AGREEMENT TO MERGE
AND PLAN OF REORGANIZATION
DATED AS OF JANUARY 29, 1998
BY AND AMONG
BANK OF SANTA ▇▇▇▇▇
BSM BANCORP
AND
MID-STATE BANK
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AGREEMENT TO MERGE
AND PLAN OF REORGANIZATION
THIS AGREEMENT TO MERGE AND PLAN OF REORGANIZATION ("AGREEMENT") is
entered into as of January 29, 1998, among Bank of Santa ▇▇▇▇▇, a banking
company organized under the laws of California ("BANK"), being located in Santa
Maria, California, BSM Bancorp, a corporation and registered bank holding
company organized under the laws of California ("BANCORP"), and Mid-State Bank,
a banking company organized under the laws of California ("ACQUIROR"), located
in Arroyo Grande, California.
R E C I T A L S:
A. Bank is a wholly owned subsidiary of Bancorp.
B. Bancorp, Bank and Acquiror believe that it would be in their
respective best interests and in the best interests of their respective
shareholders for Bank to merge with and into Acquiror (the "Bank Merger"),
for Bancorp to become the bank holding company for Acquiror and for the
shareholders of Acquiror to become shareholders of Bancorp, all in accordance
with the terms set forth in this Agreement and applicable law.
C. The respective Boards of Directors of Bank and Acquiror have
adopted by majority vote resolutions approving and authorizing the Bank
Merger upon the terms and conditions set forth in this Agreement and the
Board of Directors of Bancorp has adopted by majority vote resolutions
approving the Bank Merger, this Agreement and the transactions contemplated
herein.
D. Bancorp, Bank and Acquiror desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated by this Agreement.
A G R E E M E N T
IN CONSIDERATION of the premises and mutual covenants hereinafter
contained, Bank, Bancorp and Acquiror agree as follows:
ARTICLE 1
DEFINITIONS AND DETERMINATIONS
1.1 DEFINITIONS. Capitalized terms used in this Agreement shall have
the meanings set forth below:
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"Acquiror" shall have the meaning given such term in the introductory
clause.
"Acquiror Benefit Arrangement" shall have the meaning given such term in
Section 4.18(b).
"Acquiror Corporate Governance Changes" shall have the meaning given such
term in Section 2.1(b).
"Acquirors Directors Agreement" shall mean an agreement, substantially in
the form attached as Exhibit 2.6(B).
"Acquiror Dissenting Shares" means shares of Acquiror Stock held by
dissenting shareholders within the meaning of Chapter 13 of the CGCL.
"Acquiror Perfected Dissenting Shares" means Dissenting Shares which the
holders thereof have not withdrawn or caused to lose their status as Acquiror
Dissenting Shares.
"Acquiror Property" shall have the meaning given such term in Section 4.25.
"Acquiror Scheduled Contracts" shall have the meaning given such term in
Section 4.30.
"Acquiror Shareholders' Meeting" shall have the meaning given such term
in Section 6.5.
"Acquiror Stock" means the common stock, no par value, of Acquiror.
"Acquiror Stock Options" shall have the meaning given such term in Section
7.4(a).
"Agreement of Merger" means the Agreement of Merger substantially in the
form attached hereto as Exhibit A.
"Affiliate" means a person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, the person specified.
"Average Closing Price" means the average of the daily closing prices of a
share of Acquiror Stock reported on the OTC Bulletin Board during the 20
consecutive trading days that Acquirors Stock trades ending at the end of
the third trading day immediately preceding the Effective Day.
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"Bancorp" shall have the meaning given such term in the introductory
clause.
"Bancorp Corporate Governance Changes" shall have the meaning given such
term in Section 2.1(d).
"Bancorp Directors' Agreement" shall mean an agreement, substantially in
the form attached as Exhibit 2.6(A).
"Bancorp Dissenting Shares" means shares of Bancorp Stock held by
dissenting shareholders within the meaning of Chapter 13 of the CGCL.
"Bancorp Perfected Dissenting Shares" means Dissenting Shares which the
holders thereof have not withdrawn or caused to lose their status as Bancorp
Dissenting Shares.
"Bancorp Property" shall have the meaning given such term in Section 3.26.
"Bancorp Scheduled Contracts" shall have the meaning given such term in
Section 3.15.
"Bancorp Shareholders' Meeting" shall have the meaning given such term in
Section 5.6.
"Bancorp Stock" means the common stock, no par value, of Bancorp.
"Bancorp Stock Option" means any option issued pursuant to the Bancorp
Stock Option Plan.
"Bancorp Stock Option Plan" means the BSM Bancorp 1996 Stock Option Plan.
"Bank" shall have the meaning given such term in the introductory clause.
"Bank Benefit Arrangement" shall have the meaning given such term in
Section 3.19(b).
"Bank Merger" shall have the meaning given such term in the Recitals.
"Bank Stock" means the common stock, NO PAR value, of Bank.
"Benefit Arrangement" means any plan or arrangement maintained or
contributed to by a Party, including an employee benefit plan within the meaning
of ERISA, (but exclusive of base salary and base wages) which provides for any
form of
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current or deferred compensation, bonus, stock option, profit sharing,
benefit, retirement, incentive, group health or insurance, welfare or similar
plan or arrangement for the benefit of any employee or class of employee,
whether active or retired, of a Party.
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
"Business Day" means any day other than a Saturday, Sunday or day on which
commercial banks in California are authorized or required to be closed.
"CFC" means the California Financial Code.
"CGCL" means the California General Corporation Law.
"Certificates" shall have the meaning given such term in Section 2.5.
"Charter Documents" means, with respect to any business organization, any
certificate or articles of incorporation or articles of association, and any
bylaws, each as amended to date, that regulate the basic organization of the
business organization and its internal relations.
"Closing" means the consummation of the Bank Merger on the Effective Day
at the main office of Acquiror or at such other place as may be agreed upon
by the Parties.
"Code" means the United States Internal Revenue Code of 1986, as amended,
and all regulations thereunder.
"Commissioner" means the Commissioner of Financial Institutions, State of
California.
"Competing Transaction" shall have the meaning given such term in Section
5.14.
"Confidential Information" means all information exchanged heretofore or
hereafter between Acquiror, its affiliates and agents, on the one hand, and
Bancorp and Bank, their affiliates and agents, on the other hand, which is
information related to the business, financial position or operations of the
Person responsible for furnishing the information or an Affiliate of such
Person (such information to include, by way of example only and not of
limitation, client lists, company manuals, internal memoranda, strategic
plans, budgets, forecasts/ projections, computer models, marketing plans,
files relating to loans originated by such Person, loans and loan
participation purchased by such Person from others, investments, deposits,
leases, contracts, employment records, minutes of board of directors meetings
(and committees thereof) and stockholder meetings, legal proceedings, reports
of examination by any Governmental Entity, and such other records or
documents such Person may supply to the other Party pursuant to
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the terms of this Agreement or as contemplated hereby). Notwithstanding the
foregoing, "Confidential Information" shall not include any information that
(i) at the time of disclosure or thereafter is generally available to and
known by the public (other than as a result of a disclosure directly or
indirectly by the recipients or any of their officers, directors, employees
or other representatives or agents), (ii) was available to the recipients on
a nonconfidential basis from a source other than Persons responsible for
furnishing the information, PROVIDED that such source is not and was not
bound by a confidentiality agreement with respect to the information, or
(iii) has been independently acquired or developed by the recipients without
violating any obligations under this Agreement.
"Consents" means every required consent, approval, absence of disapproval,
waiver or authorization from, or notice to, or registration or filing with,
any Person.
"Determination Date" shall have the meaning given such term in Section
10.1(i).
"Disclosure Letter" means a disclosure letter from the Party making the
disclosure and delivered to the other Party.
"DPC Property" means voting securities, other personal property and real
property acquired by foreclosure or otherwise, in the ordinary course of
collecting a debt previously contracted for in good faith, retained with the
object of sale for any applicable statutory holding period, and recorded in the
holder's business records as such.
"Effective Day" means the day on which the Effective Time occurs.
"Effective Time" shall have the meaning given such term in Section 2.2.
"Encumbrances" means any option, pledge, security interest, lien,
charge, encumbrance, mortgage, assessment, claim or restriction (whether on
voting, disposition or otherwise), whether imposed by agreement, understanding,
law or otherwise.
"Environmental Laws" shall have the meaning given such term in Section
3.26.
"Equity Securities" means capital stock or any options, rights, warrants
or other rights to subscribe for or purchase capital stock, or any plans,
contracts or commitments that are exercisable in such capital stock or that
provide for the issuance of, or grant the right to acquire, or are
convertible into, or exchangeable for, such capital stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all regulations thereunder.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means ChaseMellon Shareholder Services or such other
financial institution appointed by Acquiror, to effect the exchange
contemplated by Section 2.5 hereof.
"Exchange Fund" shall have the meaning given such term in Section 2.5.
"Exchange Ratio" means the number of shares of Bancorp Stock into which a
share of Acquiror Stock" shall be converted which shall be equal to the amount
calculated (to the nearest ten thousandth) as set forth hereinbelow (unless
said Exchange Ratio is further adjusted pursuant to Section 10.1(i)):
(i) If the Average Closing Price is not less than $26.25 and is not
more than $30.50, the Exchange Ratio shall be the reciprocal of the
number determined by dividing $29.37 by the Average Closing Price;
(ii) Subject to Section 10.1(i), if the Average Closing Price
is less than $26.25, the Exchange Ratio shall be .8938; and
(iii) If the Average Closing Price is greater than $30.50, the
Exchange Ratio shall be 1.0385.
The Exchange Ratio shall be adjusted upward for any Significant Liabilities.
"Significant Liabilities", as used in this Agreement, shall relate to the
following categories or events unless Acquiror has consented in writing to
such matter: (1) new or extended contractual obligations other than those
arising in the ordinary course of Bank's or Bancorp's business; (2) new or
extended leases of real or personal property; (3) acquisition of capital
assets (or commitments to do so) except for assets required in the ordinary
course of business; (4) actual or contingent liabilities based upon
threatened or pending litigation, other proceedings or Hazardous Materials
and legal fees and costs (whether actual or estimated) related thereto as
described in Section 5.12 (provided, however, that the amount of such
liabilities shall be reduced by the amount of any insurance proceeds actually
received or certain, in the reasonable judgment of Acquiror, to be received);
(5) any unbooked expenses, fines, penalties or similar obligations except
those arising in the ordinary course of Bank's or Bancorp's business; (6) any
new, expanded or accelerated pension or other employee benefits including
employment contracts and severance payments in excess of one months
compensation, whether or not vested; (7) an amount which would equal the
amount necessary to bring the Bank's allowance for loan losses as of the
calendar quarter preceding the Effective Time to the amount required by the
Bank's existing policy on allowance for loan and lease losses (provided,
however, that if Acquiror should disagree with the adequacy of Banks
allowance for loan losses, then such disagreement shall be resolved through
the independent expert as discussed below); and (8) an amount which would
equal the amount necessary to bring Bancorp's
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shareholders' equity to the minimum Bancorp shareholders' equity amount as
described in Section 8.3(k). Acquiror and Bancorp shall identify any
categories or events reasonably believed by either of them to be Significant
Liabilities co mmencing immediately following receipt of the required
Consents for the Bank Merger by the Governmental Entities. All calculations
of Significant Liabilities, if any, shall be fully taxed affected, and the
after tax cost of any item referenced above shall be the amount of the
Significant Liability. To the extent that the item related to any
Significant Liability shall have already been booked and expensed by the
Bancorp and Bank and is therefore included within the amount of shareholders'
equity for purposes of (8), above, no further adjustment shall be made as a
result thereof. Upon identification of a Significant Liability, the Parties
shall attempt to agree upon the amount of said Significant Liability within
seven days. If no mutual agreement is reached within said period, the
Parties shall immediately hire an independent expert qualified to render an
opinion regarding the amount of the particular Significant Liability. The
Parties shall cooperate fully with any such independent expert and will
equally split the cost of such expert. The opinion of such expert shall be
binding on the parties for purposes of this Agreement. As a result of any
Significant Liabilities through the close of business on the Business Day
preceding the Effective Day, the Exchange Ratio shall be calculated (to the
nearest ten thousandth) according to the following formula:
1
-------------
$29.37 - x
-------------
Average Closing Price
where "x" represents the dollar amount of any Significant Liabilities divided
by the outstanding shares of Bancorp Stock (determined as of the Business Day
preceding the Effective Day). Further, if the Average Closing Price is below
$26.25 per share or above $30.50, then for purposes of this calculation
$26.25 or $30.50 respectively shall be used as the Average Closing Price
subject to Section 10.1(i).
"Expenses" shall have the meaning given such term in Section 11.1.
"Executive Officer" means with respect to any company a natural Person who
participates or has the authority to participate (other than solely in the
capacity of a director) in major policy making functions of the company,
whether or not such Person has a title or is serving with salary or
compensation.
"FDIC" means the Federal Deposit Insurance Corporation.
"Financial Statements of Bank/Bancorp" means the audited financial
statements and notes thereto of Bank and the related opinions thereon for the
years ended December 31, 1994, 1995 and 1996 and the unaudited consolidated
statements of financial condition and statements of operations and cash flow
of Bancorp for the nine months ended September 30, 1997.
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"Financial Statements of Acquiror" means the audited consolidated
financial statements and notes thereto of Acquiror and the related opinions
thereon for the years ended December 31, 1994, 1995 and 1996 and the
unaudited consolidated statements of financial condition and statements of
operations and cash flow of Acquiror for the nine months ended September 30,
1997.
"FRB" shall mean the Board of Governors of the Federal Reserve System.
"GAAP" means generally accepted accounting principles.
"Governmental Entity" means any court or tribunal in any jurisdiction or
any United States federal, state, district, domestic, or other administrative
agency, department, commission, board, bureau or other governmental authority
or instrumentality.
"Hazardous Materials" shall have the meaning given such term in Section
3.26.
"Immediate Family" shall mean a Person's spouse, parents, in-laws,
children and siblings.
"IRS" shall mean the Internal Revenue Service.
"Investment Securities" means any equity security or debt security as
defined in Statement of Financial Accounting Standard No. 115.
"Minimum Price" shall have the meaning given such term in Section 10.1(i).
"Operating Loss" shall have the meaning given such term in Section 3.25.
"Party" means any of Bancorp, Bank or Acquiror.
"Permit" means any United States federal, foreign, state, local or other
license, permit, franchise, certificate of authority, order of approval
necessary or appropriate under applicable Rules.
"Person" means any natural person, corporation, trust, association,
unincorporated body, partnership, joint venture, Governmental Entity,
statutorily or regulatory sanctioned unit or any other person or organization.
"Projected Earnings" shall have the meaning given such term in Section
8.3(k).
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"Proxy Statement" means the joint proxy statement that is included as
part of the S-4 and used to solicit proxies for the Acquiror Shareholders'
Meeting and the Bancorp Shareholders' Meeting and to offer and sell the
shares of Bancorp Stock to be issued in connection with the Bank Merger.
"Related Group of Persons" means Affiliates, members of an Immediate
Family or Persons the obligation of whom would be attributed to another
Person pursuant to the regulations promulgated by the SEC.
"Rule" means any statute or law or any judgment, decree, injunction,
order, regulation or rule of any Governmental Entity.
"S-4" means the registration statement on Form S-4, and such amendments
thereto, that is filed with the SEC to register the shares of Bancorp Stock
to be issued in the Bank Merger under the Securities Act and to clear use of
the Proxy Statement in connection with the Acquiror Shareholders Meeting and
the Bancorp Shareholders' Meeting pursuant to the regulations promulgated
under the Exchange Act.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" mean all reports filed by a Party hereto pursuant to the
Exchange Act with the SEC or the FDIC.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Liabilities" shall have the meaning given such term in the
definition of Exchange Ratio.
"Surviving Bank" means the Acquiror as the California state-chartered bank
surviving the Bank Merger of Bank with and into Acquiror.
"Tank" shall have the meaning given such term in Section 3.26.
"Third Party Consent" shall have the meaning given such term in
subsection (b) of Section 5.7.
"To the knowledge" shall have the meaning given such term in Section 11.14.
ARTICLE 2
CONSUMMATION OF THE BANK MERGER
2.1 THE MERGER; PLAN OF REORGANIZATION.
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(a) Subject to the terms and conditions of this Agreement and the
Agreement of Merger, at the Effective Time, Bank shall merge with and into
Acquiror under the charter of Acquiror.
(b) The Charter Documents of Acquiror as in effect immediately
prior to the Effective Time shall continue in effect after the Bank Merger
until thereafter amended in accordance with applicable law and the members of
the Board of Directors and the Executive Officers of Acquiror immediately
prior to the Bank Merger shall continue in their respective positions after
the Bank Merger and be the Board of Directors and Executive Officers of the
Surviving Bank; except that Acquiror shall have taken prior to the Effective
Time all necessary steps so that at the Effective Time (i) the number of
authorized directors of Acquiror shall be expanded by three, (ii) the three
persons set forth on Exhibit 2.1(b) [which Exhibit shall be delivered by
Acquiror to Bancorp within forty-five (45) days of the date of the Agreement]
shall be duly elected and appointed to fill such three vacancies (or if any
of such persons is unable to serve, such other person designated by Bank and
reasonably acceptable to Acquiror) and shall serve until the earlier of their
resignation or removal or until their respective successors are duly elected
and qualified, (iii) the current Chairman of the Board of the Bank shall be
elected and appointed Vice Chairman of the Board of Directors of Acquiror,
and (iv) the current President of the Bank shall be appointed Executive Vice
President of the Acquiror (clauses (i) - (iv) being hereinafter collectively
referred to as the "Acquiror Corporate Governance Changes").
(c) At the Effective Time, the corporate existence of Bank shall
be merged and continued in the Surviving Bank. All assets, rights,
franchises, titles and interests of Bank and Acquiror, in and to every type
of property (real, personal and mixed) and choses in action shall be
transferred to and vested in the Surviving Bank by virtue of the Bank Merger
without any deed or other transfer, and the Surviving Bank, without any order
or action on the part of any court or otherwise, shall hold and enjoy all
rights of property, franchises and interests, including appointments,
designations and nominations, and all other rights and interests as trustee,
executor, administrator, registrar of stocks and bonds, guardian of estates,
assignee or receiver and in every other fiduciary capacity in the same manner
and to the same extent that such rights, franchises and interests were held
by Bank and Acquiror at the Effective Time. At the Effective Time, the
Surviving Bank shall be liable for all liabilities of Bank and Acquiror and
all deposits, debts, liabilities, obligations and contracts of Bank and
Acquiror, matured or unmatured, whether accrued, absolute, contingent or
otherwise, and whether or not reflected or reserved against on balance
sheets, books of accounts or records of Bank and Acquiror, shall be those of
the Surviving Bank; and all rights of creditors or other obligees and all
liens on property of Bank and Acquiror shall be preserved unimpaired.
(d) The Charter Document of Bancorp as in effect immediately prior
to the Effective Time shall continue in effect after the Bank Merger until
thereafter amended in accordance with applicable law and the operations of
Bancorp shall continue in effect after the Bank Merger; except that Bancorp
shall have taken prior to the
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Effective Time all necessary steps so that at the Effective Time (i) the
Charter Documents of Bancorp shall be amended to change its name to
"Mid-State Bancshares", (ii) each of the Executive Officers and officers of
Bancorp shall have tendered his resignation from his position, in form and
substance satisfactory to Acquiror, without incurring any liability on the
part of any Party, (iii) each of the directors of Bancorp (except for the
three persons set forth on Exhibit 2.1(b) [which Exhibit shall be delivered
by Acquiror to Bancorp within forty-five (45) days of the date of the Agreement]
or if any of such persons is unable to serve, such other director of Bancorp
designated by Bank and reasonably acceptable to Acquiror) shall have tendered
his resignation as a director of Bancorp, in form and substance satisfactory
to Acquiror, without incurring any liability on the part of any Party, (iv)
the number of authorized directors of Bancorp shall be reduced to a total of
ten (10), (v) each of the then seven directors of Acquiror shall be duly
elected and appointed to the Board of Directors of Bancorp (or if any of such
persons is unable to serve, such other person designated by Acquiror) and
shall serve until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, and (vi) the persons
set forth on Exhibit 2.1(d) shall be elected and appointed as the Executive
Officers and officers of Bancorp and shall hold the positions set forth
opposite their respective names (clauses (i) - (vi) being hereinafter
collectively referred to as the "Bancorp Corporate Governance Changes.").
2.2 EFFECTIVE TIME. The Closing shall take place as soon as
practicable following the satisfaction or waiver of the conditions set forth
in Sections 8.1, 8.2 and 8.3, and the parties shall use best efforts to cause
the Closing to occur as soon as possible after receipt of approval of the
Bank Merger from the Commissioner and the FDIC and the expiration of all
required waiting periods, or such later time and date as to which the parties
may agree. The Bank Merger shall be effective upon the filing by the
Commissioner of the Agreement of Merger as specified in the CFC. Such time
is referred to herein as the "Effective Time."
2.3 CONVERSION OF SHARES. At the Effective Time and pursuant to the
Agreement of Merger:
(a) Subject to the exceptions and limitations in Section 2.4, each
outstanding share of Acquiror Stock shall, without any further action on the
part of Acquiror or the holders of any of such shares, be converted into
shares of Bancorp Stock in accordance with the Exchange Ratio.
(b) Each outstanding share of Bank Stock shall, without any
further action on the part of Bank or of the holder of any of such shares, be
converted into shares of the Surviving Bank and each certificate that, prior
to the Effective Time, represented shares of Bank Stock shall evidence
ownership of shares of the Surviving Bank.
(c) Each outstanding share of Bancorp Stock shall remain
outstanding and shall not be converted or otherwise affected by the Bank
Merger, except
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that any Bancorp Perfected Dissenting Shares shall remain outstanding subject
to the right of the holder of such shares to receive payment for such shares
in an amount determined pursuant to Chapter 13 of the CGCL.
2.4 CERTAIN EXCEPTIONS AND LIMITATIONS. (A) Any shares of Acquiror
Stock held by Bancorp or any subsidiary of Bancorp (other than shares held in
a fiduciary capacity or as DPC Property) will be canceled at the Effective
Time; (B) Acquiror Perfected Dissenting Shares shall not be converted into
shares of Bancorp Stock, but shall, after the Effective Time, be entitled
only to such rights as are granted them by Chapter 13 of the CGCL (each
dissenting shareholder who is entitled to payment for his shares of Acquiror
Stock shall receive such payment in an amount as determined pursuant to
Chapter 13 of CGCL), and (C) no fractional shares of Bancorp Stock shall be
issued in the Bank Merger and, in lieu thereof, each holder of Acquiror Stock
who would otherwise be entitled to receive a fractional share shall receive
an amount in cash equal to the product (calculated to the nearest ten
thousandth) obtained by multiplying (a) the Average Closing Price times (b)
the fraction of the share of Bancorp Stock to which such holder
would otherwise be entitled.
2.5 EXCHANGE PROCEDURES.
(a) As of the Effective Time, Bancorp shall have deposited with
the Exchange Agent for the benefit of the holders of shares of Acquiror
Stock, for exchange in accordance with this Section 2.5 through the Exchange
Agent, certificates representing the shares of Bancorp Stock issuable
pursuant to Section 2.3 in exchange for shares of Acquiror Stock outstanding
immediately prior to the Effective Time, and funds in an amount not less than
the amount of cash payable in lieu of fractional shares of Bancorp Stock
which would otherwise be payable in connection with Section 2.3 hereof, but
for the operation of Section 2.4 of this Agreement (collectively, the
"Exchange Fund").
(b) Bancorp shall direct the Exchange Agent to mail promptly after
the Effective Time, to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented outstanding shares
of Acquiror Stock (the "Certificates") whose shares were converted into the
right to receive shares of Bancorp Stock pursuant to Section 2.3 hereof: (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery
of the Certificates to the Exchange Agent and shall be in such form and have
such other provisions as Acquiror may reasonably specify), and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Bancorp Stock. Upon
surrendering of a Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by Acquiror, together with
such letters of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor that amount of cash and a
certificate representing that number of whole shares of Bancorp Stock which
such holder
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has the right to receive pursuant to the provisions of Sections 2.3 and 2.4
hereof, and the Certificate so surrendered shall forthwith be canceled. In
the event a Certificate is surrendered representing Acquiror Stock, the
transfer of ownership which is not registered in the transfer records of
Acquiror, a certificate representing the proper number of shares of Bancorp
Stock may be issued to a transferee if the Certificate representing such
Acquiror Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.5 and except as provided in subsection (g)
hereof, each Certificate shall be deemed at any time after the Effective Time
to represent only the r ight to receive upon such surrender the certificate
representing shares of Bancorp Stock and cash in lieu of any fractional
shares of stock as contemplated by this Section 2.5. Notwithstanding
anything to the contrary set forth herein, if any holder of shares of
Acquiror should be unable to surrender the Certificates for such shares,
because they have been lost or destroyed, such holder may deliver in lieu
thereof, in the discretion of Acquiror, such bond in form and substance and
with surety reasonably satisfactory to Acquiror and shall be entitled to
receive the certificate representing the proper number of shares of Bancorp
Stock and cash in lieu of fractional shares in accordance with Sections 2.3
and 2.4 hereof.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Bancorp Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Bancorp Stock represented thereby and no cash
payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.4 until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the
record holder of the certificates representing whole shares of Bancorp Stock
issued in exchange thereof, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
Bancorp Stock to which such holder is entitled pursuant to Section 2.4 and
the amount of dividends or other distribution with a record date after the
Effective Time theretofore paid with respect to such whole shares of Bancorp
Stock, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Bancorp Stock.
(d) All shares of Bancorp Stock issued upon the surrender for
exchange of Acquiror Stock in accordance with the terms hereof (including any
cash paid pursuant to Section 2.4) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Acquiror Stock,
and there shall be no further registration of transfers on the stock transfer
books of the Surviving Bank of the shares of Acquiror Stock which were
outstanding immediately prior to the Effective Time. If after the Effective
Time, Certificates are presented to Bancorp for any reason, they shall be
canceled and exchanged as provided in this Agreement.
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(e) Any portion of the Exchange Fund which remains undistributed
to the shareholders of Acquiror following the passage of six months after the
Effective Time shall be delivered to Bancorp, upon demand, and any
shareholders of Acquiror who have not theretofore complied with this Section
2.5 shall thereafter look only to Bancorp for payment of their claim for
Bancorp Stock, any cash in lieu of fractional shares of Bancorp Stock and any
dividends or distributions with respect Acquiror Stock.
(f) Neither Bancorp nor Acquiror shall be liable to any holder of
shares of Acquiror Stock for such shares (or dividends or distributions with
respect thereto) or cash from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(g) The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to the shares of Bancorp Stock held by
it from time to time hereunder, except that it shall receive and hold all
dividends or other distributions paid or distributed with respect to such
shares of Bancorp Stock for the account of the Persons entitled thereto.
Former shareholders of record of Acquiror shall be entitled to vote after the
Effective Time at any meeting of Bancorp shareholders the number of whole
shares of Bancorp Stock into which their respective shares of Acquiror Stock
are converted, regardless of whether such holders have exchanged their
Certificates for certificates representing Bancorp Stock in accordance with
the provisions of this Agreement.
2.6 DIRECTORS' AGREEMENTS.
(a) Concurrently with the execution of this Agreement, Bancorp and
Bank shall cause each of its respective directors to enter into a Bancorp
Directors Agreement.
(b) Concurrently with the execution of this Agreement, Acquiror
shall cause each of its respective directors to enter into an Acquiror's
Directors' Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BANCORP AND BANK
Bancorp and Bank represent and warrant to Acquiror as follows:
3.1 INCORPORATION, STANDING AND POWER. Bancorp has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the State of California and is registered as a bank holding
company under the BHC Act. Bank has been duly incorporated and is validly
existing as a banking company under the laws of California and is authorized
by the Commissioner to conduct a general banking
19
business. Bank's deposits are insured by the FDIC in the manner and to the
extent provided by law. Bancorp and Bank have all requisite corporate power
and authority to own, lease and operate their respective properties and
assets and to carry on their respective businesses as presently conducted.
Neither the scope of the business of Bancorp or Bank nor the location of any
of their respective properties requires that Bancorp or Bank be licensed to
do business in any jurisdiction other than in California where the failure to
be so licensed would, individually or in the aggregate, have a materially
adverse effect on the financial condition, results of operation or business
of Bancorp on a consolidated basis.
3.2 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of Bancorp consists of 50,000,000 shares of Bancorp Stock, of
which 3,003,439 shares are outstanding and 25,000,000 of Preferred Stock, of
which no shares are outstanding. As of the date of this Agreement, the
authorized capital stock of Bank consists of 25,000,000 shares of Bank Stock,
of which 100 shares are outstanding and are owned by Bancorp without
Encumbrance. All the outstanding shares of Bancorp Stock and Bank Stock are
duly authorized, validly issued, fully paid, nonassessable and without
preemptive rights. Except for Bancorp Stock Options covering 128,700 shares
of Bancorp stock granted pursuant to the Bancorp Stock Option Plan and except
as set forth in Bancorp's Disclosure Letter, there are no outstanding
options, warrants or other rights in or with respect to the unissued shares
of Bancorp Stock or Bank Stock or any other securities convertible into such
stock, and neither Bancorp nor Bank is obligated to issue any additional
shares of its capital stock or any options, warrants or other rights in or
with respect to the unissued shares of its capital stock or any other
securities convertible into such stock.
3.3 SUBSIDIARIES. Except as set forth in Bancorp's Disclosure Letter,
neither Bancorp nor Bank own, directly or indirectly, any outstanding stock,
Equity Securities or other voting interest in any corporation, partnership,
joint venture or other entity or Person, other than DPC Property.
3.4 FINANCIAL STATEMENTS. Bancorp has previously furnished to Acquiror
a copy of the Financial Statements of Bank/Bancorp. The Financial Statements
of Bank/Bancorp: (a) present fairly the consolidated financial condition of
Bank/Bancorp as of the respective dates indicated and their consolidated
results of operations and cash flow for the respective periods indicated; and
(b) have been prepared in accordance with GAAP. The audits of Bank have been
conducted in accordance with generally accepted auditing standards. The books
and records of Bancorp and Bank are being maintained in material compliance
with applicable legal and accounting requirements. Except to the extent (i)
reflected in the Financial Statements of Bank/Bancorp and (ii) of liabilities
incurred since September 30, 1997 in the ordinary course of business and
consistent with past practice, neither Bancorp nor Bank has any liabilities,
whether absolute, accrued, contingent or otherwise.
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3.5 AUTHORITY OF BANCORP AND BANK. The execution and delivery by
Bancorp and Bank of this Agreement and, subject to the requisite approval of
the shareholders of Bancorp and of Bancorp as the sole shareholder of Bank,
the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Bancorp
and Bank, and this Agreement is a valid and binding obligation of Bancorp and
Bank enforceable in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, liquidation, receivership,
conservatorship, insolvency, moratorium or other similar laws affecting the
rights of creditors generally and by general equitable principles and by
Section 8(b)(6)(D) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(b)(6)(D). Except as set forth in Bancorps Disclosure Letter,
neither the execution and delivery by Bancorp and Bank of this Agreement, the
consummation of the Bank Merger or the transactions contemplated herein, nor
compliance by Bancorp and Bank with any of the provisions hereof, will:
(a) violate any provision of their respective Charter Documents; (b) constitute
a breach of or result in a default (or give rise to any rights of
termination, cancellation or acceleration, or any right to acquire any
securities or assets) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, franchise, license, permit, agreement,
Encumbrances or other instrument or obligation to which Bancorp or Bank is a
party, or by which Bancorp or Bank or any of their respective properties or
assets is bound, if in any such circumstances, such event could have
consequences materially adverse to Bancorp on a consolidated basis; or
(c) violate any Rule applicable to Bancorp or Bank or any of their respective
properties or assets. No Consent of any Governmental Entity having
jurisdiction over any aspect of the business or assets of Bancorp or Bank,
and no Consent of any Person, is required in connection with th e execution
and delivery by Bancorp and Bank of this Agreement or the consummation by
Bancorp and Bank of the Bank Merger and the transactions contemplated hereby,
except (i) the approval of this Agreement and the transactions contemplated
hereby by the shareholders of Bancorp and by Bancorp as the sole shareholder
of Bank; (ii) such approvals or notices as may be required by the FRB, the
Commissioner and the FDIC; (iii) the declaring effective of the S-4 by the
SEC and the approvals of all necessary blue sky administrators; and (iv) as
otherwise set forth in Bancorps Disclosure Letter.
3.6 INSURANCE. Bancorp and Bank have policies of insurance and bonds
covering their assets and businesses against such casualties and
contingencies and in such amounts, types and forms as are customary in the
banking industry for their businesses, operations, properties and assets.
All such insurance policies and bonds are in full force and effect. Except
as set forth in Bancorp's Disclosure Letter, neither Bancorp nor Bank has
received notice from any insurer that any such policy or bond has canceled or
indicating an intention to cancel or not to renew any such policy or bond or
generally disclaiming liability thereunder. Except as set forth in Bancorp's
Disclosure Letter, neither Bancorp nor Bank is in default under any such
policy or bond and all material claims thereunder have been filed in a timely
fashion. Bancorp's Disclosure Letter sets forth a list of all policies of
insurance carried and owned by Bancorp or Bank, showing the name of the owner
and the insurance company, the nature of the coverage, the policy
21
limit, the annual premiums and the expiration dates. There has been
delivered to Acquiror a true and complete copy of each such policy of
insurance. The existing insurance carried by Bancorp and Bank is sufficient
for compliance by Bancorp and Bank with all material requirements of law and
regulations and agreements to which they are subject or are a party.
3.7 TITLE TO ASSETS. Bancorp's Disclosure Letter sets forth a summary
of all items of personal property and equipment with a book value of $250,000
or more, or having an annual lease payment of $25,000 or more, owned or
leased by Bancorp or Bank. Bancorp and Bank have good and marketable title
to all their respective properties and assets, other than real property,
owned or stated to be owned by Bancorp and Bank, free and clear of all
Encumbrances except: (a) as set forth in the Financial Statements of
Bank/Bancorp; (b) Encumbrances for current taxes not yet due; (c) Encumbrances
incurred in the ordinary course of business, if any, that, to the knowledge
of Bancorp and Bank, (i) are not substantial in character, amount or extent,
(ii) do not materially detract from the value, (iii) do not interfere with
present use, of the property subject thereto or affected thereby, and (iv) do
not otherwise materially impair the conduct of business of Bancorp and Bank;
or (d) as set forth in Bancorp's Disclosure Letter.
3.8 REAL ESTATE. Bancorp's Disclosure Letter sets forth a list of all
real property, including leaseholds, owned by Bancorp and Bank, together with
(i) a description of the locations thereof, (ii) a description of each real
property lease, sublease, installment purchase, or similar arrangement to
which either Bancorp or Bank is a party, and (iii) a description of each
contract for the purchase, sale or development of real estate to which
Bancorp or Bank is a party. Bancorp and Bank have good and marketable title
to the respective real property, and valid leasehold interests in the
respective leaseholds, set forth in Bancorp's Disclosure Letter, free and
clear of all Encumbrances, except (a) for rights of lessors, co-lessees or
sublessees in such matters that are reflected in the lease; (b) Encumbrances
for current taxes not yet due and payable; (c) Encumbrances incurred in the
ordinary course of business, if any, that, to the knowledge of Bancorp and
Bank, (i) are not substantial in character, amount or extent, (ii) do not
materially detract from the value, (iii) do not interfere with present use,
of the property subject thereto or affected thereby, and (iv) do not
otherwise materially impair the conduct of business of Bancorp or Bank; or
(d) as set forth in Bancorp's Disclosure Letter. Bancorp or Bank, as the case
may be, as lessee, has the right under valid and subsisting leases to occupy,
use and possess all property leased by it, as identified in Bancorp's
Disclosure Letter, and, to the knowledge of Bancorp and Bank, there has not
occurred under any such lease any breach, violation or default. Except as
set forth in Bancorp's Disclosure Letter and except with respect to
deductibles under insurance policies set forth in Bancorp's Disclosure Letter,
neither Bancorp nor Bank has experienced any uninsured damage or destruction
with respect to the properties identified in Bancorp's Disclosure Letter. To
the knowledge of Bancorp and Bank, all properties and assets used by Bancorp
and Bank are in good operating condition and repair, suitable for the
purposes for which they are currently utilized, and comply with all
applicable Rules related thereto. Bancorp and Bank enjoy peaceful and
undisturbed possession under all leases for the use of real or
22
personal property under which it is the lessee, and, to the knowledge of
Bancorp and Bank, all leases to which Bancorp or Bank is a party are valid
and enforceable in all material respects in accordance with the terms thereof
except as may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights and except as may be limited by the
exercise of judicial discretion in applying principles of equity. Neither
Bancorp nor Bank is in default with respect to any such lease, and to the
knowledge of the officers of Bancorp and Bank no event has occurred which
with the lapse of time or the giving of notice, or both, would constitute a
default under any such lease. Copies of each such lease are attached to
Bancorps Disclosure Letter.
3.9 LITIGATION. Except as set forth in Bancorp's Disclosure Letter, to
the knowledge of Bancorp and Bank, there is no private or governmental suit,
claim, action, investigation or proceeding pending, nor to Bancorps or Banks
knowledge threatened, against Bancorp or Bank or against any of their
directors, officers or employees relating to the performance of their duties
in such capacities or against or affecting any properties of Bancorp or Bank.
Also, except as disclosed in Bancorp's Disclosure Letter, there are no
judgments, decrees, stipulations or orders against Bancorp or Bank enjoining
either of them or any of their directors, officers or employees in respect
of, or the effect of which is to prohibit, any business practice or the
acquisition of any property or the conduct of business in any area of Bancorp
or Bank. To the knowledge of Bancorp and Bank, neither Bancorp nor Bank is a
party to any pending or, to the knowledge of any of the officers, threatened
legal, administrative or other claim, action, suit, investigation,
arbitration or proceeding challenging the validity or propriety of any of the
transactions contemplated by this Agreement.
3.10 TAXES. Bancorp and Bank had filed all federal and foreign income
tax returns, all state and local franchise and income tax, real and personal
property tax, sales and use tax, premium tax, excise tax and other tax
returns of every character required to be filed by it and have paid all
taxes, together with any interest and penalties owing in connection
therewith, shown on such returns to be due in respect of the periods covered
by such returns, other than taxes which are being contested in good faith and
for which adequate reserves have been established. Bancorp and Bank have
filed all required payroll tax returns, have fulfilled all tax withholding
obligations and have paid over to the appropriate governmental authorities
the proper amounts with respect to the foregoing. The tax and audit positions
taken by Bancorp and Bank in connection with the tax returns described in the
preceding sentence were reasonable and asserted in good faith. Adequate
provision has been made in the books and records of Bancorp or Bank and, to
the extent required by generally accepted accounting procedures, reflected in
the Financial Statements of Bank/Bancorp, for all tax liabilities, including
interest or penalties, whether or not due and payable and whether or not
disputed, with respect to any and all federal, foreign, state, local and
other taxes for the periods covered by such financial statements and for all
prior periods. Bancorp's Disclosure Letter sets forth (i) the date or dates
through which the IRS has examined the federal tax returns of Bancorp and
Bank and the date or dates through which any foreign, state, local or other
taxing authority has examined any other tax returns of Bancorp and Bank; (ii)
a complete list of each year for
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which any federal, state, local or foreign tax authority has obtained or has
requested an extension of the statute of limitations from Bancorp or Bank and
lists each tax case of Bancorp or Bank currently pending in audit, at the
administrative appeals level or in litigation; and (iii) the date and
issuing authority of each statutory notice of deficiency, notice of proposed
assessment and revenue agent's report issued to Acquiror within the last
twelve (12) months. Except as set forth in Bancorp's Disclosure Letter, to
the knowledge of Bancorp and Bank, neither the IRS nor any foreign, state,
local or other taxing authority has, during the past three years, examined or
is in the process of examining any federal, foreign, state, local or other
tax returns of Bancorp or Bank. To the knowledge of Bancorp and Bank,
neither the IRS nor any foreign, state, local or other taxing authority is
now asserting or threatening to assert any deficiency or claim for additional
taxes (or interest thereon or penalties in connection therewith) except as
set forth in Bancorp's Disclosure Letter.
3.11 COMPLIANCE WITH LAWS AND REGULATIONS. Except as set forth in
Bancorp's Disclosure Letter, neither Bancorp nor Bank is in default under or
in breach of any provision of its Charter Documents or any Rule promulgated
by any Governmental Entity having authority over it, where such default or
breach would have a material adverse effect on the business, financial
condition or results of operations of Bancorp or Bank.
3.12 PERFORMANCE OF OBLIGATIONS. Bancorp and Bank have performed all of
the respective obligations required to be performed by it to date and neither
of them is in material default under or in breach of any term or provision of
any of the Bancorp Scheduled Contracts, and no event has occurred that, with
the giving of notice or the passage of time or both, would constitute such
default or breach. To Bancorp's and Bank's knowledge, no party with whom
either has an agreement that is material to the business of Bancorp or Bank
is in default thereunder.
3.13 EMPLOYEES. Except as set forth in Bancorp's Disclosure Letter,
there are no controversies pending or threatened between Bancorp or Bank and
any of their respective employees that are likely to have a material adverse
effect on the business, financial condition or results of operation of
Bancorp or Bank. Neither Bancorp nor Bank is a party to any collective
bargaining agreement with respect to any of its employees or any labor
organization to which its employees or any of them belong.
3.14 BROKERS AND FINDERS. Except as provided in Bancorp's Disclosure
Letter with copies of any such agreements attached, neither Bancorp nor Bank
is not a party to or obligated under any agreement with any broker or finder
relating to the transactions contemplated hereby, and neither the execution
of this Agreement nor the consummation of the transactions provided for
herein or therein will result in any liability to any broker or finder.
3.15 MATERIAL CONTRACTS. Except as set forth in Bancorp's Disclosure
Letter (all items listed or required to be listed in Bancorp's Disclosure
Letter as a result of
24
this Section being referred to herein as "Bancorp Scheduled Contracts"),
neither Bancorp nor Bank is a party or otherwise subject to:
(a) any employment, deferred compensation, bonus or consulting
contract;
(b) any advertising, brokerage, licensing, dealership,
representative or agency relationship or contract;
(c) any contract or agreement that would restrict Bancorp or Bank
after the Effective Time from competing in any line of business with any
Person or using or employing the services of any Person;
(d) any collective bargaining agreement or other such contract or
agreement with any labor organization;
(e) any lease of real or personal property providing for annual
lease payments by or to Bancorp or Bank in excess of $25,000 per annum other
than financing leases entered into in the ordinary course of business in
which Bancorp or Bank is lessor and leases of real property presently used by
Bank as banking offices.
(f) any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any
interest of Bancorp or Bank (other than as mortgagor or pledgor in the
ordinary course of their banking business or as mortgagee, secured party or
deed of trust beneficiary in the ordinary course of their business) in
personal property having a value of $25,000 or more;
(g) any stock purchase, stock option, stock bonus, stock ownership,
profit sharing, group insurance, bonus, deferred compensation, severance pay,
pension, retirement, savings or other incentive, welfare or employment plan
or material agreement providing benefits to any present or former employees,
officers or directors of Bancorp or Bank;
(h) any agreement to acquire equipment or any commitment to make
capital expenditures of $25,000 or more;
(i) other than agreements entered into in the ordinary course of
business with respect to DPC Property, any agreement for the sale of any
property or assets in which Bancorp or Bank has an ownership interest or for
the grant of any preferential right to purchase any such property or asset;
(j) any agreement for the borrowing of any money (other than
liabilities or interbank borrowings made in the ordinary course of their
banking business and reflected in the financial records of Bank);
25
(k) any restrictive covenant contained in any deed to or lease of
real property owned or leased by Bancorp or Bank (as lessee) that materially
restricts the use, transferability or value of such property;
(l) any guarantee or indemnification which involves the sum of
$50,000 or more, other than letters of credit or loan commitments issued in
the normal course of business;
(m) any supply, maintenance or landscape contracts not terminable
by Bancorp or Bank without penalty on 30 days or less notice and which
provides for payments in excess of $25,000 per annum;
(n) other than as disclosed with reference to subparagraph (k) of
this Section 3.15, any agreement which would be terminable other than by
Bancorp or Bank or as a result of the consummation of the transactions
contemplated by this Agreement;
(o) any contract of participation with any other bank in any loan
entered into by Bancorp or Bank subsequent to December 31, 1996 in excess of
$50,000 or any sales of assets of Bancorp or Bank with recourse of any kind
to Bancorp or Bank except the sale of mortgage loans, servicing rights,
repurchase or reverse repurchase agreements, securities or other financial
transactions in the ordinary course of business;
(p) any other agreement of any other kind, including for data
processing and similar services, which involves future payments or receipts
or performances of services or delivery of items requiring aggregate payment
of $25,000 or more to or by Bancorp or Bank other than payments made under or
pursuant to loan agreements, participation agreements and other agreements
for the extension of credit in the ordinary course of their business;
(q) any material agreement, arrangement or understanding not made
in the ordinary course of business;
(r) any agreement, arrangement or understanding relating to the
employment, election, retention in office or severance of any present or
former director, officer or employee of Bancorp or Bank;
(s) any agreement, arrangement or understanding pursuant to which
any payment (whether severance pay or otherwise) became or may become due to
any director, officer or employee of Bancorp or Bank upon execution of this
Agreement or upon or following consummation of the transactions contemplated
hereby (either alone or in connection with the occurrence of any additional
acts or events); or
26
(t) any written agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order, capital order, or
condition of any regulatory order or decree with or by the Commissioner or
FDIC or any other regulatory agency.
True copies of all Bancorp Scheduled Contracts, including all amendments and
supplements thereto, are attached to Bancorp's Disclosure Letter.
3.16 ABSENCE OF MATERIAL CHANGE. Since December 31, 1996, the
businesses of Bancorp and Bank have been conducted only in the ordinary
course, in substantially the same manner as theretofore conducted, and,
except as set forth in Bancorp's Disclosure Letter, there has not occurred
since December 31, 1996 any event that has had or may reasonably be expected
to have a material adverse effect on the business, financial condition or
results of operation of Bancorp or Bank.
3.17 LICENSES AND PERMITS. Bancorp and Bank have all licenses and
permits that are necessary for the conduct of their respective businesses,
and such licenses are in full force and effect, except for any failure to be
in full force and effect that would not, individually or in the aggregate,
have a material adverse effect on the business, financial condition or
results of operations of Bancorp or Bank. The properties and operations of
Bancorp and Bank are and have been maintained and conducted, in all material
respects, in compliance with all applicable Rules.
3.18 UNDISCLOSED LIABILITIES. Except as set forth in Bancorp's
Disclosure Letter, neither Bancorp nor Bank have any liabilities or
obligations, either accrued or contingent, that are material to Bancorp or
Bank and that have not been: (a) reflected or disclosed in the Financial
Statements of Bank/Bancorp or (b) incurred subsequent to December 31, 1996 in
the ordinary course of business. Neither Bancorp nor Bank knows of any basis
for the assertion against it of any liability, obligation or claim
(including, without limitation, that of any Governmental Entity) that is
likely to result in or cause a material adverse change in the business,
financial condition or results of operations of Bancorp or Bank that is not
fairly reflected in the Financial Statements of Bank/Bancorp or otherwise
disclosed in this Agreement.
3.19 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Bancorp's Disclosure Letter, neither
Bancorp nor Bank has an "employee benefit plan," as defined in Section 3(3) of
ERISA.
(b) Bancorp's Disclosure Letter sets forth copies or descriptions of
each Benefit Arrangement maintained or otherwise contributed to by Bancorp or
Bank (such plans and arrangements being collectively referred to herein as
"Bank Benefit Arrangements"). All Bank Benefit Arrangements which are in effect
have been in effect for substantially all of 1997. There has been no
material amendment thereof or increase in the cost thereof or benefits
payable thereunder since December 31,
27
1996. Except as set forth in Bancorp's Disclosure Letter, there has been no
material increase in the compensation of or benefits payable to any senior
executive employee of Bancorp or Bank since December 31, 1996, nor any
employment, severance or similar contract entered into with any such
employee, nor any amendment to any such contract, since December 31, 1996.
Except as set forth in Bancorp's Disclosure Letter, there is no contract,
agreement or benefit arrangement covering any employee of Bancorp or Bank
which individually or collectively could give rise to the payment of any
amount which would constitute an "excess parachute payment," as such term is
defined in Section 280(G) of the Code.
(c) With respect to all Bank Benefit Arrangements, Bancorp and Bank
are in substantial compliance (other than noncompliance the cost or liability
for which is not material) with the requirements prescribed by any and all
statutes, governmental or court orders, or governmental rules or regulations
currently in effect, applicable to such plans or arrangements.
(d) Except for the contracts set forth in Bancorp's Disclosure
Letter, each Bank Benefit Arrangement and each personal services contract,
fringe benefit, consulting contract or similar arrangement with or for the
benefit of any officer, director, employee or other person can be terminated
by Bancorp or Bank within a period of 30 days following the Effective Time of
the Bank Merger, without payment of any amount as a penalty, bonus, premium,
severance pay or other compensation for such termination.
3.20 CORPORATE RECORDS. The Charter Documents of Bancorp and Bank and
all amendments thereto to the date hereof (true, correct and complete copies
of which are set forth in Bancorp's Disclosure Letter) are in full force and
effect as of the date of this Agreement. The minute books of Bancorp and
Bank, together with the documents and other materials incorporated therein by
reference, reflect all meetings held and contain complete and accurate
records of all corporate actions taken by the boards of directors of Bancorp
and Bank (or any committees thereof) and stockholders. Except as reflected
in such minute books, there are no minutes of meetings or consents in lieu of
meetings of the board of directors (or any committees thereof) or of the
stockholders of Bancorp or Bank.
3.21 ACCOUNTING RECORDS. Bancorp and Bank maintain accounting records
which fairly and validly reflect, in all material respects, their
transactions and accounting controls sufficient to provide reasonable
assurances that such transactions are (i) executed in accordance with their
management's general or specific authorization, and (ii) recorded as
necessary to permit the preparation of financial statements in conformity
with GAAP. Such records, to the extent they contain material information
pertaining to Bancorp or Bank which is not easily and readily available
elsewhere, have been duplicated, and such duplicates are stored safely and
securely.
28
3.22 OFFICES AND ATMs. Set forth in Bancorp's Disclosure Letter is a
list of the headquarters of Bank (identified as such) and each of the offices
and automated teller machines ("ATMs") maintained and operated (or to be
maintained and operated) by Bank (including, without limitation,
representative and loan production offices and operations centers) and the
location thereof. Except as set forth in Bancorp's Disclosure Letter, neither
Bancorp nor Bank maintains any other office or ATM and conducts business at
any other location, and neither Bancorp nor Bank has applied for or received
permission to open any additional branch nor operate at any other location.
3.23 LOAN PORTFOLIO. Bancorp's Disclosure Letter sets forth a
description of; (a) by type and classification, all loans, leases, other
extensions and commitments to extend credit of Bank of $50,000 or more, that
have been classified by itself, its bank examiners or auditors (external or
internal) as "Watch List," "Substandard," "Doubtful," "Loss" or any comparable
classification; and (b) all loans due to Bank as to which any payment of
principal, interest or any other amount is 30 days or more past due.
Bancorp's consolidated allowance for loan losses is and will be at the
Effective time adequate and in accordance with GAAP in all material respects
and in accordance with all applicable regulatory requirements of any
Governmental Entity.
3.24 POWER OF ATTORNEY. Except as set forth in Bancorp's Disclosure
Letter, neither Bancorp nor Bank has granted any Person a power of attorney
or similar authorization that is presently in effect or outstanding.
3.25 OPERATING LOSSES. Bancorp's Disclosure Letter sets forth any
Operating Loss (as herein defined) which has occurred at Bancorp or Bank
during the period after December 31, 1996. To the knowledge of Bancorp and
Bank, no action has been taken or omitted to be taken by an employee of
Bancorp or Bank that has resulted in the incurrance by Bancorp or Bank of an
Operating Loss or that might reasonably be expected to result in an Operating
Loss after December 31, 1996, which, net of any insurance proceeds payable in
respect thereof, would exceed $15,000. "Operating Loss" means any loss
resulting from cash shortages, lost or misposted items, disputed clerical and
accounting errors, forged checks, payment of checks over stop payment orders,
counterfeit money, wire transfers made in error, theft, robberies,
defalcations, check kiting, fraudulent use of credit cards or electronic
teller machines or other similar acts or occurrences.
3.26 ENVIRONMENTAL MATTERS. Except as set forth in Bancorp's Disclosure
Letter, to the knowledge of Bancorp and Bank, (i) each of Bancorp and Bank is
in compliance with all Environmental Laws; (ii) there are no Tanks on or
about Bancorp Property; (iii) there are no Hazardous Materials on, below or
above the surface of, or migrating to or from Bancorp Property; (iv) neither
Bancorp nor Bank has loans outstanding secured by real property that is not
in compliance with Environmental Laws or which has a leaking Tank or upon
which there are Hazardous Materials on or migrating to or from; and (v)
without limiting the foregoing representations and warranties contained in
clauses (i) through (iv), as of the date of this Agreement, there is no
claim,
29
action, suit, or proceeding or notice thereof before any Governmental Entity
pending against Bancorp or Bank or concerning property securing Bancorp and
Bank loans and there is no outstanding judgment, order, writ, injunction,
decree, or award against or affecting Bancorp Property or property securing
Bancorp or Bank loans, relating to the foregoing representations (i) -- (iv),
in each case the noncompliance with which, or the presence of which would
have a material adverse effect on the business, financial condition, results
of operations or prospects of Bancorp or Bank. For purposes of this
Agreement, the term "Environmental Laws" shall mean all applicable statutes,
regulations, rules, ordinances, codes, licenses, permits, orders, approvals,
plans, authorizations, concessions, franchises, and similar items of all
Governmental Entities and all applicable judicial, administrative, and
regulatory decrees, judgments, and orders relating to the protection of human
health or the environment, including, without limitation: all requirements,
including, but not limited to those pertaining to reporting, licensing,
permitting, investigation, and remediation of emissions, discharges,
releases, or threatened releases of Hazardous Materials, chemical substances,
pollutants, contaminants, or hazardous or toxic substances, materials or
wastes whether solid, liquid, or gaseous in nature, into the air, surface
water, groundwater, or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
chemical substances, pollutants, contaminates, or hazardous or toxic
substances, materials, or wastes, whether solid, liquid, or gaseous in nature
and all requirements pertaining to the protection of the health and safety of
employees or the public. "Bancorp Property" shall mean real estate currently
owned, leased, or otherwise used by Bancorp or Bank, or in which Bancorp or
Bank has an investment or security interest by mortgage, deed of trust, sale
and lease-back or otherwise, including without limitation, properties under
foreclosure and properties held by Bancorp or Bank in its capacity as a
trustee or otherwise. "Tank" shall mean treatment or storage tanks, sumps,
or water, gas or oil ▇▇▇▇▇ and associated piping transportation devices.
"Hazardous Materials" shall mean any substance the presence of which requires
investigation or remediation under any federal, state, or local statute,
regulation, ordinance, order, action, policy or common law, or which is or
becomes defined as a hazardous waste, hazardous substance, hazardous
material, used oil, pollutant or contaminant under any federal, state or
local statute, regulation, rule or ordinance or amendments thereto including
without limitation, the Comprehensive Environmental Response; Compensation
and Liability Act (42 U.S.C. Section 9601, ET SEQ.); the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901, ET SEQ.); the Clean
Air Act, as amended (42 U.S.C. Section 7401, ET SEQ.); the Federal Water
Pollution Control Act, as amended (33 U.S.C. Section 1251, ET SEQ.); the
Toxic Substances Control Act, as amended (15 U.S.C. Section 9601, ET SEQ.);
the Occupational Safety and Health Act, as amended (29 U.S.C. Section 65);
the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C.
Section 11001, ET SEQ.); the Mine Safety and Health Act of 1977, as amended
(30 U.S.C. Section 801, ET SEQ.); the Safe Drinking Water Act (42 U.S.C.
Section 300f, ET SEQ.); and all comparable state and local laws, including
without limitation, the ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇-▇▇▇▇▇▇ Hazardous Substance Account
Act (State Superfund), the ▇▇▇▇▇▇-Cologne Water Quality Control Action,
Sections 25140, 25501(j) and (k); 25501.1.25281 and 25250.1 of the California
HEALTH AND SAFETY CODE and/or Article I of Title 22 of the California CODE OF
REGULATIONS, Division 4, Chapter 30; laws of other jurisdictions or
30
orders and regulations; or the presence of which causes or threatens to cause
a nuisance, trespass or other common law tort upon real property or adjacent
properties or poses or threatens to pose a hazard to the health or safety of
persons or without limitation, which contains gasoline, diesel fuel or other
petroleum hydrocarbons; polychlorinated biphenyls (PCB's), asbestos or urea
formaldehyde foam insulation.
3.27 COMMUNITY REINVESTMENT ACT. Bank received a rating of
"satisfactory" or better in its most recent examination or interim review
with respect to the Community Reinvestment Act. Neither Bancorp nor Bank has
been advised of any concerns regarding compliance with the Community
Reinvestment Act by any Governmental Entity or by any other Person.
3.28 DERIVATIVES. Neither Bancorp nor Bank is currently a party to any
interest rate swap, cap, floor, option agreement, other interest rate risk
management arrangement or agreement or derivative-type security or derivative
arrangement or agreement.
3.29 POOLING. It is intended that the Bank Merger be accounted for on a
pooling of interests basis, and no event has occurred or is reasonably
foreseeable (including any transaction contemplated by this Agreement) that
could alter such treatment.
3.30 SEC REPORTS. As of their respective dates, since December 31,
1994, none of Bancorp's nor Bank's SEC Reports contained at the time of filing
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
3.31 TRUST ADMINISTRATION. Bancorp and Bank do not presently exercise
trust powers, including, but not limited to, trust administration, and have
not exercised such trust powers for a period of at least 3 years prior to the
date hereof. The term "trusts" as used in this Section 3.31 includes (i) any
and all common law or other trusts between an individual, corporation or
other entities and Bancorp or Bank, as trustee or co-trustee, including,
without limitation, pension or other qualified or nonqualified employee
benefit plans, compensation, testamentary, inter vivos, charitable trust
indentures; (ii) any and all decedents' estates where Bancorp or Bank are
serving or have served as a co-executor or sole executor, personal
representative or administrator, administrator ▇▇ ▇▇▇▇▇ non, administrator ▇▇
▇▇▇▇▇ non with will annexed, or in any similar fiduciary capacity; (iii) any
and all guardianships, conservatorships or similar positions where Bancorp or
Bank are serving or have served as a co-grantor or a sole grantor or a
conservator or a co-conservator of the estate, or any similar fiduciary
capacity; and (iv) any and all agency and/or custodial accounts and/or
similar arrangements, including plan administrator for employee benefit
accounts, under which Bancorp or Bank are serving or have served as an agent
or custodian for the owner or other party establishing the account with or
without investment authority.
31
3.32 REGULATORY APPROVALS. To the knowledge of Bancorp and Bank, except
as described in Bancorp's Disclosure Letter, Bancorp and Bank have no reason
to believe that they would not receive all required approvals from any
Governmental Entity of any application to consummate the transactions
contemplated by this Agreement without the imposition of a materially
burdensome condition in connection with the approval of any such application.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
ACQUIROR
Acquiror represents and warrants to Bancorp and Bank as follows:
4.1 INCORPORATION, STANDING AND POWER. Acquiror has been duly
incorporated and is validly existing as a banking company under the laws of
California and is authorized by the Commissioner to conduct a general banking
business. Acquirors deposits are insured by the FDIC in the manner and to
the extent provided by law. Acquiror has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as presently conducted. Neither the scope of the business of
Acquiror nor the location of any of its properties requires that Acquiror be
licensed to do business in any jurisdiction other than in California where
the failure to be so licensed would, individually or in the aggregate, have a
materially adverse effect on the financial condition, results of operation or
business of Acquiror.
4.2 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of Acquiror consists of 10,125,000 shares of Acquiror Stock, of
which 6,906,230 shares are outstanding. All the outstanding shares of
Acquiror Stock are duly authorized, validly issued, fully paid, nonassessable
and without preemptive rights. Except as set forth in Acquiror's Disclosure
Letter, there are no outstanding options, warrants or other rights in or with
respect to the unissued shares of Acquiror Stock or any other securities
convertible into such stock, and Acquiror is not obligated to issue any
additional shares of its capital stock or any options, warrants or other
rights in or with respect to the unissued shares of its capital stock or any
other securities convertible into such stock.
4.3 SUBSIDIARIES. Except as set forth in Acquiror's Disclosure Letter,
Acquiror does not own, directly or indirectly, any outstanding stock, Equity
Securities or other voting interest in any corporation, partnership, joint
venture or other entity or Person, other than DPC Property.
32
4.4 FINANCIAL STATEMENTS. Acquiror has previously furnished to Bank
and Bancorp a copy of the Financial Statements of Acquiror. The Financial
Statements of Acquiror: (a) present fairly the financial condition of Acquiror
as of the respective dates indicated and its results of operations and cash
flow for the respective periods indicated; and (b) have been prepared in
accordance with GAAP. The audits of Acquiror have been conducted in
accordance with generally accepted auditing standards. The books and records
of Acquiror are being maintained in material compliance with applicable legal
and accounting requirements. Except to the extent (i) reflected in the
Financial Statements of Acquiror and (ii) of liabilities incurred since
September 30, 1997 in the ordinary course of business and consistent with
past practice, Acquiror has no liabilities, whether absolute, accrued,
contingent or otherwise.
4.5 AUTHORITY OF ACQUIROR. The execution and delivery by Acquiror of
this Agreement and, subject to the requisite approval of the shareholders of
Acquiror, the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Acquiror, and this Agreement is a valid and binding obligation of Acquiror,
enforceable in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, liquidation, receivership,
conservatorship, insolvency, moratorium or other similar laws affecting the
rights of creditors generally and by general equitable principles and by
Section 8(b)(6)(D) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(b)(6)(D). Except as set forth in Acquiror's Disclosure Letter,
neither the execution and delivery by Acquiror of this Agreement, the
consummation of the Bank Merger or the transactions contemplated herein, nor
compliance by Acquiror with any of the provisions hereof, will: (a) conflict
with or result in a breach of any provision of its Charter Documents;
(b) constitute a breach of or result in a default (or give rise to any rights
of termination, cancellation or acceleration, or any right to acquire any
securities or assets) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, franchise, license, permit, agreement,
Encumbrance or other instrument or obligation to which Acquiror is a party,
or by which Acquiror or any of its properties or assets is bound, if in any
such circumstances, such event could have consequences materially adverse to
Acquiror; or (c) violate any Rule applicable to Acquiror or any of its
properties or assets. No Consent of any Governmental Entity having
jurisdiction over any aspect of the business or assets of Acquiror, and no
Consent of any Person, is required in connection with the execution and
delivery by Acquiror of this Agreement or the consummation by Acquiror of the
Bank Merger and the transactions contemplated hereby, except (i) the approval
of this Agreement and the transactions contemplated hereby by the
shareholders of Acquiror; (ii) such approvals or notices as may be required by
the FRB, the Commissioner and the FDIC; and (iii) as otherwise set forth in
Acquiror's Disclosure Letter.
4.6 INSURANCE. Acquiror has policies of insurance and bonds covering
its assets and businesses against such casualties and contingencies and in
such amounts, types and forms as are customary in the banking industry for
its businesses, operations, properties and assets. All such insurance
policies and bonds are in full force and effect. Except as set forth in
Acquiror's Disclosure Letter, Acquiror has not received notice from
33
any insurer that any such policy or bond has canceled or indicating an
intention to cancel or not to renew any such policy or bond or generally
disclaiming liability thereunder. Except as set forth in Acquiror's
Disclosure Letter, Acquiror is not in default under any such policy or bond
and all material claims thereunder have been filed in a timely fashion.
Acquiror's Disclosure Letter sets forth a list of all policies of insurance
carried and owned by Acquiror, showing the name of the insurance company, the
nature of the coverage, the policy limit, the annual premiums and the
expiration dates. There has been delivered to Bank and Bancorp a true and
complete copy of each such policy of insurance. The existing insurance
carried by Acquiror is sufficient for compliance by Acquiror with all
material requirements of law and regulations and agreements to which Acquiror
is subject or is a party.
4.7 TITLE TO ASSETS. Acquiror's Disclosure Letter sets forth a summary
of all items of personal property and equipment with a book value of $750,000
or more, or having an annual lease payment of $75,000 or more, owned or
leased by Acquiror. Acquiror has good and marketable title to all its
properties and assets, other than real property, owned or stated to be owned
by Acquiror, free and clear of all Encumbrances except: (a) as set forth in
the Financial Statements of Acquiror; (b) Encumbrances for current taxes not
yet due; (c) Encumbrances incurred in the ordinary course of business, if any,
that, to the knowledge of Acquiror, (i) are not substantial in character,
amount or extent, (ii) do not materially detract from the value, (iii) do not
interfere with present use, of the property subject thereto or affected
thereby, and (iv) do not otherwise materially impair the conduct of business
of Acquiror; or (d) as set forth in Acquiror's Disclosure Letter.
4.8 REAL ESTATE. Acquiror's Disclosure Letter sets forth a list of all
real property, including leaseholds, owned by Acquiror, together with (i) a
description of the locations thereof, (ii) a description of each real
property lease, sublease, installment purchase, or similar arrangement to
which Acquiror is a party, and (iii) a description of each contract for the
purchase, sale or development of real estate to which Acquiror is a party.
Acquiror has good and marketable title to the real property, and valid
leasehold interests in the leaseholds, set forth in Acquiror's Disclosure
Letter, free and clear of all Encumbrances, except (a) for rights of lessors,
co-lessees or sublessees in such matters that are reflected in the lease;
(b) Encumbrances for current taxes not yet due and payable; (c) Encumbrances
incurred in the ordinary course of business, if any, that, to the knowledge
of Acquiror, (i) are not substantial in character, amount or extent, (ii) do
not materially detract from the value, (iii) do not interfere with present
use, of the property subject thereto or affected thereby, and (iv) do not
otherwise materially impair the conduct of business of Acquiror; or (d) as set
forth in Acquiror's Disclosure Letter. Acquiror, as lessee, has the right
under valid and subsisting leases to occupy, use and possess all property
leased by it, as identified in Acquiror's Disclosure Letter, and, to the
knowledge of Acquiror, there has not occurred under any such lease any
breach, violation or default. Except as set forth in Acquiror's Disclosure
Letter and except with respect to deductibles under insurance policies set
forth in Acquiror's Disclosure Letter, Acquiror has not experienced any
uninsured damage or destruction with respect to the properties
34
identified in Acquiror's Disclosure Letter. To the knowledge of Acquiror, all
properties and assets used by Acquiror are in good operating condition and
repair, suitable for the purposes for which they are currently utilized, and
comply with all applicable Rules related thereto. Acquiror enjoys peaceful
and undisturbed possession under all leases for the use of real or personal
property under which it is the lessee, and, to the knowledge of Acquiror, all
leases to which Acquiror is a party are valid and enforceable in all material
respects in accordance with the terms thereof except as may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights and except as may be limited by the exercise of judicial discretion in
applying principles of equity. Acquiror is not in default with respect to
any such lease, and to the knowledge of the officers of Acquiror no event has
occurred which with the lapse of time or the giving of notice, or both, would
constitute a default under any such lease. Copies of each such lease are
attached to Acquiror's Disclosure Letter.
4.9 LITIGATION. Except as set forth in Acquiror's Disclosure Letter, to
the knowledge of Acquiror, there is no private or governmental suit, claim,
action, investigation or proceeding pending, nor to Acquiror's knowledge
threatened, against Acquiror or against any of its directors, officers or
employees relating to the performance of their duties in such capacities or
against or affecting any properties of Acquiror. Also, except as disclosed
in Acquiror's Disclosure Letter, there are no judgments, decrees, stipulations
or orders against Acquiror enjoining it or any of its directors, officers or
employees in respect of, or the effect of which is to prohibit, any business
practice or the acquisition of any property or the conduct of business in any
area of Acquiror. To the knowledge of Acquiror, Acquiror is not a party to
any pending or, to the knowledge of any of the officers, threatened legal,
administrative or other claim, action, suit, investigation, arbitration or
proceeding challenging the validity or propriety of any of the transactions
contemplated by this Agreement.
4.10 TAXES. Acquiror had filed all federal and foreign income tax
returns, all state and local franchise and income tax, real and personal
property tax, sales and use tax, premium tax, excise tax and other tax
returns of every character required to be filed by it and have paid all
taxes, together with any interest and penalties owing in connection
therewith, shown on such returns to be due in respect of the periods covered
by such returns, other than taxes which are being contested in good faith and
for which adequate reserves have been established. Acquiror has filed all
required payroll tax returns, has fulfilled all tax withholding obligations
and have paid over to the appropriate governmental authorities the proper
amounts with respect to the foregoing. The tax and audit positions taken by
Acquiror in connection with the tax returns described in the preceding
sentence were reasonable and asserted in good faith. Adequate provision has
been made in the books and records of Acquiror and, to the extent required by
generally accepted accounting procedures, reflected in the Financial
Statements of Acquiror, for all tax liabilities, including interest or
penalties, whether or not due and payable and whether or not disputed, with
respect to any and all federal, foreign, state, local and other taxes for the
periods covered by such financial statements and for all prior periods.
Acquiror's Disclosure Letter sets forth (i) the date or dates through which
the IRS has examined the
35
federal tax returns of Acquiror and the date or dates through which any
foreign, state, local or other taxing authority has examined any other tax
returns of Acquiror; (ii) a complete list of each year for which any federal,
state, local or foreign tax authority has obtained or has requested an
extension of the statute of limitations from Acquiror and lists each tax case
of Acquiror currently pending in audit, at the administrative appeals level
or in litigation; and (iii) the date and issuing authority of each statutory
notice of deficiency, notice of proposed assessment and revenue agent's
report issued to Acquiror within the last twelve (12) months. Except as set
forth in Acquiror's Disclosure Letter, to the knowledge of Acquiror, neither
the IRS nor any foreign, state, local or other taxing authority has, during
the past three years, examined or is in the process of examining any federal,
foreign, state, local or other tax returns of Acquiror. To the knowledge of
Acquiror, neither the IRS nor any foreign, state, local or other taxing
authority is now asserting or threatening to assert any deficiency or claim
for additional taxes (or interest thereon or penalties in connection
therewith) except as set forth in Acquiror's Disclosure Letter.
4.11 COMPLIANCE WITH LAWS AND REGULATIONS. Except as set forth in
Acquiror's Disclosure Letter, Acquiror is not in default under or in breach
of any provision of its Charter Documents or any Rule promulgated by any
Governmental Entity having authority over it, where such default or breach
would have a material adverse effect on the business, financial condition or
results of operations of Acquiror.
4.12 PERFORMANCE OF OBLIGATIONS. Acquiror has performed all of the
obligations required to be performed by it to date and is not in material
default under or in breach of any term or provision of any material contract,
and no event has occurred that, with the giving of notice or the passage of
time or both, would constitute such default or breach. To Acquiror's
knowledge, no party with whom Acquiror has an agreement that is material to
the business of Acquiror is in default thereunder.
4.13 EMPLOYEES. Except as set forth in Acquiror's Disclosure
Letter, there are no controversies pending or threatened between Acquiror and
any of its employees that are likely to have a material adverse effect on the
business, financial condition or results of operation of Acquiror. Acquiror
is not a party to any collective bargaining agreement with respect to any of
its employees or any labor organization to which its employees or any of them
belong.
4.14 BROKERS AND FINDERS. Except as provided in Acquiror's
Disclosure Letter with copies of any such agreements attached, Acquiror is
not a party to or obligated under any agreement with any broker or finder
relating to the transactions contemplated hereby, and neither the execution
of this Agreement nor the consummation of the transactions provided for
herein or therein will result in any liability to any broker or finder.
4.15 ABSENCE OF MATERIAL CHANGE. Since December 31, 1996, the
business of Acquiror has been conducted only in the ordinary course, in
substantially the same manner as theretofore conducted, and, except as set
forth in Acquiror's Disclosure
36
Letter, there has not occurred since December 31, 1996 any event that has had
or may reasonably be expected to have a material adverse effect on the
business, financial condition or results of operation of Acquiror.
4.16 LICENSES AND PERMITS. Acquiror has all licenses and permits
that are necessary for the conduct of its businesses, and such licenses are
in full force and effect, except for any failure to be in full force and
effect that would not, individually or in the aggregate, have a material
adverse effect on the business, financial condition or results of operations
of Acquiror. The properties and operations of Acquiror are and have been
maintained and conducted, in all material respects, in compliance with all
applicable Rules.
4.17 UNDISCLOSED LIABILITIES. Except as set forth in Acquiror's
Disclosure Letter Acquiror has no liabilities or obligations, either accrued
or contingent, that are material to Acquiror and that have not been: (a)
reflected or disclosed in the Financial Statements of Acquiror or (b)
incurred subsequent to December 31, 1996 in the ordinary course of business.
Acquiror does not know of any basis for the assertion against it of any
liability, obligation or claim (including, without limitation, that of any
Governmental Entity) that is likely to result in or cause a material adverse
change in the business, financial condition or results of operations of
Acquiror that is not fairly reflected in the Financial Statements of Acquiror
or otherwise disclosed in this Agreement.
4.18 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Acquiror's Disclosure Letter,
Acquiror has no "employee benefit plan," as defined in Section 3(3) of ERISA.
(b) Acquiror's Disclosure Letter sets forth copies or
descriptions of each Benefit Arrangement maintained or otherwise contributed
to by Acquiror (such plans and arrangements being collectively referred to
herein as "Acquiror Benefit Arrangements"). All Acquiror Benefit Arrangements
which are in effect have been in effect for substantially all of 1997. There
has been no material amendment thereof or increase in the cost thereof or
benefits payable thereunder since December 31, 1996. Except as set forth in
Acquiror's Disclosure Letter, there has been no material increase in the
compensation of or benefits payable to any senior executive employee of
Acquiror since December 31, 1996, nor any employment, severance or similar
contract entered into with any such employee, nor any amendment to any such
contract, since December 31, 1996. Except as set forth in Acquiror's
Disclosure Letter, there is no contract, agreement or benefit arrangement
covering any employee of Acquiror which individually or collectively could
give rise to the payment of any amount which would constitute an "excess
parachute payment," as such term is defined in Section 280(G) of the Code.
(c) With respect to all Acquiror Benefit Arrangements,
Acquiror is in substantial compliance (other than noncompliance the cost or
liability for
37
which is not material) with the requirements prescribed by any and all
statutes, governmental or court orders, or governmental rules or regulations
currently in effect, applicable to such plans or arrangements.
(d) Except for the contracts set forth in Acquiror's Disclosure
Letter, each Acquiror Benefit Arrangement and each personal services
contract, fringe benefit, consulting contract or similar arrangement with or
for the benefit of any officer, director, employee or other person can be
terminated by Acquiror within a period of 30 days following the Effective
Time of the Bank Merger, without payment of any amount as a penalty, bonus,
premium, severance pay or other compensation for such termination.
4.19 CORPORATE RECORDS. The Charter Documents of Acquiror and all
amendments thereto to the date hereof (true, correct and complete copies of
which are set forth in Acquiror's Disclosure Letter) are in full force and
effect as of the date of this Agreement. The minute books of Acquiror,
together with the documents and other materials incorporated therein by
reference, reflect all meetings held and contain complete and accurate
records of all corporate actions taken by the board of directors of Acquiror
(or any committees thereof) and stockholders. Except as reflected in such
minute books, there are no minutes of meetings or consents in lieu of
meetings of the board of directors (or any committees thereof) or of the
stockholders of Acquiror.
4.20 ACCOUNTING RECORDS. Acquiror maintains accounting records
which fairly and validly reflect, in all material respects, its transactions
and accounting controls sufficient to provide reasonable assurances that such
transactions are (i) executed in accordance with its management's general or
specific authorization, and (ii) recorded as necessary to permit the
preparation of financial statements in conformity with GAAP. Such records,
to the extent they contain material information pertaining to Acquiror which
is not easily and readily available elsewhere, have been duplicated, and such
duplicates are stored safely and securely.
4.21 OFFICES AND ATMs. Set forth in Acquiror's Disclosure Letter is
a list of the headquarters of Acquiror (identified as such) and each of the
offices and automated teller machines ("ATMs") maintained and operated (or to
be maintained and operated) by Acquiror (including, without limitation,
representative and loan production offices and operations centers) and the
location thereof. Except as set forth in Acquiror's Disclosure Letter,
Acquiror maintains no other office or ATM and conducts business at no other
location, and Acquiror has not applied for nor received permission to open
any additional branch nor operate at any other location.
4.22 LOAN PORTFOLIO. Acquiror's Disclosure Letter sets forth a
description of; (a) by type and classification, all loans, leases, other
extensions and commitments to extend credit of Acquiror of $150,000 or more,
that have been classified by itself, its bank examiners or auditors (external
or internal) as "Watch List", "Substandard", "Doubtful", "Loss" or any
comparable classification; and (b) all loans due to Acquiror as to which any
payment of principal, interest or any other amount is 30 days
38
or more past due. Acquiror's allowance for loan losses is and will be at the
Effective Time adequate and in accordance with GAAP in all materials respects
and in accordance with all applicable regulatory requirements of any
Governmental Entity.
4.23 POWER OF ATTORNEY. Except as set forth in Acquiror's
Disclosure Letter, Acquiror has not granted any Person a power of attorney or
similar authorization that is presently in effect or outstanding.
4.24 OPERATING LOSSES. Acquiror's Disclosure Letter sets forth any
Operating Loss which has occurred at Acquiror during the period after
December 31, 1996. To the knowledge of Acquiror, no action has been taken or
omitted to be taken by an employee of Acquiror that has resulted in the
incurrence by Acquiror of an Operating Loss or that might reasonably be
expected to result in an Operating Loss after December 31, 1996, which, net
of any insurance proceeds payable in respect thereof, would exceed $50,000.
4.25 ENVIRONMENTAL MATTERS. Except as set forth in Acquiror's
Disclosure Letter, (i) Acquiror is in compliance with all Environmental Laws;
(ii) there are no Tanks on or about Acquiror Property; (iii) there are no
Hazardous Materials on, below or above the surface of, or migrating to or
from Acquiror Property; (iv) Acquiror has no loans outstanding secured by
real property that is not in compliance with Environmental Laws or which has
a leaking Tank or upon which there are Hazardous Materials on or migrating to
or from; and (v) without limiting the foregoing representations and
warranties contained in clauses (i) through (iv), as of the date of this
Agreement, there is no claim, action , suit, or proceeding or notice thereof
before any Governmental Entity pending against Acquiror or concerning
property securing Acquiror loans and there is no outstanding judgment, order,
writ, injunction, decree, or award against or affecting Acquiror Property or
property securing Acquiror loans, relating to the foregoing representations
(i) -- (iv), in each case the noncompliance with which, or the presence of
which would have a material adverse effect on the business, financial
condition, results of operations or prospects of Acquiror. "Acquiror
Property" shall mean real estate currently owned, leased, or otherwise used
by Acquiror, or in which Acquiror has an investment or security interest by
mortgage, deed of trust, sale and lease-back or otherwise, including without
limitation, properties under foreclosure and properties held by Acquiror in
its capacity as a trustee or otherwise.
4.26 COMMUNITY REINVESTMENT ACT. Acquiror received a rating of
"satisfactory" or better in its most recent examination or interim review
with respect to the Community Reinvestment Act. Acquiror has not been
advised of any concerns regarding Acquiror's compliance with the Community
Reinvestment Act by any Governmental Entity or by any other Person.
4.27 DERIVATIVES. Acquiror is not currently a party to any interest
rate swap, cap, floor, option agreement, other interest rate risk management
arrangement or agreement or derivative- type security or derivative
arrangement or agreement.
39
4.28 POOLING. It is intended that the Bank Merger be accounted for
on a pooling of interests basis, and no event has occurred or is reasonably
foreseeable (including any transaction contemplated by this Agreement) that
could alter such treatment.
4.29 SEC REPORTS. As of their respective dates, since December 31,
1994, none of Acquiror's SEC Reports contained at the time of filing any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
4.30 MATERIAL CONTRACTS. Except as set forth in Acquiror's
Disclosure Letter (all items listed or required to be listed in Acquiror's
Disclosure Letter as a result of this Section being referred to herein as
"Acquiror Scheduled Contracts"), Acquiror is not a party or otherwise subject
to:
(a) any collective bargaining agreement or other such contract
or agreement with any labor organization;
(b) any stock purchase, stock option, stock bonus, stock
ownership, profit sharing, group insurance, bonus, deferred compensation,
severance pay, pension, retirement, savings or other incentive, welfare or
employment plan or material agreement providing benefits to any present or
former employees, officers or directors of Acquioror;
(c) any agreement to acquire equipment or any commitment to
make capital expenditures of $75,000 or more;
(d) any agreement which would be terminable other than by
Acquiror or as a result of the consummation of the transactions contemplated
by this Agreement;
(e) any contract of participation with any other bank in any
loan entered into by Acquiror subsequent to December 31, 1996 in excess of
$150,000 or any sales of assets of Acquiror with recourse of any kind to
Acquiror except the sale of mortgage loans, servicing rights, repurchase or
reverse repurchase agreements, securities or other financial transactions in
the ordinary course of business;
(f) any other agreement of any other kind, including for data
processing and similar services, which involves future payments or receipts
or performances of services or delivery of items requiring aggregate payment
of $75,000 or more to or by Acquiror other than payments made under or
pursuant to loan agreements, participation agreements and other agreements
for the extension of credit in the ordinary course of its business;
40
(g) any material agreement, arrangement or understanding not
made in the ordinary course of business;
(h) any agreement, arrangement or understanding relating to
the employment, election, retention in office or severance of any present or
former director, officer or employee of Acquiror;
(i) any agreement, arrangement or understanding pursuant to
which any payment (whether severance pay or otherwise) became or may become
due to any director, officer or employee of Acquiror upon execution of this
Agreement or upon or following consummation of the transactions contemplated
hereby (either alone or in connection with the occurrence of any additional
acts or events); or
(j) any written agreement, supervisory agreement, memorandum
of understanding, consent order, cease and desist order, capital order, or
condition of any regulatory order or decree with or by the Commissioner or
FDIC or any other regulatory agency.
True copies of all Acquiror Scheduled Contracts, including all amendments and
supplements thereto, are attached to Acquiror's Disclosure Letter.
4.31 TRUST ADMINISTRATION. Acquiror does not presently exercise
trust powers, including, but not limited to, trust administration, and has
not exercised such trust powers for a period of at least 3 years prior to the
date hereof. The term "trusts" as used in this Section 4.31 includes (i) any
and all common law or other trusts between an individual, corporation or
other entities and Acquiror, as trustee or co-trustee, including, without
limitation, pension or other qualified or nonqualified employee benefit
plans, compensation, testamentary, inter vivos and charitable trust
indentures; (ii) any and all decedents estates where Acquiror is serving or
has served as a co-executor or sole executor, personal represetative or
adminstrator, administrator ▇▇ ▇▇▇▇▇ non, administrator ▇▇ ▇▇▇▇▇ non with
will annexed, or in any similar fiduciary capacity; (iii) any and all
guardianships, conservatorships or similar positions where Acquiror is
serving or has served as a co- grantor or a sole grantor or a conservator or
a co-conservator of the estate, or any similar fiduciary capacity; and (iv)
any and all agency and/or custodial accounts and/or similar arrangements,
including plan administrator for employee benefit accounts, under which
Acquiror is serving or has served as an agent or custodian for the owner or
other party establishing the account with or without investment authority.
4.32 REGULATORY APPROVALS. To the knowledge of Acquiror, except as
described in Acquiror's Disclosure Letter, Acquiror has no reason to believe
that it would not receive all required approvals from any Governmental Entity
of any application to consummate the transaction contempleted by this
Agreement without the imposition of a materially burdensome condition in
connection with the approval of any such application.
41
ARTICLE 5
AGREEMENTS WITH RESPECT TO CONDUCT OF
BANCORP AND BANK AFTER THE DATE HEREOF
Bancorp and Bank covenant and agree with Acquiror as follows:
5.1 ACCESS.
(a) Bancorp and Bank will authorize and permit Acquiror, its
representatives, accountants and counsel, to have access during normal
business hours, on notice and in such manner as will not unreasonably
interfere with the conduct of the businesses of either Bancorp or Bank, to
all properties, books, records, branch operating reports, branch audit
reports, operating instructions and procedures, tax returns, tax settlement
letters, contracts and documents, and all other information with respect to
their business affairs, financial condition, assets and liabilities as
Acquiror may from time to time request. Bancorp and Bank shall permit
Acquiror, its representatives, accountants and counsel to make copies of such
books, records and other documents and to discuss the business affairs,
condition (financial and otherwise), assets and liabilities of Bancorp and
Bank with such third Persons, including, without limitation, its directors,
officers, employees, accountants, counsel and creditors, as Acquiror
considers necessary or appropriate for the purposes of familiarizing itself
with the businesses and operations of Bancorp and Bank, obtaining any
necessary orders, consents or approvals of the transactions contemplated by
this Agreement by any Governmental Entity and conducting an evaluation of the
assets and liabilities of Bancorp and Bank. Bancorp and Bank will cause
Vavrinick, Trine & Day to make available to Acquiror, its accountants,
counsel and other agents, such personnel, work papers and other documentation
of Vavrinick, Trine & Day relating to its work papers and its audits of the
books and records of Bancorp and Bank as may be requested by Acquiror in
connection with its review of the foregoing matters.
(b) The President of Acquiror or in his absence another
representative of Acquiror selected by him shall be invited by Bancorp and
Bank to attend all regular and special Board of Directors' and Executive
Committee meetings of Bancorp or Bank from the date hereof until the
Effective Time. Bancorp and Bank shall inform Acquiror of each such Board
meeting at least 2 Business Days in advance of each such meeting; provided,
however, that the attendance of such representative of Acquiror shall not be
permitted at any meeting, or portion thereof, for the sole purpose of
discussing the transaction contemplated by this Agreement or the obligations
of either Bancorp or the Bank under this Agreement.
5.2 MATERIAL ADVERSE CHANGES; REPORTS; FINANCIAL STATEMENTS;
FILINGS.
42
(a) Bancorp and Bank will promptly notify Acquiror (i) of any
event of which Bancorp or Bank obtains knowledge which may materially and
adversely affect the business, financial condition, or results of operations
of either Bancorp or Bank; (ii) in the event Bancorp or Bank determine that
it is possible that the conditions to the performance of Acquiror set forth
in Sections8.1 and 8.3 may not be satisfied; (iii) of the opening or closing
of any branch or other office of Bancorp or Bank at which business is
conducted; or (iv) any event, development or circumstance that, to the best
knowledge of Bancorp or Bank, will or, with the passage of time or the giving
of notice or both, is reasonably expected to result in the loss to Bancorp or
Bank of the services of any Executive Officer of Bancorp or Bank.
(b) Bancorp and Bank will furnish to Acquiror as provided in
Section11.13 of this Agreement, as soon as practicable, and in any event
within 5 Business Days after it is prepared or becomes available to either
Bancorp or Bank, (i) a copy of any report submitted to the board of directors
of either Bancorp or Bank and access to the working papers related thereto
and copies of other operating or financial reports prepared for management of
any of its businesses and access to the working papers related thereto,
PROVIDED, HOWEVER, that Bancorp and Bank need not furnish Acquiror any
privileged communications of or memoranda prepared by its legal counsel in
connection with the transactions contemplated by, and the rights and
obligations of Bancorp and Bank under, this Agreement; (ii) quarterly
unaudited consolidated balance sheets and statements of operations, changes
in stockholders' equity and cash flow for Bancorp and Bank; (iii) monthly
unaudited consolidated balance sheets and, statements of operations for
Bancorp and Bank; (iv) as soon as available, all letters and communications
sent by Bancorp to its shareholders and all reports filed by Bancorp or Bank
with the SEC, the FRB, the FDIC, the Commissioner and any other Person; and
(v) such other reports as Acquiror may reasonably request relating to Bancorp
or Bank.
(c) Each of the financial statements delivered pursuant to
subsection (b) shall be (i) prepared in accordance with GAAP on a basis
consistent with that of the Financial Statements of Bank/Bancorp, except that
such financial statements may omit statements of cash flows and footnote
disclosures required by GAAP; and (ii) accompanied by a certificate of the
chief financial officer to the effect that such consolidated financial
statements fairly present the financial condition and results of operations
of Bancorp and Bank for the period covered, and reflect all adjustments
(which consist only of normal recurring adjustments) necessary for a fair
presentation.
5.3 CONDUCT OF BUSINESS.
(a) Between the date hereof and the Effective Time, except as
contemplated by this Agreement and subject to requirements of law and
regulation generally applicable to bank holding companies and banks, Bancorp
or Bank shall not, without prior written consent of Acquiror (which consent
shall not be unreasonably withheld and which consent [except with respect
to subparagraph (30) of this Section 5.3(a)] shall be deemed granted if
within five (5) Business Days of Acquiror's receipt of
43
written notice of a request for prior written consent, written notice of
objection is not received by Bancorp and Bank):
(1) amend, modify, terminate or fail to renew or preserve
their material Permits;
(2) amend or modify in any material respect, or, except
as they may expire in accordance with their terms, terminate any Bancorp
Scheduled Contract or any other material contract or agreement to which
Bancorp or Bank is a party, or materially default in the performance of any
of its obligations under any such contract or agreement;
(3) enter into any agreement or contract that would be
required to be included as a Bancorp Scheduled Contract.
(4) terminate or unilaterally fail to renew any existing
insurance coverage or bonds;
(5) make any loan or other extension of credit, or enter
into any commitment to make any loan or other extension of credit except for
consumer loans of not more than $50,000 per person, to any director, officer,
employee or shareholder holding 5% or more of the outstanding shares of
Bancorp Stock;
(6) grant any general or uniform increase in the rate of
pay to any employee or employee benefit or profit sharing plan or increase
the salary or employee benefits of any non-exempt employee or agent or pay
any bonus, severance or similar payment to any Person, except in the ordinary
course of business and consistent with past practice or established practices;
(7) grant any promotion or any increase in the rate of
pay to any exempt employee, profit sharing plan or increase in any employee
benefits or pay any bonus, severance or similar payment to any exempt
employee except for prorata bonuses, profit sharing or 401(k) matching
payments which are in the ordinary course of business and consistent with
past practices and which do not exceed the total amount of all such payments
declared in 1997 multiplied by the fraction derived by dividing (a) the
number of full calendar months between January 1, 1998 and the Effective Day
by (b) twelve (12);
(8) sell, transfer, mortgage, encumber or otherwise
dispose of any assets or release or waive any claim, except in the ordinary
course of business and consistent with past practice or as required by any
existing contract or for ordinary repairs, renewals or replacements or as
contemplated in this Agreement;
(9) issue, sell, or grant any Equity Securities of
Bancorp or Bank (except pursuant to the exercise of Bancorp options
outstanding as of
44
the date hereof), any other securities (including long term debt), or any
rights, options or securities to acquire any Bancorp Stock Option or any
Equity Securities of Bancorp or any other securities (including long term
debt) of Bancorp;
(10) declare, issue or pay any dividend or other
distribution of assets, whether consisting of money, other personal property,
real property or other things of value, to the shareholders of Bancorp or
Bank, or split, combine or reclassify any shares of its capital stock or
other Equity Securities except (i) for a $0.30 per share cash dividend
payable by Bancorp to its shareholders on or about February 6, 1998 and (ii)
if the Effective Time occurs after July 31, 1998, an additional cash dividend
payable by Bancorp to its shareholders after July 31, 1998 in an amount not
to exceed $.10.
(11) purchase, redeem or otherwise acquire any Equity
Securities, or other securities of Bancorp or Bank or any rights, options, or
securities to acquire any Equity Securities of Bancorp or Bank;
(12) amend or modify its Charter Documents;
(13) make their credit underwriting policies, standards
or practices relating to the making of loans and other extensions of credit,
or commitments to make loans and other extensions of credit, less stringent
than those in effect on December 31, 1997;
(14) make any capital expenditures, or commitments with
respect thereto, in excess of $100,000 except in the ordinary course of
business and consistent with past practice;
(15) make extraordinary payments to any Person other than
as contemplated, or as disclosed, in this Agreement;
(16) make any investment by purchase of stock or
securities (including an Investment Security), contributions to capital,
property transfers or otherwise in any other Person, except for federal funds
or obligations of the United States Treasury or an agency of the United
States Government the obligations of which are entitled to or implied to have
the full faith and credit of the United States government and which have an
original maturity not in excess of one year, or bank qualified investment
grade municipal bonds, in any case, in the ordinary course of business
consistent with the past practices, and which are not designated as trading;
(17) compromise or otherwise settle or adjust any
assertion or claim of a deficiency in taxes (or interest thereon or penalties
in connection therewith); file any appeal from an asserted deficiency except
in a form previously approved by Acquiror in writing; file or amend any
United States federal, foreign, state or local tax return without Acquiror's
prior written approval, which approval shall not be
45
unreasonably withheld; or make any tax election or change any method or
period of accounting unless required by GAAP or applicable law;
(18) enter into or consent to any new employment
agreement or other Benefit Arrangement, or amend or modify any employment
agreement or other Bank Benefit Arrangement in effect on the date of this
Agreement to which either Bancorp or Bank is a party or bound;
(19) grant any Person a power of attorney or similar
authority except in accordance with a written policy previously disclosed to
Acquiror;
(20) agree or make any commitment to take any actions
prohibited by this Section 5.3;
(21) change any of Bank's basic policies and practices
with respect to liquidity management and cash flow planning, marketing,
deposit origination, lending, budgeting, profit and tax planning, personnel
practices or any other material aspect of Bank's business or operations,
except such changes as may be required in the opinion of Bancorp and Bank's
management to respond to economic or market conditions or as may be required
by any Governmental Entity;
(22) take any action which would or is reasonably likely
to (i) adversely affect the ability of Bancorp, Bank or Acquiror to obtain
any necessary approval of any Governmental Entity required for the
transactions contemplated hereby; (ii) adversely affect Bancorp or Bank's
ability to perform their covenants and agreements under this Agreement; or
(iii) result in any of the conditions to the performance of Bancorp, Bank or
Acquiror's obligations hereunder, as set forth in Article 8 herein not being
satisfied;
(23) reclassify any Investment Security from
hold-to-maturity or available for sale to trading;
(24) sell any Investment Security prior to maturity,
except in the ordinary course of business. Any gains realized from a sale in
the ordinary course of business shall be excluded on an after tax basis from
Bancorp Projected Earnings as defined in Section 8.3(k);
(25) take title to any real property without obtaining
prior thereto a Phase I environmental report, which report shall disclose the
absence of any suspected environmental contamination;
(26) knowingly take or cause to be taken any action which
would disqualify the Bank Merger as a "reorganization" within the meaning of
Section 368 of the Code or prevent Acquiror from accounting for the business
combination to be effected by the Bank Merger as a pooling-of-interests;
46
(27) settle any claim, action or proceeding involving any
material liability for monetary damages or enter into any settlement
agreement containing material obligations;
(28) make, acquire a participation in, or reacquire an
interest in a participation sold of, any loan that is not in compliance with
its normal credit underwriting standards, policies and procedures as in
effect as of the date of this Agreement; or renew, extend the maturity of, or
alter any of the material terms of any such loan for a period of greater than
six months;
(29) incur any indebtedness for borrowed money or assume,
guaranty, endorse or otherwise as an accommodation become responsible for the
obligations of any other Person, except for (i) in connection with banking
transactions with banking customers in the ordinary course of business, or
(ii) short-term borrowings made at prevailing market rates and terms;
(30) grant, renew or commit to grant or renew any
extension of credit if such extension of credit, together with all other
credit then outstanding to the same Person and all Affiliated Persons, would
exceed $100,000 on an unsecured basis and $200,000 on a secured basis except
for any loan or loans not to exceed $50,000 per person which is either (i)
to a Person and all Affiliated Persons of up to 10% of the aggregated
principal amount of existing such loans or (ii) a consumer loan. Consent
shall be deemed granted if within two Business Days of written notice
delivered to Acquiror's Chief Credit Officer, written notice of objection is
not received by Bancorp or Bank.
(b) Between the date hereof and the Effective Time , Bancorp
and Bank shall:
(1) duly observe and conform in all material respects to
all lawful requirements applicable to its business;
(2) maintain their assets and properties in good
condition and repair, normal wear and tear excepted;
(3) promptly upon learning of such information, advise
Acquiror in writing of any event or any other transaction within its
knowledge whereby any Person or Related Group of Persons acquires, directly
or indirectly, record or beneficial ownership or control (as defined in Rule
13d-3 promulgated by the SEC under the Exchange Act) of five percent (5%) or
more of the outstanding Bancorp Stock prior to the record date fixed for the
Bancorp Shareholders' Meeting or any adjourned meeting thereof to approve
this Agreement and the transaction contemplated herein;
47
(4) promptly notify Acquiror regarding receipt from any
tax authority of any notification of the commencement of an audit, any
request to extend the statute of limitations, any statutory notice of
deficiency, any revenue agents report, any notice of proposed assessment, or
any other similar notification of potential adjustments to the tax
liabilities of Bancorp or Bank, or any actual or threatened collection
enforcement activity by any tax authority with respect to tax liabilities of
Bancorp or Bank; and
(5) maintain an allowance for loan and lease losses
consistent with practices and methodology as in effect on the date of the
execution of this Agreement, and shall not, notwithstanding any recoveries
received with respect to loans previously charged off, reduce the allowance
for loan and lease losses below the amount in effect on the date of the
execution of this Agreement, except as a result of chargeoffs.
5.4 CERTAIN LOANS AND OTHER EXTENSIONS OF BANCORP AND BANK.
Bancorp and Bank will promptly inform Acquiror of the amounts and categories
of any loans, leases or other extensions of credit that have been classified
by any Governmental Entity or by any internal or external loan reviewer of
Bancorp or Bank as "Watch List", "Substandard", "Doubtful", "Loss" or any
comparable classification. Bancorp and Bank will furnish to Acquiror, as
soon as practicable, and in any event within 10 days after the end of each
calendar month, schedules including a listing of the following:
(a) classified credits, showing with respect to each such
credit in amount equal to or exceeding $50,000, the classification category,
credit type, and office, and with respect to all other such credits, by
credit type and office, the aggregate dollar amount;
(b) nonaccrual credits, showing with respect to each such
credit in amount equal to or exceeding $50,000, the credit type and office,
and with respect to all other such credits, by credit type and office, the
aggregate dollar amount;
(c) accrual exception credits that are delinquent 90or more
days and have not been placed on nonaccrual status, showing with respect to
each such credit in amount equal to or exceeding $50,000, the credit type and
office, and with respect to all other such credits, by credit type and
office, the aggregate dollar amount;
(d) delinquent credits showing with respect to each such
credit in amount equal to or exceeding $50,000, the credit type, office and
an aging schedule broken down into 30-59, 60-89, 90 + day categories, and
with respect to all other such credits, by credit type, office and by aging
category, the aggregate dollar amount;
(e) loan and lease participations, stating, with respect to
each, whether it is purchased or sold, the loan or lease type, and the office;
48
(f) loans or leases (including any commitments) by Bancorp or
Bank except for consumer loans of not more than $50,000 per person to any
director, officer, or employee of Bancorp or Bank, or any shareholder holding
5% or more of the capital stock of Bancorp, including with respect to each
such loan or lease, the identity and, to the best knowledge of Bancorp and
Bank, the relation of the borrower to Bancorp and Bank, the loan or lease
type and the outstanding and undrawn amounts;
(g) letters of credit, showing with respect to each letter of
credit in an amount equal to or exceeding $50,000, the credit type and
office, and showing with respect to all other such letters of credit, by
credit type and office, the aggregate dollar amount;
(h) loans or leases charged off during the previous month,
showing with respect to each such loan or lease, the credit type and office;
(i) loans or leases written down during the previous month,
including with respect to each the original amount, the writeoff amount,
credit type and office;
(j) other real estate or assets owned, stating with respect
to each its credit type;
(k) a reconciliation of the allowance for loan and lease
losses, identifying specifically the amount and sources of all additions and
reductions to the allowance (which may be by reference to specific portions
of another schedule furnished pursuant to this Section 5.4 and, in the case
of unallocated adjustments, shall disclose the methodology and calculations
through which the amount of such adjustment was determined);
(l) extensions of credit whether unsecured or secured in
amount equal to or exceeding $50,000 , originated on or after the date of the
schedule previously provided to Acquiror (or if it is the first such
schedule, the date of this Agreement) and before the date of the schedule in
which reported, showing with respect to each, the credit type and the office;
and
(m) renewals or extensions of maturity of outstanding
extensions of credit whether unsecured or secured in amount equal to or
exceeding $50,000, showing with respect to each, the credit type and the
office.
5.5 DISCLOSURE LETTER. Promptly in the case of material matters,
and not less than monthly in the case of all other matters, Bancorp and Bank
shall amend or supplement the Bancorp Disclosure Letter provided for herein
pertaining to Bancorp and Bank as necessary so that the information contained
therein accurately reflects the then current status of Bancorp and Bank and
shall transmit copies of such amendments or supplements to Acquiror in
accordance with Section 11.13 of this Agreement.
49
5.6 SHAREHOLDER APPROVAL.
(a) Bancorp will promptly take action necessary in accordance
with applicable law and its Charter Documents to convene a meeting of its
shareholders (the "Bancorp Shareholders' Meeting") to be held as soon as
practicable, for the purpose of voting on the Bank Merger, this Agreement and
related matters. In connection with the Bancorp Shareholders' Meeting, (i)
the Board of Directors of Bancorp shall, subject to fiduciary duty, recommend
shareholder approval of the Bank Merger, this Agreement and related matters;
and (ii) Bancorp shall use its best efforts to obtain such shareholder
approval by the largest possible percentage.
(b) Bank will promptly take action necessary in accordance
with applicable law and its Charter Documents to convene a meeting of its
shareholder (the "Bank Shareholders' Meeting") to be held as soon as
practicable, for the purpose of voting on the Bank Merger, this Agreement and
related matters. Bancorp shall vote all shares of Bank Stock which it owns at
such meeting in favor of the Bank Merger, this Agreement and related matters.
5.7 CONSENTS AND APPROVALS.
(a) Bancorp and Bank will cooperate with Acquiror in the
preparation of all filings, applications, notices and requests for waiver for
Consents necessary or desirable for the consummation of the Bank Merger, and
the other transactions contemplated in this Agreement. Bancorp's and Bank's
cooperation hereunder shall include, but not be limited to, providing all
information concerning Bancorp or Bank and their respective shareholders as
may be required for such filings, applications, notices and requests for
Consents and signing, to the extent required, all such filings, applications,
notices and requests.
(b) To the extent that the consent of a third party ("Third
Party Consent") with respect to any contract, agreement, license, franchise,
lease, commitment, arrangement, Permit or release that is material to the
business of Bancorp or Bank or that is contemplated in this Agreement is
required in connection with the Bank Merger or the transactions contemplated
in this Agreement, Bancorp and Bank shall use its best efforts to obtain such
consent prior to the Effective Time.
5.8 PRESERVATION OF EMPLOYMENT RELATIONS PRIOR TO EFFECTIVE TIME.
Bancorp and Bank will use their best efforts consistent with current
employment practices and policies to maintain the services of the officers
and employees of Bancorp and Bank through the Effective Time.
5.9 COMPLIANCE WITH RULES. Bancorp and Bank shall comply with the
requirements of all applicable Rules, the noncompliance with which would
materially and
50
adversely affect the assets, liabilities, business, financial condition or
results of operations or prospects of Bancorp or Bank.
5.10 BANK BENEFIT ARRANGEMENTS. Subject to Article 9 hereof and
except for the agreements between the Bancorp, the Bank and its Executive
Officers at or prior to the Effective Time, Bancorp and Bank, as the case may
be, and any effected officers, directors or employees shall mutually
terminate all Bank Benefit Arrangements without the imposition of any
liability therefor to Acquiror or any other Party.
5.11 AGREEMENT OF MERGER. As soon as practicable, Bancorp and
Bank shall execute the Agreement of Merger.
5.12 ENVIRONMENTAL REPORTS. Bancorp and Bank shall provide to
Acquiror, as soon as practical, but not later than 45 days after the date
hereof, a Vista Environmental Report (a sample of which is attached to
Acquiror's Disclosure Letter) containing a preliminary environmental
investigation on all real property owned, leased or operated (including OREO)
by Bancorp or Bank as the date hereof and within ten days after the
acquisition or lease of any real property acquired or leased (including OREO)
by the Bancorp or Bank after the date hereof. If required by said
preliminary investigation in Acquiror's reasonable opinion, Bancorp and Bank
shall provide to Acquiror a phase one and, if necessary in Acquiror's
reasonable opinion, a phase two environmental report of further investigation
on properties requiring such additional study. The expenses of all reports
shall be borne by Bancorp or Bank. Acquiror shall have 15 Business Days from
the receipt of a report pursuant to this Section 5.12 to notify Bancorp and
Bank of any objections to the contents of such report. Should the costs of
taking all remedial and corrective actions and measures (i) required by
applicable law, or (ii) recommended or suggested by such report or reports or
prudent in the light of serious life, health or safety concerns, in the
aggregate, exceed the sum of $25,000 as reasonably estimated by an
environmental expert retained for such purpose by Bancorp or Bank and
reasonably acceptable to Acquiror, or if the cost of such actions and
measures cannot be reasonably estimated by such expert to be $25,000 or less
with any reasonable degree of certainty, then such costs of remedial and
corrective actions and measures shall be deemed to be Significant Liabilities
as defined in this Agreement. Acquiror shall have the right pursuant to
Section 10.1(h) hereof and Bancorp and Bank shall have the right pursuant to
Section 10.1(j) hereto, for a period of 10 Business Days following receipt of
such estimate or indication that the costs of such actions and measures are
reasonably estimated to exceed $1,500,000 on an after tax basis or can not be
reasonably estimated to be less than $1,500,000 on an after tax basis, to
terminate this Agreement, without liability to Bancorp or Bank or Section
5.12.
5.13 ACCRUALS AND RESERVES. Just prior to the Effective Time and
to the extent determined necessary or advisable by Acquiror in its sole
discretion (which shall not be limited by any finding or determination by a
Governmental Entity), Bank shall modify and change its loan, OREO, accrual
and reserve policies and practices (including loan classifications and levels
of tax, loan and OREO reserves and accruals) and increase
51
its reserves for loans losses to reflect Acquiror's judgment and plans with
respect to the conduct of Bancorp and Bank's business following the Bank
Merger.
5.14 NO SHOP. Neither Bancorp nor Bank, nor any of their
Affiliates shall, on or before the earlier of the Effective Time or the date
of termination of this Agreement, initiate, solicit or encourage (including
by way of furnishing information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to any Competing Transaction (as such term
is defined below), or negotiate with any Person in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any of its officers, directors
or employees or any investment banker, financial advisor, attorney,
accountant or any other representative retained by it or any of its
Affiliates to take any such action, and Bancorp and Bank shall promptly
notify Acquiror (orally and in writing) of all of the relevant details
relating to all inquiries and proposals which they may receive relating to
any of such matters. For purposes of this Agreement, "Competing Transaction"
shall mean any of the following involving Bancorp or Bank: any merger,
consolidation, share exchange or other business combination; a sale, lease,
exchange, mortgage, pledge, transfer or other disposition of assets of
Bancorp or Bank representing ten percent (10%) or more of the asset of
Bancorp or Bank; a sale of shares of capital stock (or securities convertible
or exchangeable into or otherwise evidencing, or any agreement or instrument
evidencing, the right to acquire capital stock), representing ten percent
(10%) or more of the voting power of Bancorp or Bank, a tender offer or
exchange offer for at least ten percent (10%) of the outstanding shares; a
solicitation of proxies in opposition to approval of the Bank Merger by
Bancorp or Bank shareholders; or a public announcement of an unsolicited BONA
FIDE proposal, plan, or intention to do any of the foregoing.
Notwithstanding any other provision in this Section 5.14 or elsewhere in
this Agreement, the obligations of Bancorp and Bank in this Agreement are
subject to the continuing fiduciary duties of their respective Boards of
Directors. In the event the Board of Directors of Bancorp, or Bank, or both,
receives a bona fide offer for a Competing Transaction with another entity,
and reasonably determines, upon written advice of counsel, that as a result
of such offer, any duty to act or to refrain from doing any act pursuant to
this Agreement, is inconsistent with the continuing fiduciary duties of said
Board of Directors to their shareholders, such failure to act or refrain from
doing any act shall not constitute the failure of any condition, breach of
any covenant or otherwise constitute any breach of this Agreement, except
that any such failure to act or refrain from doing any act shall entitle
Acquiror to terminate this Agreement pursuant to Section 10.1(g) hereof, and
in no event shall this sentence or the previous sentence operate to excuse or
modify the obligations of Bancorp and Bank under Section 11.1(c) hereof.
5.15 AFFILIATES AND FIVE PERCENT SHAREHOLDER AGREEMENTS. Within
thirty (30) days of the execution of this Agreement, (a) Bancorp and Bank
shall deliver to Acquiror a letter identifying all persons who are then
"affiliates" of Bancorp or Bank for purposes of Rule 145 under the Securities
Act and (b) Bancorp shall advise the persons identified in such letter of the
resale restrictions imposed by applicable securities laws
52
and shall use reasonable efforts to obtain from each person identified in
such letter a written agreement substantially in the form attached hereto as
Exhibit 5.15. Bancorp shall use reasonable efforts to obtain from any person
who becomes an affiliate of Bancorp after Bancorp's delivery of the letter
referred to above, and on or prior to the date of the Bancorp Shareholders'
Meeting to approve this Agreement, a written agreement substantially in the
form attached as Exhibit 5.15 hereto as soon as practicable after obtaining
such status. At least 10 Business Days prior to the issuance of the opinion
to be provided for in Section 8.1(h), Bancorp shall use its best efforts to
cause each person or group of persons who holds more than five percent (5%)
of the Bancorp Stock (regardless of whether such person is an "affiliate"
under Rule 145) to deliver to both ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP and Reitner & Stuart,
a letter stating that such shareholder(s) has no present plan or intention to
dispose of Bancorp Stock and committing that such shareholder(s) will not
dispose of Bancorp Stock in a manner to cause a violation of the "continuity
of shareholder interest" requirements of Treasury Regulation 1.368-1.
ARTICLE 6
AGREEMENTS WITH RESPECT TO CONDUCT OF
ACQUIROR AFTER THE DATE HEREOF
Acquiror covenant and agree with Bancorp and Bank as follows:
6.1 ACCESS.
(a) Acquiror will authorize and permit Bancorp and Bank, their
representatives, accountants and counsel, to have access during normal
business hours, on notice and in such manner as will not unreasonably
interfere with the conduct of the businesses of Acquiror, to all properties,
books, records, branch operating reports, branch audit reports, operating
instructions and procedures, tax returns, tax settlement letters, contracts
and documents, and all other information with respect to its business
affairs, financial condition, assets and liabilities as Bancorp and Bank may
from time to time request. Acquiror shall permit Bancorp and Bank, their
representatives, accountants and counsel to make copies of such books,
records and other documents and to discuss the business affairs, condition
(financial and otherwise), assets and liabilities of Acquiror with such third
Persons, including, without limitation, its directors, officers, employees,
accountants, counsel and creditors, as Bancorp and Bank consider necessary or
appropriate for the purposes of familiarizing themselves with the businesses
and operations of Acquiror, obtaining any necessary orders, consents or
approvals of the transactions contemplated by this Agreement by any
Governmental Entity and conducting an evaluation of the assets and
liabilities of Acquiror. Acquiror will cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP, to make
available to Bancorp and Bank, their accountants, counsel and other agents,
such personnel, work papers and other documentation of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP,
relating to its work papers and its audits of the books and records of
Acquiror as may be requested by Bancorp and Bank in connection with their
review of the foregoing matters.
53
(b) The President of Bancorp or in his absence another
representative of Bancorp selected by him shall be invited by Acquiror to
attend all regular and special Board of Directors' meetings of Acquiror from
the date hereof until the Effective Time of the Bank Merger. Acquiror shall
inform Bancorp of each such Board meeting at least 2 Business Days in advance
of each such meeting; provided, however, that the attendance of such
representative of Bancorp shall not be permitted at any meeting, or portion
thereof, for the sole purpose of discussing the transactions contemplated by
this Agreement of the obligations of the Acquiror under this Agreement.
6.2 MATERIAL ADVERSE CHANGES; REPORTS; FINANCIAL STATEMENTS; FILINGS.
(a) Acquiror will promptly notify Bancorp and Bank (i) of any
event of which Acquiror obtains knowledge which may materially and adversely
affect the business, financial condition, or results of operations of
Acquiror; (ii) in the event Acquiror determines that it is possible that the
conditions to the performance of Bancorp and Bank set forth in Sections 8.1
and 8.2 may not be satisfied; (iii) of the opening or closing of any branch
or other office of Acquiror at which business is conducted; or (iv) any
event, development or circumstance that, to the best knowledge of Acquiror,
will or, with the passage of time or the giving of notice or both, is
reasonably expected to result in the loss to Acquiror of the services of any
Executive Officer of Acquiror.
(b) Acquiror will furnish to Bancorp and Bank as provided in
Section 11.13 of this Agreement, as soon as practicable, and in any event
within 5 Business Days after it is prepared or becomes available to Acquiror,
(i) a copy of any report submitted to the board of directors of Acquiror and
access to the working papers related thereto and copies of other operating or
financial reports prepared for management of any of its businesses and access
to the working papers related thereto, PROVIDED, HOWEVER, that Acquiror need
not furnish Bancorp or Bank any privileged communications of or memoranda
prepared by its legal counsel in connection with the transactions
contemplated by, and the rights and obligations of Acquiror under, this
Agreement; (ii) quarterly unaudited consolidated balance sheets and
statements of operations, changes in stockholders' equity and cash flow for
Acquiror; (iii) monthly unaudited consolidated balance sheets and, statements
of operations for Acquiror; (iv) as soon as available, all letters and
communications sent by Acquiror to its shareholders and all reports filed by
Acquiror with the FDIC, the Commissioner and any other Person; and (v) such
other reports as Bancorp and Bank may reasonably request relating to Acquiror.
(c) Each of the financial statements delivered pursuant to
subsections (b), shall be (i) prepared in accordance with GAAP on a basis
consistent with that of the Financial Statements of Acquiror, except that
such financial statements may omit statements of cash flows and footnote
disclosures required by GAAP; and (ii) accompanied by a certificate of the
chief financial officer to the effect that such financial statements fairly
present the financial condition and results of operations of Acquiror for
54
the period covered, and reflect all adjustments (which consist only of normal
recurring adjustments) necessary for a fair presentation.
6.3 CONDUCT OF BUSINESS.
(a) Between the date hereof and the Effective Time, except as
contemplated by this Agreement and subject to requirements of law and
regulation generally applicable to California state chartered banks, Acquiror
shall not, without prior written consent of Bancorp (which consent shall not
be unreasonably withheld and which consent shall be deemed granted if within
five (5) Business Days of Bancorp's receipt of written notice of a request
for prior written consent, written notice of objection is not received by
Acquiror):
(1) take any action which would or is reasonably likely
to (i) adversely affect the ability of Acquiror to obtain any necessary
approvals of any Governmental Entity required for the transactions
contemplated hereby; (ii) adversely affect Acquiror's ability to perform its
covenants and agreements under this Agreement; or (iii) result in any of the
conditions to the performance of Acquiror's obligations hereunder, as set
forth in Article 8 herein not being satisfied;
(2) take or cause to be taken any action which would
disqualify the Bank Merger as a "reorganization" within the meaning of
Section 368 of the Code or prevent accounting for the business combination to
be effected by the Bank Merger as a pooling-of-interests;
(3) amend its articles of incorporation in any respect
which would materially and adversely affect the rights and privileges
attendant to the Acquiror Stock except as contemplated by this Agreement; or,
(4) agree or make any commitment to take any actions
prohibited by this Section 6.3.
(5) amend, modify, terminate or fail to renew or preserve
its material Permits;
(6) issue, sell, or grant any Equity Securities of
Acquiror (except pursuant to the exercise of Acquiror options outstanding as
of the date hereof), any other securities (including long term debt), or any
rights, options or securities to acquire any Acquiror Stock Option or any
Equity Securities of Acquiror or any other securities (including long term
debt) of Acquiror;
(7) purchase, redeem or otherwise acquire any Equity
Securities, or other securities of Acquiror or any rights, options, or
securities to acquire any Equity Securities of Acquiror;
55
(8) amend or modify its Charter Documents;
(9) [Intentionally left blank]
(10) declare, issue or pay any dividend or other
distribution of assets, whether consisting of money, other personal property,
real property or other things of value, to the shareholders of Acquiror, or
split, combine or reclassify any shares of its capital stock or other Equity
Securities except for a $.15 per share cash dividend payable by Acquiror to
its shareholders on or about May 22, 1998.
(b) Between the date hereof and the Effective Time, Acquiror
shall:
(1) use its best efforts consistent with this Agreement
to maintain and preserve intact its respective present business organization
and to maintain and preserve the relationships and goodwill with account
customers, employees, and others having business relationships with Acquiror;
(2) duly observe and conform in all material respects to
all lawful requirements applicable to the business of Acquiror;
(3) use its best efforts to obtain any Third Party
Consent with respect to any contract, agreement, lease, license, arrangement,
permit or release that is material to the business of Acquiror on a
consolidated basis or that is contemplated in this Agreement as required in
connection with the Bank Merger;
(4) duly observe and conform in all material respects to
all lawful requirements applicable to its business;
(5) maintain its assets and properties in good condition
and repair, normal wear and tear excepted;
(6) promptly upon learning of such information, advise
Bancorp in writing of any event or any other transaction within its knowledge
whereby any Person or Related Group of Persons acquires, directly or
indirectly, record or beneficial ownership or control (as defined in Rule
13d-3 promulgated by the SEC under the Exchange Act) of five percent (5%) or
more of the outstanding Acquiror Stock prior to the record date fixed for the
Acquiror Shareholders' Meeting or any adjourned meeting thereof to approve
this Agreement and the transaction contemplated herein; and,
(7) provide to Bancorp, as soon as they become available,
drafts of the opinions referred to in Section 8.1(h) and (i) of this
Agreement.
56
6.4 DISCLOSURE LETTER. Promptly in the case of material matters,
and not less than monthly in the case of all other matters, Acquiror shall
amend or supplement Acquiror's Disclosure Letter provided for herein
pertaining to Acquiror as necessary so that the information contained therein
accurately reflects the then current status of Acquiror and shall transmit
copies of such amendments or supplements to Bancorp and Bank in accordance
with Section 11.13 of this Agreement.
6.5 SHAREHOLDER APPROVAL. Acquiror will promptly take action
necessary in accordance with applicable law and its Charter Documents to
convene a meeting of its shareholders (the "Acquiror Shareholders' Meeting")
to be held as soon as practicable, for the purpose of voting on the Bank
Merger, this Agreement and related matters. In connection with the Acquiror
Shareholders' Meeting, (a) the Board of Directors of Acquiror shall, subject
to fiduciary duty, recommend shareholder approval of the Bank Merger, this
Agreement and related matters; and (b) Acquiror shall use its best efforts to
obtain such shareholder approval by the largest possible percentage.
6.6 AFFILIATES AND FIVE PERCENT SHAREHOLDER AGREEMENTS.
Concurrently with the execution of this Agreement, (a) Acquiror shall deliver
to Bancorp and Bank a letter identifying all persons who are then
"affiliates" of Acquiror for purposes of Rule 145 under the Securities Act
and (b) Acquiror shall advise the persons identified in such letter of the
resale restrictions imposed by applicable securities laws and shall use
reasonable efforts to obtain from each person identified in such letter a
written agreement substantially in the form attached hereto as Exhibit 6.6.
Acquiror shall use reasonable efforts to obtain from any person who becomes
an affiliate of Acquiror after Acquiror's delivery of the letter referred to
above, and on or prior to the date of the Acquiror Shareholders' Meeting to
approve this Agreement, a written agreement substantially in the form
attached as Exhibit 6.6 hereto as soon as practicable after obtaining such
status. At least 10 Business Days prior to the issuance of the opinion to be
provided for in Section 8.1(h), Acquiror shall use its best efforts to cause
each person or group of persons who holds more than five percent (5%) of the
Acquiror Stock (regardless of whether such person is an "affiliate" under
Rule 145) to deliver to both ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP and ▇▇▇▇▇▇ & ▇▇▇▇▇▇, a
letter stating that such shareholder(s) has no present plan or intention to
dispose of Bancorp Stock that the shareholder(s) will receive in the Bank
Merger, and committing that such shareholder(s) will not dispose of Bancorp
Stock in a manner to cause a violation of the "continuity of shareholder
interest" requirements of Treasury Regulation 1.368-1.
6.7 CONSENTS AND APPROVALS.
(a) Acquiror will cooperate with Bancorp and Bank in the
preparation of all filings, applications, notices, requests for waiver and
Consents necessary or desirable for the consummation of the Bank Merger, and
the other transactions contemplated in this Agreement.
57
(b) To the extent that the consent of a third party ("Third
Party Consent") with respect to any contract, agreement, license, franchise,
lease, commitment, arrangement, Permit or release that is material to the
business of Acquiror or that is contemplated in this Agreement is required in
connection with the Bank Merger or the transactions contemplated in this
Agreement, Acquiror shall use its best efforts to obtain such consent prior
to the Effective Time.
6.8 COMPLIANCE WITH RULES. Acquiror shall comply with the
requirements of all applicable Rules, the noncompliance with which would
materially and adversely affect the assets, liabilities, business, financial
condition or results of operations or prospects of Acquiror.
6.9 AGREEMENT OF MERGER. As soon as practicable, Acquiror shall
execute the Agreement of Merger.
6.10 ENVIRONMENTAL REPORTS. Acquiror shall provide to Bancorp, as
soon as practical, but not later that 45 days after the date hereof, a Vista
Environmental Report (a sample of which is attached to Acquiror's Disclosure
Letter) containing a preliminary environmental investigation on all real
property owned, leased or operated (including OREO) by Acquiror after the
date hereof. If required by said preliminary investigation in Bancorp's
reasonable opinion, Acquiror shall provide to Bancorp a phase one and if
necessary in Bancorp's reasonable opinion, a phase two environmental report
of further investigation on properties requiring such additional study. The
expenses of all reports shall be borne by Acquiror. Bancorp shall have 15
Business Days from the receipt of a report pursuant to this Section 6.10 to
notify Acquiror of any objections to the contents of such report. Bancorp
shall have the right pursuant to Section 10.1(j) hereof, for a period of 10
Business Days following receipt of such estimate or indication that the costs
of such actions and measures are reasonably estimated to exceed $3,500,000 on
an after tax basis or can not be reasonably estimated to be less than
$3,500,000 on an after tax basis, to terminate this Agreement, without
liability to Acquiror.
6.11 CERTAIN LOANS AND OTHER EXTENSIONS OF ACQUIROR. Acquiror will
promptly inform Bancorp of the amounts and categories of any loans, leases or
other extensions of credit that have been classified by any Governmental
Entity or by any internal or external loan reviewer of Acquiror as "Watch
List," "Substandard," "Doubtful," "Loss" or any comparable classification.
Acquiror will furnish to Bancorp, as soon as practicable, and in any event
within 10 days after the end of each calendar month, schedules including a
listing of the following:
(a) classified credits, showing with respect to each such
credit in amount equal to or exceeding $150,000, the classification category,
credit type, and office, and with respect to all other such credits, by
credit type and office, the aggregate dollar amount;
58
(b) nonaccrual credits, showing with respect to each such
credit in amount equal to or exceeding $150,000, the credit type and office,
and with respect to all other such credits, by credit type and office, the
aggregate dollar amount;
(c) accrual exception credits that are delinquent 90 or more
days and have not been placed on nonaccrual status, showing with respect to
each such credit in amount equal to or exceeding $150,000, the credit type
and office, and with respect to all other such credits, by credit type and
office, the aggregate dollar amount;
(d) delinquent credits showing with respect to each such
credit in amount equal to or exceeding $150,000, the credit type, office and
an aging schedule broken down into 30-59, 60-89 and 90+ day categories, and
with respect to all other such credits, by credit type, office and by aging
category, the aggregate dollar amount;
(e) loans or leases charged off during the previous month,
showing with respect to each such loan or lease, the credit type and office;
(f) loans or leases written down during the previous month,
including with respect to each the original amount, the writeoff amount,
credit type and office;
(g) other real estate or assets owned, stating with respect to
each its credit type;
(h) a reconciliation of the allowance for loan and lease
losses, identifying specifically the amount and sources of all additions and
reductions to the allowance (which may be by reference to specific portions
of another schedule furnished pursuant to this Section 6.11 and, in the case
of unallocated adjustments, shall disclose the methodology and calculations
through which the amount of such adjustment was determined);
6.12 NEGOTIATIONS WITH OTHER PARTIES PRIOR TO CLOSING. Acquiror
shall not, and will cause each of its officers, directors, employees, agents,
legal and financial advisors and Affiliates not to, directly or indirectly,
make, solicit, encourage, initiate or enter into any agreement or agreement
in principal, or announce any intention to do any of the foregoing,
concerning an acquisition, merger or consolidation with another entity which
transaction any Governmental Entity advises Acquiror in writing or orally
would or might result in the disapproval of the transactions contemplated by
this Agreement or delay until after September 30, 1998 the consummation of
the transactions contemplated by this Agreement.
6.13 INDEMNIFICATION AND INSURANCE.
(a) Bancorp and Acquiror will maintain in effect policies of
directors' and officers' liability insurance (with such coverage, terms and
conditions as
59
are no less advantageous than the insurance presently maintained by Bancorp
and Bank with resepect to its officers and directors) with respect to all
matters arising from facts or events which occurred before the Effective Time
of the Merger for which Bancorp or Bank would have had an obligation to
indemnify its directors and officers.
(b) If Bancorp or Acquiror or any of its successors or assigns
(i) shall consolidate with or merge into any other corporation or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) shall transfer all or substantially all of
its properties and assets to any individual, corporation or other entity,
then and in each such case, Bancorp or Acquiror shall take no action to
impair the rights provided in this Section 6.13.
(c) The provisions of this Section are intended to be for the
benefit of, and shall be enforceable by, each director or officer of Bancorp
and Bank and his or her heirs and representatives.
ARTICLE 7
FURTHER COVENANTS OF BANCORP, BANK AND ACQUIROR
7.1 S-4 AND PROXY STATEMENT.
(a) As promptly as practicable, Acquiror and Bancorp shall
cooperate with each other and exercise their best efforts to prepare and file
with the SEC and the FDIC the Proxy Statement and Bancorp shall prepare and
file with the SEC the S-4, in which the Proxy Statement will be included as a
prospectus. The Parties hereto agree to provide the information necessary for
inclusion in the Proxy Statement and S-4. Each of the parties will use its
respective best efforts to have the S-4 declared effective under the
Securities Act as promptly as practicable after it is filed and to satisfy
the requirements of the SEC and FDIC as to the Proxy Statement. Acquiror
shall pay all third party costs associated with the preparation and filing of
the S-4 that are normally paid by the acquiring party in similar
transactions, and shall be responsible for making application to list
Mid-State Bancshares on the Nasdaq National Market System including costs
associated therewith.
(b) After the date of the filing of the S-4 with the SEC and
the Proxy Statement with the FDIC, each of the Parties agrees promptly to
notify the other of and to correct any information furnished by such Party
that shall have become false or misleading in any material respect and to
cooperate with the other to take all steps necessary to file with the SEC or
the FDIC, as appropriate, and have declared effective or cleared by the SEC
or the FDIC, as appropriate, any amendment or supplement to the S-4 or the
Proxy Statement so as to correct such information and to cause the Proxy
Statement as so corrected to be disseminated to the shareholders of Bancorp
and Acquiror to the extent required by applicable Rules. All documents that
the Parties file with the
60
FDIC, SEC or any other Governmental Entity in connection with this Agreement
will comply as to form in all material respects with the provisions of
applicable Rules.
(c) Bancorp shall take all required action with appropriate
Governmental Entities under state securities or blue sky laws in connection
with the issuance of Bancorp Stock pursuant to this Agreement.
7.2 FILINGS. The Parties agree that through the Effective Time, each
of its reports, registration, statements and other filings required to be filed
with any applicable Governmental Entity will comply in all material respects
with the applicable statutes, rules and regulations enforced or promulgated by
the Governmental Entity with which it will be filed and none will contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any financial
statement contained in any such report, registration statement or other filing
that is intended to represent the financial position of the entities or entity
to which it relates will fairly present the financial position of such entities
or entity and will be prepared in accordance with GAAP consistently applied
during the periods involved.
7.3 APPLICATIONS. Acquiror will promptly prepare and file or
cause to be prepared and filed (i) an application for approval of the Bank
Merger with the FDIC; (ii) an application for approval of the Bank Merger
with the Commissioner; (iii) if required, a request for Waiver from the FRB;
and (iv) any other applications or notices necessary to consummate the
transactions contemplated hereby. Acquiror shall afford Bancorp and Bank a
reasonable opportunity to review all such applications and all amendments and
supplements thereto before the filing thereof. The Parties covenant and
agree that the S-4 and the Proxy Statement and all applications to the
appropriate Governmental Entities for approval or consent to the Bank Merger,
with respect to information relating to it, will comply in all material
respects with the provisions of applicable law, and will not contain any
untrue statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statement contained therein, in
light of the circumstances under which they were made, not misleading.
Acquiror will use its best efforts to obtain all regulatory approvals or
consents necessary to effect the Bank Merger and Bancorp and Bank shall
cooperate with Acquiror in such efforts.
7.4 STOCK OPTIONS.
(a) At and as of the Effective Time and without further action
by any Party, the stock option plan of Acquiror shall terminate. The Bancorp
Stock Option Plan shall not terminate at the Effective Time but shall
continue in effect and, for purposes of such Plan, this provision shall be
deemed to be the making of appropriate provisions for such continuance.
61
(b) At and as of the Effective Time, Bancorp shall grant
substitute stock options pursuant to the Bancorp Stock Option Plan to each
and every officer and employee of Acquiror who has at the Effective Time an
outstanding option to purchase shares of Acquiror Stock ("Acquiror Stock
Options"). Each and every substitute stock option so granted by Bancorp
pursuant to the Bancorp Stock Option Plan to replace an Acquiror Stock Option
shall retain the "vesting" schedule reflected in each of the respective stock
option agreements evidencing an Acquiror Stock Option and shall be
exercisable for that number of whole shares of Bancorp Stock equal to the
product of (A) the number of shares of Acquiror Stock that were purchasable
under such Acquiror Stock Option immediately prior to the Effective Time
multiplied by (B) the Exchange Ratio, rounded down to the nearest whole
number of shares of Bancorp Stock. Further, each and every substitute stock
option so granted by Bancorp pursuant to the Bancorp Stock Option Plan to
replace an Acquiror Stock Option shall provide for a per share exercise price
which shall be equal to the quotient determined by dividing (A) the exercise
price per share of Acquiror Stock at which such Acquiror Stock Option was
exercisable immediately prior to the Effective Time by (B) the Exchange
Ratio. At the Effective Time, Bancorp shall issue to each holder of an
outstanding Acquiror Stock Option a substitute stock option providing for the
terms discussed above.
(c) Bancorp shall use its best effort to assure that each
holder of an Acquiror Stock Option which qualified as an incentive stock
option prior to the Effective Time shall receive a substitute stock option
pursuant to the Bancorp Stock Option Plan which will qualify as an incentive
stock option.
(d) At or prior to the Effective Time, Bancorp shall take all
corporate action necessary to reserve for issuance a sufficient number of
shares of Bancorp Stock for delivery upon exercise of Acquiror Stock Options.
(e) The vesting schedules of each and every stock option
outstanding on the date hereof granted pursuant to the Bancorp Stock Option
Plan shall, as a result of the transaction contemplated by this Agreement,
accelerate in accordance with the provisions of such Plan. Except as
provided in subsection (f), each such option granted pursuant to the Bancorp
Stock Option Plan shall terminate pursuant to the provisions of such Plan on
or before the Effective Time.
(f) Bancorp shall make appropriate amendments to the Bancorp
Stock Option Plan in order for each of the persons, who currently has an
outstanding stock option granted under such Plan and who does not exercise
such option and who is either specified on Exhibit 2.1(b) or is an officer
or employee of Bancorp or Bank, to have the right to receive, in their
discretion, a substitute stock option from Bancorp. Any substitute option
granted pursuant to this subsection shall be on a fully vested basis and
shall contain the same terms and conditions as the option for which it is
substituted except that the number of shares of Bancorp Stock to which such
substitute option pertains and the per share exercise price shall be adjusted
in the same manner as
62
provided in subsection (b) in the case of an Acquiror Stock Option provided
that the reciprocal of the Exchange Ratio shall be used for purposes of such
calculations.
(g) Bancorp shall seek all required Consents to effect the
amendments to the Bancorp Stock Option Plan contemplated by subsection (f).
If, in the course of attempting to obtain such Consents, any Person attempts
to delay unduly in granting such Consents (any delay beyond June 30, 1998
being considered to be undue) or to impose conditions or limitations which
are applicable to the Bancorp Stock Option Plan or to any Party or would
become applicable to Bancorp or the Surviving Bank after the Bank Merger
which delays, conditions or limitations are ones which Acquiror reasonably
and in good faith concludes would be materially burdensome to any Party or
would materially adversely affect the Bancorp Stock Option Plan, its benefits
or any of the transactions contemplated by this Agreement, then, in such
event, (A) Bancorp shall forthwith withdraw its request or application for
such Consent and (B) the provisions of subsection (f) shall not be carried
into effect and such action shall be deemed to be full compliance with
subsection (f). No person shall have any rights or claims against any Party
in the event of such withdrawals in accordance with the preceding sentence.
7.5 FURTHER ASSURANCES. Bancorp/Bank and Acquiror agree that from
time to time, whether before, at or after the Effective Time, they will
execute and deliver such further instruments of conveyance and transfer and
to take such other action as may be reasonable or necessary to consummate the
Bank Merger and the transactions contemplated in this Agreement. Bancorp,
Bank and Acquiror agree to take such further action as may reasonably be
requested to facilitate consummation of the Bank Merger and the transactions
contemplated in this Agreement and that are not inconsistent with the other
provisions of this Agreement.
7.6 REMOVAL OF CONDITIONS. In the event of the imposition of a
condition to any consent of, the Commissioner, the FDIC or other Government
Entity which any Party deems to materially adversely affect it or to be
materially burdensome as provided in Section 8.1(c), the Parties shall use
their respective best efforts to obtain the removal of such condition.
7.7 CORPORATE GOVERNANCE.
(a) Prior to the Effective Time, Acquiror shall take all
necessary steps to effect the Acquiror Corporate Governance Changes at the
Effective Time.
(b) Prior to the Effective Time, Bancorp shall take all
necessary steps to effect the Bancorp Corporate Governance Changes at the
Effective Time.
63
ARTICLE 8
CONDITIONS TO THE PARTIES' OBLIGATIONS TO CLOSE
8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CLOSE. The
respective obligations of Bancorp and Bank, on the one hand, and Acquiror, on
the other, to consummate the Bank Merger and the other transactions
contemplated hereby are subject to the satisfaction or waiver at or prior to
the Effective Time of each of the following conditions:
(a) The Agreement and the transactions contemplated hereby
shall have received all requisite approvals of the shareholders of Acquiror,
Bancorp or Bank.
(b) No judgment, decree, injunction, order or proceeding shall
be outstanding or threatened by any Governmental Entity which prohibits or
restricts the effectuation of, or threatens to invalidate or set aside, the
Bank Merger substantially in the form contemplated by this Agreement, unless
counsel to the party again whom such action or proceeding was instituted or
threatened renders to the other Parties hereto a favorable opinion that such
judgment, decree, injunction, order or proceeding is without merit.
(c) On or before September 15, 1998, the Parties shall have
received any required Consent from the FRB, the Commissioner, the FDIC, and,
at or prior to the Effective Time, this Agreement and the transactions
contemplated hereby shall have been approved by any other Governmental Entity
whose Consent is required for consummation of the transactions contemplated
in this Agreement, in each case either unconditionally or without the
imposition of conditions or limitations that are applicable to any Party or
would become applicable to Bancorp or the Surviving Bank after the Bank
Merger that Acquiror reasonably and in good faith concludes would materially
adversely affect the financial condition or operations of any Party or
otherwise would be materially burdensome to any Party and all such Consents
shall be in effect at the Effective Time, which Consents shall permit the
Bank Merger and permit the Surviving Bank to acquire and conduct all direct
and indirect activities as previously conducted by Acquiror and Bank, at or
prior to the Effective Time, and all required waiting periods shall have
expired.
(d) No Rule shall be outstanding or threatened by any
Governmental Entity which prohibits or materially restricts the consummation
of, or threatens to invalidate or set aside, the Bank Merger substantially in
the forms contemplated by this Agreement or which would not permit the
businesses presently carried on by Acquiror, Bancorp or Bank to continue
materially unimpaired following the Effective Time, unless counsel to the
Party or Parties against whom such action or proceeding was instituted or
threatened renders to the other Party or Parties hereto a favorable opinion
that such Rule is without merit and counsel to the other Party concurs with
such opinion.
64
(e) All Third Party Consents necessary to permit the Parties
to consummate the transactions contemplated in the Agreement shall have been
obtained prior to the Effective Time, unless the failure to obtain any such
Third Party Consent would not have a material adverse effect on the business,
financial condition, or results of operations of Bancorp on a consolidated
basis.
(f) The S-4 shall have been declared effective by the SEC and
shall not be the subject of any stop order or proceedings seeking or
threatening a stop order. Bancorp shall have received all state securities
or "Blue Sky" permits and other authorization necessary to issue the Bancorp
Stock to consummate the Bank Merger.
(g) Application will be filed for listing Bancorp Stock on the
Nasdaq National Market System at the Effective Time.
(h) Acquiror and Bancorp shall have received from ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, LLP, an opinion reasonably satisfactory to Acquiror and Bancorp to
the effect that the Bank Merger shall not result in the recognition of gain
or loss for federal income tax purposes to Acquiror, Bancorp or Bank, nor
shall the issuance of Bancorp Stock result in the recognition of gain or loss
by the holders of Acquiror Stock who receive such stock in connection with
the Bank Merger, nor shall a holder of an outstanding stock option granted
under Acquiror's stock option plan recognize income, gain or loss as a result
of the granting of a substitute option pursuant to Bancorp Stock Option Plan
nor shall the granting of such substitute options be deemed to be a
modification of any incentive stock option granted under Acquiror's stock
option plan, dated prior to the date of the Proxy Statement is first mailed
to the shareholders of Bancorp and Acquiror and such opinions shall not have
been withdrawn or modified in any material respect.
(i) Prior to the Effective Time, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP, shall
have delivered a written opinion to Acquiror and Bancorp that the Bank Merger
and the other transactions contemplated hereby will qualify for
pooling-of-interest accounting treatment. In making its determination that
the Bank Merger will qualify for such treatment, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP, shall
be entitled to assume that cash will be paid with respect to all shares held
of record by any holder of Dissenting Shares.
8.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BANCORP AND BANK TO
CLOSE. The obligations of Bancorp and Bank to consummate the Bank Merger and
the other transactions contemplated hereby are subject to the satisfaction or
waiver at or prior to the Effective Time of each of the following conditions:
(a) All actions necessary to authorize the execution, delivery
and performance of the Agreement by Acquiror, the consummation of the Bank
Merger by Acquiror and the consummation of the Agreement of Merger by
Acquiror shall have been duly and validly taken by the board of directors and
shareholders of Acquiror, as the case may be.
65
(b) The representations and warranties of Acquiror contained
in Article 4 of this Agreement shall have been true and correct in all
material respects (i) on the date of this Agreement; and (ii) at and as of
the Effective Time as though all such representations and warranties had been
made on and as of the Effective Time, except with respect to representations
and warranties that, by their terms, speak as of a different time; and
Bancorp and Bank shall have received a certificate to that effect dated the
Effective Time and executed on behalf of Acquiror by its chief executive
officer and chief financial officer. It is understood and acknowledged that
the representations made on and as of the Effective Time shall be made
without giving effect to any update with respect to the Disclosure Letter
pertaining to Acquiror as updated in accordance with Section 6.4.
(c) Each of the covenants and agreements of Acquiror
contained in this Agreement to be performed at or before the Effective Time
shall have been so performed in all material respects; and Bancorp and Bank
shall have received a certificate to that effect dated the Effective Time and
executed by the chief executive officer and chief financial officer of
Acquiror.
(d) During the period from the date of this Agreement to the
Effective Time, there shall not have occurred any event related to the
business, condition (financial or otherwise), capitalization or properties
of Acquiror that has had or could reasonably be expected to have a material
adverse effect on the business, financial condition, results of operations or
prospects of Acquiror after consummation of the Bank Merger, whether or not
such event, change or effect is reflected in Acquirors Disclosure Letter to
this Agreement, as amended or supplemented, after the date of this Agreement;
and Bancorp and Bank shall have received a certificate to that effect dated
the Effective Time and signed by the chief executive officer and chief
financial officer of Acquiror.
(e) Acquiror shall have delivered to Bancorp and Bank a
written opinion of Reitner & Stuart dated as of the Effective Time
substantially in the form attached to this Agreement as Exhibit 8.2(e).
(f) Bancorp shall have received a letter from ▇▇▇▇▇▇▇▇▇ &
Company dated as of a date within five (5) Business Days of the mailing of
the Proxy Statement to the shareholders of Bancorp to the effect that the
transactions contemplated by this Agreement are fair from a financial point
of view to the shareholders of Bancorp.
(g) All necessary action shall have been taken by Acquiror to
effect the Acquiror Corporate Governance Changes.
(h) Concurrently with the execution of this Agreement, each
director of Acquiror shall have executed and delivered to Bancorp an Acquiror
Directors' Agreement substantially in the form of Exhibit 2.6(b).
66
(i) Within 30 days of the execution of this Agreement,
Bancorp shall have received from each Person named in the letter or otherwise
referred to in Section 6.6 an executed copy of an agreement contemplated by
Section 6.6.
(j) All remediation of environmental contamination or
conditions on any Acquiror property shall have been completed to the
satisfaction of Bancorp subject to the provisions of Section 6.10.
8.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR TO CLOSE.
The obligations of Acquiror to consummate the Bank Merger and the other
transactions contemplated herein is subject to the satisfaction or waiver, at
or prior to the Effective Time, of each of the following conditions:
(a) All actions necessary to authorize the execution,
delivery and performance of the Agreement, consummation of the Bank Merger by
Bancorp and Bank and the consummation of the Agreement of Merger by Bancorp
and Bank shall have been duly and validly taken by the respective boards of
directors and shareholders of Bancorp and Bank, as the case may be.
(b) The representations and warranties of Bancorp and Bank
contained in Article 3 of this Agreement shall be true and correct in all
material respects (i)on the date of this Agreement; and (ii)at and as of the
Effective Time as though all such representations and warranties had been
made at and as of such time, except with respect to representations and
warranties that, by their terms, speak as of a different time; and Acquiror
shall have received a certificate to that effect dated the Effective Time and
executed on behalf of Bancorp and Bank by their respective chief executive
officers and chief financial officers. It is understood and acknowledged
that the representations made on and as of the Effective Time shall be made
without giving effect to any update with respect to the Disclosure Letters
pertaining to Bancorp and Bank as updated in accordance with Section 5.5.
(c) The covenants and agreements of Bancorp and Bank to be
performed at or before the Effective Time shall have been duly performed in
all material respects; and Acquiror shall have received one or more
certificates to that effect dated the Effective Time and executed by the
respective chief executive officers and chief financial officers of Bancorp
and Bank.
(d) During the period from the date of this Agreement to the
Effective Time, there shall not have occurred any event related to the
business, condition (financial or otherwise), capitalization or properties
of Bancorp or Bank that has had or could reasonably be expected to have a
material adverse effect on the business, financial condition, results of
operations or prospects of the Surviving Bank or Bancorp after consummation
of the Bank Merger, whether or not such event, change or effect is reflected
in Bancorps Disclosure Letters to this Agreement, as amended or supplemented,
after the date of this Agreement; and Acquiror shall have received a
67
certificate to that effect dated the Effective Time and signed by the chief
executive officer and chief financial officer of Bancorp and Bank.
(e) Bancorp and Bank shall have delivered to Acquiror a
written opinion of ▇▇▇▇▇▇ & ▇▇▇▇▇▇ dated the Effective Time substantially in
the form attached to this Agreement as Exhibit 8.3(e).
(f) Acquiror shall have received a letter from ▇▇▇▇▇▇ &
▇▇▇▇▇▇ dated as of a date within five (5) Business Days of the mailing of the
Proxy Statement to the shareholder of Acquiror, to the effect that the
transactions contemplated by this Agreement are fair from a financial point
of view to the shareholders of Acquiror.
(g) Concurrently with the execution of this Agreement, each
director of Bancorp and Bank shall have executed and delivered to Acquiror a
Bancorp Directors Agreement substantially in the form of Exhibit 2.6(a).
(h) Within 30 days of the execution of this Agreement,
Acquiror shall have received from each Person named in the letter or
otherwise referred to in Section 5.15 an executed copy of an agreement
contemplated by Section 5.15.
(i) Acquiror shall have received satisfactory evidence that
all of Banks Benefit Arrangements have been treated as provided in Articles 5
and 9 of this Agreement.
(j) All remediation of environmental contamination or
conditions on any Bancorp and Bank property shall have been completed to the
satisfaction of Acquiror.
(k) At least five Business Days prior to the Effective Time,
Bancorp shall provide Acquiror with Bancorp's consolidated financial
statements as of the close of business on the last day of the month prior to
the Effective Time. Such financial statements shall have been prepared in
all material respects in accordance with GAAP and other applicable legal and
accounting requirements, and reflect all period-end accruals and other
adjustments. At the close of business on the last day of the month preceding
the Effective Time, Bancorps consolidated shareholders equity as determined
in accordance with such financial statements and GAAP, shall not be less than
the sum of (i) Bancorps consolidated shareholders equity at December 31, 1997
PLUS (ii) the amount of "Projected Earnings" LESS the amount of dividends
paid as authorized by Section 5.3(a)(10). The term "Projected Earnings"
shall mean (A) $1,228,000, if the month end immediately preceding the
Effective Time is May 31, 1998, (B) $1,504,000, if the month end immediately
preceding the Effective Time is June 30, 1998 (C) $1,811,000, if the month
end immediately preceding the Effective Time is July 31, 1998, or (D)
$2,114,000, if the month immediately preceding the Effective Time is on or
after August 31, 1998. The amount of Projected Earnings shall be increased
by any gains from the sale of securities pursuant to Section 5.3(a)(24) and
shall be reduced by the sum of (y)
68
any and all Bancorp and Bank "Expenses" as defined in Section 11.1(e) accrued
prior to the applicable month end PLUS (z) all costs accrued by Bancorp and
Bank in compliance with the requirements of Section 5.12 prior to the
applicable month end (excluding the costs of the remedial and corrective
actions as are actually related to any Hazardous Materials), provided,
however, that the amount of the adjustment to the Projected Earnings
resulting from (y) and (z) shall, in no event, exceed $125,000.
(l) All necessary action shall have been taken by Bancorp to
effect the Bancorp Corporate Governance Changes.
ARTICLE 9
EMPLOYEE BENEFITS
9.1 EMPLOYEE BENEFITS.
(a) All employees of Bancorp and Bank at the Effective Time
shall be entitled to participate in the Acquiror Benefit Arrangements on the
same basis as other similarly situated employees of Acquiror. Each of these
employees will be credited for eligibility, participation and vesting
purposes (provided that no more than 180 days of sick leave may be carried
over into Acquiror's sick leave program), with such employees respective
years of past service with Bancorp and Bank (or other prior service so
credited by Bancorp and Bank) as though they had been employees of Acquiror.
(b) Bancorp, Bank and Acquiror have agreed as set forth on
Exhibit 9.1(b) to a severance policy by which all employees of Bancorp, Bank
or Acquiror who are not offered employment or who are terminated within
twelve months following the Effective Time and who satisfy the requirements
of the severance plan currently being considered for adoption by Acquiror
will receive severance benefits otherwise.
(c) Provided such agreement is listed on the Bancorp
Disclosure List and a complete copy of such agreement has been provided to
Acquiror prior to the date hereof, Acquiror hereby agrees to honor, in
accordance with their terms, any existing individual employment, severance,
deferred compensation, and similar agreements between Bancorp or Bank and the
Executive Officers of Bancorp/Bank listed on Exhibit 9.1(c)(1) except for the
Change in Control Agreement between Bancorp, Bank and ▇▇▇▇▇▇▇ ▇▇▇▇▇, which at
the Effective Time will terminate and be replaced by the Employment Agreement
between ▇▇▇▇▇▇▇ ▇▇▇▇▇ and Acquiror effective as of the Effective Time in
substantially the form attached hereto as Exhibit 9.1(c)(2). Notwithstanding
any other provision of this Agreement, no employee shall receive duplicative
benefits by reason of this Section.
(d) From the date hereof, Bancorp, Bank and Acquiror shall
cooperate to determine the appropriate treatment of the Benefit Arrangements,
such as
69
termination, merger into a plan, etc., and shall take such actions as shall
be reasonably requested by Acquiror with respect to the Benefit Arrangements,
provided that Acquiror, Bancorp and Bank shall not be required to take any
action that would be in breach of the fiduciary duties of the Plan trustees
or administrators.
ARTICLE 10
TERMINATION OF AGREEMENT; WAIVER OF CONDITIONS
10.1 TERMINATION OF AGREEMENT. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated hereby
including the Bank Merger may be terminated at any time before the Effective
Time, whether before or after approval by the respective shareholders of
Acquiror and Bancorp as follows, and in no other manner:
(a) By mutual consent of Bancorp and Bank, on the one hand,
and Acquiror, on the other;
(b) By Bancorp, Bank or Acquiror (i) if any conditions set
forth in Section 8.1 shall not have been met by September 30, 1998, or (ii)
upon the expiration of 20 Business Days after any Governmental Entity denies
or refuses to grant any approval, consent or authorization required to be
obtained in order to consummate the transaction contemplated by this
Agreement unless, within said 20 Business Day period after such denial or
refusal, all Parties hereto agree to resubmit the application to the
Governmental Entity that has denied, or refused to grant the approval,
consent or authorization requested;
(c) By Bancorp and Bank if any conditions set forth in
Section 8.2 shall not have been met, or by Acquiror if any conditions set
forth in section 8.3 shall not have been met, by September 30, 1998, or such
earlier time as it becomes apparent that such condition cannot be met;
(d) By Bancorp or Bank, if Acquiror should materially default
in the observance or in the due and timely performance of any of its
covenants and agreements herein contained and such default shall not have
been fully cured within 20 Business Days from the date of delivery of written
notice specifying the alleged default;
(e) By Acquiror, if Bancorp or Bank should materially default
in the observance or in the due and timely performance of any of their
covenants and agreements herein contained and such default shall not have
been fully cured within 20 Business Days from the date of delivery of written
notice specifying the alleged default;
(f) By Acquiror, if Bancorp or Bank is or becomes a party to
any written agreement, memorandum of understanding, cease and desist order,
imposition
70
of civil monetary penalties or other regulatory enforcement action or
proceeding with any federal or state agency charged with the supervision or
regulation of banks;
(g) By Acquiror, if Bancorp or Bank shall have failed to act
or refrain from doing any act pursuant to Section 5.14;
(h) By Acquiror or Bancorp, under the circumstances set forth
in Section 5.12;
(i) By Bancorp at any time during the two day period
commencing one day after the Determination Date, if the Average Closing Price
as of the Determination Date is less than $26.25 (the "Minimum Price");
SUBJECT, HOWEVER, to the following three sentences. If Bancorp elects to
exercise its termination right pursuant to the immediately preceding
sentence, it shall give prompt written notice to Acquiror; provided that such
notice of election to terminate may be withdrawn by Bancorp at any time
within the aforementioned two-day period. During the two-day period
commencing on the day after a receipt of such notice, provided that the
Average Closing Price exceeds $22.00, Acquiror shall have the option of
adjusting the Exchange Ratio pursuant to the following calculation rounded to
the nearest ten-thousandth:
1
----------------
$29.37 - x
----------------
Average Closing Price
where "x" represents the amount of any Significant Liabilities determined in
accordance with this Agreement divided by the outstanding shares of Bancorp
Stock (determined as of the Business Day preceding the Effective Day).
If Acquiror makes an election contemplated by the preceding sentence, within
such two-day period, it shall give prompt written notice to Bancorp of such
election and the revised Exchange Ratio, whereupon no termination shall have
occurred pursuant to this subsection and this Agreement shall remain in
effect in accordance with its terms (except as the Exchange Ratio shall have
been modified), and any references in this Agreement to "Exchange Ratio"
shall thereafter be deemed to refer to the Exchange Ratio as adjusted
pursuant to this subsection. For purposes of this subsection, "Determination
Date" shall mean the last day of the 20 trading day period referred to in the
definition of Average Closing Price; or,
(j) By Bancorp, under the circumstances set forth in section
6.10 or Section 5.12.
10.2 EFFECT OF TERMINATION. In the event that this Agreement shall
be terminated pursuant to Section 10.1 hereof, all further obligations of the
Parties hereto under this Agreement shall terminate without further liability
of any Party to another; provided, however, that no termination of this
Agreement under Section 10.1 for any
71
reason or in any manner shall release, or be construed as so releasing, any
Party from its obligations under Sections 11.1, 11.10 or 11.11, hereof and
notwithstanding the foregoing if such termination shall result from the
willful failure of a Party to fulfill a condition to the performance of the
obligations of any other Party or to perform a covenant of such Party in this
Agreement, such Party shall, subject to the provision of Section 11.1, be
fully liable for any and all damages, costs and expenses (including, but not
limited to, reasonable attorneys' fees sustained or incurred by the other
Party or Parties in connection with negotiating and implementing the
transactions contemplated in this Agreement).
10.3 WAIVER OF CONDITIONS. If any of the conditions specified in
Section 8.2 has not been satisfied, Bancorp and Bank may nevertheless, at
their election, proceed with the transactions contemplated in this Agreement.
If any of the conditions specified in Section 8.3 has not been satisfied,
Acquiror may nevertheless, at its election, proceed with the transactions
contemplated in this Agreement. If any Party elects to proceed pursuant to
the provisions hereof, the conditions that are unsatisfied immediately prior
to the Effective Time shall be deemed to be satisfied, as evidence by a
certificate delivered by the electing Party.
ARTICLE 11
GENERAL
11.1 EXPENSES.
(a) Acquiror hereby agrees that if this Agreement is
terminated by Bancorp or Bank pursuant to Section 10.1(c) with respect to the
failure of Acquiror shareholders to approve the Agreement and the
transactions contemplated hereby, or pursuant to Section 10.1(d), Acquiror
shall promptly, and in any event within seven Business Days after such
termination, pay Bancorp and Bank all Expenses (as defined below) of Bancorp
and Bank but not to exceed $500,000.
(b) Bancorp and Bank hereby agree that if this Agreement is
terminated by Acquiror pursuant to Section 10.1(c) with respect to the
failure of Bancorp shareholders to approve the Agreement and transactions
contemplated hereby, or pursuant to Section 10.1(e), Bancorp shall promptly,
and in any event within seven Business Days after such termination, pay (or
cause Bank to pay) Acquiror all Expenses (as defined below) of Acquiror but
not to exceed $500,000.
(c) As an inducement to Acquiror to enter into this
Agreement, in the event this Agreement is terminated by Acquiror pursuant to
Section 10.1(g) and Bancorp or Bank or both enters into an agreement for a
Competing Transaction prior to termination of this Agreement or during the
twelve-month period immediately following termination of this Agreement,
Bancorp and Bank shall promptly, and in any event within seven Business Days
after either or both enters into an agreement for such Competing
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Transaction, pay Acquiror Four Million Five Hundred Thousand Dollars
($4,500,000) which amount represents (i) Acquiror's direct costs and expenses
(including, but not limited to, fees and expenses of financial or other
consultants, printing costs, accountants and counsel) incurred in negotiating
and undertaking to carry out the transactions contemplated by this Agreement,
including Acquirors management time devoted to negotiation and preparation
for the transactions contemplated by this Agreement; (ii) Acquirors indirect
costs and expenses incurred in connection with the transactions contemplated
by this Agreement; and (iii) Acquirors loss as a result of the transactions
contemplated by this Agreement not being consummated. The obligation to make
a payment pursuant to this subsection shall be a joint and several obligation
of Bancorp and Bank.
(d) Except as otherwise provided herein, all Expenses
incurred by Bancorp/Bank or Acquiror in connection with or related to the
authorization, preparation and execution of this Agreement, the solicitation
of shareholder approvals and all other matters related to the closing of the
transaction contemplated hereby, including, without limitation of the
generality of the foregoing, all fees and expenses of agents,
representatives, counsel, and accountants employed by either of the Parties
or its affiliates, shall be borne solely and entirely by the Party which has
incurred the same. Notwithstanding the foregoing, Bancorp and Acquiror shall
share the cost of printing the Proxy Statement on a basis proportionate to
the number of shareholders of each Party.
(e) Expenses as used in this Agreement shall include all
reasonable out-of-pocket expenses (including all fees and expenses of
attorneys, accountants, investment bankers, experts and consultants to the
Party and its affiliates) incurred by the Party or on its behalf in
connection with or related to the authorization, preparation and execution of
this Agreement, the solicitation of shareholder approvals and all other
matters related to the closing of the transaction contemplated hereby.
11.2 AMENDMENTS. To the fullest extent permitted by law, this
Agreement may be amended by agreement in writing of the Parties hereto at any
time prior to the Effective Time, whether before or after approval of this
Agreement by the shareholders of Acquiror or the shareholders of Bancorp.
11.3 DISCLOSURE LETTER; EXHIBITS; INTEGRATION. Each Disclosure
Letter, exhibit and letter delivered pursuant to this Agreement shall be in
writing and shall constitute a part of the Agreement, although Disclosure
Letters and other letters need not be attached to each copy of this
Agreement. This Agreement, together with such Disclosure Letters, exhibits
and letters, constitutes the entire agreement between the Parties pertaining
to the subject matter hereof and supersedes all prior agreements and
understanding of the Parties in connection therewith.
11.4 BEST EFFORTS. Each Party will use its best efforts to cause
all conditions to the obligations of the Parties to be satisfied.
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11.5 [Intentionally left blank]
11.6 GOVERNING LAW. This Agreement and the legal relations
between the Parties shall be governed by and construed in accordance with the
laws of California except to the extent that the provisions of federal law
are mandatorily applicable.
11.7 NO ASSIGNMENT. Neither this Agreement nor any rights, duties
or obligations hereunder shall be assignable by Bancorp/Bank or Acquiror, in
whole or in part, without the prior written consent of the other Party. Any
attempted assignment in violation of this prohibition shall be null and void.
Subject to the foregoing, all of the terms and provisions hereof shall be
binding upon, and inure to the benefit of, the successors and assigns of the
Parties hereto.
11.8 HEADINGS. The descriptive headings contained in this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
11.9 COUNTERPARTS. This Agreement and any exhibit hereto may be
executed in one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when one or more
counterparts have been signed by each Party hereto and delivered to each
Party hereto.
11.10 PUBLICITY AND REPORTS. Bancorp and Acquiror shall coordinate
all publicity relating to the transactions contemplated by this Agreement and
no Party shall issue any press release, publicity statement or other public
notice relating to this Agreement or any of the transactions contemplated
hereby without obtaining the prior consent of the other Party, except to the
extent that legal counsel to any Party shall deliver a written opinion to the
other Party to the effect that a particular action is required by applicable
Rules.
11.11 CONFIDENTIALITY. All Confidential Information disclosed
heretofore or hereafter by any Party to this Agreement to any other Party to
this Agreement shall be kept confidential by such other Party and shall not
be used by such other Party otherwise than as herein contemplated, except to
the extent that (a) it is necessary or appropriate to disclose to the
Commissioner, the FDIC or any other Governmental Entity having jurisdiction
over any of the Parties or as may be otherwise be required by Rule (any
disclosure of Confidential Information to a Governmental Entity shall be
accompanied by a request that such Governmental Entity preserve the
confidentiality of such Confidential Information): or (b) to the extent such
duty as to confidentiality is waived by the other Party. Such obligation as
to confidentiality and non-use shall survive the termination of this
Agreement pursuant to Article 10. In the event of such termination and on
request of another Party, each Party shall use all reasonable efforts to (1)
return to the other Parties all documents (and reproductions thereof)
received from such other Parties that contain Confidential Information (and,
in the case of reproductions, all such reproductions made by the receiving
Party); and (2) destroy the originals and all copies of any analyses,
74
computations, studies or other documents prepared for the internal use of
such Party that included Confidential Information.
11.12 SPECIFIC PERFORMANCE. Acquiror, Bank and Bancorp each
acknowledge that, in view of the uniqueness of their respective businesses
and the transactions contemplated in this Agreement, each Party would not
have an adequate remedy at law for money damages in the event that this
Agreement has not been performed in accordance with its terms, and therefore
each Party agrees that the other shall be entitled to specific enforcement of
the terms hereof in addition to any other remedy to which it may be entitled,
at law or in equity.
11.13 NOTICES. Any notice or communication required or permitted
hereunder, including, without limitation, supplemental Disclosure Letters
shall be deemed to have been given if in writing and (a) delivered in person,
(b) telexed, or (c) telecopied (provided that any notice given pursuant to
clauses (b) and (c) is also mailed by certified or registered mail, postage
prepaid), as follows:
If to Bancorp or Bank, addressed to:
BSM Bancorp
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇, President and CEO
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
With a copy addressed to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
If to Acquiror, addressed to:
Mid-State Bank
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇, President and CEO
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
With a copy addressed to:
Barnet Reitner, Esq.
Reitner & Stuart
75
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address and to the attention of such other Person as a Party
may notice to the others in accordance with this Section 11.13.
Notwithstanding anything to the contrary contained herein, notice and/or
delivery to Bancorp shall be deemed notice and/or delivery to Bank.
11.14 KNOWLEDGE. Whenever any statement herein or in any
Disclosure Letter, certificate or other document delivered to any Party
pursuant to this Agreement is made "to the knowledge" or "to the best
knowledge" of any Party or other Person such Party or other Person shall make
such statement only after conducting an investigation reasonable under the
circumstances of the subject matter thereof, and each such statement shall
constitute a representation that such investigation has been conducted.
11.15 SEVERABILITY. If any portion of this Agreement shall be
deemed by a court of competent jurisdiction to be unenforceable, the
remaining portions shall be valid and enforceable only if, after excluding
the portion deemed to be unenforceable, the remaining terms hereof shall
provide for the consummation of the transactions contemplated herein in
substantially the same manner as originally set forth at the date this
Agreement was executed.
11.16 ATTORNEYS' FEES. In the event any of the parties to this
Agreement brings an action or suit against any other party by reason of any
breach of any covenant, agreement, representation, warranty or other
provision hereof, or any breach of any duty or obligation created hereunder
by such other party, the prevailing party, as determined by the court or the
body having jurisdiction, shall be entitled to have and recover of and from
the losing party, as determined by the court or other party having
jurisdiction, all reasonable costs and expenses incurred or sustained by such
prevailing party in connection with such prevailing action, including,
without limitation, legal fees and court costs (whether or not taxable as
such).
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11.17 TERMINATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants of each party contained herein or
in any certificate or other writing delivered by such party pursuant hereto
or in connection herewith shall not survive the Effective Time.
WITNESS, the signature of Bancorp, as of the 29th day of January,
1998, set by its President and attested to by its Secretary, pursuant to a
resolution of its Board of Directors, acting by a majority:
BSM BANCORP
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------
President
Attest:
By: /s/ F. ▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------
Secretary
WITNESS, the signature of Bancorp, as of the 29th day of January,
1998, set by its President and attested to by its Secretary, pursuant to a
resolution of its Board of Directors, acting by a majority:
BANK OF SANTA ▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------
President
Attest:
By: /s/ F. ▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------
Secretary
WITNESS, the signature of Acquiror, as of the 29th day of January,
1998, set by its President and attested to by its Secretary, pursuant to a
resolution of its Board of Directors, acting by a majority:
77
MID-STATE BANK
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------
President
Attest:
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------
Secretary
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