Exhibit 2.1
[EXECUTION COPY]
AGREEMENT AND PLAN OF MERGER
dated as of
March 27, 2006
between
MERCANTILE BANKSHARES CORPORATION
and
XXXXX XXXXXX BANCORP, INC.
TABLE OF CONTENTS
PAGE
----
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions......................................................................2
Section 1.02. Other Definitional and Interpretative Provisions.................................8
ARTICLE 2
THE MERGER; CERTAIN RELATED MATTERS
Section 2.01. The Merger; Closing..............................................................9
ARTICLE 3
CONVERSION OF THE COMPANY SHARES; CASH ELECTION; EXCHANGE OF CERTIFICATES
Section 3.01. Conversion of the Company Shares.................................................9
Section 3.02. Elections........................................................................10
Section 3.03. Proration of Election Price......................................................10
Section 3.04. Election Procedures; Exchange Agent..............................................12
Section 3.05. Exchange Procedures; Surrender and Payment......................................13
Section 3.06. Dissenters' Shares..............................................................14
Section 3.07. Stock Options...................................................................15
Section 3.08. Adjustments.....................................................................15
Section 3.09. Fractional Shares...............................................................15
Section 3.10. Withholding Rights..............................................................16
Section 3.11. Lost Certificates...............................................................16
ARTICLE 4
THE SURVIVING CORPORATION
Section 4.01. Certificate of Incorporation....................................................16
Section 4.02. Bylaws..........................................................................16
Section 4.03. Directors and Officers..........................................................16
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.01. Corporate Existence and Power...................................................17
Section 5.02. Corporate Authorization.........................................................17
Section 5.03. Governmental Authorization......................................................18
Section 5.04. Non-contravention...............................................................19
Section 5.05. Capitalization..................................................................19
Section 5.06. Subsidiaries....................................................................20
Section 5.07. Regulatory Filings and the Xxxxxxxx-Xxxxx Act...................................21
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Section 5.08. Financial Statements............................................................23
Section 5.09. Disclosure Documents............................................................23
Section 5.10. Absence of Certain Changes......................................................23
Section 5.11. No Undisclosed Material Liabilities.............................................25
Section 5.12. Compliance with Laws and Court Orders...........................................25
Section 5.13. Litigation......................................................................26
Section 5.14. Material Contracts..............................................................26
Section 5.15. Finders' Fees...................................................................27
Section 5.16. Opinion of Financial Advisor....................................................27
Section 5.17. Taxes...........................................................................27
Section 5.18. Employees and Employee Benefit Plans............................................29
Section 5.19. Environmental Matters...........................................................33
Section 5.20. Tax Treatment...................................................................34
Section 5.21. Derivative Instruments..........................................................34
Section 5.22. Insurance.......................................................................34
Section 5.23. Capital; Management; CRA Rating.................................................34
Section 5.24. Properties......................................................................34
Section 5.25. Private Equity Portfolio........................................................35
Section 5.26. Affiliate Transactions..........................................................35
Section 5.27. Antitakeover Statutes; Rights Plans; Appraisal Rights...........................35
Section 5.28. Regulatory Matters..............................................................35
Section 5.29. Certain Loan Matters............................................................36
Section 5.30. Intellectual Property...........................................................37
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 6.01. Corporate Existence and Power...................................................38
Section 6.02. Corporate Authorization.........................................................38
Section 6.03. Governmental Authorization......................................................39
Section 6.04. Non-contravention...............................................................40
Section 6.05. Capitalization..................................................................40
Section 6.06. Subsidiaries....................................................................41
Section 6.07. SEC Filings and the Xxxxxxxx-Xxxxx Act..........................................42
Section 6.08. Financial Statements............................................................44
Section 6.09. Disclosure Documents............................................................44
Section 6.10. Absence of Certain Changes......................................................44
Section 6.11. No Undisclosed Material Liabilities.............................................45
Section 6.12. Compliance with Laws and Court Orders...........................................45
Section 6.13. Litigation......................................................................45
Section 6.14. Finders' Fees...................................................................46
Section 6.15. Tax Treatment...................................................................46
Section 6.16. Regulatory Matters..............................................................46
Section 6.17. Financing.......................................................................46
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ARTICLE 7
COVENANTS OF THE COMPANY
Section 7.01. Conduct of the Company..........................................................47
Section 7.02. Shareholder Meeting; Proxy Material.............................................48
Section 7.03. No Solicitation; Other Offers...................................................49
Section 7.04. Tax Matters.....................................................................50
ARTICLE 8
COVENANTS OF PARENT
Section 8.01. Conduct of Parent...............................................................51
Section 8.02. Director and Officer Liability..................................................51
Section 8.03. Registration Statement..........................................................52
Section 8.04. Stock Exchange Listing..........................................................52
Section 8.05. Appointment of Directors........................................................52
Section 8.06. Trust Preferred Securities......................................................53
ARTICLE 9
COVENANTS OF PARENT AND THE COMPANY
Section 9.01. Best Efforts....................................................................53
Section 9.02. Certain Filings.................................................................54
Section 9.03. Public Announcements............................................................54
Section 9.04. Further Assurances..............................................................55
Section 9.05. Access to Information...........................................................55
Section 9.06. Notices of Certain Events.......................................................55
Section 9.07. Confidentiality.................................................................56
Section 9.08. Tax-free Reorganization.........................................................56
Section 9.09. Affiliates......................................................................56
Section 9.10. Employees.......................................................................57
Section 9.11. Bank Merger Agreement...........................................................58
Section 9.12. Company Options.................................................................58
Section 9.13. Prohibited Purchases or Sales...................................................58
ARTICLE 10
CONDITIONS TO THE MERGER
Section 10.01. Conditions to Obligations of Each Party........................................59
Section 10.02. Conditions to the Obligations of Parent........................................59
Section 10.03. Conditions to the Obligations of the Company...................................61
ARTICLE 11
TERMINATION
Section 11.01. Termination....................................................................62
Section 11.02. Effect of Termination..........................................................66
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ARTICLE 12
MISCELLANEOUS
Section 12.01. Notices........................................................................66
Section 12.02. Survival of Representations and Warranties.....................................67
Section 12.03. Amendments and Waivers.........................................................67
Section 12.04. Expenses.......................................................................67
Section 12.05. Binding Effect; Benefit; Assignment............................................68
Section 12.06. Schedules and Exhibits.........................................................69
Section 12.07. Governing Law..................................................................69
Section 12.08. Jurisdiction...................................................................69
Section 12.09. WAIVER OF JURY TRIAL...........................................................69
Section 12.10. Counterparts; Effectiveness....................................................69
Section 12.11. Entire Agreement...............................................................70
Section 12.12. Severability...................................................................70
Section 12.13. Specific Performance...........................................................70
SCHEDULES:
Company Disclosure Schedule
Parent Disclosure Schedule
EXHIBITS:
Exhibit A - Form of Plan of Merger
Exhibit B - Form of Voting Agreement
Exhibit C - Form of Company Rule 145 Affiliate Letter
Exhibit D - Form of Tax Representation Letter from the Parent
Exhibit E - Form of Tax Representation Letter from the Company
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated as of March 27,
2006 between Mercantile Bankshares Corporation, a Maryland corporation
("PARENT") and Xxxxx Xxxxxx Bancorp, Inc., a Virginia corporation (the
"COMPANY").
WHEREAS, the respective Boards of Directors of the Company and Parent
deem it advisable and in the best interests of their respective shareholders,
stockholders and corporations to consummate the business combination transaction
provided for herein in which the Company will merge with and into Parent (the
"MERGER"), with Parent as the surviving corporation in the Merger, on the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
the Company and Parent have approved the Merger and this Agreement, including
the Plan of Merger in the form attached as Exhibit A hereto (the "PLAN OF
MERGER");
WHEREAS, concurrently with the execution and delivery of this
Agreement, Mercantile-Safe Deposit and Trust Company, a Maryland chartered
commercial bank and a wholly-owned subsidiary of Parent ("PARENT BANK") and
Xxxxx Xxxxxx Bank, a Virginia chartered commercial bank and a wholly-owned
subsidiary of the Company ("COMPANY BANK"), have entered into an Agreement and
Plan of Merger (the "BANK MERGER AGREEMENT"), pursuant to which Company Bank
shall merge with and into Parent Bank (the "BANK MERGER") with the Parent Bank
as the surviving bank in the Bank Merger, and the Bank Merger shall be
consummated concurrently with the consummation of the Merger;
WHEREAS, concurrently with the execution of this Agreement, as a
condition of the willingness of the Company and Parent to enter into this
Agreement, certain shareholders of the Company have entered into Voting
Agreements (the "VOTING AGREEMENTS") substantially in the form attached hereto
as Exhibit B providing for, among other things, the agreement of such
shareholders to vote Company Shares in favor of the Plan of Merger and the
approval and adoption of this Agreement; and
WHEREAS, for U.S. federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "CODE"), and the regulations
promulgated thereunder.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions. (a) The following terms, as used herein,
have the following meanings:
"ACQUISITION PROPOSAL" means, other than the transactions contemplated
by this Agreement, any offer, proposal or inquiry relating to, or any Third
Party indication of interest in, (A) any acquisition or purchase, direct or
indirect, of 20% or more of the consolidated assets of the Company and its
Subsidiaries or over 20% of any class of equity or voting securities of the
Company or any of its Subsidiaries whose assets, individually or in the
aggregate, constitute more than 20% of the consolidated assets of the Company,
(B) any tender offer (including a self-tender offer) or exchange offer that, if
consummated, would result in such Third Party's beneficially owning 20% or more
of any class of equity or voting securities of the Company or any of its
Subsidiaries whose assets, individually or in the aggregate, constitute more
than 20% of the consolidated assets of the Company, (C) a merger, consolidation,
share exchange, business combination, sale of substantially all the assets,
reorganization, recapitalization, liquidation, dissolution or other similar
transaction involving the Company or any of its Subsidiaries whose assets,
individually or in the aggregate, constitute more than 20% of the consolidated
assets of the Company or (D) any other transaction to which the Company or the
Company Bank is a party, the consummation of which could reasonably be expected
to impede, interfere with, prevent or materially delay the Merger or the Bank
Merger or that could reasonably be expected to dilute materially the benefits to
Parent of the transactions contemplated hereby.
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person.
"BANK MERGER ACT" means Section 18(c) of the Federal Deposit Insurance
Act, codified at 12 U.S.C. 1828(c).
"BUSINESS DAY" means a day, other than Saturday, Sunday or other day on
which commercial banks in Baltimore, Maryland are authorized or required by law
to close.
"COMPANY BALANCE SHEET" means the consolidated Statements of Financial
Condition of the Company as of December 31, 2005 and the footnotes thereto.
"COMPANY BALANCE SHEET DATE" means December 31, 2005.
"COMPANY SHARES" means the shares of common stock, par value $1.00 per
share, of the Company.
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"COMPANY OPTION" means each option granted by the Company to purchase
Company Shares pursuant to the Company Option Plans.
"COMPANY OPTION PLANS" means the Company's 1998 Management Incentive
Stock Option Plan, the 1999 Director's Stock Option Plan and the 2003 Equity
Compensation Plan.
"COMPANY SUBSIDIARY TRUSTS" means Xxxxx Xxxxxx Statutory Trust I, Xxxxx
Xxxxxx Statutory Trust II and Xxxxx Xxxxxx Statutory Trust III.
"COMPANY 10-K" means the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2005.
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated
as of February 2, 2006 between Parent and Xxxxx & Xxxxxxxxxxxx, Inc.
"EMPLOYMENT AGREEMENTS" means the Employment or Consulting Agreements
entered into as of the date hereof between Parent and each of (i) Xxxx X.
Xxxxxxx, (ii) Xxxxxxx X. Xxxxxxx, (iii) Xxxx X. Xxxx, (iv) Xxxxx X. Xxxxxxxx and
(v) Xxxxxxx X. Xxxxxxxx.
"ENVIRONMENTAL LAWS" means any federal, state, local or foreign law
(including common law), treaty, judicial decision, regulation, rule, judgment,
order, decree, injunction, permit or governmental restriction or requirement or
any agreement with any governmental authority or other third party, regarding
human health and safety, the environment or pollutants, contaminants, wastes or
chemicals or any toxic, radioactive, ignitable, corrosive, reactive or otherwise
hazardous substances, wastes or materials.
"ENVIRONMENTAL PERMITS" means all permits, licenses, franchises,
certificates, approvals and other similar authorizations of governmental
authorities relating to or required by Environmental Laws and affecting, or
relating in any way to, the business of the Company or any Subsidiary as
currently conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA AFFILIATE" of any entity means any other entity that, together
with such entity, would be treated as a single employer under Section 414 of the
Code.
"FDIA" means the Federal Deposit Insurance Act.
"FDIC" means the Federal Deposit Insurance Corporation.
"HSR ACT" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976.
"INSIDER" has the meaning set forth in 12 C.F.R. ss.215.1(h).
3
"KNOWLEDGE" of any Person that is not an individual means the knowledge
of such Person's officers after reasonable inquiry.
"LIEN" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset that it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"MARYLAND LAW" means the Maryland Code.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material
adverse effect on (i) the condition (financial or otherwise), business, assets
or results of operations of such Person and its Subsidiaries, taken as a whole,
or (ii) the ability of such Person to perform its obligations under or to
consummate the transactions contemplated by this Agreement; provided, however,
that none of the following shall be taken into account in determining whether
there has been or will be, a Material Adverse Effect: (a) changes in tax,
banking and similar laws or interpretations thereof by courts or governmental
authorities, but only to the extent the effect on such Person and its
Subsidiaries, taken as a whole, is not materially worse than the effect on
similarly situated banks and their holding companies, (b) changes in GAAP or
regulatory accounting requirements applicable to banks and their holding
companies generally, but only to the extent the effect on such Person and its
Subsidiaries, taken as a whole, is not materially worse than the effect on
similarly situated banks and their holding companies, (c) changes in economic
conditions affecting financial institutions generally, including changes in
market interest rates or the projected future interest rate environment, but
only to the extent the effect on such Person and its Subsidiaries, taken as a
whole, is not materially worse than the effect on similarly situated banks and
their holding companies, (d) actions and omissions of Parent or the Company
taken with the prior written consent of the other party hereto in contemplation
of the transactions contemplated hereby, (e) direct effects of compliance with
this Agreement on operating performance of any Person, including expenses
incurred in connection with the transactions contemplated hereby, (f) the effect
of any change, or prospective change, in loan valuation, accrual or reserve
policy which is undertaken by the Company or the Company Bank with the consent
of Parent prior to the Effective Time to conform to those of Parent or Parent
Bank, or the impact of changes in the fair market valuation policies of the
Company's and the Company Bank's loans as of the Effective Time made with the
consent of Parent, where the facts on which such adjusted valuation are based
relate to events occurring prior to the date hereof, or (g) changes in national
or international political or social conditions including the engagement by the
United States in hostilities, whether or not pursuant to the declaration of a
national emergency or war, or the occurrence of any military or terrorist attack
upon or within the United States, but only to the extent the effect on such
Person and its Subsidiaries, taken as a whole, is not materially worse than the
effect on similarly situated banks and their holding companies.
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"1933 ACT" means the Securities Act of 1933.
"1934 ACT" means the Securities Exchange Act of 1934.
"OFFICER" of any Person means any executive officer of such Person
within the meaning of Rule 3b-7 of the 1934 Act.
"PARENT BALANCE SHEET" means the consolidated balance sheet of Parent
as of December 31, 2005 and the footnotes therein.
"PARENT BALANCE SHEET DATE" means December 31, 2005.
"PARENT BANKING SUBSIDIARIES" means Parent Bank and Farmers & Mechanics
Bank, a Maryland bank.
"PARENT PREFERRED STOCK" means the preferred stock without par value,
of Parent.
"PARENT 10-K" means Parent's annual report on Form 10-K for the fiscal
year ended December 31, 2005.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"REGULATION O AFFILIATE" means an "Affiliate" as defined in 12 C.F.R.
ss. 215.2(a).
"XXXXXXXX-XXXXX ACT" means the Xxxxxxxx-Xxxxx Act of 2002.
"SEC" means the Securities and Exchange Commission.
"SUBSIDIARY" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at any time directly or indirectly owned by such Person.
"THIRD PARTY" means any Person as defined in Section 13(d) of the 1934
Act, other than Parent or any of its Affiliates.
"TRANSACTION DOCUMENTS" means this Agreement, the Bank Merger
Agreement, the Employment Agreements, the Plan of Merger and the Voting
Agreements.
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"VIRGINIA LAW" means the Code of Virginia.
"VSCA" means the Virginia Stock Corporation Act, as amended from time
to time.
Any reference in this Agreement to a statute shall be to such statute,
as amended from time to time, and to the rules and regulations promulgated
thereunder.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
TERM SECTION
---- -------
Agreement.............................................. Preamble
Average Closing Price.................................. 11.01(d)
Bank Directors......................................... 8.05
Bank Merger............................................ Preamble
Bank Merger Agreement.................................. Preamble
BHC Act................................................ 5.03
Board.................................................. 5.03
Cash Electing Company Share............................ 3.01(b)
Cash Election.......................................... 3.02
Cash Election Price.................................... 3.01(b)
Cash Proration Factor.................................. 3.03(b)
CBA.................................................... 5.18(b)
Certificates........................................... 3.04(a)
Closing................................................ 2.01(c)
Closing Date........................................... 2.01(c)
Code................................................... Preamble
Company................................................ Preamble
Company Bank........................................... Preamble
Company Disclosure Schedule............................ Article 5
Company Employees...................................... 9.10(a)
Company Intellectual Property Rights................... 5.30(c)
Company Proxy Statement................................ 5.09(a)
Company KSOP........................................... 5.05(b)
Company RAP Statements................................. 5.07(h)
Company Required Filings and Approvals................. 5.03
Company Securities..................................... 5.05(b)
Company Shareholder Meeting............................ 7.02
Company Subsidiary Securities.......................... 5.06(b)
CRA.................................................... 5.23
Decision Period........................................ 11.01(d)
Determination Date..................................... 11.01(d)
Dissenters' Shares..................................... 3.06
Effective Time......................................... 2.01(a)
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TERM SECTION
---- -------
Election Date.......................................... 3.02
Election Deadline...................................... 3.04(c)
Election Form.......................................... 3.04(a)
Employee Benefit Plans................................. 5.18(a)(i)
End Date............................................... 11.01(b)
Exchange Agent......................................... 3.04(b)
Exchange Fund.......................................... 3.04(b)
Exchange Ratio......................................... 3.01(b)
GAAP................................................... 5.08
Governmental Entity.................................... 5.03
Imputed Exchange Ratio................................. 11.01(d)
Indemnified Person..................................... 8.02(a)
Index Price............................................ 11.01(d)
Index Ratio............................................ 11.01(d)
Labor Organization..................................... 5.18(b)
Material Contracts..................................... 5.14
Maximum Cash Election Number........................... 3.03(a)
Merger................................................. Preamble
Merger Consideration................................... 3.01(b)
Minimum Cash Election Number........................... 3.03(a)
MSDAT.................................................. 2.01(a)
NASDAQ/NMS............................................. 11.01(d)
Non-Electing Company Shares............................ 3.03(d)
OCC.................................................... 5.07(a)
Parent................................................. Preamble
Parent Bank............................................ Preamble
Parent Disclosure Schedule............................. Article 5
Parent RAP Statements.................................. 6.07(h)
Parent Ratio........................................... 11.01(d)
Parent Required Filings and Approvals.................. 6.03
Parent Rights Agreement................................ 6.05(a)
Parent SEC Documents................................... 6.07(a)
Parent Stock........................................... 3.01(b)
Payment Event.......................................... 12.04(b)
Plan of Merger......................................... Recitals
Qualified Plans........................................ 5.18(a)(iii)
Registration Statement................................. 6.09(b)
Required Filings and Approvals......................... 6.03
Retention Plan......................................... 9.10(d)
Starting Price......................................... 11.01(d)
Stock Election Price................................... 3.01(b)
Stock Proration Factor................................. 3.03(d)
Superior Proposal...................................... 7.03(c)
Surviving Corporation.................................. 2.01(a)
Tax.................................................... 5.17(h)
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TERM SECTION
---- -------
Taxing Authority....................................... 5.17(h)
Tax Return............................................. 5.17(h)
Tax Sharing Agreement.................................. 5.17(h)
Third-Party Intellectual Property Rights 5.30(b)
368 Reorganization..................................... 5.20
Top-Up Amount.......................................... 11.01(d)
Trust Preferred Assumption............................. 8.06
Uncertificated Shares.................................. 3.04(b)
Voting Agreement....................................... Preamble
Watch List............................................. 5.29(b)
Section 1.02. Other Definitional and Interpretative Provisions. Unless
specified otherwise, in this Agreement the obligations of any party consisting
of more than one person are joint and several. The words "hereof", "herein" and
"hereunder" and words of like import used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
captions herein are included for convenience of reference only and shall be
ignored in the construction or interpretation hereof. References to Articles,
Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and
Schedules of this Agreement unless otherwise specified. All Exhibits and
Schedules annexed hereto or referred to herein are hereby incorporated in and
made a part of this Agreement as if set forth in full herein. Any capitalized
terms used in any Exhibit or Schedule but not otherwise defined therein, shall
have the meaning as defined in this Agreement. Any singular term in this
Agreement shall be deemed to include the plural, and any plural term the
singular. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation", whether or not they are in fact followed by those words or words of
like import. "Writing", "written" and comparable terms refer to printing, typing
and other means of reproducing words (including electronic media) in a visible
form. References to any agreement or contract are to that agreement or contract
as amended, modified or supplemented from time to time in accordance with the
terms hereof and thereof. References to any Person include the successors and
permitted assigns of that Person. References from or through any date mean,
unless otherwise specified, from and including or through and including,
respectively. References to "law", "laws" or to a particular statute or law
shall be deemed also to include any and all related rules, regulations,
ordinances, directives, treaties and judicial or administrative decisions,
judgments, decrees or injunctions of any U.S. or non-U.S. federal, state, local
or foreign governmental authority.
8
ARTICLE 2
THE MERGER; CERTAIN RELATED MATTERS
Section 2.01. The Merger; Closing. (a) As soon as practicable, and in
any event not more than five Business Days, after satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Merger, the Company and
Parent shall file articles of merger with the State Corporation Commission of
Virginia and the Maryland State Department of Assessments and Taxation (the
"MSDAT") and make all other filings or recordings required by Virginia Law or
Maryland Law in connection with the Merger. The Merger shall become effective
(the "EFFECTIVE TIME") at the later of the time the Certificate of Merger is
issued by the Virginia State Corporation Commission and the time a Certificate
of Merger is issued by the MSDAT (or at such later time as may be specified in
the Certificates of Merger) in accordance with the VSCA and Maryland Law. Upon
and following the Merger, the separate existence of the Company shall cease, and
Parent shall be the Surviving Corporation (the "SURVIVING CORPORATION") in the
Merger and shall continue its corporate existence under the laws of the State of
Maryland. The name of the Surviving Corporation shall continue to be "Mercantile
Bankshares Corporation".
(b) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of the Company
and Parent, all as provided under Virginia Law and Maryland Law.
(c) The closing of the Merger (the "CLOSING") shall take place at such
time and place as Parent and the Company shall agree, on the date when the
Effective Time is to occur (the "CLOSING DATE").
ARTICLE 3.
CONVERSION OF THE COMPANY SHARES; CASH ELECTION; EXCHANGE OF CERTIFICATES
Section 3.01. Conversion of the Company Shares. At the Effective Time
by virtue of the Merger and without any action on the part of any holder of
shares of capital stock of the Company or Parent:
(a) each issued Company Share owned by the Company (other than shares
held for the account of clients, customers or other Persons) or owned by Parent
or any of its Subsidiaries immediately prior to the Effective Time (other than
shares held for the account of clients, customers or other Persons) shall be
canceled, and no payment shall be made with respect thereto;
(b) each Company Share outstanding immediately prior to the Effective
Time shall, except as otherwise provided in Section 3.01(a) or Section 3.06 or
as adjusted pursuant to Section 11.01(d)(iii), be converted into the following
(collectively, the "MERGER CONSIDERATION"):
9
(i) for each such Company Share with respect to which an
election to receive cash has been effectively made and not revoked or
deemed converted into the right to receive the Stock Election Price
pursuant to Section 3.03(b), or is deemed made pursuant to Section
3.03(d), as the case may be (each, a "CASH ELECTING COMPANY SHARE"),
the right to receive an amount equal to $23.50 in cash without interest
(the "CASH ELECTION PRICE"); and
(ii) for each other such Company Share, the right to receive
0.6033 share(s) (the "EXCHANGE RATIO") of common stock, par value $2.00
per share ("PARENT STOCK"), of the Parent (the "STOCK ELECTION PRICE")
as may be adjusted pursuant to Section 11.01(d)(iii).
Section 3.02. Elections. Each person (other than the Company) who, at
the close of business on the date of the Company Shareholder Meeting or on such
other date as the Parent and the Company publicly announce as the Election Date
(such date, the "ELECTION DATE"), is a record holder of Company Shares will be
entitled, with respect to any or all of such Company Shares, to make an election
(a "CASH ELECTION") on or prior to such date to receive the Cash Election Price
on the basis hereinafter set forth. No such person shall be entitled to make a
Cash Election with respect to Dissenters' Shares. Dissenters' Shares held by
shareholders who shall have failed to perfect or who effectively shall have
withdrawn or otherwise lost their rights to appraisal of such shares under
Virginia Law shall thereupon be deemed to have made a Cash Election with respect
to such Dissenters' Shares.
Section 3.03. (a) Proration of Election Price. Subject to adjustment
pursuant to Section 11.01(d)(iii), the number of Company Shares to be converted
into the right to receive the Cash Election Price at the Effective Time shall
not be less than the number of Company Shares which is equal to (i) 34% of the
Company Shares outstanding at the Effective Time (excluding any Company Shares
to be canceled pursuant to Section 3.01(a)) minus (ii) the number of Dissenters'
Shares at the Effective Time (such difference, the "MINIMUM CASH ELECTION
NUMBER") and shall not exceed the number of Company Shares which is equal to (i)
50% of the Company Shares outstanding at the Effective Time (excluding any
Company Shares to be canceled pursuant to Section 3.01(a)) minus (ii) the number
of Dissenters' Shares at the Effective Time (such difference, the "MAXIMUM CASH
ELECTION NUMBER").
(b) If the number of Cash Electing Company Shares exceeds the Maximum
Cash Election Number, then such Cash Electing Company Shares shall be treated in
the following manner:
10
(i) A cash proration factor (the "CASH PRORATION FACTOR")
shall be determined by dividing (x) the Maximum Cash Election Number by
(y) the total number of Cash Electing Company Shares.
(ii) A number of Cash Electing Company Shares covered by each
shareholder's Cash Election equal to the product of (x) the Cash
Proration Factor and (y) the total number of Cash Electing Company
Shares covered by such Cash Election shall be converted into the right
to receive the Cash Election Price.
(iii) Each Cash Electing Company Share, other than those
Company Shares converted into the right to receive the Cash Election
Price in accordance with Section 3.03(b)(ii), shall be converted into
the right to receive the Stock Election Price as if such Company Shares
were not Cash Electing Company Shares.
(c) If the number of Cash Electing Company Shares is greater than or
equal to the Minimum Cash Election Number and less than or equal to the Maximum
Cash Election Number, then each Cash Electing Company Share shall be converted
into the right to receive the Cash Election Price and each other Company Share
(other than Company Shares to be canceled pursuant to Section 3.01(a) and other
than Dissenters' Shares) shall be converted into the right to receive the Stock
Election Price.
(d) If the number of Cash Electing Company Shares is less than the
Minimum Cash Election Number, then:
(i) Each Cash Electing Company Share shall be converted into
the right to receive the Cash Election Price.
(ii) The Company Shares as to which a Cash Election is not in
effect, excluding Company Shares to be cancelled pursuant to Section
3.01(a), (the "NON-ELECTING COMPANY SHARES") shall be treated in the
following manner:
(A) A stock proration factor (the "STOCK PRORATION
FACTOR") shall be determined by dividing (x) the difference
between the Minimum Cash Election Number and the number of
Cash Electing Company Shares, by (y) the total number of
Non-Electing Company Shares.
(B) A number of Non-Electing Company Shares of each
shareholder equal to the product of (x) the Stock Proration
Factor and (y) the total number of Non-Electing Company Shares
of such shareholder shall be converted into the right to
receive the Cash Election Price (and a Cash Election shall be
deemed to have been made with respect to such Company Shares).
11
(C) Each Non-Electing Company Share of each
shareholder as to which a Cash Election is not deemed made
pursuant to Section 3.03(d)(ii)(B) shall be converted into the
right to receive the Stock Election Price.
(e) Notwithstanding anything in this Agreement to the contrary, Parent
shall not be required to issue in excess of 2,500,000 shares of Parent Stock
pursuant to this Article 3. If Parent would be required to issue in excess of
2,500,000 shares of Parent Stock after application of the applicable proration
provisions of Section 3.03, the Minimum Cash Election Number shall be increased
to the extent necessary to provide that the number of shares of Parent Stock
issued after application of the applicable proration provisions of Section 3.03
does not exceed 2,500,000 shares of Parent Stock.
Section 3.04. Election Procedures; Exchange Agent. (a) Prior to the
date of the Company Shareholder Meeting (as defined in Section 7.02), Parent and
the Company shall prepare a form (an "ELECTION FORM") pursuant to which a holder
of record of Company Shares may make a Cash Election with respect to each
Company Share owned by such holder. The Company shall cause an Election Form and
a letter of transmittal and instructions (which shall specify that the delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) for use in exchanging
certificates representing Company Shares (the "CERTIFICATES") for the Merger
Consideration to be included with the Company Proxy Statement (as defined in
Section 5.09(a)) and mailed to each holder of record of Company Shares as of the
record date for such meeting.
(b) Prior to the date of the Company Shareholder Meeting, Parent shall
appoint an agent independent of and unaffiliated with Parent or the Company (the
"EXCHANGE AGENT") for the purpose of (i) receiving Election Forms and
determining, in accordance with this Article 3, the form of Merger Consideration
to be received by each holder of Company Shares, and (ii) exchanging for the
Merger Consideration (A) Certificates or (B) uncertificated Company Shares (the
"UNCERTIFICATED SHARES"). At or prior to the Effective Time, Parent shall
deposit, or cause to be deposited, with the Exchange Agent, for the benefit of
the holders of the Certificates and the Uncertificated Shares, for exchange in
accordance with this Article 3, (i) subject to Section 3.05(a), certificates
representing the shares of Parent Stock that constitute the stock portion of the
Merger Consideration and (ii) an amount of cash necessary to satisfy the cash
portion of the Merger Consideration (the "EXCHANGE FUND"). At the Effective Time
or promptly thereafter, Parent shall send, or shall cause the Exchange Agent to
send, to each holder of record of Company Shares which have not previously been
delivered to the Exchange Agent pursuant to Section 3.05(a) at the Effective
Time, a letter of transmittal and instructions (which shall specify that the
delivery shall be effected, and risk of loss and title shall pass, only upon
proper delivery of the Certificates to the Exchange Agent) for use in such
exchange.
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(c) A Cash Election shall be effective only if the Exchange Agent shall
have received no later than 5:00 p.m. Baltimore, Maryland time on the date of
the Company Shareholder Meeting (the "ELECTION DEADLINE") (i) an Election Form
covering the Company Shares to which such Cash Election applies, executed and
completed in accordance with the instructions set forth in such Election Form
and (ii) Certificates, in such form and with such endorsements, stock powers and
signature guarantees as may be required by such Election Form or the letter of
transmittal. Any Company Share with respect to which the Exchange Agent has not
received an effective Cash Election meeting the requirements of this Section
3.04(c) by the Election Deadline shall be deemed to be a Non-Electing Company
Share. A Cash Election may be revoked or changed only by delivering to the
Exchange Agent, prior to the Election Deadline, a written notice of revocation
or, in the case of a change, a properly completed revised Election Form that
identifies the Company Shares to which such revised Election Form applies.
Delivery to the Exchange Agent prior to the Election Deadline of a revised
Election Form with respect to any Company Shares shall result in the revocation
of all prior Election Forms with respect to all such Company Shares. Any
termination of this Agreement in accordance with Article 11 shall result in the
revocation of all Election Forms delivered to the Exchange Agent on or prior to
the date of such termination.
(d) The Company and Parent shall have the right to make rules, not
inconsistent with the terms of this Agreement, governing the validity and
effectiveness of Election Forms and letters of transmittal.
Section 3.05. Exchange Procedures; Surrender and Payment. (a) Each
holder of Company Shares that have been converted into the right to receive the
Merger Consideration shall be entitled to receive, upon (i) surrender to the
Exchange Agent of a Certificate, together with a properly completed letter of
transmittal, or (ii) receipt of an "agent's message" by the Exchange Agent (or
such other evidence, if any, of transfer as the Exchange Agent may reasonably
request) in the case of a book-entry transfer of Uncertificated Shares, the
Merger Consideration in respect of the Company Shares represented by a
Certificate or Uncertificated Share. The shares of Parent Stock constituting
part of such Merger Consideration, at Parent's option, shall be in
uncertificated book-entry form, unless a physical certificate is requested by a
holder of Company Shares or is otherwise required under applicable law. Until so
surrendered or transferred, as the case may be, each such Certificate or
Uncertificated Share shall represent after the Effective Time for all purposes
only the right to receive such Merger Consideration.
(b) If any portion of the Merger Consideration is to be paid to a
Person other than the Person in whose name the surrendered Certificate or the
transferred Uncertificated Share is registered, it shall be a condition to such
payment that (i) either such Certificate shall be properly endorsed or shall
otherwise be in proper form for transfer or such Uncertificated Share shall be
properly transferred and (ii) the Person requesting such payment shall pay to
the Exchange Agent any transfer or other taxes required as a result of such
payment to a Person other than the registered holder of such Certificate or
Uncertificated Share or establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not payable.
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(c) After the Effective Time, there shall be no further registration of
transfers of Company Shares. If, after the Effective Time, Certificates or
Uncertificated Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Merger Consideration provided for, and in
accordance with the procedures set forth, in this Article 3.
(d) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 3.04(b) that remains unclaimed by the holders
of Company Shares six months after the Effective Time shall be returned to
Parent, upon demand, and any such holder who has not exchanged Company Shares
for the Merger Consideration in accordance with this Section 3.05 prior to that
time shall thereafter look only to Parent for payment of the Merger
Consideration, and any dividends and distributions with respect thereto, in
respect of such shares without any interest thereon. Notwithstanding the
foregoing, Parent shall not be liable to any holder of Company Shares for any
amounts paid to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(e) No dividends or other distributions with respect to securities of
Parent constituting part of the Merger Consideration, and no cash payment in
lieu of fractional shares as provided in Section 3.09, shall be paid to the
holder of any Certificates not surrendered or of any Uncertificated Shares not
transferred until such Certificates or Uncertificated Shares are surrendered or
transferred, as the case may be, as provided in this Section. Following such
surrender or transfer, there shall be paid, without interest, to the Person in
whose name the securities of Parent have been registered, (i) at the time of
such surrender or transfer, the amount of any cash payable in lieu of fractional
shares to which such Person is entitled pursuant to Section 3.09 and the amount
of all dividends or other distributions with a record date after the Effective
Time previously paid or payable on the date of such surrender with respect to
such securities, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time and
prior to surrender or transfer and with a payment date subsequent to surrender
or transfer payable with respect to such securities.
Section 3.06. Dissenters' Shares. Notwithstanding any other provision
of this Agreement to the contrary, Company Shares that are outstanding
immediately prior to the Effective Time and which are held by shareholders who
shall not have voted in favor of the Merger or consented thereto in writing and
who shall have properly demanded appraisal for such shares in accordance with
Virginia Law (collectively, the "DISSENTERS' SHARES") shall not be converted
into or represent the right to receive the Merger Consideration, and such
shareholders instead shall be entitled to receive payment of the appraised value
of such shares held by them in accordance with the provisions Virginia Law;
provided that all Dissenters' Shares held by shareholders who shall have failed
to perfect or who effectively shall have withdrawn or otherwise lost their
rights to appraisal of such shares under Virginia Law shall thereupon be deemed
to have been converted into and to have become exchangeable, as of the Effective
Time, for the right to receive, without any interest thereon, the Cash Election
Price upon surrender in the manner provided in Section 3.05 of the Certificates
that, immediately prior to the Effective Time, evidenced such shares, subject to
proration in accordance with the provisions of Section 3.03 hereof.
14
Section 3.07. Stock Options. At the Effective Time, each Company Option
issued and outstanding at the Effective Time under the Company Option Plans,
shall be converted into and become options to purchase Parent Stock. Parent
shall assume each Company Option in accordance with the terms and conditions of
the Company Option Plan pursuant to which it was issued, the agreements
evidencing grants thereunder and any other agreements between the Company and an
optionee regarding Company Options; provided, however, that any agreement
providing for a tax payment to an optionee upon exercise shall be amended prior
to the Effective Date to remove such tax payment provision if each option
subject to such agreement shall not have been exercised prior to the Effective
Date; and, provided, further however, that from and after the Effective Time,
each such Company Option shall be exercisable solely for Parent Stock; the
number of shares of Parent Stock which may be acquired pursuant to such Company
Option shall be the number of Company Shares subject to such Company Option
multiplied by the Exchange Ratio, rounded down to the nearest whole share; and
the exercise price per Company Share shall be equal to the exercise price per
Company Share divided by the Exchange Ratio, rounded down to the nearest cent.
It is intended that the foregoing assumption and adjustment shall be effected in
a manner consistent with the requirements of Section 424 of the Code, as to each
Company Option which is an incentive stock option.
Section 3.08. Adjustments. If, during the period between the date of
this Agreement and the Effective Time, (i) any change in the outstanding shares
of capital stock of the Company or Parent shall occur, including by reason of
any reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, in each case whether by merger or otherwise or (ii) any
stock dividend thereon with a record date during such period shall occur, the
Merger Consideration, the maximum number of shares of Parent Stock issuable
hereunder, and any other amounts payable pursuant to this Agreement and, if
applicable, the Cash Election Price, Exchange Ratio and their determination
shall be appropriately adjusted.
Section 3.09. Fractional Shares. No fractional shares of Parent Stock
shall be issued in the Merger. All fractional shares of Parent Stock that a
holder of Company Shares would otherwise be entitled to receive as a result of
the Merger shall be aggregated and if a fractional share results from such
aggregation, such holder shall be entitled to receive, in lieu thereof, an
amount in cash without interest determined by multiplying the closing sale price
of a share of Parent Stock on the NASDAQ National Market, as reported in the New
York City edition of The Wall Street Journal, on the trading day immediately
preceding the Effective Time by the fraction of a share of Parent Stock to which
such holder would otherwise have been entitled.
15
Section 3.10. Withholding Rights. Each of the Exchange Agent, Surviving
Corporation and Parent shall be entitled to deduct and withhold from the
consideration otherwise payable to any Person pursuant to this Section 3.10 such
amounts as it is required to deduct and withhold with respect to the making of
such payment under any provision of federal, state, local or foreign tax law. If
the Exchange Agent, Surviving Corporation or Parent, as the case may be, so
withholds amounts, such amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Company Shares in respect of
which the Exchange Agent, Surviving Corporation or Parent, as the case may be,
made such deduction and withholding.
Section 3.11. Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such Person of a bond, in
such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue, in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration to be paid in respect of the Company Share
represented by such Certificate, as contemplated by this Section 3.11.
ARTICLE 4
THE SURVIVING CORPORATION
Section 4.01. Certificate of Incorporation. The articles of
incorporation of Parent in effect at the Effective Time shall be the articles of
incorporation of the Surviving Corporation until amended in accordance with
applicable law.
Section 4.02. Bylaws. The bylaws of Parent in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
Section 4.03. Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified in accordance
with applicable law, (i) the directors of Parent at the Effective Time shall be
the directors of the Surviving Corporation and (ii) the officers of Parent at
the Effective Time shall be the officers of the Surviving Corporation.
16
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the Company
to Parent on or prior to the date hereof (the "COMPANY DISCLOSURE SCHEDULE"),
the Company represents and warrants to Parent that:
Section 5.01. Corporate Existence and Power. The Company is duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Virginia and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company. The Company is duly registered as a bank holding company under the
BHC Act. The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where such qualification is
necessary, except for those jurisdictions where failure to be so qualified would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. The Company has heretofore delivered to Parent
true and complete copies of the articles of incorporation and bylaws of the
Company as currently in effect.
Section 5.02. Corporate Authorization. (a) The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby are within the Company's corporate
powers and, except for the required approval of the Company's shareholders in
connection with the consummation of the Merger, have been duly authorized by all
necessary corporate action on the part of the Company. The affirmative vote of
the holders of two-thirds of the outstanding Company Shares is the only vote of
the holders of any of the Company's capital stock necessary in connection with
the consummation of the Merger. This Agreement constitutes a valid and binding
agreement of the Company.
(b) The execution, delivery and performance of the Bank Merger
Agreement and the consummation of the transactions contemplated thereby have
been duly and validly approved by the Board of Directors of the Company Bank.
The Board of Directors of the Company Bank has declared the transactions
contemplated by the Bank Merger Agreement to be fair to and in the best
interests of the Company Bank's sole shareholder and has directed that the Bank
Merger Agreement and the transactions contemplated thereby be submitted to the
Company as the Company Bank's sole shareholder for approval and, except for the
approval of the Bank Merger Agreement by the Company as the Company Bank's sole
shareholder, no other corporate proceedings on the part of the Company Bank are
necessary to approve the Bank Merger Agreement and to consummate the
transactions contemplated thereby. The Bank Merger Agreement constitutes a valid
and binding obligation of the Company Bank.
17
(c) At a meeting duly called and held, the Company's Board of Directors
has (i) unanimously determined that this Agreement and the transactions
contemplated hereby are fair to and in the best interests of the Company's
shareholders, (ii) unanimously approved and adopted this Agreement, the Plan of
Merger and the transactions contemplated hereby and (iii) unanimously resolved
(subject to Section 7.03(b)) to recommend approval of the Plan of Merger by its
shareholders.
Section 5.03. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement, by the Company Bank of the Bank
Merger Agreement, the consummation by the Company of the transactions
contemplated hereby and the consummation by the Company Bank of the transactions
contemplated by the Bank Merger Agreement, require no action by or in respect
of, or filing with, any governmental body, agency, official or authority,
domestic, foreign or supranational, including the Board of Governors of the
Federal Reserve System (the "BOARD"), the FDIC and the banking authorities of
the State of Maryland and the Commonwealth of Virginia (each, a "GOVERNMENTAL
ENTITY") or with any third party other than (i) (A) the filing of articles of
merger with respect to the Merger with the State Corporation Commission of
Virginia and MSDAT, (B) the issuance by the State Corporation Commission of
Virginia of a Certificate of Merger, (C) the filing of an application to acquire
the Company with, and the approval of such application by, the State Corporation
Commission of Virginia, (D) the filing with and approval of the Bank Merger
Agreement, and the issuance of a Certificate of Merger, by the Commissioner of
Financial Regulation of Maryland and the filing of the Bank Merger Agreement and
such Certificate of Merger with the MSDAT, (E) the filing with the State
Corporation Commission of Virginia of a copy of the filing with the FDIC under
the Bank Merger Act with respect to the Bank Merger, and the approval of the
Bank Merger by the State Corporation Commission of Virginia, (F) application to,
and the approval of, the Commissioner of Financial Regulation of Maryland for
the affiliation of the Subsidiary(ies) of the Company (other than Company Bank)
and the Subsidiary(ies) of Company Bank with the Subsidiaries of Parent that are
Maryland state banks, and (G) the filing of appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business, (ii) compliance with any applicable requirements of the HSR Act, (iii)
compliance with any applicable requirements of the 1933 Act, the 1934 Act, and
any other applicable state or federal securities laws, (iv) the notices required
by, the filing with and approval of the Board under Section 3 of the U.S. Bank
Holding Company Act of 1956, as amended (the "BHC ACT"), with respect to the
Merger, (v) the notices required by, the filing with and approval of the FDIC
under the Bank Merger Act, with respect to the Bank Merger, and (vi) any other
filings and approvals required by the banking authorities of the State of
Maryland or the Commonwealth of Virginia or any other state or the District of
Columbia with respect to the Merger or the Bank Merger (the filings and
approvals set forth in clauses (i) through (vi), the "COMPANY REQUIRED FILINGS
AND APPROVALS"), and any other actions or filings the absence of which would not
be reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
18
Section 5.04. Non-contravention. (a) Except as set forth in Section
5.04(a) of the Company Disclosure Schedule, the execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby and the execution, delivery and performance by
the Company Bank of the Bank Merger Agreement and the consummation of the
transactions contemplated thereby, do not and will not (i) contravene, conflict
with, or result in any violation or breach of any provision of the articles of
incorporation or bylaws or other governing documents of the Company or any of
its Subsidiaries, (ii) assuming compliance with the matters referred to in
Section 5.03, contravene, conflict with or result in a violation or breach of
any provision of any applicable law, (iii) assuming compliance with the matters
referred to in Section 5.03, require any consent or other action by any Person
under, constitute a default, or an event that, with or without notice or lapse
of time or both, would constitute a default, under, or cause or permit the
termination, cancellation, acceleration or other change of any right or
obligation or the loss of any benefit to which the Company or any of its
Subsidiaries is entitled under any provision of any agreement or other
instrument binding upon the Company or any of its Subsidiaries or any license,
franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the assets or business of the Company and
its Subsidiaries or (iv) result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries, except for such contraventions,
conflicts and violations referred to in clause (ii) and for such failures to
obtain any such consent or other action, defaults, terminations, cancellations,
accelerations, changes, losses or Liens referred to in clauses (iii) and (iv)
that would not be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company.
(b) As of the date hereof, the Company knows of no reason why the
opinion of Company tax counsel referred to in Section 10.03(b) should not be
obtained on a timely basis.
Section 5.05. Capitalization. (a) The authorized capital stock of the
Company consists of 10,000,000 authorized shares of common stock, par value
$1.00 per share. As of March 23, 2006, there were outstanding 5,871,628 Company
Shares and employee stock options to purchase an aggregate of 434,429 Company
Shares (of which options to purchase an aggregate of 434,325 Company Shares were
exercisable). All outstanding shares of capital stock of the Company have been,
and all shares that may be issued pursuant to any Company Option Plan will be,
when issued in accordance with the respective terms thereof, duly authorized and
validly issued and are fully paid and nonassessable. No Subsidiary of the
Company or Affiliate owns any shares of capital stock of the Company.
19
(b) Except as set forth in this Section 5.05 and for changes since
March 23, 2006 resulting from the exercise of employee stock options outstanding
on such date or sales by the Company of Company Shares pursuant to the Company's
401KSOP Plan (the "COMPANY KSOP"), there are no outstanding (i) shares of
capital stock or voting securities of the Company, (ii) securities of the
Company convertible into or exchangeable for shares of capital stock or voting
securities of the Company or (iii) options or other rights to acquire from the
Company, or other obligation of the Company to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company (the items in clauses (i), (ii), and (iii)
being referred to collectively as the "COMPANY SECURITIES"). There are no
outstanding obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any of the Company Securities.
Section 5.06. Subsidiaries. (a)(i) Company Bank is duly incorporated as
a Virginia chartered commercial bank, is validly existing and in good standing
under the laws of the Commonwealth of Virginia, has all corporate powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted and (ii) each other Subsidiary of the
Company is a corporation or other entity duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, has all
corporate powers and all governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted,
except, in each of clauses (i) and (ii), for those licenses, authorizations,
permits, consents and approvals the absence of which would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company. Company Bank is an "insured bank" as defined in Section 3(h) of the
FDIA that is a member of the Federal Reserve System. Each Subsidiary of the
Company is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where failure to be so qualified would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company. All Subsidiaries of the Company and their respective jurisdictions
of incorporation are identified in Section 5.06(a) of the Company Disclosure
Schedule.
(b) Except as set forth in Section 5.06(b) of the Company Disclosure
Schedule, all of the outstanding capital stock of, or other voting securities or
ownership interests in, each Subsidiary of the Company, is owned by the Company,
directly or indirectly, free and clear of any Lien and free of any other
limitation or restriction (including any restriction on the right to vote, sell
or otherwise dispose of such capital stock or other voting securities or
ownership interests). There are no outstanding (i) securities of the Company or
any of its Subsidiaries convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any Subsidiary of the
Company or (ii) options or other rights to acquire from the Company or any of
its Subsidiaries, or other obligation of the Company or any of its Subsidiaries
to issue, any capital stock or other voting securities or ownership interests
in, or any securities convertible into or exchangeable for any capital stock or
other voting securities or ownership interests in, any Subsidiary of the Company
(the items in clauses (i) and (ii) being referred to collectively as the
"COMPANY SUBSIDIARY SECURITIES"). There are no outstanding obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any of the Company Subsidiary Securities.
20
(c) Other than Company Bank, the Company does not own or control any
shares of any class of capital stock of any "depository institution" as defined
in Section 3 of the FDIA.
Section 5.07. Regulatory Filings and the Xxxxxxxx-Xxxxx Act. (a) The
Company has made available to Parent (i) the Company's annual reports on Form
10-K for its fiscal years ended December 31, 2003, 2004 and 2005, (ii) its proxy
or information statements relating to meetings of, or actions taken without a
meeting by, the shareholders of the Company held since December 31, 2004 and
(iii) all of its other reports, statements, schedules and registration
statements filed with the SEC since December 31, 2004 (the documents referred to
in this Section 5.07(a), collectively, the "COMPANY REGULATORY DOCUMENTS").
(b) As of its filing date, each Company Regulatory Document complied,
and each such Company Regulatory Document filed subsequent to the date hereof
will comply, as to form in all material respects with the applicable
requirements of the 1933 Act, the 1934 Act and all other statutes, rules and
regulations adopted, enforced or promulgated by the SEC or applicable regulatory
body, as the case may be.
(c) As of its filing date (or, if amended or superseded by a filing
prior to the date hereof, on the date of such filing), each Company Regulatory
Document filed pursuant to the 1934 Act did not, and each such Company
Regulatory Document filed subsequent to the date hereof will not, 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
under which they were made, not misleading.
(d) Each Company Regulatory Document that is a registration statement,
as amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of
the date such registration statement or amendment became effective, did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
21
(e) The Company has established and maintains disclosure controls and
procedures (as defined in Rule 13a-15 under the Exchange Act). Such disclosure
controls and procedures are designed to ensure that material information
relating to the Company, including its consolidated Subsidiaries, is made known
to the Company's principal executive officer and its principal financial officer
by others within those entities, particularly during the periods in which the
periodic reports required under the 1934 Act are being prepared. Such disclosure
controls and procedures are effective in timely alerting the Company's principal
executive officer and principal financial officer to material information
required to be included in the Company's periodic reports required under the
1934 Act.
(f) The Company is not deemed an accelerated filer as defined in Rule
12b-2 of the 1934 Act.
(g) Except as set forth in Section 5.07(g) of the Company Disclosure
Schedule, there are no outstanding loans or other extensions of credit made by
the Company or any of its Subsidiaries to any Officer or director or Insider of
the Company or Insider of any Regulation O Affiliate. The Company has not since
the enactment of the Xxxxxxxx-Xxxxx Act, taken any action prohibited by Section
402 of the Xxxxxxxx-Xxxxx Act. All outstanding extensions of credit, if any,
were at the time they were made and continue to be permitted and in compliance
with the provisions of Regulation O, 12 C.F.R. Part 215.
(h) Since January 1, 2001, the Company and the Company Bank have timely
filed all required annual and quarterly statements and other documents
(including exhibits and all other information incorporated therein) required to
be filed with EDS, the banking agencies' electronic collection agent
(collectively, the "COMPANY RAP STATEMENTS"). The Company RAP Statements,
including the method for determining the Company's and the Company Bank's
provision for loan and lease losses, are and have been prepared in conformity
with regulatory accounting practices, applicable law and supervisory policy,
consistently applied, for the periods covered thereby and (as may have been
amended and restated or supplemented by Company RAP Statements filed
subsequently but prior to the date hereof) fairly present in all material
respects the statutory financial position of the Company and the Company Bank,
as at the respective dates thereof and the results of operations of the Company
and the Company Bank for the respective periods then ended. The Company RAP
Statements comply in all material respects with any requirement of law when
filed and no material deficiency has been asserted with respect to any Company
RAP Statements by the Board or any other governmental authority. The annual
statutory balance sheets and income statements included in the Company RAP
Statements have been audited, and the Company and the Company Bank have made
available to Parent true and complete copies of all audit opinions related
thereto. Neither the Company's nor the Company Bank's independent public
accountants nor any employee of the Company or the Company Bank has alleged that
any of the Company RAP Statements contains any misstatement or other defect
which, if true, would cause the representations and warranties contained in this
Section 5.07(h) to be untrue.
22
Section 5.08. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Company Regulatory Documents fairly present, in all
material respects, in conformity with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods then ended
(subject to normal year-end adjustments in the case of any unaudited interim
financial statements).
Section 5.09. Disclosure Documents. (a) The proxy or information
statement of the Company to be filed as part of the Registration Statement with
the SEC in connection with the Merger (the "COMPANY PROXY STATEMENT") and any
amendments or supplements thereto will, when filed, comply as to form in all
material respects with the applicable requirements of the 1934 Act. At the time
the Company Proxy Statement or any amendment or supplement thereto is first
mailed to shareholders of the Company, and at the time such shareholders vote on
adoption of this Agreement and at the Effective Time, the Company Proxy
Statement, as supplemented or amended, if applicable, will not 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
under which they were made, not misleading. The representations and warranties
contained in this Section 5.09(a) will not apply to statements or omissions
included in the Company Proxy Statement based upon information furnished to the
Company in writing by Parent specifically for use therein.
(b) None of the information provided by the Company for inclusion in
the Registration Statement (as defined in Section 6.09(b)) or any amendment or
supplement thereto, at the time the Registration Statement or any amendment or
supplement becomes effective and at the Effective Time, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
Section 5.10. Absence of Certain Changes. Since the Company Balance
Sheet Date, the business of the Company and its Subsidiaries has been conducted
in the ordinary course consistent with past practices and, except as disclosed
in the Company Disclosure Schedule there has not been:
(a) any event, occurrence, development or state of circumstances or
facts that has had or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any of its Subsidiaries;
23
(c) any amendment of any material term of any outstanding security of
the Company or any of its Subsidiaries;
(d) any incurrence, assumption or guarantee by the Company or any of
its Subsidiaries of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with past
practices;
(e) any creation or other incurrence by the Company or any of its
Subsidiaries of any Lien on any material asset other than in the ordinary course
of business consistent with past practices;
(f) any making of any material loan, advance or capital contributions
to or investment in any Person other than (x) loans in the ordinary course of
the Company Bank's lending business consistent with past practices and (y)
loans, advances or capital contributions to or investments in its wholly-owned
Subsidiaries in the ordinary course of business consistent with past practices;
(g) any material damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of the Company or any
of its Subsidiaries;
(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any of its Subsidiaries relating to its assets
or business (including the acquisition or disposition of any assets) or any
relinquishment by the Company or any of its Subsidiaries of any contract or
other right, in either case, material to the Company and its Subsidiaries, taken
as a whole, other than transactions and commitments in the ordinary course of
business consistent with past practices and those contemplated by this
Agreement;
(i) any change in any material method of accounting or accounting
principles or practice by the Company or any of its Subsidiaries, except for any
such change required by reason of a concurrent change in GAAP or Regulation S-X
under the 1934 Act;
(j) any (i) grant of any severance or termination pay to (or amendment
to any existing arrangement with) any director, officer or employee of the
Company or any of its Subsidiaries, (ii) increase in benefits payable under any
existing severance or termination pay policies or employment agreements, (iii)
entering into any employment, deferred compensation or other similar agreement
(or any amendment to any such existing agreement) with any director, officer or
employee of the Company or any of its Subsidiaries, (iv) establishment, adoption
or amendment (except as required by applicable law) of any collective
bargaining, bonus, profit-sharing, thrift, pension, retirement, deferred
compensation, compensation, stock option, restricted stock or other benefit plan
or arrangement covering any director, officer or employee of the Company or any
of its Subsidiaries or (v) increase in compensation, bonus or other benefits
payable to any director, officer or employee of the Company or any of its
Subsidiaries, other than, in the case of clause (v), increases granted to
employees (other than officers) in the ordinary course of business consistent
with past practice;
24
(k) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of the Company or any of its Subsidiaries, which employees were
not subject to a collective bargaining agreement at the Company Balance Sheet
Date, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by
or with respect to such employees; or
(l) any material Tax election made (other than elections consistent
with the Company's and its Subsidiaries' past practice) or changed, any annual
tax accounting period changed, any material method of tax accounting adopted or
changed, any material amended Tax Returns or claims for material Tax refunds
filed, any material closing agreement entered into, any material Tax claim,
audit or assessment settled, or any right to claim a material Tax refund, offset
or other reduction in Tax liability surrendered.
Section 5.11. No Undisclosed Material Liabilities. Except as set forth
in Section 5.11 of the Company Disclosure Schedule, there are no liabilities or
obligations of the Company or any of its Subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances that could
reasonably be expected to result in such a liability or obligation, other than:
(a) liabilities or obligations disclosed and provided for in the
Company Balance Sheet or in the notes thereto or in the Company Regulatory
Documents filed prior to the date hereof, and
(b) liabilities or obligations incurred in the ordinary course of
business consistent with past practices that would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company.
Section 5.12. Compliance with Laws and Court Orders. Except as set
forth in Section 5.12 of the Company Disclosure Schedule, the Company and each
of its Subsidiaries is and, since January 1, 2004, has been in compliance with,
and to the knowledge of the Company is not under investigation with respect to
and has not been threatened to be charged with or given notice of any violation
of, any applicable law (including the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act,
all other applicable fair lending laws and other laws relating to discriminatory
business practices, the applicable provisions of the Xxxxxxxx-Xxxxx Act (which
provisions do not include Section 404), the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorist (USA
PATRIOT) Act of 2001 and the Bank Secrecy Act), except for failures to comply or
violations that have not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
25
Section 5.13. Litigation. Except as set forth in the Company Regulatory
Documents filed prior to the date hereof and except as set forth in Section 5.13
of the Company Disclosure Schedule, there is no action, suit, investigation or
proceeding (or any basis therefor) pending against, or, to the knowledge of the
Company, threatened against or affecting, the Company, any of its Subsidiaries,
any present or former officer, director or employee of the Company or any of its
Subsidiaries or any Person for whom the Company or any Subsidiary may be liable
or any of their respective properties before any court or arbitrator or before
or by any governmental body, agency or official, domestic, foreign or
supranational, that (i) in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the Merger or the Bank Merger or any of the other
transactions contemplated hereby or by the Bank Merger Agreement or (ii) if
determined or resolved adversely in accordance with the plaintiff's demands,
would (A) involve damages in excess of $1,000,000, (B) could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company or (iv) as of the date hereof, involve the imposition of permanent
injunctive relief.
Section 5.14. Material Contracts.
(a) Except for those agreements and other documents listed as exhibits
to the Company Regulatory Documents, neither the Company nor any of its
Subsidiaries is a party to, bound by or subject to any agreement, contract,
arrangement, commitment or understanding (whether written or oral) (i) that is a
"material contract" within the meaning of Item 601(b)(10) of the SEC's
Regulation S-K or (ii) that restricts the conduct of business or any line of
business by the Company or any of its Subsidiaries (or, after the consummation
of the Merger, Parent or any of its Subsidiaries). Neither the Company nor any
of its Subsidiaries is in breach of or default under any material contract,
agreement, commitment, understanding, arrangement, lease, insurance policy or
other instrument to which the Company or such Subsidiary is a party, by which
the Company's or such Subsidiary's respective assets, business, or operations
may be bound or affected, or under which the Company's or such Subsidiary's
respective assets, business, or operations receives benefits (collectively
"MATERIAL CONTRACTS"), and there has not occurred any event that, with the lapse
of time or the giving of notice or both, would constitute such a breach or
default, except for such breaches and defaults as have not had and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. No other party to any of the Company's or its
Subsidiaries' Material Contracts is, to the Company's knowledge, in default in
respect of any such Material Contract, the effect of which would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
26
(b) Each of the Company's and its Subsidiaries' Material Contracts is
valid and binding and in full force and effect and, to the Company's knowledge,
enforceable against the other party or parties thereto in accordance with its
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors' rights or by general
equity principles). Section 5.14(b) of the Company Disclosure Schedule contains
a true, correct and complete list of all the Company's and its Subsidiaries'
Material Contracts. The Company has previously made available to Parent true and
correct copies of each Material Contract set forth in Section 5.14(b) of the
Company Disclosure Schedule.
Section 5.15. Finders' Fees. Except for Xxxxx & Xxxxxxxxxxxx, Inc., a
copy of whose engagement agreement has been provided to Parent, there is no
investment banker, broker, finder or other intermediary that has been retained
by or is authorized to act on behalf of the Company or any of its Subsidiaries
who might be entitled to any fee or commission from the Company or any of its
Affiliates in connection with the transactions contemplated by this Agreement.
Section 5.16. Opinion of Financial Advisor. The Company has received
the opinion of Xxxxx & Xxxxxxxxxxxx, Inc., financial advisor to the Company, to
the effect that, as of the date of this Agreement, the Merger Consideration is
fair to the Company's shareholders from a financial point of view.
Section 5.17. Taxes.
(a) All income tax and other material Tax Returns required by
applicable law to be filed with any Taxing Authority by, or on behalf of, the
Company or any of its Subsidiaries have been filed when due (taking into account
valid extensions) under all applicable laws, and all such Tax Returns are, or
shall be at the time of filing, true and complete in all material respects.
(b) The Company and each of its Subsidiaries has paid (or has had paid
on its behalf) or has withheld and remitted to the appropriate Taxing Authority
all material Taxes due and payable, or, where payment is not yet due, has
established (or has had established on its behalf and for its sole benefit and
recourse) in accordance with GAAP an adequate accrual for all Taxes through the
end of the last period for which the Company and its Subsidiaries ordinarily
record items on their respective books.
(c) The income and franchise Tax Returns of the Company and its
Subsidiaries through the Tax year ended December 31, 2000 have been examined and
closed or are Tax Returns with respect to which the applicable period for
assessment under applicable law, after giving effect to extensions or waivers,
has expired.
27
(d) There is no claim, audit, action, suit, proceeding or investigation
now pending or, to the Company's knowledge, threatened against or with respect
to the Company or its Subsidiaries in respect of any Tax or Tax Return.
(e) During the five-year period ending on the date hereof, neither the
Company nor any of its Subsidiaries was a distributing corporation or a
controlled corporation in a transaction intended to be governed by Section 355
of the Code.
(f) Except as set forth in Section 5.17(f) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries owns an interest in
real property in any jurisdiction in which a Tax is imposed, or the value of the
interest is reassessed, on the transfer of an interest in real property and
which treats the transfer of an interest in an entity that owns an interest in
real property as a transfer of the interest in real property.
(g) Section 5.17(g) of the Company Disclosure Schedule contains a list
of all jurisdictions (whether foreign or domestic) in which the Company or any
of its Subsidiaries currently files Tax Returns.
(h) "TAX" means (i) any tax, governmental fee or other like assessment
or charge of any kind whatsoever (including withholding on amounts paid to or by
any Person), together with any interest, penalty, addition to tax or additional
amount imposed by any governmental authority (a "TAXING AUTHORITY") responsible
for the imposition of any such tax (domestic or foreign), and any liability for
any of the foregoing as transferee, (ii) in the case of the Company or any of
its Subsidiaries, liability for the payment of any amount of the type described
in clause (i) as a result of being or having been before the Effective Time a
member of an affiliated, consolidated, combined or unitary group, or a party to
any agreement or arrangement, as a result of which liability of the Company or
any of its Subsidiaries to a Taxing Authority is determined or taken into
account with reference to the activities of any other Person, and (iii)
liability of the Company or any of its Subsidiaries for the payment of any
amount as a result of being party to any Tax Sharing Agreement or with respect
to the payment of any amount imposed on any Person of the type described in (i)
or (ii) as a result of any existing express or implied agreement or arrangement
(including an indemnification agreement or arrangement). "TAX RETURN" means any
report, return, document, declaration or other information or filing required to
be supplied to any Taxing Authority with respect to Taxes, including information
returns, any documents with respect to or accompanying payments of estimated
Taxes, or with respect to or accompanying requests for the extension of time in
which to file any such report, return, document, declaration or other
information. "TAX SHARING AGREEMENTS" means all existing agreements or
arrangements (whether or not written) binding the Company or any of its
Subsidiaries that provide for the allocation, apportionment, sharing or
assignment of any Tax liability or benefit, or the transfer or assignment of
income, revenues, receipts, or gains for the purpose of determining any Person's
Tax liability (excluding any indemnification agreement or arrangement pertaining
to the sale or lease of assets or subsidiaries).
28
Section 5.18. Employees and Employee Benefit Plans.
(a) Except as set forth on Section 5.18(a) of the Company Disclosure
Schedule, the Company and any ERISA Affiliate do not sponsor or maintain and are
not required to contribute to and have not during the preceding five (5) years
sponsored, maintained or contributed to an "employee benefit plan" (as such term
is defined in Section 3(3) of ERISA) or any other employee benefit program or
arrangement, including, without limitation, any pension, profit sharing,
deferred compensation, retirement, bonus, stock option, stock appreciation
right, stock purchase or restricted stock plan, severance or "golden parachute"
arrangement, consulting agreement, incentive plan, or any other compensation,
perquisite, welfare or fringe benefit plan, program or arrangement providing for
benefits for, or for the welfare of, any or all of the current or former
employees, leased employees, officers or directors of the Company or any ERISA
Affiliate, or the beneficiaries of such persons (such plans, programs and
arrangements set forth in Section 5.18(a) of the Company Disclosure Schedule,
collectively, the "EMPLOYEE BENEFIT PLANS"). Except as disclosed in Section
5.18(a)(i) of the Company Disclosure Schedule:
(i) (A) Each Employee Benefit Plan and any related funding
arrangement is in compliance with all applicable requirements of ERISA,
the Code, and other applicable laws, and each Employee Benefit Plan has
been administered in accordance with its written terms to the extent
consistent with such requirements of law; (B) all benefits due and
payable under any Employee Benefit Plan have been paid or are in the
process of being paid in accordance with the terms of such Employee
Benefit Plan; (C) the Company and each ERISA Affiliate have timely made
(and at the Effective Time will have timely made) all contributions
and/or premiums required to be made to any Employee Benefit Plan; (D)
there are no claims (except for claims for benefits in the ordinary
course of plan administration), litigation, arbitration, government
investigation or audit or other legal proceeding pending or, to the
knowledge of the Company or any ERISA Affiliate, threatened against or
with respect to any Employee Benefit Plan and, to the knowledge of the
Company or any ERISA Affiliate, no facts exist which could give rise to
such claims, litigation, arbitration, investigation, audit or other
proceeding; (E) all reports, returns, forms, notifications or other
disclosure materials required to be filed with any governmental entity
or distributed to employees with respect to any Employee Benefit Plan
have been timely filed or distributed and are accurate and complete;
(F) to the knowledge of the Company, no nonexempt prohibited
transaction (as defined in Section 4975 of the Code or Section 406 of
ERISA) has occurred or will occur prior to the Effective Time with
respect to any Employee Benefit Plan subject to such rules, or with
respect to any parties in interest or fiduciaries with respect to any
Employee Benefit Plan in connection with a transaction involving an
Employee Benefit Plan; (G) to the knowledge of the Company, no excise
taxes or civil penalties are payable or will become payable prior to
the Effective Time with respect to any Employee Benefit Plan; (H)
neither the Company nor any ERISA Affiliate is subject to any legal
obligation to continue any Employee Benefit Plan either before or after
the Effective Time, nor would Parent or the Surviving Corporation be
subject to any such obligation; and (I) any Employee Benefit Plan may
(except as prohibited by applicable law), and without the consent of
any employee, beneficiary or other party, be amended in any respect or
terminated either before or after the Effective Time.
29
(ii) The Company has previously delivered or made available to
the Parent complete copies of each written Employee Benefit Plan; all
related summary plan descriptions and/or summaries furnished or made
available to employees, officers and directors of the Company or any
ERISA Affiliate with respect to programs for which a summary plan
description is not required; all related trust agreements or other
funding arrangements, including, but not limited to, insurance
policies; for the three (3) most recent plan years, all annual reports
(5500 series) for each Employee Benefit Plan that have been filed with
any governmental agency; all current registration statements or Form
S-8 (or any other applicable registration form); and all other material
documents relating to any Employee Benefit Plan as may reasonably be
requested by the Parent.
(iii) (A) Any Employee Benefit Plans which are intended to be
qualified under Section 401(a) of the Code (collectively, the
"QUALIFIED PLANS") are so qualified; (B) to the knowledge of the
Company and any ERISA Affiliate, nothing has occurred that could
reasonably be expected to adversely affect the tax-qualified status of
the Qualified Plans; (C) the Qualified Plans currently in effect have
been amended to comply with all current applicable legislation
(including any regulations issued thereunder), and have received a
favorable determination letter or are the subject of an opinion letter
from the Internal Revenue Service with respect to their tax-qualified
status which considers all such current applicable legislation, or are
still within a remedial amendment period as announced by the Internal
Revenue Service; (D) the Company has delivered to Parent complete
copies of the most recent determination and opinion letters previously
received and all correspondence relating to the applications for the
most recent determination letters with respect to the Qualified Plans
currently in effect; and (E) the Company has delivered to Parent
documentation relating to the correction of any Qualified Plan defects
under any governmental correction program or otherwise.
30
(iv) No Employee Benefit Plan is subject to Section 412 of the
Code or Section 302 or Title IV of ERISA, and no Employee Benefit Plan
is a multiple employer plan under Code Section 413(c) or a
"multiemployer plan" as defined in Section 3(37) of ERISA.
(v) The Company and each ERISA Affiliate do not have any
obligation, and have not made any representation, in connection with
any medical, death or other welfare benefits for their employees or
other service providers after they retire, except to the extent
required under the group health plan continuation requirements of
Sections 601 through 609 of ERISA, Section 4980B of the Code, or
applicable state law.
(vi) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (A)
result in any payment (including, without limitation, severance,
unemployment compensation and golden parachute payments) becoming due
to any current or former director or employee of the Company or any
ERISA Affiliate under any Employee Benefit Plan or otherwise; (B)
increase any benefits otherwise payable by the Company or any ERISA
Affiliate, (C) result in the acceleration of the time of payment or
vesting of any such benefits under any Employee Benefit Plan or
otherwise; (D) result in any payments or benefits that are not fully
deductible under Sections 162(a)(1), 162(m) and 280G of the Code, as
applicable; or (E) result in any violation of Section 409A of the Code.
(b) Except as set forth in Section 5.18(b) of the Company Disclosure
Schedule, there is no:
(i) collective bargaining agreement or any other agreement
with any labor organization, union, group or association ("LABOR
ORGANIZATION") applicable to the employees of the Company or any of its
Subsidiaries to which the Company or any of its Subsidiaries are a
party to or bound (a "CBA");
(ii) unfair labor practice complaint pending or, to the
Company's knowledge, threatened against the Company or its Subsidiaries
before the National Labor Relations Board or any other federal, state
local or foreign agency;
(iii) pending or, to the Company's knowledge, threatened or
affecting the Company or its Subsidiaries, strike, slowdown, work
stoppage, lockout or other collective labor action or dispute by or
with respect to any employees of the Company or any Subsidiary;
(iv) grievance or unfair dismissal proceeding arising out of
any CBA or other grievance procedure pending against the Company or its
Subsidiaries;
31
(v) claim, audit, litigation, government investigation,
administrative proceeding or arbitration against the Company or any
Subsidiary involving any matter related to employment including, but
not limited to, claims of discrimination, claims of unpaid wages,
claims of violations of the Family and Medical Leave Act, claims of
wrongful discharge, claims of unfair labor practices, workers'
compensation claims, and claims related to occupational safety and
health law;
(vi) pending arbitration proceeding arising out of or under
any CBA to which the Company or its Subsidiaries are bound or a party;
(vii) pending or, to the Company's knowledge, threatened
representation question or union or labor organizing activities with
respect to employees of the Company or any Subsidiary;
(viii) written personnel policy, rule or procedure applicable
to employees of the Company or any Subsidiary;
(ix) individual employment agreement in any form whatsoever
including, but not limited to, any agreement for a term of employment,
stock option agreement, stock purchase agreement, bonus agreement, or
covenant not to compete; or
(x) policy or agreement in any form whatsoever which alters
the at-will status of the employees of the Company or any Subsidiary.
(c) During the past three years, neither the Company nor any of its
Subsidiaries have effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of the Company or its Subsidiaries; or
(ii) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of the Company or its Subsidiaries; nor has the Company
or its Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state, local or foreign Law. The employees of the Company or its
Subsidiaries have not suffered an "employment loss" (as defined in the WARN Act)
since three months prior to the date of this Agreement.
(d) The Company and its Subsidiaries have at all times properly
classified each of their respective employees as employees and each of their
independent contractors as independent contractors, as applicable.
(e) The Company and its Subsidiaries have at all times properly
classified each of their respective employees as exempt or non-exempt for
purposes of the Fair Labor Standards Act.
32
(f) The Company and its Subsidiaries have at all times for each of
their respective employees properly withheld and paid all applicable taxes and
all other withholdings required by law.
(g) Attached as Section 5.18(g) of the Company Disclosure Schedule is a
listing of each employee of the Company and its Subsidiaries along with the
employee's 2005 annual salary, 2005 bonus, any other 2005 compensation, and
current accrued leave.
Section 5.19. Environmental Matters. Except as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company:
(a) No notice, notification, demand, request for information, citation,
summons or order has been received, no complaint has been filed, no penalty has
been assessed, and no investigation, action, claim, suit, proceeding or review
(or any basis therefor) is pending or, to the knowledge of the Company or any
Subsidiary, is threatened by any governmental entity or other Person, in each
case, with respect to any matters relating to the Company or any Subsidiary and
relating to or arising out of any Environmental Law.
(b) The Company and its Subsidiaries are and have been in compliance
with all applicable Environmental Laws and all Environmental Permits.
(c) There are no liabilities of or relating to the Company or any of
its Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise arising under or relating to any
Environmental Law and, to the knowledge of the Company, there are no facts,
conditions, situations or set of circumstances that could reasonably be expected
to result in or be the basis for any such liability.
(d) There has been no environmental investigation, study, audit, test,
review or other analysis conducted of which the Company or any Subsidiary has
knowledge in relation to the current or prior business of the Company or any of
its Subsidiaries or any property or facility now or previously owned, leased or
operated by the Company or any of its Subsidiaries that has not been delivered
to Parent at least five Business Days prior to the date hereof.
(e) Neither the Company nor any of its Subsidiaries owns, leases or
operates or has owned, leased or operated any real property, or conducts or has
conducted any operations, in New Jersey or Connecticut.
(f) For purposes of this Section 5.19, the terms "Company" and
"Subsidiaries" shall include any entity that is, in whole or in part, a
predecessor of the Company or any of its Subsidiaries and for which, by
contract, agreement or otherwise, the Company or any of its Subsidiaries is the
successor to any liabilities of such predecessor that might arise or have arisen
under Environmental Law.
33
Section 5.20. Tax Treatment. Neither the Company nor any of its
Affiliates has taken or agreed to take any action, or is aware of any fact or
circumstance, that would prevent the Merger from qualifying as a reorganization
within the meaning of Section 368 of the Code (a "368 REORGANIZATION").
Section 5.21. Derivative Instruments. Neither the Company nor any of
its Subsidiaries is party to any interest rate swaps, caps, floors, option
agreements, futures and forward contracts and other similar risk management
arrangements, whether entered into for the account of the Company, or for the
account of one or more of its Subsidiaries or their customers.
Section 5.22. Insurance. The Company and its Subsidiaries are insured
with reputable insurers against such risks and in such amounts as its management
reasonably has determined to be prudent in accordance with industry practices.
All of the insurance policies, binders, or bonds maintained by the Company or
its Subsidiaries are in full force and effect; the Company and its Subsidiaries
are not in default thereunder, except for such defaults as would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company.
Section 5.23. Capital; Management; CRA Rating. The Company Bank (i) is
"well-capitalized" as that term is defined at 12 C.F.R. ss. 225.2(r)(2)(i), (ii)
is "well-managed" as that term is defined at 12 C.F.R. ss. 225.2(s)(1) and (iii)
has at least a "satisfactory" rating under the U.S. Community Reinvestment Act
(the "CRA").
Section 5.24. Properties. Except as set forth in Section 5.24 of the
Company Disclosure Schedule and except as would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company, each of the Company and its Subsidiaries has good and marketable title
or a valid and enforceable leasehold, as applicable, free and clear of all
Liens, to all of the properties and assets, real and personal, tangible or
intangible, which are reflected on the Company Balance Sheet as of the Company
Balance Sheet Date or acquired after such date, except (i) Liens for taxes not
yet due and payable or contested in good faith by appropriate proceedings,
provided taxes are paid as and when required under applicable law
notwithstanding any such contest (ii) pledges to secure deposits incurred in the
ordinary course of business, (iii) such imperfections of title, easements and
encumbrances, if any, as do not materially impair the use of the respective
property as such property is used on the date hereof, and, with respect to all
fee-owned property, do not materially impair the fair market value of such
property, (iv) for dispositions of or encumbrances on such properties or assets
in the ordinary course of business, (v) mechanics', materialmen's, workmen's,
repairmen's, warehousemen's, carrier's and other similar Liens and encumbrances
arising in the ordinary course of business, (vi) Liens securing obligations that
are reflected in such consolidated balance sheet, and changes in such
obligations in the ordinary course of business since the Company Balance Sheet
Date or (vii) the lessor's interest in any such property that is leased. All
material leases pursuant to which the Company or any of its Subsidiaries, as
lessee, leases real or personal property are valid and enforceable in accordance
with their respective terms and are bona fide, arm's length leases, at rents
that constituted market rents as of the respective dates such leases were
entered into. Section 5.24 of the Company Disclosure Schedule sets forth a true,
correct and complete list of all real properties owned or leased by the Company
or any of its Subsidiaries. The Company has made available to Parent copies of
all documents creating or evidencing fee or leasehold interests of the Company
and its Subsidiaries, including all modifications or amendments thereto.
34
Section 5.25. Private Equity Portfolio. The Company has furnished or
made available to Parent true and complete information concerning its
investments, or investments made by entities managed by it, in private equity,
venture capital or similar types of investments. All such investments are owned
by the Company, directly or indirectly, free and clear of all Liens and there
have been no adverse events or developments with respect to any such investment
since the Company Balance Sheet Date, except as would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company.
Section 5.26. Affiliate Transactions. Except as set forth in Section
5.26 of the Company Disclosure Schedule, the Company Bank is not a party to any
agreement, arrangement or understanding (whether oral or written), directly or
indirectly (including, without limitation, any purchase, sale, lease,
investment, loan, service or management agreement or other transaction), with
any "affiliate," as such term is defined in Section 23A of the Federal Reserve
Act. All of the Company's agreements, arrangements or understandings with
"affiliates" comply with Sections 23A and 23B of the Federal Reserve Act.
Section 5.27. Antitakeover Statutes; Rights Plans; Appraisal Rights.
(a) The Company has taken all action necessary to exempt the Merger, the Bank
Merger and the Transaction Documents and the transactions contemplated hereby
and thereby from Sections 13.1 - 725.1, 13.1 - 726 and 13.1 - 728.2 of Virginia
Law, and, accordingly, neither such Sections nor any other antitakeover or
similar statute or regulation applies or purports to apply to any such
transactions. No other "control share acquisition," "fair price," "moratorium"
or other antitakeover laws enacted under U.S. state or federal laws apply to the
Merger, the Bank Merger or the Transaction Documents or any of the transactions
contemplated thereby.
(b) No shareholder rights plan is, or at the Effective Time will be,
applicable to the Merger, the Bank Merger or the Transaction Documents or any of
the transactions contemplated thereby.
35
Section 5.28. Regulatory Matters.
(a) Neither the Company nor any of its Subsidiaries is a party or
subject to any order, decree, written agreement, memorandum of understanding or
similar arrangement with, or a commitment letter, supervisory letter or similar
submission to, or extraordinary supervisory letter from, any Governmental
Entity, in each case that is material to the Company and its Subsidiaries.
(b) Neither the Company nor any of its Subsidiaries has been advised by
any Governmental Entity that such Governmental Entity is contemplating issuing
or requesting (or is considering the appropriateness of issuing or requesting)
any such order, decree, written agreement, memorandum of understanding,
commitment letter, supervisory letter or similar arrangement or submission, in
each case that is material to the Company and its Subsidiaries.
Section 5.29. Certain Loan Matters.
(a) Except as set forth in Section 5.29(a) of the Company Disclosure
Schedule, as of December 31, 2005, the Company Bank is not a party to any
written or oral: (i) loan agreement, note or borrowing arrangement, other than
credit card loans and other loans the unpaid balance of which does not exceed
$100,000 per loan, under the terms of which the obligor is sixty (60) days
delinquent in payment of principal or interest or in default of any other
material provisions as of the date hereof; (ii) loan agreement, note or
borrowing arrangement which has been classified or, in the exercise of
reasonable diligence by the Company Bank should have been classified as
"substandard," "doubtful," "loss," "other loans especially mentioned," "other
assets especially mentioned" or any comparable classifications by the Company
Bank in accordance with the Company Bank's policies and procedures.
(b) Section 5.29(b) of the Company Disclosure Schedule contains the
"watch list of loans" ("WATCH LIST") of the Company Bank as of December 31,
2005. To the knowledge of the Company and the Company Bank, there is no loan
agreement, note or borrowing arrangement which should be included on the Watch
List in accordance with the Company Bank's past practices, but which has not
been included on the Watch List.
(c) Except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company, the Company Bank has
kept complete and accurate books and records in connection with its loan
agreements, notes or borrowing arrangements, and there are no oral modifications
or amendments related to its loan agreements, notes or borrowing arrangements
that are not reflected in the Company Bank's records, no defenses as to the
enforcement of any loan agreement, note or borrowing arrangement have been
asserted, and there have been no acts or omissions which would give rise to any
claim or right of rescission, set-off, counterclaim or defense.
36
(d) Except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company, each loan agreement,
note or borrowing arrangement is (i) represented by evidences of indebtedness
which are true, genuine and what they purport to be, (ii) to the extent secured,
has been secured by valid liens and security interests which have been perfected
and (iii) is the legal, valid and binding obligations of the obligor named
therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
(e) The Company Bank has maintained the allowance for loan losses at a
level which it believes is adequate to absorb reasonably anticipated losses in
the loan, in accordance with GAAP and regulatory requirements.
(f) Except as set forth on Section 5.29(f) of the Company Disclosure
Schedule, as of December 31, 2005, neither the Company nor any of its
Subsidiaries other than the Company Bank is a party to any written or oral loan
or other extension of credit.
Section 5.30. Intellectual Property.
(a) Except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company, the Company and/or
each of its Subsidiaries owns, or is licensed or otherwise possesses legally
enforceable rights to use all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, technology, know-how, computer
software programs or applications, and proprietary information or materials that
are used in the business of the Company and its Subsidiaries as currently
conducted, and to the knowledge of the Company, all patents and registered
trademarks, trade names, service marks and copyrights owned by the Company
and/or its Subsidiaries are valid and subsisting.
(b) The Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder, in
violation of any material licenses, sublicenses and other agreements as to which
the Company is a party and pursuant to which the Company is authorized to use
any third-party patents, trademarks, service marks, and copyrights ("THIRD-PARTY
INTELLECTUAL PROPERTY RIGHTS").
(c) No claims with respect to (A) the patents, registered and material
unregistered trademarks and service marks, registered copyrights, trade names,
and any applications therefor owned by the Company or any its Subsidiaries (the
"COMPANY INTELLECTUAL PROPERTY RIGHTS"), (B) any material trade secret owned by
the Company or any of its Subsidiaries, or (C) to the knowledge of the Company,
Third-Party Intellectual Property Rights licensed to the Company or any of its
Subsidiaries, are currently pending or are threatened in writing by any Person.
37
(d) To the knowledge of the Company, there are no valid grounds for any
bona fide claims (A) to the effect that the sale or licensing of any product as
now sold or licensed by the Company or any of its Subsidiaries, infringes on any
copyright, patent, trademark, service xxxx or trade secret of any other Person,
(B) against the use by the Company or any of its Subsidiaries of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the business of the Company
or any of its Subsidiaries as currently conducted, (C) challenging the ownership
or validity of any Company Intellectual Property Rights or other material trade
secret owned by the Company, or (D) challenging the license or right to use any
Third-Party Intellectual Rights by the Company or any of its Subsidiaries.
(e) To the knowledge of the Company, there is no unauthorized use,
infringement or misappropriation of any of the Company Intellectual Property
Rights by any Person, including any employee or former employee of the Company
or any of its Subsidiaries.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the disclosure schedule delivered by Parent to
the Company on or prior to the date hereof (the "PARENT DISCLOSURE SCHEDULE"),
Parent represents and warrants to the Company that:
Section 6.01. Corporate Existence and Power. Parent is duly
incorporated as a corporation, validly existing and in good standing under the
laws of the State of Maryland and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not have,
individually or in the aggregate, a Material Adverse Effect on Parent. Parent is
duly registered as a bank holding company under the BHC Act. Parent is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where such qualification is necessary, except for those
jurisdictions where failure to be so qualified would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on Parent.
Parent has heretofore made available to the Company true and complete copies of
the certificate of incorporation and bylaws of Parent as currently in effect.
Section 6.02. Corporate Authorization. The execution, delivery and
performance by Parent of this Agreement and the consummation by Parent of the
transactions contemplated hereby are within the corporate powers of Parent and
have been duly and validly approved by the Board of Directors of Parent, and no
other corporate action on the part of Parent is necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
constitutes a valid and binding agreement of Parent.
38
(a) The execution, delivery and performance of the Bank Merger
Agreement and the consummation of the transactions contemplated thereby have
been duly and validly approved by the Board of Directors of Parent Bank. The
Board of Directors of Parent Bank have declared the transactions contemplated by
the Bank Merger Agreement to be advisable and have directed that the Bank Merger
Agreement and the transactions contemplated thereby be submitted to Parent as
Parent Bank's sole stockholder for approval and, except for the approval of the
Bank Merger Agreement by Parent as Parent Bank's sole stockholder, no other
corporate proceedings on the part of Parent Bank are necessary to approve the
Bank Merger Agreement and to consummate the transactions contemplated thereby.
The Bank Merger Agreement constitutes a valid and binding obligation of Parent
Bank.
Section 6.03. Governmental Authorization. The execution, delivery and
performance by Parent of this Agreement, by the Parent Bank of the Bank Merger
Agreement, the consummation by Parent of the transactions contemplated hereby
and the consummation by the Parent Bank of the transactions contemplated by the
Bank Merger Agreement, require no action by or in respect of, or filing with any
Governmental Entity or any third party other than (i) (A) the filing of articles
of merger with respect to the Merger with the State Corporation Commission of
Virginia and MSDAT, (B) the issuance by the State Corporation Commission of
Virginia of a Certificate of Merger, (C) the filing of an application to acquire
the Company with, and the approval of such application by, the State Corporation
Commission of Virginia, (D) the filing with and approval of the Bank Merger
Agreement, and the issuance of a Certificate of Merger, by the Commissioner of
Financial Regulation of Maryland, and the filing of the Bank Merger Agreement
and such Certificate of Merger with the MSDAT, (E) the filing with the State
Corporation Commission of Virginia of a copy of the filing with the FDIC under
the Bank Merger Act with respect to the Bank Merger, and the approval of the
Bank Merger by the State Corporation Commission of Virginia, (F) application to,
and the approval of, the Commissioner of Financial Regulation of Maryland for
the affiliation of the Subsidiary(ies) of the Company (other than Company Bank)
and the Subsidiary(ies) of Company Bank with the Subsidiaries of Parent that are
Maryland state banks and (G) the filing of appropriate documents with the
relevant authorities of other states in which Parent is qualified to do
business, (ii) compliance with any applicable requirements of the HSR Act, (iii)
compliance with any applicable requirements of the 1933 Act, the 1934 Act, and
any other applicable state or federal securities laws, (iv) the notices required
by, the filing with and approval of the Board under Section 3 of the BHC Act,
with respect to the Merger, (v) the notices required by, the filing with and
approval of the FDIC under the Bank Merger Act, with respect to the Bank Merger,
and (vi) any other filings and approvals required by the banking authorities of
the State of Maryland or the Commonwealth of Virginia or any other state or the
District of Columbia with respect to the Merger or the Bank Merger (the filings
and approvals set forth in clauses (i) through (vi), the "PARENT REQUIRED
FILINGS AND APPROVALS" and together with the Company Required Filings and
Approvals, the "REQUIRED FILINGS AND APPROVALS"), and any other actions or
filings the absence of which would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
39
Section 6.04. Non-contravention. (a) The execution, delivery and
performance by Parent of this Agreement and the consummation by Parent of the
transactions contemplated hereby and the execution, delivery and performance by
the Parent Bank of the Bank Merger Agreement and the consummation of the
transactions contemplated thereby, do not and will not (i) contravene, conflict
with, or result in any violation or breach of any provision of the certificate
of incorporation or bylaws of Parent or Parent Bank, (ii) assuming compliance
with the matters referred to in Section 6.03, contravene, conflict with or
result in a violation or breach of any provision of any law, (iii) assuming
compliance with the matters referred to in Section 6.03 require any consent or
other action by any Person under, constitute a default, or an event that, with
or without notice or lapse of time or both, could become a default, under, or
cause or permit the termination, cancellation, acceleration or other change of
any right or obligation or the loss of any benefit to which Parent or any of its
Subsidiaries is entitled under any provision of any agreement or other
instrument binding upon Parent or any of its Subsidiaries or any license,
franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the assets or business of the Parent and
its Subsidiaries or (iv) result in the creation or imposition of any Lien on any
asset of the Parent or any of its Subsidiaries, except for such contraventions,
conflicts and violations referred to in clause (ii) and for such failures to
obtain any such consent or other action, defaults, terminations, cancellations,
accelerations, changes, losses or Liens referred to in clauses (iii) and (iv)
that would not be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect on Parent.
(b) As of the date hereof, Parent knows of no reason why the opinion of
Parent tax counsel referred to in Section 10.02(d) should not be obtained on a
timely basis.
Section 6.05. Capitalization. (a) The authorized capital stock of
Parent consists of (i) 130,000,000 authorized shares of Parent Stock par value
$2.00 per share and (ii) 2,000,000 authorized shares of Parent Preferred Stock
without par value. As of March 21, 2006, there were outstanding 123,305,002
shares of Parent Stock and zero shares of Parent Preferred Stock and employee
stock options to purchase an aggregate of 2,606,716 shares of Parent Stock (of
which options to purchase an aggregate of 1,908,521 shares of Parent Stock were
exercisable). Parent has also issued rights pursuant to the Stockholder
Protection Rights Agreement, dated as of June 8, 1999 between Parent and
Mercantile-Safe Deposit and Trust Company as Rights Agent ("PARENT RIGHTS
AGREEMENT"). The shares of Parent Stock issued in connection with the Merger or
upon the exercise of Company Options converted into options to acquire shares of
Parent Stock shall be issued with attached rights in accordance with the Parent
Rights Agreement. All outstanding shares of capital stock of Parent have been
duly authorized and validly issued and are fully paid and nonassessable.
40
(b) As of the date of this Agreement, except as set forth in this
Section 6.05 and for changes since March 21, 2006 resulting from the exercise of
stock options or the grant of stock based compensation to directors or
employees, there are no outstanding (i) shares of capital stock or voting
securities of Parent, (ii) securities of Parent convertible into or exchangeable
for shares of capital stock or voting securities of Parent or (iii) options or
other rights to acquire from Parent or other obligation of Parent to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Parent. As of the date of this
Agreement, there are no outstanding obligations of Parent or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any of the securities
referred to in clause (i), (ii) or (iii) above.
(c) The shares of Parent Stock to be issued as part of the Merger
Consideration have been duly authorized and, when issued and delivered in
accordance with the terms of this Agreement, will have been validly issued and
will be fully paid and nonassessable and the issuance thereof is not subject to
any preemptive or other similar right.
Section 6.06. Subsidiaries. (a) Each Subsidiary of Parent is an entity
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all corporate or other powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals the absence of which would not
have, individually or in the aggregate, a Material Adverse Effect on Parent.
Each Subsidiary of Parent is duly qualified to do business as a foreign entity
and is in good standing in each jurisdiction where such qualification is
necessary, except for those jurisdictions where failure to be so qualified would
not have, individually or in the aggregate, a Material Adverse Effect on Parent.
All material Subsidiaries of Parent and their respective jurisdictions of
incorporation are identified in the Parent 10-K.
(b) Except as set forth on Section 6.06(b) of the Parent Disclosure
Schedule, all of the outstanding capital stock of, or other voting securities or
ownership interests in, each Subsidiary of Parent, is owned by Parent, directly
or indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other voting securities or ownership
interests). There are no outstanding (i) securities of Parent or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any of its Subsidiaries or
(ii) options or other rights to acquire from Parent or any of its Subsidiaries,
or other obligation of Parent or any of its Subsidiaries to issue, any capital
stock or other voting securities or ownership interests in, or any securities
convertible into or exchangeable for any capital stock or other voting
securities or ownership interests in, any Subsidiary of Parent. There are no
outstanding obligations of Parent or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any of the securities referred to in clauses (i) or
(ii) above.
41
Section 6.07. SEC Filings and the Xxxxxxxx-Xxxxx Act. Parent has made
available to the Company (i) its annual reports on Form 10-K for its fiscal
years ended December 31, 2003, 2004 and 2005, (ii) its proxy or information
statements relating to meetings of or actions taken without a meeting by
Parent's stockholders held since December 31, 2005, and (iii) all of its other
reports, statements, schedules and registration statements filed with the SEC
since December 31, 2005 (the documents referred to in this Section 6.07(a),
collectively, the "PARENT SEC DOCUMENTS").
(b) As of its filing date, each Parent SEC Document complied, and each
such Parent SEC Document filed subsequent to the date hereof will comply, as to
form in all material respects with the applicable requirements of the 1933 Act
and 1934 Act, as the case may be.
(c) As of its filing date, each Parent SEC Document filed pursuant to
the 1934 Act did not, and each such Parent SEC Document filed subsequent to the
date hereof will not, 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 under which they were made, not misleading.
(d) Each Parent SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of
the date such registration statement or amendment became effective, did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(e) Parent has established and maintains disclosure controls and
procedures (as defined in Rule 13a-15 under the 1934 Act). Such disclosure
controls and procedures are designed to ensure that material information
relating to Parent, including its consolidated Subsidiaries, is made known to
Parent's principal executive officer and its principal financial officer by
others within those entities, particularly during the periods in which the
periodic reports required under the 1934 Act are being prepared. Such disclosure
controls and procedures are effective in timely alerting Parent's principal
executive officer and principal financial officer to material information
required to be included in Parent's periodic reports required under the 1934
Act.
42
(f) Parent and its Subsidiaries have established and maintained a
system of internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the 1934 Act). Such internal controls are
sufficient to provide reasonable assurance regarding the reliability of Parent's
financial reporting and the preparation of Parent financial statements for
external purposes in accordance with GAAP. Parent has disclosed, based on its
most recent evaluation of internal controls prior to the date hereof, to
Parent's auditors and audit committee (x) all significant deficiencies and
material weaknesses in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely affect Parent's
ability to record, process, summarize and report financial information and (y)
any fraud, whether or not material, that involves management or other employees
who have a significant role in internal controls. Parent has made available to
the Company a summary of any such disclosure made by management to the Company's
auditors and audit committee since January 1, 2005.
(g) Parent has not since the enactment of the Xxxxxxxx-Xxxxx Act, taken
any action prohibited by Section 402 of the Xxxxxxxx-Xxxxx Act. All outstanding
extensions of credit, if any, were at the time they were made and continue to be
permitted and in compliance with the provisions of Regulation O, 12 C.F.R. Part
215.
(h) Since January 1, 2003, Parent and each of the Parent Banking
Subsidiaries has timely filed all required annual and quarterly statements and
other documents (including exhibits and all other information incorporated
therein) required to be filed with EDS, the banking agencies' electronic
collection agent (collectively, the "PARENT RAP STATEMENTS"). The Parent RAP
Statements, including the method for determining Parent's and the Parent Banking
Subsidiaries' provision for loan and lease losses, are and have been prepared in
conformity with regulatory accounting practices, applicable law and supervisory
policy, consistently applied, for the periods covered thereby and (as may have
been amended and restated or supplemented by Parent RAP Statements filed
subsequently but prior to the date hereof) fairly present in all material
respects the statutory financial position of Parent and the Parent Banking
Subsidiaries, as at the respective dates thereof and the results of operations
of Parent and the Parent Banking Subsidiaries for the respective periods then
ended. The Parent RAP Statements comply in all material respects with any
requirement of law when filed and no material deficiency has been asserted with
respect to any Parent RAP Statements by the FDIC or any other governmental
authority. The annual statutory balance sheets and income statements included in
the Parent RAP Statements have been audited, and the Parent has made available
to the Company true and complete copies of all audit opinions related thereto.
Neither Parent's or the Parent Banking Subsidiaries' independent public
accountants nor any employee of the Parent or the Parent Banking Subsidiaries'
has alleged that any of the Parent RAP Statements contains any misstatement or
other defect which, if true, would cause the representations and warranties
contained in this Section 6.07(h) to be untrue.
43
Section 6.08. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Parent
included in the Parent SEC Documents fairly present, in all material respects,
in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of Parent
and its consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject to
normal year-end adjustments in the case of any unaudited interim financial
statements).
Section 6.09. Disclosure Documents. (a) None of the information
provided by Parent for inclusion in the Company Proxy Statement or any amendment
or supplement thereto, at the time the Company Proxy Statement or any amendment
or supplement thereto is first mailed to shareholders of the Company and at the
time the shareholders vote on adoption of this Agreement and at the Effective
Time, will 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 under which they were made, not misleading.
(b) The Registration Statement of Parent to be filed with the SEC with
respect to the offering of Parent Stock in connection with the Merger (the
"REGISTRATION STATEMENT") and any amendments or supplements thereto, when filed,
will comply as to form in all material respects with the requirements of the
1933 Act. At the time the Registration Statement or any amendment or supplement
thereto becomes effective and at the Effective Time, the Registration Statement,
as amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The
representations and warranties contained in this Section 6.09 will not apply to
statements or omissions in the Registration Statement or any amendment or
supplement thereto based upon information furnished to Parent by the Company
specifically for use therein.
Section 6.10. Absence of Certain Changes. Since the Parent Balance
Sheet Date, the business of Parent and its Subsidiaries has been conducted in
the ordinary course consistent with past practice and, except as disclosed to
the Company and as disclosed in the Parent SEC Documents filed prior to the date
hereof, there has not been:
(a) any event, occurrence, development or state of circumstances or
facts that has had or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on Parent;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Parent other than
Parent's normal quarterly dividend, as such dividend may be increased in the
ordinary course, or any repurchase, redemption or other acquisition by Parent or
any of its Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, Parent or any of its
Subsidiaries; and
44
(c) any change in any material method of accounting or accounting
practice by Parent or any of its Subsidiaries, except for any such change
required by reason of a concurrent change in GAAP or Regulation S-X under the
1934 Act.
Section 6.11. No Undisclosed Material Liabilities. There are no
liabilities or obligations of Parent or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
that could reasonably be expected to result in such a liability, other than:
(a) liabilities or obligations disclosed and provided for in the Parent
Balance Sheet or in the notes thereto or in the Parent SEC Documents filed prior
to the date hereof; and
(b) liabilities or obligations incurred in the ordinary course of
business consistent with past practices that would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Parent.
Section 6.12. Compliance with Laws and Court Orders. Parent and each of
its Subsidiaries is and, since January 1, 2004, has been in compliance with, and
to the knowledge of Parent is not under investigation with respect to and has
not been threatened to be charged with or given notice of any violation of, any
applicable law (including the Equal Credit Opportunity Act, the Fair Housing
Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, all other
applicable fair lending laws and other laws relating to discriminatory business
practices, the Xxxxxxxx-Xxxxx Act (including Section 404 thereof), the Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorist (USA PATRIOT) Act of 2001 and the Bank Secrecy Act),
except for violations that have not had and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Parent.
Section 6.13. Litigation. Except as set forth in the Parent SEC
Documents prior to the date hereof, there is no action, suit, investigation or
proceeding (or any basis therefor) pending against, or, to the knowledge of
Parent, threatened against or affecting, Parent, any of its Subsidiaries, any
present or former officer, director or employee of Parent or any of its
Subsidiaries or any other Person for whom Parent or any Subsidiary may be liable
or any of their respective properties before any court or arbitrator or any
governmental body, agency or official, domestic, foreign or supranational, that,
if determined or resolved adversely in accordance with the plaintiff's demands,
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent.
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Section 6.14. Finders' Fees. Except for Sandler X'Xxxxx & Partners,
L.P., whose fees will be paid by Parent, there is no investment banker, broker,
finder or other intermediary that has been retained by or is authorized to act
on behalf of Parent who might be entitled to any fee or commission from the
Company or any of its Affiliates upon consummation of the transactions
contemplated by this Agreement.
Section 6.15. Tax Treatment. Neither Parent nor any of its Affiliates
has taken or agreed to take any action, or is aware of any fact or circumstance,
that would prevent the Merger from qualifying as a 368 Reorganization.
Section 6.16. Regulatory Matters.
(a) Neither Parent nor any of the Parent Banking Subsidiaries is a
party or subject to any order, decree, written agreement, memorandum of
understanding or similar arrangement with, or a commitment letter, supervisory
letter or similar submission to, or extraordinary supervisory letter from, any
Governmental Entity, in each case that is material to Parent.
(b) Neither Parent nor any of the Parent Banking Subsidiaries has been
advised by any Governmental Entity that such Governmental Entity is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, written agreement, memorandum of
understanding, commitment letter, supervisory letter or similar arrangement or
submission, in each case that is material to Parent.
Section 6.17. Financing. Parent has available on hand, or will have at
Closing, sufficient cash and cash equivalents to pay the aggregate cash portion
of the Merger Consideration pursuant to Article 3 of this Agreement. Parent has
reserved a sufficient number of shares of Parent Stock in order to fulfill its
obligations hereunder.
ARTICLE 7
COVENANTS OF THE COMPANY
The Company agrees that:
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Section 7.01. Conduct of the Company. From the date hereof until the
Effective Time, except as expressly contemplated or permitted by this Agreement
or with the prior written consent of Parent, the Company and its Subsidiaries
shall conduct their business in the ordinary course consistent with past
practice and shall use their reasonable best efforts to preserve intact their
business organizations and relationships with third parties and to keep
available the services of their present officers and employees. Without limiting
the generality of the foregoing, from the date hereof until the Effective Time:
(a) the Company shall not adopt or propose any change to its articles
of incorporation or bylaws;
(b) the Company shall not split, combine, subdivide, or reclassify its
outstanding Company Shares; (i) declare, set aside or pay any dividend of cash,
stock or property in respect of the Company Shares; or (ii) repurchase, redeem
or otherwise acquire any shares of its capital stock or any securities
convertible into or exchangeable or exercisable for any shares of its capital
stock or permit any of its Subsidiaries to do so, except in connection with the
surrender of Company Shares in payment of the exercise price of Company Options
outstanding on the date hereof;
(c) the Company shall not, and shall not permit any of its Subsidiaries
to, issue, sell, pledge or otherwise encumber any shares of its capital stock,
or any securities convertible into or exchangeable or exercisable for, shares of
its capital stock, except in connection with the issuance of Company Shares upon
the exercise of Company Options outstanding on the date hereof and in connection
with the sale of Company Shares pursuant to the Company KSOP;
(d) the Company shall not, and shall not permit any of its Subsidiaries
to, merge or consolidate with any other Person or acquire a material amount of
stock or assets of any other Person;
(e) the Company shall not, and shall not permit any of its Subsidiaries
to, sell, lease, license or otherwise dispose of any material subsidiary or any
material amount of assets, securities or property except (i) pursuant to
existing contracts or commitments made available to Parent prior to the date
hereof and (ii) in the ordinary course consistent with past practice;
(f) the Company shall not, and shall not permit any of its Subsidiaries
to, take any action that would make any representation and warranty of the
Company hereunder inaccurate in any material respect at, or as of any time prior
to, the Effective Time;
(g) the Company shall not (i) grant any severance or termination pay to
(or amend any such existing arrangement with) any director, officer or employee
of the Company, other than severance payments in accordance with Section 9.10(a)
hereof or retention payments in accordance with Section 9.10(d) hereof, (ii)
enter into any employment, deferred compensation or other similar agreement (or
any amendment to any such existing agreement) with any director, officer or
employee of the Company, (iii) increase any benefits payable under any severance
or termination pay policies or employment agreements, (iv) permit any director,
officer or employee who is not already a party to an agreement or a participant
in a plan providing benefits upon or following a change in control to become a
party to any such agreement or a participant in any such plan, or (v) amend the
terms of any employee or director stock options or other stock based awards, or
(vi) increase (or amend the terms of) any other employee benefit plan, program
or arrangement of any type for directors, officers or employees of the Company;
47
(h) the Company shall not, and shall not permit any of its Subsidiaries
to, enter into a new line of business;
(i) the Company shall not, and shall not permit any of its Subsidiaries
to, make any new loans or other extensions of credit to any borrower which would
exceed $5,000,000, individually or in the aggregate with respect to such
borrower, without providing reasonable prior notice thereof to Parent; provided,
that the Company may renew any existing loans or extensions of credit in excess
of such amounts if the terms of such renewals are no less favorable to the
Company than the existing terms of such loans or extensions of credit;
(j) the Company shall not, and shall not permit any of its Subsidiaries
to, offer to any third party the sale of any loan participation unless the
Company or such Subsidiary shall have first offered Parent the right to
participate in such sale and Parent shall not have accepted such participation
within 5 days of such offer;
(k) the Company shall not, and shall not permit any of its Subsidiaries
to, make any capital expenditures, other than those contained in the Company's
annual budget, in an amount in excess of $100,000; and
(l) the Company shall not, and shall not permit any of its Subsidiaries
to, agree or commit to do any of the foregoing.
Section 7.02. Shareholder Meeting; Proxy Material. The Company shall
cause a meeting of its shareholders (the "COMPANY SHAREHOLDER MEETING") to be
duly called and held as soon as reasonably practicable for the purpose of voting
on the approval and adoption of this Agreement and the Plan of Merger. Subject
to Section 7.03(b), the Board of Directors of the Company shall recommend
approval and adoption of this Agreement and the Plan of Merger by the Company's
shareholders. In connection with such meeting, the Company shall (i) promptly
prepare and file with the SEC, use reasonable best efforts to have cleared by
the SEC and thereafter mail to its shareholders as promptly as practicable the
Company Proxy Statement (which shall be filed as part of the Registration
Statement) and all other proxy materials for such meeting, (ii) use its
reasonable best efforts to obtain the necessary approvals by its shareholders of
this Agreement, the Plan of Merger and the transactions contemplated hereby,
subject to Section 7.03(b) and (iii) otherwise comply with all legal
requirements applicable to such meeting. Unless this Agreement has been
terminated in accordance with the terms of Article 11, this Agreement and the
Plan of Merger shall be submitted to the Company's shareholders at the Company
Shareholder Meeting whether or not the Board of Directors of the Company
determines at any time that this Agreement or the Merger is no longer advisable
and recommends that the shareholders of the Company reject it.
48
Section 7.03. No Solicitation; Other Offers. (a) Neither the Company
nor any of its Subsidiaries shall, nor shall the Company or any of its
Subsidiaries authorize or permit any of its or their officers, directors,
employees, investment bankers, attorneys, accountants, consultants or other
agents or advisors to, directly or indirectly, (i) solicit, initiate or take any
action to facilitate or encourage the submission of any Acquisition Proposal,
(ii) enter into or participate in any discussions or negotiations with, furnish
any information relating to the Company or any of its Subsidiaries or afford
access to the business, properties, assets, books or records of the Company or
any of its Subsidiaries to, otherwise cooperate in any way with, or knowingly
assist, participate in, facilitate or encourage any effort by any Third Party
that is seeking to make, or has made, an Acquisition Proposal, (iii) grant any
waiver or release under any standstill or similar agreement with respect to any
class of equity securities of the Company or any of its Subsidiaries or (iv)
enter into any agreement with respect to an Acquisition Proposal.
(b) Notwithstanding the foregoing, the Board of Directors of the
Company, directly or indirectly through advisors, agents or other
intermediaries, may (i) engage in negotiations or discussions with any Third
Party that, subject to the Company's compliance with Section 7.03(a), has made a
bona fide Acquisition Proposal that the Board of Directors of the Company
reasonably believes will lead to a Superior Proposal, (ii) furnish to such Third
Party nonpublic information relating to the Company or any of its Subsidiaries
pursuant to a confidentiality agreement (a copy of which shall be provided for
informational purposes only to Parent) with terms no less favorable to the
Company than those contained in the Confidentiality Agreement and/or (iii)
following receipt of such Acquisition Proposal, fail to make, withdraw, or
modify in a manner adverse to Parent its recommendation to its shareholders
referred to in Section 7.02 hereof; but in each case referred to in the
foregoing clauses (i) through (iii) only if the Board of Directors of the
Company determines in good faith by a majority vote, after consultation with
outside legal counsel to the Company, that taking such action is in the best
interests of the Company and its shareholders and that such action is necessary
to comply with its fiduciary duties under Virginia Law. Nothing contained herein
shall prevent the Board of Directors of the Company from complying with Rule
14e-2(a) under the 1934 Act with regard to an Acquisition Proposal.
49
(c) The Board of Directors of the Company shall not take any of the
actions referred to in clauses (i) through (iii) of the preceding subsection
unless the Company shall have delivered to Parent a prior written notice
advising Parent that it intends to take such action, and the Company shall
continue to advise Parent after taking such action. In addition, the Company
shall notify Parent promptly (but in no event later than 24 hours) after receipt
by the Company (or any of its advisors) of any Acquisition Proposal, any
indication that a Third Party is considering making an Acquisition Proposal or
of any request for information relating to the Company or any of its
Subsidiaries or for access to the business, properties, assets, books or records
of the Company or any of its Subsidiaries by any Third Party that may be
considering making, or has made, an Acquisition Proposal. The Company shall
provide such notice orally and in writing and shall identify the Third Party
making, and the terms and conditions of, any such Acquisition Proposal,
indication or request. The Company shall keep Parent fully informed, on a
current basis, of the status and details of any such Acquisition Proposal,
indication or request. The Company shall, and shall cause its Subsidiaries and
the advisors, employees and other agents of the Company and any of its
Subsidiaries to, cease immediately and cause to be terminated any and all
existing activities, discussions or negotiations, if any, with any Third Party
conducted prior to the date hereof with respect to any Acquisition Proposal and
shall use its reasonable best efforts to cause any such Party (or its agents or
advisors) in possession of confidential information about the Company that was
furnished by or on behalf of the Company to return or destroy all such
information.
"SUPERIOR PROPOSAL" means any bona fide, unsolicited written
Acquisition Proposal for at least a majority of the outstanding Company Shares
on terms that the Board of Directors of the Company determines in good faith by
a majority vote, after considering the advice of a financial advisor of
nationally recognized reputation and taking into account all the terms and
conditions of the Acquisition Proposal, including any break-up fees, expense
reimbursement provisions and conditions to consummation, are more favorable and
provide greater value to all the Company's shareholders than as provided
hereunder and for which financing, to the extent required, is then fully
committed or reasonably determined to be available by the Board of Directors of
the Company.
Section 7.04. Tax Matters. (a) Neither the Company nor any of its
Subsidiaries shall make (other than consistent with the Company's and its
Subsidiaries' past practice) or change any material Tax election, change any
annual tax accounting period, adopt or change any material method of tax
accounting, file any material amended Tax Returns or claims for material Tax
refunds, enter into any material closing agreement, surrender any material Tax
claim, audit or assessment, surrender any right to claim a material Tax refund,
offset or other reduction in Tax liability surrendered, consent to any extension
or waiver of the limitations period applicable to any Tax claim or assessment or
take or omit to take any other action, if any such action or omission would have
the effect of materially increasing the Tax liability or reducing any Tax asset
of the Company or any of its Subsidiaries.
50
(b) To the extent required by GAAP, the Company and each of its
Subsidiaries shall establish or cause to be established in accordance with GAAP
on or before the Effective Time an adequate accrual for all material Taxes of
the Company or its Subsidiaries due with respect to any period or portion
thereof ending prior to or as of the Effective Time.
(c) All transfer, documentary, sales, use, stamp, registration, value
added and other such Taxes and fees (including any penalties and interest)
incurred by the Company in connection with and due before the Merger (including
any real property transfer tax and any similar Tax) shall be paid by the Company
when due, and the Company shall, at its own expense, file all necessary Tax
returns and other documentation due before the Merger with respect to all such
Taxes and fees, and, if required by applicable law, the Company shall, and shall
cause its Affiliates to, join in the execution of any such Tax returns and other
documentation.
ARTICLE 8
COVENANTS OF PARENT
Parent agrees that:
Section 8.01. Conduct of Parent. From the date hereof until the
Effective Time, Parent and its Subsidiaries shall conduct their business in the
ordinary course consistent with past practice and shall use their reasonable
best efforts to preserve intact their business organizations and relationships
with third parties and to keep available the services of their present officers
and employees. Without limiting the generality of the foregoing, from the date
hereof until the Effective Time:
(a) Parent shall not, and shall not permit any of its Subsidiaries to,
take any action that would make any representation and warranty of Parent
hereunder inaccurate in any material respect at, or as of any time prior to, the
Effective Time.
Section 8.02. Director and Officer Liability.
(a) For six years after the Effective Time, Parent shall indemnify and
hold harmless the present and former officers and directors of the Company (each
an "INDEMNIFIED PERSON") in respect of acts or omissions occurring at or prior
to the Effective Time to the fullest extent permitted by Virginia Law or any
other applicable laws or provided under the Company's articles of incorporation
and bylaws in effect on the date hereof; provided that such indemnification
shall be subject to any limitation imposed from time to time under applicable
law.
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(b) For six years after the Effective Time, Parent shall provide
officers' and directors' liability insurance in respect of acts or omissions
occurring prior to the Effective Time covering each such Indemnified Person
currently covered by the Company's officers' and directors' liability insurance
policy on terms with respect to coverage and amount no less favorable than those
of such policy in effect on the date hereof; provided that, in satisfying its
obligation under this Section 8.02(b), Parent shall not be obligated to pay
premiums in excess of 200% of the amount per annum the Company paid in its last
full fiscal year, which amount the Company has disclosed to Parent prior to the
date hereof.
(c) If Parent or any of its successors or assigns (i) consolidates with
or merges into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, or (ii) transfers or
conveys all or substantially all of its properties and assets to any Person,
then, and in each such case, to the extent necessary, proper provision shall be
made so that the successors and assigns of Parent shall assume the obligations
set forth in this Section 8.02.
(d) The rights of each Indemnified Person under this Section 8.02 shall
be in addition to any rights such Person may have under the articles of
incorporation or bylaws of the Company or any of its Subsidiaries, or under
Virginia Law or any other applicable laws or under any agreement of any
Indemnified Person with the Company or any of its Subsidiaries. These rights
shall survive consummation of the Merger and are intended to benefit, and shall
be enforceable by, each Indemnified Person.
Section 8.03. Registration Statement. Parent shall promptly prepare and
file with the SEC under the 1933 Act the Registration Statement and shall use
its best efforts to cause the Registration Statement to be declared effective by
the SEC as promptly as practicable. Parent shall promptly take any action
required to be taken under foreign or state securities or Blue Sky laws in
connection with the issuance of Parent Stock in the Merger.
Section 8.04. Stock Exchange Listing. Parent shall use its best efforts
to cause the shares of Parent Stock to be issued in connection with the Merger
to be approved for quotation on the NASDAQ National Market, subject to official
notice of issuance.
Section 8.05. Appointment of Directors. Effective as of the effective
time of the Bank Merger, Parent shall cause the Board of Directors of Parent
Bank to be expanded by two members and shall take all necessary actions to
appoint the Bank Directors to fill the vacancies created by such increase. In
connection with the annual meeting of the Parent Bank next following the
effective time of the Bank Merger, Parent shall vote all of its shares of voting
equity securities of the Parent Bank in favor of the Bank Directors to serve for
the term for directors specified in the Parent Bank's organizational documents.
The term "BANK DIRECTORS" means the individuals designated by mutual agreement
of Parent and the Company to become members of the Board of Directors of the
Parent Bank as of the effective time of the Bank Merger pursuant to this Section
8.05.
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Section 8.06. Trust Preferred Securities. Parent acknowledges that the
Company Subsidiary Trusts hold subordinated debentures issued by Company and
have issued preferred securities which are intended to be "qualified trust
preferred securities" as defined in applicable regulatory capital guidelines, or
which are eligible for such treatment as grandfathered trust preferred
securities. Parent agrees that at the Effective Time, it shall expressly assume
all of Company's obligations under the indentures relating to such subordinated
debentures (including, without limitation, being substituted for Company) and
execute any and all documents, instruments and agreements, including any
supplemental indentures, guarantees, or declarations of trust required by said
indentures, the subordinated debentures or the trust preferred securities issued
by the Company Subsidiary Trusts, or as may reasonably be requested by the
trustees thereunder, and thereafter shall perform all of the Company's
obligations with respect to the subordinated debentures and the trust preferred
securities issued by the Company Subsidiary Trusts (the "TRUST PREFERRED
ASSUMPTION"). Parent acknowledges and agrees that Company makes no
representation about the ability of Parent to treat all or any portion of the
trust preferred securities of the Company Subsidiary Trusts as Tier 1 or Tier 2
capital following the Effective Time.
ARTICLE 9
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
Section 9.01. Best Efforts. (a) Subject to the terms and conditions of
this Agreement, the Company and Parent shall use their best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable law to consummate the
transactions contemplated by this Agreement and the Bank Merger Agreement,
including (i) preparing and filing as promptly as practicable with any
Governmental Entity or other third party all documentation to effect all
necessary filings, notices, petitions, statements, registrations, submissions of
information, applications and other documents and (ii) obtaining and maintaining
all approvals, consents, registrations, permits, authorizations and other
confirmations required to be obtained from any Governmental Entity or other
third party that are necessary, proper or advisable to consummate the
transactions contemplated by this Agreement and the Bank Merger Agreement.
(b) In furtherance and not in limitation of the foregoing, each of
Parent and the Company shall make an appropriate filing of a Notification and
Report Form pursuant to the HSR Act, if applicable, with respect to the
transactions contemplated hereby as promptly as practicable and to supply as
promptly as practicable any additional information and documentary material that
may be requested pursuant to the HSR Act and to take all other actions necessary
to cause the expiration or termination of the applicable waiting periods under
the HSR Act as soon as practicable.
53
Section 9.02. Certain Filings. (a) The Company and Parent shall
cooperate with one another (i) in connection with the preparation of the Company
Proxy Statement and the Registration Statement, (ii) in determining whether any
action by or in respect of, or filing with, any Governmental Entity is required,
or any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and the Bank Merger Agreement and
(iii) in taking such actions or making any such filings, furnishing information
required in connection therewith or with the Company Proxy Statement or the
Registration Statement and seeking timely to obtain any such actions, consents,
approvals or waivers.
(b) The Company and its counsel shall be given a reasonable opportunity
to review and comment on the Registration Statement and the other applications
for regulatory approval to be filed by Parent or Parent Bank (subject to
applicable laws relating to the exchange of information by the parties and the
preservation of any applicable attorney-client privilege), and Parent and its
counsel shall be given a reasonable opportunity to review and comment on the
Company Proxy Statement, in each case each time before either such document (or
any amendment thereto) is filed with the SEC or other regulatory authority and
reasonable and good faith consideration shall be given to any comments made by
such party and its counsel. Each of Parent and the Company shall provide the
other party and its counsel with (i) any comments or other communications,
whether written or oral, that such party or its counsel may receive from time to
time from the SEC or its staff with respect to the Company Proxy Statement or
the Registration Statement, as applicable, and from the applicable regulatory
authorities with respect to other Required Filings and Approvals, promptly after
receipt of those comments or other communications and (ii) a reasonable
opportunity to participate in the response to those comments and to provide
comments on that response (to which reasonable and good faith consideration
shall be given), including by participating in any discussions or meetings with
the SEC or regulatory authority.
Section 9.03. Public Announcements. Parent and the Company shall
mutually agree as to the form of press release to be issued with respect to this
Agreement and the Bank Merger Agreement and the transactions contemplated hereby
and thereby, and the form of analyst materials to be used in connection
therewith. Parent and the Company shall consult with each other before issuing
any other press release, making any other public statement or scheduling any
press conference or conference call with investors or analysts with respect to
this Agreement, the Bank Merger Agreement or the transactions contemplated
hereby and thereby and, except as may be required by applicable law or any
listing agreement with or rule of any national securities exchange or
association, shall not issue any such press release, make any such other public
statement or schedule any such press conference or conference call before such
consultation.
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Section 9.04. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of the Company or Parent, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or Parent, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of the Company acquired or to be acquired by the Surviving Corporation as
a result of, or in connection with, the Merger.
Section 9.05. Access to Information. From the date hereof until the
Effective Time and subject to applicable law and the Confidentiality Agreement,
the Company and Parent shall (i) give to the other party, its counsel, financial
advisors, auditors and other authorized representatives reasonable access to the
offices, properties, books and records of such party, (ii) furnish to the other
party, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
Persons may reasonably request and (iii) instruct its employees, counsel,
financial advisors, auditors and other authorized representatives to cooperate
with the other party in its investigation. Any investigation pursuant to this
Section shall be conducted in such manner as not to interfere unreasonably with
the conduct of the business of the other party. No information or knowledge
obtained in any investigation pursuant to this Section shall affect or be deemed
to modify any representation or warranty made by any party hereunder.
Section 9.06. Notices of Certain Events. Each of the Company and Parent
shall promptly notify the other of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement or the Bank Merger Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement or the Bank Merger Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced
or, to its knowledge, threatened against, relating to or involving or otherwise
affecting the Company or any of its Subsidiaries or Parent and any of its
Subsidiaries, as the case may be, that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Sections
5.12, 5.13, 5.17, 5.18, 5.19, 5.20, 5.28, 6.12, 6.13, or 6.16 as the case may
be, or that relate to the consummation of the transactions contemplated by this
Agreement or the Bank Merger Agreement.
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Section 9.07. Confidentiality. Prior to the Effective Time and after
any termination of this Agreement, each of Parent and the Company shall hold,
and shall use its best efforts to cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
other party furnished to it or its Affiliates in connection with the
transactions contemplated by this Agreement, except to the extent that such
information can be shown to have been (i) previously known on a nonconfidential
basis by such party, (ii) in the public domain through no fault of such party or
(iii) later lawfully acquired by such party from sources other than the other
party; provided that each of Parent and the Company may disclose such
information to its officers, directors, employees, accountants, counsel,
consultants, advisors and agents in connection with the transactions
contemplated by this Agreement so long as such party informs such Persons of the
confidential nature of such information and directs them to treat it
confidentially. Each of Parent and the Company shall satisfy its obligation to
hold any such information in confidence if it exercises the same care with
respect to such information as it would take to preserve the confidentiality of
its own similar information. If this Agreement is terminated, each of Parent and
the Company shall, and shall use its best efforts to cause its officers,
directors, employees, accountants, counsel, consultants, advisors and agents to,
destroy or deliver to the other party, upon request, all documents and other
materials, and all copies thereof, that it or its Affiliates obtained, or that
were obtained on their behalf, from the other party in connection with this
Agreement and that are subject to such confidence.
Section 9.08. Tax-free Reorganization. (a) Prior to the Effective Time,
each of Parent and the Company shall use its best efforts to cause the Merger to
qualify as a 368 Reorganization, and shall not take any action reasonably likely
to cause the Merger not so to qualify. Parent shall not take any action after
the Effective Time that could cause the Merger not to qualify as a 368
Reorganization.
(b) Each of Parent and the Company shall use its best efforts to obtain
the opinions referred to in Sections 10.02(d) and 10.03(b).
Section 9.09. Affiliates. Within 30 days following the date of this
Agreement, the Company shall deliver to Parent a letter identifying all known
Persons who may be deemed affiliates of the Company under Rule 145 of the 1933
Act. The Company shall use its reasonable best efforts to obtain a written
agreement from each Person who may be so deemed as soon as practicable and, in
any event, at least 30 days prior to the Effective Time, substantially in the
form of Exhibit C hereto.
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Section 9.10. Employees.
(a) Following the Effective Time, all employees of the Company and its
Subsidiaries (the "COMPANY EMPLOYEES") shall be eligible to participate in
employee benefit plans of Parent or its Subsidiaries in which similarly situated
employees of Parent or its Subsidiaries participate, to the same extent that
similarly situated employees of Parent or its Subsidiaries participate;
provided, however, that Parent may instead continue the Employee Benefit Plans
for the benefit of such employees or provide such employees with participation
in the employee benefit plans of Parent or its Subsidiaries on a basis that is
no less favorable to such employees than those Employee Benefit Plans in which
they participated immediately prior to the Effective Time (it being understood
that inclusion of Company Employees in Parent's employee benefit plans may occur
at different times with respect to different plans). Following the Effective
Time, the Company Employees, upon executing an appropriate release in the form
reasonably determined by Parent, shall be eligible to receive upon involuntary
termination, if such termination occurs within one year after the Effective
Time, severance benefits substantially upon the terms set forth in Section
9.10(a) of the Parent Disclosure Schedule.
(b) With respect to each Parent plan for which length of service is
taken into account for any purpose, service with the Company or any of its
Subsidiaries shall be treated as service with Parent for purposes of determining
eligibility to participate, vesting, and entitlement to benefits, including for
severance benefits and vacation entitlement (but not for accrual of defined
benefit pension benefits); provided, however, that such service shall not be
recognized to the extent that such recognition would result in a duplication of
benefits. Such service also shall apply for purposes of satisfying any waiting
periods, evidence of insurability requirements, or the application of any
pre-existing condition limitations. Each Parent plan shall waive pre-existing
condition limitations to the same extent waived or to the extent that they do
not apply under the applicable Company plan. Company Employees shall be given
credit for amounts paid under a corresponding benefit plan during the same
period for purposes of applying deductibles, copayments and out-of-pocket
maximums as though such amounts had been paid in accordance with the terms and
conditions of the Parent plan.
(c) As of the Effective Time, Parent shall assume and honor and shall
cause the appropriate Subsidiaries of Parent to assume and to honor in
accordance with their terms all employment agreements, copies of which have been
provided to Parent. Parent acknowledges and agrees that the Merger will
constitute a "change in control" of the Company for all purposes under such
agreements. Not in limitation of the foregoing, Parent acknowledges and agrees
that the Merger will result in, and agrees that it shall pay at the Effective
Time, the change in control payment set forth in the Company's existing
employment agreement with Xxxxxxx X. Xxxxxxx, if the Effective Time occurs prior
to April 30, 2007 (notwithstanding the prior expiration of such agreement).
57
(d) Parent and Company agree that, prior to the Effective Time, the
Company in consultation with and subject to the approval of Parent, may adopt a
retention plan (the "RETENTION PLAN") which may include a retention pool of not
more than $200,000. The design or beneficiaries of such Retention Plan shall be
determined by mutual agreement between Parent and Company.
Section 9.11. Bank Merger Agreement.
(a) Immediately after the execution and delivery of the Bank Merger
Agreement, (i) Parent shall approve the Bank Merger Agreement as the sole
stockholder of Parent Bank and (ii) the Company shall approve the Bank Merger
Agreement as the sole shareholder of the Company Bank.
(b) The Company and Parent may revise the sequence of events or other
procedural matters relating to the consummation of the Merger and the Bank
Merger in such manner as they may reasonably determine will best facilitate
consummation of the Merger and the Bank Merger; provided, that any action taken
pursuant to this Section shall not (i) alter or change the kind or amount of
consideration to be issued to the holders of the Company Shares as provided for
in this Agreement, (ii) adversely affect the tax consequences of the Merger to
the holders of the Company Shares or (iii) otherwise cause any closing condition
not to be capable of being fulfilled (unless duly waived by the party entitled
to the benefits thereof).
Section 9.12. Company Options. As soon as reasonably practicable after
the Effective Time, Parent shall deliver to holders of Company Options which
have been converted into options to acquire Parent Stock in accordance with the
provisions of Section 3.05 hereof, a notice setting forth a statement of the
modified terms thereof. Promptly after the Effective Time, Parent shall file a
registration statement on Form S-8, or on such other form as may be appropriate,
with respect to the shares of Parent Stock subject to such options, and shall
use its reasonable efforts to maintain the effectiveness of such registration
statement or statements for so long as such options remain outstanding.
Section 9.13. Prohibited Purchases or Sales. Neither Parent, the
Company or the Company Subsidiary shall purchase or sell on the NASDAQ National
Market, or submit a bid to purchase or an offer to sell on the NASDAQ National
Market, directly or indirectly, any shares of Parent Stock or any options,
warrants, rights or other securities convertible into or exchangeable for shares
of Parent Stock during the 10 consecutive trading days immediately preceding the
Determination Date; provided that the foregoing restriction shall not be
applicable to (i) purchases or sales of Parent Stock held by Parent or any
Subsidiary of Parent in trust, managed, custodial or nominee accounts and the
like, or held by mutual funds, (ii) shares acquired in respect of debts
previously contracted, (iii) purchases of Parent Stock to fund Parent's
obligations under its dividend reinvestment plan or its employee stock purchase
plan in accordance with past practice or (iv) purchases or sales of Parent Stock
to satisfy Parent's tax withholding obligations with respect to grants of
restricted stock to employees.
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ARTICLE 10
CONDITIONS TO THE MERGER
Section 10.01. Conditions to Obligations of Each Party. The obligations
of the Company and Parent to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) this Agreement and the Plan of Merger shall have been approved and
adopted by the shareholders of the Company in accordance with Virginia Law;
(b) no applicable law and no judgment, injunction, order or decree
shall prohibit the consummation of the Merger;
(c) any applicable waiting period under the HSR Act, the BHC Act, the
Bank Merger Act or any Virginia or Maryland state law relating to the Merger
shall have expired or been terminated;
(d) the Registration Statement shall have been declared effective and
no stop order suspending the effectiveness of the Registration Statement shall
be in effect and no proceedings for such purpose shall be pending before or
threatened by the SEC;
(e) the shares of Parent Stock to be issued in the Merger shall have
been approved for listing on the NASDAQ National Market, subject to official
notice of issuance; and
(f) all actions or approvals by or in respect of, or filings with, any
Governmental Entity required to permit the consummation of the Merger, including
the Required Filings and Approvals, shall have been taken, obtained or made.
Section 10.02. Conditions to the Obligations of Parent. The obligations
of Parent to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) (i) the Company shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of the Company contained
in this Agreement and in any certificate or other writing delivered by the
Company pursuant hereto (x) that are qualified by materiality or Material
Adverse Effect shall be true at and as of the Effective Time as if made at and
as of such time (except to the extent such representations and warranties speak
as of an earlier time, in which case such representations and warranties shall
be true as of such earlier time), and (y) that are not qualified by materiality
or Material Adverse Effect shall be true in all material respects at and as of
the Effective Time as if made at and as of such time (except to the extent such
representations and warranties speak as of an earlier time, in which case such
representations and warranties shall be true as of such earlier time) and (iii)
Parent shall have received a certificate signed by an executive officer of the
Company to the foregoing effect;
59
(b) there shall not have been instituted or pending any action or
proceeding (or any investigation or other inquiry that might result in such
action or proceeding) by any Governmental Entity or by any other Person,
domestic, foreign or supranational, before any court or governmental authority
or agency, domestic, foreign or supranational, (i) challenging or seeking to
make illegal, to delay materially or otherwise directly or indirectly to
restrain or prohibit the consummation of the Merger or the Bank Merger, seeking
to obtain material damages or otherwise directly or indirectly relating to the
transactions contemplated by the Merger or the Bank Merger, (ii) seeking to
restrain or prohibit Parent's (x) ability to exercise full rights of ownership
of any shares of the Parent Bank or any of its Subsidiaries or Affiliates
following the Effective Time or the effective time of the Bank Merger on all
matters properly presented to the Parent Bank's stockholders, or (y) operation
(or that of its respective Subsidiaries or Affiliates) of all or any material
portion of the business or assets of the Company and its Subsidiaries, taken as
a whole, or of Parent and its Subsidiaries, taken as a whole, (iii) seeking to
compel Parent or any of its Subsidiaries or Affiliates to dispose of or hold
separate all or any material portion of the business or assets of the Company
and its Subsidiaries, taken as a whole, or of Parent and its Subsidiaries, taken
as a whole, or (iv) that otherwise, in the reasonable judgment of Parent, is
likely to have a Material Adverse Effect on the Company or Parent;
(c) there shall not have been any action taken, or any statute, rule,
regulation, injunction, order or decree proposed, enacted, enforced,
promulgated, issued or deemed applicable to the Merger or the Bank Merger, by
any court or Governmental Entity other than the application of the waiting
period provisions of the HSR Act, the BHC Act or the Bank Merger Act to the
Merger or the Bank Merger, that, in the reasonable judgment of Parent, is
likely, directly or indirectly, to result in any of the consequences referred to
in clauses (i) through (iv) of paragraph (b) above;
(d) Parent shall have received an opinion of Xxxxx Xxxx & Xxxxxxxx in
form and substance reasonably satisfactory to Parent, on the basis of certain
facts, representations and assumptions set forth in such opinion, dated the
Closing Date, to the effect that the Merger will be for federal income tax
purposes a reorganization qualifying under the provisions of Section 368(a) of
the Code and that each of Parent and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code. In rendering
such opinion, such counsel shall be entitled to rely upon representations of
officers of Parent and the Company substantially in the form of Exhibits D and E
hereto;
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(e) the Company shall have delivered to Parent a certification dated
not more than 30 days prior to the Effective Time and signed by the Company to
the effect that the Company is not, nor has it been within five years of the
date of the certification, a "United States real property holding corporation"
as defined in Section 897 of the Code;
(f) after the date hereof, there shall have been no enforcement action
under Section 8 of the FDIA, memorandum of understanding, written agreement,
supervisory letter, or any other action or determination of any governmental
agency or department relating to the status or conduct of the Company or any of
its Subsidiaries that, in the reasonable good faith opinion of the Board of
Directors of Parent, adversely affects in any material manner the anticipated
economic benefits to Parent of the transactions contemplated hereby;
(g) no Required Filing or Approval shall have imposed a condition or
restriction on any approval that would have or would reasonably be expected to
have, after the Effective Time, a Material Adverse Effect on the Parent or the
Parent Bank and its respective Subsidiaries, taken as a whole;
(h) no event, occurrence, revelation, development or state of
circumstances or facts that, individually or in the aggregate, has had or could
reasonably be expected to have a Material Adverse Effect on the Company shall
have occurred and be continuing as of the Effective Time; and
(i) the Company shall have obtained all opinions, certificates and
other documents required to be obtained by it and shall have executed and
delivered, subject to the effectiveness of the Merger, all supplemental and
amended documents required to be executed by the Company to effect the Trust
Preferred Assumption;
(j) Dissenters' Shares shall constitute not more than 10% of the
outstanding Company Shares; and
(k) each of the Employment Agreements shall be in full force and
effect, without any amendment thereto, as of the Effective Time.
Section 10.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
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(a) (i) the Parent shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of Parent contained in
this Agreement and in any certificate or other writing delivered by Parent
pursuant hereto (x) that are qualified by materiality or Material Adverse Effect
shall be true at and as of the Effective Time as if made at and as of such time
(except to the extent such representations and warranties speak as of an earlier
time, in which case such representations and warranties shall be true as of such
earlier time), and (y) that are not qualified by materiality or Material Adverse
Effect shall be true in all material respects at and as of the Effective Time as
if made at and as of such time (except to the extent such representations and
warranties speak as of an earlier time, in which case such representations and
warranties shall be true as of such earlier time) and (iii) the Company shall
have received a certificate signed by an executive officer of Parent to the
foregoing effect;
(b) the Company shall have received an opinion of Xxxxxxx & Baris,
L.L.P. in form and substance reasonably satisfactory to the Company, on the
basis of certain facts, representations and assumptions set forth in such
opinion, dated the Closing Date, to the effect that the Merger will be for
federal income tax purposes a reorganization qualifying under the provisions of
Section 368(a) of the Code and that each of Parent and the Company will be a
party to the reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, such counsel shall be entitled to rely upon
representations of officers of Parent and the Company substantially in the form
of Exhibit D and E hereto; and
(c) Parent shall have executed and delivered, subject to the
effectiveness of the Merger, all supplemental and amended documents required to
be executed by Parent to effect the Trust Preferred Assumption.
ARTICLE 11
TERMINATION
Section 11.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the shareholders of the Company):
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent, if:
(i) the Merger has not been consummated on or before the
date that is eight months after the date of this
Agreement (the "END DATE"); provided that the right
to terminate this Agreement pursuant to this Section
11.01(b)(i) shall not be available to any party whose
breach of any provision of this Agreement results in
the failure of the Merger to be consummated by such
time;
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(ii) (A) there shall be any law that makes consummation of
the Merger illegal or otherwise prohibited or (B) any
judgment, injunction, order or decree of any court or
governmental body having competent jurisdiction
enjoining the Company or Parent from consummating the
Merger is entered and such judgment, injunction,
judgment or order shall have become final and
nonappealable; or
(iii) this Agreement and the Plan of Merger shall not have
been approved and adopted in accordance with the VSCA
by the Company's shareholders at the Company
Shareholder Meeting (or any adjournment thereof);
(c) by Parent if:
(i) as permitted by Section 7.03(b)(iii), the Board of
Directors of the Company shall have failed to make or
withdrawn, or modified in a manner adverse to Parent,
its approval or recommendation of this Agreement or
the Plan of Merger;
(ii) the Company shall have entered into, or publicly
announced its intention to enter into, a definitive
agreement or an agreement in principle with respect
to a Superior Proposal; or
(iii) (A) a breach of any representation or warranty or
failure to perform any covenant or agreement on the
part of the Company set forth in this Agreement shall
have occurred that would cause the condition set
forth in Section 10.02(a) not to be satisfied, and
such condition is incapable of being satisfied by the
End Date or (B) the Company shall have willfully and
materially breached its obligations under Sections
7.02 and 7.03; or
(d) by the Company, if:
(i) the Board of Directors of the Company authorizes the Company,
subject to complying with the terms of this Agreement, to
enter into a written agreement concerning a Superior Proposal;
provided that the Company shall have paid any amounts due
pursuant to Section 12.04(b) in accordance with the terms, and
at the times, specified therein, and provided, further, that,
in the case of any termination by the Company, (A) the Company
notifies Parent, in writing and at least 72 hours prior to
such termination, promptly of its intention to terminate this
Agreement and to enter into a binding written agreement
concerning an Acquisition Proposal that constitutes a Superior
Proposal, attaching the most current version of such agreement
(or a description of all material terms and conditions
thereof), and (B) Parent does not make, within 72 hours of
receipt of such written notification, an offer that is at
least as favorable to the shareholders of the Company as such
Superior Proposal, it being understood that the Company shall
not enter into any such binding agreement during such 72-hour
period; or
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(ii) a breach of any representation or warranty or failure to
perform any covenant or agreement on the part of the Parent
set forth in this Agreement shall have occurred that would
cause the condition set forth in Section 10.03(a) not to be
satisfied, and such condition is incapable of being satisfied
by the End Date.
(iii) during the three-day period following the Determination Date:
(1) the Average Closing Price shall be less than the
product of 0.85 and the Starting Price; and
(2) (a) the number obtained by dividing the Average
Closing Price by the Starting Price (such number being
referred to herein as the "PARENT RATIO") shall be less than
(b) the number obtained by dividing the Index Price on the
Determination Date by the Index Price on the date of this
Agreement and subtracting 0.15 from such quotient (such number
being referred to herein as the "INDEX RATIO"),
subject to the following provisions of this Section 11.01(d)(iii). If
the Company elects to exercise its termination right pursuant to the
immediately preceding sentence, it shall give prompt written notice of
such election to Parent. During the three-day period (the "DECISION
PERIOD") commencing with its receipt of such notice, Parent may elect
to pay, as additional Merger Consideration in accordance with Article
3, to each holder of Company Shares that, after the application of
Section 3.03, are converted into the right to receive Parent Stock as
provided in Article 3, additional shares of Parent Stock and/or cash in
an amount per each such Company Share equal to the Top-Up Amount. The
Top-Up Amount shall be paid (A) in shares of Parent Stock valued for
this purpose at the Average Closing Price; provided that Parent shall
not be required to issue in excess of 2,500,000 shares of Parent Stock
in the aggregate as Merger Consideration (including any shares issued
as Top-Up Amount) and (B) to the extent any Top-Up Amount is not paid
pursuant to clause (A) above, such remaining Top-Up Amount shall be
paid in cash; provided further that the portion of the Top-Up Amount
paid in cash shall not be an amount that would cause the failure of the
conditions set forth in Section 10.02(d) and Section 10.03(b) hereof
and, in the event this limitation prevents Parent from fully paying the
Top-Up Amount, the Company shall be entitled to terminate this
Agreement in accordance with this Section 11.01(d)(iii) notwithstanding
any election by Parent to pay the Top-Up Amount. All payments of Top-Up
Amounts, if any, shall be made as payments of additional Merger
Consideration as provided in accordance with Article 3 but shall not,
for the avoidance of doubt, be subject to Section 3.03.
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The "TOP-UP AMOUNT" shall be the number obtained by multiplying (A) the
Average Closing Price by (B) the excess of the Imputed Exchange Ratio
over the Exchange Ratio.
The "IMPUTED EXCHANGE RATIO" shall equal the lesser of:
(x) the number obtained by dividing (A) the product of the Starting
Price multiplied by the Exchange Ratio multiplied by 0.85 by (B) the
Average Closing Price; and
(y) the number obtained by dividing (A) the product of the Index Ratio
and the Exchange Ratio by (B) the Parent Ratio.
If Parent makes such election within the Decision Period, it shall give
prompt written notice to the Company of such election and the Top-Up
Amount, whereupon the Company shall have no right to terminate the
Agreement pursuant to this Section 11.01(d)(iii) and this Agreement
shall remain in full force and effect in accordance with its terms.
If, during the period between the date of this Agreement and the
Determination Date, any change in the outstanding shares of capital
stock of Parent shall occur, including by reason of any
reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, or any stock dividend thereon with
a record date during such period, the "Starting Price" shall be
appropriately adjusted to account for such change for the purposes of
this Section 11.01(d)(iii).
For purposes of this Section 11.01(d)(iii), the following terms shall
have the meanings indicated below:
"AVERAGE CLOSING PRICE" means the average of the last reported sale
prices per share of Parent Stock as reported on the NASDAQ/NMS (as
reported in The Wall Street Journal or, if not reported therein, in
another authoritative source mutually agreed upon by Parent and the
Company) for the 10 consecutive trading days immediately preceding the
Determination Date.
"DETERMINATION DATE" means the date which is the seventh calendar day
immediately prior to the Closing Date, or if such calendar day is not a
trading day, the trading day immediately preceding such calendar day.
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"INDEX PRICE" means, on a given date, the closing price of the NASDAQ
Bank Index.
"NASDAQ/NMS" means the NASDAQ Stock Market's National Market.
"STARTING PRICE" means $38.95.
The party desiring to terminate this Agreement pursuant to this Section
11.01 (other than pursuant to Section 11.01(a)) shall give notice of such
termination to the other party.
Section 11.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 11.01, this Agreement shall become void and of no effect
without liability of any party (or any shareholder, stockholder, director,
officer, employee, agent, consultant or representative of such party) to the
other party hereto; provided that, if such termination shall result from the
willful (i) failure of either party to fulfill a condition to the performance of
the obligations of the other party or (ii) failure of either party to perform a
covenant hereof, such party shall be fully liable for any and all liabilities
and damages incurred or suffered by the other party as a result of such failure.
The provisions of this Section 11.02 and Sections 9.07, 12.04, 12.07, 12.08 and
12.09 shall survive any termination hereof pursuant to Section 11.01.
ARTICLE 12
MISCELLANEOUS
Section 12.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmission)
and shall be given.
if to Parent, to:
Mercantile Bankshares Corporation
0 Xxxxxxx Xxxxx, 00xx Xxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxxx X Xxxxxx, Deputy General Counsel
Facsimile No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxx Xxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxx, Xx.
Facsimile No.: (000) 000-0000
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if to the Company, to:
Xxxxx Xxxxxx Bancorp, Inc.
0000 Xxxxxx Xxxx.
Xxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxx
Facsimile No.: 000-000-0000
with a copy (which shall not constitute notice) to:
Xxxxxxx & Baris, L.L.P.
0000 Xxxxxxxxx Xxxx, Xxxxx X-00
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxx, Esquire
Facsimile No.: 301.229.2443
or to such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5:00 p.m. on a Business
Day in the place of receipt. Otherwise, any such notice, request or
communication shall be deemed to have been received on the next succeeding
Business Day in the place of receipt.
Section 12.02. Survival of Representations and Warranties. The
representations, warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time, except for the agreements set forth in Sections 8.02 and 8.05.
Section 12.03. Amendments and Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, but only if,
such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement or, in the case of a waiver, by each
party against whom the waiver is to be effective; provided that, after the
adoption of the Plan of Merger by the shareholders of the Company and without
their further approval, no such amendment or waiver shall reduce the amount or
change the kind of consideration to be received in exchange for the Company
Shares.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 12.04. Expenses. (a) Except as otherwise provided herein, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
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(b) If a Payment Event (as hereinafter defined) occurs, the Company
shall pay Parent (by wire transfer of immediately available funds), if, pursuant
to (i) below, simultaneously with the occurrence of such Payment Event or, if
pursuant to (ii) below, within two Business Days following such Payment Event, a
fee of $5,000,000.
"PAYMENT EVENT" means (i) the termination of this Agreement pursuant to
Sections 11.01(c)(i), 11.01(c)(ii), 11.01(c)(iii)(B) or 11.01(d)(i); or (ii) the
termination of this Agreement pursuant to Sections 11.01(b)(i) or 11.01(b)(iii)
but, in the case of this clause (ii) only if (x) prior to such termination, an
Acquisition Proposal shall have been publicly proposed (other than by Parent or
any of its Affiliates) or a Third Party has publicly announced its intention to
make an Acquisition Proposal or such Acquisition Proposal or intention has
otherwise become widely known to the Company's shareholders and (y) within 12
months following the date of such termination: (A) the Company merges with or
into, or is acquired, directly or indirectly, by merger or otherwise by, a Third
Party; (B) a Third Party, directly or indirectly, acquires more than 50% of the
total assets of the Company and its Subsidiaries, taken as a whole; (C) a Third
Party, directly or indirectly, acquires more than 50% of the outstanding Company
Shares; or (D) the Company adopts or implements a plan of liquidation,
recapitalization or share repurchase relating to more than 50% of the
outstanding Company Shares or an extraordinary dividend relating to more than
50% of such outstanding shares or 50% of the assets of the Company and its
Subsidiaries, taken as a whole (or in any of clauses (A) through (D) the Company
or any of its Subsidiaries shall have entered into a definitive agreement
providing for such action).
(c) The Company acknowledges that the agreements contained in this
Section 12.04 are an integral part of the transactions contemplated by this
Agreement and that, without these agreements, Parent would not enter into this
Agreement. Accordingly, if the Company fails promptly to pay any amount due to
Parent pursuant to this Section 12.04, it shall also pay any costs and expenses
incurred by Parent in connection with a legal action to enforce this Agreement
that results in a judgment against the Company for such amount.
Section 12.05. Binding Effect; Benefit; Assignment. (a) The provisions
of this Agreement shall be binding upon and, except as provided in Section 8.02,
shall inure to the benefit of the parties hereto and their respective successors
and assigns. Except as provided in Section 8.02 and Section 8.05, no provision
of this Agreement is intended to confer any rights, benefits, remedies,
obligations or liabilities hereunder upon any Person other than the parties
hereto and their respective successors and assigns.
(b) No party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent of each other
party hereto, except that Parent may transfer or assign, in whole or from time
to time in part, to one or more of their Affiliates, the right to enter into the
transactions contemplated by this Agreement, provided that no such transfer or
assignment may change the form or amount of consideration to be received by
holders of Company Shares, or shall change the intended tax consequences to
holders of Company Shares who receive Parent Stock in connection with the Merger
and provided further, that any such transfer or assignment shall not relieve
Parent of its obligations hereunder.
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Section 12.06. Schedules and Exhibits. All Schedules and Exhibits
referred to herein are intended to be and hereby are specifically made a part of
this Agreement. The parties acknowledge and agree that the inclusion of an item
in a Disclosure Schedule as an exception to a representation shall not be deemed
an admission by a party that such item was required to be disclosed therein.
Section 12.07. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland, without regard
to the conflicts of law rules of such state, except that the Merger and the Plan
of Merger shall be governed by the laws of the Commonwealth of Virginia and the
State of Maryland.
Section 12.08. Jurisdiction. The parties hereto agree that any suit,
action or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in any federal court located in the State
of Maryland or any Maryland state court, and each of the parties hereby
irrevocably consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
that it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in Section 12.01 shall be deemed effective service of
process on such party.
Section 12.09. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 12.10. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by all of the other parties hereto.
Until and unless each party has received a counterpart hereof signed by the
other party hereto, this Agreement shall have no effect and no party shall have
any right or obligation hereunder (whether by virtue of any other oral or
written agreement or other communication).
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Section 12.11. Entire Agreement. This Agreement and the Transaction
Documents constitute the entire agreement between the parties with respect to
the subject matter of this Agreement and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter of this Agreement.
Section 12.12. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
Section 12.13. Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
or to enforce specifically the performance of the terms and provisions hereof in
any federal court located in the State of Maryland or any Maryland state court,
in addition to any other remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
MERCANTILE BANKSHARES
CORPORATION
By:
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Name:
Title:
XXXXX XXXXXX BANCORP, INC.
By:
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Name:
Title:
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