EXHIBIT 99(a)
AGREEMENT AND PLAN OF MERGER
by and between
F&M Bancorp
and
Monocacy Bancshares, Inc.
Dated as of September 4, 1998
TABLE OF CONTENTS
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ARTICLE I
MERGER...................................2
1.1. The Merger........................................................2
1.2. Effective Time....................................................2
1.3. Effects of the Merger.............................................2
1.4. Conversion of Company Common Stock................................2
1.5. Stock Options.....................................................4
1.6. Buyer Common Stock................................................4
1.7. Articles of Incorporation.........................................5
1.8. By-Laws...........................................................5
1.9. Directors and Officers............................................5
1.10. Tax Consequences; Accounting Treatment............................5
ARTICLE II
EXCHANGE OF SHARES...........................5
2.1. Buyer to Make Shares Available....................................5
2.2. Exchange of Shares................................................6
ARTICLE III
DISCLOSURE SCHEDULES; STANDARDS
FOR REPRESENTATIONS AND WARRANTIES....................8
3.1. Disclosure Schedules..............................................8
3.2. Standards.........................................................8
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............9
4.1. Corporate Organization............................................9
4.2. Capitalization...................................................10
4.3. Authority; No Violation..........................................11
4.4. Consents and Approvals...........................................13
4.5. Reports..........................................................14
4.6. Financial Statements.............................................14
4.7. Broker's Fees....................................................15
4.8. Absence of Certain Changes or Events.............................15
4.9. Legal Proceedings................................................16
4.10. Taxes............................................................16
4.11. Employees........................................................17
4.12. SEC Reports......................................................19
4.13. Company Information..............................................19
4.14. Compliance with Applicable Law...................................19
4.15. Certain Contracts................................................19
4.16. Agreements with Regulatory Agencies..............................20
4.17. Investment Securities............................................21
4.18. Intellectual Property............................................21
4.19. State Takeover Laws; Articles of Incorporation...................21
4.20. Administration of Fiduciary Accounts.............................21
4.21. Environmental Matters............................................22
4.22. Derivative Transactions..........................................23
4.23. Opinion..........................................................23
4.24. Approvals........................................................23
4.25. Loan Portfolio...................................................23
4.26. Accounting for the Merger; Reorganization........................24
4.27. Ownership of Company Common Stock................................24
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER................25
5.1. Corporate Organization...........................................25
5.2. Capitalization...................................................26
5.3. Authority; No Violation..........................................26
5.4. Consents and Approvals...........................................28
5.5. Reports..........................................................28
5.6. Financial Statements.............................................29
5.7. Broker's Fees....................................................30
5.8. Absence of Certain Changes or Events.............................30
5.9. Legal Proceedings................................................30
5.10. Taxes............................................................30
5.11. Employees........................................................31
5.12. SEC Reports......................................................32
5.13. Buyer Information................................................33
5.14. Compliance with Applicable Law...................................33
5.15. Ownership of Company Common Stock; Affiliates and Associates.....33
5.16. Agreements with Regulatory Agencies..............................33
5.17. Investment Securities............................................34
5.18. Intellectual Property............................................34
5.19. Approvals........................................................34
5.20. Administration of Fiduciary Accounts.............................34
5.21. Accounting for the Merger; Reorganization........................34
5.22. Opinion..........................................................35
5.23. Environmental Matters............................................35
5.24. Derivative Transactions..........................................36
5.25. Loan Portfolio...................................................36
5.26. Vote Required....................................................37
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ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS................38
6.1. Covenants of the Company.........................................38
6.2. Covenants of Buyer...............................................42
ARTICLE VII
ADDITIONAL AGREEMENTS.........................43
7.1. Regulatory Matters...............................................43
7.2. Access to Information............................................45
7.3. Stockholder Meetings.............................................47
7.4. Legal Conditions to Merger.......................................47
7.5. Affiliates.......................................................47
7.6. Stock Exchange Listing...........................................48
7.7. Employee Benefit Plans; Existing Agreements......................48
7.8. Indemnification..................................................49
7.9. Additional Agreements............................................50
7.10. Advice of Changes................................................51
7.11. Current Information..............................................51
7.12. Execution and Authorization of Bank Merger Agreement.............51
7.13. Directorship.....................................................51
7.14. Coordination of Dividends........................................52
ARTICLE VIII
CONDITIONS PRECEDENT..........................52
8.1. Conditions to Each Party's Obligation To Effect the Merger.......52
8.2. Conditions to Obligations of Buyer...............................53
8.3. Conditions to Obligations of the Company.........................54
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ARTICLE IX
TERMINATION AND AMENDMENT......................56
9.1. Termination......................................................56
9.2. Effect of Termination; Expenses..................................57
9.3. Amendment........................................................57
9.4. Extension; Waiver................................................58
ARTICLE X
GENERAL PROVISIONS...........................58
10.1. Closing.........................................................58
10.2. Alternative Structure...........................................58
10.3. Nonsurvival of Representations, Warranties and Agreements.......59
10.4. Expenses........................................................59
10.5. Notices.........................................................59
10.6. Interpretation..................................................60
10.7. Counterparts....................................................60
10.8. Entire Agreement................................................61
10.9. Governing Law...................................................61
10.10. Enforcement of Agreement........................................61
10.11. Severability....................................................61
10.12. Publicity.......................................................61
10.13. Assignment; No Third Party Beneficiaries........................61
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 4, 1998,
by and between F&M Bancorp, a Maryland corporation ("Buyer"), and Monocacy
Bancshares, Inc., a Maryland corporation (the "Company"). (Buyer and the Company
are sometimes collectively referred to herein as the "Constituent
Corporations".)
WHEREAS, the Boards of Directors of Buyer and the Company have
determined that it is in the best interests of their respective companies and
their stockholders to consummate the business combination transaction provided
for herein in which the Company will, subject to the terms and conditions set
forth herein, merge (the "Merger") with and into Buyer; and
WHEREAS, as soon as practicable after the execution and
delivery of this Agreement, Farmers & Mechanics National Bank, a banking
association organized under the laws of the United States and a wholly owned
subsidiary of Buyer ("Buyer Bank," and sometimes referred to herein as the
"Surviving Bank"), and Taneytown Bank & Trust Company, a Maryland-chartered
commercial bank and a wholly owned subsidiary of the Company (the "Company
Bank"), will enter into a Subsidiary Agreement and Plan of Merger in
substantially the form set forth on Exhibit A hereto (the "Bank Merger
Agreement") providing for the merger (the "Subsidiary Merger") of the Company
Bank with and into Buyer Bank, and it is intended that the Subsidiary Merger be
consummated immediately following the consummation of the Merger; and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that
the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended
that the Merger will be accounted for as a pooling of interests transaction.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
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ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement,
in accordance with the Maryland General Corporation Law (the "MGCL"), at the
Effective Time (as defined in Section 1.2 hereof), the Company shall merge with
and into Buyer. Buyer shall be the surviving corporation (hereinafter sometimes
called 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 F&M Bancorp. Upon consummation of the
Merger, the separate corporate existence of the Company shall terminate.
1.2 Effective Time. The Merger shall become effective as set forth in
the articles of merger (the "Articles of Merger") which shall be filed with the
State Department of Assessments and Taxation (the "Department") on the Closing
Date (as defined in Section 10.1 hereof). The term "Effective Time" shall be the
date and time when the Merger becomes effective, as set forth in the Articles of
Merger.
1.3 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects set forth in Section 3-114 of the MGCL.
1.4 Conversion of Company Common Stock. (a) At the Effective Time,
subject to Section 2.2(e) hereof, each share of the common stock, par value
$5.00 per share, of the Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time (other than shares of
Company Common Stock held directly or indirectly by Buyer or the Company or any
of their respective Subsidiaries (as defined below) (except for Trust Account
Shares and DPC Shares, as such terms are defined in Section 1.4(b) hereof))
shall, by virtue of this Agreement and without any action on the part of the
holder thereof, be converted into and exchangeable for a number of shares of the
common stock, par value $5.00 per share, of Buyer ("Buyer Common Stock") equal
to the quotient obtained by dividing the Share Number (as hereinafter defined)
by the number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time (such quotient being hereinafter
referred to as the "Exchange Ratio"). The "Share Number" shall be 2,219,753,
provided, however, that (i) if the Average Closing Price (as hereinafter
defined) is less than $34.425 then the Share Number shall be increased to the
extent necessary so that the product of the Share Number and the Average Closing
Price shall equal $76,415,000, provided, that in no event shall the Share Number
be greater than 2,281,753, and (ii) if the Average Closing Price is
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greater than $46.575, then the Share Number shall be reduced to the extent
necessary so that the product of the Share Number and the Average Closing Price
shall equal $103,384,996, provided, that in no event shall the Share Number be
less than 2,157,753. As used herein, "Average Closing Price" shall mean the
average of the last reported sale prices per share of Buyer Common Stock as
reported on The Nasdaq Market's National Market ("Nasdaq/NMS") (as reported in
The Wall Street Journal or, if not reported therein, in another mutually agreed
upon authoritative source) for the 15 consecutive trading days ending on the
fifth business day prior to the Closing Date (as hereinafter defined). All of
the shares of Company Common Stock converted into Buyer Common Stock pursuant to
this Article I shall no longer be outstanding and shall automatically be
cancelled and shall cease to exist, and each certificate (each a "Certificate")
previously representing any such shares of Company Common Stock shall thereafter
only represent the right to receive (i) the number of whole shares of Buyer
Common Stock and (ii) the cash in lieu of fractional shares into which the
shares of Company Common Stock represented by such Certificate have been
converted pursuant to this Section 1.4(a) and Section 2.2(e) hereof.
Certificates previously representing shares of Company Common Stock shall be
exchanged for certificates representing whole shares of Buyer Common Stock and
cash in lieu of fractional shares issued in consideration therefor upon the
surrender of such Certificates in accordance with Section 2.2 hereof, without
any interest thereon. If, between the date of this Agreement and the Effective
Time, the outstanding shares of Buyer Common Stock shall be changed into a
different number or class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
a stock dividend thereon shall be declared with a record date within said
period, the Exchange Ratio shall be adjusted accordingly.
(b) At the Effective Time, all shares of Company Common Stock
that are owned directly or indirectly by Buyer or the Company or any of their
respective Subsidiaries (other than shares of Company Common Stock (x) held
directly or indirectly in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity for the benefit of third parties (any
such shares, and shares of Buyer Common Stock which are similarly held, whether
held directly or indirectly by Buyer or the Company, as the case may be, being
referred to herein as "Trust Account Shares") and (y) held by Buyer or the
Company or any of their respective Subsidiaries in respect of a debt previously
contracted (any such shares of Company Common Stock, and shares of Buyer Common
Stock which are similarly held, whether held directly or indirectly by Buyer or
the Company, being referred to herein as "DPC Shares")) shall be cancelled and
shall cease to exist and no stock of Buyer or other consideration shall be
delivered in exchange therefor. All shares of Buyer Common Stock that are owned
by the Company or any of its Subsidiaries (other than Trust Account Shares and
DPC Shares) shall become authorized but unissued shares of Buyer Common Stock.
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1.5 Stock Options. (a) At the Effective Time, each option granted by
the Company (a "Company Option") to purchase shares of Company Common Stock
which is outstanding and unexercised (whether vested or unvested) immediately
prior thereto shall be assumed by Buyer and converted automatically into an
option (a "Buyer Option") to purchase shares of Buyer Common Stock in an amount
and at an exercise price determined as provided below (and otherwise subject to
the terms of the Company's 1994 Stock Incentive Plan and the Company's 1997
Independent Directors' Stock Option Plan (collectively, the "Company Plans")):
(1) the number of shares of Buyer Common Stock to be subject to
the new option shall be equal to the product of the number of shares of
Company Common Stock subject to the original option and the Exchange
Ratio, provided that any fractional shares of Buyer Common Stock
resulting from such multiplication shall be rounded down to the nearest
whole share; and
(2) the exercise price per share of Buyer Common Stock under
the new option shall be equal to the exercise price per share of
Company Common Stock under the original option divided by the Exchange
Ratio, provided that such exercise price shall be rounded up to the
nearest whole cent.
The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Code) shall be and is intended
to be effected in a manner which is consistent with Section 424(a) of the Code
and, to the extent it is not so consistent, such Section 424(a) shall override
anything to the contrary contained herein. The duration and other terms of the
new option shall be the same as the original option, except that all references
to the Company shall be deemed to be references to Buyer.
(b) Buyer shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Buyer Common Stock for delivery
upon exercise of Buyer Options, and, at or prior to the Effective Time, Buyer
shall file a registration statement on Form S-8 (or other appropriate form) with
respect to the shares of Buyer Common Stock subject to Buyer Options, and shall
use its best efforts to maintain the effectiveness of such registration
statement for so long as any Buyer Options remain outstanding.
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1.6 Buyer Common Stock. Except for shares of Buyer Common Stock owned
by the Company or any of its Subsidiaries (other than Trust Account Shares and
DPC Shares), which shall constitute authorized but unissued shares of Buyer
Common Stock as contemplated by Section 1.4 hereof, the shares of Buyer Common
Stock issued and outstanding immediately prior to the Effective Time shall be
unaffected by the Merger and such shares shall remain issued and outstanding.
1.7 Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of Buyer, as in effect at the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation.
1.8 By-Laws. At the Effective Time, the By-Laws of Buyer, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter amended in accordance with applicable law.
1.9 Directors and Officers. Except as contemplated by Section 7.13
hereof, the directors and officers of Buyer immediately prior to the Effective
Time shall be the directors and officers of the Surviving Corporation, each to
hold office in accordance with the Articles of Incorporation and By-Laws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
1.10 Tax Consequences; Accounting Treatment. It is intended that the
Merger shall (i) constitute a reorganization within the meaning of Section
368(a) of the Code, and that this Agreement shall constitute a "plan of
reorganization" for purposes of Section 368 of the Code, and (ii) be accounted
for as a "pooling-of-interests" under GAAP (as defined herein).
ARTICLE II
EXCHANGE OF SHARES
2.1 Buyer to Make Shares Available. At or prior to the Effective Time,
Buyer shall deposit, or shall cause to be deposited, with a bank or trust
company (which may be a Subsidiary of Buyer) (the "Exchange Agent"), selected by
Buyer and reasonably satisfactory to the Company, for the benefit of the holders
of Certificates, for exchange in accordance with this Article II, certificates
representing the shares of Buyer Common Stock and the cash in lieu of fractional
shares (such cash and certificates for shares of Buyer Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") to be issued pursuant to
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Section 1.4 and paid pursuant to Section 2.2(a) in exchange for outstanding
shares of Company Common Stock.
2.2 Exchange of Shares. (a) As soon as practicable after the Effective
Time, and in no event more than five business days thereafter, the Exchange
Agent shall mail to each holder of record of a Certificate or Certificates a
form letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent) advising such holder of the
effectiveness of the Merger and instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing the shares of
Buyer Common Stock and the cash in lieu of fractional shares into which the
shares of Company Common Stock represented by such Certificate or Certificates
shall have been converted pursuant to this Agreement. The Company shall have the
right to review both the letter of transmittal and the instructions not less
than five (5) business days prior to the Effective Time and provide reasonable
comments thereon. Upon surrender of a Certificate for exchange and cancellation
to the Exchange Agent, together with such letter of transmittal, duly executed,
the holder of such Certificate shall be entitled to receive in exchange therefor
(x) a certificate representing that number of whole shares of Buyer Common Stock
to which such holder of Company Common Stock shall have become entitled pursuant
to the provisions of Article I hereof and (y) a check representing the amount of
cash in lieu of fractional shares, if any, which such holder has the right to
receive in respect of the Certificate surrendered pursuant to the provisions of
this Article II, and the Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on the cash in lieu of fractional
shares and unpaid dividends and distributions, if any, payable to holders of
Certificates.
(b) Whenever a dividend or other distribution is declared by
Buyer on Buyer Common Stock, the record date for which is at or after the
Effective Time, the declaration shall include dividends or other distributions
on all shares of Buyer Common Stock issuable pursuant to the Merger. No
dividends or other distributions declared at or after the Effective Time with
respect to Buyer Common Stock and payable to the holders of record thereof shall
be paid to the holder of any unsurrendered Certificate until the holder thereof
shall surrender such Certificate in accordance with this Article II. After the
surrender of a Certificate in accordance with this Article II, the record holder
thereof shall be entitled to receive any such dividends or other distributions,
without any interest thereon, which theretofore had become payable with respect
to shares of Buyer Common Stock represented by such Certificate. No holder of an
unsurrendered Certificate shall be entitled, until the surrender of such
Certificate, to vote the shares of Buyer Common Stock into which his Company
Common Stock shall have been converted.
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(c) If any certificate representing shares of Buyer Common Stock
is to be issued in a name other than that in which the Certificate surrendered
in exchange therefor is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such exchange shall pay to the
Exchange Agent in advance any transfer or other taxes required by reason of the
issuance of a certificate representing shares of Buyer Common Stock in any name
other than that of the registered holder of the Certificate surrendered, or
required for any other reason, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock which
were issued and outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates representing such shares are presented for
transfer to the Exchange Agent, they shall be cancelled and exchanged for
certificates representing shares of Buyer Common Stock as provided in this
Article II.
(e) Notwithstanding anything to the contrary contained herein,
no certificates or scrip representing fractional shares of Buyer Common Stock
shall be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to Buyer Common Stock shall be payable on or with
respect to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a stockholder of
Buyer. In lieu of the issuance of any such fractional share, Buyer shall pay to
each former stockholder of the Company who otherwise would be entitled to
receive a fractional share of Buyer Common Stock an amount in cash determined by
multiplying (i) the Average Closing Price by (ii) the fraction of a share of
Buyer Common Stock to which such holder would otherwise be entitled to receive
pursuant to Section 1.4 hereof.
(f) Any portion of the Exchange Fund that remains unclaimed by
the stockholders of the Company for six months after the Effective Time shall be
delivered by the Exchange Agent to Buyer. Any stockholders of the Company who
have not theretofore complied with this Article II shall thereafter be entitled
to look to Buyer for payment of their shares of Buyer Common Stock, cash in lieu
of fractional shares and unpaid dividends and distributions on Buyer Common
Stock deliverable in respect of each share of Company Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon. Notwithstanding the foregoing, none of Buyer, the
Company, the Exchange Agent or any other person shall be liable to any former
holder of shares of Company Common Stock for any amount properly de-
7
livered to a public official pursuant to applicable abandoned property, escheat
or similar laws.
(g) In the event 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 Buyer, the
posting by such person of a bond in such amount as Buyer reasonably 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 shares of Buyer Common Stock, cash in lieu of
fractional shares and unpaid dividends and distributions deliverable in respect
thereof pursuant to this Agreement.
ARTICLE III
DISCLOSURE SCHEDULES; STANDARDS
FOR REPRESENTATIONS AND WARRANTIES
3.1 Disclosure Schedules. Prior to the execution and delivery of this
Agreement, the Company has delivered to Buyer, and Buyer has delivered to the
Company, a schedule (in the case of the Company, the "Company Disclosure
Schedule," and in the case of Buyer, the "Buyer Disclosure Schedule") setting
forth, among other things, items the disclosure of which is necessary or
appropriate either in response to an express disclosure requirement contained in
a provision hereof or as an exception to one or more of such party's
representations or warranties contained in Article IV, in the case of the
Company, or Article V, in the case of Buyer, or to one or more of such party's
covenants contained in Article VI; provided, however, that notwithstanding
anything in this Agreement to the contrary (a) no such item is required to be
set forth in the Disclosure Schedule as an exception to a representation or
warranty if its absence would not result in the related representation or
warranty being deemed untrue or incorrect under the standard established by
Section 3.2, and (b) the mere inclusion of an item in a Disclosure Schedule as
an exception to a representation or warranty shall not be deemed an admission by
a party that such item represents a material exception or material fact, event
or circumstance or that such item has had or would have a Material Adverse
Effect (as defined herein) with respect to either the Company or Buyer,
respectively.
3.2 Standards. (a) No representation or warranty of the Company
contained in Article IV or of Buyer in Article V shall be deemed untrue or
incorrect for any purpose under this Agreement, including for purposes of
Section 8.2(a) and Section 8.3(a), and no party hereto shall be deemed to have
breached a representation or warranty for any pur-
8
pose under this Agreement, in any case as a consequence of the existence or
absence of any fact, circumstance or event unless such fact, circumstance or
event, individually or when taken together with all other facts, circumstances
or events inconsistent with any representations or warranties contained in
Article IV, in the case of the Company, or Article V, in the case of Buyer, has
had or is reasonably likely to have a Material Adverse Effect with respect to
the Company or Buyer, respectively.
(b) As used in this Agreement, the term "Material Adverse
Effect" means, with respect to Buyer or the Company, as the case may be, a
material adverse effect on (i) the business, results of operations or financial
condition of such party and its Subsidiaries taken as a whole, other than any
such effect attributable to or resulting from (x) any change in banking or
similar laws, rules or regulations of general applicability or interpretations
thereof by courts or governmental authorities, (y) any change in GAAP (as
defined herein) or regulatory accounting principles applicable to banks or their
holding companies generally, or (z) any action or omission of the Company or
Buyer or any Subsidiary of either of them taken with the prior written consent
of the other party hereto or (ii) the ability of such party and its Subsidiaries
to consummate the transactions contemplated hereby. As used in this Agreement,
the word "Subsidiary" when used with respect to any party means any corporation,
partnership or other organization, whether incorporated or unincorporated, which
is consolidated with such party for financial reporting purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer as follows:
4.1 Corporate Organization. (a) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland. The Company has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as it is now being
conducted, and is duly qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such qualification necessary.
The Company is duly registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). The Articles of Incorporation
and By-laws of the Company, copies of which have previously been delivered to
Buyer, are true, complete and correct copies of such documents as in effect as
of the date of this Agreement.
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(b) The Company Bank is a commercial bank duly organized,
validly existing and in good standing under the laws of the State of Maryland.
The deposit accounts of the Company Bank are insured by the Federal Deposit
Insurance Corporation (the "FDIC") through the Bank Insurance Fund ("BIF")
and/or the Savings Association Insurance Fund ("SAIF") to the fullest extent
permitted by law, and all premiums and assessments required to be paid in
connection therewith have been paid when due by the Company Bank. Each of the
Company's other Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization. Each of the Company's Subsidiaries has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted and is duly qualified to do business in
each jurisdiction in which the nature of the business conducted by it or the
character or the location of the properties and assets owned or leased by it
makes such qualification necessary. Except as set forth in Section 4.1(b) of the
Company Disclosure Schedule, the articles of incorporation, by-laws and similar
governing documents of each Subsidiary of the Company, copies of which have
previously been delivered to Buyer, are true, complete and correct copies of
such documents as in effect as of the date of this Agreement.
(c) Except as set forth in Section 4.1(c) of the Company
Disclosure Schedule, the minute books of the Company and each of its
Subsidiaries contain true, complete and accurate records in all material
respects of all meetings and other corporate actions held or taken since
December 31, 1995 of their respective stockholders and Boards of Directors
(including committees of their respective Boards of Directors).
4.2 Capitalization. (a) The authorized capital stock of the Company
consists of 4,000,000 shares of Company Common Stock. As of the date of this
Agreement, there are (x) 1,799,005 shares of Company Common Stock outstanding
and (y) no shares of Company Common Stock reserved for issuance upon exercise of
outstanding stock options or otherwise except for (i) 390,309 shares of Company
Common Stock reserved for issuance pursuant to the Company Option Plans and
described in Section 4.2(a) of the Disclosure Schedule which is being delivered
to Buyer concurrently herewith (the "Company Disclosure Schedule") and (ii)
358,002 shares of Company Common Stock reserved for issuance upon exercise of
the option issued to Buyer pursuant to the Stock Option Agreement, dated
September 4, 1998, between Buyer and the Company (the "Company Option
Agreement"). All of the issued and outstanding shares of Company Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable, with no personal liability attaching to the ownership thereof.
Except as referred to above or reflected in Section 4.2(a) of the Company
Disclosure Schedule, and except for the Company Option Agreement, the Company
does not have and is not bound by any out-
10
standing subscriptions, options, warrants, calls, commitments or agreements of
any character calling for the purchase or issuance of any shares of Company
Common Stock or any other equity security of the Company or any securities
representing the right to purchase or otherwise receive any shares of Company
Common Stock or any other equity security of the Company. The number of shares
subject to each option to purchase Company Common Stock granted and the price at
which each such option may be exercised are set forth in Section 4.2(a) of the
Company Disclosure Schedule. The names of the optionees, the date of each option
to purchase Company Common Stock granted, and the expiration date of each such
option under the Company Option Plans are set forth in Section 4.2(a) of the
Company Disclosure Schedule.
(b) Section 4.2(b) of the Company Disclosure Schedule sets forth
a true and correct list of all of the Subsidiaries of the Company. Except as set
forth in Section 4.2(b) of the Company Disclosure Schedule, the Company owns,
directly or indirectly, all of the issued and outstanding shares of the capital
stock of each of such Subsidiaries, free and clear of all liens, charges,
encumbrances and security interests whatsoever, and all of such shares are duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. No Subsidiary of the Company has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of capital stock or
any other equity security of such Subsidiary or any securities representing the
right to purchase or otherwise receive any shares of capital stock or any other
equity security of such Subsidiary. Assuming compliance by Buyer with Section
1.5 hereof, at the Effective Time, there will not be any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character by which the Company or any of its Subsidiaries will be bound calling
for the purchase or issuance of any shares of the capital stock of the Company
or any of its Subsidiaries.
4.3 Authority; No Violation. (a) The Company has full corporate power
and authority to execute and deliver this Agreement and the Company Option
Agreement (this Agreement and the Company Option Agreement, collectively, the
"Company Documents") and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of each of the Company Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly approved by the Board of Directors of the Company. The Board of
Directors of the Company has directed that this Agreement and the transactions
contemplated hereby be submitted to the Company's stockholders for approval at a
meeting of such stockholders and, except for the approval of the Merger and this
Agreement by the requisite vote of the Company's stockholders, no other
corporate proceedings on the part of the Company are necessary to
11
approve the Company Documents and to consummate the transactions contemplated
hereby and thereby. Without limiting the foregoing, the Board of Directors of
the Company has adopted a resolution declaring that this Agreement, the Merger
and the transactions contemplated hereby and thereby are advisable on
substantially the terms set forth herein and that such proposed transactions be
submitted for consideration at a special meeting of the stockholders of the
Company. Each of the Company Documents has been duly and validly executed and
delivered by the Company and (assuming due authorization, execution and delivery
by Buyer) this Agreement constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) The Company Bank has full corporate power and authority to
execute and deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of the Company Bank. Upon the due and
valid approval of the Bank Merger Agreement by the Board of Directors of the
Company Bank and by the Company as the sole stockholder of the Company Bank, no
other corporate proceedings on the part of the Company Bank will be necessary to
consummate the transactions contemplated thereby. The Bank Merger Agreement,
upon execution and delivery by the Company Bank, will be duly and validly
executed and delivered by the Company Bank and will (assuming due authorization,
execution and delivery by Buyer Bank) constitute a valid and binding obligation
of the Company Bank, enforceable against the Company Bank in accordance with its
terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(c) Except as set forth in Section 4.3(c) of the Company
Disclosure Schedule, neither the execution and delivery of the Company Documents
by the Company or the Bank Merger Agreement by the Company Bank, nor the
consummation by the Company or the Company Bank, as the case may be, of the
transactions contemplated hereby or thereby, nor compliance by the Company or
the Company Bank, as the case may be, with any of the terms or provisions hereof
or thereof, will (i) violate any provision of the Articles of Incorporation or
By-Laws of the Company or the articles of incorporation, by-laws or similar
governing documents of any of its Subsidiaries, or (ii) assuming that the
consents and approvals referred to in Section 4.4 hereof are duly obtained prior
to the Effective Time, (x) violate any statute, code, ordinance, rule,
regula-
12
tion, judgment, order, writ, decree or injunction applicable to the Company or
any of its Subsidiaries, or any of their respective properties or assets, or (y)
violate, conflict with, result in a breach of any provision of or the loss of
any benefit under, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the termination
of or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the respective properties or assets of
the Company or any of its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Company or any
of its Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected.
4.4 Consents and Approvals. Except for (a) the filing of applications
and notices, as applicable, with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the BHC Act and the Office of the
Comptroller of the Currency under the Bank Merger Act and approval of such
applications and notices, (b) the filing with the Securities and Exchange
Commission (the "SEC") of a joint proxy statement in definitive form relating to
the meetings of the Company's stockholders and Buyer's stockholders to be held
in connection with this Agreement and the transactions contemplated hereby (the
"Proxy Statement") and the filing and declaration of effectiveness of the
registration statement on Form S-4 (the "S-4") in which the Proxy Statement will
be included as a prospectus, (c) the approval of the Merger and this Agreement
by the requisite vote of the stockholders of the Company, (d) the filing of the
Articles of Merger with the Department pursuant to the MGCL, (e) the filings
required by or in connection with the Bank Merger Agreement, (f) the approval of
the Bank Merger Agreement by the Company as the sole stockholder of the Company
Bank, (g) authorization for quotation of Buyer Common Stock to be issued in the
Merger on the Nasdaq/NMS, (h) approval of the transactions contemplated by this
Agreement and the Bank Merger Agreement by the Maryland Commissioner of
Financial Regulation and/or filings in connection therewith pursuant to the
Financial Institutions Article of the Annotated Code of Maryland, (i) filings
under state securities and blue sky laws, (j) filings with or approvals of the
State Insurance Commissioner and (k) such filings, authorizations or approvals
as may be set forth in Section 4.4 of the Company Disclosure Schedule, no
consents or approvals of or filings or registrations with any court,
administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") or with any third party are
necessary in connection with (1) the execution and delivery by the Company of
the Company Documents, (2) the consummation by the Company of the Merger and the
other transactions contemplated hereby and thereby, (3) the execution and
delivery by the Company Bank of the Bank Merger Agreement, and (4) the
consumma-
13
tion by the Company Bank of the Subsidiary Merger and the transactions
contemplated thereby.
4.5 Reports. The Company and each of its Subsidiaries have timely filed
all reports, registrations and statements, together with any amendments required
to be made with respect thereto, that they were required to file since December
31, 1995 with (i) the Federal Reserve Board, (ii) the FDIC, (iii) any state
banking commissions or any other state regulatory authority (each a "State
Regulator") and (iv) the National Association of Securities Dealers, Inc. and
any other self-regulatory organization ("SRO") (collectively, the "Regulatory
Agencies"), and have paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Regulatory Agency in
the regular course of the business of the Company and its Subsidiaries, and
except as set forth in Section 4.5 of the Company Disclosure Schedule, no
Regulatory Agency has initiated any proceeding or investigation into the
business or operations of the Company or any of its Subsidiaries since December
31, 1995. There is no unresolved material violation, criticism, or exception by
any Regulatory Agency with respect to any report or statement relating to any
examinations of the Company or any of its Subsidiaries.
4.6 Financial Statements. The Company has previously made available to
Buyer copies of (a) the consolidated balance sheets of Company and its
Subsidiaries as of December 31 for the fiscal years 1996 and 1997, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1995 through 1997, inclusive, as reported in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997 filed with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in each case accompanied by the audit report of Xxxxxxx &
Company, independent public accountants with respect to the Company, and (b) the
unaudited consolidated statements of financial condition of the Company and its
Subsidiaries as of June 30, 1998 and June 30, 1997 and the related unaudited
consolidated statements of income and comprehensive income, stockholders' equity
and cash flows for the six-month periods then ended as reported in the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1998 filed with the
SEC under the Exchange Act. The December 31, 1997 consolidated balance sheet of
the Company (including the related notes, where applicable) fairly presents the
consolidated financial position of the Company and its Subsidiaries as of the
date thereof, and the other financial statements referred to in this Section 4.6
(including the related notes, where applicable) fairly present (subject, in the
case of the unaudited statements, to recurring audit adjustments normal in
nature and amount), and the financial statements to be filed with the SEC after
the date hereof will fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount), the
re-
14
sults of the consolidated operations and consolidated financial position of the
Company and its Subsidiaries for the respective fiscal periods or as of the
respective dates therein set forth; each of such statements (including the
related notes, where applicable) comply, and the financial statements to be
filed with the SEC after the date hereof will comply, with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes, where
applicable) has been, and the financial statements to be filed with the SEC
after the date hereof will be, prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied during the periods involved,
except as indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q. The books and records of the Company and
its Subsidiaries have been, and are being, maintained in accordance with
applicable legal and accounting requirements.
4.7 Broker's Fees. Neither the Company nor any Subsidiary of the
Company nor any of their respective officers or directors has employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contemplated by the
Company Documents or the Bank Merger Agreement, except that the Company has
engaged, and will pay a fee or commission to, RP Financial LC in accordance with
the terms of a letter agreement between RP Financial LC and the Company, a true,
complete and correct copy of which has been previously delivered by the Company
to Buyer.
4.8 Absence of Certain Changes or Events. (a) Except as may be set
forth in Section 4.8(a) of the Company Disclosure Schedule and except in
connection with the execution of the Company Documents and the Bank Merger
Agreement, or as disclosed in any Company Report (as defined in Section 4.12)
filed with the SEC prior to the date of this Agreement, since December 31, 1997,
there has been no change or development or combination of changes or
developments which, individually or in the aggregate, has had or is reasonably
likely to have a Material Adverse Effect on the Company.
(b) Except as set forth in Section 4.8(b) of the Company
Disclosure Schedule and except in connection with the execution of the Company
Documents and the Bank Merger Agreement, since December 31, 1997, the Company
and its Subsidiaries have carried on their respective businesses in the ordinary
course consistent with their past practices.
(c) Except as set forth in Section 4.8(c) of the Company
Disclosure Schedule, since June 30, 1998, neither the Company nor any of its
Subsidiaries has (i) increased the wages, salaries, compensation, pension, or
other fringe benefits or perquisites payable to any executive officer, employee,
or director from the amount
15
thereof in effect as of June 30, 1998 (which amounts have been previously
disclosed to Buyer), granted any severance or termination pay, entered into any
contract to make or grant any severance or termination pay, or paid any bonus
other than year-end bonuses for fiscal 1998 as listed in Section 4.8 of the
Company Disclosure Schedule, (ii) suffered any strike, work stoppage, slow-down,
or other labor disturbance, (iii) been a party to a collective bargaining
agreement, contract or other agreement or understanding with a labor union or
organization, or (iv) had any union organizing activities.
4.9 Legal Proceedings. (a) Except as set forth in Section 4.9 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is
a party to any, and there are no pending or, to the Company's knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions or governmental or regulatory investigations of any nature against the
Company or any of its Subsidiaries or challenging the validity or propriety of
the transactions contemplated by any of the Company Documents or the Bank Merger
Agreement.
(b) There is no injunction, order, judgment, decree, or
regulatory restriction imposed upon the Company, any of its Subsidiaries or the
assets of the Company or any of its Subsidiaries.
4.10 Taxes. (a) Except as set forth in Section 4.10(a) of the Company
Disclosure Schedule, each of the Company and its Subsidiaries (i) has duly and
timely filed (including applicable extensions granted without penalty) all Tax
Returns (as hereinafter defined) required to be filed on or prior to the date
hereof and will duly and timely file all Tax Returns after the date hereof and
prior to the Effective Time, and such Tax Returns are or will be true, correct
and complete, and (ii) has paid or will pay in full or to the extent necessary
made or will make adequate provision in the financial statements of the Company
(in accordance with GAAP) for all Taxes (as hereinafter defined). Except as set
forth in Section 4.10(a) of the Company Disclosure Schedule, no deficiencies for
any Taxes have been proposed, asserted, assessed or, to the knowledge of the
Company, threatened against or with respect to the Company or any of its
Subsidiaries. Except as set forth in Section 4.10(a) of the Company Disclosure
Schedule, (i) there are no liens for Taxes upon the assets of either the Company
or its Subsidiaries except for statutory liens for current Taxes not yet due,
(ii) neither the Company nor any of its Subsidiaries has requested any extension
of time within which to file any Tax Returns in respect of any fiscal year which
have not since been filed and no request for waivers of the time to assess any
Taxes are pending or outstanding, (iii) with respect to each taxable period of
the Company and its Subsidiaries, the federal and state income Tax Returns of
the Company and its Subsidiaries have been audited by the Internal Revenue
Service or appropriate state tax authorities or the time for assessing and
collecting income Tax with respect to
16
such taxable period has closed and such taxable period is not subject to review,
(iv) neither the Company nor any of its Subsidiaries has filed or been included
in a combined, consolidated or unitary income Tax Return other than one in which
the Company was the parent of the group filing such Tax Return, (v) neither the
Company nor any of its Subsidiaries is a party to any agreement providing for
the allocation or sharing of Taxes (other than the allocation of federal income
taxes as provided by Regulation 1.1552-1(a)(1) under the Code), (vi) neither the
Company nor any of its Subsidiaries is required to include in income any
adjustment pursuant to Section 481(a) of the Code (or any similar or
corresponding provision or requirement of state, local or foreign income Tax
law), by reason of the voluntary change in accounting method (nor has any taxing
authority proposed in writing any such adjustment or change of accounting
method), (vii) neither the Company nor any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code, (viii) neither the Company nor
any of its Subsidiaries has made any payment or will be obligated to make any
payment (by contract or otherwise) which will not be deductible by reason of
Section 280G of the Code and (ix) none of the Company, any of its Subsidiaries
or any entity acquired by the Company or its Subsidiaries is or was (a) a
domestic building and loan association, (b) a mutual savings bank or (c) a
cooperative bank without capital stock organized and operated for mutual
purposes and without profit, which has taken a deduction for additions to a
reserve for bad debts under Section 593 of the Code.
(b) For the purposes of this Agreement, "Taxes" shall mean all
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States federal, state, local or foreign taxing authority, including, but
not limited to income, excise, property, sales, transfer, franchise, payroll,
withholding, social security or other taxes, including any interest, penalties
or additions attributable thereto. For purposes of this Agreement, "Tax Return"
shall mean any return, report, information return or other document (including
any related or supporting information) with respect to Taxes.
4.11 Employees. (a) Section 4.11(a) of the Company Disclosure Schedule
sets forth a true and complete list of each deferred compensation plan,
incentive compensation plan, equity compensation plan, "welfare" plan, fund or
program (within the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")); "pension" plan, fund or program
(within the meaning of section 3(2) of ERISA); each employment, termination or
severance agreement; and each other employee benefit plan, fund, program,
agreement or arrangement, in each case, that is sponsored, maintained or
contributed to or required to be contributed to (the "Plans") by the Company,
any of its Subsidiaries or by any trade or business, whether or not incorporated
(an "ERISA Affiliate"), all of which together with the Company would be deemed a
"single employer" within the meaning of Section 4001 of the Employee Re-
17
tirement Income Security Act of 1974, as amended ("ERISA"), for the benefit of
any employee or former employee of the Company, any Subsidiary or any ERISA
Affiliate.
(b) The Company has heretofore made available to Buyer true and
complete copies of each of the Plans and all related documents, including but
not limited to (i) the actuarial report for such Plan (if applicable) for each
of the last two years, and (ii) the most recent determination letter from the
Internal Revenue Service (if applicable) for such Plan.
(c) Except as set forth in Section 4.11(c) of the Company
Disclosure Schedule, (i) each of the Plans has been operated and administered in
all material respects in accordance with its terms and applicable law, including
but not limited to ERISA and the Code, (ii) each of the Plans intended to be
"qualified" within the meaning of Section 401(a) of the Code either (1) has
received a favorable determination letter from the IRS, or (2) is or will be the
subject of an application for a favorable determination letter, and the Company
is not aware of any circumstances likely to result in the revocation or denial
of any such favorable determination letter, (iii) with respect to each Plan
which is subject to Title IV of ERISA, the present value of accrued benefits
under such Plan, based upon the actuarial assumptions used for funding purposes
in the most recent actuarial report prepared by such Plan's actuary with respect
to such Plan, did not, as of its latest valuation date, exceed the then current
value of the assets of such Plan allocable to such accrued benefits, (iv) no
Plan provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of the
Company, its Subsidiaries or any ERISA Affiliate beyond their retirement or
other termination of service, other than (w) coverage mandated by applicable
law, (x) death benefits or retirement benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA, (y) deferred
compensation benefits accrued as liabilities on the books of the Company, its
Subsidiaries or the ERISA Affiliates or (z) benefits the full cost of which is
borne by the current or former employee (or his beneficiary), (v) no liability
under Title IV of ERISA has been incurred by the Company, its Subsidiaries or
any ERISA Affiliate that has not been satisfied in full, and no condition exists
that presents a material risk to the Company, its Subsidiaries or an ERISA
Affiliate of incurring a material liability thereunder, (vi) no Plan is a
"multiemployer pension plan," as such term is defined in Section 3(37) of ERISA,
(vii) all contributions or other amounts payable by the Company, its
Subsidiaries or any ERISA Affiliates as of the Effective Time with respect to
each Plan in respect of current or prior plan years have been paid or accrued in
accordance with generally accepted accounting practices and Section 412 of the
Code, (viii) neither the Company, its Subsidiaries nor any ERISA Affiliate has
engaged in a transaction in connection with which the Company, its Subsidiaries
or any ERISA Affiliate could be subject to either a civil penalty assessed
pursuant to Section
18
409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the
Code, (ix) there are no pending, or, to the best knowledge of the Company,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Plans or any trusts related thereto and (x) the
consummation of the transactions contemplated by this Agreement or the Bank
Merger Agreement will not (y) entitle any current or former employee or officer
of the Company or any ERISA Affiliate to severance pay, termination pay or any
other payment or benefit, except as expressly provided in this Agreement or (z)
accelerate the time of payment or vesting or increase the amount or value of
compensation or benefits due any such employee or officer.
4.12 SEC Reports. The Company has previously made available to Buyer an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1996 by
the Company with the SEC pursuant to the Securities Act of 1933, as amended (the
"Securities Act") or the Exchange Act (the "Company Reports") and (b)
communication mailed by the Company to its stockholders since January 1, 1996,
and no such registration statement, prospectus, report, schedule, proxy
statement or communication contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, except that information as of a later date shall
be deemed to modify information as of an earlier date. Except as set forth in
Section 4.12 of the Company Disclosure Schedule, the Company has timely filed
all Company Reports and other documents required to be filed by it under the
Securities Act and the Exchange Act, and, as of their respective dates, all
Company Reports complied with the published rules and regulations of the SEC
with respect thereto.
4.13 Company Information. The information relating to the Company and
its Subsidiaries which is provided to Buyer by the Company specifically for
inclusion in the Proxy Statement and the S-4, or in any other document filed
with any other regulatory agency in connection herewith, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances in which they are
made, not misleading.
4.14 Compliance with Applicable Law . The Company and each of its
Subsidiaries hold, and have at all times held, all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to all, and have complied with and are not in
default in any respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries has received notice of, any violations of any of the above.
19
4.15 Certain Contracts. (a) Except as set forth in Section 4.15(a) of
the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
is a party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) with respect to the employment of any directors,
officers, employees or consultants, (ii) which, upon the consummation of the
transactions contemplated by this Agreement or the Bank Merger Agreement, will
(either alone or upon the occurrence of any additional acts or events) result in
any payment or benefits (whether of severance pay or otherwise) becoming due, or
the acceleration or vesting of any rights to any payment or benefits, from
Buyer, the Company, the Surviving Corporation, the Surviving Bank or any of
their respective Subsidiaries to any officer, director, consultant or employee
thereof, (iii) which is a material contract (as defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed after the date of this Agreement that
has not been filed or incorporated by reference in the Company Reports, (iv)
which is a consulting agreement (including data processing, software programming
and licensing contracts) not terminable on 60 days or less notice involving the
payment of more than $50,000 per annum, in the case of any such agreement with
an individual, or $100,000 per annum, in the case of any other such agreement,
(v) which materially restricts the conduct of any line of business by the
Company or any of its Subsidiaries or (vi) (including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock purchase plan)
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the Bank Merger Agreement, or the value of any
of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement or the Bank Merger Agreement. Each
contract, arrangement, commitment or understanding of the type described in this
Section 4.15(a), whether or not set forth in Section 4.15(a) of the Company
Disclosure Schedule, is referred to herein as a "Company Contract". The Company
has previously delivered or made available to Buyer true and correct copies of
each Company Contract.
(b) Except as set forth in Section 4.15(b) of the Company
Disclosure Schedule, (i) each Company Contract is valid and binding and in full
force and effect, (ii) the Company and each of its Subsidiaries has performed
all obligations required to be performed by it to date under each Company
Contract, (iii) no event or condition exists which constitutes or, after notice
or lapse of time or both, would constitute, a default on the part of the Company
or any of its Subsidiaries under any such Company Contract, and (iv) no other
party to such Company Contract is, to the knowledge of the Company, in default
in any respect thereunder.
20
4.16 Agreements with Regulatory Agencies. Neither the Company nor any
of its Subsidiaries is subject to any cease-and-desist or other order issued by,
or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth on Section 4.16 of the Company
Disclosure Schedule, a "Regulatory Agreement"), any Regulatory Agency or other
Governmental Entity that restricts the conduct of its business or that in any
manner relates to its capital adequacy, its credit policies, its management or
its business, nor has the Company or any of its Subsidiaries been advised in
writing by any Regulatory Agency or other Governmental Entity that it is
considering issuing or requesting any Regulatory Agreement.
4.17 Investment Securities. Section 4.17 of the Company Disclosure
Schedule sets forth the book and market value as of July 31, 1998 of the
investment securities and securities available for sale of the Company and its
Subsidiaries.
4.18 Intellectual Property. The Company and each of its Subsidiaries
owns or possesses valid and binding licenses and other rights to use without
payment all patents, copyrights, trade secrets, trade names, servicemarks and
trademarks used in its businesses; and neither the Company nor any of its
Subsidiaries has received any notice of conflict with respect thereto that
asserts the right of others.
4.19 State Takeover Laws; Articles of Incorporation. (a) The Board of
Directors of the Company has approved this Agreement, the Stock Option Agreement
and the transaction contemplated hereby prior to the date of this Agreement such
that the provisions of Section 3-602 of the MGCL will not, assuming the accuracy
of the representations contained in Section 5.15 hereof, apply to this
Agreement, the Bank Merger Agreement or the Company Option Agreement or any of
the transactions contemplated hereby or thereby.
(b) The Board of Directors of the Company has approved this
Agreement and the transactions contemplated hereby by a vote of at least eighty
percent of all of the members of the Board of Directors such that the 80% vote
requirement of clause (A) of paragraph a(9) of Article Eighth of the Company's
Articles of Incorporation will not apply to this Agreement and the transactions
contemplated hereby.
4.20 Administration of Fiduciary Accounts . The Company and each of its
Subsidiaries has properly administered all accounts for which it acts as a
fiduciary, including but not limited to accounts for which it serves as a
trustee, agent, custodian, per-
21
xxxxx representative, guardian, conservator or investment advisor, in accordance
with the terms of the governing documents and applicable state and federal law
and regulation and common law. Neither the Company nor any of its Subsidiaries
nor any of their respective directors, officers or employees has committed any
breach of trust with respect to any such fiduciary account, and the accountings
for each such fiduciary account are true and correct and accurately reflect the
assets of such fiduciary account.
4.21 Environmental Matters. Except as set forth in Section 4.21 of the
Company Disclosure Schedule:
(a) Each of the Company and its Subsidiaries and to the best
knowledge of the Company, the Participation Facilities and the Loan Properties
(each as hereinafter defined) are, and have been, in compliance with all
applicable federal, state and local laws including common law, regulations and
ordinances and with all applicable decrees, orders and contractual obligations
relating to pollution or the discharge of, or exposure to Hazardous Materials
(as hereinafter defined) in the environment or workplace ("Environmental Laws");
(b) There is no suit, claim, action or proceeding, pending or,
to the best knowledge of the Company, threatened, before any Governmental Entity
or other forum in which the Company, any of its Subsidiaries or to the best
knowledge of the Company, any Participation Facility or any Loan Property, has
been or, with respect to threatened proceedings, may be, named as a defendant
(x) for alleged noncompliance (including by any predecessor), with any
Environmental Laws, or (y) relating to the release, threatened release or
exposure to any Hazardous Material whether or not occurring at or on a site
owned, leased or operated by the Company or any of its Subsidiaries, any
Participation Facility or any Loan Property;
(c) During the period of (x) the Company's or any of its
Subsidiaries' ownership or operation of any of their respective current or
former properties, (y) the Company's or any of its Subsidiaries' participation
in the management of any Participation Facility, or (z) the Company's or any of
its Subsidiaries' holding of a security interest in a Loan Property, to the best
knowledge of the Company, there has been no release of Hazardous Materials in,
on, under or affecting any such property. Prior to the period of (x) the
Company's or any of its Subsidiaries' ownership or operation of any of their
respective current or former properties, (y) the Company's or any of its
Subsidiaries' participation in the management of any Participation Facility, or
(z) the Company's or any of its Subsidiaries' holding of a security interest in
a Loan Property, to the best knowledge of the Company, there was no release or
threatened release of Hazardous
22
Materials in, on, under or affecting any such property, Participation Facility
or Loan Property; and
(d) The following definitions apply for purposes of this Section
4.21: (x) "Hazardous Materials" means any chemicals, pollutants, contaminants,
wastes, toxic substances, petroleum or other regulated substances or materials,
(y) "Loan Property" means any property in which the Company or any of its
Subsidiaries holds a security interest, and, where required by the context, said
term means the owner or operator of such property; and (z) "Participation
Facility" means any facility in which the Company or any of its Subsidiaries
participates in the management and, where required by the context, said term
means the owner or operator of such property.
4.22 Derivative Transactions. Except as set forth in Section 4.22 of
the Company Disclosure Schedule, since December 31, 1997, neither Company nor
any of its Subsidiaries has engaged in transactions in or involving forwards,
futures, options on futures, swaps or other derivative instruments except (i) as
agent on the order and for the account of others, or (ii) as principal for
purposes of hedging interest rate risk on U.S. dollar-denominated securities and
other financial instruments. None of the counterparties to any contract or
agreement with respect to any such instrument is in default with respect to such
contract or agreement and no such contract or agreement, were it to be a Loan
(as defined below) held by the Company or any of its Subsidiaries, would be
classified as "Other Loans Specially Mentioned", "Special Mention",
"Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit Risk
Assets", "Concerned Loans" or words of similar import. The financial position of
the Company and its Subsidiaries on a consolidated basis under or with respect
to each such instrument has been reflected in the books and records of the
Company and such Subsidiaries in accordance with GAAP consistently applied, and
no open exposure of the Company or any of its Subsidiaries with respect to any
such instrument (or with respect to multiple instruments with respect to any
single counterparty) exceeds $100,000.
4.23 Opinion. Prior to the execution of this Agreement, the Company has
received an opinion from RP Financial LC to the effect that, as of the date
hereof and based upon and subject to the matters set forth therein, the
consideration to be received by the stockholders of the Company pursuant to this
Agreement is fair to the Company's stockholders from a financial point of view.
Such opinion has not been amended or rescinded as of the date of this Agreement.
4.24 Approvals. As of the date of this Agreement, the Company knows of
no reason why all regulatory approvals required for the consummation of the
transactions
23
contemplated hereby (including, without limitation, the Merger and the
Subsidiary Merger) should not be obtained.
4.25 Loan Portfolio. (a) Except as set forth in Section 4.25 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is
a party to any written or oral (i) loan agreement, note or borrowing arrangement
(including, without limitation, leases, credit enhancements, commitments,
guarantees and interest-bearing assets) (collectively, "Loans"), other than any
Loan the unpaid principal balance of which does not exceed $50,000, under the
terms of which the obligor is, as of the date of this Agreement, over 90 days
delinquent in payment of principal or interest or in default of any other
provision, or (ii) Loan with any director, executive officer or five percent or
greater stockholder of the Company or any of its Subsidiaries, or to the
knowledge of the Company, any person, corporation or enterprise controlling,
controlled by or under common control with any of the foregoing. Section 4.25 of
the Company Disclosure Schedule sets forth (i) all of the Loans in original
principal amount in excess of $50,000 of the Company or any of its Subsidiaries
that as of the date of this Agreement are classified by any bank examiner
(whether regulatory or internal) as "Other Loans Specially Mentioned", "Special
Mention", "Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit
Risk Assets", "Concerned Loans", "Watch List" or words of similar import,
together with the principal amount of and accrued and unpaid interest on each
such Loan and the identity of the borrower thereunder, (ii) by category of Loan
(i.e., commercial, consumer, etc.), all of the other Loans of the Company and
its Subsidiaries that as of the date of this Agreement are classified as such,
together with the aggregate principal amount of and accrued and unpaid interest
on such Loans by category and (iii) each asset of the Company that as of the
date of this Agreement is classified as "Other Real Estate Owned" and the book
value thereof. The Company shall promptly inform Buyer in writing of any Loan
that becomes classified in the manner described in the previous sentence, or any
Loan the classification of which is changed, at any time after the date of this
Agreement.
(b) Each Loan in original principal amount in excess of $50,000
(i) is evidenced by notes, agreements or other 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 obligation 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.
4.26 Accounting for the Merger; Reorganization. As of the date of this
Agreement, the Company has no reason to believe that the Merger will fail to
qualify (i) for
24
pooling-of-interests treatment under GAAP or (ii) as a reorganization under
Section 368(a) of the Code.
4.27 Ownership of Company Common Stock. Immediately prior to the
Effective Time, none of the Company or its Subsidiaries will beneficially own,
directly or indirectly, any Company Common Stock that will be cancelled,
pursuant to Section 1.4(b) hereof, at the Effective Time.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer hereby represents and warrants to the Company as follows:
5.1 Corporate Organization. (a) Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland.
Buyer has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary. Buyer is duly registered as a bank holding company
under the BHC Act. The Articles of Incorporation and By-laws of Buyer, copies of
which have previously been made available to the Company, are true, complete and
correct copies of such documents as in effect as of the date of this Agreement.
(b) Buyer Bank is a banking association duly organized, validly
existing and in good standing under the laws of the United States. The deposit
accounts of Buyer Bank are insured by the FDIC through the BIF and the SAIF to
the fullest extent permitted by law, and all premiums and assessments required
in connection therewith have been paid by Buyer Bank. Each of Buyer's other
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Each Subsidiary of Buyer has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly licensed
or qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary.
The articles of incorporation and by-laws of Buyer Bank, copies of which have
previously been made available to the Company, are true, complete and correct
copies of such documents as in effect as of the date of this Agreement.
25
(c) The minute books of Buyer and each of its Subsidiaries
contain true, complete and accurate records in all material respects of all
meetings and other corporate actions held or taken since December 31, 1995 of
their respective stockholders and Boards of Directors (including committees of
their respective Boards of Directors).
5.2 Capitalization. (a) As of the date of this Agreement, the
authorized capital stock of Buyer consists of 50,000,000 shares of Buyer Common
Stock. As of August 10, 1998, there were 6,395,629 shares of Buyer Common Stock
issued and outstanding. As of the date of this Agreement, no shares of Buyer
Common Stock were reserved for issuance, except that (i) 60,775 shares of Buyer
Common Stock were reserved for issuance pursuant to Buyer's dividend
reinvestment and stock purchase plans and (ii) 129,259 shares of Buyer Common
Stock were reserved for issuance upon the exercise of stock options pursuant to
the Buyer 1983 Incentive Stock Option Plan, as amended, the Buyer 1995 Stock
Option Plan and the Buyer Employee Stock Purchase Plan (collectively, the "Buyer
Stock Plans"). All of the issued and outstanding shares of Buyer Common Stock
have been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights, with no personal liability attaching to the
ownership thereof. As of the date of this Agreement, except as referred to above
or reflected in Section 5.2(a) of the Buyer Disclosure Schedule, Buyer does not
have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any shares of Buyer Common Stock or any other equity securities of
Buyer or any securities representing the right to purchase or otherwise receive
any shares of Buyer Common Stock. The shares of Buyer Common Stock to be issued
pursuant to the Merger will be duly authorized and validly issued and, at the
Effective Time, all such shares will be fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof.
(b) Section 5.2(b) of the Buyer Disclosure Schedule sets forth a
true and correct list of all of Buyer Subsidiaries as of the date of this
Agreement. Except as set forth in Section 5.2(b) of the Buyer Disclosure
Schedule, as of the date of this Agreement, Buyer owns, directly or indirectly,
all of the issued and outstanding shares of capital stock of each of the
Subsidiaries of Buyer, free and clear of all liens, charges, encumbrances and
security interests whatsoever, and all of such shares are duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof. As of the date of
this Agreement, no Subsidiary of Buyer has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character with any party that is not a direct or indirect Subsidiary of Buyer
calling for the purchase or issuance of any shares of capital
26
stock or any other equity security of such Subsidiary or any securities
representing the right to purchase or otherwise receive any shares of capital
stock or any other equity security of such Subsidiary.
5.3 Authority; No Violation. (a) Buyer has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Buyer. The Board of Directors of
Buyer has directed that this Agreement and the transactions contemplated hereby
be submitted to Buyer's stockholders for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the requisite
vote of Buyer's stockholders, no other corporate proceedings on the part of
Buyer are necessary to approve this Agreement and to consummate the transactions
contemplated hereby. Without limiting the foregoing, the Board of Directors of
Buyer has adopted a resolution declaring that this Agreement, the Merger and the
transactions contemplated hereby and thereby are advisable on substantially the
terms set forth herein and that such proposed transactions be submitted for
consideration at a special meeting of the stockholders of Buyer. This Agreement
has been duly and validly executed and delivered by Buyer and (assuming due
authorization, execution and delivery by the Company) this Agreement constitutes
a valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) Buyer Bank has full corporate power and authority to execute
and deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of Buyer Bank. Upon the due and valid
approval of the Bank Merger Agreement by Buyer as the sole stockholder of Buyer
Bank, and by the Board of Directors of Buyer Bank, no other corporate
proceedings on the part of Buyer Bank will be necessary to consummate the
transactions contemplated thereby. The Bank Merger Agreement, upon execution and
delivery by Buyer Bank, will be duly and validly executed and delivered by Buyer
Bank and will (assuming due authorization, execution and delivery by the Company
Bank) constitute a valid and binding obligation of Buyer Bank, enforceable
against Buyer Bank in accordance with its terms, except as enforcement may be
limited by general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
27
(c) Except as set forth in Section 5.3(c) of the Buyer
Disclosure Schedule, neither the execution and delivery of this Agreement by
Buyer or the Bank Merger Agreement by Buyer Bank, nor the consummation by Buyer
or Buyer Bank, as the case may be, of the transactions contemplated hereby or
thereby, nor compliance by Buyer or Buyer Bank, as the case may be, with any of
the terms or provisions hereof or thereof, will (i) violate any provision of the
Articles of Incorporation or By-Laws of Buyer, or the articles of incorporation
or by-laws or similar governing documents of any of its Subsidiaries or (ii)
assuming that the consents and approvals referred to in Section 5.4 are duly
obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Buyer or any of its Subsidiaries
or any of their respective properties or assets, or (y) violate, conflict with,
result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of Buyer or any of
its Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Buyer or any of its Subsidiaries is a party,
or by which they or any of their respective properties or assets may be bound or
affected.
5.4 Consents and Approvals. Except for (a) the filing of applications
and notices, as applicable, with the Federal Reserve Board under the BHC Act and
the Office of the Comptroller of the Currency under the Bank Merger Act, and
approval of such applications and notices, (b) the filing with the SEC of the
Proxy Statement and the filing and declaration of effectiveness of the S-4, (c)
the approval of the Merger and this Agreement by the requisite vote of the
stockholders of Buyer, (d) the filing of the Articles of Merger with the
Department pursuant to the MGCL, (e) such filings and approvals as are required
to be made or obtained under the securities or "Blue Sky" laws of various states
in connection with the issuance of the shares of Buyer Common Stock pursuant to
this Agreement, (f) filings required by the Bank Merger Agreement, (g) the
approval of the Bank Merger Agreement by the stockholder of Buyer Bank, (h)
authorization for quotation of Buyer Common Stock to be issued in the Merger on
the Nasdaq/NMS, (i) approval of the transactions contemplated by this Agreement
and the Bank Merger Agreement by the Maryland Commissioner of Financial
Regulation and/or filings in connection therewith pursuant to the Financial
Institutions Article of the Annotated Code of Maryland, (j) filings with the
State Insurance Commissioner and (k) such filings, authorizations or approvals
as may be set forth in Section 5.4 of the Buyer Disclosure Schedule, no consents
or approvals of or filings or registrations with any Governmental Entity or
28
with any third party are necessary in connection with (1) the execution and
delivery by Buyer of this Agreement, (2) the consummation by Buyer of the Merger
and the other transactions contemplated hereby, (3) the execution and delivery
by Buyer Bank of the Bank Merger Agreement, and (4) the consummation of Buyer
Bank of the transactions contemplated by the Bank Merger Agreement.
5.5 Reports. Buyer and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since December 31,
1995 with any state banking regulatory agency or authority (each a "State
Regulator") or any Regulatory Agency, and have paid all fees and assessments due
and payable in connection therewith. Except for normal examinations conducted by
a Regulatory Agency or State Regulator in the regular course of the business of
Buyer and its Subsidiaries, and except as set forth in Section 5.5 of the Buyer
Disclosure Schedule, no Regulatory Agency or State Regulator has initiated any
proceeding or investigation into the business or operations of Buyer or any of
its Subsidiaries since December 31, 1995. There is no unresolved violation,
criticism, or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of Buyer or any of its Subsidiaries.
5.6 Financial Statements. Buyer has previously delivered to the Company
copies of (a) the consolidated balance sheets of Buyer and its Subsidiaries as
of December 31 for the fiscal years 1996 and 1997 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
fiscal years 1995 through 1997, inclusive, as reported in Buyer's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 filed with the SEC
under the Exchange Act, in each case accompanied by the audit report of Xxxxxx
Xxxxxxxx, LLP, independent public accountants with respect to Buyer, and (b) the
unaudited consolidated balance sheet of Buyer and its Subsidiaries as of June
30, 1998 and June 30, 1997 and the related unaudited consolidated statements of
income and comprehensive income, changes in shareholders' equity and cash flows
for the six-month periods then ended as reported in Buyer's Quarterly Report on
Form 10-Q for the period ended June 30, 1998 filed with the SEC under the
Exchange Act. The December 31, 1997 consolidated balance sheet of Buyer
(including the related notes, where applicable) fairly presents the consolidated
financial position of Buyer and its Subsidiaries as of the date thereof, and the
other financial statements referred to in this Section 5.6 (including the
related notes, where applicable) fairly present and the financial statements to
be filed with the SEC after the date hereof will fairly present (subject, in the
case of the unaudited statements, to recurring audit adjustments normal in
nature and amount), the results of the consolidated operations and changes in
shareholders' equity and consolidated financial position of Buyer and its
Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth; each of such
29
statements (including the related notes, where applicable) comply, and the
financial statements to be filed with the SEC after the date hereof will comply,
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto; and each of such statements
(including the related notes, where applicable) has been, and the financial
statements to be filed with the SEC after the date hereof will be, prepared in
accordance with GAAP consistently applied during the periods involved, except as
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q. The books and records of Buyer and its Subsidiaries have
been, and are being, maintained in accordance with GAAP and any other applicable
legal and accounting requirements.
5.7 Broker's Fees. Neither Buyer nor any Subsidiary of Buyer, nor any
of their respective officers or directors, has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement, the
Company Option Agreement or the Bank Merger Agreement, except that Buyer has
engaged, and will pay a fee or commission to, Wheat First Securities, Inc.
5.8 Absence of Certain Changes or Events. Except as may be set forth in
Section 5.8 of the Buyer Disclosure Schedule, or as disclosed in any Buyer
Report (as defined in Section 5.12) filed with the SEC prior to the date of this
Agreement, since December 31, 1997, there has been no change or development or
combination of changes or developments which, individually or in the aggregate,
has had or is reasonably likely to have a Material Adverse Effect on Buyer.
5.9 Legal Proceedings. (a) Except as set forth in Section 5.9 of the
Buyer Disclosure Schedule, neither Buyer nor any of its Subsidiaries is a party
to any and there are no pending or, to Buyer's knowledge, threatened, material
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against Buyer or any of
its Subsidiaries or challenging the validity or propriety of the transactions
contemplated by this Agreement or the Bank Merger Agreement.
(b) There is no injunction, order, judgment, decree, or
regulatory restriction imposed upon Buyer, any of its Subsidiaries or the assets
of Buyer or any of its Subsidiaries.
5.10 Taxes. Except as set forth in Section 5.10 of the Buyer Disclosure
Schedule, each of Buyer and its Subsidiaries (i) has duly and timely filed
(including applicable extensions granted without penalty) all Tax Returns
required to be filed on or prior to the date hereof and will duly and timely
file all Tax Returns after the date hereof and prior to
30
the Effective Time, and such Tax Returns are or will be true, correct and
complete, and (ii) has paid or will pay in full or to the extent necessary made
or will make adequate provision in the financial statements of Buyer (in
accordance with GAAP) for all Taxes. Except as set forth in Section 5.10 of the
Buyer Disclosure Schedule, no deficiencies for any Taxes have been proposed,
asserted, assessed or, to the knowledge of Buyer, threatened against or with
respect to Buyer or any of its Subsidiaries. Except as set forth in Section 5.10
of the Buyer Disclosure Schedule, (i) there are no liens for Taxes upon the
assets of either Buyer or its Subsidiaries except for statutory liens for
current Taxes not yet due, (ii) neither Buyer nor any of its Subsidiaries has
requested any extension of time within which to file any Tax Returns in respect
of any fiscal year which have not since been filed and no request for waivers of
the time to assess any Taxes are pending or outstanding, (iii) with respect to
each taxable period of Buyer and its Subsidiaries, the federal and state income
Tax Returns of Buyer and its Subsidiaries have been audited by the Internal
Revenue Service or appropriate state tax authorities or the time for assessing
and collecting income Tax with respect to such taxable period has closed and
such taxable period is not subject to review, (iv) neither Buyer nor any of its
Subsidiaries has filed or been included in a combined, consolidated or unitary
income Tax Return other than one in which Buyer was the parent of the group
filing such Tax Return, (v) neither Buyer nor any of its Subsidiaries is a party
to any agreement providing for the allocation or sharing of Taxes (other than
the allocation of federal income taxes as provided by Regulation 1.1552-1(a)(1)
under the Code), (vi) neither Buyer nor any of its Subsidiaries is required to
include in income any adjustment pursuant to Section 481(a) of the Code (or any
similar or corresponding provision or requirement of state, local or foreign
income Tax law), by reason of the voluntary change in accounting method (nor has
any taxing authority proposed in writing any such adjustment or change of
accounting method), (vii) neither Buyer nor any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code, and (viii) neither Buyer nor any
of its Subsidiaries has made any payment or will be obligated to make any
payment (by contract or otherwise) which will not be deductible by reason of
Section 280G of the Code.
5.11 Employees. (a) Section 5.11(a) of the Buyer Disclosure Schedule
sets forth a true and complete list of each deferred compensation plan,
incentive compensation plan, equity compensation plan, "welfare" plan, fund or
program (within the meaning of section 3(1) of the ERISA); "pension" plan, fund
or program (within the meaning of section 3(2) of ERISA); each employment,
termination or severance agreement; and each other employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to as of the date of this
Agreement (the "Buyer Plans") by Buyer, any of its Subsidiaries or by any trade
or business, whether or not incorporated (a "Buyer ERISA Affiliate"), all of
which together with Buyer would be deemed a "single employer" within the meaning
of
31
Section 4001 of ERISA, for the benefit of any employee or former employee of
Buyer, any Subsidiary or any ERISA Affiliate.
(b) Except as set forth in Section 5.11(b) of the Buyer
Disclosure Schedule, (i) each of the Buyer Plans has been operated and
administered in accordance with its terms and applicable law, including but not
limited to ERISA and the Code, (ii) each of the Buyer Plans intended to be
"qualified" within the meaning of Section 401(a) of the Code has either (1)
received a favorable determination letter from the IRS, or (2) is or will be the
subject of an application for a favorable determination letter, and Buyer is not
aware of any circumstances likely to result in the revocation or denial of any
such favorable determination letter, (iii) with respect to each Buyer Plan which
is subject to Title IV of ERISA, the present value of accrued benefits under
such Buyer Plan, based upon the actuarial assumptions used for funding purposes
in the most recent actuarial report prepared by such Buyer Plan's actuary with
respect to such Buyer Plan, did not, as of its latest valuation date, exceed the
then current value of the assets of such Buyer Plan allocable to such accrued
benefits, (iv) no Plan provides benefits, including without limitation death or
medical benefits (whether or not insured), with respect to current or former
employees of Buyer, its Subsidiaries or any ERISA Affiliate beyond their
retirement or other termination of service, other than (w) coverage mandated by
applicable law, (x) death benefits or retirement benefits under any "employee
pension plan," as that term is defined in Section 3(2) of ERISA, (y) deferred
compensation benefits accrued as liabilities on the books of Buyer, its
Subsidiaries or the ERISA Affiliates or (z) benefits the full cost of which is
borne by the current or former employee (or his beneficiary), (v) no liability
under Title IV of ERISA has been incurred by Buyer, its Subsidiaries or any
Buyer ERISA Affiliate that has not been satisfied in full, (vi) no Buyer Plan is
a "multiemployer pension plan," as such term is defined in Section 3(37) of
ERISA, (vii) all contributions or other amounts payable by Buyer, its
Subsidiaries or any ERISA Affiliate as of the Effective Time with respect to
each Plan in respect of current or prior plan years have been paid or accrued in
accordance with generally accepted accounting practices and Section 412 of the
Code, (viii) neither Buyer, its Subsidiaries nor any ERISA Affiliate has engaged
in a transaction in connection with which Buyer, its Subsidiaries or any ERISA
Affiliate could be subject to either a civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976
of the Code, (ix) there are no pending, or, to the best knowledge of Buyer,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Buyer Plans or any trusts related thereto and
(x) the consummation of the transactions contemplated by this Agreement or the
Bank Merger Agreement will not (y) entitle any current or former employee or
officer of Buyer or any ERISA Affiliate to severance pay, termination pay or any
other payment or benefit, except as expressly provided in this
32
Agreement or (z) accelerate the time of payment or vesting or increase in the
amount or value of compensation or benefits due any such employee or officer.
5.12 SEC Reports. Buyer has previously made available to the Company an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1996 by
Buyer with the SEC pursuant to the Securities Act or the Exchange Act (the
"Buyer Reports") and (b) communication mailed by Buyer to its stockholders since
January 1, 1996, and no such registration statement, prospectus, report,
schedule, proxy statement or communication contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, except that information
as of a later date shall be deemed to modify information as of an earlier date.
Buyer has timely filed all Buyer Reports and other documents required to be
filed by it under the Securities Act and the Exchange Act, and, as of their
respective dates, all Buyer Reports complied with the published rules and
regulations of the SEC with respect thereto.
5.13 Buyer Information. The information relating to Buyer and its
Subsidiaries which is provided to Buyer by the Company for inclusion in the
Proxy Statement and the S-4, or in any other document filed with any other
regulatory agency in connection herewith, will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances in which they are made, not
misleading.
5.14 Compliance with Applicable Law. Buyer and each of its Subsidiaries
holds, and has at all times held, all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to all, and have complied with and are not in default in any
respect under any, applicable law, statute, order, rule, regulation, policy
and/or guideline of any Governmental Entity relating to Buyer or any of its
Subsidiaries, and neither Buyer nor any of its Subsidiaries knows of, or has
received notice of violation of, any violations of any of the above.
5.15 Ownership of Company Common Stock; Affiliates and Associates. (a)
Except for the Company Option Agreement, neither Buyer nor any of its affiliates
or associates (as such terms are defined under the Exchange Act), (i)
beneficially owns, directly or indirectly, or (ii) is a party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, any shares of capital stock of the Company (other
than Trust Account Shares and DPC Shares); and
33
(b) Neither Buyer nor any of its Subsidiaries is an "affiliate"
(as such term is defined in MGCL ss. 3-601) or an "associate" (as such term is
defined in MGCL ss. 3-601) of the Company or an "Interested Stockholder" (as
such term is defined in MGCL ss. 3-601) of the Company.
5.16 Agreements with Regulatory Agencies. Neither Buyer nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth in Section 5.16 of the Buyer
Disclosure Schedule, a "Buyer Regulatory Agreement"), any Regulatory Agency or
other Governmental Entity that restricts the conduct of its business or that in
any manner relates to its capital adequacy, its credit policies, its management
or its business, nor has Buyer or any of its Subsidiaries been advised by any
Regulatory Agency or other Governmental Entity that it is considering issuing or
requesting any Regulatory Agreement.
5.17 Investment Securities. Section 5.17 of the Buyer Disclosure
Schedule sets forth the book and market value of July 31, 1998 of the investment
securities and securities available for sale of Buyer and its Subsidiaries.
5.18 Intellectual Property. Except as set forth in Section 5.18 of the
Buyer Disclosure Schedule, Buyer and each of its Subsidiaries owns or possesses
valid and binding licenses and other rights to use without payment all patents,
copyrights, trade secrets, trade names, servicemarks and trademarks used in its
businesses; and neither Buyer nor any of its Subsidiaries has received any
notice of conflict with respect thereto that asserts the right of others.
5.19 Approvals. As of the date of this Agreement, Buyer knows of no
reason why all regulatory approvals required for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger and
the Subsidiary Merger) should not be obtained.
5.20 Administration of Fiduciary Accounts. Buyer and each of its
Subsidiaries has properly administered all accounts for which it acts as a
fiduciary, including but not limited to accounts for which it serves as a
trustee, agent, custodian, personal representative, guardian, conservator or
investment advisor, in accordance with the terms of the governing documents and
applicable state and federal law and regulation and common law. Neither Buyer
nor any of its Subsidiaries nor any of their respective directors, offi-
34
cers or employees has committed any breach of trust with respect to any such
fiduciary account, and the accountings for each such fiduciary account are true
and correct and accurately reflect the assets of such fiduciary account.
5.21 Accounting for the Merger; Reorganization. As of the date hereof,
(i) after consulting with its independent auditors, Buyer has no reason to
believe that the Merger will fail to qualify for pooling-of-interests treatment
under GAAP. Buyer has no reason to believe that the Merger will fail to qualify
as a reorganization under Section 368(a) of the Code. Buyer has no plan or
intention to reacquire any shares of Buyer Common Stock issued in the Merger
that would cause the Merger to fail to qualify as a reorganization under Section
368(a). Buyer has no plan or intention to sell or otherwise dispose of any of
the assets of the Company or any of its Subsidiaries after the Effective Time
except for dispositions permitted under Section 368(a) of the Code. There is no
intercorporate indebtedness existing between Buyer or any of its Subsidiaries on
the one hand and the Company or any of its Subsidiaries on the other that was
issued, settled, acquired or will be settled at a discount. It is understood and
agreed that counsel to Seller and counsel to Buyer each have the right to seek
additional representations, warranties and covenants from the parties to this
Agreement in connection with the issuance of tax opinions to be rendered in
connection with the Merger.
5.22 Opinion. Prior to the execution of this Agreement, Buyer has
received an opinion from Wheat First Securities, Inc. to the effect that as of
the date thereof and based upon and subject to the matters set forth therein,
the Exchange Ratio is fair from a financial point of view to stockholders of
Buyer. Such opinion has not been amended or rescinded as of the date of this
Agreement.
5.23 Environmental Matters. Except as set forth in Section 5.23 of the
Buyer Disclosure Schedule:
(a) Each of Buyer and its Subsidiaries and to the best knowledge
of Buyer, the Participation Facilities and the Loan Properties (each as
hereinafter defined) are, and have been, in compliance with all applicable
federal, state and local laws including common law, regulations and ordinances
and with all applicable decrees, orders and contractual obligations relating to
pollution or the discharge of, or exposure to Hazardous Materials (as
hereinafter defined) in the environment or workplace ("Environmental Laws");
(b) There is no suit, claim, action or proceeding, pending or,
to the best knowledge of Buyer, threatened, before any Governmental Entity or
other forum in which Buyer, any of its Subsidiaries or to the best knowledge of
Buyer, any Partici-
35
pation Facility or any Loan Property, has been or, with respect to threatened
proceedings, may be, named as a defendant (x) for alleged noncompliance
(including by any predecessor), with any Environmental Laws, or (y) relating to
the release, threatened release or exposure to any Hazardous Material whether or
not occurring at or on a site owned, leased or operated by Buyer or any of its
Subsidiaries, any Participation Facility or any Loan Property;
(c) During the period of (x) Buyer's or any of its Subsidiaries'
ownership or operation of any of their respective current or former properties,
(y) Buyer's or any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) Buyer's or any of its Subsidiaries' holding of a
security interest in a Loan Property, to the best knowledge of Buyer, there has
been no release of Hazardous Materials in, on, under or affecting any such
property. Prior to the period of (x) Buyer's or any of its Subsidiaries'
ownership or operation of any of their respective current or former properties,
(y) Buyer's or any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) Buyer's or any of its Subsidiaries' holding of a
security interest in a Loan Property, to the best knowledge of Buyer, there was
no release or threatened release of Hazardous Materials in, on, under or
affecting any such property, Participation Facility or Loan Property; and
(d) The following definitions apply for purposes of this Section
5.23: (x) "Hazardous Materials" means any chemicals, pollutants, contaminants,
wastes, toxic substances, petroleum or other regulated substances or materials,
(y) "Loan Property" means any property in which Buyer or any of its Subsidiaries
holds a security interest, and, where required by the context, said term means
the owner or operator of such property; and (z) "Participation Facility" means
any facility in which Buyer or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such property.
5.24 Derivative Transactions. Except as set forth in Section 5.24 of
the Buyer Disclosure Schedule, since December 31, 1997, neither Buyer nor any of
its Subsidiaries has engaged in transactions in or involving forwards, futures,
options on futures, swaps or other derivative instruments except (i) as agent on
the order and for the account of others, or (ii) as principal for purposes of
hedging interest rate risk on U.S. dollar-denominated securities and other
financial instruments. None of the counterparties to any contract or agreement
with respect to any such instrument is in default with respect to such contract
or agreement and no such contract or agreement, were it to be a Loan (as defined
below) held by Buyer or any of its Subsidiaries, would be classified as "Other
Loans Specially Mentioned", "Special Mention", "Substandard", "Doubtful",
"Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned Loans" or
words of similar import. The xxxxx-
36
cial position of Buyer and its Subsidiaries on a consolidated basis under or
with respect to each such instrument has been reflected in the books and records
of Buyer and such Subsidiaries in accordance with GAAP consistently applied, and
no open exposure of Buyer or any of its Subsidiaries with respect to any such
instrument (or with respect to multiple instruments with respect to any single
counterparty) exceeds $100,000.
5.25 Loan Portfolio. (a) Except as set forth in Section 5.25 of the
Buyer Disclosure Schedule, neither Buyer nor any of its Subsidiaries is a party
to any written or oral (i) loan agreement, note or borrowing arrangement
(including, without limitation, leases, credit enhancements, commitments,
guarantees and interest-bearing assets) (collectively, "Loans"), other than
Loans the unpaid principal balance of which does not exceed $100,000, under the
terms of which the obligor is, as of the date of this Agreement, over 90 days
delinquent in payment of principal or interest or in default of any other
provision, or (ii) Loan with any director, executive officer or five percent or
greater stockholder of Buyer or any of its Subsidiaries, or to the knowledge of
Buyer, any person, corporation or enterprise controlling, controlled by or under
common control with any of the foregoing. Section 5.25 of the Buyer Disclosure
Schedule sets forth (i) all of the Loans in original principal amount in excess
of $100,000 of Buyer or any of its Subsidiaries that as of the date of this
Agreement are classified by any bank examiner (whether regulatory or internal)
as "Other Loans Specially Mentioned", "Special Mention", "Substandard",
"Doubtful", "Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned
Loans", "Watch List" or words of similar import, together with the principal
amount of and accrued and unpaid interest on each such Loan and the identity of
the borrower thereunder, (ii) by category of Loan (i.e., commercial, consumer,
etc.), all of the other Loans of Buyer and its Subsidiaries that as of the date
of this Agreement are classified as such, together with the aggregate principal
amount of and accrued and unpaid interest on such Loans by category and (iii)
each asset of Buyer that as of the date of this Agreement is classified as
"Other Real Estate Owned" and the book value thereof. Buyer shall promptly
inform the Company in writing of any Loan that becomes classified in the manner
described in the previous sentence, or any Loan the classification of which is
changed, at any time after the date of this Agreement.
(b) Each Loan in original principal amount in excess of $100,000
(i) is evidenced by notes, agreements or other 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 obligation 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.
37
5.26 Vote Required. The affirmative vote of the holders of two-thirds
of the total votes entitled to vote of Buyer Common Stock is the only vote of
the holders of any class or series of Buyer capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, the Bank Merger Agreement or the
Company Option Agreement or with the prior written consent of Buyer, the Company
and its Subsidiaries shall carry on their respective businesses in the ordinary
course consistent with past practice and consistent with prudent banking
practice. The Company will use its commercially reasonable efforts to (x)
preserve its business organization and that of its Subsidiaries intact, (y) keep
available to itself and Buyer the present services of the employees of the
Company and its Subsidiaries and (z) preserve for itself and Buyer the goodwill
of the customers of the Company and its Subsidiaries and others with whom
business relationships exist. Without limiting the generality of the foregoing,
and except as set forth on Section 6.1 of the Company Disclosure Schedule or as
otherwise contemplated by this Agreement or consented to in writing by Buyer,
the Company shall not, and shall not permit any of its Subsidiaries to:
(a) solely in the case of the Company, declare or pay any
dividends on, or make other distributions in respect of, any of its capital
stock, other than normal quarterly dividends not in excess of $0.12 per share of
Company Common Stock;
(b) split, combine or reclassify any shares of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock except upon
the exercise or fulfillment of rights or options issued or existing pursuant to
employee benefit plans, programs or arrangements, all to the extent outstanding
and in existence on the date of this Agreement and in accordance with their
present terms, and except pursuant to the Company Option Agreement, or (ii)
repurchase, redeem or otherwise acquire (except for the acquisition of Trust
Account Shares and DPC Shares, as such terms are defined in Section 1.4(b)
hereof) any shares of the capital stock of the Company or any Subsidiary of the
Company, or any securities convertible into or exercisable for any shares of the
capital stock of the Company or any Subsidiary of the Company;
38
(c) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing, other than (i) the issuance of Company Common Stock pursuant to stock
options or similar rights to acquire Company Common Stock granted pursuant to
the Company Option Plans and outstanding prior to the date of this Agreement, in
each case in accordance with their present terms and (ii) pursuant to the
Company Option Agreement;
(d) amend its Articles of Incorporation, By-laws or other
similar governing documents;
(e) authorize or permit any of its officers, directors,
employees or any investment banker, financial advisor, attorney, accountant or
other representative retained by it or any of its Subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate, encourage or
facilitate any inquiries relating to, or the making of any proposal which
constitutes, a "takeover proposal" (as defined below), or (ii) recommend or
endorse any takeover proposal, or enter into, encourage or facilitate any
discussions or negotiations regarding, or furnish to any person any information
with respect to, the making of any proposal that constitutes, or may reasonably
be expected to lead to or constitute an effort to facilitate, any proposal
relating to or involving a takeover proposal; provided, however, that the
Company may communicate information about any such takeover proposal to its
stockholders if, in the judgment of the Company's Board of Directors, based upon
the advice of outside counsel, such communication is required under applicable
law; provided, further, however, that nothing contained in this Section 6.1(e)
shall prohibit the Board of Directors of the Company from (i) to the extent
applicable, complying with Rule 14e-2 and/or Rule 14d-9 promulgated under the
Exchange Act or (ii) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited, written bona
fide proposal regarding a takeover proposal if, and only to the extent that (A)
the Board of Directors of the Company concludes in good faith, after
consultation with and based upon the advice of outside counsel, that it is
legally required to furnish such information or enter into such discussions or
negotiations in order to comply with its fiduciary duties to stockholders under
applicable law, (B) prior to taking such action, the Company receives from such
person or entity an executed confidentiality agreement and an executed
standstill agreement, each in reasonably customary form (provided that such
agreement is at least as limiting as any such agreement between Buyer and the
Company), and (C) the Board of Directors of the Company, after consultation with
and based upon the advice of its financial advisor, concludes in good faith that
the proposal regarding the takeover proposal contains an offer of
39
consideration that is greater than the consideration set forth herein (a
"Superior Takeover Proposal"). The Company will immediately cease and cause to
be terminated any existing activities, discussions or negotiations previously
conducted with any parties other than Buyer with respect to any of the
foregoing. The Company will take all actions necessary or advisable to inform
the appropriate individuals or entities referred to in the first sentence hereof
of the obligations undertaken in this Section 6.1(e). The Company will notify
Buyer immediately if any such inquiries or takeover proposals are received by,
any such information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with, the Company, and the Company will
promptly inform Buyer in writing of all of the relevant details with respect to
the foregoing. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the first sentence of this Section
6.1(e) by any officer or director of the Company or any Subsidiary thereof or
any investment banker, attorney or other advisor, representative or agent of the
Company or any Subsidiary thereof, acting on behalf of or at the request of the
Board of Directors of the Company, shall be deemed to be a breach of this
Section 6.1(e) by the Company. As used in this Agreement, "takeover proposal"
shall mean any tender or exchange offer, proposal for a merger, consolidation or
other business combination involving the Company or any Subsidiary of the
Company or any proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, the Company or any
Subsidiary of the Company other than the transactions contemplated or permitted
by this Agreement, the Bank Merger Agreement and the Company Option Agreement;
(f) make any capital expenditures other than those which (i) are
made in the ordinary course of business or are necessary to maintain existing
assets in good repair and (ii) in any event are in an amount of no more than
$100,000 in the aggregate;
(g) enter into any new line of business;
(h) acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire any assets, which would be material, individually or in the
aggregate, to the Company, other than in connection with foreclosures,
settlements in lieu of foreclosure or troubled loan or debt restructurings in
the ordinary course of business consistent with prudent banking practices;
40
(i) take any action that is intended or may reasonably be
expected to result in any of the conditions to the Merger set forth in Article
VIII not being satisfied;
(j) change its methods of accounting in effect at June 30, 1998,
except as required by changes in GAAP or regulatory accounting principles as
concurred to by the Company's independent auditors;
(k)(i) except as required by applicable law or to maintain
qualification pursuant to the Code, adopt, amend, renew or terminate any
employee benefit plan (including, without limitation, any Plan) or any
agreement, arrangement, plan or policy between the Company or any Subsidiary of
the Company and one or more of its current or former directors, officers or
employees or (ii) except for normal increases in the ordinary course of business
consistent with past practice or except as required by applicable law, increase
in any manner the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any Plan or agreement as in effect
as of the date hereof (including, without limitation, the granting of stock
options, stock appreciation rights, restricted stock, restricted stock units or
performance units or shares);
(l) take or cause to be taken any action which would disqualify
the Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368(a) of the Code, provided, however, that nothing
contained herein shall limit the ability of Buyer to exercise its rights under
the Company Option Agreement;
(m) other than activities in the ordinary course of business
consistent with past practice, sell, lease, encumber, assign or otherwise
dispose of, or agree to sell, lease, encumber, assign or otherwise dispose of,
any of its material assets, properties or other rights or agreements;
(n) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money or assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity;
(o) file any application to relocate or terminate the operations
of any banking office of it or any of its Subsidiaries;
41
(p) make any equity investment or commitment to make such an
investment in real estate or in any real estate development project, other than
in connection with foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructurings in the ordinary course of business consistent with
prudent banking practices;
(q) create, renew, amend or terminate or give notice of a
proposed renewal, amendment or termination of, any material contract, agreement
or lease for goods, services or office space to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
their respective properties is bound;
(r) other than in prior consultation with Buyer, restructure or
materially change its investment securities portfolio or its gap position,
through purchases, sales or otherwise, or the manner in which the portfolio is
classified or reported;
(s) other than in prior consultation with Buyer, make, purchase
or renew, or commit to make, purchase or renew, any loan or loans, or extend any
line of credit, to any borrower and its affiliates in an aggregate principal
amount greater than $500,000 or in an amount which, when aggregated with any
existing indebtedness to the Company and its Subsidiaries and lines of credit
from the Company and its Subsidiaries of such borrower and its affiliates, would
exceed $500,000; or
(t) agree to do any of the foregoing.
42
6.2 Covenants of Buyer. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, the Bank Merger Agreement or the
Company Option Agreement or with the prior written consent of the Company, Buyer
and its Subsidiaries shall carry on their respective businesses in the ordinary
course consistent with prudent banking practice. Buyer will use its best efforts
to (x) preserve its business organization and that of its Subsidiaries intact,
(y) keep available to itself and the Company the present services of the
employees of Buyer and its Subsidiaries and (z) preserve for itself and the
Company the goodwill of the customers of Buyer and its Subsidiaries and others
with whom business relationships exist. Without limiting the generality of the
foregoing, and except as set forth on Section 6.2 of the Buyer Disclosure
Schedule or as otherwise contemplated by this Agreement or consented to in
writing by the Company, Buyer shall not, and shall not permit any of its
Subsidiaries to:
(a) solely in the case of Buyer, declare or pay any
extraordinary or special dividends on or make any other extraordinary or special
distributions in respect of any of its capital stock; provided, however, that
nothing contained herein shall prohibit Buyer from increasing the quarterly cash
dividend on Buyer Common Stock;
(b) take any action that is intended or may reasonably be
expected to result in any of the conditions to the Merger set forth in Article
VIII not being satisfied;
(c) change its methods of accounting in effect at June 30, 1998,
except in accordance with changes in GAAP or regulatory accounting principles as
concurred to by Buyer's independent auditors;
(d) take or cause to be taken any action which would disqualify
the Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368(a) of the Code, provided, however, that nothing
contained herein shall limit the ability of Buyer to exercise its rights under
the Company Option Agreement;
(e) knowingly take any action that would result in a failure to
maintain the authorization for quotation of Buyer Comon Stock on the Nasdaq/NMS;
(f) enter into any agreement relating to a merger, acquisition
or similar transaction which would prevent or adversely decrease the probability
of the consummation of the transactions contemplated by this Agreement;
43
(g) enter into any agreement contemplating the acquisition of
Buyer or Buyer Bank, whether by merger or otherwise, unless the other party
thereto expressly agrees to be bound by the terms of this Agreement; or
(h) agree to do any of the foregoing.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Regulatory Matters. (a) Buyer and the Company shall promptly
prepare and file with the SEC the Proxy Statement and Buyer shall promptly
prepare and file with the SEC the S-4, in which the Proxy Statement will be
included as a prospectus. Each of the Company and Buyer shall use all reasonable
efforts to have the S-4 declared effective under the Securities Act as promptly
as practicable after such filing, and each of the Company and Buyer shall
thereafter mail the Proxy Statement to each of its respective stockholders.
Buyer shall also use all reasonable efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement and the Bank Merger Agreement, and
the Company shall furnish all information concerning the Company and the holders
of Company Common Stock as may be reasonably requested in connection with any
such action.
(b) The parties hereto shall cooperate with each other and use
their commercially reasonable efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (including without limitation the Merger and the Subsidiary Merger)
(it being understood that any amendments to the S-4 or a resolicitation of
proxies as consequence of a subsequent proposed merger, stock purchase or
similar acquisition by Buyer or any of its Subsidiaries shall not violate this
covenant). The Company and Buyer shall have the right to review in advance, and
to the extent practicable each will consult the other on, in each case subject
to applicable laws relating to the exchange of information, all the information
relating to the Company or Buyer, as the case may be, and any of their
respective Subsidiaries, which appears in any filing made with, or written
materials submitted to, any third party or any Governmental Entity in connection
with the transactions contemplated by this Agreement. In exercising the
foregoing right, each of the parties hereto shall act reasonably and as promptly
as practicable. The parties hereto agree that they will consult with each other
with respect to the
44
obtaining of all permits, consents, approvals and authorizations of all third
parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
apprised of the status of matters relating to completion of the transactions
contemplated herein.
(c) Buyer and the Company shall, upon request, furnish each
other with all information concerning themselves, their Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement, the S-4 or any other
statement, filing, notice or application made by or on behalf of Buyer, the
Company or any of their respective Subsidiaries to any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
(d) Buyer and the Company shall promptly furnish each other with
copies of written communications received by Buyer or the Company, as the case
may be, or any of their respective Subsidiaries, Affiliates or Associates (as
such terms are defined in Rule 12b-2 under the Exchange Act as in effect on the
date of this Agreement) from, or delivered by any of the foregoing to, any
Governmental Entity in respect of the transactions contemplated hereby.
(e) The information supplied by the Company for inclusion in the
S-4 shall not, at the time the S-4 is declared effective, 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 information supplied by the Company for inclusion in the Proxy
Statement shall not, at the date the Proxy Statement (or any supplement thereto)
is first mailed to stockholders, at the time of the Company's stockholders
meeting or at the Effective Time contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made not misleading. If at any time prior to the Effective Time, any
event or circumstance relating to the Company or any of its affiliates, or its
or their respective officers or directors, should be discovered by the Company
that should be set forth in an amendment to the S-4 or a supplement to the Proxy
Statement, the Company shall promptly inform Buyer thereof in writing. All
documents that the Company is responsible for filing with the SEC in connection
with the transactions contemplated herein will comply as to form in all material
respects with applicable requirements of the Securities Act and the rules and
regulations thereunder and the Exchange Act and the rules and regulations
thereunder.
(f) The information supplied by Buyer for inclusion in the S-4
shall not, at the time the S-4 is declared effective, contain any untrue
statement of a mate-
45
rial 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
information supplied by Buyer for inclusion in the Proxy Statement shall not, at
the date the Proxy Statement (or any supplement thereto) is first mailed to
stockholders, at the time of the Buyer's stockholders meeting or at the
Effective Time, 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, in light of the circumstances under which they were made,
not misleading. If at any time prior to the Effective Time, any event or
circumstance relating to Buyer or any of its affiliates, or to their respective
officers or directors, should be discovered by Buyer that should be set forth in
an amendment to the S-4 or a supplement to the Proxy Statement, Buyer shall
promptly inform the Company thereof in writing. All documents that Buyer is
responsible for filing with the SEC in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder.
7.2 Access to Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, the Company shall, and
shall cause each of its Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of Buyer, access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments, records, officers, employees,
accountants, counsel and other representatives and, during such period, the
Company shall, and shall cause its Subsidiaries to, make available to Buyer (i)
a copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of Federal
securities laws or Federal or state banking laws (other than reports or
documents which the Company is not permitted to disclose under applicable law)
and (ii) all other information concerning its business, properties and personnel
as Buyer may reasonably request. Neither the Company nor any of its Subsidiaries
shall be required to provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights of the Company's
customers, jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. Buyer will hold, and will cause its
officers, directors, employees, accountants, counsel and other representatives
to hold, all such information in confidence to the extent required by, and in
accordance with, the provisions of the confidentiality agreement, dated July 29,
1998, by and among the Company, Buyer, the Company Bank and Buyer Bank (the
"Confidentiality Agreement").
(b) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, Buyer shall, and shall cause its
Subsidiaries to, af-
46
ford to the officers, employees, accountants, counsel and other representatives
of the Company, access, during normal business hours during the period prior to
the Effective Time, to such information regarding Buyer and its Subsidiaries as
shall be reasonably necessary for the Company to fulfill its obligations
pursuant to this Agreement to assist in the preparation of the Proxy Statement
or which may be reasonably necessary for the Company to confirm that the
representations and warranties of Buyer contained herein are true and correct
and that the covenants of Buyer contained herein have been performed in all
material respects. Neither Buyer nor any of its Subsidiaries shall be required
to provide access to or to disclose information where such access or disclosure
would violate or prejudice the rights of Buyer's customers, jeopardize any
attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(c) All information furnished by Buyer to the Company or its
representatives pursuant hereto shall be held in confidence to the extent
required by, and in accordance with the provisions of the Confidentiality
Agreement.
(d) No investigation by either of the parties or their
respective representatives shall affect the representations, warranties,
covenants or agreements of the other set forth herein.
7.3 Stockholder Meetings. (a) The Company and Buyer each shall take all
steps necessary to duly call, give notice of, convene and hold a meeting of its
stockholders to be held as soon as is reasonably practicable after the date on
which the S-4 becomes effective for the purpose of voting upon the approval of
this Agreement and the consummation of the transactions contemplated hereby. The
Company and Buyer each will, through its Board of Directors, except in the case
of the Company as provided in Section 7.3(b) hereof, recommend to its
stockholders approval of this Agreement and the transactions contemplated hereby
and such other matters as may be submitted to its stockholders in connection
with this Agreement. The Company and Buyer shall coordinate and cooperate with
respect to the foregoing matters with a view towards, among other things,
holding their stockholders meetings on the same day.
(b) Notwithstanding the provisions of Section 7.3(a) above, the
Board of Directors of the Company may withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to Buyer, the approval or recommendation
by such Board of Directors or such committee of the Merger or this Agreement if
the Company receives an unsolicited, written bona fide proposal regarding a
takeover proposal,
47
and (i) the Board of Directors of the Company concludes in good faith that it is
required to take such action, but only after consultation with and based upon
the advice of outside counsel that the failure to take such action would result
in a violation of any fiduciary duties of the Board of Directors to its
stockholders under applicable law, and (ii) the Board of Directors of the
Company, after consultation with and based upon the advice of its financial
advisor, concludes in good faith that such takeover proposal is a Superior
Takeover Proposal.
7.4 Legal Conditions to Merger. Each of Buyer and the Company shall,
and shall cause its Subsidiaries to, use their commercially reasonable efforts
(a) to take, or cause to be taken, all actions necessary, proper or advisable to
comply promptly with all legal requirements which may be imposed on such party
or its Subsidiaries with respect to the Merger or the Subsidiary Merger and,
subject to the conditions set forth in Article VIII hereof, to consummate the
transactions contemplated by this Agreement and (b) to obtain (and to cooperate
with the other party to obtain) any consent, authorization, order or approval
of, or any exemption by, any Governmental Entity and any other third party which
is required to be obtained by the Company or Buyer or any of their respective
Subsidiaries in connection with the Merger and the Subsidiary Merger and the
other transactions contemplated by this Agreement, and to comply with the terms
and conditions of such consent, authorization, order or approval.
7.5 Affiliates. (a) Each of Buyer and the Company shall use its
commercially reasonable efforts to cause each director, executive officer and
other person who is an "affiliate" (for purposes of Rule 145 under the
Securities Act and for purposes of qualifying the Merger for
"pooling-of-interests" accounting treatment) of such party to deliver to the
other party hereto, as soon as practicable after the date of this Agreement, a
written agreement, in the form of Exhibit 7.5(a) hereto (in the case of
affiliates of Buyer) or 7.5(b) hereto (in the case of affiliates of the
Company).
(b) Buyer shall use its commercially reasonable efforts to
publish, not later than 15 days after the end of the first full calendar month
following the month in which the Effective Time occurs, financial results
covering at least 30 days of post-Merger combined operations as contemplated by
SEC Accounting Series Release No. 135.
7.6 Stock Exchange Listing. Buyer shall use all commercially reasonable
efforts to cause the shares of Buyer Common Stock to be issued in the Merger to
be authorized for quotation on the Nasdaq/NMS, subject to official notice of
issuance, as of the Effective Time.
48
7.7 Employee Benefit Plans; Existing Agreements. (a) As soon as
practicable following the Effective Time, the employees of the Company and its
Subsidiaries (the "Company Employees") shall be entitled to participate in
Buyer's employee benefit plans in which similarly situated employees of Buyer or
its Subsidiaries participate, to the same extent as comparable employees of
Buyer or its Subsidiaries (it being understood that inclusion of Company
Employees in Buyer's employee benefit plans may occur at different times with
respect to different plans).
(b) With respect to each Buyer Plan, for purposes of determining
eligibility to participate, vesting, and entitlement to benefits, including for
severance benefits and vacation entitlement (but not for accrual of pension
benefits), service with the Company (or predecessor employers to the extent the
Company provides past service credit) shall be treated as service with Buyer;
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 preexisting condition
limitations. 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 Buyer Plan.
(c) Following the Effective Time, Buyer shall honor and shall
cause the Surviving Bank to honor in accordance with their terms all employment,
severance and other compensation agreements and arrangements existing prior to
the execution of this Agreement which are between the Company and any director,
officer or employee thereof and which have been disclosed in the Company
Disclosure Schedule and previously have been made available to Buyer.
7.8 Indemnification. (a) In the event of any threatened or actual
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, including, without limitation, any such claim,
action, suit, proceeding or investigation in which any person who is now, or has
been at any time prior to the date of this Agreement, or who becomes prior to
the Effective Time, a director or officer of the Company or any of its
Subsidiaries (the "Indemnified Parties") is, or is threatened to be, made a
party based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was a director or officer of the
Company, any of the Subsidiaries of the Company or any of their respective
predecessors or (ii) this Agreement or any of the transactions contemplated
hereby, whether in any case asserted or arising before or after the Effective
Time, the parties hereto agree to cooperate and use their best efforts to defend
against and respond thereto. It is understood and agreed that
49
after the Effective Time, Buyer shall indemnify and hold harmless, as and to the
extent permitted by Maryland law, each such Indemnified Party against any
losses, claims, damages, liabilities, costs, expenses (including reasonable
attorney's fees and expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to the fullest
extent permitted by law upon receipt of any undertaking required by applicable
law), judgments, fines and amounts paid in settlement in connection with any
such threatened or actual claim, action, suit, proceeding or investigation, and
in the event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective Time),
the Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Buyer; provided, however, that (1) Buyer shall have the right
to assume the defense thereof and upon such assumption Buyer shall not be liable
to any Indemnified Party for any legal expenses of other counsel or any other
expenses subsequently incurred by any Indemnified Party in connection with the
defense thereof, except that if Buyer elects not to assume such defense or
counsel for the Indemnified Parties reasonably advises that there are issues
which raise conflicts of interest between Buyer and the Indemnified Parties, the
Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Buyer, and Buyer shall pay the reasonable fees and expenses of
such counsel for the Indemnified Parties, (2) Buyer shall in all cases be
obligated pursuant to this paragraph to pay for only one firm of counsel for all
Indemnified Parties, (3) Buyer shall not be liable for any settlement effected
without its prior written consent (which consent shall not be unreasonably
withheld) and (4) Buyer shall have no obligation hereunder to any Indemnified
Party when and if a court of competent jurisdiction shall ultimately determine,
and such determination shall have become final and nonappealable, that
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law. Any Indemnified Party wishing to claim
Indemnification under this Section 7.8, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Buyer thereof, provided
that the failure to so notify shall not affect the obligations of Buyer under
this Section 7.8 except to the extent such failure to notify prejudices Buyer.
Buyer's obligations under this Section 7.8 shall continue in full force and
effect for a period of six (6) years from the Effective Time; provided, however,
that all rights to indemnification in respect of any claim (a "Claim") asserted
or made within such period shall continue until the final disposition of such
Claim.
(b) Prior to the Effective Time the Company shall purchase, and
for a period of six years after the Effective Time, Buyer shall use its
commercially reasonable efforts to maintain, directors and officers liability
insurance "tail" or "runoff" coverage with respect to wrongful acts and/or
omissions committed or allegedly committed prior to the Effective Time. Such
coverage shall have an aggregate coverage limit over the term of such policy in
an amount no less than the annual aggregate coverage
50
limit under the Company's existing directors and officers liability policy, and
in all other respects shall be at least comparable to such existing policy.
(c) In the event Buyer 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 Buyer
assume the obligations set forth in this section.
(d) The provisions of this Section 7.8 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
7.9 Additional Agreements. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Bank Merger Agreement or to vest the Surviving Corporation or
the Surviving Bank with full title to all properties, assets, rights, approvals,
immunities and franchises of any of the parties to the Merger or the Subsidiary
Merger, the proper officers and directors of each party to this Agreement and
their respective Subsidiaries shall take all such necessary action as may be
reasonably requested by Buyer.
7.10 Advice of Changes. Buyer and the Company shall promptly advise the
other party of any change or event having a Material Adverse Effect on it or
which it believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein. From time to time prior to the Effective Time (and on the date prior to
the Closing Date), each party will promptly supplement or amend the Disclosure
Schedules delivered in connection with the execution of this Agreement to
reflect any matter which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedules or which is necessary to correct any information in such
Disclosure Schedules which has been rendered inaccurate thereby. No supplement
or amendment to such Disclosure Schedules shall have any effect for the purpose
of determining satisfaction of the conditions set forth in Sections 8.2(a) or
8.3(a) hereof, as the case may be, or the compliance by the Company or Buyer, as
the case may be, with the respective covenants and agreements of such parties
contained herein.
51
7.11 Current Information. During the period from the date of this
Agreement to the Effective Time, the Company will cause one or more of its
designated representatives to confer on a regular and frequent basis (not less
than monthly) with representatives of Buyer and to report the general status of
the ongoing operations of the Company and its Subsidiaries. The Company will
promptly notify Buyer of any material change in the normal course of business or
in the operation of the properties of the Company or any of its Subsidiaries and
of any governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the threat
of significant litigation involving the Company or any of its Subsidiaries, and
will keep Buyer fully informed of such events.
7.12 Execution and Authorization of Bank Merger Agreement. As soon as
reasonably practicable after the date of this Agreement, (a) Buyer shall (i)
cause the Board of Directors of Buyer Bank to approve the Bank Merger Agreement,
(ii) cause Buyer Bank to execute and deliver the Bank Merger Agreement, and
(iii) approve the Bank Merger Agreement as the sole stockholder of Buyer Bank,
and (b) the Company shall (i) cause the Board of Directors of the Company Bank
to approve the Bank Merger Agreement, (ii) cause the Company Bank to execute and
deliver the Bank Merger Agreement, and (iii) approve the Bank Merger Agreement
as the sole stockholder of the Company Bank.
7.13 Directorship. Prior to Closing, Buyer shall take all action as may
be necessary or appropriate to cause Xxxx X. Xxxxx and Xxxxxx X. Xxxx (or any
other person or persons designated by the Board of Directors of the Company and
acceptable to the Buyer) to be directors of each of Buyer and Buyer Bank as of
the Effective Time for three year terms, each to hold office in accordance with
the charter and bylaws of Buyer or Buyer Bank, as the case may be, in each case
until their respective successors are duly elected or appointed and qualified.
7.14 Coordination of Dividends. After the date of this Agreement each
of Buyer and the Company shall coordinate with the other the declaration of any
dividends in respect of Buyer Common Stock and the Company Common Stock and the
record dates and payments dates relating thereto, it being the intention of the
parties that the holders of Buyer Common Stock or Company Common Stock shall not
receive more than one dividend, or fail to receive one dividend, for any single
calendar quarter with respect to their shares of Buyer Common Stock and/or
Company Common Stock and any shares of Buyer Common Stock any holder of Company
Common Stock receives in exchange therefor in the Merger.
52
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been
approved and adopted by the requisite vote of the holders of Company Common
Stock under applicable law and by the requisite vote of the holders of Buyer
Common Stock under applicable law.
(b) Nasdaq/NMS Listing. The shares of Buyer Common Stock which
shall be issued to the stockholders of the Company upon consummation of the
Merger shall have been authorized for quotation on the Nasdaq/NMS, subject to
official notice of issuance.
(c) Other Approvals. All regulatory approvals required to
consummate the transactions contemplated hereby (including the Merger and the
Subsidiary Merger) shall have been obtained and shall remain in full force and
effect and all statutory waiting periods in respect thereof shall have expired
(all such approvals and the expiration of all such waiting periods being
referred to herein as the "Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the S-4 shall
have been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger, the Subsidiary Merger or any of the other
transactions contemplated by this Agreement or the Bank Merger Agreement shall
be in effect. No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any Governmental Entity
which prohibits, restricts or makes illegal consummation of the Merger or the
Subsidiary Merger.
53
8.2 Conditions to Obligations of Buyer . The obligation of Buyer to
effect the Merger is also subject to the satisfaction or waiver by Buyer at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. Subject to Section 3.2, the
representations and warranties of the Company set forth in this Agreement shall
be true and correct as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date. Buyer shall have
received a certificate signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company to the foregoing effect.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and Buyer
shall have received a certificate signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to such effect.
(c) No Pending Governmental Actions. No proceeding initiated by
any federal agency or state banking authority seeking an Injunction shall be
pending.
(d) Federal Tax Opinion. Buyer shall have received an opinion
of Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP, counsel to Buyer ("Buyer's
Counsel"), in form and substance reasonably satisfactory to Buyer, substantially
to the effect that, on the basis of facts, representations and assumptions set
forth in such opinion which are consistent with the state of facts existing at
the Effective Time, the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code. In rendering such opinion, Buyer's
Counsel may require and rely upon representations and covenants, including those
contained in certificates of officers of Buyer, Buyer Bank, the Company, the
Company Bank and others, including certain stockholders of the Company who own
5% or more of the outstanding shares of Company Common Stock, reasonably
satisfactory in form and substance to such counsel; provided, however, that the
failure to obtain any such representation or covenant from a stockholder of the
Company who owns 5% or more of the outstanding shares of Company Common Stock
that is not, in the reasonable judgment of Buyer's Counsel, necessary in order
for Buyer's Counsel to render such opinion shall not be grounds for Buyer's
Counsel to refuse to deliver such opinion.
54
(e) Pooling of Interests. Buyer shall have received a letter
from Xxxxxx Xxxxxxxx, LLP addressed to Buyer, to the effect that the Merger will
qualify for "pooling of interests" accounting treatment.
8.3 Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. Subject to Section 3.2, the
representations and warranties of Buyer set forth in this Agreement shall be
true and correct as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date. The Company shall have
received a certificate signed on behalf of Buyer by the Chief Executive Officer
and the Chief Financial Officer of Buyer to the foregoing effect.
(b) Performance of Obligations of Buyer. Buyer shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and the Company shall
have received a certificate signed on behalf of Buyer by the Chief Executive
Officer and the Chief Financial Officer of Buyer to such effect.
(c) No Pending Governmental Actions. No proceeding initiated by
any federal agency or state banking authority seeking an Injunction shall be
pending.
(d) Federal Tax Opinion. The Company shall have received an
opinion of Miles & Stockbridge P.C. (the "Company's Counsel"), in form and
substance reasonably satisfactory to the Company, dated as of the Effective
Time, substantially to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion which are consistent with the state of
facts existing at the Effective Time, the Merger and the Subsidiary Merger will
be treated as reorganizations within the meaning of Section 368(a) of the Code
and that accordingly for federal income tax purposes:
(i) No gain or loss will be recognized by the Company as a
result of the Merger;
(ii) No gain or loss will be recognized by the Company Bank as
a result of the Subsidiary Merger (except to the extent the Company Bank
or Buyer Bank may be required to recognize in-
55
come due to the recapture of bad debt reserves as a result of the
Subsidiary Merger);
(iii) No gain or loss will be recognized by the stockholders of
the Company who exchange all of their Company Common Stock solely for
Buyer Common Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in Buyer Common Stock);
and
(iv) The aggregate tax basis of Buyer Common Stock received by
stockholders who exchange all of their Company Common Stock solely for
Common Stock pursuant to the Merger will be the same as the aggregate
tax basis of the Company Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest for
which cash is received).
In rendering such opinion, the Company's Counsel may require and rely upon
representations and covenants, including those contained in certificates of
officers of Buyer, Buyer Bank, the Company, the Company Bank and others,
including certain stockholders of the Company who own 5% or more of the
outstanding shares of Company Common Stock, reasonably satisfactory in form and
substance to such counsel; provided, however, that the failure to obtain any
such representation or covenant from a stockholder of the Company who owns 5% or
more of the outstanding shares of Company Common Stock that is not, in the
reasonable judgment of the Company's Counsel, necessary in order for the
Company's Counsel to render such opinion shall not be grounds for the Company's
Counsel to refuse to deliver such opinion.
(e) Pooling of Interests. Buyer shall have received a letter
from Xxxxxx Xxxxxxxx, LLP addressed to Buyer, to the effect that the Merger will
qualify for "pooling of interests" accounting treatment.
56
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of both the Company and Buyer:
(a) by mutual consent of the Company and Buyer in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
(b) by either Buyer or the Company upon written notice to the
other party (i) 60 days after the date on which any request or application for a
Requisite Regulatory Approval shall have been denied by any Governmental Entity
which must grant such Requisite Regulatory Approval, unless within the 60-day
period following such denial or withdrawal a petition for rehearing or an
amended application has been filed with the applicable Governmental Entity,
provided, however, that no party shall have the right to terminate this
Agreement pursuant to this Section 9.1(b)(i) if such denial shall be due to the
failure of the party seeking to terminate this Agreement to perform or observe
the covenants and agreements of such party set forth herein or (ii) if any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the Merger or the
Subsidiary Merger;
(c) by either Buyer or the Company if the Merger shall not have
been consummated on or before June 30, 1999, unless the failure of the Closing
to occur by such date shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements of
such party set forth herein;
(d) by either Buyer or the Company (provided that the
terminating party shall not be in material breach of any of its obligations
under Section 7.3) if any approval of the stockholders of either of the Company
or Buyer required for the consummation of the Merger shall not have been
obtained by reason of the failure to obtain the required vote at a duly held
meeting of such stockholders or at any adjournment or postponement thereof;
(e) by either Buyer or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have been
a material breach of any of the
57
representations or warranties set forth in this Agreement on the part of the
other party, which breach is not cured within thirty days following written
notice to the party committing such breach, or which breach, by its nature,
cannot be cured prior to the Closing; provided, however, that neither party
shall have the right to terminate this Agreement pursuant to this Section 9.1(e)
unless the breach of representation or warranty, together with all other such
breaches, would entitle the party receiving such representation not to
consummate the transactions contemplated hereby under Section 8.2(a) (in the
case of a breach of representation or warranty by the Company) or Section 8.3(a)
(in the case of a breach of representation or warranty by Buyer);
(f) by either Buyer or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have been
a material breach of any of the covenants or agreements set forth in this
Agreement on the part of the other party, which breach shall not have been cured
within thirty days following receipt by the breaching party of written notice of
such breach from the other party hereto, or which breach, by its nature, cannot
be cured prior to the Closing;
(g) by Buyer, if the Board of Directors of the Company does not
publicly recommend in the Proxy Statement that the Company's stockholders
approve this Agreement or if, after recommending in the Proxy Statement that
stockholders approve this Agreement, the Board of Directors of the Company shall
have withdrawn, modified or amended such recommendation in any respect
materially adverse to Buyer; or
(h) by the Company, if the Board of Directors of Buyer does not
publicly recommend in the Proxy Statement that Buyer's stockholders approve this
Agreement or if, after recommending in the Proxy Statement that stockholders
approve this Agreement, the Board of Directors of Buyer shall have withdrawn,
modified or amended such recommendation in any respect materially adverse to the
Company.
9.2 Effect of Termination; Expenses. In the event of termination of
this Agreement by either Buyer or the Company as provided in Section 9.1, this
Agreement shall forthwith become void and have no effect except (i) the last
sentence of Section 7.2(a), and Sections 7.2(c), 9.2 and 10.4, shall survive any
termination of this Agreement, and that notwithstanding anything to the contrary
contained in this Agreement, no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
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9.3 Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the stockholders of
either the Company or Buyer; provided, however, that after any approval of the
transactions contemplated by this Agreement by the Company's stockholders, there
may not be, without further approval of such stockholders, any amendment of this
Agreement which reduces the amount or changes the form of the consideration to
be delivered to the Company stockholders hereunder other than as contemplated by
this Agreement. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE X
GENERAL PROVISIONS
10.1 Closing. Subject to the terms and conditions of this Agreement
and the Bank Merger Agreement, the closing of the Merger (the "Closing") will
take place at 10:00 a.m. on the first day which is (a) the last business day of
a month and (b) at least two business days after the satisfaction or waiver
(subject to applicable law) of the latest to occur of the conditions set forth
in Article VIII hereof (other than those conditions which relate to actions to
be taken at the Closing)(the "Closing Date"), at the offices of Buyer's Counsel
unless another time, date or place is agreed to in writing by the parties
hereto.
10.2 Alternative Structure. Notwithstanding anything to the contrary
contained in this Agreement, prior to the Effective Time, Buyer shall be
entitled to revise the structure of the Merger and/or the Subsidiary Merger and
related transactions in order to (x)
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substitute a subsidiary of Buyer as a Constituent Corporation in the Merger or
(y) provide that a different entity shall be the surviving corporation in a
merger provided that each of the transactions comprising such revised structure
shall (i) fully qualify as, or fully be treated as part of, one or more tax-free
reorganizations within the meaning of Section 368(a) of the Code, and not change
the amount of consideration to be received by such stockholders, (ii) be
properly treated for financial reporting purposes as a pooling of interests,
(iii) be capable of consummation in as timely a manner as the structure
contemplated herein and (iv) not otherwise be prejudicial to the interests of
the stockholders of the Company. This Agreement and any related documents shall
be appropriately amended in order to reflect any such revised structure.
10.3 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement (other than pursuant to
the Company Option Agreement which shall terminate in accordance with its terms)
shall survive the Effective Time, except for those covenants and agreements
contained herein and therein which by their terms apply in whole or in part
after the Effective Time.
10.4 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, provided, however, that the costs and expenses of
printing and mailing the Proxy Statement to the stockholders of the Company and
Buyer, and all filing and other fees paid to the SEC or any other Governmental
Entity in connection with the Merger, the Subsidiary Merger and the other
transactions contemplated hereby, shall be borne equally by Buyer and the
Company, provided, further, however, that nothing contained herein shall limit
either party's rights to recover any liabilities or damages arising out of the
other party's willful breach of any provision of this Agreement.
10.5 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
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(a) if to Buyer, to:
F&M Bancorp
000 Xxxxxx Xxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Chief Executive Officer
with a copy to:
Skadden, Arps Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxxxxxxx, Esq.
and
(b) if to the Company, to:
Monocacy Bancshares, Inc.
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Chairman of the Board of Directors
with a copy to:
Miles & Stockbridge P.C.
00 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxxxx, Esq.
10.6 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The phrases "the date of this Agreement", "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to September 4, 1998.
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10.7 Counterparts. This Agreement may be executed by facsimile or
otherwise in counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
10.8 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein), together with the Confidentiality Agreement,
the Stock Option Agreement and the Bank Merger Agreement, constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof.
10.9 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Maryland, without regard to any
applicable conflicts of law.
10.10 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in the
last sentence of Section 7.2(a) and in Section 7.2(c) of this Agreement were not
performed in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the last sentence of Section 7.2(a) and
Section 7.2(c) of this Agreement and to enforce specifically the terms and
provisions thereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
10.11 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.12 Publicity. Except as otherwise required by law or the rules of
the Nasdaq/NMS, so long as this Agreement is in effect, neither Buyer nor the
Company shall, or shall permit any of its Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, the transactions contemplated
by this Agreement without the consent of the other party, which consent shall
not be unreasonably withheld.
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10.13 Assignment; No Third Party Beneficiaries. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. Except as otherwise
expressly provided herein, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
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IN WITNESS WHEREOF, Buyer and the Company have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
F&M BANCORP
By /s/XXXX X. XXXXXX
_____________________________
Name: Xxxx X. Xxxxxx
Title: President & Chief Executive Officer
Attest:
/s/XXXXXX X. XXXXXX
__________________________
Name: Xxxxxx X. Xxxxxx
Title: Secretary
MONOCACY BANCSHARES, INC.
By /s/XXXX X.XXXXX
_____________________________
Name: Xxxx X. Xxxxx
Title: Chairman of the Board of Directors
Attest:
/s/ Xxxxx Xxxxxx
__________________________
Name: Xxxxx Xxxxxx
Title: Secretary
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