EXECUTION COPY
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 10, 2007
(this "Agreement"), among First Keystone Corporation ("Parent"),
First Keystone National Bank ("Parent Bank") and Pocono
Community Bank ("Pocono").
RECITALS
A. POCONO. Pocono is a Pennsylvania banking institution,
having its principal place of business in Stroudsburg,
Pennsylvania.
B. PARENT. Parent is a Pennsylvania corporation, having its
principal place of business in Berwick, Pennsylvania.
C. PARENT BANK. Parent Bank is a national banking association,
having its principal place of business in Berwick, Pennsylvania
and is a wholly-owned subsidiary of Parent.
D. INTENTION OF THE PARTIES. It is the intention of the
parties to this Agreement that the Merger provided for herein be
treated as a "reorganization" under Section 368(a) of the Code
and this Agreement constitutes a "plan of reorganization" within
the meaning of Section 1.368-1(c) of the Treasury Regulations.
E. EMPLOYMENT AGREEMENT. As a condition and inducement to each
Parent, Parent Bank, and Pocono to enter into this Agreement,
Parent and Parent Bank have entered into an Acknowledgement and
Release in the form of Annex A, an Employment Agreement in the
form of Annex B, and a Consulting Agreement in the form of Annex
C with Xxxx X. Xxxxxxx.
F. DIRECTOR AGREEMENTS. As a condition and inducement to
Parent to enter into this Agreement, the directors of Pocono are
concurrently executing an Affiliates Letter in the form of Annex
D, a Voting Agreement in the form of Annex E, a Non-Competition
and Non-Solicitation Agreement in the form of Annex F, the Stock
Option and Warrant Cancellation Agreement in the form of Annex
G, and the Pocono Option and Pocono Warrant Standstill Agreement
in the form of Annex H.
G. BOARD ACTION. The respective Boards of Directors of Parent,
Parent Bank and Pocono have determined that it is in the best
interests of their respective companies and their shareholders
to consummate the Merger provided for herein.
NOW, THEREFOR, in consideration of the premises and of the
mutual covenants, representations, warranties and agreements
contained herein and intending to be legally bound hereby the
parties agree as follows:
1
EXECUTION COPY
ARTICLE I
CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS. The following terms are used in this
Agreement with the meanings set forth below:
"Acquisition Proposal" has the meaning set forth in Section
6.8(e)(i).
"Affiliate" has the meaning set forth in Section 3.4(h) and
in Section 6.7.
"Affiliate Letter" has the meaning set forth in Section
6.7.
"Agreement" means this Agreement, as amended or modified
from time to time in accordance with Section 9.2.
"Approval Recommendation" has the meaning set forth in
Section 6.2.
"Average Closing Price" means the arithmetic average of the
per share last prices for Parent Common Stock as quoted on the
OTC Bulletin Board, calculated to four decimal places, for each
of the twenty consecutive trading days ending on and including
the fifth such trading day prior to the specified date rounded
to the nearest whole cent. For the purposes of this Agreement,
the last price for each day shall be the last price as quoted as
of the end of a trading day on xxx.xxxxx.xxx.
"Bank Insurance Fund" means the Bank Insurance Fund
maintained by the FDIC.
"Bank Regulatory Authority" means the Federal Reserve
Board, the OCC, the FDIC, the Department and any other state or
federal bank regulatory agency charged with the supervision or
regulation of Pocono, Parent or Parent Bank or the insurance of
the deposits of Pocono or Parent Bank.
"Bank Secrecy Act" means the Bank Secrecy Act of 1970, as
amended.
"Banking Code" means the Pennsylvania Banking Code of 1965,
as amended.
"Benefit Plans" has the meaning set forth in Section
5.3(l)(i).
"Break-up Fee" has the meaning set forth in Section 6.8(f).
"Business Day" means Monday through Friday of each week,
except a legal holiday recognized as such by the U.S. Government
or any day on which banking institutions in the Commonwealth of
Pennsylvania are authorized or obligated to close.
"Cash Amount" means that portion of the Merger
Consideration not consisting of Parent Common Stock.
2
EXECUTION COPY
"Cash Election" has the meaning set forth in Section
3.3(a).
"Cash Proration Factor" has the meaning set forth in
Section 3.3(c)(ii)(C).
"Certificate" means any certificate that immediately prior
to the Effective Time represented shares of Pocono Common Stock.
"Change in Pocono Recommendation" has the meaning set forth
in Section 6.8(b).
"Closing" and "Closing Date" have the meanings set forth in
Section 2.2(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Combination Cash Election" has the meaning set forth in
Section 3.3(a).
"Combination Stock Election" has the meaning set forth in
Section 3.3(a).
"Community Reinvestment Act" means the Community
Reinvestment Act of 1977, as amended.
"Confidentiality Agreement" has the meaning set forth in
Section 6.6(c).
"Department" means the Pennsylvania Department of Banking.
"Derivatives Contract" has the meaning set forth in Section
5.3(p).
"Determination Date" means the date on which the last
required Bank Regulatory Authority and the approval of this
Agreement by the Pocono shareholders is obtained with respect to
the Transaction, without regard to a requisite waiting period.
"Disclosure Schedule" has the meaning set forth in Section
5.1.
"Dissenting Shares" means shares of Pocono Common Stock as
to which appraisal rights are perfected under Section 215a of
the National Bank Act, or applicable law.
"DOL" means the Department of Labor.
"Effective Date" has the meaning set forth in Section
2.2(a).
"Effective Time" has the meaning set forth in Section
2.2(a).
"Election" has the meaning set forth in Section 3.3(a).
"Election Deadline" has the meaning set forth in Section
3.3(b).
"Election Form" has the meaning set forth in Section
3.3(a).
3
EXECUTION COPY
"Election Form Record Date" has the meaning set forth in
Section 3.3(a).
"Employees" has the meaning set forth in Section 5.3(l)(i).
"Environmental Laws" has the meaning set forth in Section
5.3(n)(i).
"Equal Credit Opportunity Act" means the Equal Credit
Opportunity Act, as amended.
"Equity Investment" means (i) an Equity Security, (ii) any
ownership interest in any company or other entity, any
membership interest that includes a voting right in any company
or other entity or any interest in real estate or (iii) any
investment or transaction that in substance falls into any of
these categories even though it may be structured as some other
form of investment or transaction.
"Equity Security" means any stock (other than adjustable
rate preferred stock, money market (auction rate) preferred
stock or other instrument determined by the OCC to have the
character of debt securities), certificate of interest or
participation in any profit sharing agreement, collateral trust
certificate, preorganization certificate or subscription,
transferable share, investment contract, or voting trust
certificate; any security convertible into such a security; any
security carrying any warrant or right to subscribe to or
purchase any such security and any certificate of interest or
participation in, any temporary or interim certificate for or
receipt for any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" has the meaning set forth in Section
5.3(l)(iii).
"Exchange Act" means the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder.
"Exchange Agent" means the Parent Bank which shall effect
the exchange of Pocono Common Stock for Parent Common Stock
and/or cash.
"Exchange Fund" has the meaning set forth in Section
3.4(a).
"Exchange Ratio" shall mean 0.8944, subject to adjustment
pursuant to Section 3.5.
"Fair Housing Act" means the Fair Housing Act, as amended.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve Act" means the Federal Reserve Act, as
amended.
4
EXECUTION COPY
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
"GAAP" means generally accepted accounting principles and
practices as in effect from time to time in the United States.
"Governmental Authority" means any federal, state or local
court, administrative agency or commission or other governmental
authority or instrumentality.
"Hazardous Substance" has the meaning set forth in Section
5.3(n)(ii).
"Home Mortgage Disclosure Act" means the Home Mortgage
Disclosure Act, as amended.
"Indemnified Parties" and "Indemnifying Party" have the
meanings set forth in Section 6.10(a).
"Index Closing Price" means the weighted average (which
weights have been determined based upon relative market
capitalization as of the Starting Date) of closing sales prices
per share of the companies comprising of the Index Group for
each of the 20 consecutive trading days ending on and including
the second such trading day prior to the Determination Date
rounded to the nearest whole cent.
"Index Group" means the banks or bank holding companies
listed on Exhibit 1 hereto, the common stocks of all of which
shall be publicly traded, provided however, that there shall not
have been since the Starting Date and before the Determination
Date, any public announcement of a proposal for such company to
be acquired or for such company to acquire another company or
companies; if so, such company shall be removed from the Index
Group. In the event that any such company or companies are
removed from the Index Group, the respective weightings of the
companies remaining in the Index Group shall be adjusted for
purposes of determining the Index Price and the Starting Date
Index Price shall be redetermined with respect to the
reconstituted Index Group.
Index Ratio" has the meaning set forth in Section
8.1(h)(ii).
"Insurance Policies" has the meaning set forth in Section
5.3(v).
"IRS" means the Internal Revenue Service.
"Liens" means any charge, mortgage, pledge, security
interest, restriction, claim, lien or encumbrance.
"Loans" has the meaning set forth in Section 4.1(q).
"Mailing Date" has the meaning set forth in Section 3.3(a).
5
EXECUTION COPY
"Material Adverse Effect" means, with respect to Parent or
Pocono any effect that (i) is material and adverse to the
financial position, results of operations or business of Parent
and its Subsidiaries taken as a whole or Pocono, as the case may
be, or (ii) would materially impair the ability of any of Parent
and its Subsidiaries or Pocono to perform their respective
obligations under this Agreement or otherwise materially impede
the consummation of the Transaction; provided, however, that
Material Adverse Effect shall not be deemed to include the
impact of (a) changes after the date hereof in banking and
similar laws of general applicability or interpretations thereof
by Governmental Authorities, (b) changes after the date hereof
in GAAP or regulatory accounting requirements applicable to
banks, federal savings institutions and their holding companies
generally, (c) changes after the date hereof in general economic
or market conditions affecting banks and their holding companies
generally, including changes in interest rates, (d) public
disclosure of the Transaction contemplated hereby, (e) costs
incurred in connection with the Transaction including, without
limitation, change in control and severance payments, as
disclosed herein on the Pocono Disclosure Schedules, investment
banking fees, legal fees, accounting fees and printing costs, in
each case in accordance with GAAP and (f) any action or omission
of Pocono or Parent taken with the prior consent of the other or
as otherwise contemplated by this Agreement in connection with
the consummation of the Transaction. Provided, however, that a
Material Adverse Effect with respect to Pocono would be deemed
to have occurred if expenditures on the construction or
contractual commitments with respect to the Swiftwater Branch
exceed or are reasonable likely to exceed One Million Two
Hundred Fifty Thousand Dollars ($1,250,000).
"Material Contract" has the meaning set forth in Section
5.3(j)(i).
"Merger" has the meaning set forth in Section 2.1(a).
"Merger Consideration" means the number of whole shares of
Parent Common Stock, cash or a combination thereof, plus cash in
lieu of any fractional share interest into which shares of
Pocono Common Stock shall be converted pursuant to the
provisions of Article III.
"National Bank Act" means the National Bank Act, as
amended.
"National Labor Relations Act" means the National Labor
Relations Act, as amended.
"OCC" means the Office of the Comptroller of the Currency.
"Option Consideration" shall have the meaning set forth in
Section 3.8.(a).
"OREO" means other real estate owned.
"Parent" has the meaning set forth in the preamble to this
Agreement.
6
EXECUTION COPY
"Parent Articles" means the Articles of Incorporation of
Parent, as amended.
"Parent Bank" has the meaning set forth in the preamble to
this Agreement.
"Parent Bank Board" means the Board of Directors of Parent
Bank.
"Parent Board" means the Board of Directors of Parent.
"Parent Benefit Plans" has the meaning set forth in Section
6.11(a).
"Parent Common Stock" means the common stock, $2.00 par
value per share, of Parent.
"Parent Option" means an option to purchase Parent Common
Stock.
"Parent Preferred Stock" means the preferred stock, $10.00
par value per share, of Parent.
"Parent Ratio" has the meaning set forth in Section
8.1(h)(ii).
"Parent Regulatory Authorities" has the meaning set forth
in Section 5.4(i)(i).
"Payment Event" has the meaning set forth in Section
6.8(g).
"PBCL" means the Pennsylvania Business Corporation Law of
1988, as amended.
"Pension Plan" has the meaning set forth in Section
5.3(l)(ii).
"Person" means a natural person or any legal, commercial,
or governmental entity, such as, but not limited to, a
corporation, general partnership, joint venture, limited
partnership, limited liability company, trust, business
association, group acting in concert, a common enterprise, or
any person acting in a representative capacity.
"Pocono" has the meaning set forth in the preamble to this
Agreement.
"Pocono Advisory Board" has the meaning set forth in
Section 6.16(b).
"Pocono Articles" means the Articles of Incorporation of
Pocono, as amended.
"Pocono Board" means the Board of Directors of Pocono.
"Pocono Bylaws" means the Bylaws of Pocono, as amended.
"Pocono Common Stock" means the common stock, par value
$2.50 per share, of Pocono.
7
EXECUTION COPY
"Pocono Financial Reports" has the meaning set forth in
Section 5.3.
"Pocono Group" means any "affiliated group", as defined in
Section 1504(a) of the Code without regard to the limitations
contained in Section 1504(b) of the Code, that includes Pocono
or any predecessor of or any successor to Pocono, or to another
such predecessor or successor.
"Pocono Insiders" means the officers, directors and 10% or
greater shareholders of Pocono.
"Pocono Loan Property" has the meaning set forth in Section
5.3(n)(i).
"Pocono Meeting" has the meaning set forth in Section 6.2.
"Pocono Options" means the option, right, or contract to
acquire Pocono Common Stock.
"Pocono Option Holder" means the owners of any and all
outstanding Pocono Options.
"Pocono Parent and Parent Bank Board Designees" has the
meaning set forth in Section 6.12.
"Pocono Preferred Stock" means the preferred stock, par
value $5.00 per share, of Pocono.
"Pocono Regulatory Authorities" has the meaning set forth
in Section 5.3(h)(i).
"Pocono Stock Option Plan" means Pocono's Non-Qualified
Stock Option Plan as set forth on Schedule 3.8(a).
"Pocono Warrants" means the warrants to acquire Pocono
Common Stock.
"Pocono Warrant Holder" means the owners of any and all
outstanding Pocono Warrants.
"Previously Disclosed" by a party shall mean information
set forth in a section of its Disclosure Schedule corresponding
to the section of this Agreement where such term is used.
"Price Per Share" means $16.10.
"Proxy Statement" has the meaning set forth in Section
6.3(a).
"Registration Statement" has the meaning set forth in
Section 6.3(a).
"Representatives" has the meaning set forth in Section
6.8(a).
8
EXECUTION COPY
"Required Vote" has the meaning set forth in Section
5.3(d).
"Rights" means, with respect to any Person, warrants,
options, rights, convertible securities and other arrangements
or commitments that obligate the Person to issue or dispose of
any of its common stock or other ownership interests.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
Securities Documents" has the meaning set forth in
5.4(g)(i).
"Starting Date" means the trading day on the Business Day
immediately preceding the day on which the parties publicly
announced the signing of this Agreement.
"Starting Index Price" means the closing price of the Index
Group on the Starting Date.
"Stock Amount" means 932,277 shares of Parent Common Stock
subject to adjustment pursuant to Sections 3.3 and 3.5.
Provided, however, Parent may chose to increase the Stock Amount
in order for the Merger to qualify as a reorganization under
Section 368(a) of the Code.
"Stock Election" has the meaning set forth in Section
3.3(a).
"Stock Proration Factor" has the meaning set forth in
Section 3.3(c)(i)(C).
"Subsidiary" has the meaning ascribed thereto in Rule 1-02
of Regulation S-X of the SEC.
"Superior Proposal" has the meaning set forth in Section
6.8(e)(ii).
"Surviving Bank" has the meaning set forth in Section
2.1(a).
"Swiftwater Branch" means the current Pocono branch under
construction located at Xxxxx Xx. 000, Xxxxxxxxxx, Xxxxxxxxxxxx.
"Tax" and "Taxes" mean all federal, state, local or foreign
income, gross income, gains, gross receipts, sales, use, ad
valorem, goods and services, capital, production, transfer,
franchise, windfall profits, license, withholding, payroll,
employment, disability, employer health, excise, estimated,
severance, stamp, occupation, property, environmental, custom
duties, unemployment or other taxes of any kind whatsoever,
together with any interest, additions or penalties thereto and
any interest in respect of such interest and penalties.
9
EXECUTION COPY
"Tax Returns" means any return, declaration or other report
(including elections, declarations, schedules, estimates and
information returns) with respect to any Taxes.
"Third Party" has the meaning set forth in Section
6.8(g)(iv).
"Transaction" means the Merger and any other transactions
contemplated by this Agreement.
"Treasury Shares" means shares of Pocono Common Stock held
by Pocono or by Parent, or any of its Subsidiaries other than in
a fiduciary, including custodial or agency, capacity or as a
result of debts previously contracted in good faith.
"Undesignated Shares" has the meaning set forth in Section
3.3(a).
"Warrant Consideration" has the meaning set forth in
Section 3.8(b).
ARTICLE II
THE MERGER
2.1 THE MERGER.
(a) THE MERGER. Subject to the terms and conditions of
this Agreement, at the Effective Time, Pocono shall merge with
and into Parent Bank in accordance with the applicable laws of
the United States and the Commonwealth of Pennsylvania (the
"Merger"), the separate corporate existence of Pocono shall
cease and Parent Bank shall survive and continue to exist as a
national banking association (Parent Bank, as the surviving
corporation in the Merger, sometimes being referred to herein as
the "Surviving Bank").
(b) NAME AND MAIN OFFICE. The name of the Surviving Bank
shall be "First Keystone National Bank". The main office of the
Surviving Bank shall be the main office of Parent Bank
immediately prior to the Effective Time. All branch offices of
Pocono and Parent Bank that were in lawful operation immediately
prior to the Effective Time shall be the branch offices of the
Surviving Bank upon consummation of the Merger, subject to the
opening or closing of any offices that may be authorized by
Pocono and Parent Bank. Schedule 2.1 hereto contains a list of
each of the deposit taking offices of Pocono and Parent Bank
that shall be operated by the Surviving Bank, subject to the
opening or closing of any offices that may be authorized by
Pocono, Parent Bank, the OCC, the FDIC and the Department after
the date hereof.
(c) CHARTER AND BYLAWS. The charter and bylaws of the
Surviving Bank immediately after the Merger shall be the charter
and the bylaws of Parent Bank as in effect immediately prior to
the Merger, in each case until thereafter amended in accordance
with applicable law.
10
EXECUTION COPY
(d) DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING
BANK. The directors of the Surviving Bank immediately after the
Merger shall be the directors of Parent Bank immediately prior
to the Merger. The executive officers of the Surviving Bank
immediately after the Merger shall be the executive officers of
Parent Bank immediately prior to the Merger, each of whom shall
serve until such time as their successors shall be duly
appointed and qualified.
(e) EFFECT ON SHARES OF STOCK.
(i) Each share of Parent Bank Common Stock issued and
outstanding immediately prior to the Effective Time
shall be unchanged and shall remain issued and
outstanding.
(ii) At the Effective Time, each share of Pocono
Common Stock issued and outstanding prior to the
Merger shall, by virtue of the Merger and without any
action on the part of the holder thereof, be canceled
and converted into the right to receive the Merger
Consideration as provided in Section 3.1 below. Any
shares of Pocono Common Stock held in the treasury of
Pocono immediately prior to the Effective Time shall
be retired and canceled pursuant to Section 3.1(b).
(f) EFFECTS OF THE MERGER. Upon consummation of the
Merger, and in addition to the effects set forth at 12 U.S.C.
paragraph 215a and the Pennsylvania Banking Code and other
applicable law:
(i) all rights, franchises and interests of Pocono in
and to every type of property (real, personal and
mixed), tangible and intangible, and choses in action
shall be transferred to and vested in the Surviving
Bank by virtue of the Merger without any deed or other
transfer, and the Surviving Bank, without any order or
other action on the part of any court or otherwise,
shall hold and enjoy all rights of property,
franchises and interests, including appointments,
designations and nominations, and all other rights and
interests as trustee, executor, administrator,
registrar of stocks and bonds, guardian of estates,
assignee, receiver and committee, and in every other
fiduciary capacity, in the same manner and to the same
extent as such rights, franchises and interest were
held or enjoyed by Pocono immediately prior to the
Effective Time; and
(ii) the Surviving Bank shall be liable for all
liabilities of Pocono, fixed or contingent, including
all deposits, accounts, debts, obligations and
contracts thereof, matured or unmatured, whether
accrued, absolute, contingent or otherwise, and
whether or not reflected or reserved against on
balance sheets, books of account or records thereof,
and all rights of creditors or obligees and all liens
on property of Pocono shall be preserved unimpaired;
after the Effective Time, the Surviving Bank will
continue to issue savings accounts on the same basis
as immediately prior to the Effective Time.
11
EXECUTION COPY
(g) ADDITIONAL ACTIONS. If, at any time after the
Effective Time, the Surviving Bank shall consider that any
further assignments or assurances in law or any other acts are
necessary or desirable to (a) vest, perfect or confirm, of
record or otherwise, in the Surviving Bank its rights, title or
interest in, to or under any of the rights, properties or assets
of Pocono acquired or to be acquired by the Surviving Bank as a
result of, or in connection with, the Merger, or (b) otherwise
carry out the purposes of this Agreement, Pocono and its proper
officers and directors shall be deemed to have granted to the
Surviving Bank an irrevocable power of attorney to (i) execute
and deliver all such proper deeds, assignments and assurances in
law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such rights, properties or
assets in the Surviving Bank and (ii) otherwise to carry out the
purposes of this Agreement. The proper officers and directors of
the Surviving Bank are fully authorized in the name of Pocono or
otherwise to take any and all such action.
2.2 EFFECTIVE DATE AND EFFECTIVE TIME; CLOSING.
(a) Subject to the satisfaction or waiver of the conditions
set forth in Article VII, other than those conditions that by
their nature are to be satisfied at the consummation of the
Merger, but subject to the fulfillment or waiver of those
conditions, the "Effective Date" shall be as soon as possible
after the receipt of all required approvals from Bank Regulatory
Authorities on (i) a date selected by Parent after such
satisfaction or waiver that is no later than fifteen Business
Days after such satisfaction or waiver, provided however, this
date shall not be before October 1, 2007, unless approved by
Parent, or (ii) such other date to which the parties may
mutually agree in writing. The "Effective Time" of the Merger
shall be the time on the Effective Date selected by the Parent
and if no time is selected, then 12:01 a.m. on the Effective
Date.
(b) A closing (the "Closing") shall take place immediately
prior to the Effective Time as of the close of business,
prevailing time, at the principal offices of Parent in Berwick,
Pennsylvania, or at such other place, at such other time, or on
such other date as the parties may mutually agree upon (such
date, the "Closing Date"). At the Closing, there shall be
delivered to Parent, Parent Bank and Pocono the opinions,
certificates and other documents required to be delivered under
Article VII.
ARTICLE III
MERGER CONSIDERATION; EXCHANGE PROCEDURES
3.1 CONVERSION OF SHARES.
(a) Subject to the provisions of this Agreement, each share
of Pocono Common Stock issued and outstanding immediately prior
to the Effective Time other than Dissenting Shares and Treasury
Stock shall, by virtue of the Merger, no longer be outstanding
and shall as of the Effective Time automatically be converted
into and shall thereafter only represent the right to receive,
at the election of the holder thereof as provided in and subject
to Section 3.3, any of the following:
12
EXECUTION COPY
(i) Parent Common Stock equal to the Exchange Ratio;
or
(ii) cash in the amount of the Price Per Share.
(b) At and after the Effective Time, each Treasury Share of
Pocono shall be cancelled and retired and no shares of Parent
Common Stock, cash or other consideration shall be issued in
exchange therefor.
(c) At the Effective Time, the stock transfer books of
Pocono shall be closed as to holders of Pocono Common Stock
immediately prior to the Effective Time and no transfer of
Pocono Common Stock by any such holder shall thereafter be made
or recognized. If, after the Effective Time, certificates are
properly presented in accordance with Section 3.4 of this
Agreement to the Exchange Agent, such certificates shall be
canceled and exchanged for certificates representing the number
of whole shares of Parent Common Stock, if any, and/or a check
representing the amount of cash, if any, into which the Pocono
Common Stock represented thereby was converted in the Merger,
plus any payment for any fractional share of Parent Common Stock
without any interest thereon.
(d) At and after the Effective Time, each share of Parent
Common Stock issued and outstanding immediately prior to the
Effective Time shall remain issued and outstanding and shall not
be affected by the Merger.
3.2 FRACTIONAL SHARES. Notwithstanding any other provision of
this Agreement, each holder of Pocono Common Stock who would
otherwise be entitled to receive a fractional share of Parent
Common Stock, after taking into account all Certificates
delivered by such holder, shall receive an amount in cash,
without interest, rounded to the nearest cent, equal to the
product obtained by multiplying (a) the Average Closing Price
determined as of the Effective Date by (b) the fractional share,
calculated to the nearest ten-thousandth of the share of Parent
Common Stock, to which such holder would otherwise be entitled.
No such holder shall be entitled to dividends or other rights in
respect of any such fractional shares.
3.3 ELECTION AND PRORATION PROCEDURES.
(a) An election form and other appropriate and customary
transmittal materials, which shall specify that delivery shall
be effected, and risk of loss and title to the certificates
theretofore representing shares of Pocono Common Stock shall
pass, only upon proper delivery of such certificates to the
Exchange Agent in such form as Parent and Pocono shall mutually
agree ("Election Form") shall be mailed by or on behalf of
Parent no less than 40 days prior to the anticipated Effective
Time of the Merger, as jointly determined by Parent and Pocono,
or on such other date as Parent and Pocono shall mutually agree
("Mailing Date") to each holder of record of Pocono Common Stock
as of the close of business on the fifth business day prior to
the mailing date (the "Election Form Record Date"). Parent shall
make available one or more Election Forms as may be reasonably
requested by all persons who become holders (or beneficial
owners) (the term "beneficial
13
EXECUTION COPY
owner" and "beneficial ownership" for purposes of this Agreement
shall have the meaning set forth in Section 13(d) of the
Exchange Act) of Pocono Common Stock after the Election Form
Record Date and prior to the Election Deadline, and Pocono shall
provide to the Exchange Agent all information reasonably
necessary for it to perform its obligations as specified herein.
Each Election Form shall permit the holder or the beneficial
owner through appropriate and customary documentation and
instructions to elect (an "Election") to receive (i) Parent
Common Stock (a "Stock Election") with respect to all of such
holder's Pocono Common Stock, or (ii) cash (a "Cash Election")
with respect to all of such holder's Pocono Common Stock, or
(iii) Parent Common Stock for a specified number of shares of
Pocono Common Stock (a "Combination Stock Election") and cash
for the remaining number of shares of Pocono Common Stock held
by such holder (a "Combination Cash Election"). Any Pocono
Common Stock other than Dissenting Shares and Treasury Shares,
with respect to which the Exchange Agent has not received an
effective, properly completed Election Form prior to the
Election Deadline shall be deemed to be "Undesignated Shares"
hereunder.
(b) Any Election shall have been properly made and
effective only if the Exchange Agent shall have actually
received a properly completed Election Form that has not been
revoked by 5:00 p.m., prevailing time, by the Thirtieth (30th)
Business Day following the Mailing Date (or such other time and
date as Parent and Pocono may mutually agree) (the "Election
Deadline"). An Election Form shall be deemed properly completed
only if an Election is indicated for each share of Pocono Common
Stock covered by such Election Form and if accompanied by one or
more certificates (or customary affidavits and indemnification
regarding the loss or destruction of such certificates or the
guaranteed delivery of such certificates) representing all
shares of Pocono Common Stock covered by such Election Form,
together with duly executed transmittal materials included in or
required by the Election Form. Any Election Form may be revoked
by the person submitting such Election Form at or prior to the
Election Deadline, provided that the Exchange Agent shall have
actually received prior to the Election Deadline a written
notice revoking such Election Form and specifying the shares of
Pocono Common Stock covered by such revoked Election Form. In
the event an Election Form is revoked prior to the Election
Deadline, the shares of Pocono Common Stock representing such
Election Form shall automatically become Undesignated Shares
unless and until a new Election is properly made with respect to
such shares on or before the Election Deadline, and Parent shall
cause the certificates representing such shares of Pocono Common
Stock to be promptly returned without charge to the person
submitting the revoked Election Form upon written request to
that effect from the holder who submitted such Election Form.
Subject to the terms of this Agreement and of the Election Form,
the Exchange Agent shall have reasonable discretion to determine
whether any Election or revocation has been properly or timely
made and to disregard immaterial defects in the Election Forms,
and any decisions of Pocono and Parent required by the Exchange
Agent and made in good faith in determining such matters shall
be binding and conclusive. Neither Parent nor the Exchange Agent
shall be under any obligation to notify any person of any defect
in an Election Form.
14
EXECUTION COPY
(c) As promptly as practicable but not later than five
Business Days prior to the Effective Time of the Merger, Parent
shall cause the Exchange Agent to effect the allocation among
the holders of Pocono Common Stock of rights to receive Parent
Common Stock or cash in the Merger in accordance with the
Election Forms as follows:
(i) if the aggregate number of shares of Pocono Common
Stock as to which Stock Elections and Combination
Stock Elections shall have effectively been made times
the Exchange Ratio exceeds the Stock Amount, then:
(A) each holder of Pocono Common Stock who made
an effective Cash Election or Combination Cash
Election shall receive the Price Per Share in cash for
each such share of Pocono Common Stock;
(B) each holder of Undesignated Shares shall be
deemed to have made a Cash Election and shall receive
the Price Per Share in cash for each such Undesignated
Share; and
(C) a stock proration factor (the "Stock
Proration Factor") shall be determined by dividing (1)
the Stock Amount by (2) the product of the Exchange
Ratio and the number of shares of Pocono Common Stock
with respect to which effective Stock Elections and
Combination Stock Elections were made. Each holder of
Pocono Common Stock who made an effective Stock
Election or Combination Stock Election shall be
entitled to:
(1) the number of shares of Parent Common
Stock equal to the product of (x) the Exchange
Ratio, multiplied by (y) the number of shares of
Pocono Common Stock covered by such Stock
Election or Combination Stock Election,
multiplied by (z) the Stock Proration Factor, and
(2) cash in an amount equal to the product
of (x) the Price Per Share, multiplied by (y) the
number of shares of Pocono Common Stock covered
by such Stock Election or Combination Stock
Election, multiplied by (z) one minus the Stock
Proration Factor.
(ii) if the aggregate number of shares of Pocono
Common Stock as to which Stock Elections and
Combination Stock Elections shall have effectively
been made times the Exchange Ratio is less than the
Stock Amount, then:
(A) each holder of Pocono Common Stock who made
an effective Stock Election or Combination Stock
Election shall receive the number of shares of Parent
Common Stock equal to the product of the Exchange
Ratio multiplied by the number of shares of Pocono
Common Stock covered by such Stock Election or
Combination Stock Election;
15
EXECUTION COPY
(B) the Exchange Agent shall select, by pro rata
allocation according to the number of Pocono shares
held, among those holders of Undesignated Shares
(other than holders of Undesignated Shares who voted
against or gave notice to the presiding officer of the
Pocono Meeting at or prior to the Pocono Meeting that
the holder dissents from the Merger as required by
Section 215a of the National Bank Act), such number of
shares of Parent Common Stock as shall be necessary so
that the shares of Parent Common Stock to be received
by those holders, when combined with the number of
shares for which a Stock Election or Combination Stock
Election has been made, multiplied by the Exchange
Ratio shall be approximately equal to the Stock
Amount. If all of said Undesignated Shares plus all
shares as to which Stock Elections and Combination
Stock Elections have been made together multiplied by
the Exchange Ratio are less than, and not
approximately equal to, the Stock Amount, then:
(C) a cash proration factor (the "Cash Proration
Factor") shall be determined by dividing (1) the
amount which is the difference between (x) the number
obtained by dividing the Stock Amount by the Exchange
Ratio and (y) the sum of the number of shares of
Pocono Common Stock with respect to which effective
Stock Elections and Combination Stock Elections were
made and the number of Undesignated Shares selected
pursuant to subparagraph (ii)(B) above by (2) the
number of shares of Pocono Common Stock with respect
to which effective Cash Elections and Combination Cash
Elections were made. Each holder of Pocono Common
Stock who made an effective Cash Election or
Combination Cash Election shall be entitled to:
(1) cash equal to the product of (x) the
Price Per Share, multiplied by (y) the number of
shares of Pocono Common Stock covered by such
Cash Election or Combination Cash Election,
multiplied by (z) one minus the Cash Proration
Factor, and
(2) the number of shares of Parent Common
Stock equal to the product of (x) the Exchange
Ratio, multiplied by (y) the number of shares of
Pocono Common Stock covered by such Cash Election
or Combination Cash Election, multiplied by (z)
the Cash Proration Factor.
(iii) The prorata allocation process to be used by the
Exchange Agent shall consist of such procedures as
Parent and Pocono shall mutually determine.
(iv) Notwithstanding any provision of this Agreement,
Parent reserves the right to adjust the relative
proportions of the Cash Amount and Stock Amount to
meet such requirements as may be necessary for the
Merger to qualify as reorganization under Section
368(a) of the Code.
16
EXECUTION COPY
3.4 EXCHANGE PROCEDURES.
(a) Not later than three Business Days prior to the
Effective Time of the Merger, Parent shall deposit with the
Exchange Agent for the benefit of the holders of shares of
Pocono Common Stock, for exchange in accordance with this
Section 3.4, certificates representing the aggregate number of
shares of Parent Common Stock and cash issuable pursuant to
Section 3.1 in exchange for shares of Pocono Common Stock
outstanding immediately prior to the Effective Time of the
Merger and funds in an amount not less than the amount of cash
payable in lieu of fractional shares of Parent Common Stock that
would otherwise be issuable in connection with Section 3.1, but
for the operation of Section 3.2 of this Agreement (the
"Exchange Fund").
(b) After the Effective Time of the Merger, each holder of
a certificate ("Certificate") formerly representing Pocono
Common Stock, other than Dissenting Shares and Treasury Shares,
who surrenders or has surrendered such Certificate or customary
affidavits and indemnification regarding the loss or destruction
of such Certificate, together with duly executed transmittal
materials included in or required by the Election Form to the
Exchange Agent, shall, upon acceptance thereof, be entitled to
(i) a certificate representing the Parent Common Stock and/or
(ii) cash into which the shares of Pocono Common Stock shall
have been converted pursuant to Sections 3.1 and 3.3, as well as
cash in lieu of any fractional share of Parent Common Stock to
which such holder would otherwise be entitled, if applicable.
The Exchange Agent shall accept such Certificate upon compliance
with such reasonable and customary terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof
in accordance with normal practices. Until surrendered as
contemplated by this Section 3.4, each Certificate representing
Pocono Common Stock shall be deemed from and after the Effective
Time of the Merger to evidence only the right to receive the
Merger Consideration to which it is entitled hereunder upon such
surrender. Parent shall not be obligated to deliver the Merger
Consideration to which any former holder of Pocono Common Stock
is entitled as a result of the Merger until such holder
surrenders his Certificate or Certificates for exchange as
provided in this Section 3.4. If any certificate for shares of
Parent Common Stock, or any check representing cash and/or
declared but unpaid dividends, is to be issued in a name other
than that in which a Certificate surrendered for exchange is
issued, the Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and the
person requesting such exchange shall affix any requisite stock
transfer tax stamps to the Certificate surrendered or provide
funds for their purchase or establish to the satisfaction of the
Exchange Agent that such taxes are not payable.
(c) No dividends or other distributions declared or made
after the Effective Time of the Merger with respect to Parent
Common Stock with a record date after the Effective Time of the
Merger shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock
represented thereby, and no cash payment in lieu of a fractional
share shall be paid to any such holder pursuant to Section 3.2,
until the holder of record of such Certificate shall surrender
such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid
to the record holder of the certificates representing whole
shares of Parent Common
17
EXECUTION COPY
Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of any cash payable in lieu
of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 3.2, and the amount of
dividends or other distributions with a record date after the
Effective Time of the Merger but prior to surrender and a
payment date prior to surrender with respect to such whole
shares of Parent Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions
with a record date after the Effective Time of the Merger but
prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Parent Common
Stock.
(d) All cash and shares of Parent Common Stock issued upon
the surrender for exchange of shares of Pocono Common Stock or
the provision of customary affidavits and indemnification for
lost or mutilated certificates in accordance with the terms
hereof, including any cash paid pursuant to Section 3.2, shall
be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Pocono Common Stock, and there
shall be no further registration of transfers on the stock
transfer books of Parent, after the Merger, of the shares of
Pocono Common Stock that were outstanding immediately prior to
the Effective Time of the Merger. If, after the Effective Time
of the Merger, Certificates are presented to Parent for any
reason, they shall be canceled and exchanged as provided in this
Agreement.
(e) Any portion of the Exchange Fund, including any
interest thereon, that remains undistributed to the shareholders
of Pocono following the passage of nine months after the
Effective Time of the Merger shall be delivered to Parent, upon
demand, and any shareholders of Pocono who have not theretofore
complied with this Section 3.4 shall thereafter look only to
Parent for payment of their claim for cash and for Parent Common
Stock, any cash in lieu of fractional shares of Parent Common
Stock and any dividends or distributions with respect to Parent
Common Stock.
(f) Neither Pocono nor Parent shall be liable to any holder
of shares of Pocono Common Stock or Parent Common Stock, as the
case may be, for such shares, or dividends or distributions with
respect thereto, or cash from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property,
escheat or similar law.
(g) The Exchange Agent shall not be entitled to vote or
exercise any rights of ownership with respect to the shares of
Parent Common Stock held by it from time to time hereunder,
except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such shares of
Parent Common Stock for the account of the Persons entitled
thereto.
(h) Certificates surrendered for exchange by any Person
constituting an Affiliate of Pocono for purposes of Rule 144(a)
under the Securities Act shall not be exchanged for certificates
representing whole shares of Parent Common Stock until Parent
has received a written agreement from such person as provided in
Section 6.7.
18
EXECUTION COPY
3.5 ADJUSTMENTS FOR DILUTION AND OTHER MATTERS. If prior to the
Effective Time of the Merger, (a) Parent shall declare a stock
dividend or distribution on Parent Common Stock with a record
date prior to the Effective Time of the Merger, or subdivide,
split up, reclassify or combine Parent Common Stock, or make a
distribution other than a cash dividend on Parent Common Stock
in any security convertible into Parent Common Stock, in each
case with a record date prior to the Effective Time of the
Merger, or (b) the outstanding shares of Parent Common Stock
shall have been increased, decreased, changed into or exchanged
for a different number or kind of shares or securities, in each
case as a result of a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock
split or other similar change in Parent's capitalization other
than a transaction in which Parent shall have received fair, as
determined by its Board of Directors, consideration for the
shares issued, then a proportionate adjustment or adjustments
will be made to the Exchange Ratio, the Stock Amount and the
Average Closing Price.
3.6 DISSENTING SHARES. Notwithstanding anything to the contrary
contained in this Agreement, any holder of Pocono Common Stock
who shall be entitled to be paid the "fair value" of such
holder's Dissenting Shares of Pocono Common Stock, as provided
in Section 215a of the National Bank Act, shall not be entitled
to the consideration to which such holder would otherwise have
been entitled pursuant to Sections 2.1, 3.1 and 3.3, unless and
until such holder shall have failed to perfect or withdrawn or
lost such holder's rights as a dissenter under Section 215a of
the National Bank Act, and shall be entitled to receive only
such payment as is provided for by Section 215a of the National
Bank Act.
3.7 WITHHOLDING RIGHTS. Parent, directly or through the
Exchange Agent, shall be entitled to deduct and withhold from
any amounts otherwise payable pursuant to this Agreement to any
holder of shares of Pocono Common Stock such amounts as Parent
is required under the Code or any state, local or foreign tax
law or regulation thereunder to deduct and withhold with respect
to the making of such payment. Any amounts so withheld shall be
treated for all purposes of this Agreement as having been paid
to the holder of Pocono Common Stock in respect of which such
deduction and withholding was made by Parent.
3.8 POCONO OPTIONS AND WARRANTS.
(a) At the Effective Time, all Pocono Options, as
identified on Schedule 3.8(a) of the Pocono Disclosure Schedule,
that are then outstanding shall cease to represent a right to
acquire shares of Pocono Common Stock and shall be converted
automatically into, and in full release, termination, and
satisfaction of such Pocono Option Holder, the right to receive
cash in an amount equal to the difference between the option
exercise price and Price Per Share (the "Option Consideration"),
subject to Parent's receipt of an Option cancellation and
termination form from the respective Pocono Option Holder.
(b) At the Effective Time all Pocono Warrants, as
identified on Schedule 3.8(b) of the Pocono Disclosure Schedule,
that are then outstanding shall cease to represent a right to
19
EXECUTION COPY
acquire shares of Pocono Common Stock and shall automatically be
converted into, and in full release, termination and
satisfaction of such Pocono Warrant Holder, the right to receive
cash in an amount equal to the difference between the Pocono
Warrant strike price and Price Per Share (the "Warrant
Consideration"), subject to Parent's receipt of a Warrant
cancellation and termination form from the respective Pocono
Warrant Holder.
ARTICLE IV
ACTIONS PENDING CLOSING
4.1 FORBEARANCES OF POCONO. From the date hereof until the
Effective Time, except as expressly contemplated or permitted by
this Agreement, without the prior written consent of Parent, not
to be unreasonably withheld, Pocono will not:
(a) Ordinary Course.
(i) Conduct its business other than in the ordinary
and usual course consistent with past practice or fail
to use commercially reasonable efforts to preserve
intact its business organization and advantageous
business relationships;
(ii) Fail to use commercially reasonable efforts to
keep available the present services of its employees
and preserve for itself and Parent the goodwill of the
customers of Pocono and others with whom business
relations exist; and
(iii) Take any action that would adversely affect or
materially delay the ability of either Pocono or
Parent to obtain any necessary approvals of any
regulatory agency required for the transactions
contemplated hereby or to perform its covenants and
agreements under this Agreement or to consummate the
transactions contemplated hereby.
(b) COMMON STOCK. Other than pursuant to Rights set forth
on Schedule 4.1(b) of the Pocono Disclosure Schedule and
outstanding on the date hereof, (i) issue, sell or otherwise
permit to become outstanding, or authorize the creation of, any
additional shares of stock or any Rights, or (ii) permit any
additional shares of stock to become subject to grants of
employee or director stock options or other Rights.
(c) DIVIDENDS; ETC.
(i) Make, declare, pay or set aside for payment any
dividend on or in respect of, or declare or make any
other distribution on any shares of Pocono common
stock; or
(ii) Directly or indirectly adjust, split, combine,
redeem, reclassify, purchase or otherwise acquire any
shares of its common stock.
(d) COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Enter into
or amend or renew any employment, consulting, change in control,
severance or similar agreements or arrangements with any
director, officer or employee of Pocono or grant any salary or
20
EXECUTION COPY
wage increase or increase any employee benefit, including
discretionary or other incentive or bonus payments, or
accelerate the vesting of any unvested stock options or
acceleration of any benefits under any Benefit Plans, except:
(i) for normal increases in compensation and bonuses
to employees in the ordinary course of business
consistent with past practice, provided that no such
increases shall result in an annual aggregate
adjustment in compensation or bonus of more than Three
Percent (3%), and provided further, however, that no
increase for any individual shall result in an annual
adjustment in compensation or bonus of more than Three
Percent (3%) unless mutually agreed to by Pocono and
Parent;
(ii) for other changes that are required by applicable
law or are advisable in order to comply with Section
409A of the Code and the regulations promulgated
thereunder;
(iii) to pay the amounts or to provide payments under
plans and/or commitments set forth in Schedule 4.1(d)
of the Pocono Disclosure Schedule;
(iv) for retention bonuses to such persons and in such
amounts as are mutually agreed by Parent and Pocono,
provided, however, that the aggregate amount of such
retention bonuses shall not exceed Twenty Five
Thousand Dollars ($25,000) unless mutually agreed to
by Pocono and Parent; or
(v) severance payments pursuant to Section 6.19 or
employment agreements that are set forth in Schedule
4.1(d) of the Pocono Disclosure Schedule.
(e) HIRING. Hire any person as an employee of Pocono or
promote any employee, except (i) to satisfy contractual
obligations existing as of the date hereof and set forth on
Schedule 4.1(e) of the Pocono Disclosure Schedule, or (ii) to
fill any vacancies existing as of the date hereof and described
in Schedule 4.1(e) of the Pocono Disclosure Schedule or (iii)
with the prior approval of Parent to fill any vacancies arising
after the date hereof at a comparable level of compensation with
persons whose employment is terminable at the will of Pocono, as
applicable, provided, however, that such total compensation may
not exceed Thirty Thousand Dollars ($30,000).
(f) BENEFIT PLANS. Enter into, establish, adopt, amend or
make any contributions to, except (i) as may be required by
applicable law or (ii) to satisfy contractual obligations
existing as of the date hereof and set forth on Schedule 4.1(f)
of the Pocono Disclosure Schedule, any pension, retirement,
stock option, stock purchase, stock appreciation right, stock
grant, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust
agreement or similar arrangement related thereto, in respect of
any director, officer or employee of Pocono or take any action
to accelerate the vesting or exercisability of stock options,
restricted stock or other compensation or benefits payable
thereunder.
21
EXECUTION COPY
(g) DISPOSITIONS. Sell, transfer, mortgage, encumber or
otherwise dispose of or discontinue any of its assets, deposits,
business or properties except in the ordinary course of business
consistent with past practice and in a transaction that,
together with all other such transactions, is not material to
Pocono taken as a whole.
(h) ACQUISITIONS. Acquire, other than by way of
foreclosures or acquisitions of control in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in
good faith, in each case in the ordinary and usual course of
business consistent with past practice, all or any portion of
the assets, business, deposits or properties of any other
entity.
(i) CAPITAL EXPENDITURES. Except for the construction
costs set forth on Schedule 4.1(i) of the Pocono Disclosure
Schedule in an amount not to exceed One Million Two Hundred
Fifty Thousand Dollars ($1,250,000), make any capital
expenditures other than capital expenditures in the ordinary
course of business consistent with past practice in amounts not
exceeding Five Thousand Dollars ($5,000) individually or Twenty
Thousand Dollars ($20,000) in the aggregate, provided, however,
that if Parent does not object to a written request for approval
within seven business days after receipt, the request shall be
deemed approved.
(j) GOVERNING DOCUMENTS. Amend the Pocono Articles or the
Pocono Bylaws except as may be required by law.
(k) ACCOUNTING METHODS. Implement or adopt any change in
its tax accounting or financial accounting principles, practices
or methods, other than as may be required by changes in laws or
regulations or GAAP.
(l) CONTRACTS. Except as otherwise permitted under this
Section 4.1, enter into or terminate any Material Contract or
amend or modify in any material respect any of its existing
Material Contracts.
(m) CLAIMS. Enter into any settlement or similar agreement
with respect to any action, suit, proceeding, order or
investigation to which Pocono is or becomes a party, which
settlement, agreement or action involves payment by Pocono of an
amount that exceeds Five Thousand Dollars ($5,000) and/or would
impose any material restriction on the business of Pocono or
create precedent for claims that are reasonably likely to be
material to Pocono taken as a whole.
(n) BANKING OPERATIONS. Enter into any new line of
business; change its lending, investment, underwriting, risk and
asset liability management and other material banking and
operating policies, except as required by applicable law,
regulation or policies imposed by any Governmental Authority; or
file any application or make any contract with respect to
opening or closing a branching or site location or branching or
site relocation.
22
EXECUTION COPY
(o) INDEBTEDNESS. (i) Incur any indebtedness for borrowed
money, other than deposits, federal funds purchased, cash
management accounts, Federal Home Loan Bank borrowings that
mature within one year and securities sold under agreements to
repurchase that mature within 90 days, in each case in the
ordinary course of business consistent with past practice, or
assume, guarantee, endorse or otherwise as an accommodation
become responsible for the obligations of any other Person,
other than in the ordinary course of business consistent with
past practice or (ii) prepay any indebtedness.
(p) INVESTMENT SECURITIES. (i) Acquire, other than by way
of foreclosures or acquisitions in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in
good faith, in each case in the ordinary course of business
consistent with past practice, any debt security or Equity
Investment other than federal funds or United States Government
securities or United States Government agency securities, in
each case with a term of one (1) year or less, (ii) restructure
or materially change its investment securities portfolio or its
gap position or (iii) enter in any Derivatives Contract,
provided, however, that if Parent does not object to a written
request for approval within five business days after receipt,
the request shall be deemed approved.
(q) LOANS. Except as set forth on Schedule 4.1(g) of the
Pocono Disclosure Schedule, make, renew or otherwise modify any
loan, loan commitment, letter of credit or other extension of
credit (individually, a "Loan" and collectively, "Loans") in
excess of Two Hundred Twenty-Five Thousand Dollars ($250,000) to
any Person. Make, renew or otherwise modify any Loan or Loans
to any Person if, immediately after making an unsecured Loan or
Loans, such Person would be indebted to Pocono in an aggregate
amount in excess of Five Hundred Thousand Dollars ($500,000), or
make any fully secured Loan or Loans to any Person (except for
any Loan secured by a first mortgage on single family owner
occupied real estate) if, immediately after making a secured
Loan, such Person would be indebted to Pocono in an aggregate
amount in excess of Five Hundred Thousand Dollars ($500,000) or,
without approval of Parent, shall not make, renew or otherwise
modify any Loan or Loans secured by an owner occupied 1-4 single
family residence with a principal balance in excess of Five
Hundred Thousand Dollars ($500,000) or in any event if such Loan
does not conform with Pocono's current credit policy in effect
as of the date hereof if, in the case of any of the foregoing
types of Loan or Loans, Parent shall object thereto within three
business days after receipt of notice of such proposed Loan, and
the failure to provide a written objection within three business
days after receipt of notice of such proposed Loan from Pocono
shall be deemed as the approval of Parent to make such Loan or
Loans.
(r) INVESTMENTS IN REAL ESTATE. Make any investment or
commitment to invest in real estate or in any real estate
development project, other than by way of foreclosure or
acquisitions in a bona fide fiduciary capacity or in
satisfaction of a debt previously contracted in good faith, in
each case in the ordinary course of business consistent with
past practice.
23
EXECUTION COPY
(s) ADVERSE ACTIONS. Take any action that (i) would, or is
reasonably likely to, prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section
368(a) of the Code, (ii) is intended or is reasonably likely to
result in (x) any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material
respect at any time at or prior to the Effective Time, (y) any
of the conditions to the Merger set forth in Article VII not
being satisfied or (z) a material violation of any provision of
this Agreement, except as may be required by applicable law or
regulation and (iii) would adversely affect or materially delay
the ability of either Parent or Pocono to obtain any necessary
approvals required of any regulatory agency for the transactions
contemplated hereby or to perform its covenants and agreements
under this Agreement or to consummate the transactions
contemplated hereby.
(t) COMMITMENTS. Enter into any contract with respect to,
or otherwise agree or commit to do, any of the foregoing.
4.2 FORBEARANCES OF PARENT. From the date hereof until the
Effective Time, except as expressly contemplated or permitted by
this Agreement or as Previously Disclosed, without the prior
written consent of Pocono, not to be unreasonably withheld,
Parent will not, and will cause each of its Subsidiaries not to:
(a) Adverse Actions. Take any action that (i) would, or is
reasonably likely to, prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section
368(a) of the Code, (ii) is intended or is reasonably likely to
result in (x) any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material
respect at any time at or prior to the Effective Time, (y) any
of the conditions to the Merger set forth in Article VII not
being satisfied or (z) a material violation of any provision of
this Agreement, except as may be required by applicable law or
regulation or (iii) would adversely affect or materially delay
the ability of either Parent or Pocono to obtain any necessary
approvals required of any regulatory agency for the transactions
contemplated hereby or to perform its covenants and agreements
under this Agreement or to consummate the transactions
contemplated hereby.
(b) Commitments. Enter into any contract with respect to,
or otherwise agree or commit to do, any of the foregoing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 DISCLOSURE SCHEDULES. On or prior to the date hereof,
Parent has delivered to Pocono a schedule and Pocono has
delivered to Parent a schedule (respectively, its "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
representations or warranties contained in Section 5.3 or 5.4 or
to one or more of its covenants contained in Article VI;
provided, however, that the mere inclusion of an item in a
Disclosure
24
EXECUTION COPY
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 fact, event or circumstance or that,
absent such inclusion in the Disclosure Schedule, such item is
or would be reasonably likely to result in a Material Adverse
Effect.
5.2 STANDARD. No representation or warranty of Pocono or Parent
contained in Sections 5.3 or 5.4, respectively, shall be deemed
untrue or incorrect for any purpose under this Agreement, and no
party hereto shall be deemed to have breached a representation
or warranty, in any case, as a consequence of the existence of
any fact, event or circumstance unless such fact, circumstance
or event, individually or taken together with all other facts,
events or circumstances inconsistent with any representation or
warranty contained in Sections 5.3 or 5.4, has had or would be
reasonably likely to have a Material Adverse Effect on the party
making such representation or warranty disregarding for the
purposes of this Section 5.2 any materiality or Material Adverse
Effect qualification contained in any representations or
warranties.
5.3 REPRESENTATIONS AND WARRANTIES OF POCONO. Subject to
Sections 5.1 and 5.2, Pocono hereby represents and warrants to
Parent:
(a) ORGANIZATION, STANDING AND AUTHORITY. Pocono is a
Pennsylvania state-chartered banking institution duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Pocono is duly qualified to do
business and is in good standing in each jurisdiction where its
ownership or leasing of property or assets or the conduct of its
business requires it to be so qualified. Pocono has in effect
all federal, state, local and foreign governmental
authorizations necessary for it to own or lease its properties
and assets and to carry on its business as now conducted.
(b) POCONO COMMON STOCK. The authorized common stock of
Pocono consists of (i) Four Million (4,000,000) shares of Pocono
Common Stock, of which 1,684,515 shares are issued and
outstanding as of the date hereof and (ii) One Million
(1,000,000) shares of Preferred Stock, of which no shares are
issued and outstanding as of the date hereof. As of the date
hereof, no shares of Pocono Common Stock were held in treasury
by Pocono or otherwise directly or indirectly owned by Pocono.
Pocono also has outstanding Pocono Warrants exercisable for the
purchase of 447,350 shares of Pocono Common Stock and
outstanding Pocono Options exercisable for the purchase of
64,105 shares of Pocono Common Stock. The outstanding shares of
Pocono Common Stock, the Pocono Warrants, and the Pocono Options
have been duly authorized and validly issued and are fully paid
and non-assessable, and neither the outstanding shares of Pocono
Common Stock have been nor the shares of Pocono Common Stock
issuable upon exercise of the Pocono Warrants or Pocono Options
will be upon issuance, issued in violation of the preemptive
rights of any Person. Schedule 5.3(b) of the Pocono Disclosure
Schedule sets forth for each Pocono Warrant the name of the
grantee, the date of the grant, the number of shares of Pocono
Common Stock subject to each Pocono Warrant, the number of
shares of Pocono Common Stock subject to Pocono Warrants that
are currently exercisable and the exercise price per share.
Schedule 5.3(b) of the Pocono Disclosure Schedule sets forth for
each Pocono Option the name of the grantee, the date of the
grant,
25
EXECUTION COPY
the type of grant, the status of the option grant as qualified
or non-qualified under Section 422 of the Code (with respect to
the Pocono Options), the number of shares of Pocono Common Stock
subject to each Pocono Option, the number of shares of Pocono
Common Stock subject to Pocono Options that are currently
exercisable and the exercise price per share. Except as set
forth in the preceding sentences of this Section 5.3(b) and the
Pocono Warrants and Pocono Options as set forth in Schedule
5.3(b) of the Pocono Disclosure Schedule there are no shares of
Pocono Common Stock reserved for issuance, Pocono does not have
any Rights issued or outstanding with respect to Pocono Common
Stock and Pocono does not have any commitment to authorize,
issue or sell any Pocono Common Stock or Rights.
(c) CORPORATE POWER. Pocono has the corporate power and
authority to carry on its business as it is now being conducted
and to own all its properties and assets; and Pocono has the
corporate power and authority to execute, deliver and perform
its obligations under this Agreement and to consummate the
Transaction, subject to receipt of all necessary approvals of
Governmental Authorities and the approval of Pocono's
shareholders of this Agreement, and no other corporate
proceedings are necessary on the part of Pocono to approve this
Agreement or to consummate the Transaction.
(d) CORPORATE AUTHORITY. Subject to the approval of this
Agreement by the holders of not less than two-thirds of the
outstanding shares of Pocono Common Stock (a "Required Vote"),
this Agreement and the Transaction have been authorized by all
necessary corporate action of Pocono and the Pocono Board on or
prior to the date hereof. Pocono has duly executed and delivered
this Agreement and, assuming due authorization, execution and
delivery by Parent of this Agreement, this Agreement is a valid
and legally binding obligation of Pocono, enforceable in
accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, receivership,
conservatorship, reorganization, moratorium, fraudulent transfer
and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles.
(e) REGULATORY APPROVALS; NO DEFAULTS.
(i) No consents or approvals of, or waivers by, or
filings or registrations with, any Governmental
Authority or with any third party are required to be
made or obtained by Pocono in connection with the
execution, delivery or performance by Pocono of this
Agreement or to consummate the Transaction except for
(A) filings of applications or notices with, and
approvals or waivers by, the OCC, the FDIC, the
Department and the Federal Reserve Board, (B) filings
with the SEC and state securities authorities, as
applicable, in connection with the submission of this
Agreement for the approval of the holders of Pocono
Common Stock and the registration of Parent Common
Stock issuable in the Merger, (C) the notification of
the Merger to the Department and the filing with the
Department and the Secretary of State of the
Commonwealth of Pennsylvania of a certificate of
approval of the Merger by the OCC, and (D) the
approval and adoption of this Agreement by a Required
Vote. As of the date hereof, Pocono is not aware of
any
26
EXECUTION COPY
reason why the approvals set forth above and referred
to in Section 7.1(b) will not be received in a timely
manner and without the imposition of a condition,
restriction or requirement of the type described in
Section 7.1(b).
(ii) Subject to receipt, or the making, of the
consents, approvals, waivers and filings referred to
in the preceding paragraph and the expiration of
related waiting periods, the execution, delivery and
performance of this Agreement by Pocono and the
consummation of the Transaction do not and will not
(A) except as Previously Disclosed on Schedule 5.3(e)
of the Pocono Disclosure Schedule, constitute a breach
or violation of, or a default under, or give rise to
any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any
judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of
Pocono or to which Pocono or any of their respective
properties is subject or bound, (B) constitute a
breach or violation of, or a default under, the Pocono
Articles, the Pocono Bylaws or (C) require any consent
or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or
license, agreement, indenture or instrument.
(f) FINANCIAL REPORTS; UNDISCLOSED LIABILITIES.
(i) Pocono's Balance Sheets for the fiscal years
ending December 31, 2005 and December 31, 2006,
Statements of Income, Statements of Shareholders'
Equity and Cash Flows, for fiscal years ending
December 31, 2004, December 31, 2005, and December 31,
2006 audited by Parente Xxxxxxxx & Co. and as set
forth in the Annual Report for the fiscal year ended
December 31, 2006, and all other reports, proxy
statements, information statements or call reports
filed or to be filed by it subsequent to December 31,
2006 with the FDIC (collectively, Pocono's "Financial
Reports"), as of the date filed or to be filed and as
amended prior to the date hereof, (A) complied or will
comply in all material respects as to form with the
applicable regulations of the FDIC and (B) did not and
will not contain any untrue statement of a material
fact or omit to state a material fact required to be
stated therein or necessary to make the statements
therein, in the light of the circumstances under 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; and each of
the statements of financial condition contained in any
such Financial Reports, including the related notes
and schedules thereto, fairly presents, or will fairly
present, the financial position of Pocono as of its
date, and each of the balance sheets, statements of
income, shareholders' equity and cash flows or
equivalent statements in Pocono's Financial Reports,
including any related notes and schedules thereto,
fairly presents, or will fairly present, the balance
sheets, the results of operations, changes in
shareholders' equity and changes in cash flows, as the
case may be, of Pocono for the periods to which they
relate, in each case in accordance with GAAP
consistently applied during the periods involved,
except in each case as may be noted therein.
27
EXECUTION COPY
(ii) Since December 31, 2006 Pocono has not incurred
any liability other than in the ordinary course of
business consistent with past practice, excluding the
incurrence of expenses related to this Agreement and
the Transaction.
(iii) Since December 31, 2006, (A) Pocono has
conducted its respective businesses in the ordinary
and usual course consistent with past practice,
excluding the incurrence of expenses related to this
Agreement and the Transaction; (B) Pocono has not
taken nor permitted or entered into any contract with
respect to, or otherwise agreed or committed to do or
take, any of the actions set forth in Sections 4.1(e),
(f), (g), (i), (j), (k), (l), (m), (n), (p), (q) and
(r) hereof between December 31, 2006 and the date
hereof; and (C) except as set forth in the Pocono
Financial Reports, since December 31, 2004, no event
has occurred or circumstance arisen that, individually
or taken together with all other facts, circumstances
and events described in any paragraph of this Section
5.3 or otherwise, is reasonably likely to have a
Material Adverse Effect with respect to Pocono.
(iv) No agreement pursuant to which any loans or other
assets have been or shall be sold by Pocono entitled
the buyer of such loans or other assets, unless there
is material breach of a representation or covenant by
Pocono to cause Pocono to repurchase such loan or
other asset or the buyer to pursue any other form of
recourse against Pocono. There has been no material
breach of a representation or covenant by Pocono in
any such agreement. Except as disclosed in Pocono's
Financial Reports since December 31, 2006, no cash,
stock or other dividend or any other distribution with
respect to the capital stock of Pocono have been
declared, set aside or paid. Except as disclosed in
Pocono's Financial Reports filed prior to the date
hereof, no shares of common stock of Pocono have been
purchased, redeemed or otherwise acquired, directly or
indirectly, by Pocono since December 31, 2004, and no
agreements have been made to do the foregoing.
(v) Pocono maintains disclosure controls and
procedures required by the FDIC; such controls and
procedures are effective to ensure that all material
information concerning Pocono is made known on a
timely basis to the individuals responsible for the
preparation of Pocono's Financial Reports and other
public disclosure documents. The President and the
Chief Financial Officer of Pocono have signed, and
Pocono has furnished to the FDIC, any certifications
required by the FDIC; such certifications contain no
qualifications or exceptions to the matters certified
therein and have not been modified or withdrawn; and
neither Pocono nor any of its officers has received
notice from any Governmental Authorities questioning
or challenging the accuracy, completeness, form or
manner of filing or submission of such certifications.
(vi) Except as reflected, noted or adequately reserved
against in the Pocono Financial Reports and call
reports for the year ended December 31, 2006 as filed
with the FDIC, at December 31, 2006 Pocono had no
liabilities, whether accrued, absolute, contingent or
otherwise, that are required to be reflected, noted or
28
EXECUTION COPY
reserved against therein under GAAP or that are in any
case or in the aggregate material.
(g) LITIGATION. Except as set forth in Schedule 5.3(g) of
the Pocono Disclosure Schedule, no litigation, claim or other
proceeding before any court or governmental agency is pending
against Pocono and to Pocono's knowledge no such litigation,
claim or other proceeding has been threatened and there are no
facts that could reasonably give rise to such litigation, claim
or other proceeding. Pocono is not a party to any order,
judgment or decree that has or could reasonably be expected to
have a Material Adverse Effect with respect to Pocono.
(h) REGULATORY MATTERS.
(i) Neither Pocono nor any of their respective
properties is a party to or is subject to any order,
decree, agreement, memorandum of understanding or
similar arrangement with, or a commitment letter or
similar submission to, or extraordinary supervisory
letter from, any Bank Regulatory Authority or any
federal or state governmental agency or authority
charged with the supervision or regulation of issuers
of securities or the supervision or regulation of it
(collectively, the "Pocono Regulatory Authorities").
Pocono has paid all assessments made or imposed by any
Pocono Regulatory Authority.
(ii) Pocono has not been advised by, nor does it have
any knowledge of facts that could give rise to an
advisory notice by, any Pocono Regulatory Authority
that such Pocono Regulatory Authority is contemplating
issuing or requesting, or is considering the
appropriateness of issuing or requesting, any such
order, decree, agreement, memorandum of understanding,
commitment letter, supervisory letter or similar
submission.
(iii) Pocono has 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 January 1, 1996
with (A) the Federal Reserve Board, (B) the FDIC, (C)
the Department, (D) any other state or federal
regulatory authority, and (E) the SEC, and all other
reports and statements required to be filed by them
since January 1, 1996, and have paid all fees and
assessments due and payable in connection therewith.
Except as set forth in Schedule 5.3(h) of the Pocono
Disclosure Schedule and except for normal examinations
conducted by Bank Regulatory Authorities, (A) no Bank
Regulatory Authority has initiated or has pending any
proceeding or, to the knowledge of Pocono,
investigation into the business or operations of
Pocono since January 1, 1996, except where such
proceedings or investigation are not reasonably likely
to have, either individually or in the aggregate, a
Pocono Material Adverse Effect, and (B) there is no
unresolved violation, criticism or exception by any
Bank Regulatory Authority with respect to the
business, operations, policies or procedures of Pocono
since January 1, 1996 that are reasonably likely to
have, either individually or in the aggregate, a
Pocono Material Adverse Effect.
29
EXECUTION COPY
(i) COMPLIANCE WITH LAWS. Pocono:
(i) is in material compliance with all applicable
federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees
conducting such businesses, including, without
limitation, Sections 23A and 23B of the Federal
Reserve Act and FDIC, Department and OCC regulations
pursuant thereto, the Equal Credit Opportunity Act,
the Fair Housing Act, the Community Reinvestment Act,
the Home Mortgage Disclosure Act, the Bank Secrecy Act
and all other applicable fair lending laws and other
laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders
and approvals of, and has made all filings,
applications and registrations with, all Governmental
Authorities that are required in order to permit it to
own or lease its properties and to conduct its
business as presently conducted; all such permits,
licenses, certificates of authority, orders and
approvals are in full force and effect and, to
Pocono's knowledge, no suspension or cancellation of
any of them is threatened; and
(iii) has not received, since December 31, 2004 any
notification or communication from any Governmental
Authority (A) asserting that Pocono is not in
compliance with any of the statutes, regulations or
ordinances that such Governmental Authority enforces
or (B) threatening to revoke any license, franchise,
permit or governmental authorization nor, to Pocono's
knowledge, do any grounds for any of the foregoing
exist.
(j) MATERIAL CONTRACTS; DEFAULTS.
(i) Except for documents listed as exhibits to
Pocono's Securities Documents or as set forth in
Schedule 5.3(j) of the Pocono Disclosure Schedule,
Pocono is not a party to, bound by or subject to any
agreement, contract, arrangement, commitment or
understanding, whether written or oral, (A) with
respect to the employment of any of its directors,
officers, employees or consultants; (B) that would
entitle any present or former director, officer,
employee or agent of Pocono to indemnification from
Pocono; (C) that is a material contract as defined in
Item 601(b)(10) of Regulation S-K of the SEC; (D)
that is a consulting agreement, including data
processing, software programming and licensing
contracts, not terminable on 60 days or less notice
and involving the payment of more than $25,000 per
annum; or (E) that materially restricts the conduct of
any business by Pocono (collectively, "Material
Contracts"). Pocono has identified in Schedule 5.3(j)
of the Pocono Disclosure Schedule and made available
to Parent true, correct and complete copies of each
such Material Contract.
(ii) Pocono is not in material default under any
contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a
party, by which its assets, business or operations may
be bound or affected, or under which
30
EXECUTION COPY
it or its respective assets, business or operations
receives benefits, and there has not occurred any
event that, with the lapse of time or the giving of
notice or both, would constitute such a default.
Except as provided in this Agreement, no power of
attorney or similar authorization given directly or
indirectly by Pocono is currently outstanding.
(k) NO BROKERS. Except as set forth in Schedule 5.3(k) of
the Pocono Disclosure Schedule, no action has been taken by
Pocono that would give rise to any valid claim against any party
hereto for a brokerage commission, a finder's fee or other like
payment with respect to the Transaction.
(l) EMPLOYEE BENEFIT PLANS.
(i) All benefit and compensation plans, contracts,
policies or arrangements covering current or former
employees of Pocono and current or former directors of
Pocono including, but not limited to, "employee
benefit plans" within the meaning of Sections 3(1),
3(2), 3(3) and 3(37) of ERISA, and deferred
compensation, stock option, stock purchase, stock
appreciation rights, stock based, incentive and bonus
plans (the "Benefit Plans"), have been set forth in
Schedule 5.3(l) of the Pocono Disclosure Schedule.
There has been no announcement or commitment by Pocono
to create an additional Benefit Plan or to amend any
Benefit Plan, except for amendments required by
applicable law to maintain its qualified status or
otherwise. True and complete copies of the following
have been provided or made available to Parent: (A)
all Benefit Plans including, but not limited to, any
trust instruments and insurance contracts forming a
part of any Benefit Plans and all amendments thereto;
(B) the three most recent annual reports (Form 5500),
together with all schedules, as required, filed with
the IRS or Department of Labor (the "DOL"), as
applicable, and any financial statements and opinions
required by Section 103(b)(3) of ERISA with respect to
each Benefit Plan; (C) for each Benefit Plan that is a
"top-hat" plan, a copy of filings with the DOL; (D)
the most recent determination letter issued by the IRS
for each Benefit Plan that is intended to be
"qualified" under Section 401(a) of the Code; (E) the
most recent summary plan description and any summary
of material modifications, as required, for each
Benefit Plan; (F) the most recent actuarial report, if
any, relating to each Benefit Plan; (G) the most
recent actuarial valuation, study or estimate of any
retiree medical and life insurance benefits plan or
supplemental retirement benefits plan; (H) the most
recent summary annual report for each Benefit Plan
required to provide summary annual reports by Section
104 of ERISA; and (I) most recent nondiscrimination
tests performed under ERISA and the Code.
(ii) Each Benefit Plan has been administered to date
in all material respects in accordance with the
applicable provisions of ERISA, the Code, and all
other applicable laws and regulations and with the
terms and provisions of all
31
EXECUTION COPY
documents, contracts or agreements pursuant to which
such Benefit Plan is maintained. Each Benefit Plan
that is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA (a "Pension Plan")
and that is intended to be qualified under Section
401(a) of the Code, has received a favorable
determination letter from the IRS or is the adoption
of a prototype plan for which the prototype sponsor
has a favorable determination letter from the IRS, and
Pocono is not aware of any circumstances likely to
result in revocation of any such favorable
determination letter or the loss of the qualification
of such Pension Plan under Section 401(a) of the Code.
Pocono has not received any correspondence or written
or verbal notice from the IRS, DOL, any other
governmental agency, any participant in or beneficiary
of, a Benefit Plan or any agent representing any of
the foregoing that brings into question the
qualification of any such Benefit Plan. There is no
material pending or, to Pocono's knowledge, threatened
litigation relating to the Benefit Plans. Pocono has
not engaged in a transaction with respect to any
Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, could
subject Pocono to a tax or penalty imposed by either
Section 4975 of the Code or Section 502 of ERISA.
There are no matters pending before the IRS, DOL or
other governmental agency with respect to any Benefit
Plans, nor does Pocono have knowledge that any is
threatened.
(iii) No liability under Title IV of ERISA has been
or to Pocono's knowledge is presently expected to be
incurred by Pocono respect to any ongoing, frozen or
terminated "single-employer plan," within the meaning
of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them or the single-employer plan
of any entity that is considered one employer with
Pocono under Section 4001 of ERISA or Section 414 of
the Code (an "ERISA Affiliate"). Pocono has not
contributed to any "multi employee plan" as defined in
Section 3(37) of ERISA.
(iv) All contributions required to be made under the
terms of any Benefit Plan have been timely made and
all anticipated contributions and binding obligations
are accrued monthly on Pocono's consolidated financial
statements to the extent required and in accordance
with GAAP. Pocono has expensed and accrued as a
liability the present value of future benefits in
accordance with applicable laws and GAAP. Neither any
Pension Plan nor any single employer plan of Pocono or
an ERISA Affiliate has an "accumulated funding
deficiency", whether or not waived, within the meaning
of Section 412 of the Code or Section 302 of ERISA and
neither Pocono or an ERISA Affiliate has an
outstanding funding waiver. The fair market value of
the assets of each Benefit Plan exceeds the present
value of the "benefit liabilities" as defined in
Section 4001(a)(16) of ERISA under such Benefit Plan
as of the end of the most recent plan year with
respect to the respective Benefit Plan ending prior to
the date hereof, calculated on the basis of the
actuarial assumptions used in the most recent
actuarial valuation for such Benefit Plans as of the
date hereof; there is not currently pending with the
Pension Benefit Guaranty Corporation any filing with
respect to any reportable event
32
EXECUTION COPY
under Section 4043 of ERISA nor has any reportable
event occurred as to which a filing is required and
has not been made (other than as might be required
with respect to this Agreement and the transactions
contemplated thereby). Except as set forth in Schedule
5.3(l) of the Pocono Disclosure Schedule, Pocono has
not provided, or is required to provide, security to
any Pension Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.
(v) Except as set forth in Schedule 5.3(l) of the
Pocono Disclosure Schedule, Pocono does not have any
obligations for retiree health, life, disability or
other benefits under any Benefit Plan, other than
coverage as may be required under Section 4980B of the
Code or Part 6 of Title I of ERISA, or under the
continuation of coverage provisions of the laws of any
state or locality. No event or condition exists with
respect to a Benefit Plan that could subject Pocono to
tax under Section 4980B of the Code. There has been no
communication to employees by Pocono that would
reasonably be expected to promise or guarantee such
employees retiree health, life, or disability
insurance or other retiree benefits.
(vi) Except as set forth in Schedule 5.3(l) of the
Pocono Disclosure Schedule, none of the execution of
this Agreement, shareholder approval of this Agreement
or consummation of the Transaction will, except as set
forth in Schedule 5.3(l) of the Pocono Disclosure
Schedule, (A) entitle any employee, consultant or
director of Pocono to severance pay or any increase in
severance pay upon any termination of employment after
the date hereof, (B) accelerate the time of payment or
vesting or trigger any payment or funding, through a
grantor trust or otherwise, of compensation or
benefits under, increase the amount payable or trigger
any other material obligation pursuant to, any of the
Benefit Plans, (C) result in any breach or violation
of, or a default under, any of the Benefit Plans or
(D) result in any payment that would be a "parachute
payment" to a "disqualified individual" as those terms
are defined in Section 280G of the Code, without
regard to whether such payment is reasonable
compensation for personal services performed or to be
performed in the future.
(vii) All required reports and descriptions, including
but not limited to Form 5500 annual reports and
required attachments, Forms 1099-R, summary annual
reports, Forms PBGC-1 and summary plan descriptions,
have been filed or distributed appropriately with
respect to each Benefit Plan. All required tax filings
with respect to each Benefit Plan have been made, and
any taxes due in connection with such filings have
been paid.
(viii) Pocono does not maintain any Benefit Plan
covering employees who are not United States
residents.
(ix) Pocono does not maintain any Benefit Plan or
other compensation program or arrangement under which
payment is reasonably likely to become non deductible,
in whole or in part, for tax reporting purposes as a
result of the limitations under Section 162(m) of the
Code and the regulations issued thereunder.
33
EXECUTION COPY
(m) LABOR MATTERS. Pocono is not a party to nor is bound
by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor
organization, nor is Pocono the subject of a proceeding
asserting that it has committed an unfair labor practice within
the meaning of the National Labor Relations Act or seeking to
compel Pocono to bargain with any labor organization as to wages
or conditions of employment, nor is there any strike or other
labor dispute involving it, pending or, to Pocono's knowledge,
threatened, nor is Pocono aware of any activity involving its
employees seeking to certify a collective bargaining unit or
engaging in other organizational activity.
(n) ENVIRONMENTAL MATTERS.
(i) Except as Previously Disclosed or as set forth in
Schedule 5.3(n) of the Pocono Disclosure Schedule, (A)
Pocono is in material compliance with applicable
environmental laws; (B) no real property, including
buildings or other structures, currently or formerly
owned or operated by Pocono, or any property in which
Pocono has held a security interest, Lien or a
fiduciary or management role ("Pocono Loan Property"),
has been contaminated with, or has had any release of,
any Hazardous Substance except in material compliance
with Environmental Laws; (C) Pocono could not be
deemed the owner or operator of, or have actively
participated in the management regarding Hazardous
Substances of, any Pocono Loan Property that has been
contaminated with, or has had any material and
unlawful release to the environment of, any regulated
quantity of any Hazardous Substance; (D) Pocono does
not have any material liability for any Hazardous
Substance disposal or contamination on any third party
property; (E) Pocono has not received any notice,
demand letter, claim or request for information
alleging any material violation of, or liability
under, any Environmental Law; (F) Pocono is not
subject to any order, decree, injunction or other
agreement with any Governmental Authority or any third
party relating to any Environmental Law; (G) there are
no circumstances or conditions (including the presence
of unencapsulated friable asbestos, underground
storage tanks, lead products, polychlorinated
biphenyls, prior manufacturing operations, dry
cleaning or automotive services) involving Pocono, any
currently or formerly owned or operated property, or
any Pocono Loan Property, that could reasonably be
expected to result in any material claims, liability
or investigations against Pocono, result in any
material restrictions on the ownership, use or
transfer of any property pursuant to any Environmental
Law or materially and adversely affect the value of
any Pocono Loan Property; (H) Pocono has set forth in
Schedule 5.3(n) of the Pocono Disclosure Schedule and
made available to Parent copies of all environmental
reports or studies, sampling data, correspondence and
filings in its possession or reasonably available to
it relating to Pocono, and any currently owned or
operated property of Pocono which were prepared in the
last five years; and (I) Pocono has made available to
Parent copies of all environmental reports or studies,
sampling data, correspondence and filings in the
possession or reasonably
34
EXECUTION COPY
available to it relating to any currently outstanding
Pocono Loan and which were prepared for Pocono in the
last five years.
(ii) As used herein, (A) the term "Environmental Laws"
means any federal, state or local law, regulation,
order, decree or permit relating to: (1) the
protection or restoration of the environment, human
health, safety or natural resources in regard to any
Hazardous Substance; (2) the handling, use, presence,
disposal, release or threatened release to the
environment of any Hazardous Substance; (3) material
effects of any Hazardous Substance on any legally
delineated wetlands, indoor air spaces; or (4) any
material physical damage injury or any injury or
threat of injury to persons or property in connection
with any Hazardous Substance; and (B) the term
"Hazardous Substance" means any regulated quantity of
any substance other than at concentrations and in
locations that are naturally occurring that are: (1)
listed, classified or regulated pursuant to any
Environmental Law; (2) any petroleum product or by
product, asbestos containing material, lead containing
paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (3) any other
substance that is the subject of regulatory action by
any Governmental Authority in connection with any
Environmental Law; and (C) the term "Pocono's
Knowledge" means the actual knowledge, immediately
prior to the Effective Time and Effective Date, of any
officer or director of Pocono.
(o) TAX MATTERS.
(i) (A) All Tax Returns that are required to be filed
on or before the Effective Date (taking into account
any extensions of time within which to file that have
not expired) by Pocono have been or will be timely
filed on or before the Effective Date; (B) all such
Tax Returns are or will be true and complete in all
material respects; (C) all Taxes due of Pocono,
whether or not shown on the Tax Returns referred to in
clause (A) have been or will be timely paid in full;
(D) the Tax Returns referred to in clause (A) have not
been examined by the IRS or the appropriate Tax
authority and Pocono has not extended the statute of
limitations for any such Tax Returns; (E) all
deficiencies asserted or assessments made as a result
of examinations conducted by any taxing authority have
been paid in full; (F) no issues that have been raised
by the relevant taxing authority in connection with
the examination of any of the Tax Returns referred to
in clause (A) are currently pending; and (G) no member
of Pocono has extended any statutes of limitation with
respect to any Taxes of Pocono.
(ii) Pocono has made available to Parent true and
correct copies of the United States federal income Tax
Returns filed by Pocono for each of the three most
recent fiscal years for which such returns have been
filed.
(iii) Pocono does not have any liability with respect
to income, franchise or similar Taxes that accrued on
or before the end of the most recent period covered by
Pocono's Financial Reports filed prior to the date
hereof in excess of the amounts accrued or subject to
a reserve with respect thereto that are reflected in
35
EXECUTION COPY
the financial statements included in Pocono's
Financial Reports filed on or prior to the date
hereof.
(iv) Pocono is not a party to any Tax allocation or
sharing agreement is or has been a member of an
affiliated group filing consolidated or combined Tax
Returns other than a group the common parent of which
is or was Pocono or otherwise has any liability for
the Taxes of any Person.
(v) No closing agreements, private letter rulings,
technical advice memoranda or similar agreements or
rulings have been entered into or issued by any taxing
authority with respect to Pocono.
(vi) Except with respect to the current employment
agreement with Xxxx X. Xxxxxxx, Pocono does not
maintain any compensation plans, programs or
arrangements the payments under which would not be
deductible as a result of the limitations under
Section 162(m) or Section 280G of the Code and the
regulations issued thereunder, nor would result in the
imposition of an excise tax under Section 409A or 4999
of the Code.
(vii) As of the date hereof, Pocono has no reason to
believe that any conditions exist that might prevent
or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of
the Code.
(viii) (A) No Tax is required to be withheld pursuant
to Section 1445 of the Code as a result of the
Transaction and (B) all Taxes that Pocono is or was
required by law to withhold or collect have been duly
withheld or collected and, to the extent required by
applicable law, have been paid to the proper
Governmental Authority or other Person.
(ix) There are no Liens for Taxes on any of the assets
of Pocono, except for Liens for Taxes not yet due and
payable.
(x) Pocono (A) has not agreed, and is not required, to
make any adjustment under Section 481(a) of the Code
or any comparable provision of state, local or foreign
law or has any knowledge that a Governmental Authority
has proposed any such adjustment or change in
accounting method with respect to Pocono or (B) has
any application pending with any Governmental
Authority requesting permission for any change in
accounting method.
(xi) No claim has ever been made by a Governmental
Authority in a jurisdiction where Pocono does not file
Tax Returns that Pocono is or may be subject to
taxation by that jurisdiction.
(xii) Pocono has not been the "distributing
corporation" within the meaning of Section 355(c)(2)
of the Code or has been the subject of a distribution
with
36
EXECUTION COPY
respect to a transaction described in Section 355 of
the Code within the five year period ending as of the
date of this Agreement.
(xiii) Pocono has not participated in any "reportable
transaction" or "listed transaction" that is required
to be reported pursuant to Section 1.6011-4 of the
Treasury Regulations.
(xiv) To Pocono's knowledge, no audit of any Tax
Return of Pocono is threatened.
(xv) Pocono is not a party to any agreement providing
for the allocation, indemnification or sharing of
Taxes other than any agreement among members of an
affiliated group that includes Pocono as the common
parent.
(xvi) Pocono will not be required to include any item
of income in, or exclude any item of deduction from,
taxable income for any taxable period (or portion
thereof) ending after the Closing Date as a result of
any:
(A) "closing agreement" as described in Code
Section 7121 (or any corresponding or similar
provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date;
(B) intercompany transaction or excess loss
account described in Treasury Regulations under Code
Section 1502 (or any corresponding or similar
provision of state, local or foreign income tax law);
(C) installment sale or open transaction
disposition made on or prior to the Closing Date; or
(D) prepaid amount received on or prior to the
Closing Date.
(xvii) Schedule 5.3(o) of the Pocono Disclosure
Schedule lists all federal, state, local and foreign
income and franchise Tax Returns filed with respect to
Pocono for the three year period ending on (and
including) the Closing Date and lists all Tax Returns
that currently are the subject of audit by any Tax
Authority or for which a deficiency has been asserted
or assessed.
(xviii) Pocono is not a party in any joint venture,
partnership or other arrangement or contract that
could be treated as a partnership for federal income
tax purposes.
(xix) Pocono does not have any liability for the Taxes
of any Person other than Pocono (A) under Treasury
Regulation Section 1.1502-6 (or any similar provision
of state, local or foreign law), (B) as a transferee
or successor, (C) by contract or (iv) otherwise.
37
EXECUTION COPY
(xx) Pocono is in compliance in all material respects
with all state and federal laws, rules and regulations
related to the escheat, or other similar laws, rules
and regulations, of monies and other properties held
by any of them.
(p) RISK MANAGEMENT INSTRUMENTS. Pocono is not a party or
has agreed to enter into an exchange traded or over-the-counter
equity, interest rate, foreign exchange or other swap, forward,
future, option, cap, floor or collar or any other contract that
is not included on Pocono's consolidated statement of financial
condition and is a derivatives contract (including various
combinations thereof) (each, a "Derivatives Contract") nor does
Pocono own securities that (i) are referred to generically as
"structured notes," "high risk mortgage derivatives," "capped
floating rate notes" or "capped floating rate mortgage
derivatives" or (ii) are likely to have changes in value as a
result of interest or exchange rate changes that significantly
exceed normal changes in value attributable to interest or
exchange rate changes.
(q) LOANS; NONPERFORMING AND CLASSIFIED ASSETS.
(i) Except as set forth in Schedule 5.3(q) of the
Pocono Disclosure Schedule, each Loan on the books and
records of Pocono was made and has been serviced in
all material respects in accordance with their
customary lending standards in the ordinary course of
business, is evidenced in all material respects by
appropriate and sufficient documentation and,
constitutes the legal, valid and binding obligation of
the obligor named therein, subject to bankruptcy,
insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability
relating to or affecting creditor's rights or by
general equity principles.
(ii) Pocono has set forth in Schedule 5.3(q) of the
Pocono Disclosure Schedule as to Pocono as of the
latest practicable date prior to the date of this
Agreement: (A) any written or, to Pocono's knowledge,
oral Loan under the terms of which the obligor is 90
or more days delinquent in payment of principal or
interest, or to Pocono's knowledge, in default of any
other material provision thereof; (B) each Loan that
has been classified as "substandard," "doubtful,"
"loss" or "special mention" or words of similar import
by Pocono, or an applicable regulatory authority; (C)
a listing of the OREO acquired by foreclosure or by
deed-in -lieu thereof, including the book value
thereof and (D) each Loan with any director, executive
officer or five percent or greater shareholder of
Pocono, any Person controlling, controlled by or under
common control with any of the foregoing.
(r) PROPERTIES. All real and personal property owned or
presently used by Pocono in its respective business is in an
adequate condition, ordinary wear and tear excepted, and is
sufficient to carry on its business in the ordinary course of
business consistent with its past practices. Pocono has good and
marketable fee simple title free and clear of all Liens to all
of the material properties and assets, real and personal, other
than properties sold by Pocono in the ordinary course of
business, except (i) Liens for current taxes and assessments not
yet due or payable, (ii) pledges to secure deposits and other
Liens
38
EXECUTION COPY
incurred in the ordinary course of its banking business and
(iii) such imperfections of title, easements and encumbrances,
if any, as are not material in character, amount or extent.
Except as set forth in Schedule 5.3(r) of the Pocono Disclosure
Schedule, all real and personal property that is material to
Pocono's business on a consolidated basis and leased or licensed
by Pocono is held pursuant to leases or licenses that are valid
and enforceable in accordance with their respective terms and
such leases will not terminate or lapse prior to the Effective
Time.
(s) INTELLECTUAL PROPERTY. Schedule 5.3(s) to the Pocono
Disclosure Schedule sets forth a description of all intellectual
property rights of Pocono, including, without limitation,
patents, trademarks, copyrights, service marks and all licenses
relating thereto. Pocono owns or possesses valid and binding
licenses and other rights to use without payment of any material
amount all patents, copyrights, trade secrets, trade names,
service marks and trademarks used in its businesses, and Pocono
has not received any notice of conflict with respect thereto
that asserts the right of others. Pocono has performed in all
material respects all the obligations required to be performed
by them and are not in default under any contract, agreement,
arrangement or commitment relating to any of the foregoing.
(t) FIDUCIARY ACCOUNTS. Pocono 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 laws and regulations. Pocono
nor any of its respective directors, officers or employees, has
committed any breach of trust with respect to any fiduciary
account and the records for each such fiduciary account are true
and correct and accurately reflect the assets of such fiduciary
account.
(u) BOOKS AND RECORDS. The books and records of Pocono
have been fully, properly and accurately maintained in material
compliance with applicable legal and accounting requirements,
and such books and records accurately reflect in all material
respects all dealings and transactions in respect of the
business, assets, liabilities and affairs of Pocono.
(v) INSURANCE. Pocono has set forth in Schedule 5.3(v) of
the Pocono Disclosure Schedule a description of all of the
material insurance policies, binders or bonds currently
maintained by Pocono ("Insurance Policies"). Pocono is insured
with reputable insurers against such risks and in such amounts
as the management of Pocono reasonably has determined to be
prudent in accordance with industry practices. All the Insurance
Policies are in full force and effect; Pocono is not in material
default thereunder and all claims thereunder have been filed in
due and timely fashion.
(w) ALLOWANCE FOR LOAN LOSSES. Pocono's allowance for loan
losses has been and will be established in compliance with the
requirements of all Pocono Regulatory Authorities and the
allowance for loan losses shown in the Pocono Financial Reports
39
EXECUTION COPY
has been and will be established in accordance with the
standards established by applicable Governmental Authorities and
GAAP.
(x) INVESTMENT SECURITIES. None of the investments
reflected in the Pocono Financials under the headings
"Securities Available for Sale" and "Securities Held to
Maturity" and none of the investments made since December 31,
2006, are subject to any restrictions, whether contractual or
statutory, that materially impairs the ability of Pocono to
freely dispose of the investments at any time, and all of the
investments comply with applicable laws, rules an regulations.
(y) REQUIRED VOTE. The affirmative vote of the holders of
two thirds of the outstanding shares of Pocono Common Stock is
necessary to approve this Agreement and the Merger on behalf of
Pocono. No other vote of the shareholders of Pocono is required
by law, the Pocono Articles, the Pocono Bylaws or otherwise to
approve this Agreement and the Merger.
(z) FAIRNESS OPINION. The Pocono Board has received a
written opinion of Boenning & Scattergood, Inc. ("Boenning") to
the effect that as of the date hereof the Merger Consideration
is fair to the holders of Pocono Common Stock from a financial
point of view.
(aa) ABSENCE OF CERTAIN CHANGES OR EVENTS.
(i) Except as publicly disclosed in the Pocono
Financial Reports filed prior to the date of this
Agreement, since December 31, 2006, no event or events
have occurred that have had or are reasonably likely
to have, either individually or in the aggregate, a
Material Adverse Effect on Pocono.
(ii) Except as publicly disclosed in the Pocono
Financial Report filed prior to the date of this
Agreement, Pocono has carried on its respective
business in all material respects in the ordinary
course.
(bb) STATE TAKEOVER LAWS. The Board of Directors of Pocono
has approved this Agreement and the Transaction contemplated
hereby as required to render inapplicable to such Agreement and
the Transaction any statutory anti-takeover provisions
applicable to Pocono. In addition, Section 1610 of the Banking
Code shall not apply to this Transaction.
(cc) DISCLOSURE. The representations and warranties
contained in this Section 5.3, when considered as a whole, do
not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the
statements and information contained in this Section 5.3 not
misleading.
40
EXECUTION COPY
5.4 REPRESENTATIONS AND WARRANTIES OF PARENT. Subject to
Sections 5.1 and 5.2, Parent hereby represents and warrants to
Pocono as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY. Parent is duly
organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania. Parent is duly qualified to
do business and is in good standing in each jurisdiction where
its ownership or leasing of property or assets or the conduct of
its business requires it to be so qualified, except where the
failure to be so qualified would not have a Material Adverse
Effect on Parent. Parent has in effect all federal, state, local
and foreign governmental authorizations necessary for it to own
or lease its properties and assets and to carry on its business
as it is now conducted.
(b) PARENT STOCK.
(i) As of the date hereof, the authorized common stock
of Parent consists solely of 10,000,000 shares of
Parent Common Stock, of which 4,518,873 shares were
issued and outstanding as of March 6, 2007 and 500,000
shares of Parent Preferred Stock, of which no shares
were issued and outstanding as of the date hereof. The
outstanding shares of Parent Common Stock have been
duly authorized and validly issued and are fully paid
and non assessable, and none of the shares of Parent
Common Stock have been issued in violation of the
preemptive rights of any Person. As of the date
hereof, there are no Rights authorized, issued or
outstanding with respect to the capital stock of
Parent, except for shares of Parent Common Stock
issuable pursuant to the Parent Benefits Plans and by
virtue of this Agreement.
(ii) The shares of Parent Common Stock to be issued in
exchange for shares of Pocono Common Stock in the
Merger, when issued in accordance with the terms of
this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable and the issuance
thereof is not subject to any preemptive right.
(c) SUBSIDIARIES.
(i) Each of Parent's Subsidiaries has been duly
organized and is validly existing in good standing
under the laws of the jurisdiction of its
organization, and is duly qualified to do business and
is in good standing in the jurisdictions where its
ownership or leasing of property or the conduct of its
business requires it to be so qualified, except where
the failure to be so qualified would not have a
Material Adverse Effect on Parent. Parent Bank is duly
licensed by the OCC and its deposits are insured by
the Bank Insurance Fund in the manner and to the
maximum extent provided by law.
(ii) As of the date hereof, (A) except as set forth in
Schedule 5.4(c) of Parent's Disclosure Schedule,
Parent owns, directly or indirectly, all the issued
and outstanding equity securities of each of its
Subsidiaries; (B) no equity securities of any of
Parent's Subsidiaries are or may become required to be
issued other
41
EXECUTION COPY
than to Parent by reason of any Right or otherwise;
(C) there are no contracts, commitments,
understandings or arrangements by which Parent's
Subsidiaries are or may be bound to sell or otherwise
transfer any of its equity securities other than to
Parent or any of its wholly owned Subsidiaries; and
(D) there are no contracts, commitments,
understandings or arrangements relating to Parent's
right to vote or to dispose of such securities.
(d) CORPORATE POWER. Each of Parent and its Subsidiaries
has the corporate power and authority to carry on its business
as it is now being conducted and to own all its properties and
assets. Parent and Parent Bank have the respective corporate
power and authority to execute, deliver and perform their
respective obligations under this Agreement and to consummate
the Transaction, subject to the receipt of all necessary
approvals of Governmental Authorities, and no other corporate
proceedings are necessary on the part of Parent or Parent Bank
to approve this Agreement or for the consummation of the
Transaction.
(e) CORPORATE AUTHORITY. This Agreement and the
Transaction have been authorized by all necessary corporate
action of Parent, the Parent Board, Parent Bank and Parent Bank
Board. This Agreement has been duly executed and delivered by
Parent and Parent Bank and, assuming due authorization,
execution and delivery by Pocono, this Agreement is a valid and
legally binding agreement of Parent enforceable in accordance
with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability
relating to or affecting creditors' rights or by general equity
principles.
(f) REGULATORY APPROVALS; NO DEFAULTS.
(i) No consents or approvals of, or waivers by, or
filings or registrations with, any Governmental
Authority or with any third party are required to be
made or obtained by Parent or any of its Subsidiaries
in connection with the execution, delivery or
performance by Parent, and Parent Bank to consummate
the Transaction, except as Previously Disclosed, and
except for (A) filings of applications or notices with
and approvals or waivers by the Federal Reserve
Board, the OCC, the FDIC, and the Department; and (B)
filings with the SEC and state securities authorities,
as applicable, in connection with the registration of
Parent Common Stock issuable in the Merger; and (C)
the filing of documents with the OCC pursuant to the
National Bank Act with respect to the Merger. As of
the date hereof, Parent is not aware of any reason why
the approvals set forth above and referred to in
Section 7.1(b) will not be received in a timely manner
and without the imposition of a condition, restriction
or requirement of the type described in Section
7.1(b).
(ii) Subject to receipt, or the making, of the
consents, approvals, waivers and filings referred to
in the preceding paragraph and expiration of the
related waiting periods, the execution, delivery and
performance of this Agreement by Parent and Parent
Bank and the consummation of the Transaction do not
and will not (A) constitute a breach or violation of,
or a default under, or give rise to
42
EXECUTION COPY
any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any
judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of
Parent or of any of its Subsidiaries or to which
Parent or any of its Subsidiaries or properties is
subject or bound; (B) constitute a breach or violation
of, or a default under, the articles of incorporation
or bylaws or similar governing documents of Parent or
any of its Subsidiaries; or (C) require any consent or
approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or
license, agreement, indenture or instrument.
(g) FINANCIAL REPORTS AND SECURITIES DOCUMENTS; MATERIAL
ADVERSE EFFECT.
(i) Parent's Annual Report on Form 10-K for the years
ended December 31, 2006, 2005 and 2004 and all other
reports, registration statements, definitive proxy
statements or information statements filed or to be
filed by it subsequent to December 31, 2006 under the
Securities Act, or under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act in the form filed or to be
filed (collectively, Parent's "Securities Documents")
with the SEC, as of the date filed or to be filed, (A)
complied or will comply in all material respects as to
form with the applicable requirements under the
Securities Act or the Exchange Act, as the case may be
and (B) did not and will not contain any untrue
statement of a material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein, in the light
of the circumstances under 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. Each of the consolidated statements of
financial condition contained in or incorporated by
reference into any such Securities Document, including
the related notes and schedules thereto, fairly
presents, or will fairly present, the consolidated
financial position of Parent and its Subsidiaries as
of its date, and each of the consolidated statements
of operations, shareholders' equity and comprehensive
income and cash flows or equivalent statements in such
Securities Documents, including any related notes and
schedules thereto, fairly presents, or will fairly
present, the consolidated results of operations,
changes in shareholders' equity and cash flows, as the
case may be, of Parent and its Subsidiaries for the
periods to which they relate, in each case in
accordance with GAAP consistently applied during the
periods involved, except in each case as may be noted
therein.
(ii) Except as described in Schedule 5.4(g) of the
Parent Disclosure Schedule, since December 31, 2006,
neither Parent nor any of its Subsidiaries has
incurred any liability other than in the ordinary
course of business consistent with past practice,
excluding the incurrence of expenses related to this
Agreement and the Transaction.
(iii) Since December 31, 2006, (A) Parent and its
Subsidiaries have conducted their respective
businesses in the ordinary and usual course consistent
with past practice, excluding the incurrence of
expenses related to this Agreement and the
43
EXECUTION COPY
Transaction; (B) except as Previously Disclosed,
neither Parent nor any of its Subsidiaries has taken
nor permitted any of the actions set forth in Section
4.2 between December 31, 2006 and the date hereof and
(C) no event has occurred or circumstance arisen that,
individually or taken together with all other facts,
circumstances and events described in any paragraph of
this Section 5.4 or otherwise, is reasonably likely to
have a Material Adverse Effect with respect to
Parent.
(iv) Parent maintains disclosure controls and
procedures required by Rule 13a-15 or 15d-15 under the
Exchange Act; such controls and procedures are
effective to ensure that all material information
concerning Parent and its Subsidiaries is made known
on a timely basis to the individuals responsible for
the preparation of Parent's Securities Documents and
other public disclosure documents. The Chief Executive
Officer and the Chief Financial Officer of Parent have
signed, and Parent has furnished to the SEC, all
certifications required by Rule 13a-14 or 15d-14 under
the Exchange Act or 18 U.S.C. Paragraph 1350; and
neither Parent nor any of its officers has received
notice from any Governmental Authorities questioning
or challenging the accuracy, completeness, form or
manner of filing or submission of such certifications.
(v) Except as reflected, noted or adequately reserved
against in the consolidated financial statements of
Parent included in its Quarterly Report on Form 10-K
for the year ended December 31, 2006 as filed with the
SEC, at December 31, 2006 neither Parent nor any
Parent Subsidiary had any liabilities, whether
accrued, absolute, contingent or otherwise, that are
required to be reflected, noted or reserved against
therein under GAAP or that are in any case or in the
aggregate material.
(h) LITIGATION. No litigation, claim or other proceeding
before any court or governmental agency is pending against
Parent or its Subsidiaries that could reasonably be expected to
have a Material Adverse Effect with respect to Parent and, to
Parent's knowledge, no such litigation, claim or other
proceeding has been threatened and there are no facts that could
reasonably give rise to such litigation, claim or other
proceeding. Neither Parent nor any of its Subsidiaries is a
party to any order, judgment or decree that has or could
reasonably be expected to have a Material Adverse Effect with
respect to Parent.
(i) REGULATORY MATTERS.
(i) Neither Parent nor any of its Subsidiaries nor any
of any of their respective properties is a party to or
is subject to any order or decree, agreement,
memorandum of understanding or similar arrangement
with, or commitment letter or similar submission to,
or extraordinary supervisory letter from, any federal
or state governmental agency or authority charged with
the supervision or regulation of financial
institutions or issuers of securities or engaged in
the
44
EXECUTION COPY
insurance of deposits or the supervision or regulation
of it (collectively, the "Parent Regulatory
Authorities"). Parent and its Subsidiaries have paid
all assessments made or imposed by any Parent
Regulatory Authority.
(ii) Neither Parent nor any its Subsidiaries has been
advised by, and does not have any knowledge of facts
that could give rise to an advisory notice by, any
Parent Regulatory Authority that such Parent
Regulatory Authority is contemplating issuing or
requesting, or is considering the appropriateness of
issuing or requesting, any such order, decree,
agreement, memorandum of understanding, commitment
letter, supervisory letter or similar submission.
(iii) Parent 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 with
(A) the Federal Reserve Board, (B) the FDIC, (C) the
OCC, (D) any state regulatory authority and (E) the
SEC, and all other reports and statements required to
be filed by them since December 31, 2006, and have
paid all fees and assessments due and payable in
connection therewith. Except as set forth in Schedule
5.4(i) of Parent Disclosure Schedule and except for
normal examinations conducted by Bank Regulatory
Authorities, (A) no Bank Regulatory Authority has
initiated or has pending any proceeding or, to the
knowledge of Parent, investigation into the business
or operations of Parent or any of its Subsidiaries
since December 31, 2006, except where such proceedings
or investigation are not reasonably likely to have,
either individually or in the aggregate, a Material
Adverse Effect and (B) there is no unresolved
violation, criticism or exception by any Bank
Regulatory Authority with respect to the business,
operations, policies or procedures of Parent or Parent
Bank since December 31, 2006 that are reasonably
likely to have, either individually or in the
aggregate, a Parent Material Adverse Effect.
(j) COMPLIANCE WITH LAWS. Except for matters that could
not reasonably be expected to have a Material Adverse Effect
with respect to Parent and its Subsidiaries, each of Parent and
its Subsidiaries:
(i) is in material compliance with all applicable
federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees
conducting such businesses, including without
limitation Sections 23A and 23B of the Federal Reserve
Act and OCC regulations pursuant thereto, the Equal
Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act, the Home Mortgage
Disclosure Act, the Bank Secrecy Act and all other
applicable fair lending laws and other laws relating
to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders
and approvals of, and has made all filings,
applications and registrations with, all Governmental
Authorities that are required in order to permit them
to own or lease their properties and to conduct their
businesses as presently conducted; all such
45
EXECUTION COPY
permits, licenses, certificates of authority, orders
and approvals are in full force and effect and, to
Parent's knowledge, no suspension or cancellation of
any of them is threatened; and
(iii) has received, since December 31, 2006, no
notification or communication from any Governmental
Authority (A) asserting that Parent or any of its
Subsidiaries is not in compliance with any of the
statutes, regulations or ordinances which such
Governmental Authority enforces or (B) threatening to
revoke any license, franchise, permit or governmental
authorization nor, to Parent's knowledge, do any
grounds for any of the foregoing exist.
(k) NO BROKERS. No action has been taken by Parent or its
Subsidiaries that would give rise to any valid claim against any
party hereto for a brokerage commission, finder's fee or other
like payment with respect to the Transaction, except a fee to be
paid to Xxxxxx Securities LLC.
(l) TAX MATTERS. As of the date hereof, Parent does not
have any reason to believe that any conditions exist that might
prevent or impede the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(m) RISK MANAGEMENT INSTRUMENTS. Neither Parent nor any of
its Subsidiaries is a party or has agreed to enter into any
Derivatives Contract that is not included on Parent's
consolidated statement of financial condition nor does Parent or
any of its Subsidiaries own securities that (i) are referred to
generically as "structured notes," "high risk mortgage
derivatives," "capped floating rate notes" or "capped floating
rate mortgage derivatives" or (ii) are likely to have changes in
value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to
interest or exchange rate changes.
(n) OWNERSHIP OF POCONO COMMON STOCK. Except as set forth
on Schedule 5.4(n) of the Parent Disclosure Schedule, none of
Parent or any of its Subsidiaries, or to Parent's knowledge, any
of its other affiliates or associates as such terms are defined
under the Exchange Act, owns beneficially or of record, directly
or indirectly, or is a party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of, shares of Pocono Common Stock other than shares
held in a fiduciary capacity that are beneficially owned by
third parties or as a result of debts previously contracted.
(o) DISCLOSURE. The representations and warranties
contained in this Section 5.4, when considered as a whole, do
not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the
statements and information contained in this Section 5.4 not
misleading.
46
EXECUTION COPY
(p) ABSENCE OF CERTAIN CHANGES OR EVENTS.
(i) Except as publicly disclosed in the Parent
Securities Documents filed prior to the date of this
Agreement, since December 31, 2006, no event or events
have occurred that have had or are reasonably likely
to have, either individually or in the aggregate, a
Parent Material Adverse Effect.
(ii) Except as publicly disclosed in the Parent
Securities Documents filed prior to the date of this
Agreement, Parent and its Subsidiaries have carried on
their respective businesses in all material respects
in the ordinary course.
ARTICLE VI
COVENANTS
6.1 COMMERCIALLY REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, each of Pocono, Parent and their
Subsidiaries agrees to use its commercially reasonable efforts
in good faith to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit
consummation of the Transaction as promptly as practicable and
otherwise to enable consummation of the Transaction, including
the satisfaction of the conditions set forth in Article VII, and
shall cooperate fully with the other party hereto to that end.
6.2 SHAREHOLDERS MEETING. Pocono shall take, in accordance with
applicable law and the Pocono Articles and the Pocono Bylaws,
all action necessary to duly call, give notice of, convene and
hold as soon as reasonably practicable after the date on which
the Registration Statement becomes effective a special meeting
of its shareholders (including any adjournment or postponement,
the "Pocono Meeting") to consider and vote upon the approval of
this Agreement, a one (1) year extension of the final exercise
date for the outstanding Pocono Warrants, and any other matters
required to be approved by Pocono's shareholders for
consummation of the Transaction unless this Agreement shall have
been terminated in accordance with its terms. Subject to the
right of Pocono and its Board of Directors to take any action
permitted by Section 6.8(b) with respect to a Superior Proposal,
Pocono shall, through its Board of Directors, recommend to its
shareholders approval of this Agreement and the transactions
contemplated hereby, a one (1) year extension of the final
exercise date for Pocono Warrants, and shall take all reasonable
lawful action to solicit such approval by its shareholders (the
"Approval Recommendation").
6.3 REGISTRATION STATEMENT.
(a) Parent agrees to prepare a registration statement on
Form S-4 or other applicable form (the "Registration Statement")
to be filed by Parent with the SEC in connection with the
issuance of Parent Common Stock in the Merger including the
proxy statement and prospectus and other proxy solicitation
materials of Pocono constituting a part thereof
47
EXECUTION COPY
(the "Proxy Statement") and all related documents. Pocono shall
prepare and furnish such information relating to it and its
directors, officers and shareholders as may be reasonably
required in connection with the above referenced documents based
on its knowledge of and access to the information required for
said documents, and Pocono, and its legal, financial and
accounting advisors, shall have the right to review in advance
and consult with respect to such Registration Statement prior to
its filing. Pocono agrees to cooperate with Parent and Parent's
counsel and accountants in requesting and obtaining appropriate
opinions, consents and letters from its financial advisor and
independent auditor in connection with the Registration
Statement and the Proxy Statement. Provided that Pocono has
cooperated as described above, Parent agrees to file, or cause
to be filed, the Registration Statement and the Proxy Statement
with the SEC as promptly as reasonably practicable. Each of
Pocono and Parent agrees to use its commercially reasonable
efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as reasonably
practicable after the filing thereof. Parent also agrees to use
its reasonable best efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement. After
the Registration Statement is declared effective under the
Securities Act, Pocono shall promptly mail at its expense the
Proxy Statement to its shareholders.
(b) Each of Pocono and Parent agree that none of the
information supplied or to be supplied by it for inclusion or
incorporation by reference in the Registration Statement shall,
at the time the Registration Statement and each amendment or
supplement thereto, if any, becomes effective under the
Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. Each
of Pocono and Parent agree that none of the information supplied
or to be supplied by it for inclusion or incorporation by
reference in the Proxy Statement and any amendment or supplement
thereto shall, at the date of mailing to Pocono's shareholders
and at the time of the Pocono Meeting, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading. Each of Pocono and Parent
further agree that if such party shall become aware prior to the
Effective Date of any information furnished by such party that
would cause any of the statements in the Registration Statement
or the Proxy Statement to be false or misleading with respect to
any material fact, or to omit to state any material fact
necessary to make the statements therein not false or
misleading, to promptly inform the other parties thereof and to
take the necessary steps to correct the Registration Statement
or the Proxy Statement.
(c) Parent agrees to advise Pocono, promptly after Parent
receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment
has been filed, of the issuance of any stop order or the
suspension of the qualification of Parent Common Stock for
offering or sale in any jurisdiction, of the initiation or, to
the extent Parent is aware thereof, threat of any proceeding for
any such purpose, or of any request by the SEC for the amendment
or supplement of the Registration Statement or for additional
information.
48
EXECUTION COPY
6.4 REGULATORY FILINGS.
(a) Each of Parent and Pocono and their respective
Subsidiaries shall cooperate and use their respective
commercially reasonable efforts to prepare all documentation, to
effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties and
Governmental Authorities necessary to consummate the
Transaction; and any initial filings with Governmental
Authorities shall be made by Parent as soon as reasonably
practicable after the execution hereof. Each of Parent and
Pocono shall have the right to review in advance, and to the
extent practicable each shall consult with the other, in each
case subject to applicable laws relating to the exchange of
information, all written information submitted to any third
party or any Governmental Authority in connection with the
Transaction. In exercising the foregoing right, each of such
parties agrees to act reasonably and as promptly as practicable
and shall, in any event, provide its response to any proposed
filing within five business days after its receipt of the
proposed filing from the other party. Each party hereto agrees
that it shall consult with the other party with respect to the
obtaining of all permits, consents, approvals, waivers and
authorizations of all third parties and Governmental Authorities
necessary or advisable to consummate the Transaction, and each
party shall keep the other parties apprised of the status of
material matters relating to completion of the Transaction.
(b) Each party agrees, upon request, to furnish the other
parties with all information concerning itself, its
Subsidiaries, directors, officers and shareholders and such
other matters as may be reasonably necessary or advisable in
connection with any filing, notice or application made by or on
behalf of such other parties or any of their respective
Subsidiaries to any third party or Governmental Authority.
6.5 PRESS RELEASES. Pocono and Parent shall consult with each
other before issuing any press release with respect to the
Transaction or this Agreement and shall not issue any such press
release or make any such public statements without the prior
consent of the other party, which shall not be unreasonably
withheld; provided, however, that a party may, without the prior
consent of the other party, but after such consultation, to the
extent practicable under the circumstances, issue such press
release or make such public statements as may upon the advice of
outside counsel be required by law or the rules or regulations
of the SEC, the FDIC, or the OCC. Pocono and Parent shall
cooperate to develop all public announcement materials and make
appropriate management available at presentations related to the
Transaction as reasonably requested by the other party.
6.6 ACCESS; INFORMATION.
(a) Pocono agrees that upon reasonable notice and subject
to applicable laws relating to the exchange of information, it
shall afford Parent and Parent's officers, employees, counsel,
accountants and other authorized representatives such access
during normal business hours throughout the period prior to the
Effective Time to the books, records, including, without
limitation, Tax Returns and work papers of independent auditors,
properties and personnel of Pocono and to such other information
relating to Pocono as Parent may reasonably request and, during
such period, it shall furnish promptly to Parent
49
EXECUTION COPY
all information concerning the business, properties and
personnel of Pocono as Parent may reasonably request.
(b) Parent agrees that upon reasonable notice and subject
to applicable laws relating to the exchange of information, it
shall afford Pocono and Pocono's officers, employees, counsel,
accountants and other authorized representatives such access
during normal business hours throughout the period prior to the
Effective Time to the books, records, including without
limitation, Tax Returns and work papers of independent auditors,
properties and personnel of Parent and to such other information
relating to Parent as Pocono may reasonably request and, during
such period, it shall furnish promptly to Pocono all information
concerning the business, properties and personnel of Parent and
its Subsidiaries as Pocono may reasonably request.
(c) All information furnished to either party by the other
party pursuant to this Section 6.6 shall be subject to, and such
receiving party shall hold all such information in confidence in
accordance with the provisions of the Confidentiality Agreement,
dated February 14, 2007 between Parent and Pocono (the
"Confidentiality Agreement").
(d) As soon as reasonably available but in no event more
than five business days after filing, Pocono will deliver to
Parent each report, financial or otherwise, filed by it with any
Bank Regulatory Authority or the SEC.
(e) Within 20 calendar days after the end of each month,
Pocono will deliver to Parent the unaudited consolidated balance
sheet and unaudited consolidated statement of operations of
Pocono for the immediately preceding month prepared in
accordance with GAAP except for the absence of footnotes and
subject to year end audit adjustments or as otherwise noted
therein.
(f) Within 20 calendar days after the end of each month,
Parent will deliver to Pocono the unaudited consolidated balance
sheet and unaudited consolidated statement of operations of
Parent for the immediately preceding month prepared in
accordance with GAAP except for the absence of footnotes and
subject to year end audit adjustments or as otherwise noted
therein.
6.7 AFFILIATES. Pocono shall use its commercially reasonable
efforts to identify those persons who may be deemed to be
"affiliates" of Pocono within the meaning of Rule 145
promulgated by the SEC under the Securities Act and to cause
each person so identified to deliver to Parent as soon as
practicable, and in any event prior to the date of the Pocono
Meeting, a written agreement to comply with the requirements of
Rule 145 under the Securities Act in connection with the sale or
other transfer of Parent Common Stock received in the Merger,
which agreement shall be in the form attached as Annex D (the
"Affiliate Letter").
50
EXECUTION COPY
6.8 CERTAIN ACTIONS.
(a) From the date of this Agreement through the Effective
Time, except as otherwise permitted by this Section 6.8, Pocono
will not, and will not authorize or permit any of its directors,
officers, agents, employees, investment bankers, attorneys,
accountants, advisors, agents, Affiliates or representatives
(collectively, "Representatives") to, directly or indirectly,
(i) initiate, solicit, encourage or take any action to
facilitate, including by way of furnishing information, any
Acquisition Proposal (as defined below) or any inquiries with
respect to or the making of any Acquisition Proposal, (ii) enter
into or participate in any discussions or negotiations with,
furnish any information relating to Pocono or afford access to
the business, properties, assets, books or records of Pocono to,
otherwise cooperate in any way with, or knowingly assist,
participate in, facilitate or encourage any effort by any third
party that is seeking to make, or has made, an Acquisition
Proposal or (iii) except in accordance with Section 8.1(g),
approve, endorse or recommend or enter into any letter of intent
or similar document or any contract, agreement or commitment
contemplating or otherwise relating to an Acquisition Proposal.
(b) Notwithstanding anything herein to the contrary,
Pocono and its Board of Directors shall be permitted (i) to
comply with Rule 14d-9 and Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal provided
that the Board of Directors of Pocono shall not withdraw or
modify in a manner adverse to Parent its Approval Recommendation
except as set forth in subsection (iii) below; (ii) to engage in
any discussions or negotiations with, and provide any
information to, any person in response to a Superior Proposal
(as defined below) by any such person, if and only to the extent
that (x) Pocono's Board of Directors concludes in good faith,
after receipt of an opinion from outside counsel, that failure
to do so would reasonably be expected to breach its fiduciary
duties to Pocono's shareholders under applicable law, (y) prior
to providing any information or data to any person in connection
with a Superior Proposal by any such person, Pocono's Board of
Directors receives from such person an executed confidentiality
agreement, which confidentiality terms shall be no less
favorable to Pocono than those contained in the Confidentiality
Agreement between Pocono and Parent, a copy of which executed
confidentiality agreement shall have been provided to Parent for
informational purposes and (z) at least 72 hours prior to
providing any information or data to any person or entering into
discussions or negotiations with any person, Pocono promptly
notifies Parent in writing of the name of such person and the
material terms and conditions of any such Superior Proposal and
(iii) to withdraw, modify, qualify in a manner adverse to
Parent, condition or refuse to make its Approval Recommendation
(the "Change in Pocono Recommendation") if Pocono's Board of
Directors concludes in good faith, after consultation with
outside counsel and financial advisors, that failure to do so
would reasonably be expected to breach its fiduciary duties to
Pocono's shareholders under applicable law.
(c) Pocono will promptly, and in any event within 24
hours, notify Parent in writing of the receipt of any
Acquisition Proposal or any information related thereto, which
51
EXECUTION COPY
notification shall describe the Acquisition Proposal and
identify the third party making the same.
(d) Pocono agrees that it will, and will cause its
Representatives to, immediately cease and cause to be terminated
any activities, discussions or negotiations existing as of the
date of this Agreement with any parties conducted heretofore
with respect to any Acquisition Proposal.
(e) For purposes of this Agreement:
(i) The term "Acquisition Proposal" means any inquiry,
proposal or offer, filing of any regulatory
application or notice, whether in draft or final form,
or disclosure of an intention to do any of the
foregoing from any person relating to any (w) direct
or indirect acquisition or purchase of a business that
constitutes a substantial portion of the net revenues,
net income or net assets of Pocono, (x) direct or
indirect acquisition or purchase of Pocono Common
Stock after the date of this Agreement by a Person who
on the date of this Agreement does not own 10% or more
of Pocono's Common Stock and such Person by reason of
such purchase or acquisition first becomes the owner
of 10% or more of Pocono's Common Stock after the date
of this Agreement or the direct or indirect
acquisition or purchase of 5% or more of Pocono's
Common Stock after the date of this Agreement by a
Person who on the date of this Agreement owns 10% or
more of Pocono's Common Stock, (y) tender offer or
exchange offer that if consummated would result in any
person beneficially owning 10% or more of any class of
equity securities of Pocono or (z) merger,
consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction
involving Pocono other than the transactions
contemplated by this Agreement.
(ii) The term "Superior Proposal" means any bona fide,
unsolicited written Acquisition Proposal made by a
Third Party to acquire more than 50% of the combined
voting power of the shares of Pocono Common Stock then
outstanding or all or substantially all of Pocono's
consolidated assets for consideration consisting of
cash and/or securities that is on terms that the Board
of Directors of Pocono in good faith concludes, after
consultation with its financial advisors and receipt
of a written opinion of outside counsel, taking into
account, among other things, all legal, financial,
regulatory and other aspects of the proposal and the
person making the proposal, including any break up
fees, expense reimbursement provisions and conditions
to consummation, (A) is on terms that the Board of
Directors of Pocono in its good faith judgment
believes to be more favorable from a financial point
of view to its shareholders than the Merger; (B) for
which financing, to the extent required, is then fully
committed or reasonably determined to be available by
the Board of Directors of Pocono and (C) is reasonably
capable of being completed.
(f) If a Payment Event (as hereinafter defined) occurs,
Pocono shall pay to Parent by wire transfer of immediately
available funds, within two business days following such
52
EXECUTION COPY
Payment Event, a fee of One Million Two Hundred Thousand Dollars
($1,200,000) (the "Break-up Fee").
(g) The term "Payment Event" means any of the following:
(i) the termination of this Agreement by Parent
pursuant to Section 8.1(f);
(ii) the termination of this Agreement by Pocono
pursuant to Section 8.1(g);
(iii) the termination of this Agreement pursuant to
any other Section following the commencement of a
tender offer or exchange offer for 25% or more of the
outstanding common stock of Pocono and Pocono shall
not have sent to its shareholders, within 10 business
days after the commencement of such tender offer or
exchange offer, a statement that the Pocono Board
recommends rejection of such tender offer or exchange
offer; or
(iv) the occurrence of any of the following events
within twelve months of the termination of this
Agreement pursuant to Section 8.1, provided that an
Acquisition Proposal shall have been made by a Third
Party after the date hereof and prior to such
termination that shall not have been withdrawn in good
faith prior to such termination: (A) Pocono enters
into an agreement to merge with or into, or be
acquired, directly or indirectly, by merger or
otherwise by, such Third Party; (B) such Third Party,
directly or indirectly, acquires substantially all of
the total assets of Pocono, taken as a whole; or (C)
such Third Party, directly or indirectly, acquires
more than 50% of the outstanding Pocono Common Stock.
As used herein, "Third Party" means any person as
defined in Section 13(d) of the Exchange Act other
than Parent or its Affiliates.
(h) Pocono acknowledges that the agreements contained in
Section 6.8(e) are an integral part of the transactions
contemplated in this Agreement and that without these agreements
Parent would not enter into this Agreement. Accordingly, in the
event Pocono fails to pay to Parent the Break up Fee, promptly
when due, Pocono shall, in addition thereto, pay to Parent all
costs and expenses, including attorneys' fees and disbursements,
incurred in collecting such Break up Fee together with interest
on the amount of the Break up Fee or any unpaid portion thereof,
from the date such payment was due until the date such payment
is received by Parent, accrued at the fluctuating prime rate as
quoted in The Wall Street Journal as in effect from time to time
during the period.
6.9 CERTAIN POLICIES. Prior to the Effective Date, Pocono
shall, consistent with GAAP, the rules and regulations of the
SEC and applicable banking laws and regulations, modify or
change its loan, OREO, accrual, reserve, tax, litigation and
real estate valuation policies and practices, including loan
classifications and levels of reserves, so as to be applied on a
basis that is consistent with that of Parent; provided, however,
that no such modifications or changes need be made prior to the
satisfaction of the conditions set forth in Section 7.1(b); and
further provided that in any event, no accrual or reserve made
by Pocono pursuant to this Section 6.9 shall constitute or be
deemed to be a breach, violation
53
EXECUTION COPY
of or failure to satisfy any representation, warranty, covenant,
agreement, condition or other provision of this Agreement or
otherwise be considered in determining whether any such breach,
violation or failure to satisfy shall have occurred. The
recording of any such adjustments shall not be deemed to imply
any misstatement of previously furnished financial statements or
information and shall not be construed as a concurrence of
Pocono or its management with any such adjustments.
6.10 INDEMNIFICATION.
(a) From and after the Effective Time through the sixth
anniversary of the Effective Time, Parent (the "Indemnifying
Party") shall indemnify and hold harmless each present and
former director, officer and employee of Pocono, as applicable,
(the "Indemnified Parties") against any costs or expenses,
including reasonable attorneys' fees, judgments, fines, losses,
claims, damages or liabilities incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil,
administrative or investigative, arising out of matters existing
or occurring at or prior to the Effective Time, whether asserted
or claimed prior to, at or after the Effective Time, arising in
whole or in part out of or pertaining to the fact that he or she
was a director, officer, employee, fiduciary or agent of Pocono
or is or was serving at the request of Pocono as a director,
officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust or other enterprise, except
for matters related to the negotiation, execution and
performance of this Agreement or consummation of the
Transaction, to the fullest extent that such Indemnified Parties
would be entitled under the Pocono Articles and the Pocono
Bylaws, as applicable, or any agreement, arrangement or
understanding that has been Previously Disclosed by Pocono
pursuant to this Section, in each case as in effect on the date
hereof.
(b) Any Indemnified Party wishing to claim indemnification
under this Section 6.10, upon learning of any such claim,
action, suit, proceeding or investigation, shall promptly notify
the Indemnifying Party, but the failure to so notify shall not
relieve the Indemnifying Party of any liability it may have to
such Indemnified Party if such failure does not actually
prejudice the Indemnifying Party. In the event of any such
claim, action, suit, proceeding or investigation, whether
arising before or after the Effective Time, (i) the Indemnifying
Party shall have the right to assume the defense thereof and the
Indemnifying Party shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if the
Indemnifying Party elects not to assume such defense or counsel
for the Indemnified Parties advises that there are issues that
raise conflicts of interest between the Indemnifying Party and
the Indemnified Parties, the Indemnified Parties may retain
counsel which is reasonably satisfactory to the Indemnifying
Party, and the Indemnifying Party shall pay, promptly as
statements therefor are received, the reasonable fees and
expenses of such counsel for the Indemnified Parties, which may
not exceed one firm in any jurisdiction, (ii) the Indemnified
Parties will cooperate in the defense of any such matter, (iii)
the Indemnifying Party shall not be liable for any settlement
effected without its prior written consent which shall not be
unreasonably withheld;(iv) the Indemnifying Party shall have no
obligation hereunder in the event that a federal or state
54
EXECUTION COPY
banking agency or a court of competent jurisdiction shall
determine that indemnification of an Indemnified Party in the
manner contemplated hereby is prohibited by applicable laws and
regulations; and (v) the Indemnifying Party shall not be liable
nor obligated to provide the Indemnified Party with any
indemnification or other legal protection in connection with any
investigation, proceeding, claim, action, suit, or fines,
losses, penalties, claims, damages, expenses or liabilities
regarding or relating to any securities laws, or matters
relating to an Indemnified Parties transaction of Pocono Common
Stock, Pocono Options, or Pocono Warrants.
(c) Prior to the Effective Time, Parent shall cause the
persons serving as directors and officers of Pocono immediately
prior to the Effective Time to be covered by the directors' and
officers' liability insurance policy maintained by Pocono for a
period of six years after the Effective Time, provided that
Parent may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions that are
not materially less advantageous than such policy or single
premium tail coverage with policy limits equal to Pocono's
existing coverage limits, with respect to acts or omissions
occurring prior to the Effective Time that were committed by
such directors and officers in their capacities as such,
provided that in no event shall Parent be required to expend for
any one year an amount in excess of 150% of the annual premium
currently paid by Pocono for such insurance (the "Insurance
Amount"), and further provided that if Parent is unable to
maintain or obtain the insurance called for by this Section
6.10(c) as a result of the preceding provision, Parent shall use
its commercially reasonable best efforts to obtain the most
advantageous coverage as is available for the Insurance Amount.
(d) The provisions of this Section 6.10 are intended to be
for the benefit of and shall be enforceable by each of the
Indemnified Parties and his or her heirs.
6.11 BENEFIT PLANS.
(a) As soon as administratively practicable after the
Effective Time, Parent shall take all reasonable action so that
employees of Pocono shall be entitled to participate in each
employee benefit plan, program or arrangement of Parent of
general applicability as in effect from and after the Effective
Time (the "Parent Benefit Plans") to the same extent as
similarly-situated employees of Parent and its Subsidiaries, it
being understood that inclusion of the employees of Pocono in
the Parent Benefit Plans may occur at different times with
respect to different plans, provided that coverage shall be
continued under corresponding Benefit Plans of Pocono until such
employees are permitted to participate in the Parent Benefit
Plans and provided further, however, that nothing contained
herein shall require Parent or any of its Subsidiaries to make
any grants to any former employee of Pocono under any
discretionary equity compensation plan of Parent, except as
otherwise provided in this Agreement. Parent shall cause each
Parent Benefit Plan in which employees of Pocono are eligible to
participate to recognize, for purposes of determining
eligibility to participate in, the vesting of benefits and for
all other purposes, but not for accrual of or computing
benefits, under the Parent Benefit Plans, the service of such
employees with Pocono to the same extent as such service was
credited for such purpose by Pocono, provided, however, that
such service shall not be recognized to the extent that such
55
EXECUTION COPY
recognition would result in a duplication of benefits or is
disallowed under a Parent Benefit Plan. Except for the
commitment to continue those Benefit Plans of Pocono that
correspond to Parent Benefit Plans until employees of Pocono are
included in such Parent Benefit Plans, nothing herein shall
limit the ability of Parent to amend or terminate any of
Pocono's Benefit Plans in accordance with and to the extent
permitted by their terms at any time permitted by such terms.
(b) At and following the Effective Time, and except as
otherwise provided in Section 6.11(d) Parent shall honor, and
the Surviving Bank shall continue to be obligated to perform, in
accordance with their terms, all benefit obligations to, and
contractual rights of, current and former employees of Pocono
and current and former directors of Pocono existing as of the
Effective Date, as well as all employment, executive severance
or "change in control" or similar agreements, plans or policies
of Pocono that are set forth on Schedule 6.11(b) of the Pocono
Disclosure Schedule, subject to the receipt of any necessary
approval from any Bank Regulatory Authority. The severance or
termination payments that are payable pursuant to such
agreements, plans or in accordance with Section 6.19.
(c) At such time as employees of Pocono become eligible to
participate in a medical, dental or health plan of Parent or its
Subsidiaries, Parent shall cause each such plan to (i) waive any
preexisting condition limitations to the extent such conditions
are covered under the applicable medical, health or dental plans
of Parent, (ii) provide full credit under such plans for any
deductibles, co payment and out of pocket expenses incurred by
the employees and their dependents during the portion of the
calendar year prior to such participation and (iii) waive any
waiting period limitation or evidence of insurability
requirement that would otherwise be applicable to such employee
or dependent on or after the Effective Time to the extent such
employee or dependent had satisfied any similar limitation or
requirement under an analogous Benefit Plan prior to the
Effective Time.
(d) Immediately prior to the Effective Time, Pocono shall,
at the written request of Parent, freeze or terminate such of
the Pocono Benefit Plans as is requested by Parent.
6.12 PARENT AND PARENT BANK BOARD. On or after the Effective
Date, two Persons (the "Pocono Nominees") selected by Pocono's
Board of Directors and subject to (a) compliance with the Parent
articles and bylaws, (b) such Persons meeting the eligibility
requirements for a director of Parent and Parent Bank of any
Regulatory Authority relating to Parent and Parent Bank, and (c)
approval of such Persons by Parent (which approval will not
otherwise be unreasonable withheld, determined in the Parent's
discretion), shall be the directors of Parent and Parent Bank,
each to hold office until his successor is elected and qualified
or otherwise in accordance with applicable law, the Parent
articles and bylaws and Parent Bank's articles and bylaws.
Subject to the above, as of the Effective Time, the Pocono
Nominees who shall serve as directors of both Parent Board and
Parent Bank Board shall serve for not less than two years
following the Effective Date and until his/her successor is
elected and qualified. Pocono shall submit the names of the
Pocono Nominees no later than seven days prior to the initial
56
EXECUTION COPY
filing date of the Registration Statement by Parent with the
SEC. Such Pocono Nominees shall have agreed to execute any
consent required to be filed with the Registration Statement.
6.13 NOTIFICATION OF CERTAIN MATTERS. Each of Pocono and Parent
shall give prompt notice to the other of any fact, event or
circumstance known to it that (i) is reasonably likely,
individually or taken together with all other facts, events and
circumstances known to it, to result in any Material Adverse
Effect with respect to it or (ii) would cause or constitute a
material breach of any of its representations, warranties,
covenants or agreements contained herein.
6.14 REGULATORY CONDITIONS. In the event of the imposition of
any conditions, restrictions or requirements in connection with
the regulatory approvals required by Section 7.1(b) that Parent
determines would materially reduce the benefits of the Merger as
provided in Section 7.1(b), Parent shall use its commercially
reasonable efforts to obtain the removal of any such condition,
restriction or requirement.
6.15 EXEMPTION FROM LIABILITY UNDER SECTION 16(B). Assuming
that Pocono delivers to Parent the Section 16 Information not
less than five Business Days in advance of the Effective Time,
the Board of Directors of Parent, or a committee of Non Employee
Directors thereof (as such term is defined for purposes of Rule
16b-3(d) under the Exchange Act), shall reasonably promptly
thereafter and in any event prior to the Effective Time adopt a
resolution providing that the receipt by the Pocono Insiders of
Parent Common Stock in exchange for shares of Pocono Common
Stock, and to the extent such securities are listed in the
Section 16 Information provided by Pocono to Parent prior to the
Effective Time, are intended to be exempt from liability
pursuant to Section 16(b) under the Exchange Act such that any
such receipt shall be so exempt.
6.16 CERTAIN POST-CLOSING MATTERS.
(a) From and after the Effective Time, Parent shall cause
Parent Bank to establish a new Pocono Region that will consist
of the existing branches of Pocono and the Swiftwater Branch,
that will be called, consistent with applicable regulations,
"Pocono Bank, a Division of First Keystone National Bank (the
"Pocono Division"). Parent shall cause Parent Bank to operate
the Pocono Division for a period of at least two years after the
Effective Date.
(b) Parent shall cause Parent Bank to establish and
maintain for at least two years after the Effective Date a
community advisory board of directors for the Pocono Division
(the "Pocono Advisory Board"). The Pocono Advisory Board shall
be formed by Parent Bank and be operated in a manner that is
consistent with Parent Bank's past practices and policies with
respect to its existing community advisory boards. For not less
than two years following the Effective Date, the membership of
the Pocono Advisory Board shall include all current members of
the Pocono Board of Directors who chose to serve subject to
Parent advisory board procedures, listed on Schedule 6.16(b) who
are not on the Parent board of directors subject to confirmation
of such initial members by the Nominating and Corporate
Governance Committee of Parent.
57
EXECUTION COPY
6.17 EMPLOYMENT MATTERS. Parent agrees to cause Parent Bank to
enter into an Acknowledgement and Release in the form of Annex
A, Employment Agreement in the form of Annex B, and Consulting
Agreement in the form of Annex C with Xxxx X. Xxxxxxx commencing
on the Effective Date.
6.18 DIRECTOR AGREEMENTS. Pocono agrees to use reasonable
commercial efforts to cause each director of Pocono to execute
Affiliates Letter in the form of Annex D, Voting Agreement in
the form of Annex E, a Non Competition and Non Solicitation
Agreement in the form of Annex F, the Stock Option and Warrant
Cancellation Agreement in the Form of Annex G, and the Pocono
Option and Pocono Warrant Standstill Agreement in the form of
Annex H.
6.19 EMPLOYEES; SEVERANCE POLICY.
(a) Subject to Parent Bank's usual personnel and
qualification policies, Parent Bank will endeavor to continue
the employment of all current Pocono employees in positions that
will contribute to the successful performance of the combined
organization. More specifically Parent Bank will, after
consultation with Pocono prior to the Effective Date, use its
best efforts to inform each Pocono employee of the likelihood of
such employee having continued employment with Parent Bank.
Parent Bank will give any Pocono applicant significant
consideration over other applicants with similar experience.
Where there is a coincidence of responsibilities, Parent Bank
will try to reassign the affected individual to a needed
position that uses the skills and abilities of the individual.
If that is impractical or if Parent Bank elects to eliminate a
position or does not offer the employee comparable employment
(i.e., a position of substantially similar job descriptions or
responsibilities at substantially the same salary level in a
work location that is within twenty five (25) miles of the
employee's then current work location with Pocono, Parent Bank
will make severance payments to the displaced employee as set
forth in this Section 6.19.
(b) Except for certain Key Employees listed on Schedule
6.19, Parent Bank will grant an employee two (2) weeks of
severance pay for each year of service, and continue to pay
medical benefits during the severance payment term or until
enrolled in another health plan, whichever occurs first,
provided that any coverage period required under Code Section
4980B shall run concurrently with the period that health benefit
coverage is provided to such person(s) under this Section. In
lieu of the severance payments provided under this Subsection
6.19(b), the Key Employees shall receive nine (9) months of
their then current salary and continued medical benefits for up
to nine (9) months or until enrolled in another health plan,
whichever occurs first, provided that any coverage period
required under Code Section 4980B shall run concurrently with
the period that health benefit coverage is provided to such
person(s) under this Section.
(c) All employees of Pocono on the date hereof will be
eligible for severance benefits set forth in this Section 6.19,
except that no employee of Pocono who shall receive any
severance benefits as provided hereunder shall also be eligible
for any payment or benefit pursuant to any "change in control"
58
EXECUTION COPY
agreement, employment agreement or similar plan or right.
(d) Each person eligible for severance benefits will
remain eligible for such benefits if his or her employment is
terminated, other than for "cause," or voluntarily terminates
his or her employment after being offered a position that is not
"comparable employment" as defined in Section 6.19(a) above,
within twelve (12) months after the Effective Date. Any person
whose employment with Parent Bank is terminated without "cause"
after twelve (12) months from the Effective Date shall receive
such severance benefit from Parent Bank as is provided for in
Parent Bank's general severance policy for such terminations
(with full credit being given for each year of service with
Pocono).
(e) For purposes of this Section 6.19, "cause" means the
employer's good faith reasonable belief that an employee (1)
committed fraud, theft or embezzlement; (2) falsified corporate
records; (3) disseminated confidential information concerning
customers, Parent or Parent Bank or any of its or their
employees in violation of any applicable confidentiality
agreement or policy, or (4) failed to adequately perform his or
her duties as an employee.
6.20 POCONO OPTIONS AND POCONO WARRANTS. Pocono shall use its
best efforts to cause each Pocono Option Holder and Pocono
Warrant Holder to accept, at the Effective Time, a cash payment
in full liquidation of all of the Pocono Options and Pocono
Warrants.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each of the parties hereto to
consummate the Merger is subject to the fulfillment or, to the
extent permitted by applicable law, written waiver by the
parties hereto prior to the Closing Date of each of the
following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger
shall have been duly approved by the requisite vote of the
holders of outstanding shares of Pocono Common Stock as required
by law and the Pocono Articles.
(b) REGULATORY APPROVALS. All regulatory approvals
required to consummate the Merger shall have been obtained,
including the receipt of any necessary regulatory approval to
operate the main and branch offices of Pocono as offices of the
Surviving Bank, and shall remain in full force and effect and
all statutory waiting periods in respect thereof shall have
expired and no such approvals shall contain any conditions,
restrictions or requirements that the Parent Board reasonably
determines in good faith would, individually or in the
aggregate, materially reduce the benefits of the Transaction.
59
EXECUTION COPY
(c) NO INJUNCTION. No Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced
or entered any statute, rule, regulation, judgment, decree,
injunction or other order, whether temporary, preliminary or
permanent, that is in effect and prohibits consummation of the
Transaction.
(d) REGISTRATION STATEMENT. The Registration Statement
shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall
have been initiated by the SEC and not withdrawn and all blue
sky obligations shall have been complied with to Parent's
satisfaction.
7.2 CONDITIONS TO OBLIGATION OF POCONO. The obligation of
Pocono to consummate the Merger is also subject to the
fulfillment by Parent or written waiver by Pocono prior to the
Closing Date of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Parent set forth in this Agreement, subject in
all cases to the standard set forth in Section 5.2, shall be
true and correct as of the date of this Agreement and as of the
Effective Date as though made on and as of the Effective Date,
except that representations and warranties that by their terms
speak as of the date of this Agreement or some other date shall
be true and correct as of such date, and Pocono shall have
received a certificate, dated the Effective Date, signed on
behalf of Parent by the Chief Executive Officer and the Chief
Financial Officer of Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT. Parent shall
have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the
Effective Time in order to consummate the Merger, and Pocono
shall have received a certificate, dated the Effective Date,
signed on behalf of Parent by the Chief Executive Officer and
the Chief Financial Officer of Parent to such effect.
(c) TAX OPINION. Pocono shall have received the written
opinion of Xxxx Xxxxx LLP, dated as of the Effective Date, which
shall be based on such written representations from Parent,
Pocono and others as such counsel shall reasonably request, to
the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code.
(d) OTHER ACTIONS. Parent shall have furnished Pocono with
such certificates of its respective officers or others and such
other documents to evidence fulfillment of the conditions set
forth in Sections 7.1 and 7.2 as Pocono may reasonably request.
60
EXECUTION COPY
7.3 CONDITIONS TO OBLIGATION OF PARENT. The obligation of
Parent to consummate the Merger is also subject to the
fulfillment by Pocono or written waiver by Parent prior to the
Closing Date of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Pocono set forth in this Agreement, subject in
all cases to the standard set forth in Section 5.2, shall be
true and correct as of the date of this Agreement and as of the
Effective Date as though made on and as of the Effective Date,
except that representations and warranties that by their terms
speak as of the date of this Agreement or some other date shall
be true and correct as of such date, and Parent shall have
received a certificate, dated the Effective Date, signed on
behalf of Pocono by the President and Chief Executive Officer
and the Chief Financial Officer of Pocono to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF POCONO. Pocono shall
have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the
Effective Time in order to consummate the Merger, and Parent
shall have received a certificate, dated the Effective Date,
signed on behalf of Pocono by the Chairman and Chief Executive
Officer and the Chief Financial Officer of Pocono to such
effect.
(c) TAX OPINION. Parent shall have received the written
opinion of Xxxxx Xxxxxxxx LLP, or such other accounting or law
firm as Parent may choose, dated as of the Effective Date, which
shall be based on such written representations from Parent,
Pocono and others as such counsel shall reasonably request, to
the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code.
(d) ENVIRONMENTAL REPORTS. Pocono shall have furnished
Parent with a Phase I environmental study with respect to all
real property owned by Pocono (which Phase I environmental
studies shall be at the sole cost and expense of Parent), the
findings of which studies shall be commercially acceptable to
Parent who shall not unreasonably withhold such acceptance.
(e) NO MATERIAL ADVERSE EFFECT. No change in the business,
property, assets (including loan portfolios), liabilities
(whether absolute, contingent or otherwise), operations,
liquidity, income, or financial condition of Pocono shall have
occurred since the date of this Agreement, which has had, or
would reasonably be likely to have, a Material Adverse Effect.
(f) LANDLORD CONSENT. Parent shall have received all
consents and authorizations of landlords and other persons that
are necessary to permit the Merger to be consummated without the
violation of any lease or other material agreement to which
Pocono is a party or by which any of its properties are bound,
except where failure to obtain such consent or authorization
would be reasonably expected not to have a Material Adverse
Effect.
61
EXECUTION COPY
(g) ILLEGALITY. No statute, rule or regulation shall have
been enacted, entered, promulgated or enforced by any
governmental authority that prohibits, restricts or makes
illegal the consummation of the transactions contemplated by
this Agreement.
(h) EMPLOYEE MATTERS. Parent shall have received an
executed Acknowledgement and Release in the form of Annex A,
Employment Agreement in the form of Annex B and Consulting
Agreement in the form of Annex C from Xxxx X. Xxxxxxx and the
key employees listed on Schedule 7.3(h) shall have entered into
mutually acceptable employment arrangements.
(i) DIRECTOR AGREEMENTS. Parent shall have received from
each director of Pocono an executed Affiliates Letter in the
form of Annex D, Voting Agreement in the form of Annex E, and a
Non Competition and Non Solicitation Agreement in the form of
Annex F, the Stock Option Warrant Cancellation Agreement in the
form of Annex G, and the Pocono Option and Pocono Warrant
Standstill Agreement in the form of Annex H.
(j) DISSENTING SHARES. No more than Seven Percent (7%) of
the issued and outstanding shares of Pocono Common Stock shall
be Dissenting Shares.
(k) POCONO WARRANTS AND POCONO OPTIONS. Each director and
officer of Pocono who is a Pocono Option Holder and Pocono
Warrant Holder shall have executed a Stock Option and Warrant
Cancellation Agreement in the form of Annex G with respect to
the unexercised Pocono Options and Pocono Warrants in which they
are legal or beneficial owner, and agreed to a one (1) year
extension of the final exercise date for Pocono Warrants.
(l) EXERCISED POCONO WARRANTS AND POCONO OPTIONS. Pocono
Options and Pocono Warrants held by non directors and non
officers shall not have been exercised after the date of this
Agreement for more than 20,000 shares of Pocono Common Stock and
Parent shall have received the Option and Warrant cancellation
and termination forms provided for in Section 3.8.
(m) LITIGATION. No material and adverse litigation shall
be pending or instituted against Pocono.
(n) OTHER ACTIONS. Pocono shall have furnished Parent with
such certificates of its officers or others and such other
documents to evidence fulfillment of the conditions set forth in
Sections 7.1 and 7.3 as Parent may reasonably request.
62
EXECUTION COPY
ARTICLE VIII
TERMINATION
8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Date, and the Transaction may be
abandoned:
(a) MUTUAL CONSENT. By the mutual consent in writing of
Parent and Pocono if the Board of Directors of each so
determines by vote of a majority of the members of its entire
Board.
(b) BREACH. Provided that the terminating party is not
then in material breach of any representation, warranty,
covenant or agreement contained therein, subject in all cases to
the standard set forth in Section 5.2, by Parent or Pocono, if
its Board of Directors so determines by vote of a majority of
the members of its entire Board, in the event of: (i) a breach
by Parent, on the one hand, or Pocono, on the other hand, as the
case may be, of any representation or warranty contained herein,
subject to the standard set forth in Section 5.2, which breach
cannot be or has not been cured within 30 days after the giving
of written notice to the breaching party or parties of such
breach; or (ii) a breach by Parent, on the one hand, or Pocono,
on the other hand, as the case may be, of any of the covenants
or agreements contained herein, which breach cannot be or has
not been cured within 30 days after the giving of written notice
to the breaching party or parties of such breach, which breach,
whether under (i) or (ii), would be reasonably expected,
individually or in the aggregate with other breaches, to result
in a Material Adverse Effect with respect to Parent or Pocono,
as the case may be.
(c) DELAY. By Parent or Pocono, if its Board of Directors
so determines by vote of a majority of the members of its entire
Board, in the event that the Merger is not consummated by April
30, 2008, except to the extent that the failure of the Merger
then to be consummated by such date shall be due to the failure
of the party seeking to terminate pursuant to this Section
8.1(c) to perform or observe the covenants and agreements of
such party set forth in this Agreement.
(d) NO REGULATORY APPROVAL. By Parent or Pocono, if its
Board of Directors so determines by a vote of a majority of the
members of its entire Board, in the event the approval of any
Governmental Authority required for consummation of the Merger
and the other transactions contemplated by this Agreement shall
have been denied by final nonappealable action of such
Governmental Authority or an application therefor shall have
been permanently withdrawn at the request of a Governmental
Authority, provided, however, that no party shall have the right
to terminate this Agreement pursuant to this Section 8.1(d) if
such denial shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe the covenants of
such party set forth herein.
63
EXECUTION COPY
(e) NO POCONO SHAREHOLDER APPROVAL. By Parent, or by
Pocono provided that Pocono shall not be in material breach of
any of its obligations under Section 6.2, if any approval of the
shareholders of Pocono contemplated by this Agreement shall not
have been obtained by reason of the failure to obtain the
required vote at the Pocono Meeting or at any adjournment or
postponement thereof.
(f) POCONO FAILURE TO RECOMMEND. At any time prior to the
Pocono Meeting, by Parent if (i) Pocono shall have breached
Section 6.8 in any respect materially adverse to Parent, (ii)
the Pocono Board shall have failed to make its Approval
Recommendation or shall have effected a Change in Pocono
Recommendation, (iii) the Pocono Board shall have recommended
approval of an Acquisition Proposal or (iv) Pocono shall have
materially breached its obligations under Section 6.2 by failing
to call, give notice of, convene and hold the Pocono Meeting.
(g) SUPERIOR PROPOSAL . At any time prior to the date of
mailing of the Proxy Statement, by Pocono in order to enter
concurrently into an Acquisition Proposal that has been received
by Pocono and the Pocono Board of Directors in compliance with
Sections 6.8(a) and (b) and that Pocono's Board of Directors
concludes in good faith, in consultation with its financial and
legal advisors, that such Acquisition Proposal is a Superior
Proposal; provided, however, that this Agreement may be
terminated by Pocono pursuant to this Section 8.1(g) only after
the fifth Business Day following Pocono's provision of written
notice to Parent advising Parent, that the Pocono Board of
Directors is prepared to accept a Superior Proposal and only if
(i) during such five-Business Day period, Pocono has caused its
financial and legal advisors to negotiate with Parent in good
faith to make such adjustments in the terms and conditions of
this Agreement such that such Acquisition Proposal would no
longer constitute a Superior Proposal, (ii) Pocono's Board of
Directors has considered such adjustments in the terms and
conditions of this Agreement resulting from such negotiations
and has concluded in good faith, based upon consultation with
its financial and legal advisers, that such Acquisition Proposal
remains a Superior Proposal even after giving effect to the
adjustments proposed by Parent and further provided that such
termination shall not be effective until Pocono has paid the
Break-up Fee to Parent.
(h) AVERAGE CLOSING PRICE AND INDEX CLOSING PRICE. By
Pocono at any time during the two business day period following
the Determination Date, if both of the following conditions (i)
and (ii) are satisfied:
(i) the Average Closing Price determined as of the
Determination Date shall be less than $16.20; and
(ii) the number obtained by dividing the Average
Closing Price on the Determination Date by $18.00,
such number being referred to herein as the "Parent
Ratio", shall be less than the number obtained by
dividing the Index Closing Price by the Starting Index
64
EXECUTION COPY
Price, such number being referred to herein as the
"Index Ratio", and subtracting 0.100 from such
quotient.
Provided, that if Pocono elects to exercise such
termination right, it shall give prompt written notice
to Parent, and further provided that such notice of
election to terminate may be withdrawn at any time
within the aforementioned period.
(i) POCONO OPTIONS AND POCONO WARRANTS. By Parent, if
Pocono shall have issued shares of Pocono Common Stock pursuant
to any Pocono Options or Pocono Warrants held by a non director
or non officer in an amount greater than 20,000 shares of Pocono
Common Stock or if any Pocono Options or Pocono Warrants are
exercised by any member of the Pocono Board.
(j) By Parent if the "goodwill" to be recorded as a result
of this transaction under GAAP will or is reasonably likely to
result in Parent not maintaining "well capitalized" status for
regulatory purposes.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or Pocono as provided in Section 8.1,
this Agreement shall forthwith become void and have no effect
except (i) Sections 6.6(c), 6.8(e) and (f), 8.2 and 9.5 shall
survive any termination of this Agreement and (ii)
notwithstanding anything to the contrary contained in this
Agreement, no party shall be relieved or released from any
liability or damages arising out of its willful breach of any of
the provisions of this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 SURVIVAL. No representations, warranties, agreements and
covenants contained in this Agreement shall survive the
Effective Time, other than agreements or covenants contained
herein that by their express terms are to be performed in whole
or in part after the Effective Time, or the termination of this
Agreement if this Agreement is terminated prior to the Effective
Time, other than Sections 6.6(c), 8.2 and, excepting Section
9.12, this Article IX, which shall survive any such termination.
Notwithstanding anything in the foregoing to the contrary, no
representations, warranties, agreements and covenants contained
in this Agreement shall be deemed to be terminated or
extinguished so as to deprive a party hereto or any of its
affiliates of any defense at law or in equity that otherwise
would be available against the claims of any Person, including
without limitation any shareholder or former shareholder.
9.2 WAIVER; AMENDMENT. Prior to the Effective Time, any
provision of this Agreement may be (i) waived, by the party
benefited by the provision or (ii) amended or modified at any
time, by an agreement in writing among the parties hereto
executed in the same manner as this Agreement, except that after
the Pocono Meeting no amendment shall be made that by law
65
EXECUTION COPY
requires further approval by the shareholders of Pocono without
obtaining such approval.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an
original.
9.4 GOVERNING LAW. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the Commonwealth of
Pennsylvania applicable to contracts made and to be performed
entirely within such State.
9.5 EXPENSES.
(a) Except as set forth in Section 9.5(b), each party
hereto will bear all expenses incurred by it in connection with
this Agreement and the transactions contemplated hereby,
including fees and expenses of its own financial consultants,
accountants and counsel, except that expenses of printing the
Proxy Statement and the registration fee to be paid to the SEC
in connection with the Registration Statement shall be shared
equally between Pocono and Parent, and provided further 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.
(b) In the event that this Agreement is terminated by
either Pocono or Parent pursuant to Section 8.1(b), then the
breaching party shall pay to the terminating party, or by Parent
pursuant to Section 8.1(e), then Pocono shall pay Parent, by
wire transfer of immediately available funds, within two
business days following delivery of a statement of such
expenses, all out of pocket costs and expenses (including
without limitation, professional fees of legal counsel,
financial advisors and accountants, and their expenses) actually
incurred by the terminating party or Parent, as the case may be,
in connection with the Merger and this Agreement.
9.6 NOTICES. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed
given if personally delivered, telecopied (with confirmation) or
mailed by registered or certified mail (return receipt
requested) to such party at its address set forth below or such
other address as such party may specify by notice to the parties
hereto.
If to Pocono to:
Pocono Community Bank
000 Xxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Phone: 000-000-0000
Fax: 000-000-0000
Attention: Xxxx X. Xxxxxxx
00
EXECUTION COPY
With a copy to:
Saidis Flower & Lindsay
00 Xxxx Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Phone: 000-000-0000
Fax: 000-000-0000
Attention: Xxxx Xxxxx, Esquire
If to Parent to:
First Keystone Corporation
000 Xxxx Xxxxx Xxxxxx
X.X. Xxx 000
Xxxxxxx, XX 00000
Phone: 000-000-0000
Fax: 000-000-0000
Attention: J. Xxxxxx Xxxxxxxx
With a copy to:
Xxxxx Xxxxxxxx LLP
0000 Xxxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attention: Xxxxxxxx Xxxxx, Xx., Esquire
9.7 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This
Agreement and the Confidentiality Agreement represent the entire
understanding of the parties hereto and thereto with reference
to the Transaction, and this Agreement and the Confidentiality
Agreement supersede any and all other oral or written agreements
heretofore made. Except for the Indemnified Parties' right to
enforce Parent's obligations under Section 6.10, which is
expressly intended to be for the irrevocable benefit of, and
shall be enforceable by, each Indemnified Party and his or her
heirs and representatives, and except for the right of the
members of the Pocono Advisory Board to enforce Parent's
commitments under Section 6.16, nothing in this Agreement,
expressed or implied, is intended to confer upon any Person,
other than the parties hereto or their respective successors,
any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
9.8 SEVERABILITY. Except to the extent that application of this
Section 9.8 would have a Material Adverse Effect on Pocono or
Parent, any term or provision of this Agreement that 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
67
EXECUTION COPY
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. In
all such cases, the parties shall use their reasonable best
efforts to substitute a valid, legal and enforceable provision
that, insofar as practicable, implements the original purposes
and intents of this Agreement.
9.9 ENFORCEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof 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. In the event attorneys' fees or other costs are
incurred to secure performance of any of the obligations herein
provided for, or to establish damages for the breach thereof, or
to obtain any other appropriate relief, whether by way of
prosecution or defense, the prevailing party shall be entitled
to recover reasonable attorneys' fees and costs incurred
therein.
9.10 INTERPRETATION. When a reference is made in this Agreement
to Sections, Annexes or Schedules, such reference shall be to a
Section of, or Annex or Schedule to, this Agreement unless
otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and
are not part 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."
Whenever the words "as of the date hereof" are used in this
Agreement, they shall be deemed to mean the day and year first
above written.
9.11 ASSIGNMENT. Pocono may not assign this Agreement or any of
its rights, interests or obligations hereunder without the prior
written approval of the Parent. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective
successors and permitted assigns.
9.12 ALTERNATIVE STRUCTURE. Notwithstanding any provision of
this Agreement to the contrary, until the Registration Statement
is declared effective, Parent may at any time modify the
structure of the acquisition of Pocono set forth herein,
provided that (i) the Merger Consideration to be paid to the
holders of Pocono Common Stock is not thereby changed in kind or
reduced in amount as a result of such modification, (ii) such
modification will not adversely affect the tax treatment to
Pocono's shareholders as a result of receiving the Merger
Consideration and (iii) such modification will not materially
delay or jeopardize receipt of any required approvals of
Governmental Authorities.
68
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in counterparts by their duly
authorized officers, all as of the day and year first above
written.
ATTEST: FIRST KEYSTONE CORPORATION
______________________ By: /s/ J. Xxxxxx Xxxxxxxx
__________________________
J. Xxxxxx Xxxxxxxx,
President and Chief
Executive Officer
ATTEST: FIRST KEYSTONE NATIONAL BANK
______________________ By: /s/ J. Xxxxxx Xxxxxxxx
__________________________
J. Xxxxxx Xxxxxxxx,
President and Chief
Executive Officer
ATTEST: POCONO COMMUNITY BANK
______________________ By: /s/ Xxxx X. Xxxxxxx
__________________________
Xxxx X. Xxxxxxx, President
69
EXECUTION COPY
ANNEX A
ACKNOWLEDGEMENT AND RELEASE
___________________________
READ IT CAREFULLY
NOTICE TO XXXX X. XXXXXXX:
THIS IS A VERY IMPORTANT LEGAL DOCUMENT, AND YOU SHOULD
CAREFULLY REVIEW AND UNDERSTAND THE TERMS AND EFFECT OF
THIS DOCUMENT BEFORE SIGNING IT. BY SIGNING THIS
ACKNOWLEDGEMENT AND RELEASE ("AGREEMENT"), YOU ARE AGREEING
TO COMPLETELY RELEASE POCONO COMMUNITY BANK, FIRST KEYSTONE
CORPORATION, AND FIRST KEYSTONE NATIONAL BANK AND THEIR
SUBSIDIARIES, AFFILIATES, DIRECTORS AND OFFICERS.
THEREFORE, YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE
SIGNING THIS AGREEMENT. YOU HAVE TWENTY ONE (21) DAYS FROM
THE DAY OF RECEIPT OF THIS DOCUMENT TO CONSIDER THE
AGREEMENT. THE TWENTY ONE (21) DAYS WILL BEGIN TO RUN ON
THE DAY AFTER RECEIPT. IF YOU CHOOSE TO SIGN THE
AGREEMENT, YOU WILL HAVE AN ADDITIONAL SEVEN (7) DAYS
FOLLOWING THE DATE OF YOUR SIGNATURE TO REVOKE THE
AGREEMENT, AND THE AGREEMENT SHALL NOT BECOME EFFECTIVE OR
ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED.
This Acknowledgement and Release (the "Acknowledgement and
Release") is entered into effective May 10, 2007, by and among
First Keystone Corporation ("Parent"), First Keystone National
Bank ("Parent Bank"), Pocono Community Bank ("Pocono") and Xxxx
X. Xxxxxxx ("Executive").
WHEREAS, Executive and Pocono have entered into an
employment agreement dated July 8, 1996, as amended April 30,
1997 and May 15, 1997 ("Employment Agreement");
WHEREAS, Pocono, Parent, and Parent Bank will enter into an
Agreement and Plan of Merger dated May 10, 2007 ("Merger
Agreement");
WHEREAS, pursuant to the Merger Agreement, Pocono has
agreed to make the payments set forth herein in exchange for the
termination of the Employment Agreement on the Effective Date
(as defined in the Merger Agreement), and in exchange for the
execution of this Acknowledgement and Release;
WHEREAS, the Merger Agreement sets forth the agreement of
Parent and Parent Bank to enter into an employment agreement
with Executive;
70
EXECUTION COPY
WHEREAS, Parent and Parent Bank are only willing to enter
into the Merger Agreement on the condition that Executive
provides the inducements set forth in this Agreement by
executing this Agreement and that Executive enters into an
employment agreement and a consulting agreement with Parent and
Parent Bank.
NOW THEREFORE, in consideration of the foregoing and other
good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound,
it is agreed as follows:
1. CONSIDERATION. On the Effective Date of the Merger,
as defined in the Merger Agreement, in full satisfaction of the
benefits that would otherwise be payable under the Employment
Agreement, Pocono shall pay Executive a lump sum payment in the
amount of $500,000.
2. RELEASE AND WAIVER.
(a) Executive hereby agrees that the payments will be in
full satisfaction of all obligations of Parent, Parent Bank, and
Pocono under the Employment Agreement.
(b) Executive, on behalf of himself, his heirs and
assigns, irrevocably and unconditionally releases Pocono,
Parent, and Parent Bank from all claims, controversies,
liabilities, demands, causes of action, debts, obligations,
promises, acts, agreements, and damages of whatever kind or
nature, whether known or unknown, suspected or unsuspected,
foreseen or unforeseen, liquidated or contingent, aspects of the
Employment Agreement, including but no limited to, any and all
claims for breach of express or implied contract or covenant of
good faith and fair dealing (whether written or oral), all
claims for retaliation or violation of public policy, breach of
promise, detrimental reliance or tort (e.g. intentional
infliction of emotional distress, defamation, wrongful
termination, interference with contractual or advantageous
relationship, etc), whether based on common law or otherwise;
all claims arising under Title VII of the Civil Rights Act of
1964, as amended; the Age Discrimination in Employment Act; the
Americans with Disabilities Act; claims for emotional distress,
mental anguish, personal injury, loss of consortium; any and all
claims that may be asserted on Executive's behalf by others
(including the Equal Employment Opportunity Commission); or any
other federal, state or local laws or regulations relating to
employment or benefits associated with employment. The
foregoing list is meant to be illustrative rather than
inclusive.
(c) Executive waives the rights and claims to the extent
set forth above, and he also agrees not to institute, or have
instituted, a lawsuit against Pocono, Parent and Parent Bank,
based on any such waived claims or rights.
(d) EXECUTIVE ACKNOWLEDGES AND AGREES THAT THIS RELEASE IS
A FULL AND FINAL BAR TO ANY AND ALL CLAIMS(S) OF ANY TYPE THAT
HE MAY NOW HAVE AGAINST POCONO, PARENT OR PARENT BANK TO THE
71
EXECUTION COPY
EXTENT PROVIDED ABOVE BUT THAT IT DOES NOT RELASE ANY CLAIMS
THAT MAY ARISE AFTER THE DATE OF THIS AGREEMENT.
3. ACCEPTANCE PERIOD.
The following notice is included in this Agreement as
required by the Older Workers Benefit Protection Act:
YOU HAVE UP TO TWENTY ONE (21) DAYS FROM THE DATE OF
RECEIPT OF THIS RELEASE TO ACCEPT THE TERMS OF THIS
RELEASE, ALTHOUGH YOU MAY ACCEPT IT AT ANY TIME WITHIN
THOSE TWENTY ONE (21) DAYS. YOU ARE ADVISED TO CONSULT
WITH AN ATTORNEY REGARDING THIS RELEASE.
The twenty one (21) day period will begin to run on the day
after Executive receives this Agreement. It will then run for a
full twenty one (21) calendar days and expire at the end of the
twenty first day (the "Acceptance Period"). In order to accept
this Agreement, Executive must sign his name and date his
signature at the end of this letter and return it to Xxxxxxxx
Xxxxx, Xx., Xxxxx Xxxxxxxx LLP, 0000 Xxxxx Xxxx, Xxxxx 000,
Xxxxxxx, Xxxxxxxxxxxx 00000. If the twenty first day of the
Acceptance Period falls on a Saturday, a Sunday, or a legal
holiday, Xx. Xxxxx'x receipt of his acceptance by the close of
business on the next business day immediately following such
Saturday, Sunday or legal holiday will be sufficient to effect a
timely acceptance of this Agreement.
4. REVOCATION PERIOD. Executive has the right to revoke
this Agreement at any time within seven (7) days from the date
Executive signs and delivers this Agreement to the Parent and
Pocono (the "Revocation Period"), and this Agreement will not
become effective and enforceable until the Revocation Period has
expired. (NOTE: The Revocation Period will begin on the day
after the day on which Executive has signed this Agreement and
delivered it to Pocono and the Parent and, as indicated by the
date Executive affixes to his signature at the end of this
Agreement. It will then run for seven calendar days and expire
at the end of the seventh day.) In order to revoke this
Agreement, Executive must notify the Parent in writing of his
decision to revoke the Agreement. Executive must ensure that
the Parent (via Xx. Xxxxx, at the address indicated in Paragraph
3 above) receives his written notice of revocation at his office
in Lemoyne, Pennsylvania within the aforementioned Revocation
Period. If the seventh day of the Revocation Period falls on a
Saturday, a Sunday, or a legal holiday, the Parent's receipt of
his notice of revocation by the close of business on the next
business day immediately following such Saturday, Sunday or
legal holiday will be sufficient to effect a timely revocation
of this Agreement. Provided that the Revocation Period expires
without his having revoked this Agreement, this Agreement shall
take effect on the next day following the Revocation Period, and
such next day shall constitute the Effective Date hereof.
5. SEVERABILITY. Should any provision(s) of this
Agreement be determined, in a proceeding to enforce or interpret
this Agreement, to be invalid or unenforceable, then, provided
that the provision(s) deemed to be invalid or unenforceable do
72
EXECUTION COPY
not constitute all or substantially all of the undertakings by
Executive, Pocono, or Parent, the remainder of this Agreement
shall continue in full force and effect.
6. NOTICES. Unless otherwise provided in this Agreement,
any notice required or permitted to be given under this
Agreement shall be deemed properly given if in writing and if
mailed by registered or certified mail, postage prepaid with
return receipt requested, to Executive's residence, in the case
of notices to Executive, and to the principal executive offices
of Parent and Parent Bank, in the case of notices to Parent and
Parent Bank, and to the principal executive offices of Pocono,
in the case of notices to Pocono.
7. CHOICE OF LAW. This Agreement shall be governed by,
construed under and enforced pursuant to the laws of the
Commonwealth of Pennsylvania.
8. BINDING ON SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors and assigns.
9. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, and shall be fully valid, legally binding
and enforceable whether executed in a single document or in such
counterparts.
73
EXECUTION COPY
10. TERMINATION. This Agreement shall terminate upon a
termination of the Merger Agreement in accordance with its
terms.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
ATTEST: POCONO COMMUNITY BANK
______________________ By: _________________________
W. Xxxxx Xxxxxx
Chairman
FIRST KEYSTONE CORPORATION
______________________ By: _________________________
J. Xxxxxx Xxxxxxxx
President and Chief
Executive Officer
FIRST KEYSTONE NATIONAL BANK
______________________ By: _________________________
J. Xxxxxx Xxxxxxxx
President and Chief
Executive Officer
WITNESS: EXECUTIVE
______________________ _____________________________
Xxxx X. Xxxxxxx
00
EXECUTION COPY
ANNEX B
_______
EMPLOYMENT AGREEMENT
____________________
THIS AGREEMENT is made as of the 10th day of May, 2007,
between FIRST KEYSTONE CORPORATION ("Parent"), a Pennsylvania
business corporation, FIRST KEYSTONE NATIONAL BANK ("Parent
Bank"), a national banking association and Xxxx X. Xxxxxxx
("Executive"), an individual residing in Pennsylvania.
WITNESSETH:
___________
WHEREAS, Parent is a registered bank holding company;
WHEREAS, Parent Bank is a subsidiary of the Parent;
WHEREAS, Parent, Parent Bank, and Pocono Community Bank
("Pocono"), entered into an Agreement and Plan of Merger dated
May 10, 2007 ("Merger Agreement");
WHEREAS, Executive was the President and Chief Executive
Officer of Pocono;
WHEREAS, pursuant to the Merger Agreement, Parent and
Parent Bank have agreed to offer Executive this employment
agreement;
WHEREAS, Parent and Parent Bank desire to retain Executive
to serve in the capacity of Executive Vice President of Parent
Bank under the terms and conditions set forth herein;
WHEREAS, Executive desires to serve the Parent Bank in an
executive capacity under the terms and conditions set forth
herein;
AGREEMENT:
__________
NOW, THEREFORE, the parties hereto, intending to be legally
bound, agree as follows:
1. EMPLOYMENT. Parent and Bank hereby employ Executive and
Executive hereby accepts employment with Parent and Parent Bank,
under the terms and conditions set forth in this Agreement.
2. DUTIES OF EXECUTIVE. Executive shall serve as Executive
Vice President reporting to the President of the Parent Bank.
Executive shall have such other duties and hold such other
75
EXECUTION COPY
titles as may be given to him from time to time by the President
and Chief Executive Officer of Parent and Parent Bank.
3. ENGAGEMENT IN OTHER EMPLOYMENT. Executive shall devote all
of his working time, ability and attention to the business of
the Parent, Parent Bank and/or their subsidiaries or affiliates,
during the term of this Agreement. The Executive shall notify
the President and Chief Executive Officer of Parent and Parent
Bank in writing before the Executive engages in any other
business or commercial duties or pursuits, including but not
limited to, directorships of other companies. Under no
circumstances may the Executive engage in any business or
commercial activities, duties or pursuits which compete with the
business or commercial activities of the Parent, Parent Bank
and/or any of their subsidiaries or affiliates nor may the
Executive serve as a director or officer or in any other
capacity in a company which competes with the Parent, Parent
Bank and/or any of their subsidiaries or affiliates. Executive
shall not be precluded, however, upon written notification to
the President and Chief Executive Officer, from engaging in
voluntary or philanthropic endeavors, from engaging in
activities designed to maintain and improve his professional
skills, or from engaging in activities incident or necessary to
personal investments, so long as they are, in the President and
Chief Executive Officer's reasonable opinion, not in conflict
with or detrimental to the Executive's rendition of services on
behalf of the Parent, Parent Bank and/or any of their
subsidiaries or affiliates.
4. TERM OF AGREEMENT.
(a) This Agreement shall be for a one (1) year period (the
"Employment Term") beginning on the Effective Date as
defined in the Merger Agreement, and if not previously
terminated pursuant to the terms of this Agreement,
the Employment Term shall end one (1) year later.
(b) Notwithstanding the provisions of Section 4(a) of this
Agreement, this Agreement shall terminate
automatically for Cause (as defined herein) upon
written notice from the Board of Directors of each of
Parent and Parent Bank to Executive. As used in this
Agreement, "Cause" shall mean any of the following:
(i) Executive's conviction of or plea of guilty
or nolo contendere to a felony, a crime of falsehood
or a crime involving moral turpitude, or the actual
incarceration of Executive for a period of twenty (20)
consecutive days or more;
(ii) Executive's failure to follow the good
faith lawful instructions of the Board of Directors of
Parent or Parent Bank with respect to its operations,
after written notice from Parent or Parent Bank and a
failure to cure such violation within thirty (30) days
of said written notice;
76
EXECUTION COPY
(iii) Executive's willful failure to
substantially perform Executive's duties to Parent or
Parent Bank, other than a failure resulting from
Executive's incapacity because of physical or mental
illness, as provided in subsection (d) of this Section
4, after written notice from Parent or Parent Bank and
a failure to cure such violation within thirty (30)
days of said written notice;
(iv) Executive's intentional violation of the
provisions of this Agreement, after written notice
from Parent or Parent Bank and a failure to cure such
violation within thirty (30) days of said written
notice;
(v) dishonesty or gross negligence of the
Executive in the performance of his duties;
(vi) Executive's removal or prohibition from
being an institutional affiliated party by a final
order of an appropriate federal banking agency
pursuant to Section 8(e) or 8(g) of the Federal
Deposit Insurance Act or by the Office of the
Comptroller of the Currency pursuant to national law;
(vii) conduct by the Executive as determined by
an affirmative vote of seventy five percent (75%) of
the disinterested members of the Board of Directors of
Parent or Parent Bank which brings public discredit to
Parent or Parent Bank and which results or may be
reasonably expected to result in material financial or
other harm to the Parent or Parent Bank;
(viii) Executive's breach of fiduciary duty
involving personal profit;
(ix) unlawful harassment by the Executive
against employees, customers, business associates,
contractors, or vendors of Parent or Parent Bank which
results or may be reasonably expected to result in
material liability to Parent or Parent Bank, as
determined by an affirmative vote of seventy five
percent (75%) of the disinterested independent members
of the Board of Directors of Parent or Parent Bank,
following an investigation of the claims by a third
party unrelated to the Parent or Parent Bank chosen by
the Executive, Parent and Parent Bank. If the
Executive, Parent, and Parent Bank do not agree on
said third party, then as chosen by an affirmative
vote of seventy five percent (75%) of the
disinterested independent members of the Board of
Directors of the Parent;
(x) the willful violation by the Executive of
the provisions of Sections 9, 10, or 11 hereof,
77
EXECUTION COPY
after notice from the Parent or Parent Bank and a
failure to cure such violation within thirty (30) days
of said notice;
(xi) the willful violation of any law, rule or
regulation governing banks or bank officers or any
final cease and desist order issued by a bank
regulatory authority;
(xii) theft or abuse by Executive of the
Parent's or Parent Bank's property or the property of
Parent's or Parent Bank's customers, employees,
contractors, vendors, or business associates;
(xiii) any act of fraud, misappropriation or
personal dishonesty;
(xiv) insubordination as determined by an
affirmative vote of seventy five percent (75%) of the
Board of Directors of Parent or Parent Bank, after
written notice from the Parent or Parent Bank and a
failure to cure such violation within thirty (30) days
of said written notice; or
(xv) the existence of any material conflict
between the interests of the Parent or Parent Bank and
the Executive that is not disclosed in writing by the
Executive to the Parent and Parent Bank and approved
in writing by the Boards of Directors of Parent and
Parent Bank.
(xvi) Before taking any vote under subparagraphs
(vii), (ix), or (xiv) above, all which require notice,
Executive shall be entitled to appear before the
Boards and present Executive's position as to any
issues about which Executive has been notified by the
Boards in writing. Such appearance shall be within a
reasonable period of time following written notice to
Executive of the issues but in no event longer than
thirty (30) days after the date of said written
notice.
If this Agreement is terminated for Cause, all of
Executive's rights under this Agreement shall cease as
of the effective date of such termination, except for
the rights under Paragraph 19 hereof with respect to
arbitration.
(c) Notwithstanding the provisions of Section 4(a) of this
Agreement, this Agreement shall terminate
automatically upon Executive's voluntary termination
of employment (other than in accordance with Section 6
of this Agreement) for Good Reason. The term "Good
Reason" shall mean (i) a reassignment which requires
Executive to move his principal residence or his
office more than fifty (50) miles from the Parent's
and Parent Bank's principal executive office
immediately prior to this Agreement, (ii) any
78
EXECUTION COPY
reduction in the Executive's Annual Base Salary as in
effect on the date hereof or as the same may be
increased from time to time, or (iii) any failure of
Parent and Parent Bank to provide the Executive with
benefits at least as favorable as those enjoyed by
Parent Bank's senior officers unless such reduction is
part of a reduction applicable to all senior officers.
If such termination occurs for Good Reason, then
Parent or Parent Bank shall pay Executive an amount
equal to $14,208 times the number of full months
remaining under this Agreement plus an additional
$150,000, minus appropriate federal, state and local
tax withholdings. In the event that Executive
receives a payment under this Section 4(c), Executive
shall not be entitled to any other payment under any
other section of this Agreement nor shall he be
entitled to any payment under the Consulting Agreement
dated May 10, 2007 by and among Parent, Parent Bank,
and Xx. Xxxxxxx ("Consulting Agreement").
Notwithstanding any other provision, in the event that
Executive is determined to be a key employee as that
term is defined in Section 409A of the Internal
Revenue Code ("Code"), no payment that is determined
to be deferred compensation subject to Section 409A of
the Code shall be made until one day following six
months from the date of separation of service as that
term is defined in Section 409A of the Code.
At the option of the Executive, exercisable by the
Executive within ninety (90) days after the occurrence
of the event constituting "Good Reason," the Executive
may resign from employment under this Agreement by
written notice (the "Notice of Termination") delivered
to Parent and Parent Bank and the provisions of this
Section 4(c) hereof shall thereupon apply.
(d) In the event that Executive suffers a disability as
defined in Section 409A of the Code or death,
Executive's rights under this Agreement shall
terminate immediately; provided, however, Parent and
Parent Bank shall pay Executive or Executive's estate,
whichever is appropriate, a lump sum equal to $14,208
times the number of full months remaining under this
Agreement plus an additional $150,000 payable on the
first anniversary of the Effective Date. In the event
that Executive receives a payment under this Section
4(d), Executive shall not be entitled to any other
payment under any other section of this Agreement nor
shall he be entitled to any payment under the
Consulting Agreement.
(e) In the event that Executive terminates his employment
without Good Reason as defined in Section 4(c), all of
Executive's rights under this Agreement shall cease as
of the effective date of such termination, except for
the rights under Paragraph 19 hereof with respect to
arbitration.
79
EXECUTION COPY
(f) Executive agrees that in the event his employment
under this Agreement is terminated, Executive shall
resign as a director of Parent and Parent Bank, or any
affiliate or subsidiary thereof, if he is then serving
as a director of any of such entities.
5. EMPLOYMENT PERIOD COMPENSATION.
(a) ANNUAL BASE SALARY. For services performed by
Executive under this Agreement, Parent or Parent Bank
shall pay Executive an Annual Base Salary during the
Employment Term at the rate of $295,500.00 per year,
minus applicable withholdings and deductions, payable
at the same times as salaries are payable to other
executive employees of Parent or Parent Bank.
(b) PAID TIME-OFF. During the term of this Agreement,
Executive shall be entitled to paid time off in
accordance with the manner and amount provided under
the paid time off plan currently in effect. Executive
shall not be entitled to receive any additional
compensation from Parent and Parent Bank for failure
to take a vacation.
(c) EMPLOYEE BENEFIT PLANS. During the term of this
Agreement, Executive shall be entitled to participate
in or receive the benefits of any employee benefit
plan currently in effect at Parent and Parent Bank,
subject to the terms of said plan, until such time
that the Boards of Directors of Parent and Parent Bank
authorize a change in such benefits. Parent and
Parent Bank shall not make any changes in such plans
or benefits which would adversely affect Executive's
rights or benefits thereunder, unless such change
occurs pursuant to a program applicable to all
executive officers of Parent and Parent Bank and does
not result in a proportionately greater adverse change
in the rights of or benefits to Executive as compared
with any other executive officer of Parent and Parent
Bank. Nothing paid to Executive under any plan or
arrangement presently in effect or made available in
the future shall be deemed to be in lieu of the salary
payable to Executive pursuant to Section 5(a) hereof.
(d) BUSINESS EXPENSES. During the term of this Agreement,
Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by
him, which are properly accounted for, in accordance
with the policies and procedures established by the
Boards of Directors of Parent and Parent Bank for
their executive officers.
(e) AUTOMOBILE. During the term of this Agreement, Parent
and Parent Bank shall allow Executive to continue to
use the company vehicle which he currently enjoys at
the time he executes this Agreement.
80
EXECUTION COPY
6. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL.
(a) If a Change in Control (as defined in Section 6(b) of
this Agreement) shall occur then, at the option of
Executive, exercisable by Executive within one hundred
eighty (180) days of the Change in Control, the
Executive may give notice of the intention to collect
benefits under this Agreement by delivering written
notice (the "Notice of Termination") to Parent and
Parent Bank and the provisions of Section 7 of this
Agreement shall apply.
(b) As used in this Agreement, "Change in Control" shall
mean: A change in control shall have occurred if the
Board of Directors of Parent certifies that one of the
following has occurred:
(i) (A) a merger, consolidation or division
involving Parent or Parent Bank, (B) a sale, exchange,
transfer or other disposition of substantially all of
the assets of Parent or Parent Bank, or (C) a purchase
by Parent or Parent Bank of substantially all of the
assets of another entity, unless such merger,
consolidation, division, sale, exchange, transfer,
purchase or disposition results in a majority of the
members of the Board of Directors of the legal entity
resulting from or existing after any such transaction
and of the Board of Directors of such entity's parent
corporation, if any, are former members of the Board
of Directors of Parent or Parent Bank; or
(ii) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other
than Parent or Parent Bank or any "person" who on the
date hereof is a director or officer of Parent or
Parent Bank is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Parent or
Parent Bank representing thirty five (35%) percent or
more of the total fair market value or combined voting
power of Parent's or Parent Bank's then outstanding
securities; or
(iii) during any period of one (1) year during
the term of Executive's employment under this
Agreement, individuals who at the beginning of such
period constitute the Board of Directors of Parent or
Parent Bank cease for any reason to constitute at
least a majority thereof, unless the election of each
director who was not a director at the beginning of
such period has been approved in advance by directors
representing at least two thirds (2/3) of the
directors then in office who were directors at the
beginning of the period.
81
EXECUTION COPY
7. RIGHTS IN EVENT OF CHANGE IN CONTROL.
(a) In the event that Executive delivers a Notice of
Termination (as defined in Section 6(a) of this
Agreement) to Parent and Parent Bank, Executive shall
be entitled to receive the compensation and benefits
set forth below:
If a "Change in Control" (as defined in Section 6(b)
of this Agreement) has also occurred and Executive's
employment is terminated by either Executive, Parent
or its successor, Parent and Parent Bank shall pay
Executive a lump sum amount equal to $14,208 times the
number of full months remaining under this Agreement
plus an additional $150,000, minus appropriate
federal, state and local tax withholdings. In the
event that Executive receives a payment under this
Section 7, Executive shall not be entitled to any
other payment under any other section of this
Agreement nor shall he be entitled to any payment
under the Consulting Agreement.
Notwithstanding any other provision, in the event that
Executive is determined to be a key employee as that
term is defined in Section 409A of the Code, no
payment that is determined to be deferred compensation
subject to Section 409A of the Code shall be made
until one day following six months from the date of
separation of service as that term is defined in
Section 409A of the Code.
(b) Executive shall not be required to mitigate the amount
of any payment provided for in this Section 7 by
seeking other employment or otherwise. Unless
otherwise agreed to in writing, the amount of payment
or the benefit provided for in this Section 7 shall
not be reduced by any compensation earned by Executive
as the result of employment by another employer or by
reason of Executive's receipt of or right to receive
any retirement or other benefits after the date of
termination of employment or otherwise.
8. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT ABSENT CHANGE
IN CONTROL.
(a) In the event that Executive's employment is
involuntarily terminated by Parent and/or Parent Bank
without Cause and no Change in Control shall have
occurred at the date of such termination, Parent and
Parent Bank shall pay Executive an amount equal to
$14,208 times the number of full months remaining
under this Agreement plus an additional $150,000,
minus appropriate federal, state and local tax
withholdings. In the event that Executive receives a
payment under this Section 8, Executive shall not be
entitled to any other payment under any other section
of this Agreement nor shall he be entitled to any
payment under the Consulting Agreement.
82
EXECUTION COPY
Notwithstanding any other provision, in the event that
Executive is determined to be a key employee as that
term is defined in Section 409A of the Code, no
payment that is determined to be deferred compensation
subject to Section 409A of the Code shall be made
until one day following six (6) months from the date
of separation of service as that term is defined in
Section 409A of the Code.
(b) Executive shall not be required to mitigate the amount
of any payment provided for in this Section 8 by
seeking other employment or otherwise. Unless
otherwise agreed to in writing, the amount of payment
or the benefit provided for in this Section 8 shall
not be reduced by any compensation earned by Executive
as the result of employment by another employer or by
reason of Executive's receipt of or right to receive
any retirement or other benefits after the date of
termination of employment or otherwise.
9. COVENANT NOT TO COMPETE.
(a) Executive hereby acknowledges and recognizes the
highly competitive nature of the business of Parent
and Parent Bank and accordingly agrees that, during
and for the applicable period set forth in Section
9(c) hereof, Executive shall not, except as otherwise
permitted in writing by the Parent and the Parent
Bank:
(i) be engaged, directly or indirectly, either for
his own account or as agent, consultant, employee,
partner, officer, director, proprietor, investor
(except as an investor owning less than 5% of the
stock of a publicly owned company) or otherwise of any
person, firm, corporation or enterprise engaged in (1)
the banking (including bank holding company) or
financial services industry, or (2) any other activity
in which Parent or Parent Bank or any of their
subsidiaries are engaged during the Employment Period,
in any county and contiguous county in which, at the
date of termination of the Executive's employment, a
branch location, office, loan production office, or
trust or asset and wealth management office of Parent,
Parent Bank, Pocono or any of their subsidiaries are
located ("Non Competition Area");
(ii) provide financial or other assistance to any
person, firm, corporation, or enterprise engaged in
(1) the banking (including bank holding company) or
financial services industry, or (2) any other activity
in which Parent, Parent Bank, Pocono or any of their
subsidiaries are engaged during the Employment Period,
in the Non Competition Area;
83
EXECUTION COPY
(iii) directly or indirectly solicit persons or
entities who were customers or referral sources of
Parent, Parent Bank, Pocono or their subsidiaries, to
become a customer or referral source of a person or
entity other than Parent, Parent Bank or their
subsidiaries; or
(iv) directly or indirectly solicit employees of
Parent, Parent Bank, Pocono or their subsidiaries who
were employed within two (2) years of Executive's
termination of employment to work for anyone other
than Parent, Parent Bank or their subsidiaries.
(b) It is expressly understood and agreed that, although
Executive and Parent and Parent Bank consider the
restrictions contained in Section 9(a) hereof
reasonable for the purpose of preserving for Parent
and Parent Bank and their subsidiaries their good will
and other proprietary rights, if a final judicial
determination is made by a court having jurisdiction
that the time or territory or any other restriction
contained in Section 9(a) hereof is an unreasonable or
otherwise unenforceable restriction against Executive,
the provisions of Section 9(a) hereof shall not be
rendered void but shall be deemed amended to apply as
to such maximum time and territory and to such other
extent as such court may judicially determine or
indicate to be reasonable.
(c) The provisions of this Section 9 shall be applicable,
commencing on the date of this Agreement and ending on
the third anniversary of the Effective Date.
10. UNAUTHORIZED DISCLOSURE. During the term of his employment
hereunder, or at any later time, the Executive shall not,
without the written consent of the Boards of Directors of Parent
and Parent Bank or a person authorized thereby, knowingly
disclose to any person, other than an employee of Parent or
Parent Bank or a person to whom disclosure is reasonably
necessary or appropriate in connection with the performance by
the Executive of his duties as an executive of Parent and Parent
Bank, any material confidential information obtained by him
while in the employ of Parent and Parent Bank with respect to
any of Parent's and Parent Bank's services, products,
improvements, formulas, designs or styles, processes, customers,
methods of business or any business practices the disclosure of
which could be or will be damaging to Parent or Parent Bank;
provided, however, that confidential information shall not
include any information known generally to the public (other
than as a result of unauthorized disclosure by the Executive or
any person with the assistance, consent or direction of the
Executive) or any information of a type not otherwise considered
confidential by persons engaged in the same business or a
business similar to that conducted by Parent and Parent Bank or
any information that must be disclosed as required by law.
84
EXECUTION COPY
11. WORK MADE FOR HIRE. Any work performed by the Executive
under this Agreement should be considered a "Work Made for Hire"
as the phrase is defined by the U.S. patent laws and shall be
owned by and for the express benefit of Parent, Parent Bank and
their subsidiaries and affiliates. In the event it should be
established that such work does not qualify as a Work Made for
Hire, the Executive agrees to and does hereby assign to Parent,
Parent Bank, and their affiliates and subsidiaries, all of his
rights, title, and/or interest in such work product, including,
but not limited to, all copyrights, patents, trademarks, and
propriety rights.
12. RETURN OF COMPANY PROPERTY AND DOCUMENTS. The Executive
agrees that, at the time of termination of his employment,
regardless of the reason for termination, he will deliver to
Parent, Parent Bank and their subsidiaries and affiliates, any
and all company property, including, but not limited to, keys,
security codes or passes, mobile telephones, records, data,
notes, reports, proposals, lists, correspondence,
specifications, drawings, blueprints, sketches, software
programs, equipment, other documents or property, or
reproductions of any of the aforementioned items developed or
obtained by the Executive during the course of his employment.
13. LIABILITY INSURANCE. Parent and Parent Bank shall obtain
liability insurance coverage for the Executive under an
insurance policy with similar terms as that which is currently
covering officers and directors of Parent and Parent Bank
against lawsuits, arbitrations or other legal or regulatory
proceedings.
14. NOTICES. Except as otherwise provided in this Agreement,
any notice required or permitted to be given under this
Agreement shall be deemed properly given if in writing and if
mailed by registered or certified mail, postage prepaid with
return receipt requested, to Executive's residence, in the case
of notices to Executive, and to the principal executive offices
of Parent and Parent Bank, in the case of notices to Parent and
Parent Bank.
15. WAIVER. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Executive and an
executive officer specifically designated by the Boards of
Directors of Parent and Parent Bank. No waiver by either party
hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time.
16. ASSIGNMENT. This Agreement shall not be assignable by any
party, except by Parent and Parent Bank to any successor in
interest to their respective businesses.
17. ENTIRE AGREEMENT. This Agreement supersedes any and all
agreements, either oral or in writing, between the parties with
respect to the employment of the Executive by the Parent Bank
85
EXECUTION COPY
and/or Parent and this Agreement contains all the covenants and
agreements between the parties with respect to employment.
18. SUCCESSORS; BINDING AGREEMENT.
(a) Parent and Parent Bank will require any successor
(whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially
all of the businesses and/or assets of Parent and
Parent Bank to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that Parent and Parent Bank would be required
to perform it if no such succession had taken place.
Failure by Parent and Parent Bank to obtain such
assumption and agreement prior to the effectiveness of
any such succession shall constitute a breach of this
Agreement and the provisions of Section 7 of this
Agreement shall apply. As used in this Agreement,
"Parent" and "Parent Bank" shall mean Parent and
Parent Bank, as defined previously and any successor
to their respective businesses and/or assets as
aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal
representatives, executors, administrators, heirs,
distributees, devisees and legatees. If Executive
should die after a Notice of Termination is delivered
by Executive, or following termination of Executive's
employment without Cause, and any amounts would be
payable to Executive under this Agreement if Executive
had continued to live, all such amounts shall be paid
in accordance with the terms of this Agreement to
Executive's devisee, legatee, or other designee, or,
if there is no such designee, to Executive's estate.
19. ARBITRATION. Parent, Parent Bank and Executive recognize
that in the event a dispute should arise between them
concerning the interpretation or implementation of this
Agreement, lengthy and expensive litigation will not afford
a practical resolution of the issues within a reasonable
period of time. Consequently, each party agrees that all
disputes, disagreements and questions of interpretation
concerning this Agreement (except for any enforcement
sought with respect to Sections 9, 10, 11 or 12 which may
be litigated in court, including an action for injunction
or other relief) are to be submitted for resolution, in
Berwick, Pennsylvania, to the American Arbitration
Association (the "Association") in accordance with the
Association's National Rules for the Resolution of
Employment Disputes or other applicable rules then in
effect ("Rules"). Parent, Parent Bank or Executive may
initiate an arbitration proceeding at any time by giving
notice to the other in accordance with the Rules. Parent,
Parent Bank and Executive may, as a matter of right,
mutually agree on the appointment of a particular
arbitrator from the Association's pool. The arbitrator
shall not be bound by the rules of evidence and procedure
of the courts of the Commonwealth of Pennsylvania but shall
be bound by the substantive law applicable to this
86
EXECUTION COPY
Agreement. The decision of the arbitrator, absent fraud,
duress, incompetence or gross and obvious error of fact,
shall be final and binding upon the parties and shall be
enforceable in courts of proper jurisdiction. Following
written notice of a request for arbitration, Parent, Parent
Bank and Executive shall be entitled to an injunction
restraining all further proceedings in any pending or
subsequently filed litigation concerning this Agreement,
except as otherwise provided herein or any enforcement
sought with respect to Sections 9, 10, 11 or 12 of this
Agreement, including an action for injunction or other
relief.
20. VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity
or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
21. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the domestic, internal laws of
the Commonwealth of Pennsylvania, without regard to its
conflicts of laws principles.
22. HEADINGS. The section headings of this Agreement are for
convenience only and shall not control or affect the
meaning or construction or limit the scope or intent of any
of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
ATTEST: FIRST KEYSTONE CORPORATION
______________________ By________________________
J. Xxxxxx Xxxxxxxx
President and Chief
Executive Officer
FIRST KEYSTONE NATIONAL BANK
______________________ By___________________________
J. Xxxxxx Xxxxxxxx
President and Chief
Executive Officer
WITNESS: EXECUTIVE
______________________ _____________________________
Xxxx X. Xxxxxxx
00
EXECUTION COPY
ANNEX C
_______
CONSULTING AGREEMENT
____________________
THIS AGREEMENT is made as of the 10th day of May, 2007,
between FIRST KEYSTONE CORPORATION ("Parent"), a Pennsylvania
business corporation, FIRST KEYSTONE NATIONAL BANK ("Parent
Bank"), a national banking association and Xxxx X. Xxxxxxx
("Consultant"), an individual residing in Pennsylvania.
WITNESSETH:
___________
WHEREAS, Parent is a registered bank holding company;
WHEREAS, Parent Bank is a subsidiary of the Parent;
WHEREAS, Parent, Parent Bank, and Pocono Community Bank
("Pocono"), entered into an Agreement and Plan of Merger dated
May 10, 2007 ("Merger Agreement"), wherein Pocono will merge
into Parent Bank;
WHEREAS, Consultant is the President and Chief Executive
Officer of Pocono;
WHEREAS, Parent, Parent Bank and Consultant entered into an
employment agreement dated May 10, 2007 ("Employment Agreement")
for a one year period commencing on the Effective Date (as
defined in the Merger Agreement) and terminating one year later
("Employment Term");
WHEREAS, as inducement for Parent and Parent Bank to enter
into the Merger Agreement, Consultant has agreed to further
assist with the integration of Pocono into Parent Bank by acting
as a consultant to Parent and Parent Bank for a one year period
commencing on the first anniversary date of the Effective Date
and terminating one year later;
WHEREAS, contingent upon Consultant's employment not being
terminated by any party prior to the expiration of the
Employment Term and provided that Consultant does not receive
any payments under Sections 4(c), 4(d), 7 or 8 of the Employment
Agreement, Parent and Parent Bank desire to retain Consultant to
serve in the capacity of consultant under the terms and
conditions set forth herein;
WHEREAS, Consultant desires to serve the Parent and Parent
Bank under the terms and conditions set forth herein;
88
EXECUTION COPY
AGREEMENT:
__________
NOW, THEREFORE, the parties hereto, intending to be legally
bound, agree as follows:
1. CONSULTANT RELATIONSHIP. Parent and Parent Bank hereby
engage Consultant and Consultant hereby agrees to serve
Parent and Parent Bank, under the terms and conditions set
forth in this Agreement.
2. DUTIES OF CONSULTANT. Consultant shall perform and
discharge well and faithfully such duties as consultant as
necessary. Consultant agrees to be available at least ten
(10) days per month, or such other amount of time which the
parties mutually agree, to assist Parent and Parent Bank
with the operations and continued integration of Pocono
into Parent Bank.
3. TERM OF AGREEMENT. Provided that Consultant has fully
completed the Employment Term of the Employment Agreement
and has not received a payment under Sections 4(c), 4(d),
7, or 8 of the Employment Agreement, this Agreement shall
commence on the first anniversary of the Effective Date (as
defined in the Merger Agreement) and end one year later
("Consulting Term"). In the event Parent or Parent Bank
terminates this Agreement prior to the expiration of the
Consulting Term, Consultant shall be entitled to the
remainder of the compensation due under Section 4 of this
Agreement unless such termination is a result of
Consultant's violation of the unauthorized disclosure
provisions of this Agreement (Section 5) or a violation of
the covenant not to compete provisions of this Agreement
(Section 6).
4. COMPENSATION. Parent and Parent Bank shall pay Consultant
$150,000 for his services under this Agreement, payable in
bi weekly installments.
5. UNAUTHORIZED DISCLOSURE. During the Consulting Term, or at
any later time, the Consultant shall not, without the
written consent of the President and Chief Executive
Officer of the Parent and Parent Bank or a person
authorized thereby, knowingly disclose to any person, other
than an employee of Parent or Parent Bank or a person to
whom disclosure is reasonably necessary or appropriate in
connection with the performance by the Consultant of his
duties, any material confidential information obtained by
him while performing services for the Parent and Parent
Bank with respect to any of Parent's and Parent Bank's
services, products, improvements, formulas, designs or
styles, processes, customers, methods of business or any
business practices the disclosure of which could be or will
be damaging to Parent or Parent Bank; provided, however,
that confidential information shall not include any
information known generally to the public (other than as a
result of unauthorized disclosure by the Consultant or any
person with the assistance, consent or direction of the
Consultant) or any information of a type not otherwise
considered confidential by persons engaged in the same
89
EXECUTION COPY
business or a business similar to that conducted by Parent
and Parent Bank or any information that must be disclosed
as required by law.
6. COVENANT NOT TO COMPETE.
(a) Consultant hereby acknowledges and recognizes the
highly competitive nature of the business of Parent
and Parent Bank and accordingly agrees that, during
and for the applicable period set forth in Section
6(c) hereof, Consultant shall not, except as otherwise
permitted in writing by the Parent and the Parent
Bank:
(i) be engaged, directly or indirectly, either for
his own account or as agent, consultant, employee,
partner, officer, director, proprietor, investor
(except as an investor owning less than 5% of the
stock of a publicly owned company) or otherwise of any
person, firm, corporation or enterprise engaged in (1)
the banking (including bank holding company) or
financial services industry, or (2) any other activity
in which Parent or Parent Bank or any of their
subsidiaries are engaged during the Consulting Term,
in any county and contiguous county in which, during
the Consulting Term, a branch location, office, loan
production office, or trust or asset and wealth
management office of Parent, Parent Bank, Pocono or
any of their subsidiaries are located ("Non
Competition Area");
(ii) provide financial or other assistance to any
person, firm, corporation, or enterprise engaged in
(1) the banking (including bank holding company) or
financial services industry, or (2) any other activity
in which Parent, Parent Bank, Pocono or any of their
subsidiaries are engaged during the Consulting Term,
in the Non Competition Area;
(iii) directly or indirectly solicit persons or
entities who were customers or referral sources of
Parent, Parent Bank, Pocono, or their subsidiaries to
become a customer or referral source of a person or
entity other than Parent, Parent Bank or their
subsidiaries; or
(iv) directly or indirectly solicit employees of
Parent, Parent Bank, Pocono or their subsidiaries who
were employed within three (3) years of the expiration
of the Consulting Term to work for anyone other than
Parent, Parent Bank or their subsidiaries.
(b) It is expressly understood and agreed that, although
Consultant and Parent and Parent Bank consider the
restrictions contained in Section 6(a) hereof
reasonable for the purpose of preserving for Parent
90
EXECUTION COPY
and Parent Bank and their subsidiaries their good will
and other proprietary rights, if a final judicial
determination is made by a court having jurisdiction
that the time or territory or any other restriction
contained in Section 6(a) hereof is an unreasonable or
otherwise unenforceable restriction against
Consultant, the provisions of Section 6(a) hereof
shall not be rendered void but shall be deemed amended
to apply as to such maximum time and territory and to
such other extent as such court may judicially
determine or indicate to be reasonable.
(c) The provisions of this Section 6 shall be applicable,
commencing on the date of this Agreement and ending on
the third anniversary of the Effective Date.
7. WORK MADE FOR HIRE. Any work performed by the Consultant
under this Agreement should be considered a "Work Made for
Hire" as the phrase is defined by the U.S. patent laws and
shall be owned by and for the express benefit of Parent,
Parent Bank and their subsidiaries and affiliates. In the
event it should be established that such work does not
qualify as a Work Made for Hire, Consultant agrees to and
does hereby assign to Parent, Parent Bank, and their
affiliates and subsidiaries, all of his rights, title,
and/or interest in such work product, including, but not
limited to, all copyrights, patents, trademarks, and
propriety rights.
8. RETURN OF COMPANY PROPERTY AND DOCUMENTS. Consultant
agrees that, at the time of termination of this Agreement,
regardless of the reason for termination, he will deliver
to Parent, Parent Bank and their subsidiaries and
affiliates, any and all company property, including, but
not limited to, keys, security codes or passes, mobile
telephones, records, data, notes, reports, proposals,
lists, correspondence, specifications, drawings,
blueprints, sketches, software programs, equipment, other
documents or property, or reproductions of any of the
aforementioned items developed or obtained by the
Consultant during the course of this Agreement.
9. NOTICES. Except as otherwise provided in this Agreement,
any notice required or permitted to be given under this
Agreement shall be deemed properly given if in writing and
if mailed by registered or certified mail, postage prepaid
with return receipt requested, to Consultant's residence,
in the case of notices to Consultant, and to the principal
executive offices of Parent and Parent Bank, in the case of
notices to Parent and Parent Bank.
10. WAIVER. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Consultant
and the President and Chief Executive Officer of the Parent
Bank. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with,
any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time.
91
EXECUTION COPY
11. ASSIGNMENT. This Agreement shall not be assignable by any
party, except by Parent and Parent Bank to any successor in
interest to their respective businesses.
12. ENTIRE AGREEMENT. This Agreement supersedes any and all
agreements, either oral or in writing, between the parties
regarding Consultant's consulting services and contains all
the covenants and agreements between the parties with
respect to the consulting arrangement.
13. VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity
or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
14. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the domestic, internal laws of
the Commonwealth of Pennsylvania, without regard to its
conflicts of laws principles.
15. HEADINGS. The section headings of this Agreement are for
convenience only and shall not control or affect the
meaning or construction or limit the scope or intent of any
of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
ATTEST: FIRST KEYSTONE CORPORATION
______________________ By _________________________
J. Xxxxxx Xxxxxxxx
President and Chief
Executive Officer
FIRST KEYSTONE NATIONAL BANK
______________________ By _________________________
J. Xxxxxx Xxxxxxxx
President and Chief
Executive Officer
WITNESS: CONSULTANT
______________________ _____________________________
Xxxx X. Xxxxxxx
00
EXECUTION COPY
ANNEX D
_______
____________, 2007
First Keystone Corporation
00 Xxxx Xxxxx Xxxxxx
Xxxxxxx, XX 00000
Ladies and Gentlemen:
I have been advised that I may be deemed an "affiliate" of
Pocono Community Bank, a Pennsylvania banking institution
("Pocono"), as "affiliate" is defined in Rule 144 and used in
Rule 145 promulgated by the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act"). I understand that pursuant to the terms of
the Agreement and Plan of Merger, dated as of _______________
(the "Agreement"), among First Keystone Corporation, a
Pennsylvania corporation ("Parent"), First Keystone National
Bank ("Parent Bank") and Pocono, Pocono plans to merge with and
into Parent Bank (the "Merger").
I further understand that as a result of the Merger, I will
be entitled to receive shares of common stock, par value $2.00
per share, of Parent ("Parent Common Stock") in exchange for
shares of common stock, par value $2.50 per share, of Pocono
("Pocono Common Stock").
I have carefully read this letter and reviewed the
Agreement, discussed its requirements and other applicable
limitations upon my ability to sell, transfer or otherwise
dispose of Parent Common Stock, to the extent I felt necessary,
with my counsel or counsel for Pocono.
I represent, warrant and covenant with and to Parent with
respect to the shares of Parent Common Stock I receive as a
result of the Merger:
I shall not make any sale, transfer or other disposition of
such shares of Parent Common Stock unless (i) such sale,
transfer or other disposition has been registered under the
Securities Act, (ii) such sale, transfer or other disposition is
made in conformity with the provisions of Rule 145 under the
Securities Act or (iii) in the opinion of counsel in form and
substance reasonably satisfactory to Parent or under a "no
action" letter obtained by me from the staff of the SEC, such
sale, transfer or other disposition will not violate the
registration requirements of, or is otherwise exempt from
registration under, the Securities Act.
93
EXECUTION COPY
First Keystone Corporation
Page 2
____________, 2007
I understand that Parent is under no obligation to register
the sale, transfer or other disposition of shares of Parent
Common Stock by me or on my behalf under the Securities Act or
to take any other action necessary in order to make compliance
with an exemption from such registration available.
I understand that stop transfer instructions will be given
to Parent's transfer agent with respect to shares of Parent
Common Stock issued to me as a result of the Merger and that
there will be placed on the certificates for such shares, or any
substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were
issued as a result of the merger of Pocono Community
Bank with and into First Keystone Corporation, on
_________, 2007 in a transaction to which Rule 145
promulgated under the Securities Act of 1933 applies.
The shares represented by this certificate may be
transferred only in accordance with the terms of a
letter agreement between the registered holder hereof
and First Keystone Corporation, a copy of which
agreement is on file at the principal offices of
First Keystone Corporation."
I understand that, unless transfer by me of the Parent
Common Stock issued to me as a result of the Merger has been
registered under the Securities Act or such transfer is made in
conformity with the provisions of Rule 145(d) under the
Securities Act, Parent reserves the right, in its sole
discretion, to place the following legend on the certificates
issued to my transferee.
"The shares represented by this certificate have not
been registered under the Securities Act of 1933 and
were acquired from [SHAREHOLDER] who, in turn,
received such shares as a result of the merger of
Pocono Community Bank with and into First Keystone
Corporation on ___________, 2007 in a transaction to
which Rule 145 under the Securities Act of 1933
applies. The shares have been acquired by the holder
not with a view to, or for resale in connection with,
any distribution thereof within the meaning of the
Securities Act of 1933 and may not be offered, sold,
pledged or
94
EXECUTION COPY
First Keystone Corporation
Page 3
______________, 2007
otherwise transferred except in accordance with an
exemption from the registration requirements of the
Securities Act of 1933."
It is understood and agreed that the legends set forth
above shall be removed by delivery of substitute certificates
without such legends if I shall have delivered to Parent (i) a
copy of a "no action" letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory
to Parent, to the effect that such legend is not required for
purposes of the Securities Act, or (ii) evidence or
representations satisfactory to Parent that the Parent Common
Stock represented by such certificates is being or has been sold
in conformity with the provisions of Rule 145(d).
I further understand and agree that the provisions of Rule
145 shall apply to all shares of Parent Common Stock that (i) my
spouse, (ii) any relative of mine or my spouse occupying my
home, (iii) any trust or estate in which I, my spouse or any
such relative owns at least a 10% beneficial interest or of
which any of us serves as trustee, executor or in any similar
capacity and (iv) any corporation or other organization in which
I, my spouse or any such relative owns at least 10% of any class
of equity securities or of the equity interest, receives as a
result of the Merger and I further represent, warrant and
covenant with and to Parent that I will have, and will cause
each of such persons to have, all shares of Pocono Common Stock
owned, other than shares held through tax qualified retirement
or benefit plans, by me or such persons registered in my name or
the name of such persons, as applicable, prior to the effective
date of the Merger and not in the name of any bank, broker or
dealer, nominee or clearing house.
By acceptance hereof, Parent agrees, for a period of one
year after the Effective Time (as defined in the Agreement)
that, so long as it is obligated to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, it will use its reasonable best efforts to timely file
such reports so that the public information requirements of Rule
144(c) promulgated under the Securities Act are satisfied and
the resale provisions of Rule 145(d)(1) and (2) are therefor
available to me in the event I desire to transfer any Parent
Common Stock issued to me in the Merger.
It is understood and agreed that this letter shall
terminate and be of no further force and effect if the Agreement
is terminated in accordance with its terms.
95
EXECUTION COPY
First Keystone Corporation
Page 4
__________, 2007
Execution of this letter should not be construed as an
admission on my part that I am an "affiliate" of Pocono as
described in the first paragraph of this letter or as a waiver
of any rights I might have to object to any claim that I am such
an affiliate on or after the date of this letter.
Very truly yours,
________________________
Name:
Acknowledged this ______ day of ____________, 2007.
FIRST KEYSTONE CORPORATION
By:
[name]
[title]
96
EXECUTION COPY
ANNEX E
_______
FORM OF VOTING AGREEMENT
____________, 2007
Pocono Community Bank
000 Xxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
First Keystone Corporation
000 Xxxx Xxxxx Xxxxxx
Xxxxxxx, XX 00000
Ladies and Gentlemen:
First Keystone Corporation ("Parent"), First Keystone
National Bank ("Parent Bank") and Pocono Community Bank
("Pocono") have entered into an Agreement and Plan of Merger
dated as of May _____, 2007 (the "Agreement") whereby Pocono
will merge with and into Parent Bank (the "Merger") and
shareholders of Pocono will receive shares of Parent common
stock or cash or a combination of such stock and cash equal to
$16.10 for each share of Pocono common stock owned on the
closing date of the Merger. All defined terms used but not
defined herein shall have the meanings ascribed thereto in the
Agreement.
A condition to Parent's obligations under the Agreement is
that I execute and deliver this Letter Agreement to Parent.
Intending to be legally bound hereby, I irrevocably agree
and represent as follows:
(a) I agree to vote or cause to be voted for approval
and adoption of the Agreement and the transactions contemplated
thereby and for a one (1) year extension of the final exercise
date for Pocono Warrants at the Pocono shareholder meeting all
shares of Pocono common stock over which I have or share voting
power, individually or, to the extent of my proportionate
interest, jointly with other persons, and will use my reasonable
best efforts to cause any shares of Pocono common stock over
which I share voting power to be voted for approval and adoption
of the Agreement and the transactions contemplated thereby.
Beneficial ownership shall have the meaning assigned to it under
the Securities Exchange Act of 1934. I agree to vote all shares
for which I am a Trustee of a voting trust for approval and
adoption of the Agreement and the transactions contemplated
thereby.
(b) I agree not to offer, sell, transfer or otherwise
dispose of, or to permit the offer, sale, transfer or other
disposition of, any shares of Pocono common stock over which I
have sole or shared voting power and beneficial ownership,
except to the extent
97
EXECUTION COPY
Pocono Community Bank
First Keystone Corporation
Page 2
____________, 2007
that I may be permitted under law to make charitable gifts or as
permitted by paragraph (g) hereof.
(c) I have sole or shared beneficial ownership over
the number of shares of Pocono common stock, and hold stock
options for the number of shares of Pocono common stock, if any,
set forth below opposite my name below.
(d) I agree that Pocono shall not be bound by any
attempted sale of any shares of Pocono common stock over which I
have sole voting power, and Pocono's transfer agent shall be
given appropriate stop transfer orders and shall not be required
to register any such attempted sale, unless the sale has been
effected in compliance with the terms of this Letter Agreement.
(e) I agree that, I shall not exercise any options to
purchase common stock or any warrants to purchase common stock
after the date hereof provided, however, that if (i) the
shareholders of Pocono do not approve a one (1) year extension
of the final exercise date for the Pocono Warrants at the Pocono
shareholders meeting to be held to approve the Agreement, and
(ii) the Effective Date, as defined in the Agreement, is
selected to be on or after November 9, 2007, then I shall have
the right to exercise any warrants to purchase Pocono common
stock.
(f) I represent that I have the capacity to enter into
this Letter Agreement and that it is a valid and binding
obligation enforceable against me in accordance with its terms,
subject to bankruptcy, insolvency and other laws affecting
creditors' rights and general equitable principles.
(g) I may transfer any or all of the shares of Pocono
common stock over which I have sole or shared beneficial
ownership to my spouse, ancestors or descendants; provided,
however, that in any such case, prior to and as a condition to
the effectiveness of such transfer, each person to which any of
such shares or any interest in any of such shares is or may be
transferred shall have executed and delivered to Parent an
agreement to be bound by the terms of this Letter Agreement. In
addition, I may sell, transfer or assign shares of Pocono common
stock to the extent and on behalf of trusts or estates of which
I am not a beneficiary in order to comply with fiduciary
obligations or legal requirements, except for shares held in a
voting trust.
I am signing this Letter Agreement solely in my
capacity as a shareholder of Pocono, and as an optionholder
and/or warrantholder if I am an optionholder and/or warrant
holder,
98
EXECUTION COPY
Pocono Community Bank
First Keystone Corporation
Page 3
______________, 2007
and not in any other capacity, such as a director or officer of
Pocono or as a fiduciary of any trusts in which I am not a
beneficiary, except for voting trusts. Notwithstanding anything
herein to the contrary: (a) I make no agreement or understanding
herein in any capacity other than in my capacity as a beneficial
owner of Pocono common stock and (b) nothing herein shall be
construed to limit or affect any action or inaction by me or any
of my representatives, as applicable, serving on Pocono's Board
of Directors or as an officer of Pocono, acting in my capacity
as a director, officer or fiduciary of Pocono or as fiduciary of
any trust of which I am not a beneficiary, except for voting
trusts.
This Letter Agreement shall be effective upon acceptance by
Parent.
This Letter Agreement shall terminate and be of no further
force and effect concurrently with, and automatically upon, the
earlier to occur of (a) the consummation of the Merger, (b)
April 30, 2008 and (c) any termination of the Agreement in
accordance with its terms, except that any such termination
shall be without prejudice to Parent's rights arising out of my
willful breach of any covenant or representation contained
herein.
Very truly yours,
[Name]
Number of Shares, and Shares Subject to Stock Options, Held:
Shares:
______
[ shares held individually]
Options:
_______
Acknowledged and Agreed:
POCONO COMMUNITY BANK
By: ______________________
Xxxx X. Xxxxxxx
President
99
EXECUTION COPY
Pocono Community Bank
First Keystone Corporation
Page 4
_______________, 2007
FIRST KEYSTONE CORPORATION
By: _______________________
J. Xxxxxx Xxxxxxxx
Chief Executive Officer
100
EXECUTION COPY
ANNEX F
_______
FORM OF NON-COMPETITION AND NON-SOLICITATION AGREEMENT
This Non-Competition and Non-Solicitation Agreement (this
"Agreement") is entered into as of this____ day of ________,
2007, by and between First Keystone Corporation ("Parent") and
undersigned director (the "Director") of Pocono Community Bank
("Pocono").
WHEREAS, Parent contemplates the consummation of a merger
(the "Merger") pursuant to an Agreement and Plan of Merger dated
as of _______________, 2007 by and between Parent and Pocono
(the "Merger Agreement"); and
WHEREAS, the Director is a well respected business person
in the Monroe County business community and counties contiguous
thereto and acknowledges that his or her position with Pocono
gives Pocono significant presence in that community and is an
important factor in Pocono's ability to attract customers; and
WHEREAS, as a condition to Parent's willingness to enter
into the Merger Agreement, Parent wants to protect Pocono's
community relationships by requiring that the Director execute
this Agreement;
NOW, THEREFOR, in consideration of the premises and
covenants contained in this Agreement and intending to be
legally bound hereby, the parties agree as follows:
1. Term.
This Agreement will commence on the Effective Date of the
Merger as defined in the Merger Agreement and end on the second
anniversary of such date (the "Term").
2. Non-Competition.
(a) For purposes of this Agreement, the term "Competitive
Enterprise" means any bank holding company or insured
depository institution, including an institution in the
organizational stage or in the process of applying for or
receiving appropriate regulatory approval, including,
without limitation, any federal or state chartered bank,
savings bank or savings and loan association.
(b) During the Term, the Director shall not:
(i) accept a position as director or employee of any
Competitive Enterprise that is located in Monroe
County and counties contiguous thereto during the
Term.
(ii) directly or indirectly acquire an ownership
interest in a Competitive Enterprise that enables the
101
EXECUTION COPY
Director to, directly or indirectly, in a substantial
manner, control, direct, influence, affect for impact
the operations, services or business activities of the
Competitive Enterprise in Monroe County and counties
contiguous thereto during the Term, provided, however,
that this restriction shall not apply to the direct or
indirect beneficial ownership of up to Three Percent
(3%) of a class of securities of a Competitive
Enterprise, so long as the Director is not a director
or office of such Competitive Enterprise.
3. Non-Solicitation.
During the Term, the Director shall not:
(a) Directly or indirectly, for the purpose of selling any
product or service that competes with a product or service
offered by Pocono or its present subsidiaries or
affiliates, solicit, divert, or entice any customer of
Pocono to transfer such business to a Competitive
Enterprise. Provided, however, that any business activity
or business pursuit that is currently undertaken or
provided by a director or his or her controlled entities or
affiliates shall not be deemed a Competitive Enterprise or
a violation of this Agreement. In addition, this Agreement
shall not prohibit a director or his or her controlled
entities or affiliates from providing any service or
product that he or she or his or her controlled entities or
affiliates has provided prior to the date hereof or that
may be provided in the future as part of the Director's or
his or her controlled entities' or affiliates' historical
business pursuits.
(b) Employ or assist in employing any present employee of
Pocono or its subsidiaries to perform services for any
Competitive Enterprise.
(c) Directly or indirectly, make any oral or written
statement, comments or other communications that impugns or
is intended to impugn, disparage or otherwise malign the
reputation, ethics, competency, morality or qualifications
of Pocono or Parent or any of their current or former
directors, officers, employees or customers.
4. Confidentiality.
(a) For purposes of this Agreement, "Proprietary
Information" shall mean any information relating to the
business of Pocono or any of its present subsidiaries that
has not previously been publicly released by Pocono or
their representatives, and shall include, but shall not be
limited to, information encompassed in all marketing and
business plans, financial information, fees, pricing
information, customer and client lists and relationships
between Pocono and its customers and clients and others who
have business dealings with Pocono.
(b) The Director agrees to maintain the confidentiality of
all Proprietary Information that has been disclosed to the
Director in the course of his service as a director of
102
EXECUTION COPY
Pocono, on or before the date of consummation of the
Merger. The Director shall not, without written
authorization from Parent, use for the Director's benefit
or purposes, nor disclose to others, at any time during the
Term, any Proprietary Information. This prohibition shall
not apply after the Proprietary Information has been
voluntarily disclosed to the public, independently
developed and disclosed by others, or otherwise enters the
public domain through lawful means.
5. Remedies.
In addition to any other rights and remedies Parent may
have if the Director violates this Agreement, the Director
agrees that a breach or threatened breach by the Director of his
or her covenants set out in Sections 2 and 3 of this Agreement
is likely to cause Pocono and Parent as its successor
irreparable injury and damage, and the Director hereby expressly
agrees that Pocono and Parent as its successor shall be entitled
to the remedies of injunction, specific performance and other
equitable relief to prevent a breach or threatened breach of
Sections 2 and 3 of this Agreement by the Director. This
provision shall not, however, be construed as a waiver of any of
the remedies which the Corporation may have for damages or
otherwise.
6. Successors, Assigns, Etc.
This Agreement shall be binding upon, and shall inure to
the benefit of, Parent and its successors and assigns.
7. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania,
without giving effect to its conflicts of laws principles.
IN WITNESS WHEREOF, Parent and the Director hereto have
executed this Agreement to be effective as of the Effective Date
of the Merger.
FIRST KEYSTONE CORPORATION
By: _________________________
J. Xxxxxx Xxxxxxxx
Chief Executive Officer
DIRECTOR
_____________________________
103
EXECUTION COPY
ANNEX G
_______
STOCK OPTION AND WARRANT CANCELLATION AGREEMENT
In connection with the Agreement and Plan of Merger, dated
as of May ___, 2007 (the "Merger Agreement"), among First
Keystone Corporation ("Parent"), First Keystone National Bank
("Parent Bank") and Pocono Community Bank ("Pocono"), under
which Pocono will merge with and into Parent Bank and pursuant
to Section 3.8 of the Merger Agreement by which Option
Consideration and Warrant Consideration will be paid, I hereby
agree that upon receipt by me of Option Consideration and/or
Warrant Consideration as provided in Section 3.8 of the Merger
Agreement (minus any applicable withholding taxes), for the
number of Pocono Options and/or Pocono Warrants I hold at the
Effective Time, any and all Pocono Options and/or all Pocono
Warrants between Pocono and me shall be cancelled, terminated,
and of no further force or effect as of the Effective Time.
Further, I hereby agree that upon receipt of the Option
Consideration and/or Warrant Consideration that I shall have no
right, and hereby expressly waive any rights, to Pocono Common
Stock, Parent Common Stock, the Exchange Ratio or the Price Per
Share as defined in the Merger Agreement.
The terms of this Agreement shall have the definitions and
meanings as provided in the Agreement.
IN WITNESS WHEREOF, in consideration of the parties
entering into the Merger Agreement, and intending to be legally
bound hereby I have executed this Agreement this ____day of May,
2007.
_____________________________
Name
Acknowledged and Agreed:
POCONO COMMUNITY BANK
By: ___________________
Xxxx X. Xxxxxxx,
President
FIRST KEYSTONE CORPORATION
By: ___________________
J. Xxxxxx Xxxxxxxx,
President and
Chief Executive Officer
104
EXECUTION COPY
ANNEX H
_______
POCONO OPTION AND WARRANT HOLDER
STANDSTILL AGREEMENT
I hereby agree not to exercise any Pocono Options, Pocono
Warrants or any other Rights to purchase Pocono Community Bank
Common Stock that I have, hold, own, acquire, control, or may
have beneficial or legal ownership of or rights over, from date
of this Agreement until the earlier of the termination of the
Agreement and Plan of Merger among First Keystone Corporation,
First Keystone National Bank, and Pocono Community Bank dated as
of May __, 2007 ("the Merger Agreement") or the day before the
expiration date of such Pocono Option, Pocono Warrant or Right
in accordance with its terms and as it may be amended.
I hereby agree to a one (1) year extension of the
expiration date of my Pocono Warrant to November 21, 2008,
subject to shareholder approval.
All capitalized terms used herein are the same as defined
in the Merger Agreement unless otherwise defined.
IN WITNESS WHEREOF, in consideration of the parties
entering into the Merger Agreement, and intending to be legally
bound hereby I have executed this Agreement this ____ day of
May, 2007.
_____________________________
Name
Acknowledged and Agreed:
POCONO COMMUNITY BANK
By: __________________
Xxxx X. Xxxxxxx,
President
FIRST KEYSTONE CORPORATION
By: __________________
J. Xxxxxx Xxxxxxxx,
President and
Chief Executive Officer
105
