MERGER AGREEMENT
THIS
MERGER AGREEMENT (“Agreement”) is made and entered into as of May 15, 2007, by
and among HARLEYSVILLE NATIONAL CORPORATION, a Pennsylvania corporation (“HNC”),
EAST PENN FINANCIAL CORPORATION, a Pennsylvania corporation (“East Penn
Financial”), and EAST PENN BANK, a Pennsylvania bank (“Bank”).
BACKGROUND
A.
East
Penn Financial is a registered bank holding company and the sole shareholder
of
Bank. East Penn Financial has approximately 2,751 shareholders of record as
of
the date hereof and its common stock is registered with the U.S. Securities
and
Exchange Commission.
B.
HNC,
East Penn Financial and Bank have each determined that it is advisable and
in
each of their respective best interests, and consistent with and in furtherance
of their respective business strategies and goals, that East Penn Financial
merge with and into HNC, with HNC as the surviving corporation, upon the terms
and subject to the conditions set forth herein (the “Merger”).
C.
Each
of the Parties, by signing this Agreement, adopts it as a plan of reorganization
as defined in IRC Section 368(a), and intends the Merger to be a reorganization
as defined in IRC Section 368(a).
D.
In
furtherance of this Agreement, the Boards of Directors of HNC, East Penn
Financial and Bank have each duly, as required by law, approved the execution
and delivery of this Agreement, and the Directors of East Penn Financial have
executed a directors support agreement in connection with this transaction
(“Director Support Agreement”).
NOW,
THEREFORE, in consideration of the mutual promises, covenants, representations,
warranties, and conditions and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and upon the terms
and
subject to the conditions set forth herein, the Parties, intending to be legally
bound hereby, do agree as follows:
ARTICLE
I
DEFINITIONS
Section
1.1 Definitions Whenever
used in this Agreement, the following terms, unless the context requires
otherwise, shall have the meanings specified below in this Article.
“Acquisition”
means
an acquisition of substantially all the assets of, or a stock acquisition
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction in which more than 50% of the voting common
stock interests or assets of, East Penn Financial or the Bank, on the one hand,
or HNC or HNB on the other hand is acquired by a third party then unaffiliated
with the company which is being acquired or whose assets are being
acquired.
“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 East Penn Financial, (x) direct
or
indirect acquisition or purchase of East Penn Financial 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 East Penn Financial’s Common Stock and such Person by reason
of such purchase or acquisition first becomes the owner of 10% or more of East
Penn Financial’s Common Stock after the date of this Agreement or the direct or
indirect acquisition or purchase of 5% or more of East Penn Financial’s Common
Stock after the date of this Agreement by a Person who on the date of this
Agreement owns 10% or more of East Penn Financial’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 East Penn
Financial or (z) merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving East Penn Financial
other than the transactions contemplated by this Agreement.
“Affiliate”
means
and includes, with respect to the entity in question: (i) any director or
executive officer of the entity in question, (ii) any owner of 5% of more of
any
class of voting securities or interests in such entity, and (iii) any Person
that (directly or indirectly) owns or controls, is owned or controlled by,
or is
under common ownership or control with, such entity.
“Agreement”
means
this Merger Agreement, as the same may from time to time be amended or
supplemented (as permitted by the terms of this Agreement) by one or more
instruments executed by all Parties hereto.
“Aggregate
Converted Share Cash”
has
the
meaning assigned to that term in Section 2.2(i).
“Applicable
Requirements”
means
and includes, as of the time of reference, all of the following: (i) all
material contractual obligations as set forth in the Agreement and any
Disclosure Schedules or exhibits thereto; (ii) all applicable material federal,
state and local laws and regulations (including without limitation, statutes,
rules and regulations) binding upon East Penn Financial, the Bank or any
Subsidiary; (iii) all other applicable material requirements of each federal,
state or local governmental agency, board, commission, instrumentality or other
governmental or quasi-governmental body or office; and (iv) all other applicable
material judicial and administrative judgments, orders, stipulations, awards,
writs and injunctions.
“Bank
Merger”
means
a
merger of Bank with and into HNB as described in the Bank Plan of
Merger.
“Bank
Plan of Merger”
means
a
Bank Plan of Merger in the form attached to this Agreement as Exhibit
1.1,
completed as indicated therein, with such additional provisions as shall be
mutually agreeable to the parties thereto, and executed by the Bank and
HNB.
“Bank
Common Stock”
means
the shares of common stock of the Bank, par value $0.625 per share, authorized
for issuance by the Bank.
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“Bank
Financial Statements”
shall
mean (i) the consolidated quarterly report of condition of the Bank as filed
with the Bank’s regulators as of any fiscal quarter end of the Bank, and (ii)
interim calendar month-end financial statements of the Bank and its
Subsidiaries, stated in the Bank’s customary format as of each interim calendar
month end.
“Bank
Share”
means
any share of the Bank Common Stock, and “Bank
Shares”
means
all of them collectively.
“Business
Day”
means
any day except for (i) a Saturday or Sunday, and (ii) any other day on which
banking institutions in the Commonwealth of Pennsylvania are required or
permitted by law or by executive order to be closed.
“Cash
Consideration”
has
the
meaning assigned to that term in Section 2.2.
“Cash
EPF Share Price”
has
the
meaning assigned to that term in Section 2.8.
“Charter”
shall
mean the articles of incorporation, certificate of incorporation, articles
of
association or equivalent charter document of East Penn Financial, the Bank,
a
Subsidiary or HNC, as applicable.
“Claim”
means
any pending or threatened claim, demand, dispute, litigation or proceeding,
whether asserted by one or more governmental or judicial agency or body or
one
or more private Persons.
“Closing”
shall
have the meaning ascribed in Section 2.1(c).
“Closing
Date”
means
the date on which Closing shall be held.
“Consent”
shall
mean any consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any Person other than a Regulatory
Authority, including but not limited to those (if any) referred to on
East
Penn Financial Disclosure Schedule 3.4
or
HNC
Disclosure Schedule 4.4.
“Converted
Option Shares”
means
the number of East Penn Financial Shares represented by the East Penn Financial
Options that are exercised between the date of this Agreement and prior to
the
Effective Time.
“Determination
Date”
means
the 11th Business Day prior to the Effective Time.
“East
Penn Financial Certificate” means
a
certificate that immediately prior to the Effective Time represented one or
more
issued and outstanding shares of East Penn Financial Common Stock.
“East
Penn Financial Common Stock”
has the
meaning assigned thereto in Section 3.2(a) of this Agreement.
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“East
Penn Financial Disclosure Schedule”
means
a
schedule attached hereto, setting forth exceptions to any of the
representations, warranties and covenants of East Penn Financial or the Bank
contained herein.
“East
Penn Financial Employment Agreements”
has the
meaning assigned thereto in Section 3.8(a).
“East
Penn Financial Employee Benefit Plans”
has the
meaning assigned thereto in Section 3.12(a).
“East
Penn Financial Equity Plan”
has
the
meaning assigned thereto in Section 3.13.
“East
Penn Financial ERISA Affiliate”
has the
meaning assigned thereto in Section 3.12(a).
“East
Penn Financial Option”
means
the
rights and interests represented by each of the East Penn Financial Stock
Options, which are convertible upon exercise into an aggregate of 203,248 East
Penn Financial Shares.
“East
Penn Financial Proxy Statement”
means
the Proxy Statement of East Penn Financial on Schedule 14A for its annual
meeting in 2007, as heretofore filed with the SEC.
“East
Penn Financial Securities Documents”
has the
meaning assigned thereto in Section 3.27.
“East
Penn Financial Share”
means
one
(1) share of East Penn Financial Common Stock.
“East
Penn Financial Shareholders Meeting”
has
the
meaning provided in Section 5.6(a) of this Agreement.
“East
Penn Financial Statements”
means
East Penn Financial’s Form 10-K and Annual Report, including the audited
consolidated financial statements of East Penn Financial as of December 31,
2006, as heretofore filed with the SEC.
“Effective
Time”
means
the effective date and time of the completion of the Merger, as determined
pursuant to Section 2.1(b), subject to the terms and conditions of, this
Agreement.
“Election
Form”
shall
have the meaning assigned thereto in Section 2.4(c)(i).
“Encumbrance”
shall
mean any claim, lien, pledge, option, encumbrance, security interest, charge,
right of first refusal, option, easement, security interest, deed of trust,
mortgage, right-of-way, encroachment, building or use restriction, conditional
sales agreement, restriction, restrictive covenant or other right of third
parties, whether voluntarily incurred or arising by operation of law, and
includes, without limitation, any agreement to give any of the foregoing in
the
future, and any contingent sale or other title retention agreement or lease
in
the nature thereof.
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“Environmental
Claim”
shall
mean any Claim alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on, or resulting from the presence, or
release into the environment, of any Hazardous Materials.
“Environmental
Laws”
shall
mean any federal, state or local law, statute, ordinance, rule, regulation,
code, license, permit, authorization approval, consent, order, judgment, decree,
injunction or agreement with any governmental entity relating to (i) the
protection, preservation or restoration of the environment (including air,
water
vapor, surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource), and/or
(ii) the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Materials. The term Environmental Law includes, without limitation, (i) the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. 9601, et seq.; the Resource Conservation and Recovery Act,
as
amended, 42 U.S.C. 6901, et seq.; the Clean Air Act, as amended, 42 U.S.C.
7401,
et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251,
et
seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. 9601, et seq.;
the
Emergency Planning and Community Right to Know Act, 42 U.S.C. 1101, et seq.;
the
Safe Drinking Xxxxx Xxx, 00 X.X.X. 000x, et seq.; and all comparable state
and
local laws, and (ii) any common law (including common law that may impose strict
liability) that may impose liability or obligations for injuries or damages
due
to, or threatened as a result of, the presence of or exposure to any Hazardous
Materials.
“ERISA”
means
the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations promulgated thereunder.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder.
“Exchange
Agent”
means
the agent designated by HNC (reasonably promptly following execution of this
Agreement) to act as the exchange agent for purposes of conducting the election
procedures and the exchange procedure described in Article II of this
Agreement.
“Exchange
Fund”
has the
meaning assigned to that term in Section 2.9(a).
“FDIC”
means
the Federal Deposit Insurance Corporation.
“FRB”
means
the Board of Governors of the Federal Reserve System.
“GAAP”
means
those generally accepted accounting principles and practices that are recognized
as such by the American Institute of Certified Public Accountants acting through
the Financial Accounting Standards Board or through other appropriate boards
or
committees thereof.
“Hazardous
Materials”
includes, without limitation, any flammable explosives, radioactive materials,
hazardous materials, asbestos, hazardous wastes, hazardous or toxic substances,
or other materials or substances regulated under the Environmental
Laws.
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“HMS”
means
Harleysville Management Services, LLC, an affiliate of HNC.
“HNB”
means
HNC’s wholly owned subsidiary, The Harleysville National Bank and Trust Company,
a national banking association.
“HNC
Benefit Plans”
has the
meaning assigned thereto in Section 4.13(a).
“HNC
Certificate”
has
the
meaning assigned thereto in Section 2.9(d).
“HNC
Common Stock”
means
the common stock, par value $1.00 per share, that HNC is presently authorized
to
issue, or the equivalent amount of any common stock of HNC or any successor
to
HNC for which HNC common stock may hereafter be exchanged or into which HNC
common stock may be converted.
“HNC
Disclosure Schedule”
means
a
schedule attached hereto setting forth exceptions to any of the representations,
warranties and covenants of HNC contained herein.
“HNC
ERISA Affiliate”
has the
meaning assigned thereto in Section 4.13(a).
“HNC
Group”
means
HNC and each of its subsidiaries, including without limitation HNB.
“HNC
Securities Documents”
has the
meaning assigned thereto in Section 4.20.
“HNC
Share”
means
one
(1) share of HNC Common Stock.
“IRC”
means
the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder.
“IRS”
means
the U.S. Internal Revenue Service.
“Material
Adverse Effect” means,
with respect to HNC, East Penn Financial or Bank, respectively, any effect
that
(i) is material and adverse to the financial position, results of operations
or
business of HNC and its subsidiaries taken as a whole or East Penn Financial
and
its Subsidiaries taken as a whole, as the case may be, or (ii) would materially
impair the ability of any of HNC and its subsidiaries or East Penn Financial
or
its Subsidiaries, as the case may be, to perform their respective obligations
under this Agreement or otherwise materially impede the consummation of the
Merger; 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 Merger
contemplated hereby, (e) costs incurred in connection with the Merger including,
without limitation, change in control and severance payments, as disclosed
herein on the East Penn Financial
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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
HNC or any of its subsidiaries, or East Penn Financial or Bank or any other
of
the Subsidiaries, as the case may be, taken with the prior consent of the other
or as otherwise contemplated by this Agreement in connection with the
consummation of the Merger.
“Merger
Consideration”
shall
have the meaning assigned to that term in Section 2.2.
“Merger
Documents”
means
this Agreement, the Bank Plan of Merger and all other documents, certificates,
instruments and agreements executed (or to be executed) by any of HNC, East
Penn
Financial, Bank, or HNB in connection with the transactions contemplated by
this
Agreement.
“OCC”
means
the Office of the Comptroller of the Currency of the United States Department
of
Treasury.
“Option
Cash-Out Price”
has
the
meaning assigned to that term in Section 2.8.
“Ordinary
Course of Business”
means
the ordinary course of business consistent with past custom or
practice.
“Outside
Effective Time”
means
11:59 p.m. on March 31, 2008.
“PADOB”
means
the Department of Banking of the Commonwealth of Pennsylvania.
“Party”
or
“Parties”
means
East Penn Financial, Bank and HNC, as the case may be.
“Person”
means
an individual, partnership, limited liability company, corporation (including
a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity or a federal, state, local or foreign government, or
a
political subdivision thereof, or any agency of such government or
subdivision.
“Prospectus/Proxy
Statement”
means
the prospectus/proxy statement in compliance with the standard proxy rules
of
the SEC whether or not directly applicable, together with any supplements
thereto, to be sent to holders of East Penn Financial Common Stock in connection
with East Penn Financial Shareholders Meeting and the approval of the Merger
and
this Agreement.
“Regulatory
Approvals”
means
the approval orders or letters, or statements of non-objection, from the
Regulatory Authorities that are required in order to consummate the transactions
identified or contemplated in connection with the Merger Documents, including,
but not limited to, the approvals referred to in East
Penn Financial Disclosure Schedule 3.4
or
HNC Disclosure Schedule 4.4.
“Regulatory
Filings”
means
(i) the filings, notices and registrations with applicable regulatory
authorities that are required in order to consummate the transactions identified
or contemplated in
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connection
with the Merger Documents, (ii) the Securities Filings, (iii) the filings
required for Regulatory Approvals, including, and (iv) any other filings
referred to in East
Penn Financial Disclosure Schedule 3.4
or
HNC
Disclosure Schedule 4.4.
“Regulatory
Authorities”
means,
as applicable, the PADOB, the OCC, the FDIC, the FRB and any other federal,
state or local government or government agency having or claiming jurisdiction
over Bank, any of the Subsidiaries or the transactions contemplated by this
Agreement.
“Resulting
Bank”
means
the banking institution that survives the Bank Merger.
“SEC”
means
the U.S. Securities and Exchange Commission.
“Securities
Filings”
means
HNC’s registration statement on Form S-4 including any pre-effective or
post-effective amendments or supplements thereto, as filed with the SEC under
the Securities Act with respect to the HNC Common Stock to be issued in
connection with the Merger, together with any applicable state “blue sky”
securities filings, and the East Penn Financial Proxy Statement including any
amendments thereto, as filed with the SEC under the Exchange Act in connection
with the East Penn Financial Shareholders Meeting.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
thereunder.
“Special
Loan”
means
each loan classified or properly classifiable as "Other Loans Specially
Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss," "Classified,"
"Criticized," "Credit Risk Assets," "Concerned Loans" or words of similar
import.
“Special
REO Property”
means
each property owned by Bank or any Subsidiary and acquired for debts or leases
previously contracted.
“State
Corporation Law”
means
the Pennsylvania Business Corporation Law, as amended.
“Stock
Consideration”
has
the
meaning assigned to that term in Section 2.2.
“Subsidiary”
shall
mean each corporation, partnership, limited partnership, limited liability
partnership, limited liability company, business trust or other organization
or
entity, the majority equity or voting interest in which is owned, directly
or
indirectly, by East Penn Financial, the Bank or any other Subsidiary, and
“Subsidiaries”
means
them collectively.
“Superior
Proposal”
means
any bona fide, unsolicited written Acquisition Proposal made by any person
or
entity, other than HNC, to acquire more than 50% of the combined voting power
of
the shares of East Penn Financial Common Stock then outstanding or all or
substantially all of East Penn Financial’s consolidated assets for consideration
consisting of cash and/or securities that is on terms that the Board of
Directors of East Penn Financial in good faith concludes, after consultation
with its financial advisors and 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-
-8-
up
fees,
expense reimbursement provisions and conditions to consummation, (A) is on
terms
that the Board of Directors of East Penn Financial 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
East Penn Financial and (C) is reasonably capable of being
completed.
“Tax”
means
any federal, state, local or foreign taxes, assessments and other governmental
charges, duties, impositions and liabilities relating to taxes, including
without limitation, taxes based upon or measured by income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including without limitation, taxes under
IRC
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, recapture,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
all of the foregoing together with all interest, penalties, or additions
thereto, whether disputed or not, and any obligations under any agreements
or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
“Tax
Return”
means
any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including without limitation, any schedule or
attachment thereto, and including without limitation, any amendment
thereof.
“Valuation
Date”
means
the close of business on the last day of the calendar month ended on or
immediately preceding the Closing Date.
ARTICLE
II
THE
MERGER
Section
2.1 The
Merger; Closing.
(a)
Subject to the terms and conditions of this agreement, at the Closing, effective
as of the Effective Time, the Parties shall effectuate the Merger under the
following provisions:
(i)
In
accordance with State Corporation Law, (A) East Penn Financial shall merge
with
and into HNC; (B) the separate existence of East Penn Financial shall cease;
and
(C) HNC shall be the surviving corporation in the Merger;
(ii)
Each
share of East Penn Financial Common Stock issued and outstanding prior to the
Effective Time shall be converted into the right to receive Stock Consideration,
Cash Consideration or a combination of both, as more fully provided in this
Article II; and
(iii)
All
of the property (real, personal or mixed), rights, powers, duties, obligations
and liabilities of East Penn Financial shall be taken and deemed transferred
to
and vest in HNC, as the surviving corporation in the Merger, without further
act
or deed.
(b)
Upon
completion of Closing but subject further to the terms hereof, the Parties
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shall
cause Articles of Merger relating to the Merger to be filed with the Secretary
of the Commonwealth of Pennsylvania, and the Merger shall become effective
at a
date and time, which in all events shall be a time of day after the close of
trading but before midnight on a Business Day (the “Effective Time”) and,
subject to the foregoing and the other provisions of this Agreement, shall
be a
date and time to be mutually agreed by HNC and East Penn Financial.
(c)
Closing on the Merger (the “Closing”) shall be held on a date and time to be
designated by HNC, but no later than ten (10) Business Days after the complete
satisfaction or waiver of the conditions set forth in this Agreement (other
than
conditions that by their nature are to be satisfied at Closing but subject
nevertheless to fulfillment or waiver of those conditions), at the offices
of
HNC at 000 Xxxx Xxxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx, unless another time or
place
is agreed to in writing by the Parties. Subject to the terms and conditions
of
this Agreement, each of the Parties agrees to use all commercially reasonable
efforts to cause the Closing to be completed on the earliest practicable
date.
(d)
At
the Closing, East Penn Financial shall deliver and shall cause Bank and the
Subsidiaries to deliver to HNC the following:
(i)
All
certificates representing all Bank Shares, and all certificates representing
all
shares or ownership interests issued by each of the Subsidiaries, duly endorsed
in blank, with signatures guaranteed by a bank or trust.
(ii)
All
minute books, corporate seals, stock certificate books and other stock records
of the Bank and each of the Subsidiaries.
(iii)
All
necessary documents required by any banks or other depository institutions
for
Bank and each of the Subsidiaries to remove the authorized signatories and
replace them with the HNC's designees.
(e)
The
Bank and HNB shall have taken the additional actions and performed the
additional terms and conditions set forth in the Bank Plan of
Merger.
(f)
HNC
shall deliver the Merger Consideration to the Exchange Agent at the time and
in
the manner provided in this Agreement.
Section
2.2 Exchange of and Consideration for East Penn Financial Shares.
Upon
the
Effective Time, all of the East Penn Financial Shares issued and outstanding
immediately prior to the Effective Time, shall, at the Effective Time, by reason
of the Merger and without any action on the part of the holder thereof, cease
to
be outstanding and shall be converted into the “Merger Consideration,” which
shall be comprised of :
(i)
the
“Cash Consideration,” which shall be the sum of $50,284,464.00 (or $14.50 per
“Cash Election Share” as defined below assuming 6,305,262 East Penn Financial
Shares are outstanding at the Effective Time) plus $7.97 per share for each
of
the Converted Option Shares (the “Aggregate Converted Share Cash”); plus
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(ii)
shares of HNC Common Stock as more fully provided below (the “Stock
Consideration”).
Holders
of East Penn Financial Shares shall be entitled to receive, for each East Penn
Financial Share, either HNC Common Shares only (a “Stock Election Share”) or
cash only (a “Cash Election Share”), based on an allocation of the Cash
Consideration identified above and the "Stock Consideration" shown below
according to the provisions of this Article II, including without limitation
Section 2.4:
(a)
If
the “Indicated HNC Share Price” (as defined in Section 2.4(b)) is equal to or
less than $19.84 and equal to or greater than $14.66, the “Stock Consideration”
shall be (I) 2,385,172 shares of HNC Common Stock, plus (II) 0.3782 shares
of
HNC Common Stock for each of the Converted Option Shares.
FOR
EXAMPLE:
Under
subsection (a), if the Indicated HNC Share Price is $17.25 and 6,305,262 East
Penn Financial Shares are outstanding, an East Penn Financial shareholder will
receive 0.8406 shares of HNC Common Stock for each Stock Election Share and
$14.50 in cash for each Cash Election Share.
(b)
If
the Indicated HNC Share Price is less than $14.66, the “Stock Consideration”
shall be (I) that number of HNC Common Shares equal to the result obtained
by
dividing $34,970,559.00 by the Indicated HNC Share Price, plus (II) for each
of
the Converted Option Shares, that number of HNC Common Shares equal to the
result obtained by dividing $5.55 by the Indicated HNC Share Price.
FOR
EXAMPLE:
Under
subsection (b), if the Indicated HNC Share Price is $14.50 and 6,305,262 East
Penn Financial Shares are outstanding, an East Penn Financial shareholder will
receive 0.8500 shares of HNC Common Stock for each Stock Election Share and
$14.50 in cash for each Cash Election Share.
(c)
If
the Indicated HNC Share Price is greater than $19.84, the “Stock Consideration”
shall be (I) that number of HNC Common Shares equal to the result obtained
by
dividing $47,313,110.00 by the Indicated HNC Share Price, plus (II) for each
of
the Converted Option Shares, that number of HNC Common Shares equal to the
result obtained by dividing $7.51 by the Indicated HNC Share Price.
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FOR
EXAMPLE:
Under
subsection (c), if the Indicated HNC Share Price is $20.00 and 6,305,262 East
Penn Financial Shares are outstanding, an East Penn Financial shareholder will
receive 0.8337 shares of HNC Common Stock for each Stock Election Share and
$14.50 in cash for each Cash Election Share.
Notwithstanding
the foregoing, this subsection (c) shall not be applicable, and subsection
(a)
shall nevertheless apply if the Indicated HNC Share Price is greater than
$19.84, if, at the Effective Time, HNC shall have entered into a definitive
agreement for an Acquisition of HNC or HNB which, at the Effective Time, has
not
been terminated.
Section
2.3 HNC Common Stock.
Each
share of HNC Common Stock issued and outstanding immediately prior to the
Effective Time shall, on and after the Effective Time, continue to be issued
and
outstanding as an identical share of HNC Common Stock. Each share of HNC Common
Stock issued and held in the treasury of HNC immediately prior to the Effective
Time, if any, shall, on and after the Effective Time, continue to be issued
and
held in the treasury of HNC.
Section
2.4 Allocation of Merger Consideration. This
Section shall govern the allocation of the Cash Consideration and Stock
Consideration among the holders of East Penn Financial Shares.
(a)
Initial
Elections by Holders of East Penn Financial Shares.
Each
holder of one or more East Penn Financial Shares on the Record Date shall be
entitled to preliminarily elect (i) to receive only shares of HNC Common Stock
(a “Stock Election”), or (ii) to receive only cash (a “Cash Election”), or (iii)
to received a mixture of Stock Consideration and Cash Consideration (a “Mixed
Election”), but these elections shall nevertheless be subject to the allocation
provisions of this Section 2.4, which shall in all events be
controlling.
(b)
Valuation
of HNC Common Stock.
The
value of a share of HNC Common Stock for purposes of calculating the value
of
the Stock Consideration and making the allocations provided for in this Section
shall be the “Indicated HNC Share Price,” which shall be the numeric average of
the closing prices for a share of HNC Common Stock, as reported on the NASDAQ
Global Market (as reported in The Wall Street Journal or, in the absence
thereof, as reported by another authoritative source mutually agreed upon by
HNC
and East Penn Financial), for each trading day during the period (the
“Measurement Period”) commencing with the 30th Business Day prior to the
Effective Time and ending with the Determination Date.
(c)
Election
Procedures.
(i)
HNC
and East Penn Financial shall cause the Exchange Agent to mail 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
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theretofore
representing East Penn Financial Shares shall pass, only upon proper delivery
of
such certificates to the Exchange Agent in such form as HNC and East Penn
Financial shall mutually agree (an “Election Form”) to holders of East Penn
Financial Common Stock and East Penn Financial Options not more than forty
(40)
Business Days and not less than twenty (20) Business Days prior to a date and
time (the “Election Deadline”) that shall be mutually agreeable to HNC and East
Penn Financial, but in any event not less than six (6) Business Days prior
to
the Closing Date, and shall be designated in the Election Form as the deadline
for delivery of such holders’ elections. Each Election Form shall permit the
holder (or in the case of nominee record holders, the beneficial owner through
proper instructions and documentation) to make a Stock Election, a Cash Election
or a Mixed Election. The East Penn Financial Shares for which the holder has
duly made a Mixed Election shall be entitled to receive that respective
proportion of Stock Consideration and Cash Consideration as shall be determined
pursuant to the allocation rules set forth in Section 2.4(e), and shall be
deemed to hold Stock Election Shares and Cash Election Shares in corresponding
amounts.
(ii)
The
Exchange Agent shall use reasonable efforts to make the Election Form available
to all persons who become holders of East Penn Financial Common Stock during
the
period between the record date for the mailing of the Election Form (the “Record
Date”) and the Election Deadline. Any holder's election shall have been properly
made only if the Exchange Agent shall have received at its designated office,
by
the Election Deadline, a properly completed and signed Election Form accompanied
by the East Penn Financial Certificates to which such Election Form relates,
in
form acceptable for transfer (or by an appropriate guarantee of delivery of
such
East Penn Financial Certificates as set forth in such Election Form from a
firm
which is an "eligible guarantor institution" (as defined in Rule 17Ad-15 under
the Exchange Act) provided that such East Penn Financial Certificates are in
fact delivered to the Exchange Agent by the time set forth in such guarantee
of
delivery).
(iii)
If,
as to any East Penn Financial Common Stock, the holder either: (i) does not
submit a properly completed Election Form before the Election Deadline; (ii)
revokes an Election Form prior to the Election Deadline and does not resubmit
a
properly completed Election Form prior to the Election Deadline; or (iii) fails
to perfect his, her or its dissenters' rights pursuant to subsection 2.7 of
this
Agreement, those shares of East Penn Financial Common Stock shall be designated
"No-Election Shares." Nominee record holders who hold East Penn Financial Common
Stock on behalf of multiple beneficial owners shall be required to indicate
how
many of the shares held by them are Stock Election Shares, Cash Election Shares
and No-Election Shares, and how many shares held by them are subject to a Mixed
Election.
(d)
Effective
Election.
An
Election shall be properly made only if the Exchange Agent shall have actually
received a properly completed Election Form by the Election Deadline. An
Election Form may be revoked or changed by the person submitting such Election
Form to the Exchange Agent by written notice to the Exchange Agent only if
such
written notice is actually received by the Exchange Agent at or prior to the
Election Deadline. The Exchange Agent shall
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have
reasonable discretion to (i) determine whether any election, modification or
revocation is received, (ii) determine whether any election, modification or
revocation has been properly made, and (iii) disregard immaterial defects in
any
Election Form. Good faith determinations made by the Exchange Agent regarding
such matters shall be binding and conclusive. Neither HNC, nor East Penn
Financial nor the Exchange Agent shall be under any obligation to notify any
person of any defect in an Election Form.
(e)
Allocation.
Subject
to the other provisions of this Article II, the Exchange Agent shall effect
the
allocation of the Merger Consideration among the holders of East Penn Financial
Common Stock in accordance with their respective Election Forms and the
following allocation rules:
(i)
Aggregate
Stock Consideration Oversubscribed.
If the
number of Stock Election Shares would cause the aggregate Stock Consideration
to
exceed the amount of Stock Consideration prescribed in the applicable subsection
of Section 2.2, then:
(A)
All
Cash Election Shares and No-Election Shares shall be converted into the right
to
receive the Cash Consideration;
(B)
The
Exchange Agent shall convert, on the pro rata basis described in Section
2.4(e)(iii) below, a sufficient number of Stock Election Shares into Cash
Election Shares ("Reallocated Cash Shares") such that the total Stock
Consideration shall equal the amount of Stock Consideration prescribed in the
applicable subsection of Section 2.2 and such Reallocated Cash Shares shall
be
converted into the right to receive the Cash Consideration; and
(C)
The
Stock Election Shares which are not Reallocated Cash Shares shall be converted
into the right to receive the Stock Consideration.
(ii)
Aggregate
Stock Consideration Undersubscribed.
If the
number of Stock Election Shares would cause the aggregate Stock Consideration
to
be less than the amount of Stock Consideration prescribed in the applicable
subsection of Section 2.2, then:
(A)
All
Stock Election Shares shall be converted into the right to receive the Stock
Consideration;
(B)
No-Election Shares shall be converted into Stock Election Shares to the extent
necessary to cause the aggregate Stock Consideration to equal the amount of
Stock Consideration prescribed in the applicable subsection of Section 2.2.
If
less than all of the No-Election Shares need to be converted to Stock Election
Shares, then the Exchange Agent shall select which No-Election Shares shall
be
converted into Stock Election Shares on a pro rata basis in such manner as
the
Exchange Agent, in its sole discretion, shall determine. All remaining
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unconverted
No-Election Shares shall be treated as Cash Election Shares and shall be
converted into the right to receive the Cash Consideration.
(C)
If
all of the No-Election Shares are converted to Stock Election Shares under
the
preceding subsection and the resulting total Stock Consideration would remain
less than the amount of Stock Consideration prescribed in the applicable
subsection of Section 2.2, then the Exchange Agent shall convert, on a pro
rata
basis described in subsection 2.4(e)(iii) below, a sufficient number of Cash
Election Shares (excluding Dissenting East Penn Financial Shares) into Stock
Election Shares ("Reallocated Stock Shares") such that the total Stock
Consideration equals the amount of Stock Consideration prescribed in the
applicable subsection of Section 2.2, and such Reallocated Stock Shares shall
be
converted into the right to receive the Stock Consideration; and
(D)
All
Cash Election Shares which are not Reallocated Stock Shares shall be converted
into the right to receive the Cash Consideration.
(iii)
Pro
Rata Reallocations. If
the
Exchange Agent is required pursuant to subsection 2.4(e)(i)(B) to convert some
Stock Election Shares into Reallocated Cash Shares, each holder of Stock
Election Shares shall be allocated a pro rata portion of the total Reallocated
Cash Shares. If the Exchange Agent is required pursuant to subsection
2.4(e)(ii)(C) to convert some Cash Election Shares into Reallocated Stock
Shares, each holder of Cash Election Shares shall be allocated a pro rata
portion of the total Reallocated Stock Shares.
(f)
Calculation
of and Allocation of Merger Consideration.
Not
later than three (3) Business Days prior to Closing, HNC shall deliver to East
Penn Financial and the Exchange Agent a computation of the relative amounts
of
Cash Consideration and Stock Consideration comprising the Merger Consideration
(subject only to any adjustment that may be required by subsection (g) of this
Section), showing the components and calculation thereof in reasonable detail
(the “Initial Allocation Computation”). Not later than one (1) Business Day
prior to Closing, East Penn Financial and the Exchange Agent shall each notify
HNC whether they agree with the Initial Allocation Computation. In the event
of
a disagreement, the Parties shall resolve any differences and disagreements
on
or before the completion of Closing. If there is a disagreement, Closing and
the
Effective Time shall be delayed until such disagreement can be
resolved.
(g)
Superseding
Allocation to Comply with Tax Requirements.
Notwithstanding any other provision of this Agreement, the Initial Allocation
Computation shall be further adjusted to meet such requirements as may be
necessary to enable the Parties to obtain opinions from their respective special
tax advisers in accordance with the provisions of Section 7.4(c) and Section
8.5(c), respectively. The Parties acknowledge and agree that the determination
pursuant to Section 7.4(c) and 8.5(c) may be based, among other things, on
the
closing price of HNC Common Stock at the close of trading on the trading day
on
which the Effective Time occurs and the resulting amounts of Cash Consideration
and Stock Consideration paid to each
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holder
of
an East Penn Financial Share pursuant to Section 2.8, and may be affected,
among
other things, by (i) failure by one or more holders of East Penn Financial
Options to accept the cash-out payment referred to in Section 2.8, and (ii)
the
amounts, if any, that may be payable in cash by HNC to holders of Dissenting
East Penn Financial Shares. If the allocation of Cash Consideration and Stock
Consideration needs to be adjusted pursuant to this subsection, then, after
the
close of trading on the date of the Effective Time, but at least five (5) hours
prior to the Effective Time, HNC shall deliver to the Exchange Agent and East
Penn Financial a computation of the proposed adjustments to the allocations
of
Cash Consideration and Stock Consideration, showing the components and
calculation thereof in reasonable detail (an “Adjusted Allocation Computation”).
At least three (3) hours prior to the Effective Time, the Exchange Agent and
East Penn Financial shall each notify HNC whether it agrees with the Adjusted
Allocation Computation. In the event of an unresolved disagreement between
the
Parties, the Parties shall delay the Effective Time pursuant to Section
2.4(h).
(h)
Final
Determination of Allocations; Re-Establishment of Effective Time in the Event
of
Non-Agreement. The
respective amounts of Cash Consideration and Stock Consideration payable and
issuable to each of the holders of East Penn Financial Common Stock pursuant
to
the Initial Allocation Computation, or if applicable the Adjusted Allocation
Computation, shall be calculated by the Exchange Agent in accordance with this
Agreement and approved by HNC and East Penn Financial as soon as practicable
and
no later than two (2) hours before the Effective Time. In the event of a
disagreement, HNC, East Penn Financial and the Exchange Agent shall resolve
any
differences and disagreements prior to the Effective Time. If there are any
unresolved differences, the Parties shall, prior to the originally agreed
Effective Time, re-establish a new Effective Time which shall be at the earliest
practicable time, subject to the other terms and conditions of this Agreement,
by which re-established Effective Time they shall have agreed upon the Initial
Allocation Computation or Adjusted Allocation Computation, as applicable
(whichever is applicable, as so finally agreed, herein referred to as the “Final
Allocation”). To the extent that Articles of Merger shall have been filed that,
pursuant to applicable law, would have a time other than the Effective Time
as
it may be established or re-established by the parties, the Parties agree to
mutually cooperate to take such actions as may be required under applicable
law
to make the Merger effective as of the new Effective Time, including, if
necessary, the filing of any necessary and appropriate documents with the
Pennsylvania Department of State to withdraw the original Effective Time and
establish a new Effective Time.
Section
2.5 Treasury Stock. Each
share of East Penn Financial Common Stock issued and held in the treasury of
East Penn Financial as of the Effective Time, if any, shall be cancelled, and
no
cash, stock or other property shall be delivered in exchange
therefor.
Section
2.6 Fractional Shares. No
fractional shares of HNC Common Stock and no scrip or certificates therefor
shall be issued in connection with the Merger. Any former holder of East Penn
Financial Common Stock who would otherwise be entitled to receive a fraction
of
a share of HNC Common Stock shall receive, in lieu thereof, cash in an amount
equal to such fraction of a share multiplied by the Indicated HNC Share
Price.
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Section
2.7 Dissenting East Penn Financial Shareholders.
(a)
The
outstanding shares of East Penn Financial Common Stock any holders of which
have
timely perfected any right to demand appraisal for their shares ("Dissenting
East Penn Financial Shares") pursuant to the State Corporation Law and have
not
effectively withdrawn or lost their dissenters' rights under the State
Corporation Law, shall not be converted into or represent a right to receive
the
Cash Consideration or the Stock Consideration under this Agreement, and the
holders thereof shall be entitled only to such rights as are granted by the
State Corporation Law. Notwithstanding the foregoing, a portion of the Cash
Consideration shall be allocated to Dissenting East Penn Financial Shares as
if
they were Cash Election Shares and shall not be allocated to other East Penn
Financial Shares. An additional allocation of Cash Consideration to Dissenting
East Penn Financial Shares may be made to the extent (but only to the extent)
necessary to comply with Section 2.4(g).
(b)
If
any such holder of East Penn Financial Common Stock shall have failed to perfect
or effectively shall have withdrawn or lost such right, and if such holder
shall
have delivered a properly completed Election Form to the Exchange Agent by
the
Election Deadline, the Dissenting East Penn Financial Shares held by such holder
shall be converted into a right to receive Stock Consideration, Cash
Consideration or Mixed Consideration in accordance with the applicable
provisions of this Agreement and shall be designated as Stock Election Shares
and Cash Election Shares accordingly. If any such holder of East Penn Financial
Common Stock shall have failed to perfect or effectively shall have withdrawn
or
lost such right, and if such holder shall not have delivered a properly
completed Election Form to the Exchange Agent by the Election Deadline, the
Dissenting East Penn Financial Shares held by such holder shall be designated
No-Election Shares and shall be converted on a share by share basis into either
the right to receive Stock Consideration or Cash Consideration in accordance
with the applicable provisions of this Agreement.
(c)
All
payments in respect of Dissenting East Penn Financial Shares, if any, will
be
made by HNC.
Section
2.8 East Penn Financial Options.
HNC
agrees to pay each present holder of an East Penn Financial Option, at the
Effective Time (separate from the Merger Consideration), in full release,
termination and satisfaction of such holder’s East Penn Financial Option, the
“Option Cash-Out Price” (as defined below) for each East Penn Financial Share
that is receivable on a full cash exercise of the East Penn Financial Option.
The “Option Cash-Out Price” for each East Penn Financial Share shall be an
amount equal to the difference between the “Cash EPF Share Price” (determined as
provided below) and the per share exercise price for such share pursuant to
the
applicable East Penn Financial Option.
(a)
If
the Indicated HNC Share Price is equal to or less than $19.84 and equal to
or
greater than $14.66, the “Cash EPF Share Price” shall be that dollar amount
equal to the result of dividing (A) the aggregate value of the Merger
Consideration (at the Indicated HNC Share Price) under the applicable paragraph
of Section 2.2, by (B) the number of East Penn Financial Shares issued and
outstanding immediately prior to the Effective Time;
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(b)
if
the Indicated HNC Share Price is less than $14.66, the “Cash EPF Share Price”
shall be $13.52; or
(c)
if
the Indicated HNC Share Price is greater than $19.84, the “Cash EPF Share Price”
shall be $15.48.
Section
2.9 Surrender and Exchange of East Penn Financial Stock
Certificates.
(a)
Exchange
Fund.
On or
prior to the Closing Date, the Exchange Agent shall have received a deposit
from
HNC, in trust for the benefit of holders of shares of East Penn Financial Common
Stock, sufficient cash and certificates representing shares of HNC Common Stock
to make all payments and deliveries to shareholders of East Penn Financial
pursuant to this Article II. Any cash and certificates for HNC Common Stock
deposited with the Exchange Agent shall hereinafter be referred to as the
“Exchange Fund.”
(b)
Exchange
Procedures for Effective Election Forms Submitted by Election
Deadline.
As soon
as reasonably practicable after the Effective Time (and in any case no later
than ten (10) Business Days after the Effective Time), HNC shall cause the
Exchange Agent to mail the Merger Consideration to shareholders of East Penn
Financial who have submitted effective Election Forms prior to the Election
Deadline.
(c)
Exchange
Procedures in Absence of Effective Election Forms Submitted by Effective
Deadline.
As soon
as reasonably practicable after the Effective Time (and in any case no later
than two (2) Business Days thereafter), HNC shall cause the Exchange Agent
to
mail to each record holder of East Penn Financial Common Stock immediately
prior
to the Effective Time who has not surrendered East Penn Financial Certificates
representing all of the shares of East Penn Financial Common Stock owned by
such
holder in accordance with Section 2.4(c)(ii), a letter of transmittal which
shall specify that delivery of the East Penn Financial Certificates shall be
effected, and risk of loss and title to the East Penn Financial Certificates
shall pass, only upon delivery of the East Penn Financial Certificates to the
Exchange Agent, and which letter shall be in customary form and have such other
provisions as HNC may reasonably specify and instructions for effecting the
surrender of such East Penn Financial Certificates in exchange for the Cash
Consideration and/or the Stock Consideration, as the case may be. Upon surrender
of an East Penn Financial Certificate to the Exchange Agent together with such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto, and such other documents as may reasonably be required
by
the Exchange Agent, the holder of such East Penn Financial Certificate shall
be
entitled to receive within two (2) Business Days thereafter and in exchange
therefor (i) a certificate representing, in the aggregate, the whole number
of
shares of HNC Common Stock that such holder has the right to receive pursuant
to
this Article II and/or (ii) a check in the amount equal to the cash that such
holder has the right to receive pursuant to this Article II. No interest will
be
paid or will accrue on any cash payment pursuant to this Section.
(d)
Each
certificate for shares of HNC Common Stock (each, an "HNC Certificate") issued
in exchange for East Penn Financial Certificates pursuant to this Section shall
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be
dated
the Effective Time and be entitled to dividends, distributions and all other
rights and privileges pertaining to such shares of HNC Common Stock from the
Effective Time. Until surrendered, each East Penn Financial Certificate shall,
from and after the Effective Time, evidence solely the right to receive the
Merger Consideration.
(e)
If an
East Penn Financial Certificate is exchanged on a date following one or more
record dates after the Effective Time for the payment of dividends or any other
distribution on shares of HNC Common Stock, HNC shall pay to the holder of
such
East Penn Financial Certificate cash in an amount equal to dividends payable
on
the shares of HNC Common Stock issued in exchange therefore and pay or deliver
any other distribution to which such shareholder is entitled. No interest shall
accrue or be payable in respect of dividends or any other distribution otherwise
payable under this subsection upon surrender of East Penn Financial
Certificates. Notwithstanding the foregoing, no Party shall be liable to any
holder of East Penn Financial Common Stock for any amount paid in good faith
to
a public official or agency pursuant to any applicable abandoned property,
escheat or similar law. Until such time as East Penn Financial Certificates
are
surrendered to HNC for exchange, HNC shall have the right to withhold dividends
or any other distributions on the shares of HNC Common Stock issuable to such
shareholder.
(f)
Upon
the Effective Time, the stock transfer books for East Penn Financial Common
Stock will be closed and no further transfers of East Penn Financial Common
Stock will thereafter be made or recognized. All East Penn Financial
Certificates surrendered pursuant to this Section will be
cancelled.
(g)
If
there is a transfer of ownership of East Penn Financial Common Stock that is
not
registered in the transfer records of East Penn Financial, one or more HNC
Certificates evidencing, in the aggregate, the proper number of shares of HNC
Common Stock, a check in the proper amount of cash in lieu of any fractional
shares, the per share Cash Consideration, and any dividends or other
distributions to which such holder is entitled pursuant to subsection (e) of
this Section, as applicable and appropriate, may be issued with respect to
such
East Penn Financial Common Stock to such a transferee if the East Penn Financial
Certificate representing such shares of East Penn Financial Common Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(h)
If
any East Penn Financial Certificate shall have been lost, stolen or destroyed,
the Exchange Agent shall deliver in exchange for such lost, stolen or destroyed
East Penn Financial Certificate, upon the making of a sworn affidavit of that
fact by the holder thereof in form satisfactory to the Exchange Agent, the
Merger Consideration, and any dividends or other distributions to which such
holder is entitled pursuant to this Section as may be required pursuant to
this
Agreement; provided, however, that the Exchange Agent may, in its sole
discretion and as a condition precedent to the delivery of the Merger
Consideration to which the holder of such East Penn Financial Certificate is
entitled as a result of the Merger, require the owner of such lost, stolen
or
destroyed East Penn Financial Certificate to deliver a bond in such amount
as it
may direct (but not to exceed $21.75 for each East Penn Financial Share
represented by such East Penn Financial Certificate) as indemnity against any
claim that may be made against East Penn
-19-
Financial,
HNC or the Exchange Agent or their agents with respect to the East Penn
Financial Certificate alleged to have been lost, stolen or
destroyed.
Section
2.10 Anti-Dilution Provisions.
If HNC
shall, at any time before the Effective Time:
(a)
declare a dividend payable in shares of HNC Common Stock with a record date
on
or prior to the Effective Time;
(b)
combine the outstanding shares of HNC Common Stock into a smaller number of
shares;
(c)
resolve to effect a split or subdivide the outstanding shares of HNC Common
Stock with a record date on or prior to the Effective Time; or
(d)
reclassify the shares of HNC Common Stock or otherwise recapitalize or
reorganize in any manner affecting the HNC Common Stock;
then,
in
any such event, the total Stock Consideration to be delivered to East Penn
Financial shareholders who are entitled to receive Stock Consideration shall
be
adjusted so that each such East Penn Financial shareholder shall be entitled
to
receive such number of shares of HNC Common Stock as such East Penn Financial
shareholder would have been entitled to receive as a result of such event if
the
Effective Time had occurred prior to the happening of such event.
Section
2.11 Other Matters.
Nothing
set forth in this Agreement or any exhibit or schedule to this Agreement shall
be construed to preclude (except to the extent that it would result in a
Material Adverse Effect):
(a)
HNC
or any member of the HNC Group from becoming party to any combination with
any
third party, whether by issuance or exchange of HNC Common Stock or otherwise,
unless such transaction would result in a Material Adverse Effect;
(b)
HNC
from issuing, or to limit any way the right of HNC to issue or repurchase,
prior
to or following the Effective Time, HNC Common Stock or other securities;
(c)
HNC
from granting employee, director or compensatory options at anytime with respect
to HNC Common Stock or other securities;
(d)
Option holders of HNC from exercising options at any time with respect to HNC
Common Stock or other securities;
(e)
HNC
from entering into any stock split or reverse stock split or issuing any stock
dividend or otherwise entering into any reclassification, recapitalization
or
other reorganization transaction; or
-20-
(f)
HNC
or any member of the HNC Group from taking, or to limit in any way the right
of
either of them to take, any other action not expressly and specifically
prohibited by the terms of this Agreement, subject nevertheless to the
provisions of Section 2.10.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
OF
EAST PENN FINANCIAL AND THE BANK
In
addition to representations and warranties, if any, made elsewhere in this
Agreement, East Penn Financial and the Bank represent and warrant to HNC as
set
forth below, subject to any qualifications set forth in the Disclosure
Schedules. Except for the representation and warranty contained in Section
3.16
(as to which a standard of “materiality” for securities law disclosure purposes
is applicable), no representation or warranty of East Penn Financial or the
Bank
contained in this Article III shall be deemed untrue or incorrect for any
purpose under this Agreement, and neither East Penn Financial nor the Bank
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 except to the
extent such fact, circumstance or event, individually or in the aggregate with
all other facts, events or circumstances inconsistent with any representation
or
warranty set forth in this Article III, has had or would be reasonably likely
to
have a Material Adverse Effect
Section
3.1 Organization.
(a)
East
Penn Financial is a corporation duly incorporated, validly existing and in
good
standing under the laws of the Commonwealth of Pennsylvania. East Penn Financial
is a bank holding company duly registered under Federal Bank Holding Company
Act
of 1956, as amended. East Penn Financial has the corporate power and authority
to carry on its businesses and operations as now being conducted and to own
and
operate the properties and assets now owned and being operated by it. East
Penn
Financial is duly licensed, registered or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing, registration or qualification necessary, except where the
failure to be so licensed, registered or qualified would not have a Material
Adverse Effect, and all such licenses, registrations and qualifications are
in
full force and effect.
(b)
Bank
is a bank duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania. Bank has the corporate power and authority
to carry on its business and operations as now being conducted and to own and
operate the properties and assets now owned and being operated by it. Bank
is
duly licensed, registered or qualified to do business in each jurisdiction
in
which the nature of the business conducted by it or the character or location
of
the properties and assets owned or leased by it makes such licensing,
registration or qualification necessary, except where the failure to be so
licensed, registered or qualified would not have a Material Adverse Effect,
and
all such licenses, registrations and qualifications are in full force and
effect.
(c)
The
deposits of Bank are insured by the FDIC to the extent provided in the
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Federal
Deposit Insurance Act.
(d)
East
Penn Financial has the Subsidiaries (including without limitation the Bank)
shown on East
Penn Financial Disclosure Schedule 3.1(d).
East
Penn Financial has no other subsidiaries.
(e)
The
respective minute books of East Penn Financial and Bank accurately record all
corporate actions of their respective shareholders and boards of directors,
including committees, in each case in accordance with the normal business
practice of East Penn Financial and Bank, respectively.
(f)
East
Penn Financial has delivered to HNC true and correct copies of the respective
Charter and bylaws of East Penn Financial, Bank and each other Subsidiary,
each
as in effect on the date hereof.
(g)
Neither East Penn Financial, nor Bank, nor any other Subsidiary, conducts
business under any fictitious or trade names.
Section
3.2 Capitalization.
(a)
The
authorized capital stock of East Penn Financial consists of 40,000,000 shares
of
common stock, par value $0.625 per share ("East Penn Financial Common Stock"),
of which at the date hereof 308,292 are validly issued and held by East Penn
Financial as treasury stock and 6,305,262 shares are validly issued and
outstanding, fully paid and nonassessable, and free of preemptive rights; and
16,000,000 shares of preferred stock, with no par value, of which no shares
are
issued and outstanding as of the date of this Agreement.
(b)
East
Penn Financial has not issued nor is East Penn Financial bound by any
subscription, option, warrant, call, commitment, agreement or other right of
any
character relating to the purchase, sale, or issuance of, or right to receive
dividends or other distributions on, any shares of East Penn Financial Common
Stock or any other security of East Penn Financial or any securities
representing the right to vote, purchase or otherwise receive any shares of
East
Penn Financial Common Stock or any other security of East Penn Financial, except
the East Penn Financial Options. East Penn Financial has not issued or granted
any stock appreciation rights, phantom stock interests or similar rights or
interests measured by the value of any equity security of East Penn Financial.
Accordingly, immediately prior to the Effective Time, pursuant to the provisions
of this Agreement there will be 6,305,262 East Penn Financial Shares issued
and
outstanding on a fully diluted basis, with the exception of any East Penn
Financial Shares resulting from exercises, after the date of this Agreement,
of
East Penn Financial Options.
(c)
East
Penn Financial owns, directly or indirectly, all of the capital stock of Bank
and the other Subsidiaries, free and clear of any Encumbrances, agreements
and
restrictions of any kind or nature. There are no subscriptions, options,
warrants, calls, commitments, agreements, interests or other rights outstanding
with respect to the capital stock of Bank or any other Subsidiary. Except for
Subsidiaries, East Penn Financial does not possess, directly or indirectly,
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any
equity interest in any corporation, partnership, limited partnership, limited
liability company, business trust or other entity, except for (i) equity
interests in Bank's investment portfolio, (ii) equity interests held in
connection with Bank's commercial loan activities and (iii) as set forth on
East
Penn Financial Disclosure Schedule 3.2(c).
(d)
To
the knowledge of East Penn Financial and except as set forth on East
Penn Financial Disclosure Schedule 3.2(d),
no
person or group is the beneficial owner of 5% or more of the outstanding shares
of East Penn Financial Common Stock (the terms "person," "group" and "beneficial
owner" are as defined in Section 13(d) of the Exchange Act, and the rules and
regulations thereunder).
(e)
The
authorized capital stock of the Bank consists of 40,000,000 shares of common
stock, par value $.0625 per share, of which at the date hereof 6,604,152 shares
are validly issued and outstanding, are all owned by East Penn Financial, and
are fully paid and nonassessable and free of preemptive rights; and 16,000,000
shares of preferred stock, par value $0.625 per share, of which no shares are
issued and outstanding as of the date of this Agreement.
Section
3.3 Authority; No Violation.
(a)
East
Penn Financial has full corporate power and authority to execute and deliver
this Agreement and to consummate the Mergers, subject to all Regulatory Filings
and the receipt of all Regulatory Approvals and the approval of this Agreement
by East Penn Financial's shareholders. The execution and delivery of this
Agreement by East Penn Financial and the consummation by East Penn Financial
of
the Mergers have been duly and validly approved by the Board of Directors of
East Penn Financial and, except for approval by the shareholders of East Penn
Financial as required by the State Corporation Law, no other corporate
proceedings on the part of East Penn Financial are necessary to consummate
the
Merger. This Agreement has been duly and validly executed and delivered by
East
Penn Financial and constitutes the valid and binding obligation of East Penn
Financial, enforceable against East Penn Financial in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to general
principles of equity.
(b)
Subject to receipt of Regulatory Approvals and the approval of East Penn
Financial shareholders, and HNC’s compliance with any conditions contained in
this Agreement, the execution, delivery and performance of this Agreement,
the
consummation of the Merger and compliance with any terms or provisions of this
Agreement by East Penn Financial and the Bank do not and will not:
(i)
conflict with or result in a breach of any provision of the respective articles
of incorporation or bylaws of East Penn Financial, the Bank or any Subsidiary;
(ii)
violate any statute, rule, regulation, judgment, order, writ, decree or
injunction applicable to East Penn Financial, the Bank or any Subsidiary or
any
of their respective properties or assets; or
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(iii)
violate, conflict with, result in a breach of any provisions of, constitute
a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, or acceleration
of,
the performance required by, or result in a right of termination or acceleration
or the creation of any Encumbrance upon any of the properties or assets of
East
Penn Financial, the Bank or any Subsidiary under any of the terms or conditions
of any note, bond, mortgage, indenture, license, lease, agreement, commitment
or
other instrument or obligation to which East Penn Financial, the Bank or any
Subsidiary is a party, or by which they or any of their respective properties
or
assets may be bound or affected, except where such termination, acceleration
or
creation, in the aggregate, would not have a Material Adverse Effect on East
Penn Financial.
Section
3.4 Consents.
No
consents or approvals of, or filings or registrations with, any public body
or
authority, and no consents or approvals of any third parties are necessary
for
East Penn Financial or the Bank to execute, deliver or perform this Agreement,
or consummate the Merger, other than East Penn Financial shareholder approval,
the Regulatory Filings, the Regulatory Approvals and the Consents (if any)
set
forth on East
Penn Financial Disclosure Schedule 3.4.
Section
3.5 Financial Statements.
(a)
East
Penn Financial has previously delivered to HNC the East Penn Financial
Statements, except those pertaining to quarterly periods commencing after
December 31, 2006, which it will deliver to HNC within 45 days after the end
of
the respective quarter. The delivered East Penn Financial Statements fairly
present, in all respects, the consolidated financial position, results of
operations and cash flows of East Penn Financial as of and for the periods
ended
on the dates thereof, in accordance with GAAP consistently applied, and, in
the
case of interim period financial statements, which are subject to normal
year-end adjustments and footnotes thereto.
(b)
Except as set forth in East
Penn Financial Disclosure Schedule 3.5(b),
East
Penn Financial did not, as of the date of the East Penn Financial Statements
or
any subsequent date, have any liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, which are not fully reflected or
reserved against in the balance sheets included in the East Penn Financial
Statements at the date of such balance sheets or which would have been required
to be reflected therein in accordance with GAAP consistently applied, or
disclosed in a footnote thereto, except for liabilities, obligations and loss
contingencies which are not material in the aggregate and which are incurred
in
the Ordinary Course of Business, and subject, in the case of any unaudited
statements, to normal recurring audit adjustments and the absence of
footnotes.
Section
3.6 No Material Adverse Change.
Neither
East Penn Financial nor any Subsidiary has suffered any adverse change in their
respective assets (including loan portfolios), liabilities (whether absolute
or
contingent, fixed or unfixed, accrued or unaccrued), liquidity, net worth,
business, property, financial condition, results of operations or any damage
destruction or loss, whether or not covered by insurance, since December 31,
2006, which change has had a Material Adverse Effect.
-24-
Section
3.7 Taxes.
(a)
East
Penn Financial and Subsidiaries are members of the same affiliated group within
the meaning of IRC Section 1504(a) of which East Penn Financial is a common
parent. East Penn Financial has filed, and will file, all federal, state and
local tax returns required to be filed by, or with respect to, East Penn
Financial and Subsidiaries on or prior to the Closing Date, except to the extent
that any failure to file or any inaccuracies would not, individually or in
the
aggregate, have a Material Adverse Effect, and has paid or will pay, or has
made
or will make, provisions for the payment of all federal, state and local taxes
which are shown on such returns to be due for the periods covered thereby from
East Penn Financial or any Subsidiary to any applicable taxing authority, on
or
prior to the Closing Date.
(b)
There
are no disputes pending, or claims received in writing, for taxes or assessments
upon East Penn Financial or any Subsidiary, nor has East Penn Financial or
any
Subsidiary been requested in writing to give any currently effective waivers
extending the statutory period of limitation applicable to any federal, state,
county or local income tax return for any period.
(c)
Proper and accurate amounts have been withheld by East Penn Financial and each
Subsidiary from their employees for all prior periods in compliance with the
tax
withholding provisions of applicable federal, state and local laws.
Section
3.8 Contracts.
(a)
Except for those employment agreements, change in control agreements and other
contracts or agreements with any employee, officer or director expressly
described in East
Penn Financial Disclosure Schedule 3.8(a)
(“East
Penn Financial Employment Agreements”) or any East Penn Financial Employee
Benefit Plans, or as disclosed on one or more other East Penn Financial
Disclosure Schedules, neither East Penn Financial, nor Bank nor any other
Subsidiary is a party to or subject to:
(i)
any
employment, consulting, severance, "change-in-control" or termination contract
or arrangement with any officer, director, employee, independent contractor,
agent or other person, except for "at will" arrangements;
(ii)
any
plan, arrangement or contract providing for bonuses, pensions, options, deferred
compensation, retirement payments, profit sharing or similar arrangements for
or
with any officer, director, employee, independent contractor, agent or other
person;
(iii)
any
collective bargaining agreement with any labor union relating to employees;
(iv)
any
agreement which by its terms limits the payment of dividends by
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Xxxx
Xxxx
Financial or any Subsidiary;
(v)
except in the Ordinary Course of Business, any instrument evidencing or related
to indebtedness for borrowed money, whether directly or indirectly, by way
of
purchase money obligation, conditional sale, lease purchase, guaranty or
otherwise, in respect of which East Penn Financial or any Subsidiary is an
obligor to any person, other than deposits, repurchase agreements, bankers
acceptances and "treasury tax and loan" accounts established in the Ordinary
Course of Business, instruments relating to transactions entered into in the
customary course of the banking business of Bank, and transactions in "federal
funds," or which contains financial covenants or other restrictions, other
than
those relating to the payment of principal and interest when due, which would
be
applicable on or after the Closing Date;
(vi)
any
contract, other than this Agreement, which restricts or prohibits East Penn
Financial or Bank from engaging in any type of business permissible under
applicable law;
(vii)
any
contract, plan or arrangement which provides for payments or benefits in certain
circumstances which, together with other payments or benefits payable to any
participant therein or party thereto, might render any portion of any such
payments or benefits subject to disallowance of deduction therefor as a result
of the application of IRC Section 280G;
(viii)
except in the Ordinary Course of Business, any lease for real property;
(ix)
any
contract or arrangement with any broker-dealer or investment adviser;
(x)
any
investment advisory contract with any investment company registered under the
Investment Company Act of 1940; or
(xi)
any
contract or arrangement with, or membership in, any local clearing house or
self-regulatory organization.
(b)
(i)
Except as otherwise described in East
Penn Financial Disclosure
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Schedule
3.8(b)(i),
all of
the East Penn Financial Employment Agreements and East Penn Financial Employee
Benefit Plans are in full force and effect on the date hereof; and neither
East
Penn Financial, any Subsidiary nor, to the knowledge of East Penn Financial,
any
other party to any such contract, plan, arrangement or instrument, has breached
any provision of, or is in default under any term of, any such contract, plan,
arrangement or instrument and no party to any such contract, plan, arrangement
or instrument will have the right to terminate any or all of the provisions
thereof as a result of the transactions contemplated by this
Agreement.
(ii)
Except as otherwise described in East
Penn Financial Disclosure Schedule 3.8(b)(ii),
no
plan, employment agreement, termination agreement or similar agreement or
arrangement to which East Penn Financial or any Subsidiary is a party or by
which East Penn Financial or any Subsidiary may be bound:
(A)
contains provisions which permit an employee or an independent contractor to
terminate it without cause and continue to accrue future benefits thereunder;
(B)
provides for acceleration in the vesting of benefits thereunder upon the
occurrence of a change in ownership or control or merger or other acquisition
of
East Penn Financial or any Subsidiary; or
(C)
requires East Penn Financial or any Subsidiary to provide a benefit in the
form
of East Penn Financial Common Stock or determined by reference to the value
of
East Penn Financial Common Stock.
Section
3.9 Ownership of Property; Insurance Coverage.
(a)
East
Penn Financial and each Subsidiary has, or will have as to property acquired
after the date hereof, good, and as to real property, marketable, title to
all
assets and properties owned or represented as owned by East Penn Financial
or
such Subsidiary, whether real or personal, tangible or intangible, including
securities, assets and properties reflected in the balance sheets contained
in
the East Penn Financial Statements or acquired subsequent thereto (except to
the
extent that such securities are held in any fiduciary or agency capacity and
except to the extent that such assets and properties have been disposed of
for
fair value, in the Ordinary Course of Business, or have been disposed of as
obsolete since the date of such balance sheets), subject to no Encumbrances,
except:
(i)
Those
items that secure liabilities for borrowed money and that are described in
East
Penn Financial Disclosure Schedule 3.9(a) or
permitted under Article V hereof;
(ii)
Statutory liens for amounts not yet delinquent or which are being contested
in
good faith;
(iii)
Liens for current taxes not yet due and payable;
(iv)
Pledges to secure deposits and other liens incurred in the ordinary course
of
banking business;
(v)
The
imperfections of title, easements and Encumbrances, if any, as are not material
in character, amount or extent;
(vi)
Dispositions and Encumbrances for adequate consideration in the Ordinary Course
of Business. East Penn Financial and each Subsidiary have the right
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under
leases of properties used by East Penn Financial or such Subsidiary in the
conduct of their respective businesses to occupy and use all such properties
as
presently occupied and used by them; and
(vii)
As
reflected as a liability in East Penn Financial Statements or the footnotes
thereto.
(b)
With
respect to all agreements pursuant to which East Penn Financial or any
Subsidiary has purchased securities subject to an agreement to resell, if any,
East Penn Financial or such Subsidiary has a valid, perfected first lien or
security interest in the securities or other collateral securing the repurchase
agreement, and the value of such collateral equals or exceeds the amount of
the
debt secured thereby.
(c)
East
Penn Financial and each Subsidiary maintain insurance in amounts considered
by
East Penn Financial to be reasonable for their respective operations, and such
insurance is similar in scope and coverage to that maintained by other
businesses similarly situated. Neither East Penn Financial nor any Subsidiary
has received notice from any insurance carrier that:
(i)
The
insurance will be cancelled or that coverage thereunder will be reduced or
eliminated; or
(ii)
Premium costs with respect to such insurance will be substantially
increased.
(d)
East
Penn Financial and each Subsidiary maintain such fidelity bonds and errors
and
omissions insurance as may be customary or required under applicable laws or
regulations.
Section
3.10 Legal Proceedings.
Except
as set forth in East
Penn Financial Disclosure Schedule 3.10,
neither
East Penn Financial nor any Subsidiary is a party to any, and there are no
pending or, to the knowledge of East Penn Financial, threatened, legal,
administrative, arbitration or other proceedings, claims, actions, customer
complaints, or governmental investigations or inquiries of any nature (a)
against East Penn Financial, Bank or any other Subsidiary, or (b) to which
the
assets of East Penn Financial, Bank or any other Subsidiary are subject, or
(c)
challenging the validity or propriety of the Merger or the Bank Merger; except
for any proceedings, claims, actions, investigations, or inquiries which,
individually or in the aggregate, would not have a Material Adverse
Effect.
Section
3.11 Compliance with Applicable Law.
(a)
East
Penn Financial and each Subsidiary hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under, and have complied with, applicable laws, statutes, orders, rules or
regulations of any Regulatory Authority relating to them.
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(b)
East
Penn Financial and each Subsidiary have filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file with any Regulatory Authority, and
have
filed all other reports and statements required to be filed by them, including
without limitation any report or statement required to be filed pursuant to
the
laws, rules or regulations of the United States, any state or any Regulatory
Authority, and have paid all fees and assessments due and payable in connection
therewith.
(c)
No
Regulatory Authority has initiated any proceeding or, to the knowledge of East
Penn Financial, investigation into the business or operations of East Penn
Financial or any Subsidiary.
(d)
Neither East Penn Financial nor any Subsidiary has received any notification
or
communication from any Regulatory Authority:
(i)
Asserting that East Penn Financial or any Subsidiary is not in substantial
compliance with any of the statutes, regulations or ordinances which such
Regulatory Authority enforces, unless such assertion has been waived, withdrawn
or otherwise resolved;
(ii)
Threatening to revoke any license, franchise, permit or governmental
authorization;
(iii)
Requiring or threatening to require East Penn Financial or any Subsidiary,
or
indicating that East Penn Financial or any Subsidiary may be required, to enter
into a cease and desist order, agreement or memorandum of understanding or
any
other agreement restricting or limiting, or purporting to restrict or limit,
in
any manner the operations of East Penn Financial or any Subsidiary, including
without limitation any restriction on the payment of dividends; or
(iv)
Directing, restricting or limiting, or purporting to direct, restrict or limit,
in any manner the operations of East Penn Financial or any Subsidiary (any
such
notice, communication, memorandum, agreement or order described in this sentence
and addressed specifically to East Penn Financial or Bank, herein referred
to as
a "Regulatory Agreement");
(e)
Neither East Penn Financial nor any Subsidiary has received, consented to,
or
entered into any Regulatory Agreement.
(f)
There
is no unresolved violation, criticism, or exception by any Regulatory Authority
with respect to any Regulatory Agreement.
(g)
There
is no injunction, order, judgment or decree imposed upon East Penn Financial
or
any Subsidiary or the assets of East Penn Financial or any
Subsidiary.
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(h)
East
Penn Financial and Bank are in compliance with the applicable provisions of
the
CRA, and, as of the date hereof, Bank has received a CRA rating of
"satisfactory" or better from the FDIC. To the knowledge of East Penn Financial,
there is no fact or circumstance or set of facts or circumstances which would
cause East Penn Financial or Bank to fail to comply with such
provisions.
Section
3.12 ERISA.
(a)
East
Penn Financial has delivered to HNC true and complete copies of, and
East
Penn Financial Disclosure Schedule 3.12
lists,
all employee pension benefit plans within the meaning of ERISA Section 3(2),
profit sharing plans, stock purchase plans, deferred compensation and
supplemental income plans, supplemental executive retirement plans, annual
incentive plans, group insurance plans, and all other employee welfare benefit
plans within the meaning of ERISA Section 3(1) (including vacation pay, sick
leave, short-term disability, long-term disability, and medical plans) and
all
other employee benefit plans, policies, agreements and arrangements currently
maintained or contributed to for the benefit of the employees or former
employees (including retired employees) and any beneficiaries thereof or
directors or former directors of East Penn Financial or any other entity (an
"East Penn Financial ERISA Affiliate") that, together with East Penn Financial,
is treated as a single employer under IRC Sections 414(b),(c),(m) or (o)
(collectively, the "East Penn Financial Employee Benefit Plans"), together
with:
(i)
The
most recent actuarial reports (if any) and financial reports relating to those
East Penn Financial Employee Benefit Plans which constitute "qualified plans"
under IRC Section 401(a);
(ii)
The
most recent Form 5500 (if any) relating to such East Penn Financial Employee
Benefit Plans filed with the IRS; and
(iii)
The
most recent IRS determination letters which pertain to any such East Penn
Financial Employee Benefit Plans.
(b)
Neither East Penn Financial nor any East Penn Financial ERISA Affiliate, and
no
pension plan (within the meaning of ERISA Section 3(2) maintained or contributed
to by East Penn Financial or any East Penn Financial ERISA Affiliate, has
incurred any liability to the Pension Benefit Guaranty Corporation or to the
IRS
with respect to any pension plan qualified under IRC Section 401(a) which
liability has resulted or will result in a Material Adverse Effect with respect
to East Penn Financial, except liabilities to the Pension Benefit Guaranty
Corporation pursuant to ERISA Section 4007, all of which have been fully paid,
nor has any reportable event under ERISA Section 4043(b) (with respect to which
the 30 day notice requirement has not been waived) occurred with respect to
any
such pension plan which could result in a Material Adverse Effect.
(c)
Neither East Penn Financial nor any East Penn Financial ERISA Affiliate has
ever
contributed to or otherwise incurred any liability with respect to a
multi-employer plan
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(within
the meaning of ERISA Section 3(37)).
(d)
Each
East Penn Financial Employee Benefit Plan has been maintained, operated and
administered in compliance in all respects with its terms and related documents
or agreements and the applicable provisions of all laws, including ERISA and
the
IRC.
(e)
To
the knowledge of East Penn Financial, no audit has occurred or is pending or
scheduled of any East Penn Financial Employee Benefit Plan by the IRS, the
U.S.
Department of Labor, the Pension Benefit Guaranty Corporation or any other
governmental authority. In addition, there are no pending or, to the knowledge
of East Penn Financial, threatened claims by, on behalf of or with respect
to
any East Penn Financial Employee Benefit Plan, or by or on behalf of any
individual participant or beneficiary of any East Penn Financial Employee
Benefit Plan, alleging any violation of ERISA or any other applicable laws,
or
claiming benefits (other than claims for benefits not in dispute and expected
to
be granted promptly in the Ordinary Course of Business ), nor to the knowledge
of East Penn Financial, is there any basis for such claim.
(f)
With
respect to any services which East Penn Financial or any Subsidiary may provide
as a record-keeper, administrator, custodian, fiduciary, trustee or otherwise
for any plan, program, or arrangement subject to ERISA (other than any East
Penn
Financial Employee Benefit Plan), East Penn Financial, Bank and each Subsidiary:
(i)
Have
correctly computed all contributions, payments or other amounts for which it
is
responsible;
(ii)
Have
not engaged in any prohibited transactions (as defined in ERISA Section 406
for
which an exemption does not exist);
(iii)
Have not breached any duty imposed by ERISA: and
(iv)
Have
not otherwise incurred any liability to the IRS, the U.S. Department of Labor,
the Pension Benefit Guaranty Corporation, or to any beneficiary, fiduciary
or
sponsor of any ERISA plan in the performance (or non- performance) of services,
other than in the Ordinary Course of Business.
Section
3.13 Equity Plans and Agreements.
Neither
East Penn Financial, nor the Bank, nor any other Subsidiary, is party to any
plan, agreement or arrangement under or pursuant to or in connection with which
any person or entity is entitled to the issuance of any shares of any equity
security of East Penn Financial, the Bank or any Subsidiary, or any option
or
warrant for any of the foregoing, or any other equity interest in East Penn
Financial, the Bank or any other Subsidiary, present, contingent, vested,
unvested or otherwise, other than the plans, agreements and other arrangements
described in East
Penn Financial Disclosure Schedule 3.13
(each
plan, agreement or arrangement described in East
Penn Financial Disclosure Schedule 3.13
is
sometimes referred to in this Agreement individually as an “East Penn Financial
Equity Plan,” and collectively as “East Penn Financial Equity Plans.”
East
Penn Financial Disclosure Schedule 3.13
sets
forth, itemized by grant date, the number and specific class, series or other
types of
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shares,
interests, or other applicable unit to which each participant, director,
officer, employee, recipient, transferee, grantee or other person or entity
may
hereafter be entitled.
Section
3.14 Environmental Matters.
(a)
Except as set forth on East
Penn Financial Disclosure Schedule 3.14,
neither
East Penn Financial nor any Subsidiary, nor any property owned or operated
by
East Penn Financial or any Subsidiary, has been or is in violation of or liable
under any Environmental Law. There are no actions, suits or proceedings, or
demands, claims of notices, including without limitation notices, demand letters
or requests for information from any Regulatory Authority, instituted or
pending, or to the knowledge of East Penn Financial, threatened, or any
investigation pending, relating to the liability of East Penn Financial or
any
Subsidiary with respect to any property owned or operated by East Penn Financial
or any Subsidiary under any Environmental Law.
(b)
No
property, now or formerly owned or operated by East Penn Financial or any
Subsidiary or on which East Penn Financial or any Subsidiary holds or held
a
mortgage or other security interest or has foreclosed or taken a deed in lieu
of
foreclosure, has been listed or proposed for listing on the National Priority
List under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended ("CERCLA"), on the Comprehensive Environmental Response
Compensation and Liabilities Information System, or any similar state list,
or
which is the subject of federal, state or local enforcement actions or other
investigations which may lead to claims against East Penn Financial or any
Subsidiary for response costs, remedial work, investigation, damage to natural
resources or for personal injury or property damage claim, including, but not
limited to, claims under CERCLA.
Section
3.15 Brokers, Finders and Financial Advisers.
Neither
East Penn Financial, any Subsidiary, nor any of their respective officers,
directors, employees, independent contractors or agents, has employed any
broker, finder, investment banker or financial advisor, or incurred any
liability for any fees or commissions to any such person, in connection with
the
transactions contemplated by this Agreement, except that East Penn Financial
has
employed Sandler X’Xxxxx & Partners as its financial adviser, pursuant to
the engagement letter attached as
Exhibit 3.15.
Section
3.16 Information to be Supplied.
(a)
The
information supplied by East Penn Financial for inclusion in the Securities
Filings (including the Prospectus/Proxy Statement) will not, at the time the
Securities Filings are declared effective pursuant to federal and state laws
as
applicable, and as of the date the Prospectus/Proxy Statement is mailed to
shareholders of East Penn Financial, and up to and including the date of East
Penn Financial Shareholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances in which they were
made, not misleading.
(b)
The
information supplied by East Penn Financial for inclusion in the Regulatory
Filings will, at the time each such document is filed with any Regulatory
Authority and up to and
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including
the dates of any required Regulatory Approvals or consents, as such Regulatory
Filings may be amended by subsequent filings, be accurate in all material
respects.
Section
3.17 Related Party Mergers.
(a)
Except as set forth on East
Penn Financial Disclosure Schedule 3.17
or as is
expressly disclosed and itemized either in the footnotes to the East Penn
Financial Statements, as of the date hereof neither East Penn Financial nor
any
Subsidiary is a party to any transaction (including any loan or other credit
accommodation but excluding deposits in the Ordinary Course of Business) with
any Affiliate of East Penn Financial or any Subsidiary, and all such
transactions were made on substantially the same terms, including interest
rates
and collateral, as those prevailing at the time for comparable transactions
with
other "persons" (as defined in Section 13(d) of the Exchange Act, and the rules
and regulations thereunder).
(b)
As of
the date hereof, no loan or credit accommodation to any East Penn Financial
Affiliate is presently in default or, during the three-year period prior to
the
date of this Agreement, has been in default or has been restructured, modified
or extended. The loan grade classification accorded such loan or credit
accommodation is appropriate. To the knowledge of East Penn Financial, as of
the
date hereof, principal and interest with respect to any each loan or other
credit accommodation will be paid when due.
Section
3.18 Loans.
The Bank
holds good and marketable title, free and clear of any and all Encumbrances,
to
all loans reflected as assets in the East Penn Financial Statements, and all
such loans are evidenced by notes, agreements or other evidences of indebtedness
which are true, genuine and correct, and to the extent secured, are secured
by
valid liens and security interests that are legal, valid and binding obligations
of the maker thereof, enforceable in accordance with the respective terms
thereof, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws or equitable principles affecting the
enforcement of creditors' rights, which have been perfected.
Section
3.19 Allowance for Loan Losses.
The
allowance for loan losses reflected in East Penn Financial's and Bank's reports
to Regulatory Authorities has been and will be established in compliance with
the requirements of all regulatory criteria, and the allowance for loan losses
shown in East Penn Financial Statements has been and will be established in
accordance with GAAP. East Penn Financial has disclosed to HNC in writing prior
to the date hereof the amounts of all loans, leases, advances, credit
enhancements, other extensions of credit, commitments and interest-bearing
assets of East Penn Financial that East Penn Financial has classified internally
as Special Loans, and East Penn Financial shall disclose promptly to HNC after
the end of each month after the date hereof the amount of each such
classification. East Penn Financial has disclosed to HNC in writing prior to
the
date hereof the amounts of all overdrafts occurring since December 31, 2006
and
East Penn Financial shall disclose promptly to HNC after the end of each month
after the date hereof and on the Effective Time the amount of such overdrafts.
The OREO and in-substance foreclosures included in any of East Penn Financial's
non-performing assets are carried net of reserves at the lower of cost or market
value based on current independent appraisals or current management appraisals.
Furthermore, true, complete and materially correct
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copies
of
reports containing the amounts of all loans, leases, advances, credit
enhancements, other extensions of credit, commitments and interest bearing
assets of East Penn Financial that East Penn Financial has classified internally
as Special Loans and the amounts of all overdrafts occurring since December
31,
2006 are attached hereto on East
Penn Financial Disclosure Schedule 3.19 of
this
Agreement.
Section
3.20 Investment Securities.
None of
the investments reflected in the East Penn Financial Statements 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 East Penn Financial to freely dispose of the investments at any
time,
and all of the investments comply with applicable laws, rules and
regulations.
Section
3.21 Fairness Opinion.
East
Penn Financial has received a written opinion from Sandler X’Xxxxx &
Partners with respect to the Merger in the form attached to this Agreement
as
Exhibit
3.21.
Section
3.22 Registration Under the Exchange Act and the Securities
Act.
All
issued and outstanding shares of East Penn Financial Common Stock have been
duly
registered under Section 12 of the Exchange Act and East Penn Financial is
subject to the periodic reporting requirements imposed by Section 13 or 15(d)
of
the Exchange Act.
Section
3.23 Quality of Representations.
No
representation made by East Penn Financial or the Bank in this Agreement
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
Section
3.24 Absence of Certain Changes.
Since
December 31, 2006 there has not been:
(a)
any
material transaction by East Penn Financial or any Subsidiary other than in
the
Ordinary Course of Business;
(b)
Except as may be expressly described on East
Penn Financial Disclosure Schedule 3.24(b),
any
acquisition or disposition of property by East Penn Financial or any Subsidiary
of any property or asset, whether real or personal, having a fair market value,
singularly or in the aggregate, in an amount greater than $50,000.00, other
than
acquisitions or dispositions made in the Ordinary Course of Business;
(c)
any
Encumbrance on any of the respective properties or assets of East Penn Financial
or any Subsidiary, except to secure extensions of credit in the Ordinary Course
of Business and in conformity with past practice (pledges of and liens on assets
to secure Federal Home Loan Bank or Federal Reserve Bank advances being deemed
both in the Ordinary Course of Business);
(d)
any
increase in, or commitment to increase, the compensation payable or to
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become
payable to any officer, director, employee, or agent of East Penn Financial
or
any Subsidiary, or any bonus payment, stock option award, restricted stock
award
or similar arrangement made to or with any of such officers, directors,
employees or agents, other than routine increases made in the Ordinary Course
of
Business;
(e)
Except as may be expressly described on East
Penn Financial Disclosure Schedule 3.24(e),
any
incurring of, assumption of, by East Penn Financial or any Subsidiary, or taking
by any of them of any property subject to, any liability in excess of
$50,000.00, except for liabilities incurred or assumed or property taken
subsequent to December 31, 2006 in the Ordinary Course of Business;
(f)
Except as may be expressly described on East
Penn Financial Disclosure Schedule 3.24(f),
any
material alteration in the manner of keeping the books, accounts or records
of
East Penn Financial or any Subsidiary, or in the accounting policies or
practices therein reflected;
(g)
any
elimination of employee benefits;
(h)
any
deferred routine maintenance of real property or leased premises;
(i)
any
elimination of a reserve where the liability related to such reserve has
remained;
(j)
any
failure to depreciate capital assets in accordance with past practice or to
eliminate capital assets which are no longer used in its business; or
(k)
any
extraordinary reduction or deferral of ordinary or necessary
expenses.
Section
3.25 Absence of Undisclosed Liabilities and Contingencies.
Neither
East Penn Financial nor any Subsidiary has any obligation or liability except
as
disclosed in the East Penn Financial Statements. Since December 31, 2006,
neither East Penn Financial nor any Subsidiary has incurred or paid any
obligation, liability or contingency which would be material to the financial
condition or operations of any of them, except for obligations paid in
connection with transactions made by them in the Ordinary Course of Business
consistent with past practice and applicable law.
Section
3.26 Reorganization.
As of
the date hereof, East Penn Financial does not have any reason to believe that
the Merger will fail to qualify as a reorganization under IRC Section 368(a).
East Penn Financial shall not take any action which would preclude the Merger
from qualifying as a reorganization within the meaning of IRC Section
368.
Section
3.27 Securities Documents.
East
Penn Financial has delivered to HNC, or there have been filed with and are
available on the SEC’s Electronic Data Gathering and Retrieval System, true and
complete copies of the following (collectively, the “East Penn Financial
Securities Documents”):
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(a)
East
Penn Financial's annual reports on SEC Form 10-K for the years ended December
31, 2006 and 2005;
(b)
All
other reports, registration statements and filings of East Penn Financial filed
with the SEC since December 31, 2006; and
(c)
East
Penn Financial's proxy materials used, or to be used, in connection with its
meetings of shareholders held in 2007.
Except
as
publicly disclosed in the East Penn Financial Securities Documents, 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 with respect to East Penn Financial or the Bank. Except as
publicly disclosed in the East Penn Financial Securities Documents or any
securities filings made with respect to the Merger, East Penn Financial, Bank
and each Subsidiary have carried on their respective businesses in all material
respects in the Ordinary Course of Business.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES
OF
HNC
In
addition to representations and warranties, if any, made elsewhere in this
Agreement, HNC represents and warrants to East Penn Financial, as set forth
below. Except for the representation and warranty contained in Section 4.17
(as
to which a standard of “materiality” for securities law disclosure purposes is
applicable), no representation or warranty of HNC contained in this Article
IV
shall be deemed untrue or incorrect for any purpose under this Agreement, and
HNC shall not be deemed to have breached a representation or warranty, in any
case, as a consequence of the existence of any fact, event or circumstance
except to the extent such fact, circumstance or event, individually or in the
aggregate with all other facts, events or circumstances inconsistent with any
representation or warranty set forth in this Article IV, has had or would be
reasonably likely to have a Material Adverse Effect.
Section
4.1 Organization.
(a)
HNC
is a corporation duly incorporated, organized and subsisting under the laws
of
the Commonwealth of Pennsylvania. HNC is a bank holding company duly registered
under the Bank Holding Company Act of 1956, as amended. HNC has the corporate
power to carry on its businesses and operations as now being conducted and
to
own and operate the properties and assets now owned and being operated by it.
HNC is duly licensed, registered or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
the licensing, registration or qualification necessary, except where the failure
to be so licensed, registered or qualified will not have a Material Adverse
Effect, and all the licenses, registrations and qualifications are in full
force
and effect in all material respects.
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(b)
HNC
has no Subsidiaries other than those identified in HNC
Disclosure Schedule 4.1(b).
(c)
The
minute books of HNC accurately record, in all material respects, all material
corporate actions of HNC’s shareholders and board of directors, including
committees, in each case in accordance with the normal business practice of
HNC.
(d)
HNC
has delivered to East Penn Financial true and correct copies of the articles
of
incorporation and bylaws of HNC, as in effect on the date hereof.
Section
4.2 Capitalization.
The
authorized capital stock of HNC consists of (a) 75,000,000 shares of common
stock, par value $1.00 per share, of which, as of December 31, 2006, 109,767
shares are validly issued and held by HNC as treasury stock and 28,964,483
shares are validly issued and outstanding, fully paid and nonassessable and
free
of preemptive rights, except as may be defined in HNC's articles of
incorporation, and (b) 8,000,000 shares of preferred stock, par value $1.00
per
share, of which none are issued and outstanding.
Section
4.3 Authority; No Violation.
(a)
HNC
has full corporate power and authority to execute and deliver this Agreement
and
to consummate the Mergers. The execution and delivery of this Agreement by
HNC
and the consummation by HNC of the Mergers have been duly and validly approved
by the Board of Directors of HNC by unanimous vote and no other corporate
proceedings on the part of HNC are necessary to consummate the Merger. This
Agreement has been duly and validly executed and delivered by HNC and, subject
to receipt of the required approvals of Regulatory Authorities, described in
Section 4.4 hereof, constitutes the valid and binding obligation of HNC,
enforceable against HNC in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity.
(b)
The
execution, delivery and performance of this Agreement by HNC do not and will
not:
(i)
conflict with or result in a breach of any provision of the respective articles
of incorporation, articles of association or bylaws of HNC;
(ii)
violate any statute, rule, regulation, judgment, order, writ, decree or
injunction applicable to HNC or its properties or assets; or
(iii)
violate, conflict with, result in a breach of any provisions of, constitute
a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, or acceleration
of
the performance required by, or result in a right of termination or acceleration
or the creation of any Encumbrance upon any of the properties or assets of
HNC
under, any of the terms or conditions of any note, bond, mortgage, indenture,
license, lease, agreement, commitment or other instrument or
-37-
obligation
to which HNC is a party, or by which it or its properties or assets may be
bound
or affected, except to the extent that the failure to comply, in the aggregate,
would not have a Material Adverse Effect.
Section
4.4 Consents.
No
consents or approvals of, or filings or registrations with, any public body
or
authority, and no consents or approvals of any third parties are necessary
for
HNC to execute, deliver or perform this Agreement or consummate the Merger,
other than the Regulatory Filings, Regulatory Approvals and Consents set forth
on HNC
Disclosure Schedule 4.4.
Section
4.5 Financial Statements.
(a)
HNC
has delivered to East Penn Financial the HNC Financials, except those pertaining
to quarterly periods commencing after December 31, 2006, which it will deliver
to East Penn Financial within 40 days after the end of the respective quarter.
The delivered HNC Financials fairly present, in all material respects, the
consolidated financial position, results of operations and cash flows of HNC
as
of and for the periods ended on the dates thereof, in accordance with GAAP
consistently applied, and, in the case of interim period financial statements
which are subject to normal year-end adjustments and footnotes
thereto.
(b)
To
the knowledge of HNC, HNC did not have any liabilities or obligations of any
nature, whether absolute, accrued, contingent or otherwise, which are not fully
reflected or reserved against in the balance sheets included in the HNC
Financials at the date of such balance sheets which would have been required
to
be reflected therein in accordance with GAAP consistently applied or disclosed
in a footnote thereto, except for liabilities and obligations which were
incurred in the Ordinary Course of Business, and except for liabilities and
obligations which are within the subject matter of a specific representation
and
warranty herein or which otherwise have not had a Material Adverse
Effect.
Section
4.6. No Material Adverse Change.
Neither
HNC nor any material subsidiary of HNC has suffered any adverse change in their
respective assets (including loan portfolios), liabilities (whether absolute
or
contingent, fixed or unfixed, accrued or unaccrued), liquidity, net worth,
business, property, financial condition, results of operations or any damage
destruction or loss, whether or not covered by insurance, since December 31,
2006, which change has had a Material Adverse Effect.
Section
4.7 Taxes.
(a)
HNC
and HNC’s subsidiaries are members of the same affiliated group within the
meaning of IRC Section 1504(a) of which HNC is the common parent. HNC has filed,
and will file, all material federal, state and local tax returns required to
be
filed by, or with respect to, HNC and the HNC subsidiaries on or prior to the
Closing Date, except (i) as may be disclosed on HNC
Disclosure Schedule 4.7,
or (ii)
to the extent that any failure to file or any inaccuracies would not,
individually or in the aggregate, have a Material Adverse Effect, and has paid
or will pay, or made or will make, provisions for the payment of all federal,
state and local taxes which
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are
shown
on such returns to be due for the periods covered thereby from HNC or any
subsidiary of HNC to any applicable taxing authority, on or prior to the Closing
Date, other than taxes which (i) are not delinquent or are being contested
in
good faith, (ii) have not been finally determined, or (iii) the failure to
pay
would not, individually or in the aggregate, have a Material Adverse
Effect.
(b)
To
the knowledge of HNC, there are no material disputes pending, or claims asserted
in writing, for taxes or assessments upon HNC or any subsidiary of HNC, nor
has
HNC or any subsidiary of HNC been requested in writing to give any currently
effective waivers extending the statutory period of limitation applicable to
any
federal, state, county or local income tax return for any period.
Section
4.8 Contracts.
Each of
the material contracts, to which HNC is a party that relates to or affects
the
assets or operations of HNC is a valid and binding obligation of HNC and is
in
full force and effect, except for where the failure to be in full force and
effect would not, individually or in the aggregate, have a Material Adverse
Effect.
Section
4.9 Ownership of Property.
HNC has
good and marketable title to its properties and assets (other than property
as
to which HNC is lessee), except for (i) such items shown in the HNC consolidated
financial statements or notes thereto; (ii) liens on real property for current
real estate taxes not yet delinquent, or (iii) such defects in title which
would
not, individually or in the aggregate, have a Material Adverse Effect on
HNC.
Section
4.10 Financing.
At the
Effective Time, HNC will have available cash sufficient to pay the amounts
required to be paid as Cash Consideration to East Penn Financial shareholders
pursuant to this Agreement and shares available and reserved to pay the Stock
Consideration, upon Effective Time.
Section
4.11 Legal Proceedings.
Neither
HNC nor any subsidiary of HNC is a party to any, and there are no pending or,
to
the knowledge of HNC, threatened, any legal, administrative, arbitration or
other proceedings, claims, actions, customer complaints, or governmental
investigations or inquiries (a) against HNC or any of its subsidiaries, or
(b)
to which the assets of HNC or any of its subsidiaries are subject, or (c)
challenging the validity or propriety of the Merger or the Bank Merger; except
for any proceedings, claims, actions, investigations, or inquiries which,
individually or in the aggregate, would not have a Material Adverse
Effect.
Section
4.12 Compliance with Applicable Law.
Except
where noncompliance would not have a Material Adverse Effect: (i) HNC and its
Subsidiaries are in compliance with all statutes, laws, ordinances, rules,
regulations, judgments, orders, decrees, directives, consent agreements,
memoranda of understanding, permits, concessions, grants, franchises, licenses,
and other governmental authorizations or approvals applicable to them or to
any
of their properties; and (ii) all permits, concessions, grants, franchises,
licenses and other governmental authorizations and approvals necessary for
the
conduct of the business of HNC or its Subsidiaries as presently conducted have
been duly obtained and are in full force and effect and there are no proceedings
pending, or to the knowledge of HNC, threatened, which may result in the
revocation, cancellation, suspension or material adverse modification of any
thereof.
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Section
4.13 ERISA
(a)
HNC
has delivered to East Penn Financial true and complete copies of, and
HNC
Disclosure Schedule 4.13
lists,
all employee pension benefit plans within the meaning of ERISA Section 3(2),
profit sharing plans, stock purchase plans, deferred compensation and
supplemental income plans, supplemental executive retirement plans, annual
incentive plans, group insurance plans, and all other employee welfare benefit
plans within the meaning of ERISA Section 3(1) (including vacation pay, sick
leave, short-term disability, long-term disability, and medical plans) and
all
other employee benefit plans, policies, agreements and arrangements currently
maintained or contributed to for the benefit of the employees or former
employees (including retired employees) and any beneficiaries thereof or
directors or former directors of HNC or any other entity (an "HNC ERISA
Affiliate") that, together with HNC, is treated as a single employer under
IRC
Sections 414(b),(c),(m) or (o) (collectively, the "HNC Benefit Plans"), together
with:
(i)
The
most recent actuarial reports (if any) and financial reports relating to those
HNC Benefit Plans which constitute "qualified plans" under IRC Section 401(a);
(ii)
The
most recent Form 5500 (if any) relating to such HNC Benefit Plans filed with
the
IRS; and
(iii)
The
most recent IRS determination letters which pertain to any such HNC Benefit
Plans.
(b)
No
pension plan (within the meaning of ERISA Section 3(2) maintained or contributed
to by HNC or any HNC ERISA Affiliate, has incurred any liability to the Pension
Benefit Guaranty Corporation or to the IRS with respect to any pension plan
qualified under IRC Section 401(a) which liability has resulted or will result
in a Material Adverse Effect with respect to HNC, except liabilities to the
Pension Benefit Guaranty Corporation pursuant to ERISA Section 4007, all of
which have been fully paid, nor has any reportable event under ERISA Section
4043(b) (with respect to which the 30 day notice requirement has not been
waived) occurred with respect to any such pension plan which could result in
a
Material Adverse Effect.
(c)
Neither HNC nor any HNC ERISA Affiliate has ever contributed to or otherwise
incurred any liability with respect to a multi-employer plan (within the meaning
of ERISA Section 3(37)).
(d)
Each
HNC Benefit Plan has been maintained, operated and administered in compliance
in
all respects with its terms and related documents or agreements and the
applicable provisions of all laws, including ERISA and the IRC.
(e)
To
the knowledge of HNC, no audit has occurred or is pending or scheduled of any
HNC Benefit Plan by the IRS, the U.S. Department of Labor, the Pension Benefit
Guaranty Corporation or any other governmental authority. In addition, to the
knowledge of HNC, there
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are
no
pending or threatened claims by, on behalf of or with respect to any HNC Benefit
Plan, or by or on behalf of any individual participant or beneficiary of any
HNC
Benefit Plan, alleging any violation of ERISA or any other applicable laws,
or
claiming benefits (other than claims for benefits not in dispute and expected
to
be granted promptly in the Ordinary Course of Business), nor to the knowledge
of
HNC, is there any basis for such claim.
(f)
With
respect to any services which HNC or any subsidiary of HNC may provide as a
record-keeper, administrator, custodian, fiduciary, trustee or otherwise for
any
plan, program, or arrangement subject to ERISA (other than any HNC Benefit
Plan), to the knowledge of HNC, HNC and each of its subsidiaries:
(i)
Have
correctly computed all contributions, payments or other amounts for which it
is
responsible;
(ii)
Have
not engaged in any prohibited transactions (as defined in ERISA Section 406
for
which an exemption does not exist);
(iii)
Have not breached any duty imposed by ERISA; and
(iv)
Have
not otherwise incurred any liability to the IRS, the U.S. Department of Labor,
the Pension Benefit Guaranty Corporation, or to any beneficiary, fiduciary
or
sponsor of any ERISA plan in the performance (or non- performance) of
services.
Section
4.14 Environmental Matters.
To HNC’s
knowledge, neither HNC, any subsidiary of HNC, nor any property owned or
operated by HNC or any subsidiary of HNC, has been or is in violation of or
liable under any Environmental Law, except for such violations or liabilities
that, individually or in the aggregate, would not have a Material Adverse
Effect. To HNC’s knowledge, there are no actions, suits or proceedings, or
demands, claims or notices, including without limitation notices, demand letters
or requests for information from any Regulatory Authority, instituted or
pending, or to the knowledge of HNC, threatened, or any investigation pending,
relating to the liability of HNC or any subsidiary of HNC with respect to any
property owned or operated by HNC or any subsidiary of HNC under any
Environmental Law, except as to any such actions or other matters which would
not result in a Material Adverse Effect.
Section
4.15 Brokers and Finders.
Neither
HNC nor any subsidiary of HNC, nor any of their respective officers, directors,
employees, independent contractors or agents, has employed any broker, finder,
investment banker or financial advisor, or incurred any liability for any fees
or commissions to any such person, in connection with the Merger, except that
HNC has employed Xxxxxx Xxxxxxxxxx Xxxxx LLC as its financial adviser pursuant
to the engagement letter attached as
Exhibit 4.15.
Section
4.16 Allowance for Loan Losses.
To HNC’s
knowledge, the allowance for loan losses reflected in HNC's and its
subsidiaries’ reports to Regulatory Authorities has been and will
-41-
be
established in accordance with and in compliance with the requirements of all
regulatory criteria and the allowance for loan losses shown on the HNC Financial
Statements has been and will be established in accordance with
GAAP.
Section
4.17 Information to be Supplied. The
information supplied by HNC for inclusion in the Securities Filings (including
the Prospectus/Proxy Statement) will not, at the time the Securities Filings
are
declared effective pursuant to the Securities Act, and as of the date the
Prospectus/Proxy Statement is mailed to shareholders of East Penn Financial,
and
up to and including the date of East Penn Financial Shareholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of
the
circumstances in which they were made, not misleading.
Section
4.18 Reporting Requirements.
HNC
Common Stock is registered under Section 12 of the Exchange Act and is subject
to the periodic reporting requirements imposed by Section 13 or 15(d) of the
Exchange Act.
Section
4.19 HNC Common Stock.
The
shares of HNC Common Stock to be issued and delivered to East Penn Financial
shareholders in accordance with this Agreement, when so issued and delivered,
will be validly authorized and issued and fully paid and non-assessable, and
no
shareholder of HNC shall have any pre-emptive right with respect
thereto.
Section
4.20 Securities Documents.
HNC has
delivered to East Penn Financial, or there have been filed with and are
available on the SEC’s Electronic Data Gathering and Retrieval System, true and
complete copies of each of the following (the “HNC Securities Documents”):
(a)
HNC's
annual reports on SEC Form 10-K for the years ended December 31, 2006 and 2005;
(b)
All
other reports, registration statements and filings of HNC filed with the SEC
since December 31, 2006; and
(c)
HNC's
proxy materials used, or to be used, in connection with its meetings of
shareholders held in 2007.
Except
as
publicly disclosed in the HNC Securities Documents, 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 with respect
to HNC or any material subsidiary of HNC. Except as publicly disclosed in the
HNC Securities Documents or any filings made with respect to the Merger, HNC
and
its subsidiaries have carried on their respective businesses in all material
respects in the Ordinary Course of Business.
Section
4.21 Fairness Opinion.
HNC has
received a written opinion from Xxxxxx Xxxxxxxxxx Xxxxx LLC with respect to
the
Merger in the form attached to this Agreement as Exhibit
4.21.
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Section
4.22 Reorganization. As
of the
date hereof, HNC does not have any reason to believe that the Merger will fail
to qualify as a reorganization under IRC Section 368(a). HNC shall not take
any
action which would preclude the Merger from qualifying as a reorganization
within the meaning of IRC Section 368(a).
Section
4.23 Quality of Representations.
To the
knowledge of HNC, no representation made by HNC in this Agreement contains
any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
ARTICLE
V
COVENANTS
OF
EAST PENN FINANCIAL AND BANK
Section
5.1 No Rights Triggered. East
Penn
Financial shall cause Bank and each of the Subsidiaries to take all necessary
steps to ensure that the entering into of this Agreement and the consummation
of
the transactions contemplated hereby and any other action or combination of
actions, or any other transactions contemplated hereby, do not and will not
result in the grant of any rights to any Person (i) under its Charter or bylaws,
or (ii) under any material agreement to which it or any of its Subsidiaries
is a
party.
Section
5.2 Conduct of Business. During
the period from the date of this Agreement to the Closing Date, the business
of
East Penn Financial, Bank and the Subsidiaries shall be conducted only in the
Ordinary Course of Business and in material compliance with all applicable
laws,
rules and regulations, and each of them shall use commercially reasonable
efforts to preserve its business organization intact, keep available the
services of its officers and employees, and maintain its goodwill and existing
relations with customers, suppliers, landlords, agents and other business
associates. During the period from the date of this Agreement to the Closing
Date (except as contemplated by the Merger Documents, as otherwise consented
to
in writing by HNC, or as required by Applicable Requirements but only with
prior
written notice to HNC), neither East Penn Financial, nor Bank nor any of the
Subsidiaries will:
(a)
Except as set forth in East
Penn Financial Disclosure Schedule 5.2(a),
acquire
any capital assets exceeding $100,000 in amount, either individually or in
the
aggregate, or form or acquire any new subsidiary, or engage in any new activity
or materially expand any existing activities;
(b)
declare, set aside, make or pay any dividend or other distribution in respect
of
its capital stock, other than semi-annual cash dividends to be payable, on
dates
in August 2007 and (if the Effective Time has not yet then occurred) February
2008 to be determined by East Penn Financial, to shareholders of record on
dates, respectively in July 2007 and January 2008 to be determined by East
Penn
Financial, in respective amounts not to exceed 12 cents per share in August
2007
and 13 cents per share in February 2008, and otherwise on terms consistent
with
the historic practices and terms of cash dividends by East Penn
Financial;
(c)
(i)
except to the extent necessary to honor exercises of presently outstanding
East
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Penn
Financial Options, issue, sell or otherwise permit to become outstanding any
additional East Penn Financial Shares (including without limitation any that
may
be held as treasury stock), (ii) issue any stock options, warrants, stock
appreciation rights, phantom stock or similar rights relating to or reflecting
East Penn Financial Shares or their value, (iii) redeem any presently
outstanding East Penn Financial Shares, (iv) take any of such actions with
regard to the capital stock of Bank or any of the other Subsidiaries, or (v)
attempt, or enter into or negotiate for any agreement, to do any of the
foregoing;
(d)
terminate, except for cause, the employment of any officer of Vice President
level or above, except in the Ordinary Course of Business, or hire any new
officers of Vice President level or above;
(e)
purchase or otherwise acquire, or sell, encumber, or otherwise dispose of,
any
assets or incur any liabilities other than in the Ordinary Course of
Business;
(f)
engage in any transaction or enter into any agreement with any officer, director
or shareholder of East Penn Financial or Bank or any of the Subsidiaries or
any
affiliate of any such officer, director or shareholder;
(g)
amend
its Charter or bylaws or equivalent corporate governance documents;
(h)
impose, or suffer the imposition, on any share of stock held by Bank of any
Encumbrance or permit any such Encumbrance to exist;
(i)
fail
to comply in any material respect with any Applicable Requirements;
(j)
elect
any additional officers or directors other than those directors who will be
elected at the 2007 annual meeting and those officers to be reappointed at
the
2007 annual reorganizational meetings of East Penn Financial and the
Bank;
(k)
increase the rate of compensation of any of its directors, officers or
employees, or pay or agree to pay any incentive compensation or bonus, except
in
the Ordinary Course of Business;
(l)
enter
into or materially modify (except as may be required by applicable law or
changes in group insurance contracts) any pension, retirement, stock option,
stock purchase, stock appreciation right, savings, profit sharing, deferred
compensation, consulting, bonus, or other employee benefit, incentive or welfare
contract, plan or arrangement, or any trust, agreement related thereto, in
respect of any of its directors, officers or other employees;
(m)
(i) From
the
date of this Agreement through the Effective Time, except as otherwise permitted
by this Section 5.2, East Penn Financial will not, and will not authorize or
permit any of its directors, officers, 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 or any inquiries with respect to or the
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making
of
any Acquisition Proposal, (ii) enter into or participate in any discussions
or
negotiations with, furnish any information relating to East Penn Financial
or
afford access to the business, properties, assets, books or records of East
Penn
Financial 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 10.1(e), 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.
(ii)
Notwithstanding anything herein to the contrary, East Penn Financial 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 East Penn Financial shall not withdraw
or modify in a manner adverse to HNC 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 by any such person, if and only to the extent that (x) East
Penn Financial’s Board of Directors concludes in good faith, after consulting
with outside counsel, that failure to do so would reasonably be expected to
breach its fiduciary duties to East Penn Financial’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, East Penn Financial’s
Board of Directors receives from such person an executed confidentiality
agreement, which confidentiality terms shall be no less favorable to East Penn
Financial than those contained in the Confidentiality Agreement between East
Penn Financial and HNC, a copy of which executed confidentiality agreement
shall
have been provided to HNC 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, East Penn Financial promptly
notifies HNC 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 HNC, condition or refuse to make its Approval
Recommendation (the “Change in East Penn Financial Recommendation”) if East Penn
Financial’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 East Penn Financial’s shareholders
under applicable law.
(iii)
East Penn Financial will promptly, and in any event within 24 hours, notify
HNC
in writing of the receipt of any Acquisition Proposal or any information related
thereto, which notification shall describe the Acquisition Proposal and identify
the third party making the same.
(iv)
East
Penn Financial 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.
(n)
except as permitted under subsection (m) of this Section, enter into (i) any
material
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agreement,
arrangement or commitment not made in the Ordinary Course of Business, other
than agreements or memoranda of understanding with Regulatory Authorities in
connection with the transactions contemplated by this Agreement, (ii) any
agreement, indenture or other instrument relating to the borrowing of money
by
East Penn Financial or Bank or guarantee by East Penn Financial or Bank of
any
such obligation, except in the Ordinary Course of Business and except for
drawing on currently existing lines of credit, (iii) any agreement, arrangement
or commitment relating to the employment of, or severance of, a consultant
or
the employment, severance, election or retention in office of any present or
former director, officer or employee, or (iv) any contract, agreement or
understanding with a labor union;
(o)
change its lending, investment or asset-liability management policies in any
material respect;
(p)
change its method of accounting in effect at December 31, 2006, except as
required by changes in Applicable Requirements or GAAP concurred in by its
independent certified public accountants, or change any of its methods of
reporting income and deductions for federal income tax purposes from those
employed in the preparation of its federal income tax returns for the year
ended
December 31, 2006;
(q)
Except as set forth in East
Penn Financial Disclosure Schedule 5.2(q),
establish or make any commitment relating to the establishment of any new branch
or office facility;
(r)
waive
any claims or rights noted with a value in excess of $25,000;
(s)
take
any action materially inconsistent with, or omit to take any action required
by,
the representations, warranties and covenants contained in this
Agreement;
(t)
except strictly as may be required by the Regulatory Authorities, modify their
reserve practices with respect to loans, Special Loans or Special REO Properties
or fail to comply with any provision of this Agreement explicitly addressing
Special Loans or Special REO Properties; or
(u)
agree
to do any of the foregoing.
Section
5.3 Approvals of Third Parties. East
Penn
Financial and the Bank shall use their commercially reasonable efforts to
cooperate with each other in the effort to secure at the earliest reasonably
practicable date all necessary Regulatory Approvals and Consents that may be
required in order to permit the consummation of the transactions contemplated
by
this Agreement.
Section
5.4 Transitional Matters
(a)
From
the date of this Agreement through the Closing Date, East Penn Financial and
the
Bank shall provide HNC all reasonable assistance requested by them in order
to
effect the Closing, including, but without limitation, the provision of all
information and documents that are reasonably necessary for the Regulatory
Filings, the applications for Regulatory Approvals and the
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Securities
Filings to be made by HNC. East Penn Financial shall also use reasonable efforts
to cause to be duly and timely filed the Securities Filings to be made by East
Penn Financial. East Penn Financial and the Bank shall cooperate fully with
HNC
in preparing and filing the Regulatory Filings, the Securities Filings and
any
amendments and supplements thereto.
(b)
During the period from the date of this Agreement through the Closing Date,
East
Penn Financial and the Bank shall furnish or make available to HNC a copy of
(i)
each filing made with any Regulatory Authority or any federal or state
securities regulatory agency, (ii) each state or local income tax or franchise
tax return filed by or for Bank or any of the Subsidiaries with any state or
local taxing authority and (iii) interim monthly financial statements related
to
East Penn Financial, Bank and each of the Subsidiaries in the form currently
utilized.
(c)
During the period between the date of this Agreement and the Closing Date:
(i)
HNC shall have reasonable access to officers and employees of East Penn
Financial and Bank at their respective offices for informational meetings
regarding human resource matters and the procedures, policies and operations
that HNC plans to implement from and after the Closing Date; and (ii) East
Penn
Financial and the Bank shall cooperate with HNC in arranging for meetings
between HNC and the employees of East Penn Financial and Bank at the reasonable
request of HNC.
(d)
During the period between the date of this Agreement and the Closing Date,
East
Penn Financial and the Bank will notify HNC of all regular and special meetings
of the Boards of Directors and Executive Committees of East Penn Financial
and
Bank, and HNC or its representative will be permitted to attend all such
meetings in person or by telephone, except to the extent the exclusion of HNC
and its representatives may be required for the Board of Directors to exercise
its duty under Pennsylvania law or otherwise as required under applicable law.
In the event that HNC or its representative is unable to attend such meetings,
East Penn Financial or Bank shall advise HNC of the matters conducted at such
meeting as soon as practical. Notwithstanding the foregoing, all Board
discussions and action concerning this Agreement or the Merger may be held
at
East Penn Financial’s discretion in a confidential session.
(e)
During the period between the date of this Agreement and the Effective Time,
East Penn Financial and the Bank shall notify HNC in writing of any material
regulatory, financial, operational or other developments affecting East Penn
Financial and/or Bank, and/or their respective businesses.
(f)
HNC,
East Penn Financial and the Bank shall cooperate with each other in the
preparation and filing, as soon as practicable, of the Regulatory Filings,
the
Prospectus/Proxy Statement, and all other documents necessary to obtain any
other approvals and consents required to effect Effective Time.
(g)
HNC
and East Penn Financial shall consult upon the form and substance of any press
release related to this Agreement and the Merger, but nothing contained herein
shall prohibit either Party, following reasonable notification to the other
Party, from making any disclosure which its counsel deems necessary under
Applicable Requirements.
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(h)
HNC,
on the one hand, and East Penn Financial and Bank, on the other hand, shall
cooperate with each other, and if mutually agreed in the interest of an orderly,
cost effective consolidation of operations, terminate any contract or
arrangement East Penn Financial or any Subsidiary may have with an outside
service bureau or other vendor of services and substitute a contract or
arrangement between HNC or any subsidiary of HNC (as HNC shall elect) and East
Penn Financial for the provision of similar services to East Penn Financial
or
any Subsidiary on terms and conditions mutually acceptable to East Penn
Financial and HNC. Except as otherwise provided in this Agreement, nothing
in
this subsection shall be construed as obligating East Penn Financial to
terminate any contract or arrangement.
(i)
HNC
and East Penn Financial shall, subject to applicable legal requirements,
cooperate with each other, and if mutually agreed in the interest of an orderly,
cost-effective consolidation of operations, terminate any in-house back office,
support, processing or other operational activities or services of East Penn
Financial or any Subsidiary, including without limitation accounting, loan
processing and deposit services, and substitute a contract or arrangement
between HNC or any subsidiary of HNC (as HNC shall select) and East Penn
Financial for the provision of similar services to East Penn Financial or any
Subsidiary on terms and conditions mutually acceptable to East Penn Financial
and HNC. Except as otherwise provided in this Agreement, nothing in this
subsection shall be construed as obligating East Penn Financial to terminate
any
activity or service prior to the Effective Time.
(j)
HNC
and East Penn Financial shall each use reasonable best efforts and cooperate
with each other to cause the Effective Time to occur on or before the Outside
Effective Time; however, nothing herein shall be construed as committing either
Party to close the transaction contemplated by this Agreement on or before
such
date.
Section
5.5 Tax Matters
(a)
From
the date of this Agreement and until the Closing Date, East Penn Financial
shall
cause each of its Subsidiaries to prepare, or cause to be prepared, in a manner
consistent with prior Tax Returns (except to the extent counsel for any
of
them determines
there is no reasonable basis in law therefor), and shall file, or cause to
be
filed, any Tax Returns (including amendments thereto) required to be filed
(taking into account any permitted exceptions) under federal, state, county,
local or any foreign laws by or on behalf of East Penn Financial, the Bank
and
each Subsidiary.
(b)
Prior
to the Closing Date, East Penn Financial and Bank shall make or cause to be
made
available for HNC’s inspection, as reasonably requested, copies of the federal,
state, county, local and foreign Tax Returns, reports and estimates for periods
prior to the Closing Date for the East Penn Financial, the Bank and each of
the
Subsidiaries.
(c)
After
the Closing Date, HNC and East Penn Financial will provide each other with
such
cooperation and information as either of them reasonably may request of the
other in filing any Tax Return, amended return, determining a liability for
Taxes or participating in or conducting any audit or other proceeding in respect
of Taxes. Without limiting the scope of the foregoing, HNC and
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Xxxx
Xxxx
Financial shall each make available to the other, as reasonably requested,
all
information, records or documents relating to federal, state, county, local
or
foreign Tax matters of HNC, East Penn Financial, the Bank and each of the
Subsidiaries for all taxable periods prior to or including the Closing Date
and
shall preserve all such information, records and documents until the expiration
of any applicable Tax statute of limitations or extensions thereof.
Section
5.6 East Penn Financial Shareholders Meeting; Bank
Shareholder.
(a)
East
Penn Financial shall take, in accordance with applicable law and the East Penn
Financial articles of incorporation and the East Penn Financial 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 “East Penn Financial Shareholders Meeting”) to
consider and vote upon the approval of this Agreement and any other matters
required to be approved by East Penn Financial’s shareholders for consummation
of the Merger unless this Agreement shall have been terminated in accordance
with its terms. Subject to the right of East Penn Financial and its Board of
Directors to take any action permitted by Section 5.2(m)(ii) with respect to
a
Superior Proposal, East Penn Financial shall, through its Board of Directors,
recommend to its shareholders, in the East Penn Financial Proxy Statement and
otherwise, approval of this Agreement and the transactions contemplated hereby
and shall take all reasonable lawful action to solicit such approval by its
shareholders (the “Approval Recommendation”).
(b)
As
sole shareholder of the Bank, East Penn Financial agrees to vote to approve
and
adopt this Agreement and the other Merger Documents and approve the transactions
contemplated hereby and thereby.
Section
5.7 Due Diligence Review. During
the period prior to the Effective Time, HNC may continue its reasonable due
diligence review and investigation with regard to Bank and the Subsidiaries.
East Penn Financial, Bank and the Subsidiaries and their respective
representatives, employees, directors, officers, consultants and similar parties
shall assist HNC in conducting such review and investigation and furnish or
make
available such information and documents as may be reasonably requested by
HNC.
During the course of such review and investigation, HNC may undertake such
investigation and review as it deems appropriate, including, but not limited
to,
review of all corporate documentation and correspondence of Bank and the
Subsidiaries, including board and board committee minutes (but excluding any
matters in connection with the Merger or the decision process of the East Penn
Financial board in connection with the Merger), consultation with the
independent auditors and banking regulators of East Penn Financial and Bank
(to
the extent permitted by the governing Regulatory Authority), an inspection
of
any real property related to the transaction, and inspection of any buildings
and building systems associated with the business of East Penn Financial, the
Bank and any of the Subsidiaries, whether such are owned or leased by East
Penn
Financial or Bank.
Section
5.8 Regulatory Approval. East
Penn
Financial and Bank will use diligent efforts to complete and file, and to
cooperate with HNC and HNB in completing and filing, all applications they
are
required to file with applicable regulators, and to pursue all Regulatory
Approvals they are
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required
to obtain for the transaction contemplated herein.
Section
5.10 Phase I Audit. East
Penn
Financial shall permit HNC, if HNC elects to do so, at its own cost and expense,
to cause a "phase I environmental audit" (together with any additional tests,
studies or investigations recommended in such audit) to be performed at any
physical location owned or occupied by East Penn Financial or any Subsidiary.
HNC must complete such audit no later than ten (10) days prior to the Effective
Time or its right to do so shall be waived.
Section
5.11 East Penn Financial Options. East
Penn
Financial shall use its best efforts to cause each of the present the holders
of
each of the East Penn Financial Options to accept, at the Effective Time, a
cash
payment in full liquidation of all of the East Penn Financial Options, with
the
goal that (i) no East Penn Financial Options shall be exercised after the date
of this Agreement and (ii) no East Penn Financial Options shall be outstanding
at the Effective Time.
Section
5.12 Tax
Opinion. East
Penn
Financial shall use reasonable diligence to obtain the tax opinion described
in
Section 8.5(c) on a timely basis. To the extent that East Penn Financial is
not
able to obtain such an opinion, East Penn Financial shall consult promptly
in
detail with HNC with regard to the specific reasons why it cannot obtain the
opinion and HNC shall have a reasonable opportunity prior to Closing to take
such actions as may be reasonably necessary to address any such reasons.
ARTICLE
VI
COVENANTS
OF
HNC
Section
6.1 Approvals of Third Parties. HNC
shall
use commercially reasonable efforts to prepare, file and publish all
applications, notices and registrations required by applicable law as soon
as
practicable and shall in any event prepare, publish and file such applications,
notices and registrations not later than one hundred twenty (120) days after
the
date of this Agreement, and shall use reasonable efforts to secure at the
earliest practicable date all Regulatory Approvals and shall otherwise use
commercially reasonable efforts to cause the consummation of the transactions
contemplated hereby in accordance with the terms and conditions of this
Agreement. HNC will afford East Penn Financial, Bank and their counsel a
reasonable opportunity to review all such applications, notices and
registrations before filing with Regulatory Authorities and will not file any
such applications, notices or registrations if, promptly after their receipt,
East Penn Financial, Bank or their counsel reasonably object
thereto.
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Section
6.2 Benefits for Bank Employees.
(a)
Except as otherwise provided in this Agreement, HNC will honor all East Penn
Financial Employment Agreements set forth on East Penn Financial Disclosure
Schedule 3.8(a).
(b)
HNC
will endeavor to continue the employment of all current Bank employees in
positions that will contribute to the successful performance of the combined
organization. During the period prior to the Effective Time, HNC will cooperate
with East Penn Financial to identify the roles that Bank's current employees
will be expected to play with HNC after the Effective Time. If prior to the
Effective Time or within one year after the Effective Time, HNC elects to
displace an employee or eliminate a position, or does not offer the employee
comparable employment (i.e. a position of substantially similar job description
or responsibilities at substantially the same salary level), then HNC will
make
severance payment of two (2) weeks of compensation for each year of the
employee’s combined service with the Bank and HNC (subject to applicable taxes
and withholding requirements), with a minimum of four (4) weeks up to a maximum
of twenty-six (26) weeks. Terminated Bank employees will have the right to
continue coverage under the group health plans of HNC or HNB in accordance
with
Code Section 4980(f). During the severance payment term or until the employee
is
enrolled in another health plan, whichever occurs first, HNC will continue
to
pay the employer’s share of medical benefits that it pays for its employees
generally, provided that any coverage period required under IRC 4980B shall
run
concurrently with the period that HNC pays the employer’s share of health
coverage under this Section.
(c)
Bank’s employees will, immediately upon Effective Time, be eligible for all HNC
Benefit Plans that are generally available to HNC employees upon the terms
of
the HNC Benefit Plans applicable from time to time. HNC shall, and shall cause
HNB, to waive all limitations as to preexisting conditions, exclusions and
waiting periods with respect to participation and coverage requirements
applicable to such employees to the extent such conditions were satisfied under
any corresponding East Penn Financial Employee Benefit Plans. To the extent
allowed under each applicable plan, but in any event only to the extent that
East Penn Financial shall have provided to HNC prior to the Effective Time
detailed, verifiable information on the amounts to be credited to each employee,
HNC will provide credit under such plans for any deductibles incurred by Bank’s
employees during the portion of the calendar year prior to the commencement
of
their participation in HNC’s plans. Those of Bank’s employees that continue to
be employed by HNC after Effective Time will be given full credit for years
of
service with Bank for purposes of eligibility and vesting, but not for purposes
of calculating benefit amounts, under HNC’s applicable employee benefit
plans.
(d)
Except (i) as expressly provided in this Agreement or (ii) as expressly provided
in any East Penn Financial Employment Agreements set forth on East Penn
Financial Disclosure Schedule 3.8(a) (but subject, nevertheless, to any rights
HNC has after the Effective Time as employer under any of the East Penn
Financial Employment Agreements), and (iii) as expressly provided in the
employment agreement to be entered into between HNC and Xxxxx X. Xxxxxx pursuant
to Section 7.11(b), HNC shall have no obligation to provide to any directors,
officers or employees of East Penn Financial, Bank or any Subsidiary any
benefits of any sort other than, as
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to
employees of East Penn Financial and the Bank, HNC’s normal and customary
benefits for HNC’s employees.
(e)
Notwithstanding any other provision of this Agreement, at or promptly after
the
Effective Time, HNC shall have the right to freeze, merge or terminate the
existing 401(k) plan and where applicable transfer its assets into HNC’s
existing 401(k) plan.
(f)
Employees of East Penn Financial and Bank shall not be deemed third party
beneficiaries of the commitments set forth in this Section 6.2.
Section
6.3 Post-Closing Business Strategies for East Penn Bank Division of HNB.
Upon
the
Effective Time and for three (3) years thereafter, HNC and HNB shall:
(a)
Operate the Bank as a division of HNB with the name “East Penn Bank” and utilize
the Bank’s logo as it is on the date of this Agreement (or as changed hereafter
by the Bank prior to the Effective Time with the prior written approval of
HNC).
(b)
Transfer nine (9) existing HNB branches located in Lehigh, Carbon, Monroe and
Northampton Counties into, and administer and operate them within, HNB’s East
Penn Bank division, under the “East Penn Bank” name and signage, and under the
authority of that division’s management team.
(c)
Retain autonomous loan authority levels for the “East Penn Bank” division
subject to HNC’s loan policies, credit quality administration and OCC rules and
regulations.
(d)
Integrally involve the “East Penn Bank” division and its management in HNC’s and
HNB’s marketing efforts, including a regional marketing presence for “East Penn
Bank.”
(e)
Retain the “East Penn Bank” division’s ability to make community contributions
consistent with the Bank’s historical levels within overall HNC company-wide
budget parameters.
(f)
Retain an advisory board of directors for the “East Penn Bank” division composed
of at least five individuals of the East Penn Financial board of directors
prior
to the Effective Time who elected in writing, at or prior to the Effective
Time,
to serve after the Effective Time (the “East Penn Bank Division Board”), for
which the annual director retainer will be $8,000, plus $150 per meeting
attended up to a maximum of $1,200.00 in meeting fees per individual. The East
Penn Bank Division Board will choose its own chairman and shall hold at least
eight (8) meetings annually.
(g)
Appoint at the Effective Time and maintain Xxxxx X. Xxxxxx as a member of the
board of directors of HNC and HNB.
If
Xxxxx
Xxxxxx’ employment with HNC is terminated within the three (3) year period for
any “Permitted Reason” (as defined below), HNC and HNB shall continue to comply
with the
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provisions
of subsection (f) of this Section for the full three (3) years, but shall not
be
obligated to continue any of the other foregoing strategies. For purposes of
this Agreement, “Permitted Reason” means (i) termination by HNC of Xxxxx Xxxxxx’
employment with HNC for “cause” as defined in his employment agreement with HNC,
or (ii) termination of his employment with HNC by Xxxxx Xxxxxx for reasons
other
than “good reason” as defined in his employment agreement with HNC, or (iii)
termination of Xxxxx Xxxxxx’ employment with HNC due to his death or total
disability. The commitments set forth in this Section 6.3 shall survive the
Effective Time as reflected in a formal resolution of the HNC Board to be
reflected in the minutes of HNC as the survivor of the Merger. The members
of
the East Penn Bank Division Board who were formerly East Penn Financial
directors shall be deemed to be third party beneficiaries of the commitments
set
forth in this Section 6.3.
Section
6.4 Tax
Opinion. HNC
shall
use reasonable diligence to obtain the tax opinion described in Section 7.4(c)
on a timely basis. To the extent that HNC is not able to obtain such an opinion,
HNC shall consult promptly in detail with East Penn Financial with regard to
the
specific reasons why it cannot obtain the opinion and East Penn Financial shall
have a reasonable opportunity prior to Closing to take such actions as may
be
reasonably necessary to address any such reasons.
ARTICLE
VII
CONDITIONS
TO
OBLIGATIONS OF HNC
The
obligations of HNC under this Agreement (including without limitation, its
obligation to consummate the Closing) are subject to satisfaction of the
following conditions at or prior to the Closing Date, which conditions may
be
waived in the discretion of HNC:
Section
7.1 Representations, Warranties and Covenants. The
representations and warranties of East Penn Financial and the Bank contained
in
this Agreement shall be true and correct in all material respects on the date
of
this Agreement and on the Closing Date with the same effect as though made
at
such time (unless such representations and warranties speak as of a different
date), except to the extent (i) waived by HNC hereunder or (ii) such
representation or warranty is no longer true due to action or inaction of East
Penn Financial or Bank that was consented to in writing by HNC. East Penn
Financial, Bank, and each Subsidiary shall have performed in all material
respects all obligations and agreements, and shall have materially complied
with
all terms, covenants and conditions contained in this Agreement to be performed
or complied with by them prior to or at the Closing Date.
Section
7.2 Officer’s Certification. HNC
shall
have received a certification signed by the Presidents of East Penn Financial
and the Bank solely in their capacity as such officers and without personal
liability, dated the Closing Date, to the effect that (a) all of the
representations and warranties made by East Penn Financial and the Bank under
this Agreement and the information contained in the Exhibits and Schedules
and
other documents delivered by East Penn Financial and the Bank pursuant to this
Agreement are true and correct in all material respects on the date of this
Agreement and on the Closing Date with the same effect as though made at such
time (unless such representations and warranties speak as of a different date),
except to the extent (i) waived in writing
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by
HNC
hereunder or (ii) such representation or warranty is no longer true due to
action or inaction of East Penn Financial, Bank or applicable Subsidiary that
was consented to in writing by HNC; and (b) East Penn Financial, Bank, and
each
Subsidiary have performed in all material respects all obligations and
agreements, and have materially complied with all terms, covenants and
conditions, contained in this Agreement to be performed or complied with by
them
prior to or at the Closing Date.
Section
7.3 Litigation; Other Prohibitions. There
shall be no pending or threatened claim, action, litigation or proceeding,
judicial or administrative, or governmental action against East Penn Financial,
Bank, any Subsidiary or any Person within the HNC Group for the purpose of
enjoining or preventing the Merger or otherwise preventing the consummation
of
the Closing or otherwise claiming that this Agreement or the Merger or the
consummation of the Closing is illegal or unauthorized. There shall not be
in
effect any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits Effective Time. 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.
Section
7.4 Opinions of Counsel and Related Matters.
(a)
HNC
shall have received an opinion from legal counsel for East Penn Financial,
Bank
and each Subsidiary in accordance with Exhibit
7.4(a)
to this
Agreement.
(b)
HNC
shall have received subsistence certificates from (i) the Department of State
of
the state in which East Penn Financial has been formed, with respect to East
Penn Financial (ii) from the PADOB (and a certificate of deposit insurance
from
the FDIC) with respect to the Bank, and (iii) from the Department of State
of
each state in which a Subsidiary is formed, with respect to each of the
Subsidiaries, all of which shall be dated within five (5) days prior the Closing
Date.
(c)
HNC
shall have received an opinion from its counsel, dated the Closing Date, to
the
effect that (i) the Merger constitutes a reorganization under IRC Section
368(a), and (ii) any gain realized in the Merger will be recognized only to
the
extent of cash or other property (other than HNC Common Stock) received in
the
Merger, including cash received in lieu of fractional share interests; in
rendering their opinion, such counsel may make reasonable assumptions and
require and rely upon representations of either or both Parties or their agents
or third parties, including without limitation those contained in certificates
of officers of East Penn Financial, HNC and others.
Section
7.5 Regulatory Approvals and Consents. 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 East Penn Financial 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 HNC Board reasonably
determines in good faith would, individually or in the aggregate, materially
and
adversely affect the economic or business benefits to HNC of the Merger, the
business or financial condition of HNC on a consolidated basis, or the business
presently operated by East Penn Financial, the Bank and each Subsidiary as
it is
to be acquired by HNC. Any landlord Consent which
-54-
requires
an increase in rents or an extension of the lease term shall be deemed to
materially and adversely affect the lease which is the subject of such
Consent. Without
limiting the foregoing, East Penn Financial and Bank 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 East Penn Financial or Bank 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. All statutory and regulatory waiting periods relating to the Merger
shall have expired.
Section
7.6 Additional Actions. At
and
after the Effective Time, East Penn Financial, Bank, each Subsidiary and each
of
their officers and directors shall 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 full, unconditional
ownership and control of Bank and each Subsidiary and their respective rights,
properties and assets in HNC, and otherwise to carry out the purposes of this
Agreement.
Section
7.7 Shareholder Approval.
East
Penn Financial and East Penn Financial’s shareholders, and Bank and each
Subsidiary shall have taken all necessary action on behalf of East Penn
Financial, the Bank and each Subsidiary to approve all of the transactions
to be
completed hereunder in connection with or to consummate Closing.
Section
7.8 No Material Adverse Change. No
change
in the business, property, assets (including loan portfolios), liabilities
(whether absolute, contingent or otherwise), operations, liquidity, income,
or
financial condition of East Penn Financial, Bank or any of the Subsidiary shall
have occurred since the date of this Agreement, which has had, or would
reasonably be likely to have, a Material Adverse Effect.
Section
7.9 Satisfaction with Phase 1 Results.
The
results of any Phase 1 environmental audit conducted by HNC shall be acceptable
in all respects to HNC.
Section
7.10 Other Cooperation.
HNC
shall have received such other certificates, documents or instruments from
East
Penn Financial or its officers or others as HNC shall have reasonably requested
in connection with accounting or income tax treatment of the Merger, or related
securities law compliance.
Section
7.11 Employment Related Agreements with Xxxxx X. Xxxxxx.
The
following shall have occurred with respect to certain employment related
agreements between or among East Penn Financial, Bank and Xxxxx X.
Xxxxxx:
(a)
Xxxxx
X. Xxxxxx’ employment agreement with East Penn Financial and the Bank shall have
been terminated in accordance with the provisions of the Termination of
Employment Agreement attached to this Agreement as Exhibit
7.11(a).
(b)
Xxxxx
X. Xxxxxx shall have executed an Employment Agreement with HMS in the form
attached to this Agreement as Exhibit
7.11(b),
effective at the Effective Time.
-55-
Section
7.12 Execution of Other Agreements.
In
connection with and at the time of execution of this Agreement:
(a)
Each
director of East Penn Financial and each director of the Bank shall have
delivered to HNC an executed Director Support Agreement in the form attached
hereto as Exhibit
7.12(a).
(b)
Xxxxx
X. Xxxxxx shall have delivered to East Penn Financial, Bank and HNC an
Inducement Agreement with respect to his existing Employment Agreement and
Supplemental Executive Retirement Plan with East Penn Financial and Bank, in
the
form attached hereto as Exhibit
7.12(b).
Section
7.13 Execution of Affiliate Agreements.
HNC
shall have received from each director and executive officer of East Penn
Financial an executed counterpart of an affiliate's agreement, in the form
attached hereto as Exhibit
7.13.
Section
7.14 Securities Filings.
The
Securities Filings shall be effective under applicable federal and state
securities laws, and no proceedings shall be pending or threatened to suspend
the effectiveness of any Securities Filings or to prohibit the issuance of
the
HNC Common Stock to East Penn Financial shareholders; and all approvals deemed
necessary by HNC's counsel from state securities or "blue sky" authorities
with
respect to the transactions contemplated by this Agreement shall have been
obtained. HNC Common Stock to be issued to East Penn Financial shareholders
shall be approved and listed on the NASDAQ Global Stock Market.
Section
7.15 East Penn Financial and Bank Authorizations.
All
action required to be taken by, or on the part of, East Penn Financial, Bank
and
each Subsidiary to authorize the execution, delivery and performance of this
Agreement, and the Effective Time, shall have been duly and validly taken by
East Penn Financial and Bank, respectively, and HNC shall have received
certified copies of the resolutions evidencing such authorizations.
Section
7.16 Agreement on Allocation.
The
Parties and the Exchange Agent shall have agreed upon the Final
Allocation.
ARTICLE
VIII
CONDITIONS
TO
OBLIGATIONS OF EAST PENN FINANCIAL AND
BANK
The
obligations of East Penn Financial, Bank, and each Subsidiary under this
Agreement (including, without limitation its obligation to consummate the
Closing) are subject to satisfaction of the following conditions at or prior
to
the Closing Date, which conditions may be waived in the discretion of East
Penn
Financial:
Section
8.1 Representations, Warranties and Covenants of HNC. The
representations and warranties of HNC contained in this Agreement shall be
true
and correct on the date of this
-56-
Agreement
and on the Closing Date with the same effect as though made at such time (unless
such representations and warranties speak as of a different date), except to
the
extent (i) waived hereunder by East Penn Financial, or (ii) such representation
or warranty is no longer true due to action or inaction of HNC that was
consented to in writing by East Penn Financial. HNC shall have performed in
all
material respects all obligations and agreements, and shall have materially
complied with all terms, covenants and conditions, contained in this Agreement
to be performed or complied with by it prior to or at the Closing
Date.
Section
8.2 Officer’s Certification.
East
Penn Financial shall have received a certification signed by the President
of
HNC, solely in her capacity as such officer and without personal liability,
dated the Closing Date, to the effect that (a) all of the representations and
warranties made by HNC under this Agreement and the information contained in
the
Exhibits and Schedules and other documents delivered by HNC pursuant to this
Agreement are true and correct in all material respects on the date of this
Agreement and on the Closing Date with the same effect as though made at such
time (unless such representations and warranties speak as of a different date),
except to the extent (i) waived in writing by East Penn Financial hereunder
or
(ii) such representation or warranty is no longer true due to action or inaction
of HNC or any of HNC’s subsidiaries that was consented to in writing by East
Penn Financial; and (b) HNC has performed in all material respects all
obligations and agreements, and have materially complied with all terms,
covenants and conditions, contained in this Agreement to be performed or
complied with by HNC prior to or at the Closing Date.
Section
8.3 Litigation. There
shall be no pending or threatened claim, action, litigation or proceeding,
judicial or administrative, or governmental action against East Penn Financial,
Bank, any Subsidiary or HNC or any Person within the HNC Group for the purpose
of enjoining or preventing the Merger or otherwise preventing the consummation
of the Closing or otherwise claiming that this Agreement or the Merger or the
consummation of the Closing is illegal or unauthorized. There shall not be
in
effect any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits Effective Time. 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.
Section
8.4 Regulatory Approvals. All
Regulatory Approvals shall have been obtained, shall not contain any conditions
that are not acceptable to East Penn Financial in its reasonable discretion
and
shall be in full force and effect, and all statutory or regulatory waiting
periods in connection with such Regulatory Approvals, if any, shall have
expired.
Section
8.5 Opinions of Counsel and Related Matters.
(a)
East
Penn Financial shall have received an opinion of legal counsel to HNC in
accordance with Exhibit
8.5(a)
to this
Agreement.
(b)
East
Penn Financial shall have received a subsistence certificate from the Department
of State of the state in which HNC has been formed, with respect to HNC, dated
within five (5) days prior the Closing Date.
-57-
(c)
East
Penn Financial shall have received an opinion, satisfactory to East Penn
Financial in its sole discretion, from its tax adviser with respect to the
status of the Merger as a reorganization under IRC Section 368(a) and any gain
or loss that may be recognized by East Penn Financial shareholders in connection
with the Merger.
Section
8.6 Shareholder Approval. This
Agreement and the Merger shall have been duly approved by the requisite vote
of
the holders of outstanding shares of East Penn Financial Common Stock as
required by law and the East Penn Financial articles of incorporation and
bylaws.
Section
8.7 Securities Filings.
The
Securities Filings shall be effective under applicable federal and state
securities laws, and no proceedings shall be pending or threatened to suspend
the effectiveness of any Securities Filings or to prohibit the issuance of
the
HNC Common Stock to East Penn Financial shareholders; and all approvals deemed
necessary by East Penn Financial's counsel from state securities or "blue sky"
authorities with respect to the transactions contemplated by this Agreement
shall have been obtained. HNC Common Stock to be issued to East Penn Financial
shareholders shall be approved and listed on the NASDAQ Global Stock
Market.
Section
8.8 No Material Adverse Change. No
change
in the business, property, assets (including loan portfolios), liabilities
(whether absolute, contingent or otherwise), operations, liquidity, income,
or
financial condition of HNC or any material subsidiary of HNC shall have occurred
since the date of this Agreement, which has had, or would reasonably be likely
to have, a Material Adverse Effect.
Section
8.9 Deposit of Merger Consideration.
East
Penn Financial shall have received confirmation from the Exchange Agent that,
pursuant to Section 2.9(a), a sufficient amount of Merger Consideration has
been
deposited in the Exchange Fund.
Section
8.10 Agreement on Allocation.
The
Parties and the Exchange Agent shall have agreed upon the Final
Allocation.
Section
8.11 Other Cooperation.
East
Penn Financial shall have received such other certificates, documents or
instruments from HNC or its officers or others as East Penn Financial shall
have
reasonably requested in connection with income tax treatment of the Merger
or
related securities law compliance.
ARTICLE
IX
SURVIVAL;
INDEMNIFICATION
Section
9.1 Survival. All
representations and warranties contained in this Agreement or in any exhibit,
Disclosure Schedule or other instrument delivered pursuant to this Agreement
shall terminate upon the Effective Time. Any other covenants, agreements and
indemnities contained in this Agreement or in any exhibit, Disclosure Schedule
or other instrument delivered pursuant to this Agreement which, by their nature,
are intended to be performed in whole or part after the Effective
-58-
Time,
shall survive the Closing, the Effective Time or any termination of this
Agreement, as the case may be. 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. Without limiting the
foregoing, Article II, Section 6.2, Section 6.3 and Article IX specifically
shall survive the Effective Time.
Section
9.2 Indemnification by East Penn Financial. So
long
as the Effective Time shall not have occurred, and for three (3) years from
the
date of termination of this Agreement, East Penn Financial, for itself and
its
successors (the “Indemnifying Party”), hereby agrees to indemnify and to defend
and hold harmless HNC, its subsidiaries and affiliates, and any of their
respective successors or assigns and their officers, directors, shareholders,
managers, members and employees (each, an “HNC Indemnified Party” and
collectively, “HNC Indemnified Parties”), from and against all claims, damages
(including without limitation punitive and exemplary damages), losses,
liabilities, costs and expenses (including, without limitation, settlement
costs
and any legal, accounting or other expenses for investigating or defending
any
actions or threatened actions) (collectively, the “Losses”) arising out of,
relating to, resulting from or incurred in connection with any Claim of any
third party based in whole or part on an allegation that the entry by East
Penn
Financial or the Bank into this Agreement violates such third party’s rights.
Notwithstanding any other provision of this Agreement, the provisions of this
indemnification shall not survive the Effective Time.
Section
9.3 Indemnification by HNC; Insurance.
(a)
From
and after the Effective Time, HNC (the “Indemnifying Party”) shall indemnify and
hold harmless each present and former director, officer and employee of East
Penn Financial or a Subsidiary, as applicable, (the “East Penn Financial
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, criminal, 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, prior to the Effective Time,
he or she was a director, officer, employee, fiduciary or agent of East Penn
Financial or any Subsidiary or is or was serving at the request of East Penn
Financial or any of the East Penn Financial Subsidiaries as a director, officer,
employee, fiduciary or agent of another corporation, partnership, joint venture,
trust or other enterprise, including without limitation matters related to
the
negotiation, execution and performance of this Agreement or consummation of
the
Merger, to the fullest extent that such East Penn Financial Indemnified Parties
would be mandatorily entitled under the East Penn Financial Charter and the
East
Penn Financial bylaws or equivalent documents of any Subsidiary, as applicable.
(b)
From
and after the Effective Time through the tenth (10th) anniversary of the
Effective Time, HNC (the “Indemnifying Party”) shall indemnify and hold harmless
each Person that is a shareholder of East Penn Financial at the Effective Time
(also included individually in the definition of an East Penn Financial
Indemnified Party and collectively in the definition of East
-59-
Penn
Financial Indemnified Parties) against any taxes, costs or expenses, including
reasonable attorneys’ fees, interest, judgments, penalties, fines, losses,
claims, damages or liabilities incurred, resulting from the failure of the
Merger to qualify as a reorganization under IRC Section 368(a). The shareholders
of East Penn Financial as of the Effective Time shall be deemed to be third
party beneficiaries of the provisions of this subsection (b) and the other
provisions of this Article IX applicable thereto, and shall have all right
of
enforceability thereof, but as a condition thereto shall also be bound by
provisions of Section 9.4 applicable to an Indemnified Party or Indemnified
Parties.
(c)
Prior
to the Effective Time, HNC shall cause the persons serving as directors and
officers of East Penn Financial immediately prior to the Effective Time to
be
covered by the directors’ and officers’ liability insurance policy maintained by
East Penn Financial for a period of six years after the Effective Time, provided
that HNC 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 East Penn Financial’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 HNC be required to expend for any one year an amount in excess of 150%
of
the annual premium currently paid by East Penn Financial for such insurance
(the
“Insurance Amount”), and further provided that if HNC is unable to maintain or
obtain the insurance called for by this subsection as a result of the preceding
provision, HNC 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 are intended to be for the benefit of and shall
be
enforceable by each of the Indemnified Parties and its successors and his or
her
personal representatives and heirs, and shall survive the Effective Date.
Section
9.4 Conditions to Indemnification. Any
HNC
Indemnified Party wishing to claim indemnification under Section 9.2, and any
East Penn Financial Indemnified Party wishing to claim indemnification under
Section 9.3 (in this Agreement, an “Indemnified Party”) upon learning of any
such claim, action, suit, proceeding or investigation, shall promptly notify
the
the applicable “Indemnifying Party” (either HNC, in the case of an East Penn
Financial Indemnifying Party, or East Penn Financial in the case of an HNC
Indemnified 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 Party for any legal expenses of other counsel or
any
other expenses subsequently incurred by such Indemnified Party in connection
with the defense thereof, except that if the Indemnifying Party elects not
to
assume such defense or counsel for the Indemnified Party and advises the
Indemnified Party that there are issues that raise conflicts of interest between
the Indemnifying Party and the Indemnified Party, the Indemnified Party may
retain counsel which is reasonably satisfactory to the Indemnifying Party,
and
the Indemnifying Party shall pay, promptly as statements therefor are received,
the
-60-
reasonable
fees and expenses of such counsel for the Indemnified Party, which may not
exceed one firm in any jurisdiction, (ii) the Indemnified Party 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 and (iv) the Indemnifying Party shall have no
obligation hereunder in the event that a federal or state 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.
ARTICLE
X
TERMINATION
Section
10.1 Termination of Agreement.
This
Agreement may be terminated on or at any time prior to the Closing Date:
(a)
By
the mutual written consent of the Parties;
(b)
By
HNC or East Penn Financial:
(i)
If
there shall have been any material breach of any representation, warranty or
obligation of the other Party and such breach cannot be, or shall not have
been,
remedied within 30 days after receipt by such Party of written notice specifying
the nature of such breach and requesting that it be remedied; provided, that,
if
such breach cannot reasonably be cured within such 30-day period but may
reasonably be cured within 60 days, and such cure is being diligently pursued,
no such termination shall occur prior to the expiration of such 60-day period;
(ii)
If
the Closing Date and the Effective Time shall not have occurred prior to the
Outside Effective Time (except that if the Closing Date or Effective Time shall
not have occurred prior to the Outside Effective Time because of a breach of
this Agreement by a Party, such breaching Party shall not be entitled to
terminate this Agreement in accordance with this provision);
(iii)
If
any Regulatory Authority whose approval or consent is required for consummation
of the Merger or the Bank Merger shall issue a definitive written denial of
such
approval or consent and the time period for appeals and requests for
reconsideration has run; or
(iv)
If
East Penn Financial Shareholders vote but fail to approve the Merger at East
Penn Financial Shareholders Meeting.
(c)
By
HNC if East Penn Financial, Bank or any Subsidiary enters into any term sheet,
letter of intent, agreement or similar type agreement with a view to being
acquired by, or effecting a business combination with, any other Person; or
any
agreement to merge, consolidate, to combine or to sell a material portion of
its
assets or to be acquired in any other manner by any other Person or to acquire
a
material amount of assets or a material equity position in any other
-61-
Person,
whether financial or otherwise.
(d)
By
HNC if East Penn Financial withdraws, changes, or modifies its recommendation
to
its shareholders in any manner adverse to HNC regarding this Agreement or the
Merger.
(e)
At
any time prior to the date of mailing of the Prospectus/Proxy Statement to
East
Penn Financial shareholders, by East Penn Financial in order to enter
concurrently into a Superior Proposal; provided, however, that this Agreement
may be terminated by East Penn Financial pursuant to this Section 10.1(e) only
after the fifth Business Day following East Penn Financial’s provision of
written notice to HNC advising HNC, that the East Penn Financial Board of
Directors is prepared to accept such Superior Proposal (it being agreed that
the
delivery of such notice shall not entitle HNC to terminate this Agreement
pursuant to Section 10.1(c)) and only if (i) during such five-Business Day
period, East Penn Financial has caused its financial and legal advisors to
negotiate with HNC 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) East Penn Financial’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 HNC and further provided that such termination shall not be
effective until East Penn Financial has paid the Termination Fee to
HNC.
(f)
By
East Penn Financial if it determines by a vote of the majority of the members
of
its Board of Directors, and notifies HNC, at any time during the five (5) day
period commencing two (2) Business Days after the Determination Date and if
both
of the following conditions are satisfied:
(i)
The
Indicated HNC Share Price shall be less than the product of 0.825 and the
Starting Price; and
(ii)
(x)
the number obtained by dividing the Indicated HNC Share Price by the Starting
Price (such number being referred to herein as the “HNC Ratio”) shall be less
than (y) the result obtained by subtracting 0.175 from quotient (the “Index
Ratio”) obtained by dividing the Index Price on the Determination Date by the
Index Price on the Starting Date;
If
East
Penn Financial elects to terminate this Agreement pursuant to this Section
10.1(f), it shall give notice to HNC within the aforementioned five (5) day
period.
For
purposes of this Section 10.1(f), the following terms shall have the meaning
indicated below:
“Index
Group”
means
the seventeen (17) financial institution companies listed below, the common
stock of all of which shall be publicly traded and as to which there shall
not
have
-62-
been
a
publicly announced proposal since the Starting Date and before the Determination
Date for any such company to be acquired or for such company to acquire another
company or companies in transactions with a value exceeding 25% of the
acquiror’s market capitalization. In the event that any such company is removed
from the Index Group, the weights (which shall be determined based upon the
market capitalization of the outstanding shares of common stock) shall be
redistributed proportionately for purposes of determining the Index Price.
The
seventeen (17) financial institution companies and the weights attributed to
them are as follows:
|
Name
|
Ticker
|
Factor
|
||
|
Arrow
Financial Corp.
|
AROW
|
3.2%
|
||
|
Community
Bank System Inc.
|
|
CBU
|
|
8.5%
|
|
F.N.B.
Corp.
|
FNB
|
13.9%
|
||
|
Financial
Institutions Inc.
|
|
FISI
|
|
3.0%
|
|
Lakeland
Bancorp
|
LBAI
|
4.0%
|
||
|
National
Penn Bancshares Inc.
|
|
NPBC
|
|
12.2%
|
|
NBT
Bancorp Inc.
|
NBTB
|
10.2%
|
||
|
Omega
Financial Corp.
|
|
OMEF
|
|
4.9%
|
|
Pennsylvania
Commerce Bancorp
|
COBH
|
2.2%
|
||
|
S&T
Bancorp Inc.
|
|
STBA
|
|
11.1%
|
|
Xxxxx
Spring Bancorp Inc.
|
SASR
|
7.0%
|
||
|
Sun
Bancorp Inc.
|
|
SNBC
|
|
5.3%
|
|
Xxxxxxxx
Trustco Inc.
|
TMP
|
5.2%
|
||
|
Univest
Corp. of Pennsylvania
|
|
UVSP
|
|
4.1%
|
|
Yardville
National Bancorp
|
|
YANB
|
|
5.2%
|
“Index
Price”
on
a
given date, means the weighted average (weighted in accordance with the
Weighting Factors above, which were calculated with reference to the market
capitalizations of the outstanding shares of common stock of the companies
listed above) based upon the closing prices on such date of the common stock
of
the companies comprising the Index Group.
“Starting
Date”
means
the trading day on the NASDAQ Global Market immediately preceding the day on
which the Parties publicly announced the signing of this agreement.
“Starting
Price”
means
the closing price of HNC Common Stock on the Starting Date, subject to
adjustment pursuant to Section 2.10 and round to the nearest whole
cent.
If
any
company belonging to the Index Group declares or effects a stock dividend,
reclassification, recapitalization, split-up, combination, exchange of shares
or
similar transaction between the Starting Date and the Determination Date, the
prices for the common stock of such company shall be appropriately adjusted
for
the purposes of applying this Section 10.1(f).
-63-
FOR
EXAMPLE:
If
the Starting Price is $16.73, the Indicated HNC Share Price must fall to $13.80
or below on the Determination Date to satisfy the condition in paragraph (i)
of
this subsection. To determine whether the condition in paragraph (ii) of this
subsection is satisfied, assume that:
|
HNC
Ratio =
|
Indicated
HNC Share Price
|
=
|
$12.00
|
=
|
0.7172743
|
|
Starting
Price
|
$16.73
|
Then
in this example 0.7172743 is the number referred to in clause (x) of paragraph
(ii) of this subsection.
Assume
further that the Index Price on the Starting Date is $16.00 and the Index Price
on the Determination Date is $15.00
|
The
Index Ratio =
|
$15.00
|
=
|
0.9375
|
|
$16.00
|
Then:
[Index Ratio] - [0.175] = 0.7625
Then
in this example 0.7625 is the number referred to in clause (y) of paragraph
(ii)
of this subsection.
In
this example, because 0.7172743 is less than 0.7625, the condition in paragraph
(ii) of this subsection is also satisfied. In this example, because the
conditions in both paragraph (i) and paragraph (ii) would be satisfied, East
Penn Financial would have a termination right under this subsection (f).
(g)
By
HNC if it determines by a vote of the majority of the members of its Board
of
Directors, and notifies East Penn Financial, at any time during the five (5)
day
period commencing two (2) Business Days after the Determination Date and if
the
Indicated HNC Share Price is less than $11.50. If HNC terminates this Agreement
pursuant to this Section 10.l(g), HNC shall be responsible for all reasonable
out-of-pocket expenses incurred by East Penn Financial in connection with this
Merger including but not limited to advisory fees, investment banker fees,
attorneys fees, professional fees, application fees, and printing and mailing
expenses to be paid within two (2) Business Days of the date of HNC's notice
of
termination pursuant to this Section.
Notwithstanding
anything to the contrary contained in this Agreement, no Party hereto shall
have
the right to terminate this Agreement on account of its own breach.
Section
10.2 Waiver of Right to Terminate. Any
Party
may, at its election, waive its right to terminate this Agreement under the
foregoing provisions of this Article X.
-64-
Section
10.3 Effect of Termination. Except
as
otherwise provided in this Agreement, in the event of termination of this
Agreement, each Party shall be responsible for its own expenses and neither
Party shall be liable in damages to the other unless termination results from
the breach or default of this Agreement by one of the Parties, in which event
liability will be limited to the non-breaching Party’s out-of-pocket expenses
relating to this Agreement and the Merger, including without limitation all
reasonable out-of-pocket expenses incurred by it in connection with this Merger
including but not limited to advisory fees, investment banker fees, attorneys
fees, professional fees, application fees, and printing and mailing expenses.
Notwithstanding the foregoing, East Penn Financial and Bank hereby agree that
if
this Agreement is terminated by HNC as a result of East Penn Financial entering
into an agreement to sell or actually selling or transferring any Bank Shares
to
any Person other than the HNC prior to this Agreement being terminated in
accordance with this Article X, then East Penn Financial and Bank shall be
jointly and severally liable to pay to HNC the Termination Fee provided in
Section 10.4 of this Agreement, reduced by the amount of any expenses of HNC
that shall have been paid by East Penn Financial or Bank under this
Section.
Section
10.4 Termination Fee in Certain Cases. If
this
Agreement is terminated by HNC in accordance with Section 10.1(c) or (d), or
by
East Penn Financial pursuant to Section 10.1(e), then in any such event East
Penn Financial shall immediately pay HNC a fee equal to four and one-half
percent (4.5%) times the dollar amount of the total Merger Consideration
calculated as of the date of termination of this Agreement as if such
termination date were the Determination Date (the “Termination Fee”), in total
satisfaction of any obligation to pay any damages. If HNC terminates this
Agreement in accordance with Section 10.1(b)(i) and such termination is due
to
either (i) a knowing breach of a representation or warranty by East Penn
Financial or the Bank and such breach has had or would be reasonably likely
to
have a Material Adverse Effect, or (ii) a knowing, material breach by East
Penn
Financial or the Bank of any other obligation under this Agreement, HNC and
if,
within eighteen (18) months after such termination, an Acquisition of East
Penn
Financial or the Bank occurs, East Penn Financial shall immediately pay HNC
the
Termination Fee, reduced by the amount of any expenses of HNC that shall have
been paid by East Penn Financial or Bank under Section 10.3. East Penn Financial
and the Bank agree that the amount of losses HNC would incur in such event
are
not reasonably capable of estimation, that the Termination Fee is a reasonable
estimation and liquidation thereof under the circumstances, and that HNC would
not enter into this Agreement without this provision. In the event a court
would
otherwise determine that the Termination Fee would be unenforceable in whole
or
part on the grounds that it is excessive, the amount of the Termination Fee
shall be reduced to the maximum amount consistent with enforceability of this
provision, and this provision shall otherwise be reformed and construed so
that
it shall be enforceable as nearly consistent as possible with its original
intent.
-65-
ARTICLE
XI
MISCELLANEOUS
Section
11.1 Access to Information
(a)
Prior
to the Closing Date, East Penn Financial and the Bank shall permit HNC and
HNC’s
representatives (including, without limitation, its attorneys, accountants
and
structural and environmental experts) to have access during regular business
hours, upon prior reasonable notice, to such officers, employees and agents
of
East Penn Financial and Bank as HNC or HNC’s representatives deem reasonably
necessary or appropriate for purpose of conducting HNC’s ongoing due
diligence.
(b)
HNC
and East Penn Financial and the Bank shall provide each other promptly with
information as to any significant developments in the performance of this
Agreement or in any document or agreement delivered in connection with this
Agreement and shall promptly notify the other if either discovers that any
of
its representations and warranties contained in this Agreement or in any
document delivered in connection with this Agreement was or were not true and
correct in all material respects or becomes or became untrue or incorrect in
any
material respect or any covenant has been breached or is expected to be breached
with the passage of time.
(c)
Any
due diligence investigations and any information obtained by either Party shall
not limit or adversely affect the enforceability by that Party of any
representations and warranties made by the other Party or Parties
hereunder.
Section
11.2 Severability. The
terms
and provisions to this Agreement are expressly made subject to Applicable
Requirements. In the event any provision of this Agreement would otherwise
be
determined by a court of competent jurisdiction to be in violation of any
Applicable Requirement, such provision shall be of no force or effect, and
this
Agreement shall be interpreted and construed as though such superseded provision
were not contained in this Agreement, in order to achieve its general intent
as
otherwise expressed in this Agreement.
Section
11.3 Payment of Costs. Except
as
is otherwise specifically provided in this Agreement, whether or not the Closing
takes place or whether this Agreement is terminated, each Party shall pay its
own costs and expenses in connection with this Agreement and the transactions
contemplated hereby, including, but not by way of limitation, all regulatory
fees, attorneys’ fees, investment banking fees, accounting fees and other
expenses.
Section
11.4 Notices. All
notices, demands, and other such communications hereunder shall be in writing
and shall be deemed to have been duly given upon delivery if delivered in
person, or the next day if sent via overnight delivery by Federal Express or
similar overnight courier service, fees prepaid, or the day of transmission
if
delivered by facsimile transmission (followed by telephone communication and
hard copy) or otherwise actually delivered, addressed as follows:
-66-
If
to
East Penn Financial or the Bank to:
East
Penn
Financial Corporation
00
Xxxxx
0xx Xxxxxx
X.X.
Xxx
000
Xxxxxx,
XX 00000
Attn:
Xxxxx X. Xxxxxx, President & CEO
Telecopier:
(000) 000-0000
With
a
copy to:
Xxxxx
Xxxxxxxx LLP
0000
Xxxxx Xxxx
Xxxxx
000
Xxxxxxx,
XX 00000
Attn:
Xxxxxxxx Xxxxx, Xx.
Telecopier:
(000) 000-0000
If
to
HNC, to:
Harleysville
National Corporation
000
Xxxx
Xxxxxx
Xxxxxxxxxxxx,
XX 00000
Attn:
Corporate Secretary
Telecopier:
(000) 000-0000
With
a
copy to:
Xxxxxxxx
Ronon Xxxxxxx & Xxxxx, LLP
00
Xxxxxx
Xxxxxx Xxxxxxx
Xxxxxxx,
XX 00000-0000
Attn:
Xxxxx X. Xxxxxxxx, Esquire
Telecopier:
(000) 000-0000
The
persons or addresses to which deliveries shall be made may change from time
to
time by notice given pursuant to the provisions of this Section.
Section
11.5 Successors and Assigns.
This
Agreement shall inure to the benefit of and be binding upon each Party and
its
successors. Neither Party may assign any of its rights or obligations hereunder
to any other Person, without the prior written consent of the other Party.
Section
11.6 Third-Party Beneficiaries. Except
as
specifically set forth in this Agreement, each Party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the Parties hereto. This Agreement shall be
expressly the obligation of any successor to any Party, and each Party shall
require any successor to such Party to assume the obligations of such Party
hereunder.
Section
11.7 Confidentiality
(a)
HNC
shall cause all materials and other information (other than information which
is
a matter of public knowledge by no violation of this Section or is provided
in
other sources readily
-67-
available
to the public) pertaining to East Penn Financial and the Bank obtained by HNC,
its legal counsel and other authorized representatives in connection with the
negotiation and performance of this Agreement to be held in confidence, not
to
be disclosed or disseminated to any Person not an employee or authorized
representative of HNC without the prior written consent of East Penn Financial
(except as may be required by law or as may be necessary to obtain the
Regulatory Approvals), and shall cause all copies of all such materials and
other information to be returned to East Penn Financial or destroyed promptly
upon any termination of this Agreement without the Closing having been held.
HNC
shall cause its representatives and agents to comply with the provisions of
this
Section. Notwithstanding anything contained herein to the contrary, the
obligation of HNC to maintain confidentiality with respect to any matter related
to the business of East Penn Financial and Bank shall terminate effective as
of
the Effective Time.
(b)
East
Penn Financial, Bank and each Subsidiary shall cause all materials and other
information (other than information which is a matter of public knowledge by
no
violation of this Section or is provided in other sources readily available
to
the public) pertaining to HNC obtained by East Penn Financial, Bank, their
counsel or other authorized representatives to he held in confidence, not to
be
disclosed or disseminated to any Person not an employee or authorized
representative of East Penn Financial or Bank without the prior written consent
of HNC (except as may be required by law), and shall cause all copies of all
such materials and other information to be returned to HNC or destroyed promptly
upon any termination of this Agreement without the Closing having been held
or
upon the consummation of the Closing. East Penn Financial and the Bank shall
each use its best efforts to cause its representatives, affiliates and agents
to
comply with the provisions of this Section.
Section
11.8 Counterparts. This
Agreement may be executed in one or more counterparts, all of which taken
together shall constitute one instrument.
Section
11.9 Governing Law. The
laws
of the Commonwealth of Pennsylvania, (without regard to its conflicts of law
principles or rules of choice of law) and federal law to the extent it pre-empts
state law, shall govern the validity and interpretation hereof and the
performance of the Parties of their respective duties and obligations
hereunder.
Section
11.10 Specific Performance. Each
of
the Parties acknowledges and agrees that the other Party would be damaged
irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached.
Accordingly, except as otherwise provided at herein, each of the Parties agrees
that the other Party shall be entitled to seek an injunction or injunctions
to
prevent breaches of the provisions of this Agreement and to enforce specifically
this Agreement and the terms and provisions hereof in any action instituted
in
any court of the United States or any state thereof having jurisdiction over
the
Parties and the matter, in addition to any other remedy to which it may be
entitled, at law or in equity.
Section
11.11 Entire Agreement; Amendments. This
Agreement (together with the Exhibits and Schedules referenced herein) embodies
the entire understanding of the Parties, and there are no further or other
agreements or understandings, written or oral, in effect between the Parties
relating to the subject matter hereof. This instrument and the agreements
contained herein may be amended or modified only by an instrument of equal
formality signed by the Parties or their duly
-68-
authorized
agents.
Section
11.12 Interpretations. The
section headings of this Agreement are for convenience of reference only and
do
not form a part of this Agreement and do not in any way modify, interpret or
construe the intentions of the Parties. References in this Agreement to
sections, schedules and exhibits are to sections of, and schedules and exhibits
to, this Agreement unless otherwise indicated. Words in the singular include
the
plural and in the plural include the singular. Any references to this Agreement
shall be deemed to mean this Agreement including all schedules and exhibits
hereto. All words used in this Agreement will be construed as being of such
gender or number as the circumstances require. A Person will be deemed to have
“knowledge” of a particular fact or other matters if he is actually aware of
such fact or other matter. For purposes of this Agreement, the phrases
“knowledge of” a Party, “to a Party’s knowledge” or “to the best of a Party’s
knowledge” shall refer to the knowledge (as defined above) of all officers,
directors and key employees of such Party, and any similar references to the
Bank shall refer to the knowledge (as defined above) of all officers, directors
and key employees of both the Bank and East Penn Financial.
[The
balance of this page is intentionally left blank.]
-69-
IN
WITNESS WHEREOF, the undersigned have duly executed this Merger Agreement as
of
the date first written above.
|
Attest:
|
HARLEYSVILLE
NATIONAL CORPORATION
|
|
|
/s/
Xxxx X. Xxxx
(Signature)
Print
Name: Xxxx X. Xxxx
Title:
Regional President
|
By:
/s/
Xxxxxxx X. Takes
(Signature)
Print
Name: Xxxxxxx X. Takes
Title:
Interim President & CEO
|
|
|
Attest:
/s/
Xxxxxxx X. Xxxxx
(Signature)
Print
Name: Xxxxxxx X. Xxxxx
Title:
Treasurer & CFO
|
EAST
PENN FINANCIAL CORPORATION
By:
/s/
Xxxxx X. Xxxxxx
(Signature)
Print
Name: Xxxxx X. Xxxxxx
Title:
Chairman, President, CEO
|
|
|
Attest:
/s/
Xxxxxxx X. Xxxxx
(Signature)
Print
Name: Xxxxxxx X. Xxxxx
Title:
Treasurer & CFO
|
EAST
PENN BANK
By:
/s/
Xxxxx X. Xxxxxx
(Signature)
Print
Name: Xxxxx X. Xxxxxx
Title:
Chairman, President, CEO
|
|
List
of Exhibits and Schedules
|
|
|
EXHIBITS
|
|
|
Exhibit
|
Title/Contents
|
|
1.1
|
Bank
Plan of Merger
|
|
3.15
|
Sandler
Engagement Letter
|
|
3.21
|
Sandler
Fairness Opinion
|
|
4.15
|
Xxxxxx
Engagement Letter
|
|
4.21
|
Xxxxxx
Fairness Opinion
|
|
7.4(a)
|
Form
of closing opinion of counsel to East Penn Financial and East Penn
Bank
|
|
7.11(a)
|
Form
of Termination of Employment Agreement of Xxxxx X.
Xxxxxx
|
|
7.11(b)
|
Form
of Employment Agreement for Xxxxx X. Xxxxxx
|
|
7.12(a)
|
Form
of Director Support Agreement
|
-70-
|
List
of Exhibits and
Schedules
|
|
7.12(b)
|
Form
of Inducement Agreement of Xxxxx X. Xxxxxx
|
|
7.13
|
Form
of Affiliates Agreement
|
|
8.5(a)
|
Form
of closing opinion of counsel to HNC
|
|
EAST
PENN FINANCIAL DISCLOSURE SCHEDULES
|
|
|
Schedule
|
Title/Contents
|
|
3.1(d)
|
East
Penn Financial Subsidiaries
|
|
3.2(c)
|
Equity
Interests in Entities other than Subsidiaries
|
|
3.2(d)
|
Beneficial
owners of 5% or more of the outstanding shares of East Penn Financial
Common Stock
|
|
3.4
|
Regulatory
Filings, Regulatory Approvals and Consents
|
|
3.5(b)
|
Certain
Liabilities, Obligations and Contingencies
|
|
3.8(a)
|
East
Penn Financial Employment Agreements
|
|
3.8(b)
|
Post-Termination
Benefits, Benefit Accelerations and Equity Benefits
|
|
3.8(b)(i)
|
Extent
to which East Penn Financial Employment Agreements and East Penn
Financial
Employee Benefit Plans are not in full force and effect
|
|
3.8(b)(ii)
|
Certain
termination and benefit rights under East Penn Financial Employment
Agreements and East Penn Financial Employee Benefit
Plans
|
|
3.9(a)
|
Encumbrances
securing certain liabilities for borrowed money
|
|
3.10
|
Legal
Proceedings
|
|
3.12
|
East
Penn Financial Employee Benefit Plans
|
|
3.13
|
East
Penn Financial Equity Plans
|
|
3.14
|
Certain
environmental matters
|
|
3.17
|
Affiliate
transactions
|
|
3.19
|
Classified
Assets and Credits; Overdrafts
|
|
3.24(b)
|
Acquisitions
and dispositions since December 31, 2006
|
|
3.24(e)
|
Liabilities
over $50,000 occurred outside the ordinary course of business since
December 31, 2006
|
|
3.24(f)
|
Material
alterations in books, accounts and records
|
|
5.2(a)
|
Exceptions
to covenant limiting acquisitions and new activities
|
|
5.2(q)
|
Exceptions
to covenant limiting new branches and office facilities
|
|
HNC
DISCLOSURE SCHEDULES
|
|
|
Schedule
|
Title/Contents
|
|
4.1(g)
|
HNC
Subsidiaries
|
|
4.4
|
Regulatory
Filings, Regulatory Approvals and Consents
|
|
4.7
|
Certain
tax matters
|
|
4.13
|
HNC
Benefit Plans
|
-71-
