee of CMTY or a CMTY Subsidiary shall receive, for purposes
of
CMTY vacation policy, credit for all service with East Prospect credited to
each
such employee under East Prospect ’s vacation policy. The cash payment will be
made on CMTY’s next available payroll date following termination of
employment.
62
(iii)
Indemnification,
Insurance.
(A)
The
Community Parties shall indemnify, defend, and hold harmless the present and
former directors, officers, employees and agents of East Prospect (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 (collectively,
“Prior Acts”) occurring at or prior to the Effective Date (including the
Contemplated Transactions) to the fullest extent permitted by Pennsylvania
law,
including provisions relating to advances of expenses incurred in the defense
of
any proceeding to the fullest extent permitted by Pennsylvania law upon receipt
of any undertaking required by Pennsylvania law. Without limiting the foregoing,
in a case (if any) in which a determination by the Community Parties is required
to effectuate any indemnification, the Community Parties shall direct, at the
election of the Indemnified Party, that the determination shall be made by
independent counsel mutually agreed upon between the Community Parties and
the
Indemnified Party.
(B)
The
Community Parties shall keep in effect provisions in their respective articles
of incorporation and bylaws providing for exculpation of director and officer
liability and their indemnification of the Indemnified Parties to the fullest
extent permitted by applicable law, which provisions shall not be amended except
as required by applicable law or except to make changes permitted by law that
would enlarge the Indemnified Parties’ right to indemnification.
(C)
The
Community Parties shall use their reasonable best efforts (and East Prospect
shall cooperate and assist prior to the Effective Date in these efforts), at
no
expense to the beneficiaries, to:
(1) maintain
directors’ and officers’ liability insurance (“D&O Insurance”) with respect
to matters occurring at or prior to the Effective Date, issued by a carrier
assigned a claims-paying ability rating by A.M. Best & Co. of “A
(Excellent)” or higher; or
63
(2) obtain
coverage for Prior Acts of the Indemnified Parties under the D&O Insurance
policies currently maintained by CMTY;
in
either case, providing at least the same coverage as the D&O Insurance
currently maintained by East Prospect, for a period of at least six (6) years
from the Effective Date; provided, that the Community Parties shall not be
obligated to make annual premium payments for such six-year period in respect
of
the D&O Insurance which exceed, for the portion related to East Prospect ’s
directors and officers, 150% of the annual premium payment, as of the date
hereof, under East Prospect ’s current policy in effect on 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, CMTY
shall use its reasonable best efforts to maintain the most advantageous policies
of D&O Insurance obtainable for a premium equal to the Maximum
Amount.
(D)
If
any claim is made against an Indemnified Party who is covered or potentially
covered by insurance, neither Community nor CMTY shall do anything that would
forfeit, jeopardize, restrict or limit the insurance coverage available for
that
claim until the final disposition thereof.
(E)
If
the Community Parties or any of their respective successors or assigns 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 their respective assets to any person, then and in each
case, proper provision shall be made so that the successors and assigns of
CMTY
shall assume the obligations set forth in this Section 5.07(c)(iii).
(F)
The
provisions of this Section 5.07(c)(iii) are intended to be for the benefit
of and shall be enforceable by, each Indemnified Party, his or her heirs and
representatives.
(G)
The
Community Parties shall pay all expenses, including reasonable attorneys’ fees,
that may be incurred by any Indemnified Party in enforcing the indemnity and
other obligations provided for in this Section 5.07(c)(iii).
64
(iv)
Reorganization.
Through the Closing Date, CMTY shall not take any action that would preclude
the
Merger from qualifying as a reorganization within the meaning of
Section 368 of the IRC.
(v)
Conduct
of CMTY’s Business.
Through the Closing Date, the Community Parties shall (A) use their
reasonable good faith efforts to preserve their respective business
organizations intact, maintain good relationships with employees, and preserve
the good will of their customers and others with whom business relationships
exist, (B) not take any action that, individually or in the aggregate, could
result in the Merger not being consummated or otherwise materially adversely
affect the ability of the Community Parties to consummate the Contemplated
Transactions by this Agreement in a timely manner, or (C) not enter into any
contract with respect to, or otherwise agree to commit to do, any of foregoing
contained in clause (B) of this Section 5.07(c)(v).
(vi)
Employment
Agreement.
CMTY shall cause Community to offer a consulting agreement to Xxxxxx, effective
as of the Effective Date, that provides for (A) retention of Xxxxxx as a
consultant to Community for a term of two (2) years following the Effective
Date, in exchange for annual compensation of $100,000, (B) appointment of Xxxxxx
to Community’s York Regional advisory board for a term equal, at least, to the
term of his consulting agreement, and (C) noncompetition by Xxxxxx during the
term of the agreement.
ARTICLE
VI- CONDITIONS
6.01 Conditions
to the Obligations of East Prospect under this Agreement.
The obligations of East Prospect hereunder shall be subject to satisfaction
at
or prior to the Closing Date of each of the following conditions, unless waived
by East Prospect pursuant to Section 8.03 hereof:
(a)
Corporate
Proceedings.
All action required to be taken by, or on the part of, the Community Parties
to
authorize the execution, delivery and performance of this Agreement and the
consummation of the Contemplated Transactions, shall have been duly and validly
taken by the Community Parties, and East Prospect shall have received certified
copies of the resolutions evidencing such authorizations.
65
(b)
Covenants;
Representations.
The obligations of the Community Parties required by this Agreement to be
performed by the Community Parties at or prior to the Closing Date shall have
been duly performed and complied with in all material respects; and the
representations and warranties of the Community Parties set forth in this
Agreement shall be true and correct in all material respects, as of the date
of
this Agreement, and as of the Closing Date as though made on and as of the
Closing Date, except as to any representation or warranty which specifically
relates to an earlier date and except as to any representation or warranty
to
the extent the breach of such representation or warranty does not have a
Material Adverse Effect.
(c)
Approvals
of Regulatory Authorities.
Procurement by East Prospect and the Community Parties of all requisite
approvals and consents of Regulatory Authorities and the expiration of the
statutory waiting period or periods relating thereto for the Contemplated
Transactions; and no such approval or consent shall have imposed any condition
or requirement which would so materially and adversely impact the economic
or
business benefits to East Prospect or the Community Parties of the Contemplated
Transactions that, had such condition or requirement been known, such party
would not, in its reasonable judgment, have entered into this Agreement.
(d)
No
Injunction.
There shall not be in effect any order, decree or injunction of a court or
agency of competent jurisdiction which enjoins or prohibits consummation of
the
Contemplated Transactions.
(e)
Officer’s
Certificate.
The Community Parties shall have each delivered to East Prospect a certificate,
dated the Closing Date and signed, without personal liability, by its respective
Chairman or President or Chief Executive Officer, to the effect that the
conditions set forth in subsections (a) through (d) of this
Section 6.01 have been satisfied.
(f)
Registration
Statement.
The Registration Statement shall be effective under the Securities Act, and
no
proceedings shall be pending or threatened by the SEC to suspend the
effectiveness of the Registration Statement; and all approvals deemed necessary
by counsel for the Community Parties from state securities or authorities with
respect to the transactions contemplated by this Agreement shall have been
obtained.
66
(g)
Tax
Opinion.
East Prospect shall have received an opinion of Xxxxxxxx Xxxxxxxxx & Xxxxxx
Professional Corporation, legal counsel to East Prospect , in form and substance
reasonably satisfactory to East Prospect, dated the Closing Date, substantially
to the effect that, on the basis of the facts, representations and assumptions
set forth in such opinion, the Merger will constitute a reorganization described
in Section 368(a) of the IRC; in rendering its opinion, such counsel may
require and rely upon representations and reasonable assumptions, including
those contained in certificates of officers of East Prospect, the Community
Parties and others.
(h)
Approval
by East Prospect’s Shareholders.
This Agreement shall have been approved by the shareholders of East Prospect
at
the East Prospect Shareholders Meeting by such vote as is required by the
Banking Code, the BCL, and the articles of incorporation and bylaws of East
Prospect.
(i)
Other
Documents.
East Prospect shall have received such other certificates, documents or
instruments from the Community Parties or their respective officers or others
as
East Prospect shall have reasonably requested in connection with accounting
or
income tax treatment of the Contemplated Transactions.
(j)
Nasdaq
Listing.
The CMTY Common Stock to be issued in the Merger shall have been authorized
for
listing on Nasdaq.
6.02 Conditions
to the Obligations of the Community Parties under this Agreement.
The obligations of the Community Parties hereunder shall be subject to
satisfaction at or prior to the Closing Date of each of the following
conditions, unless waived by CMTY pursuant to Section 8.03
hereof:
(a)
Corporate
Proceedings.
All action required to be taken by, or on the part of, East Prospect, including
the approval of the shareholders of East Prospect, to authorize the execution,
delivery and performance of this Agreement and the consummation of the
Contemplated Transactions shall have been duly and validly taken by East
Prospect, and the Community Parties shall have received certified copies of
the
resolutions evidencing such authorizations.
67
(b)
Covenants;
Representations.
The obligations of East Prospect required by this Agreement to be performed
by
East Prospect at or prior to the Closing Date shall have been duly performed
and
complied with in all material respects; and the representations and warranties
of East Prospect set forth in this Agreement shall be true and correct in all
material respects, as of the date of this Agreement, and as of the Closing
Date
as though made on and as of the Closing Date, except as to any representation
or
warranty which specifically relates to an earlier date and except as to any
representation or warranty to the extent the breach of such representation
or
warranty does not have a Material Adverse Effect.
(c)
Approvals
of Regulatory Authorities.
Procurement by the Community Parties and East Prospect of all requisite
approvals and consents of Regulatory Authorities and the expiration of the
statutory waiting period or periods relating thereto for the Contemplated
Transactions; and no such approval or consent shall have imposed any condition
or requirement which would so materially and adversely impact the economic
or
business benefits to the Community Parties or East Prospect of the Contemplated
Transactions that, had such condition or requirement been known, such party
would not, in its reasonable judgment, have entered into this Agreement.
(d)
No
Injunction.
There shall not be in effect any order, decree or injunction of a court or
agency of competent jurisdiction which enjoins or prohibits consummation of
the
Contemplated Transactions.
(e)
Officer’s
Certificate.
East Prospect shall have delivered to the Community Parties a certificate,
dated
the Closing Date and signed, without personal liability, by its Chairman or
President or Chief Executive Officer, to the effect that the conditions set
forth in subsections (a) through (d) of this Section 6.02 have
been satisfied.
(f)
Registration
Statement.
The Registration Statement shall be effective under the Securities Act, and
no
proceedings shall be pending or threatened by the SEC to suspend the
effectiveness of the Registration Statement; and all approvals deemed necessary
by counsel for the Community Parties from state securities authorities with
respect to the transactions contemplated by this Agreement shall have been
obtained.
68
(g)
Tax
Opinion.
CMTY shall have received an opinion of Mette, Xxxxx & Xxxxxxxx, legal
counsel to CMTY, in form and substance reasonably satisfactory to CMTY, dated
the Closing Date, to the effect that, on the basis of the facts, representations
and assumptions set forth in such opinion, the Merger will constitute a
reorganization described in Section 368(a) of the IRC; in rendering its
opinion, such counsel may require and rely upon representations and reasonable
assumptions, including those contained in certificates of officers of East
Prospect, CMTY and others.
(h)
Approval
by East Prospect’s Shareholders.
This Agreement shall have been approved by the shareholders East Prospect at
the
East Prospect Shareholders Meeting by such vote as is required by the BCL,
the
Banking Code and the articles of incorporation and bylaws of East Prospect.
(i)
Other
Documents.
The Community Parties shall have received such other certificates documents
or
instruments from East Prospect or its officers or others as CMTY shall have
reasonably requested in connection with accounting or income tax treatment
of
the Contemplated Transactions or related securities law compliance.
(j)
Phase
I Environmental Audit Results.
The results of any Phase I environmental audit conducted pursuant to
Section 5.07(a)(ii) hereof shall not result in a Material Adverse Effect on
East Prospect; provided, however that (i) any such environmental audit must
be completed within forty-five (45) days of the date of this Agreement,
(ii) a copy of any such environmental audit must be delivered to East
Prospect within five (5) days after the completion of such environmental audit
and (iii) CMTY must terminate or irrevocably waive its right to terminate
the Agreement for failure of the condition set forth in this
Section 6.02(j) within ten (10) days of receiving the results of such
environmental audit.
ARTICLE
VII- TERMINATION
7.01 Termination
prior to the Closing Date.
This Agreement may be terminated on or at any time
(a)
By
the mutual written consent of the parties hereto
69
(b)
By
the Community Parties or East Prospect:
(i)
If
there shall have been any breach of any representation, warranty or obligation
of the other party hereto (subject to the same standards as set forth in
Sections 6.01(b) or 6.02(b), as the case may be) and such breach cannot be,
or shall not have been, remedied within 30 days after receipt by such party
of written notice specifying the nature of such breach and requesting that
it be
remedied; provided, that, if such breach cannot reasonably be cured within
such
30-day period but may reasonably be cured within 60 days, and such cure is
being diligently pursued, no such termination shall occur prior to the
expiration of such 60-day period;
(ii)
If
the Closing Date shall not have occurred prior to July 1, 2007 (except that
if
the Closing Date shall not have occurred by such date because of a breach of
this Agreement by a party hereto, such breaching party shall not be entitled
to
terminate this Agreement in accordance with this provision);
(iii)
If
any Regulatory Authority whose approval or consent is required for consummation
of the Contemplated Transactions shall issue a definitive written denial of
such
approval or consent and the time period for appeals and requests for
reconsideration has run;
(iv)
If
the East Prospect Shareholders vote but fail to approve the Merger at the East
Prospect Shareholders Meeting; or
(v)
If
the East Prospect shareholders approve an Acquisition Proposal.
(c)
By
the Community Parties, if East Prospect shall have breached, in any material
respect, the provisions of Section 5.05 of this Agreement.
(d)
Prior
to the mailing of the Prospectus/Proxy Statement, by East Prospect, in order
to
enter concurrently into an agreement for an Acquisition Transaction in
accordance with and following compliance with Section 5.05 of this Agreement;
provided, however, that East Prospect may not terminate this Agreement pursuant
to this Section 7.01(d) if, after providing written notice (which written notice
shall be provided before the mailing of the Prospectus/Proxy Statement) to
the
Community Parties that it intends to enter into an Acquisition Transaction
(the “Acquisition Transaction Notice”), the Community Parties deliver,
within twenty-four (24)
70
(e)
By
the Community Parties, if East Prospect fails to call, give notice of, convene
or hold a meeting of the East Prospect shareholders to consider the Merger
after
the Community Parties have delivered a Required Meeting Notice to East Prospect
.
7.02 Effect
of Termination.
If this Agreement is terminated pursuant to Section 7.01 hereof or
otherwise, this Agreement shall forthwith become void, other than
Section 5.02(b), this Section 7.02 and Section 8.01 hereof, which
shall remain in full force and effect; and there shall be no further liability
on the part of the Community Parties or East Prospect to the other, except
for
any liability of Community Parties or East Prospect under such sections of
this
Agreement and except for any liability arising out of a willful breach of this
Agreement giving rise to such termination.
ARTICLE
VIII- MISCELLANEOUS
8.01 Expenses
and Other Fees.
(a)
Except
as set forth in Sections 8.01(b), 8.01(c) and 8.01(d), each party hereto
shall bear and pay all costs and expenses incurred by it in connection with
the
Contemplated Transactions, including fees and expenses of its own financial
consultants, accountants and counsel.
(b)
If
this Agreement is terminated as a result of any breach of a representation,
warranty, covenant or other agreement which is caused by the willful or
intentional breach of a party hereto, such party shall be liable to the other
for out-of-pocket costs and expenses, including, without limitation, the
reasonable fees and expenses of lawyers, accountants and investment bankers,
incurred by such other party in connection with the entering into of this
Agreement and the carrying out of any and all acts contemplated hereunder
(“Expenses”); provided, however, that the maximum amount East Prospect shall be
liable to the Community Parties for Expenses pursuant to this
71
(c)
In
the event this Agreement is terminated by: (i) East Prospect pursuant to Section
7.01(b)(v) or 7.01(d) or (ii) the Community Parties pursuant to Sections
7.01(b)(v), 7.01(c) or 7.01(e); then East
Prospect shall make a single cash payment, as liquidated damages, to CMTY in
the
amount of the Termination Fee. Any payment required under this Section 8.01(c)
shall be payable by East Prospect to CMTY (by wire transfer of immediately
available funds to an account designated by CMTY) within two (2) Business
Days after the Community Parties shall have become entitled thereto and shall
have made demand therefor.
(d)
Notwithstanding
anything set forth in this Agreement to the contrary, if East Prospect pays
or
causes to be paid to CMTY the Termination Fee, payment of the Termination Fee
and payment of Expenses pursuant to Section 8.01(b) shall be the sole and
exclusive remedy of the Community Parties hereunder and East Prospect will
not
have any further obligations or liabilities to the Community Parties with
respect to this Agreement or the Contemplated Transactions, except that the
Community Parties shall have the right to enforce the provisions of Section
5.02(c) and the Confidentiality Agreement. The Community Parties and East
Prospect agree that the Termination Fee is fair and reasonable in the
circumstances. If a court of competent jurisdiction shall nonetheless, by a
final, nonappealable judgment, determine that the amount of any such Termination
Fee exceeds the maximum amount permitted by law, then the amount of such
Termination Fee shall be reduced to the maximum amount permitted by law in
the
circumstances, as determined by such court of competent
jurisdiction.
8.02 Non-Survival
of Representations and Warranties; Disclosure Schedules.
All representations, warranties and, except to the extent specifically provided
otherwise herein, agreements and covenants shall terminate on the Closing Date.
Without limiting the foregoing, Sections 1.02(d), 1.02(e), 2.05, 2.07, and
5.07(c) (i), (ii), (iii) and (iv) shall survive the Closing.
8.03 Amendment,
Extension and Waiver.
Subject to applicable law, at any time prior to the Closing Date, the parties
may:
(a)
amend
this Agreement;
72
(b)
extend
the time for the performance of any of the obligations or other acts of either
party hereto;
(c)
waive
any inaccuracies in the representations and warranties contained herein or
in
any document delivered pursuant hereto; or
(d)
to
the extent permitted by law, waive compliance with any of the agreements or
conditions contained in Articles V and VI hereof or otherwise.
This
Agreement may not be amended except by an instrument in writing signed, by
authorized officers, on behalf of the parties hereto. Any agreement on the
part
of a party hereto to any extension or waiver shall be valid only if set forth
in
an instrument in writing signed by a duly authorized officer on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver
of,
or estoppel with respect to, any subsequent or other failure.
8.04 Entire
Agreement.
(a)
This
Agreement, including the documents referred to herein or delivered pursuant
hereto, contains the entire agreement and understanding of the parties with
respect to its subject matter. This Agreement supersedes all prior arrangements
and understandings between the parties, both written and oral, with respect
to
its subject matter other than the Confidentiality Agreement.
(b)
This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and its successors; provided, however, that nothing in this Agreement, expressed
or implied, is intended to confer upon any party, other than the parties hereto
and their respective successors, any rights, remedies, obligations or
liabilities, except that any Indemnified Party may enforce
Section 5.07(c)(iii).
8.05 No
Assignment.
Neither party hereto may assign any of its rights or obligations hereunder
to
any other person, without the prior written consent of the other party
hereto.
8.06 Notices.
All notices or other communications hereunder shall be in writing and shall
be
deemed given upon delivery if delivered personally, two business days after
mailing if
73
(a)
If
to the Community Parties, to:
Community
Banks, Inc.
000
Xxxx Xxxx Xxxxx
Xxxxxxxxxx,
Xxxxxxxxxxxx 00000
Attention:
Xxxxx X. Xxxxxxxxxxxx, Chairman, President and CEO
Telecopy
No.: 000-000-0000
with
copy to:
Xxxxx
X. Xxxx, Esquire
Xxxxxxx
X. Xxx, Esquire
Mette,
Xxxxx & Xxxxxxxx
P.O.
Box 5950
0000
Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxx,
Xxxxxxxxxxxx 00000-0000
Telecopy
No.: 000-000-0000
(b)
If
to East Prospect, to:
East
Prospect State Bank
X.X.
Xxx 000
Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attention:
Xxxxx X. Xxxxxx, President
Telecopy
No.: 000-000-0000
with
a copy to:
Xxxxxxx
X. Xxxx, Esquire
Xxxxxxxx
Ingersoll & Rooney PC
One
South Market Square
000
Xxxxxx Xxxxxx, 0xx
Xxxxx
Xxxxxxxxxx,
Xxxxxxxxxxxx 00000-0000
Telecopy
No.: 000-000-0000
8.07 Disclosure
Schedules.
Information contained on either the East Prospect Disclosure Schedules or the
CMTY Disclosure Schedules shall be deemed to cover the express disclosure
requirement contained in a representation or warranty of this Agreement and
any
other representation or warranty of this Agreement of such party where it is
readily apparent it applies to such provision. The mere inclusion of an item
in
a Disclosure Schedule as an exception to a
74
8.08 Tax
Disclosure.
Notwithstanding anything else in this Agreement to the contrary, each party
hereto (and each employee, representative or other agent of any party) may
disclose to any and all persons, without limitation of any kind, the federal
income tax treatment and federal income tax structure of any and all
transaction(s) contemplated herein and all materials of any kind (including
opinions or other tax analyses) that are or have been provided to any party
(or
to any employee, representative, or other agent of any party) relating to such
tax treatment or tax structure; provided, however, that this authorization
of
disclosure shall not apply to restrictions reasonably necessary to comply with
securities laws. This authorization of disclosure is not effective until the
earlier of (i) the date of the public announcement of discussions relating
to the Contemplated Transactions, (ii) the date of the public announcement
of the Contemplated Transactions, or (iii) the date of execution of an
agreement (with or without conditions) to enter into the Contemplated
Transactions.
8.09 Captions.
The captions contained in this Agreement are for reference purposes only and
are
not part of this Agreement.
8.10 Counterparts.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
8.11 Severability.
If any provision of this Agreement or the application thereof to any person
or
circumstance shall be invalid or unenforceable to any extent, the remainder
of
this Agreement and the application of such provisions to other persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
8.12 Governing
Law.
This Agreement shall be governed by and construed in accordance with the
domestic internal law of the Commonwealth of Pennsylvania and applicable laws
of
the United States of America.
75
IN
WITNESS WHEREOF, the parties have caused this Agreement to be executed by their
duly authorized officers as of the day and year first above written.
COMMUNITY
BANKS, INC.
By:_______________________________
Xxxxx
X. Xxxxxxxxxxxx, Chairman, President and CEO
|
Attest:
_________________________________
Xxxxxxxx
X. Xxxx, Senior VP and Secretary
|
|
COMMUNITYBANKS
By:________________________________
Xxxxx
X. Xxxxxxxxxxxx, President and CEO
|
Attest:
_________________________________
Xxxxxxxx
X. Xxxx, Senior VP and Secretary
|
|
EAST
PROSPECT STATE BANK
By:_______________________________
Xxxxx
X. Xxxxxx, President
|
Attest:
_________________________________
Name:
Title:
|
76