EXHIBIT 10.7
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 6, 2002
BY AND AMONG
EUROBANCSHARES, INC.,
EUROBANK
AND
BANCO FINANCIERO DE PUERTO RICO
TABLE OF CONTENTS
PAGE
ARTICLE 1 - THE MERGER 1
2.1 The Merger 1
2.2 Effect of the Merger on Outstanding Shares of Financiero Common Stock 2
2.3 Capital Stock of Eurobank 4
2.4 Exchange Procedures 4
2.5 Dissenting Shares 5
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF EUROBANCSHARES 6
4.1 Organization and Qualification 6
4.2 Authority Relative to this Agreement:
Non-Contravention 6
4.3 Capital Stock 7
4.4 Proxy Statement 7
4.5 Litigation 7
4.6 Compliance with Laws 8
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF FINANCIERO 8
6.1 Organization and Qualification 8
6.2 Authority Relative to this Agreement:
Non-Contravention 8
6.3 Capitalization 9
6.4 Loans 10
6.5 Absence of Undisclosed Liabilities 10
6.6 Absence of Certain Developments 11
6.7 Properties 11
6.8 Environmental Matters 12
6.9 Tax Matters 14
6.10 Contracts and Commitments 15
6.11 Litigation 15
6.12 No Brokers or Finders 16
6.13 Employees: Labor Matters 16
6.14 Employee Benefit Plans 16
6.15 Insurance 18
6.16 Interest of Certain Persons 19
6.17 Compliance with Laws; Permits 19
6.18 Administration of Fiduciary Accounts 19
i
6.19 Interest Rate Risk Management Instruments; Derivatives:
Certain Other Securities 20
6.20 Proxy Statement 20
6.21 Noncompete Provisions 21
6.22 Equity Ownership 21
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES OF EUROBANCSHARES AND FINANCIERO 21
4.1 21
4.2 22
ARTICLE 9 - MATERIAL ADVERSE EFFECT 24
10.1 Material Adverse Effect 24
ARTICLE 11 - CONDUCT OF BUSINESS PENDING THE MERGER 24
12.1 Conduct of Business of Financiero 24
12.2 Conduct of Business of Eurobancshares 27
ARTICLE 13 - ADDITIONAL COVENANTS AND AGREEMENTS 27
14.1 Filings and Approvals 27
14.2 Certain Credit Matters 28
14.3 Monthly Financial Statements 28
14.4 Expenses 28
14.5 No Negotiations, Etc 29
14.6 Notification of Certain Matters 29
14.7 Access to Information: Confidentiality 29
14.8 Filing of Tax Returns and Adjustments 31
14.9 Proxy Statement 32
14.10 Establishment of Accruals 32
14.11 Employee Benefit Plans 33
14.12 Reports 33
14.13 Stockholder Approval 33
14.14 Efforts to Consummate 33
14.15 Taxation 33
ARTICLE 15 - CONDITIONS 34
16.1 Conditions to Obligations of Each Party 34
16.2 Additional Conditions to Obligation of Financiero 34
16.3 Additional Conditions to Obligation of Eurobancshares and Eurobank 35
ARTICLE 17 - TERMINATION, AMENDMENT AND WAIVER 40
ii
18.1 Termination 40
18.2 Effect of Termination 41
18.3 Termination Fee 41
18.4 Amendment 41
18.5 Waiver 42
ARTICLE 19 - GENERAL PROVISIONS 42
20.1 Public Statements 42
20.3 Interpretation 44
20.4 Severable 44
20.5 Miscellaneous 44
20.6 Survival of Representations, Warranties and Covenants 44
20.7 Schedules 44
iii
AGREEMENT AND PLAN OF MERGER, dated as of September 6, 2002 (this
"AGREEMENT"), by and among Eurobancshares, Inc. ("EUROBANCSHARES"), a
corporation organized under the laws of the Commonwealth of Puerto Rico (the
"COMMONWEALTH"), Eurobank, a bank organized under the laws of the Commonwealth
and Banco Financiero de Puerto Rico ("FINANCIERO"), a bank organized under the
laws of the Commonwealth.
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Eurobancshares, Eurobank
and Financiero have determined that it is in the best interests of
Eurobancshares, Eurobank and Financiero and their respective stockholders to
combine their respective businesses through the merger (the "MERGER") of
Financiero with and into Eurobank, a wholly-owned subsidiary of Eurobancshares,
on the terms and conditions set forth in this Agreement; and
WHEREAS, as a result of the Merger, all the outstanding Common Stock,
$5.00 par value, Class B Common Stock, $1.00 par value, and Class C Common
Stock, $0.30 par value, of Financiero (collectively, the "FINANCIERO COMMON
STOCK") will be converted into either: (i) Common Stock, $0.01 par value, of
Eurobancshares (the "EUROBANCSHARES COMMON STOCK") or (ii) the right to receive
cash, subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants, promises and obligations contained herein, the parties hereto agree
as follows:
1 ARTICLE
2 THE MERGER
2.1 THE MERGER.
(a) At the Effective Time (as defined in SECTION 1.1(b)),
Financiero shall merge with and into Eurobank, and the separate existence of
Financiero shall cease. Eurobank shall be
the surviving bank in the Merger (sometimes hereinafter referred to as the
"SURVIVING BANK"), and the separate corporate existence of Eurobank, with all
its rights, privileges and franchises, shall continue unaffected by the Merger.
The Merger shall be pursuant to and have the effects specified in the banking
laws of the Commonwealth (the "BANKING LAW"). The Charter and Bylaws of
Eurobank, as in effect immediately prior to the Effective Date (as defined in
SECTION 1.1(b) hereof), shall be the Charter and the Bylaws of the Surviving
Bank until further amended as provided therein. The directors and officers of
Eurobank immediately prior to the Effective Date shall be the directors and
officers of the Surviving Bank until their successors are elected and qualify.
(b) On a date selected by Eurobancshares, which shall be
no later than the 30th day following the satisfaction or waiver of the
conditions set forth in ARTICLE 8, the parties hereto shall cause this Agreement
to be properly filed in the office of the Secretary of State of the Commonwealth
in accordance with the Banking Law. The Merger shall become effective at the
time (the "EFFECTIVE TIME") this Agreement is properly filed in accordance with
the Banking Law. The date on which the Effective Time shall occur is herein
referred to as the "EFFECTIVE DATE".
2.2 EFFECT OF THE MERGER ON OUTSTANDING SHARES OF FINANCIERO
COMMON STOCK. Subject to the terms and conditions of this Agreement, to
effectuate, and automatically by virtue of, the Merger:
(a) At the Effective Time, subject to the provisions of
SECTION 1.6 hereof) each shareholder of Financiero (other than shareholders who
have perfected their dissenters' rights as of the Effective Time) who:
(i) is an Accredited Investor (as that term is
defined in Rule 501 of the Securities Act of 1933, as amended) and is
also a bona fide resident of the Commonwealth and executes and delivers
a representation letter substantially in the form of EXHIBIT 1.2(a)(i)
hereto; and
(ii) owns at least 50,000 shares of Financiero
Common Stock, issued and outstanding immediately prior to
the Effective Time (each such shareholder hereafter a "QUALIFYING
SHAREHOLDER");
shall be entitled to receive from Eurobancshares, in exchange
for each share of Financiero Common Stock owned as of the Effective Time, a
number of shares of Eurobanshares Common Stock equal to the product of (x)
aggregate number of shares of Financiero Common Stock owned by such shareholder
and (y) the Exchange Ratio (as defined below) (the "STOCK CONSIDERATION"). All
remaining shareholders of Financiero in exchange for each share of Financiero
Common Stock owned as of the Effective Date, shall receive cash in an amount
equal to the product of (x) the Stock Consideration such shareholder would have
otherwise been entitled to receive and (y) the Euroshares FMV, (the "CASH
CONSIDERATION" and collectively with the Stock Consideration, the
"CONSIDERATION"). Notwithstanding any of the foregoing, fractional shares of
Eurobancshares Common Stock will not be issued and will be settled in cash.
(b) At the Effective Time, each share of Financiero
Common Stock that, immediately prior to the Effective Time, is held as treasury
stock of Financiero shall by virtue of the Merger be cancelled and retired and
shall cease to exist, and no exchange or payment shall be made therefor.
(c) The following definitions apply for purposes of this
SECTION 1.2:
(i) "EXCHANGE RATIO" shall mean, for any
Financiero shareholder, the Adjusted Tangible Net Book Value (as defined below)
divided by the Euroshares FMV, divided by the aggregate number of shares of
Financiero Common Stock issued and outstanding immediately prior to the
Effective Time.
(ii) "ADJUSTED TANGIBLE NET BOOK VALUE" shall
mean $1,916,236 adjusted as of the end of the calendar month preceding the
Effective Date except that if the end of the preceding calendar month is more
than 10 days prior to the Effective Date such adjustment shall be made as of the
10th day preceding the Effective Date (the "CALCULATION DATE") to reflect all
the adjustments listed in SCHEDULE 1.2(c) hereof and as required by SECTION 7.4
hereof, as set forth in a certificate executed by each of Financiero's Chairman
of the Board of
Directors, Chief Executive Officer and Chief Financial Officer, which
certificate shall be subject to the approval of Eurobancshares and delivered to
Eurobancshares not less than 5 days prior to the Effective Date. If
Eurobancshares does not accept such certificate it shall provide Financiero with
the reasons for its disapproval and to the extent that the parties are unable to
resolve any of their differences with respect to the certificate, they agree to
submit the matter to KPMG L.L.P. ("KPMG") and accept its determination as to
which position is more consistent with accounting principles generally accepted
in the United States ("GAAP"). Eurobancshares and Financiero will share equally
the expenses of KPMG and Adjusted Tangible Book Value will be further adjusted
to reflect Financiero's share of such expenses. All computations and adjustments
shall be made in accordance with the GAAP.
(iii) "EUROSHARES FMV" means $10.00, the fair
market value of a share of Eurobancshares Common Stock as of the date hereof, as
determined by Xxxxxxx & Associates.
2.3 CAPITAL STOCK OF EUROBANK. At and after the Effective Time,
each share of Eurobank common stock issued and outstanding immediately prior to
the Effective Date shall remain an issued and outstanding share of common stock
of the Surviving Bank and shall not be affected by the Merger.
2.4 EXCHANGE PROCEDURES.
(a) Not later than 5 business days prior to the
anticipated Effective Date or such other date as the parties may agree in
writing (the "MAILING DATE"), Eurobancshares shall mail a notice of the proposed
Effective Date and a letter of transmittal to each person who was a holder of
record of Financiero Common Stock immediately prior to the Mailing Date. In
order to be eligible to receive the Consideration on the Effective Date, the
Exchange Agent must actually receive not later than 5:00 p.m., Puerto Rico time,
on the Effective Date (which will be not earlier than the 5th day after the
Mailing Date, unless otherwise agreed to in writing) or such later date as may
be agreed by Eurobancshares and Financiero, the certificates formerly
representing the shares of Financiero Common Stock (the "OLD CERTIFICATES")
eligible to be exchanged on the Effective Date. Eurobancshares shall have
reasonable discretion, which it may delegate in whole or in part to the Exchange
Agent, to determine whether the Old Certificates have
been submitted timely; such decisions of Eurobancshares shall be conclusive and
binding. The exchange agent (the "EXCHANGE AGENT") shall be Eurobank.
(b) At and after the Effective Time, each Old
Certificate, and each share of Financiero Common Stock represented thereby,
shall represent for all purposes only the right to receive Consideration as
provided herein, and nothing else.
(c) If any Consideration is to be issued to a person
other than the registered holder of the shares of Financiero Common Stock
formerly represented by the Old Certificate or Certificates surrendered with
respect thereto, it shall be a condition to such issuance that the Old
Certificate or Certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
issuance shall pay to the Exchange Agent any transfer or other taxes required as
a result of such issuance to a person other than the registered holder of such
shares of Financiero Common Stock or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) At and after the Effective Time, there shall be no
further registration or transfers of shares of Financiero Common Stock, and the
stock ledgers of Financiero shall be closed. After the Effective Time, Old
Certificates presented to the Surviving Bank for transfer shall be cancelled and
exchanged for the Consideration provided for, and in accordance with the
procedures set forth, in this ARTICLE 1.
(e) After the first anniversary of the date of the
Effective Time, any former holders of Financiero Common Stock who have not
delivered Old Certificates to the Exchange Agent in accordance with this SECTION
1.4 prior to that time shall thereafter look only to Eurobancshares for the
Consideration in respect of any shares of Financiero Common Stock formerly
represented by such Old Certificates.
(f) None of the Surviving Bank, Eurobancshares and the
Exchange Agent shall be liable to any former holder of Financiero Common Stock
for any securities delivered or any cash
paid to a public official pursuant to applicable escheat or abandoned property
laws or for any securities or cash retained by any of them as permitted by any
such law.
(g) In the event that any Old Certificate shall have been
lost, stolen or destroyed, the Exchange Agent shall pay in respect of such lost,
stolen or destroyed certificate, upon the making of an affidavit of that fact by
the holder thereof, the Consideration as may be provided pursuant to this
Agreement; provided, however, that Eurobancshares may, in its discretion and as
a condition precedent to the payment thereof, require the owner of such lost,
stolen or destroyed certificate to deliver a bond in such sum as it may direct
as indemnity against any claim that may be made against Eurobancshares,
Eurobank, Financiero, the Exchange Agent or any other party with respect to the
certificate alleged to have been lost, stolen or destroyed.
2.5 DISSENTING SHARES. Notwithstanding any provision of this
Agreement to the contrary, if holders of shares of Financiero Common Stock are
entitled to demand appraisal for their shares under the Banking Law, the
following shall apply:
(1) Any shares of Financiero Common Stock held
by a holder who has demanded appraisal of his shares and as of the
Effective Date has neither effectively withdrawn nor lost his right to
such appraisal (the "DISSENTING SHARES") shall not be converted in the
manner set forth in SECTION 1.2, but the holder thereof shall only be
entitled to such rights as are granted by the Banking Law.
(2) If after the Effective Date any holder of
Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) his right to appraisal, then such Dissenting
Shares shall be converted into the Consideration.
3 ARTICLE
4 REPRESENTATIONS AND WARRANTIES OF EUROBANCSHARES
In addition to its representations and warranties in ARTICLE 4, and
subject to ARTICLE 5, Eurobancshares hereby represents and warrants to
Financiero as follows:
4.1 ORGANIZATION AND QUALIFICATION. It is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth, and each of it and Eurobank has the requisite corporate power to
carry on its business as now conducted. Each of it and Eurobank is licensed or
qualified to do business in every jurisdiction in which the nature of its
business or its ownership of property requires it to be so licensed or
qualified, except where the failure to be so licensed or qualified would not
have or would not reasonably be expected to have a Material Adverse Effect (as
defined in SECTION 5.1).
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT: NON-CONTRAVENTION. Each
of Eurobancshares and Eurobank has the requisite corporate power and authority
to enter into this Agreement, to carry out its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery and
performance of this Agreement by each of Eurobancshares and Eurobank and the
consummation by each of the transactions contemplated hereby have been duly
authorized by its Board of Directors, and no other corporate proceedings on its
part are necessary to authorize this Agreement and such transactions. This
Agreement has been duly executed and delivered by each of Eurobancshares and
Eurobank and constitutes a valid and binding obligation of each, enforceable in
accordance with its terms. Each of Eurobancshares and Eurobank is not subject
to, or obligated under, any provision of (a) its Charter or Bylaws, (b) any
agreement, arrangement or understanding, (c) any license, franchise or permit or
(d) subject to obtaining the approvals referred to in the next sentence, any
law, regulation, order, judgment or decree, which would be breached or violated,
or in respect of which a right of termination or acceleration or any encumbrance
on any of its or any of its subsidiaries' assets would be created, by its
execution, delivery and performance of this Agreement and the consummation by it
of the transactions contemplated hereby, except in the case of clauses (b) and
(c) for any breach, violation, right of acceleration or termination or
encumbrance which would not have a Material Adverse Effect. Other than the
authorizations, consents or approvals and filings required under
or in connection with the Bank Merger Act (12 U.S.C. Section 1828(c)), the
Banking Law, state and the Commonwealth securities or blue sky laws, and the
rules and regulations thereunder ("BLUE SKY LAWS") and the filing of this
Agreement in accordance with the Banking Law (collectively, the "REQUISITE
APPROVALS"), no authorization, consent or approval of, or filing with, any
public body, court or authority is necessary on its part for the consummation by
either Eurobancshares or Eurobank of the transactions contemplated by this
Agreement.
4.3 CAPITAL STOCK. The authorized capital stock of Eurobancshares
consists of 150,000,000 shares of Eurobancshares Common Stock, par value $0.01
per share and 20,000,000 shares of preferred stock, par value $0.01 per share
(the "EUROBANCSHARES PREFERRED STOCK"). As of the date of this Agreement, (a)
6,778,497 shares of Eurobancshares Common Stock were issued and outstanding, and
no shares of Eurobancshares Preferred Stock were issued and outstanding. Except
as set forth in SCHEDULE 2.3 hereof, there are no Rights (as defined in SECTION
3.3 hereof) in respect of Eurobancshares Common Stock.
4.4 PROXY STATEMENT. At the time the Proxy Statement (as defined
in SECTION 7.9(a) hereof) is mailed to the stockholders of Financiero with
respect to the meeting of stockholders referred to in SECTION 7.9(a) and at all
times subsequent to such mailing up to and including the time of such meeting,
the Proxy Statement (including any amendments or supplements thereto), with
respect to all information set forth therein relating to Eurobank,
Eurobancshares and its shareholders, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
4.5 LITIGATION. There are no actions, suits, proceedings, orders
or investigations pending or, to the best knowledge of Eurobancshares,
threatened against Eurobancshares or any of its subsidiaries, which if adversely
determined would have a Material Adverse Effect.
4.6 COMPLIANCE WITH LAWS. Each of Eurobancshares and its
subsidiaries is in compliance with applicable laws and regulations of the
Commonwealth and foreign, federal, state and local governments and all agencies
thereof which affect the business or any owned or leased properties of
Eurobancshares or any of its subsidiaries and to which Eurobancshares or any of
its subsidiaries may be subject.
5 ARTICLE
6 REPRESENTATIONS AND WARRANTIES OF FINANCIERO
In addition to its representations and warranties set forth in ARTICLE
4, and subject to ARTICLE 5, Financiero hereby represents and warrants to
Eurobancshares and Eurobank as follows:
6.1 ORGANIZATION AND QUALIFICATION. Financiero is a bank duly
organized, validly existing and in good standing under the Banking Law and it
has the requisite corporate power and authority to carry on its business as now
conducted, subject only to the provisions of the Cease and Desist Order
disclosed in SCHEDULE 3.17 hereto. The copies of the Charter and Bylaws of
Financiero which have been made available to Eurobancshares on or prior to the
date of this Agreement are correct and complete and reflect all amendments made
thereto through such date. Financiero is licensed or qualified to do business in
every jurisdiction in which the nature of its business or its ownership of
property requires it to be so licensed or qualified.
6.2 AUTHORITY RELATIVE TO THIS AGREEMENT: NON-CONTRAVENTION.
Financiero has the requisite corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby, subject only to the provisions the Cease and
Desist Order disclosed in SCHEDULE 3.17 hereto, a true and correct copy of which
has been provided to Eurobancshares. The execution, delivery and performance of
this Agreement by Financiero and the consummation by Financiero of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Financiero (the "Financiero Board") and, except for approval of
this Agreement and the Merger by the affirmative vote of the holders of two
thirds (2/3) of the outstanding shares of Financiero Common Stock, no other
corporate proceedings on the part of Financiero are necessary to authorize this
Agreement and such transactions. This Agreement has been duly executed and
delivered by Financiero and constitutes a valid and binding obligation of
Financiero, enforceable in accordance with its terms. Financiero is not subject
to, or obligated under, any provision of (a) its Charter
or Bylaws, (b) any agreement, arrangement or understanding, (c) any license,
franchise or permit or (d) any law, regulation, order, judgment or decree, which
would be breached or violated, or in respect of which a right of termination or
acceleration or any encumbrance on any assets of Financiero would be created, by
the execution, delivery or performance of this Agreement, or the consummation of
the transactions contemplated hereby, except in the case of clauses (b) and (c)
for any breach, violation, right of acceleration or termination or encumbrance
which would not have a Material Adverse Effect. Other than in connection with
obtaining the Requisite Approvals, no authorization, consent or approval of, or
filing with, any public body, court or authority is necessary on the part of
Financiero for the consummation by Financiero of the transactions contemplated
by this Agreement.
6.3 CAPITALIZATION.
(a) The authorized capital stock of Financiero consists
of 5,000,000 shares of Common Stock, par value $5.00 per share, 10,000,000
shares of Class B Common Stock, par value $1.00 per share, 35,000,000 shares of
Class C Common Stock, par value $0.30 per share, and 2,000,000 shares of
Preferred Stock, par value $ 10.00 per share (the "FINANCIERO PREFERRED STOCK").
As of the date of this Agreement, 2,682,112 shares of Common Stock and
12,804,506 shares of Class C Common Stock were issued and outstanding and no
shares of Class B Common Stock and Financiero Preferred Stock were issued and
outstanding. The issued and outstanding shares of capital stock of Financiero
are duly authorized, validly issued, fully paid and nonassessable and have not
been issued in violation of any preemptive or similar rights. There are no
options, warrants, conversion privileges, preemptive rights or other rights,
agreements, arrangements or commitments ("RIGHTS") obligating Financiero to
issue, sell, purchase, repurchase or redeem any shares of its capital stock or
securities or obligations of any kind convertible into or exchangeable for any
shares of its capital stock, nor are there any stock appreciation, phantom or
similar rights outstanding based upon the book or market value or any other
attribute of any of the capital stock of Financiero, or the earnings or other
attributes of Financiero.
(b) No bonds, debentures, notes or other indebtedness of
Financiero having the right to vote on or approve any of the transactions
contemplated hereby ("VOTING DEBT") are issued or outstanding.
6.4 LOANS.
(a) The documentation relating to the loans made by
Financiero and relating to all security interests, mortgages and other liens
with respect to all collateral for such loans, taken as a whole, are adequate
for the enforcement of the material terms of such loans and of the related
security interests, mortgages and other liens. The terms of such loans and of
the related security interests, mortgages and other liens comply in all material
respects with all applicable laws, rules and regulations (including, without
limitation, laws, rules and regulations relating to the extension of credit).
(b) SCHEDULE 3.4(b) sets forth a list, which is true,
correct and complete in all material respects, of the aggregate amounts of
loans, extensions of credit and other assets of Financiero that have been
criticized or classified as of June 30, 2002 by Financiero, separated by
category of classification or criticism (the "ASSET CLASSIFICATION"); and no
amounts of loans, extensions of credit or other assets that have been classified
or criticized as of the date hereof by any representative of any governmental
entity as "Other Loans Especially Mentioned", "Substandard", "Doubtful", "Loss"
or words of similar import are excluded from the amounts disclosed in the Asset
Classification, other than amounts of loans, extensions of credit or other
assets that were charged off by Financiero prior to the date hereof. Except as
set forth on SCHEDULE 3.4(b), as of June 30, 2002, there are no loans, leases,
other extensions of credit or commitments to extend credit by Financiero that
have been or, to Financiero's knowledge, should have been classified as
non-accrual, as restructured, as 90 days past due, as still accruing and
doubtful of collection or any comparable classification.
(c) As of June 30, 2002, there are no agreements or
commitments binding Financiero to extend credit to any borrower or affiliated
borrowers of $25,000 or more, except as set forth on SCHEDULE 3.4(c).
6.5 ABSENCE OF UNDISCLOSED LIABILITIES. All the obligations or
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, and regardless of when asserted), including Taxes
(as
defined in SECTION 3.9) (collectively, "LIABILITIES"), required to be reflected
or reserved against in the balance sheets in the Financiero Reports (as
hereinafter defined), or in the notes thereto, in accordance with generally
accepted accounting principles have been so reflected. Financiero has no such
Liabilities, except: (a) as reflected in the Financiero Reports, (b) Liabilities
which have arisen in the ordinary course of business after the date of the most
recent Financiero balance sheet provided to Eurobancshares, provided that such
Liabilities are included in the next following Financiero balance sheet provided
to Eurobancshares, and (c) as otherwise set forth on SCHEDULE 3.5.
6.6 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on SCHEDULE 3.6,
Financiero has not agreed, promised or committed to take any action that, if
taken or agreed, promised or committed to after the date hereof, would violate
or conflict with SECTION 6.1 hereof.
6.7 PROPERTIES.
(a) Except as disclosed in the Financiero Reports (as defined in SECTION
4.2) filed prior to the date hereof, Financiero owns good and marketable title
to all the real property and all of the personal property, fixtures, furniture
and equipment reflected on the Latest Balance Sheet (as defined below) or
acquired since the date thereof (other than real property reflected on the
Latest Balance Sheet as REO), free and clear of all liens, pledges, security,
interests, encumbrances or charges of any kind, except for (i) mortgages on real
property set forth on SCHEDULE 3.7(a), (ii) encumbrances which do not materially
affect the aggregate value of, or interfere with the past or future use or
ability to convey, the property subject thereto or affected thereby, (iii) liens
for current taxes and special assessments not yet due and payable, (iv)
leasehold estates with respect to multi-tenant buildings owned by Financiero,
which leases are identified on SCHEDULE 3.7(a), (y) property disposed of since
the date of the Latest Balance Sheet in the ordinary course of business, (vi)
utility easements and (vii) the interest of the lessor in properties leased by
Financiero. The term "LATEST BALANCE SHEET" shall mean the latest balance sheet
in the most recent Financiero Report provided by Financiero to Eurobancshares.
(b) SCHEDULE 3.7(b) correctly sets forth a brief description, including the
term, of each lease for real or
personal property to which Financiero is a party as lessee with respect to (i)
each individual lease which involves a remaining aggregate balance of lease
payments payable of more than $10,000 or any group of related leases which
involves a remaining aggregate balance of lease payments payable of more than
$25,000, (ii) each lease which would be a "material contract" within the meaning
of Item 601(b)(10) of Regulation S-K promulgated by the Securities and Exchange
Commission (the "SEC") or (iii) each lease which was not entered into in the
ordinary course of business. Financiero has delivered or made available to
Eurobancshares complete and accurate copies of each of the leases identified on
SCHEDULES 3.7(a) AND 3.7(b), and none of such leases has been modified in any
material respect, except to the extent that such modifications are disclosed by
the copies delivered to Eurobancshares. The leases identified on SCHEDULES
3.7(a) AND 3.7(b) are in full force and effect. With respect to the leases
described on SCHEDULE 3.7(b), Financiero is not in default and, to the best
knowledge of Financiero, no circumstances exist which could result in such a
default under any of such leases.
(c) Except as set forth in SCHEDULE 3.7(c), all the buildings, fixtures,
furniture and equipment necessary for the conduct of the business of Financiero
are usable in the ordinary course of business. Financiero owns, or leases under
leases that are in full force and effect, all buildings, fixtures, furniture,
personal property, land improvements and equipment necessary for the conduct of
its business as it is presently being conducted.
6.8 ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 3.8:
(a) Each of Financiero, the Participation Facilities and the Loan/Fiduciary
Properties (each as hereinafter defined) are, and have been, in material
compliance with all applicable laws, rules, regulations, standards and
requirements of all Environmental Laws (as hereinafter defined).
(b) There is no suit, claim, action, proceeding, investigation or notice
pending or threatened (or past or present actions, activities, circumstances,
conditions, events or incidents that could reasonably form the basis of any such
suit, claim, action, proceeding, investigation or notice),
before any governmental entity or other forum in which Financiero, any
Participation Facility or any Loan/Fiduciary Property (or person or entity whose
liability for any such suit, claim, action, proceeding, investigation or notice
Financiero, Participation Facility or Loan/Fiduciary Property has or may have
retained or assumed either contractually or by operation of law), has been or,
with respect to threatened suits, claims, actions, proceedings, investigations
or notices, may be, named as a defendant (i) for alleged noncompliance
(including by any predecessor), with any Environmental Law or (ii) relating to
the release or threatened release into the environment of any Hazardous Material
(as hereinafter defined) whether or not occurring at or on a site owned, leased
or operated by Financiero, any Participation Facility or any Loan/Fiduciary
Property.
(c) During the period of (i) Financiero's ownership or operation of any of
its current properties, (ii) Financiero's participation, if any, in the
management of any Participation Facility, or (iii) Financiero's holding of a
security or other interest in a Loan/Fiduciary Property, there has been no
release of or contamination by Hazardous Material in, on, under or affecting any
such property, Participation Facility or Loan/Fiduciary Property. Prior to the
period of (x) Financiero's ownership or operation of any of its respective
currently or formerly owned or leased properties, (y) Financiero's participation
in the management of any Participation Facility, or (z) Financiero's holding of
a security or other interest in a Loan/Fiduciary Property, Financiero has no
knowledge of any release of or contamination by Hazardous Material in, on, under
or affecting any such property, Participation Facility or Loan/Fiduciary
Property.
(d) To the knowledge of Financiero, no part of any property currently owned
or leased by Financiero, any Participation Facility or any Loan/Fiduciary
Property has been or is scheduled for investigation or monitoring pursuant to
any Environmental Law.
(e) The following definitions apply for purposes of this SECTION 3.8: (i)
"ENVIRONMENTAL LAW" means any Commonwealth, federal, state, local or foreign
law, regulation, agency authority, order, decree, judgment or judicial opinion
or
any agreement with any governmental entity, presently in effect or hereinafter
adopted relating to (A) the manufacture, generation, transport, use, treatment,
storage, recycling, disposal, release, threatened release or presence of
Hazardous Material or (B) the preservation, restoration or protection of the
environment, natural resources or human health; (ii) "LOAN/FIDUCIARY PROPERTY"
means any property owned or controlled by Financiero or in which Financiero
holds a security or other interest, and, where required by the context, said
term means the owner or operator of such property; (iii) "PARTICIPATION
FACILITY" means any facility in which Financiero participates in the management
and, where required by the context, said term means the owner or operator of
such property; and (iv) "HAZARDOUS MATERIAL" means materials which are: (A)
listed, classified or regulated pursuant to any Environmental Law, (B)
petroleum, any petroleum products or by products, asbestos containing material,
polvchlorinated biphenyls, radioactive materials or radon gas, or (C) any other
matter to which exposure is prohibited, limited or regulated by any governmental
entity or Environmental Law.
6.9 TAX MATTERS. Financiero has filed or will file all Tax (as hereinafter
defined) returns (including information returns) or reports required to be filed
(taking into account permissible extensions) by it on or prior to the Effective
Date, and has paid (or have accrued or will accrue, prior to the Effective Date,
amounts for the payment of) all Taxes relating to the time periods covered by
such returns and reports. The accrued taxes payable accounts for Taxes and
provision for deferred income taxes, specifically identified as such, on the
Latest Balance Sheet are sufficient for the payment of all unpaid Taxes of
Financiero accrued for or applicable to all periods ended on or prior to the
date of the Latest Balance Sheet or which may subsequently be determined to be
owing with respect to any such period. Except as disclosed on SCHEDULE 3.9,
Financiero has not waived any statute of limitations with respect to Taxes or
agreed to any extension of time with respect to an assessment or deficiency for
Taxes. Financiero has paid or will pay in a timely manner and as required by law
all Taxes due and payable by it or which it is obligated to withhold from
amounts owing to any employee or third party. All Taxes which will be due and
payable, whether now or hereafter, for any period ending on, prior to or
including the Effective Date shall have been paid by
or on behalf of Financiero or shall be reflected on the books of Financiero as
an accrued Tax liability determined in a manner which is consistent with past
practices and the Latest Balance Sheet. No Tax returns of Financiero have been
audited by any governmental authority other than as disclosed on SCHEDULE 3.9;
and, except as set forth on SCHEDULE 3.9, there are no unresolved questions,
claims or disputes asserted by any relevant taxing authority concerning the
liability for Taxes of Financiero. Financiero has not reached an agreement under
Section 6006 of the Puerto Rico Code for any taxable years not yet closed for
statute of limitations purposes. No demand or claim has been made, or could be
made, against Financiero with respect to any Taxes arising out of membership or
participation in any consolidated, affiliated, combined or unitary group of
which Financiero was at any time a member. For purposes of this Agreement, the
term "TAX" shall mean any Commonwealth, U.S. federal, state, municipal, local or
foreign income, gross receipts, deposit, license, payroll, employment, excise,
severance, stamp, occupation. premium, property or windfall profits tax,
environmental tax, customs duty, capital stock, franchise, employees' income
withholding, foreign or domestic withholding (including withholding on payments
for services rendered), social security, unemployment, disability, workers'
compensation, employment-related insurance, real property, personal property,
sales, use, transfer, value added, alternative or add-on minimum or other tax,
assessment or governmental charge of any kind whatsoever, including any
interest, penalties or additions to, or additional amounts in respect of, the
foregoing.
6.10 CONTRACTS AND COMMITMENTS.
(a) Except as set forth on SCHEDULE 3.10 AND SCHEDULE 3.14, Financiero (i)
is not a party to any collective bargaining agreement or contract with any labor
union, (ii) is not a party to any written or oral contract for the employment of
any officer, individual employee or other person on a full-time or consulting
basis, or relating to severance pay for any such person, (iii) is not a party to
any written or oral agreement or understanding to repurchase assets previously
sold (or to indemnify or otherwise compensate the purchaser in respect of such
assets), except for securities sold under a repurchase agreement providing for a
repurchase date 30 days or less after the purchase date, (iv) is not a party to
any (A) contract or group of related contracts with the same person for the
purchase
or sale of products or services, under which the undelivered balance of such
products and services has a purchase price in excess of $10,000 for any
individual contract or $25,000 for any group of related contracts in the
aggregate, (B) other contract which would be a "material contract" within the
meaning of Item 601(b)(10) of Regulation S-K promulgated by the SEC, or (C)
other agreement which was not entered into in the ordinary course of business
and which is not disclosed on SCHEDULES 3.7(a) OR 3.7(b), and (y) does not have
any commitments for capital expenditures in excess of $10,000.
(b) Except as disclosed on SCHEDULE 3.10, (i) Financiero has performed all
obligations required to be performed by it prior to the date hereof in
connection with the contracts or commitments set forth on SCHEDULE 3.10, and
Financiero is not in receipt of any claim of default under any contract or
commitment set forth on SCHEDULE 3.10 and (ii) Financiero does not have any
present expectation or intention of not fully performing any obligation pursuant
to any contract or commitment set forth on SCHEDULE 3.10.
6.11 LITIGATION. Except as set forth on SCHEDULE 3.11, there are no actions,
suits, proceedings, orders or investigations pending or, to the best knowledge
of Financiero, threatened against Financiero, at law or in equity, or before or
by any Commonwealth, federal, state or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
would have or would reasonably be expected to have a Material Adverse Effect.
6.12 NO BROKERS OR FINDERS. Except as disclosed on SCHEDULE 3.12 (as to both
identity and amount, there are no claims for brokerage commissions, finders'
fees, investment advisory fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement,
understanding, commitment or agreement made by or on behalf of Financiero.
6.13 EMPLOYEES: LABOR MATTERS.
(a) Financiero has complied in all material respects with all laws relating
to the employment of labor, including provisions thereof relating to wages,
hours, severance obligation, equal opportunity, collective bargaining,
non-discrimination and the payment of social security and other
taxes, including social security taxes imposed upon any of the Benefit Plans (as
defined below).
(b) Financiero is not a party to, and is not bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization, nor is Financiero the subject of any material
proceeding asserting that Financiero has committed an unfair labor practice or
seeking to compel Financiero to bargain with any labor organization as to wages
or conditions of employment, nor is there any strike, work stoppage or work
slowdown involving Financiero pending or, to the knowledge of Financiero's
executive officers, threatened, nor are Financiero's executive officers aware of
any activity involving Financiero's employees seeking to certify a collective
bargaining unit or engaging in any other organizational activity.
6.14 EMPLOYEE BENEFIT PLANS.
(a) All benefit plans, contracts or arrangements covering current employees
or former employees of Financiero (the "EMPLOYEES"), including, but not limited
to, "employee benefit plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and plans of
deferred compensation (the "BENEFIT PLANS"), are listed in SCHEDULE 3.14(a).
True and complete copies of all Benefit Plans, including, but not limited to,
any trust instruments and insurance contracts forming a part of any Benefit
Plans, and all amendments thereto or a description in the case of any Benefit
Plan not reduced to writing have been provided or made available to
Eurobancshares.
(b) Except as disclosed on SCHEDULE 3.14 (as provided to Eurobancshares on
the date hereof) all employee benefit plans, other than "multiemployer plans"
within the meaning of Section 3(37) of ERISA, covering Employees (the "PLANS"),
to the extent subject to ERISA, are in substantial compliance with ERISA. Each
Plan which is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA ("PENSION PLAN") and which is intended to be qualified under
Section 165(a) of the Puerto Rico Income Tax Act of 1954 or Section 165(a) of
the Puerto Rico Code, both statutes as amended (both statutes, collectively, the
"PUERTO RICO TAX CODE"), has received a
favorable determination letter from the Puerto Rico Treasury Department, and
Financiero is not aware of any circumstances likely to result in revocation of
any such favorable determination letter. There is no material pending or
threatened litigation relating to the Plans. Except as disclosed on SCHEDULE
3.14 (as provided to Eurobancshares on the date hereof), Financiero has not
engaged in a transaction with respect to any Plan that, assuming the taxable
period of such transaction expired as of the date hereof, could subject
Financiero to a tax or penalty imposed pursuant to the Puerto Rico Tax Code or
Section 502(i) of ERISA in an amount which would be material or could result in
the revocation of the tax exemption of any Pension Plan's trust under the Puerto
Rico Tax Code.
(c) No liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by Financiero with respect to any ongoing, frozen or
terminated "single-employer plan", within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by it, or the single-employer plan of
any entity which is considered one employer with Financiero under Section 4001
of ERISA (an "ERISA AFFILIATE"). Financiero has not incurred and does not expect
to incur any withdrawal liability with respect to a multiemployer plan under
Subtitle E of Title IV of ERISA. No notice of a "reportable event", within the
meaning of Section 4043 of ERISA, for which the 30-day reporting requirement has
not been waived, has been required to be filed for any Pension Plan or by any
ERISA Affiliate within the 12-month period ending on the date hereof.
(d) Except as disclosed on SCHEDULE 3.14(d) all contributions required to
be made under the terms of any Benefit Plan have been timely made or have been
reflected on the Financiero financial statements. Neither any Pension Plan nor
any single-employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 302 of ERISA
and no ERISA Affiliate has an outstanding funding waiver.
(e) Under each Pension Plan which is a single-employer plan, as of the last
day of the most recent plan year ended prior to the date hereof, the actuarially
determined present value of all "benefit liabilities", within the meaning
of Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial
assumptions contained in the Plan's most recent actuarial valuation), did not
exceed the then current value of the assets of such Plan, and there has been no
material change in the financial condition of such Plan since the last day of
the most recent plan year. The withdrawal liability of Financiero under each
Benefit Plan which is a multiemployer plan to which Financiero or an ERISA
Affiliate has contributed during the preceding 12 months, determined as if a
"complete withdrawal", within the meaning of Section 4203 of ERISA, had occurred
as of the date hereof, does not exceed $10,000.
(f) Financiero does not have any obligations for retiree health and life
benefits under any Benefit Plan, except as set forth on SCHEDULE 3.14. Except as
disclosed in SCHEDULE 3.14 (as provided to Eurobancshares on the date hereof),
Financiero may amend or terminate any such Benefit Plan at any time without
incurring any liability thereunder.
(g) Except as disclosed in SCHEDULE 3.14 (as provided to Eurobancshares on
the date hereof), neither the execution of this Agreement nor the consummation
of the transactions contemplated hereby will, whether under a Plan or any other
arrangement or agreement, be a factor in causing payments to be made by
Eurobancshares, Eurobank or Financiero that are not deductible (in whole or in
part) under the Puerto Rico Tax Code or (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of Financiero under any
Plan or otherwise from Financiero, (ii) increase any benefits otherwise payable
under any Plan, or (iii) result in any acceleration of the time of payment or
vesting of any such benefit.
6.15 INSURANCE. SCHEDULE 3.15 hereto lists each insurance policy maintained by
Financiero with respect to its properties and assets. Financiero hereby
covenants that it shall deliver or make available to Eurobancshares complete and
accurate copies of each of such insurance policies within ten business days of
the date hereof.
6.16 INTEREST OF CERTAIN PERSONS. Except as disclosed on SCHEDULE 3.16, there
are no loans from Financiero to any officer or director of Financiero or any of
their affiliates and no
officer or director of Financiero has any material interest in any material
contract or property (real or personal), tangible or intangible, used in or
pertaining to the business of Financiero.
6.17 COMPLIANCE WITH LAWS; PERMITS. Financiero has complied in all material
respects with all applicable laws and regulations of the Commonwealth, foreign,
federal, state and local governments and all agencies thereof which affect or
relate to the business and operations or any owned or leased properties of
Financiero or to which Financiero may be subject (including, without limitation,
to the extent applicable, the Occupational Safety and Health Act of 1970, the
Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act of 1975,
the Fair Housing Act, the Equal Credit Opportunity Act, the Banking Law, the
Community Reinvestment Act of 1977, and the Federal Deposit Insurance Act and
the Federal Reserve Act, each as amended); and no claims have been filed by any
such governments or agencies against Financiero alleging such a material
violation of any such law or regulation which have not been resolved to the
satisfaction of such governments or agencies. Financiero holds all of the
permits, licenses, certificates and other authorizations of the Commonwealth,
foreign, federal, state and local governmental agencies required for the conduct
of its business. Except as disclosed in SCHEDULE 3.17, Financiero is not subject
to any cease and desist order, written agreement or memorandum of understanding
with, or is a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any supervisory
letter from, or has adopted any board resolutions at the request of, the
Commonwealth or federal governmental authorities charged with the supervision or
regulation of banks or engaged in the insurance of bank deposits (collectively,
the "BANK REGULATORS"), nor has Financiero been advised by any Bank Regulator
that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, directive, written
agreement, memorandum of understanding, supervisory letter, commitment letter,
board resolutions or similar undertaking. Financiero is not subject to Section
32 of the Federal Deposit Insurance Act.
6.18 ADMINISTRATION OF FIDUCIARY ACCOUNTS. Financiero has properly administered
in all material respects all accounts for which it acts as a fiduciary,
including but not limited to accounts for which it serves as a trustee, agent,
custodian,
personal representative, guardian, conservator or investment advisor, in
accordance with the terms of the governing documents and applicable
Commonwealth, state and federal law and regulation and common law. None of
Financiero or any director, officer or employee of Financiero has committed any
breach of trust with respect to any such fiduciary account, and the accountings
for each such fiduciary account are true and correct and accurately reflect the
assets of such fiduciary account.
6.19 INTEREST RATE RISK MANAGEMENT INSTRUMENTS; DERIVATIVES: CERTAIN OTHER
SECURITIES.
(a) Schedule 3.19 sets forth a true, correct and complete list of all
interest rate swaps, caps, floors, option agreements and other interest rate
risk management arrangements and other instruments generally known as
"derivatives" to which Financiero is a party or to which any of its properties
or assets may be subject. SCHEDULE 3.19A sets forth a true, correct and complete
list of all securities owned by Financiero that are generally known as
"structured notes", "high risk mortgage derivatives", "capped floating rate
notes" or "capped floating rate mortgage derivatives".
(b) All interest rate swaps, caps, floors and option agreements and other
interest rate risk management arrangements and other derivatives to which
Financiero is a party or to which any of its properties or assets may be subject
were entered into in the ordinary course of business and, to Financiero's
knowledge, in accordance with prudent banking practice and applicable rules,
regulations and policies of the Bank Regulators and with counterparties believed
to be financially responsible at the time and are in full force and effect.
Financiero has duly performed in all material respects all of its obligations
thereunder.
6.20 PROXY STATEMENT. At the time the Proxy Statement is mailed to the
stockholders of Financiero and at all times subsequent to such mailing up to and
including the Effective Time, such Proxy Statement (including any supplements
thereto), with respect to all information set forth therein relating to
Financiero and its stockholders, Financiero Common Stock, this Agreement, the
Merger and all other transactions contemplated hereby, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein
or necessary to make the statements contained therein, in light of the
circumstances under which they are made, not misleading.
6.21 NONCOMPETE PROVISIONS. Except as set forth on SCHEDULE 3.21, Financiero is
not are subject to, or obligated under, any agreement, arrangement or
understanding that restricts its ability to engage in any and all activities
permissible for banks under applicable laws and regulations ("Permissible
Activities"). None of the agreements, arrangements or understandings set forth
on SCHEDULE 3.21, nor any other agreement, arrangement or understanding, would
materially limit or restrict the ability of Eurobancshares or its subsidiaries
(including Eurobank after the Merger) to engage in any and all Permissible
Activities upon consummation of the transactions contemplated hereby.
6.22 EQUITY OWNERSHIP. Except as set forth on SCHEDULE 3.22(a), Financiero does
not own any stock, partnership interest, joint venture interest or any other
equity or similar security issued by any other corporation, organization or
entity other than in a bona fide fiduciary capacity. Except as set forth on
SCHEDULE 3.22(b), Financiero has not owned any subsidiary since December 31,
1996.
7 ARTICLE
8 REPRESENTATIONS AND WARRANTIES OF EUROBANCSHARES AND FINANCIERO
8.1 Subject to ARTICLE 5, Eurobancshares hereby represents and warrants to
Financiero:
(a) With respect to periods since December 31, 1996, each of it and its
subsidiaries has timely filed all reports and statements, and any amendments
required to be made with respect thereto, that it was required to file with the
banking and other regulatory authorities of the Commonwealth (the "Commonwealth
Authorities"), the Board of Governors of the Federal Reserve System (the "FRB"),
the Federal Deposit Insurance Corporation (the "FDIC") or any other applicable
federal or state banking, insurance, securities, or other regulatory
authorities, and, as of their respective dates (and, in the case of reports or
statements filed prior to the date hereof, without giving effect to any
amendments or modifications filed after the date hereof), each such report or
statement, including the financial statements and exhibits thereto, complied (or
will comply, in the case of reports or statements filed after the date hereof)
in all material respects with all applicable statutes, rules and regulations.
Such reports, statements and amendments filed by Eurobancshares are hereinafter
referred to as the "EUROBANCSHARES REPORTS."
(b) As of their respective dates (and without giving effect to any
amendments or modifications filed after the date hereof), each of the
Eurobancshares Reports, including the financial statements, exhibits and
schedules thereto, filed, used or circulated prior to the date hereof complied
(and each of the Eurobancshares Reports filed, used or circulated after the date
hereof, will comply) in all material respects with the applicable laws and did
not (or in the case of Eurobancshares Reports filed, used or circulated after
the date hereof, will not) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
(c) Each of its consolidated balance sheets included in or incorporated by
reference into the Eurobancshares Reports, including the related notes and
schedules, fairly presents (or, in the case of the Eurobancshares Reports filed,
used or circulated after the date hereof, will fairly present) the consolidated
financial position of it and its subsidiaries as of the date of such balance
sheet and each of the consolidated statements of income, cash flows and
stockholders' equity included in or incorporated by reference into the
Eurobancshares Reports, including any related notes and schedules, fairly
presents (or, in the case of the Eurobancshares Reports filed, used or
circulated after the date hereof, will fairly present) in all material respects
the consolidated results of operations, retained earnings and cash flows, as the
case may be, of it and its subsidiaries at the dates and for the periods set
forth therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments that are not expected to be material in amount), in each case
in accordance with GAAP consistently applied during the periods involved, except
as may be noted therein.
(d) Since December 31, 2001, there has been no change, event, occurrence or
development in the businesses
conducted by it that has had or would reasonably be expected to have a Material
Adverse Effect.
8.2 Subject to ARTICLE 5, Financiero hereby represents and warrants to
Eurobancshares and Eurobank:
(a) With respect to periods since December 31, 1996, it has timely filed
all reports and statements, and any amendments required to be made with respect
thereto, that it was required to file with Commonwealth Authorities, the FDIC or
any other applicable federal or state banking, insurance, securities, or other
regulatory authorities, and, as of their respective dates (and, in the case of
reports or statements filed prior to the date hereof, without giving effect to
any amendments or modifications filed after the date hereof), each such report
or statement, including the financial statements and exhibits thereto, complied
(or will comply, in the case of reports or statements filed after the date
hereof) in all material respects with all applicable statutes, rules and
regulations. Such reports, statements and amendments, together with Financiero's
audited financial statement for the year 2001, previously delivered to
Eurobancshares, are referred to herein as the "FINANCIERO REPORTS".
(b) As of their respective dates (and without giving effect to any
amendments or modifications filed after the date hereof), each of the Financiero
Reports, including the financial statements, exhibits and schedules thereto,
filed, used or circulated prior to the date hereof complied (and each of the
Financiero Reports filed, used or circulated after the date hereof, will comply)
in all material respects with the applicable laws and did not (or in the case of
the Financiero Reports filed, used or circulated after the date hereof, will
not) contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(c) Its statement of financial condition as of June 30, 2002, including the
related notes and schedules (the "6/30 BALANCE SHEET"), fairly presents (or, in
the case of Financiero Reports filed, used or circulated after the date hereof,
will fairly present) its financial position as of the date of such statement and
each of the statements of operations, cash flows
and changes in stockholders' equity for the period then ended (collectively, the
"6/30 STATEMENTS"), including any related notes and schedules, fairly presents
(or, in the case of financial statements delivered pursuant to SECTION 7.3 or
otherwise (together with the 6/30 Statements, the "FINANCIERO STATEMENTS")
filed, used or circulated after the date hereof, will fairly present) its
results of operations, retained earnings and cash flows, as the case may be, at
the dates and for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments that are not expected
to be material in amount), in each case in accordance with GAAP.
(d) The Allowance shown in its consolidated balance sheet dated June 30,
2002 if increased by $400,000, and the Allowance shown in the Financiero
Statements filed, used or circulated after the date hereof will be, in each case
as of the date thereof, adequate to provide for estimable and probable losses,
net of recoveries relating to loans and leases previously charged off, inherent
in its loan and lease portfolio.
(e) Since December 31, 2001, there has been no change, event, occurrence or
development in the businesses directly or indirectly conducted by it that has
had or would reasonably be expected to have a Material Adverse Effect.
9 ARTICLE
10 MATERIAL ADVERSE EFFECT
10.1 MATERIAL ADVERSE EFFECT. The term "Material Adverse Effect" means any
fact, condition, circumstance or event, the effect of which, individually or
when taken together with all other facts, conditions, circumstances or events
(regardless of whether such facts, conditions, circumstances, or events are
described in more than one paragraph of ARTICLE 2, 3 OR 4 hereof or otherwise),
(i) is materially adverse to the business, financial condition, results of
operations or prospects of such party and its respective subsidiaries taken as a
whole, (ii) significantly and adversely affects the ability of either party to
consummate the transactions contemplated hereby or to perform
its material obligations hereunder, or (iii) enables any person to prevent the
consummation of the transactions contemplated hereby.
11 ARTICLE
12 CONDUCT OF BUSINESS PENDING THE MERGER
12.1 CONDUCT OF BUSINESS OF FINANCIERO. From the date of this Agreement to the
Effective Date, unless Eurobancshares shall otherwise agree in writing or as
otherwise expressly permitted by other provisions of this Agreement, including
this SECTION 6.1:
(a) The business of Financiero will be conducted only in, and Financiero
shall not take any action except in, the ordinary course, on an arms-length
basis and in accordance, in all material respects, with all applicable laws,
rules and regulations and past practices;
(b) Financiero will not, directly or indirectly, (i) amend or propose to
amend its Charter or Bylaws; (ii) issue or sell any of its equity securities,
Voting Debt, securities convertible into or exchangeable for its equity
securities, warrants, options or other rights to acquire its equity securities,
or any bonds or other securities, except deposit and other bank obligations in
the ordinary course of business; (iii) redeem, purchase, acquire or offer to
acquire, directly or indirectly, any shares of capital stock of Financiero or
other securities of Financiero; (iv) split, combine or reclassify any
outstanding shares of capital stock of Financiero, or declare, set aside or pay
any dividend or other distribution payable in cash, property or otherwise with
respect to shares of capital stock of Financiero, (v) borrow any amount or incur
or become subject to any material liability, except borrowings and liabilities
incurred in the ordinary course of business, but in no event will Financiero
enter into any long-term borrowings with a term greater than one year, without
prior consultation with Eurobancshares; (vi) discharge or satisfy any material
lien or encumbrance on the properties or assets of Financiero or pay any
material liability, except in the ordinary course of business; (vii) sell,
assign, transfer, mortgage, pledge or subject to or permit to be subject to any
lien or other encumbrance any of its assets with an aggregate market value in
excess of $10,000, except (x) in the ordinary course of business, (y) liens and
encumbrances for current property taxes not yet due and payable and (z) liens
and encumbrances which do not materially affect the value of, or interfere with
the past or future use or ability to convey, the property subject thereto or
affected thereby; (viii) cancel any material debt or claims or waive any rights
of material value, except in the ordinary course of business; (ix) acquire (by
merger, exchange, consolidation, acquisition of stock or assets or otherwise)
any corporation, partnership, joint venture or other business organization or
division or material assets or deposits thereof, or assets or deposits, except
in satisfaction of a debt previously contracted in good faith; (x) other than as
set forth on SCHEDULE 3.10, make any single or group of related capital
expenditures or commitments therefor in excess of $10,000 or enter into any
lease; or (xi) enter into or propose to enter into, or modify or propose to
modify, any agreement, arrangement or understanding with respect to any of the
matters set forth in this SECTION 6.1(b); provided, however, that Financiero may
sell its charged-off loans set forth in SCHEDULE 6.1(a) and repossessed vehicles
set forth in SCHEDULE 6.1(b) prior to the Calculation Date.
(c) Financiero will not, directly or indirectly, enter into or modify any
employment, severance or similar agreements or arrangements with, or grant any
bonuses, wage, salary or compensation increases, or severance or termination pay
to, or promote, any director, officer, employee, group of employees or
consultant or hire any employee;
(d) Financiero will not adopt or amend any bonus, profit sharing, stock
option, pension, retirement, deferred compensation or other employee benefit
plan, trust, fund, contract or arrangement for the benefit or welfare of any
employees, except as required by law and Financiero will not grant any stock
options or restricted stock or similar equity awards;
(e) Financiero will use reasonable efforts to cause its current insurance
policies not to be cancelled or terminated or any of the coverage thereunder to
lapse, unless simultaneously with such termination, cancellation or lapse,
replacement policies providing coverage substantially equal to
the coverage under the cancelled, terminated or lapsed policies are in full
force and effect;
(f) Financiero will not enter into any settlement or similar agreement with
respect to, or take any other significant action with respect to the conduct of,
any action, suit, proceeding, order or investigation which is set forth on
SCHEDULE 3.11 or to which Financiero becomes a party after the date of this
Agreement;
(g) Financiero will use all reasonable efforts to preserve intact in all
material respects the business organization as a whole and the goodwill of
Financiero and to keep available the services of its officers and employees as a
group and preserve intact material agreements, and Financiero will confer on a
regular and frequent basis with representatives of Eurobancshares, as reasonably
requested by Eurobancshares, to report on operational matters and the general
status of ongoing operations;
(h) Financiero will not take any action with respect to investment
securities held or controlled by it inconsistent with past practices, alter its
investment portfolio duration or practices as heretofore in effect or, without
prior consultation with Eurobancshares, take any action that (i) would be
inconsistent with its past practices with respect to purchasing or holding
interest rate risk management instruments, derivatives or other securities
described in SECTION 3.19(a) OR (b) would have or could reasonably be expected
to have a material effect on Financiero's asset/liability or interest
sensitivity position;
(i) Financiero will not make any agreements or commitments binding it to
extend credit to any one borrower or affiliated borrowers in excess of $25,000;
provided, that Financiero may: (w) renew (but not increase) existing extensions
of credit, (x) make agreements or commitments binding it to extend credit to any
one borrower or affiliated borrowers that do not exceed $150,000 regarding
residential first mortgage loans and (y) make agreements or commitments binding
it to extend credit to any one borrower or affiliated borrowers that do not
exceed $50,000 regarding vehicle leases pursuant to which Financiero retains
title to such vehicles and (z) unsecured
commercial loans that do not exceed $100,000 or secured commercial loans that
exceed $300,000 (in each case taking loans to affiliated entities as a loan to a
single borrower);
(j) With respect to properties leased by Financiero, Financiero will not
renew, exercise an option to extend, cancel or surrender any lease of real
property or allow any such lease to lapse, without prior consultation with
Eurobancshares; and
(k) Financiero will not agree or commit to do any of the foregoing.
The term "PRIOR CONSULTATION" means, with respect to any action, advance notice
of such proposed action and a reasonable opportunity to discuss such action in
good faith prior to taking such action.
12.2 CONDUCT OF BUSINESS OF EUROBANCSHARES. From the date of this Agreement to
the Effective Date, unless Financiero shall otherwise agree in writing, or as
otherwise expressly permitted by other provisions of this Agreement,
Eurobancshares shall take no action which would materially and adversely affect
the ability of Eurobancshares or Financiero (i) to obtain the Requisite
Approvals for the transactions contemplated hereby or (ii) to perform its
covenants and agreements under this Agreement in all material respects and to
consummate the Merger.
13 ARTICLE
14 ADDITIONAL COVENANTS AND AGREEMENTS
14.1 FILINGS AND APPROVALS. Each party will use all reasonable efforts and will
cooperate with the other party in the preparation and filing, as soon as
practicable, of all applications, registration statements or other documents
required to obtain regulatory approvals and consents from the FRB, the FDIC and
Commonwealth Authorities and any other applicable regulatory authorities and
provide copies of such applications, filings and related correspondence to the
other party. Prior to filing each application, registration statement or other
document with the applicable regulatory authority, each party will provide the
other party with an opportunity to review and comment on the nonconfidential
portions of each such
application, registration statement or other document. Each party will use all
reasonable efforts and cooperate with the other party in taking any other
actions necessary to obtain such regulatory or other approvals and consents,
including participating in any required hearings or proceedings.
14.2 CERTAIN CREDIT MATTERS. Financiero will furnish to Eurobancshares a
complete and accurate list (on a consolidated basis) as of the end of each
calendar month ending after the date hereof, not later than the 10th day after
the end of each such calendar month, of (a) all periodic internal credit quality
reports prepared during such calendar month (which reports will be prepared in a
manner consistent with past practices), (b) all loans classified as non-accrual,
as restructured, as 90 days past due, as still accruing and doubtful of
collection or any comparable classification, (c) all REO, including in-substance
foreclosures and real estate in judgment, (d) any current repurchase obligations
with respect to any loans, loan participations or state or municipal obligations
or revenue bonds (e) any standby letters of credit and (f) all repossessed
vehicles.
14.3 MONTHLY FINANCIAL STATEMENTS. Financiero shall furnish Eurobancshares with
Financiero's balance sheets as of the end of each calendar month ending after
the date hereof and the related statements of income, not later than the 5th day
after the end of each such calendar month. Such financial statements shall be
prepared on a basis consistent with the latest Financiero Statements prior to
the date hereof and on a consistent basis during the periods involved and shall
fairly present the financial positions of Financiero as of the dates thereof and
the results of operations of Financiero for the periods then ended (prepared in
accordance with GAAP (except for the absence of footnotes)).
14.4 EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby (including legal, accounting,
and similar fees and out-of-pocket expenses) shall be paid by the party
incurring such costs and expenses, provided that Financiero shall pay all such
costs and expenses prior to the Effective Time and the Adjusted Tangible Net
Book Value shall be reduced by such amount.
14.5 NO NEGOTIATIONS, ETC. Financiero will not, and will cause its officers,
directors, employees, representatives, agents and affiliates not to, directly or
indirectly, solicit, authorize, initiate or encourage the submission of any
proposal,
offer, tender offer or exchange offer from any person or entity relating to any
liquidation, dissolution, recapitalization, merger, consolidation or acquisition
or purchase of all or a material portion of the assets or deposits of, or any
equity interest in, Financiero or other similar transaction or business
combination involving Financiero (any of the foregoing, an "ACQUISITION
PROPOSAL"), or, unless Financiero shall have determined, after receipt of a
written opinion of counsel to Financiero (a copy of which opinion shall be
delivered to Eurobancshares), that under the laws of the Commonwealth the Board
of Directors of Financiero has a fiduciary duty to do so, (a) participate in any
negotiations in connection with or in furtherance of any of the foregoing or (b)
permit any person other than Eurobancshares and its representatives to have any
access to the facilities of, or furnish to any person other than Eurobancshares
and its representatives any non-public information with respect to, Financiero
in connection with or in furtherance of any of the foregoing. Financiero shall
promptly notify Eurobancshares if any Acquisition Proposal, or any inquiry from
or contact with any person with respect thereto, is made, and shall keep
Eurobancshares informed on a timely basis as to the status of such Acquisition
Proposal, inquiry or contact.
14.6 NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt notice to
the other party of (a) the occurrence or failure to occur of any event or the
discovery of any information, which occurrence, failure, discovery or
information would result in or would reasonably be expected to result in any
representation or warranty on its part contained in this Agreement to be untrue
or inaccurate when made, at the Effective Date or at any time prior to the
Effective Date and (b) any material failure of such party to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder.
14.7 ACCESS TO INFORMATION: CONFIDENTIALITY.
(a) Financiero shall permit Eurobancshares full access on reasonable notice
and at reasonable hours to its properties and shall disclose and make available
(together with the right to copy, unless Financiero has a reasonable objection
to Eurobancshares making copies) to Eurobancshares and to the internal auditors,
loan review officers, employees, attorneys, accountants and other
representatives of Eurobancshares all books, papers and records relating to the
assets, stock,
properties, operations, obligations and liabilities of Financiero, including,
without limitation, all books of account (including, without limitation, the
general ledger), tax records, minute books of directors' and stockholders'
meetings, organizational documents, bylaws, contracts and agreements, filings
with any regulatory authority, accountants' work papers, litigation files
(including, without limitation, legal research memoranda), documents relating to
assets and title thereto (including, without limitation, abstracts, title
insurance policies, surveys, environmental reports, opinions of title and other
information relating to the real and personal property), plans affecting
employees, securities transfer records and stockholder lists, and any books,
papers and records relating to other assets, business activities or prospects in
which Eurobancshares may have a reasonable interest, including, without
limitation, its interest in planning for integration and transition with respect
to the business of Financiero; provided, however, that the foregoing rights
granted to Eurobancshares shall, whether or not and regardless of the extent to
which such rights may be exercised, in no way affect the nature or scope of the
representations, warranties and covenants of Financiero set forth herein.
(b) Eurobancshares shall permit Financiero reasonable access on reasonable
notice and at reasonable hours to its properties and shall disclose and make
available (together with the right to copy, unless Eurobancshares has a
reasonable objection to Financiero making copies) to Financiero and to the
internal auditors, loan review officers, employees, attorneys, accountants and
other representatives of Financiero all books, papers and records relating to
the assets, stock, properties, operations, obligations and liabilities of
Eurobancshares, including, without limitation, all books of account (including,
without limitation, the general ledger), tax records, minute books of directors'
and stockholders' meetings, organizational documents, bylaws, contracts and
agreements, filings with any regulatory authority, accountants' work papers,
litigation files (including, without limitation, legal research memoranda),
documents relating to assets and title thereto (including, without limitation,
abstracts, title insurance policies, surveys, environmental reports, opinions of
title and other information relating to the real and personal property), plans
affecting employees, securities transfer records and stockholder
lists, and any books, papers and records relating to other assets, business
activities or prospects in which Financiero may have a reasonable interest,
including, without limitation, its interest in planning for integration and
transition with respect to the business of Financiero; provided, however, that
the foregoing rights granted to Financiero shall, whether or not and regardless
of the extent to which such rights may be exercised, in no way affect the nature
or scope of the representations, warranties and covenants of Eurobancshares set
forth herein.
(c) All information furnished by Financiero or Eurobancshares pursuant
hereto shall be treated as the sole property of the party furnishing the
information until the Effective Date, and, if the Effective Date shall not
occur, the receiving party shall, at the option of the party that furnished the
information, return to the party which furnished such information, or destroy,
all documents or other materials (including copies thereof) containing,
reflecting or referring to such information. In addition, the receiving party
shall keep confidential all such information and shall not directly or
indirectly use such information for any competitive or other commercial purpose.
In the event that this Agreement shall terminate, neither party shall disclose,
except as required by law or pursuant to the request of an administrative agency
or other regulatory body, the basis or reason for such termination, without the
consent of the other party. The obligation to keep such information confidential
shall not apply to (i) any information which (A) was already in the receiving
party's possession prior to the disclosure thereof to the receiving party by the
party furnishing the information, (B) was then generally known to the public,
(C) became known to the public through no fault of the receiving party or its
representatives or (D) was disclosed to the receiving party by a third party not
bound by an obligation of confidentiality or (ii) disclosures required by law or
governmental or regulatory authority.
14.8 FILING OF TAX RETURNS AND ADJUSTMENTS.
(a) Financiero will file (or cause to be filed) at its own expense, on or
prior to the due date, all Tax returns for all Tax periods ending on or before
the Effective Date where the due date for such returns or reports (taking into
account valid extensions of the respective due dates) falls on or before the
Effective Date; provided, however, that Financiero shall not
file any such Tax returns, or other returns, elections or information statements
with respect to any liabilities for Taxes (other than federal, state or local
sales, use, withholding or employment tax returns or statements), or consent to
any adjustment or otherwise compromise or settle any matters with respect to
Taxes, without prior consultation with Eurobancshares; provided, further, that
Financiero shall not make any election or take any other discretionary position
with respect to Taxes, in a manner inconsistent with past practices, without the
prior written approval of Eurobancshares. Financiero will provide Eurobancshares
with a copy of appropriate workpapers, schedules, drafts and final copies of
each federal and state income Tax return or election of Financiero (including
returns of all Plans) at least seven days before filing such return or election
and shall reasonably cooperate with any request by Eurobancshares in connection
therewith.
(b) Eurobancshares, in its sole and absolute discretion, will file (or
cause to be filed) all Tax returns of Financiero due after the Effective Date.
After the Effective Date, Eurobancshares, in its sole and absolute discretion
and to the extent permitted by law, shall have the right to amend, modify or
otherwise change all Tax returns of Financiero for all Tax periods.
14.9 PROXY STATEMENT
(a) For the purposes (i) of holding the meeting of the stockholders of
Financiero to approve this Agreement and the Merger (the "Meeting") the parties
hereto will cooperate in the preparation of an appropriate proxy statement that
will contain, to the extent deemed advisable by Eurobancshares, the information
required by the 1934 Act and Regulation 14A promulgated thereunder, applicable
Commonwealth and state securities laws and the rules and regulations thereunder
(such information or proxy statement, together with any and all amendments or
supplements thereto being herein referred to as the "PROXY STATEMENT").
(b) Eurobancshares will furnish Financiero with such information concerning
Eurobancshares and Eurobank as may be deemed or appropriate by counsel to
Eurobancshares. Eurobancshares agrees promptly to advise Financiero if at any
time prior to the Meeting any information provided by Eurobancshares in the
Proxy Statement becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy or omission.
14.10 ESTABLISHMENT OF ACCRUALS. If requested by Eurobancshares prior to the
Effective Date, Financiero will, consistent with GAAP, establish such additional
accruals and reserves as may be necessary to conform Financiero's accounting and
credit loss reserve practices and methods to those of Eurobancshares and reflect
Eurobancshares's plans with respect to the conduct of Financiero's business
following the Merger and to provide for the costs and expenses relating to the
consummation by Financiero of the transactions contemplated by this Agreement,
provided, however, that the establishment of such additional accruals and
reserves shall not reduce the Consideration or have adverse tax consequences to
the shareholders of Financiero. Notwithstanding anything to the contrary
contained in this Agreement, no accrual or reserve made by Financiero pursuant
to this SECTION 7.10 or any other effect on Financiero resulting from
Financiero's compliance with this SECTION 7.10 shall constitute or be deemed to
be a breach, violation of or failure to satisfy any representation, warranty,
covenant, condition or other provision of this Agreement or otherwise be
considered in determining whether any such breach, violation or failure to
satisfy shall have occurred.
14.11 EMPLOYEE BENEFIT PLANS. Prior to the Effective Time, Financiero shall
terminate all Plans described in SCHEDULE 3.14 and the Financiero Discontinued
Plan described in SCHEDULE 3.14 as directed by Eurobancshares.
14.12 REPORTS. Financiero will provide to Eurobancshares copies of all quarterly
financial reports filed by it with the FDIC, and Eurobancshares will provide to
Financiero copies of all quarterly financial reports filed by it with the FRB,
between the date hereof and the Effective Date, within five days after the date
such reports are so filed.
14.13 STOCKHOLDER APPROVAL. Financiero will call the Meeting as promptly as
practicable after the date hereof but in no event later than October 31, 2002.
The Financiero Board will recommend approval of this Agreement and the Merger,
and use its best efforts (including, without limitation, soliciting proxies for
such approvals) to obtain such shareholder approval, unless the Financiero Board
determines, after receipt of a written
opinion of counsel to Financiero (a copy of which shall be delivered to
Eurobancshares), that recommending such approval or using its best efforts to
obtain such shareholder approval would result in a breach of its fiduciary
duties established under the laws of the Commonwealth.
14.14 EFFORTS TO CONSUMMATE. Subject to the terms and conditions of this
Agreement, each of Eurobancshares and Financiero agrees to use reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make
effective, as soon as practicable after the date of this Agreement, the
transactions contemplated hereby.
14.15 TAXATION. Subject to SECTION 7.5, neither Eurobancshares nor Financiero
shall take or cause to be taken any action, whether before or after the
Effective Time, that would disqualify the Merger as a "reorganization" within
the meaning of Section 1112(g)(1) of the Puerto Rico Code.
15 ARTICLE
16 CONDITIONS
16.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations of
each party to effect the transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Effective Date of the following conditions:
(a) Regulatory Approvals. Regulatory approvals for the consummation of the
transactions contemplated hereby shall have been obtained from the Commonwealth
Authorities, the FRB, the FDIC and each other governmental authority from which
approval is required, and all statutory and regulatory waiting periods shall
have expired (the "REGULATORY APPROVALS"). None of such approvals shall contain
any condition or restriction that would so materially and adversely impact the
economic or business benefits to Eurobancshares of the transactions contemplated
by this Agreement that, had such condition or requirement been known,
Eurobancshares would not, in its reasonable judgment, have entered into this
Agreement.
(b) No Injunction. No injunction or other order entered by a Commonwealth
or federal court of competent jurisdiction shall have been issued and remain in
effect which would prohibit the consummation of the transactions contemplated
hereby.
(c) No Prohibitive Change of Law. There shall have been no law, statute,
rule or regulation, domestic or foreign, enacted or promulgated which would
prohibit the consummation of the transactions contemplated hereby.
(d) Stockholder Approval. This Agreement and the Merger shall have been
approved by the affirmative vote of the holders of two thirds (2/3) of the
outstanding shares of Financiero Common Stock, being the portion of Financiero
capital stock required for such approval under the provisions of Financiero's
Charter and Bylaws and the laws of the Commonwealth (the "STOCKHOLDER APPROVAL")
and no more than 5% of the outstanding shares of Financiero Common Stock shall
be Dissenting Shares.
16.2 ADDITIONAL CONDITIONS TO OBLIGATION OF FINANCIERO. The obligation of
Financiero to consummate the transactions contemplated hereby in accordance with
the terms of this Agreement is also subject to the following conditions (any of
which may be waived by Financiero, in whole or in part, in its sole discretion):
(a) Representations and Compliance. The representations and warranties of
Eurobancshares set forth in ARTICLES 2 AND 4 shall have been true and correct as
of the date hereof, and shall be true and correct as of the Effective Date as if
made at and as of the Effective Date, subject to ARTICLE 5; and Eurobancshares
shall in all material respects have performed each obligation and agreement and
complied with each covenant to be performed and complied with by it hereunder at
or prior to the Effective Time.
(b) Officers' Certificate. Eurobancshares shall have furnished to
Financiero a certificate of the Chief Executive Officer and Chief Financial
Officer of Eurobancshares, dated as of the Effective Date, to the effect set
forth in SECTION 8.2(a).
(c) Opinion of Counsel to Eurobancshares. Financiero shall have received an
opinion letter, dated as of the Effective Date, addressed to Financiero from
counsel to Eurobancshares, in customary form and subject to customary
qualifications, as to the matters set forth in SECTION 2.2.
16.3 ADDITIONAL CONDITIONS TO OBLIGATION OF EUROBANCSHARES AND EUROBANK. The
obligation of Eurobancshares and Eurobank to consummate the transactions
contemplated hereby in accordance with the terms of this Agreement are also
subject to the following conditions (any of which may be waived by
Eurobancshares, in whole or in part, in its sole discretion):
(a) Representations and Compliance. The representations and warranties of
Financiero set forth in ARTICLES 3 AND 4 of this Agreement shall have been true
and correct as of the date hereof, and such representations and warranties shall
be true and correct as of the Effective Date as if made at and as of the
Effective Date, subject to ARTICLE 5; and Financiero shall in all material
respects have performed each obligation and agreement and complied with each
covenant to be performed and complied with by it hereunder at or prior to the
Effective Date.
(b) Officers' Certificate. Financiero shall have furnished to
Eurobancshares a certificate executed by each of Financiero's Chairman of the
Board of Directors, Chief Executive Officer and Chief Financial Officer, dated
as of the Effective Date, to the effect set forth in SECTION 8.3(a).
(c) Secretary's Certificates. Financiero shall have furnished to
Eurobancshares (i) copies of the text of the resolutions by which the corporate
action on the part of Financiero necessary to approve this Agreement and the
transactions contemplated hereby were taken, (ii) certificates, dated as of the
Effective Date, executed on behalf of Financiero by its corporate secretary or
one of its assistant corporate secretaries, certifying to Eurobancshares that
such copies are true, correct and complete copies of such resolutions and that
such resolutions were duly adopted and have not been amended or rescinded and
(iii) an incumbency certificate, dated as of the Effective Date, executed on
behalf of Financiero by its corporate secretary or one of its assistant
corporate secretaries, certifying the signature and office of each officer
executing this Agreement or any other agreement, certificate or other instrument
executed pursuant hereto.
(d) Opinion of Counsel to Financiero. Eurobancshares shall have received an
opinion letter acceptable to
Eurobancshares' counsel, dated as of the Effective Date, addressed to
Eurobancshares from Xxxx Xxxxxxx, Xxxx Xxxxx, Asociados, counsel to Financiero,
in customary form and subject to customary qualifications, to the effect that
among other things:
(1) Financiero is a corporation duly incorporated,
validly existing and in good standing under the laws of the
Commonwealth.
(2) Financiero has the requisite corporate and other
power and authority (including all licenses, permits and
authorizations) to own and operate its properties and to carry on its
business as now conducted. Financiero is licensed or qualified to do
business in Puerto Rico which, given the nature of its business and its
ownership of property, is the only jurisdiction where Financiero is
required to be licensed or qualified, except where the failure to be so
licensed or qualified would not have or would not be reasonably
expected to have a Material Adverse Effect.
(3) The execution and delivery of this Agreement by
Financiero and the consummation of the transactions contemplated hereby
and thereby will not constitute a breach, default or violation under
the respective Charter or Bylaws of Financiero or, to such counsel's
knowledge, (A) any material agreement, arrangement or understanding to
which Financiero is a party, (B) any material license, franchise or
permit or (C) any law, regulation, order, judgment or decree.
(4) Financiero has the corporate power to consummate the
transactions on its part contemplated by this Agreement. Financiero has
duly taken all requisite corporate action to authorize this Agreement
and this Agreement has been duly executed and delivered by Financiero
and constitutes the valid and binding obligation of Financiero
enforceable in accordance with its terms, subject as to the enforcement
of remedies to applicable bankruptcy, insolvency, moratorium and other
laws affecting the rights of creditors generally and to judicial
limitations on the enforcement of the remedy of specific performance.
(5) That each of the Officers Agreement, the Directors
Agreement and the Principal Shareholders Agreement has been duly
executed and delivered by Financiero and constitutes the valid and
binding obligation of the parties thereto(other than Eurobancshares)
enforceable in accordance with its terms.
(e) Tax Ruling or Opinion. Eurobancshares shall have received either (i) a
ruling from the Puerto Rico Treasury Department or (ii) the opinion of
Xxxxxxxxxxx, Xxxxxx & Xxxxxxx LLP, dated the Effective Date, to the effect that
the Merger will be treated for Puerto Rican income tax purposes as a
reorganization within the meaning of Section 1112(g)(1) of the Puerto Rico Code,
and that each of Eurobancshares, Eurobank and Financiero will be a party to that
reorganization within the meaning of Section 1112(g)(3) of the Puerto Rico Code.
(f) [Intentionally Omitted.]
(g) Adjusted Tangible Net Book Value. Financiero's Adjusted Tangible Net
Book Value shall not be less than $1,750,000.
(h) Stock Dividends. Financiero shall not have any liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise, whether due or to
become due, and regardless of when asserted), including, without limitation, any
obligation to pay any dividend, with respect to the capital stock of Financiero,
whether such stock is outstanding or has otherwise been redeemed, exchanged or
reclassified.
(i) Allowances. Eurobancshares shall be satisfied, at its sole discretion,
that the Allowance of Financiero, described in SECTION 4.2(d) hereof as of the
Effective Date, shall be adequate to provide for estimable and probable losses,
net of recoveries relating to loans and leases previously charged off, inherent
in the loan and lease portfolio of Financiero. Eurobancshares agrees, on the
basis of the information submitted to it by Financiero, that it is satisfied
with the Allowance of Financiero as of June 30, 2002, to the
extent that such allowance is increased by $400,000, such an increase has
already been reflected in Adjusted Tangible Net Book Value.
(j) Relationship with Pan American. Any and all agreements between
Financiero and Pan American Financial Corporation shall have been terminated.
Eurobancshares shall be satisfied, at its sole discretion, that neither
Financiero, Eurobancshares nor Eurobank is, or will be, subject to any liability
with respect to any of the foregoing.
(k) Mortgage Operations. The mortgage operations of Financiero, including,
without, limitation, all the mortgage operations of Financiero acquired from
"SOMO Mortgage" shall be discontinued (including the termination of leases
listed on SCHEDULE 8.3(k)(i)) prior to October 1, 2002, in a manner satisfactory
to Eurobancshares and all leaseholds improvements to such sites shall have been
charged off.
(l) Leases and Contracts. All leases and contracts between Financiero and
third parties involving leased premises, equipment or services, except those
related to the Xxxxxxx Xxxxxx branch, shall be cancellable at the option of
Eurobancshares at no cost to either Eurobancshares and Eurobank within 30 days
of the Effective Date and Eurobancshares shall have reasonable evidence
satisfactory to it to that effect.
(m) Stockholder Approval. The Stockholder Approval shall have been obtained
on or before October 31, 2002.
(n) Regulatory Approvals. All the Regulatory Approvals shall have been
obtained on or before November 15, 2002.
(o) Bank Regulators. Financiero shall not be subject to any cease and
desist order, written agreement or memorandum of understanding with, or be a
party to any commitment letter or similar undertaking to, or be subject to any
order or directive by, or is a recipient of any supervisory letter from, or have
adopted any board resolutions at the request of the Bank Regulators, which shall
continue in effect with respect to Eurobank following the Merger and
Eurobancshares shall have reasonable evidence satisfactory to it to that effect.
(p) Due Diligence. The completion by Eurobancshares of a due diligence
review of Financiero, satisfactory to Eurobancshares.
(q) Indemnification Rights. The officers and directors of Financiero shall
execute and deliver agreements substantially in the form of EXHIBIT 8.3(q)(A)
AND 8.3(q)(B) hereto pursuant to which they waive, any rights that they may have
against Financiero for indemnification against all liability, cost and expenses
resulting from their acts prior to the Effective Time (including the right to
receive advance payment of expenses in defending any suits, actions or
proceedings).
(r) Employment. Neither Eurobancshares nor Eurobank shall be obligated to
retain as an employee, consultant or otherwise any director, officer or employee
of Financiero, except for those listed in SCHEDULE 8.3(r).
(s) Payment of Taxes. Prior to the Calculation Date, Eurobancshares shall
have received evidence from the appropriate government authorities of payment of
all income, franchise, municipal license, real and personal property and other
taxes payable by Financiero for any period prior to the Effective Date
including, without limitation, any interest or penalties owed in connection
therewith or any settlement agreement relating to any of the foregoing.
(t) Timeshare Loans. Financiero shall have obtained that certain personal
guarantee for $500,000 relating to the financing provided by Financiero for that
certain project relating to timeshares at the Palmas del Mar Resort.
(u) Majority Shareholders. On the date hereof, Xxxxxxx Xxxxx, individually
and for all entities controlled by him, shall have entered into an agreement to
vote in favor of the Merger and to unconditionally release Financiero from any
claims arising directly or indirectly from, or in connection with, their
relationship with Financiero as shareholders, substantially in the form of
EXHIBIT 8.3(u) hereto (the "MAJORITY SHAREHOLDER AGREEMENT") and no later than
10 days after the date hereof, shareholders of Financiero owning in the
aggregate at least two-thirds of the outstanding common stock of Financiero
shall have executed and delivered to Eurobancshares Majority Shareholder
Agreements.
(v) Representation Letters. No later than the Calculation Date,
shareholders of Financiero representing not less than 80% of the outstanding
common stock of Financiero shall have executed and delivered to Eurobancshares
the representation letter contemplated by Section 1.2(a)(i) hereof.
(w) Principal Shareholders. No later than 10 days following the date hereof
each shareholder of Financiero listed on SCHEDULE 8.3(v) shall have entered into
an agreement to indemnify Eurobancshares and Eurobank for certain matters,
substantially in the form of EXHIBIT 8.1(v) hereto.
17 ARTICLE
18 TERMINATION, AMENDMENT AND WAIVER
18.1 TERMINATION. This Agreement may be terminated prior to the Effective Date:
(a) by mutual consent of Eurobancshares and Financiero;
(b) by either Eurobancshares or Financiero, if this Agreement and the
Merger are not duly approved by the stockholders of Financiero at the meeting of
stockholders (or any adjournment thereof) duly called and held for such purpose;
(c) by either Eurobancshares or Financiero, if the Effective Date is not on
or before November 30, 2002 (unless the failure to consummate the Merger by such
date shall be due to the action or failure to act of the party seeking to
terminate this Agreement in breach of such party's obligations under this
Agreement);
(d) by Eurobancshares, (i) if Financiero participates in negotiations with,
provides nonpublic information to, or enters into any agreement with another
party regarding an Acquisition Proposal, or (ii) if the Financiero Board fails
to
recommend to shareholders of Financiero approval (or withdraws its
recommendation of approval) of the Merger, or (iii) if the Financiero Board
modifies its recommendation of approval of the Merger in a way adverse to the
interests of Eurobancshares, or (iv) if there shall have occurred any breach of
either SECTION 7.5 OR SECTION 7.15 hereof;
(e) by Financiero, if (i) the Eurobancshares Board withdraws or modifies
its approval of the Merger in a way adverse to the interests of Financiero at a
time when Eurobanchshares would not be entitled to terminate this Agreement
pursuant to SECTION 9.1(f) or (ii) if there shall have occurred any breach of
SECTION 7.15 hereof;
(f) by Eurobancshares, if there shall have occurred any breach of any
representation, warranty, covenant or agreement of Financiero contained herein
that would result in the failure to satisfy the closing condition set forth in
SECTION 8.3(a) and such breach cannot be or has not been cured within 30 days
after the giving of a written notice to Financiero of such breach; or
(g) by Financiero, if there shall have occurred any breach of any
representation, warranty, covenant or agreement of Eurobancshares contained
herein that would result in the failure to satisfy the closing condition set
forth in SECTION 8.2(a) and such breach cannot be or has not been cured within
30 days after the giving of a written notice to Eurobancshares of such breach.
Any party desiring to terminate this Agreement shall give written
notice of such termination and the reasons therefor to the other party.
18.2 EFFECT OF TERMINATION. If this Agreement is terminated as permitted by
SECTION 9.1, such termination shall be without liability or obligation of any
party to the other party to this Agreement, except (a) as provided in SECTIONS
9.3 AND 10.6 and (b) that termination shall not relieve any party from liability
for any breach of this Agreement.
18.3 TERMINATION FEE.
(a) Financiero hereby agrees to pay to Eurobancshares, and Eurobancshares
shall be entitled to payment of, a fee of $50,000 if, by reason of (x) any
action by
Financiero described in clause (i) of SECTION 9.1(d), (y) a failure to recommend
by the Financiero Board described in clause (ii) of SECTION 9.1(d) or (z) a
modification by the Financiero Board described in clause (iii) of SECTION
9.1(d), Eurobancshares would have the right to terminate this Agreement pursuant
to clause (i), (ii) or (iii) of SECTION 9.1(d) at a time when Financiero would
not be entitled to terminate this Agreement pursuant to SECTION 9.1(g).
(b) Eurobancshares hereby agrees to pay to Financiero, and Financiero shall
be entitled to payment of, a fee of $50,000 if, by reason of a modification by
the Eurobancshares Board described in clause (i) of SECTION 9.1(e), Financiero
would have the right to terminate this Agreement pursuant to clause (i) of
SECTION 9.1(e) at a time when Eurobanchshares would not be entitled to terminate
this Agreement pursuant to SECTION 9.1(f).
18.4 AMENDMENT. This Agreement may be amended, but only by an instrument in
writing approved by the parties to this Agreement and signed on behalf of each
of the parties hereto. Notwithstanding anything to the contrary contained in
this Agreement, prior to the Effective Time, Eurobancshares shall (A) be
entitled to revise the structure of the Merger and related transactions;
provided that each of the transactions comprising such revised structure shall
(i) not subject any of the stockholders of Financiero to adverse tax
consequences or reduce the amount of consideration to be received by any such
stockholders and (ii) not result in any material delay of the consummation of
the transactions contemplated hereby. This Agreement and any related documents
shall be appropriately amended in order to reflect any such revised structure.
18.5 WAIVER. At any time prior to the Effective Date, either party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other party hereto or (b) waive compliance with any of the agreements of
the other party or with any conditions to its own obligations, in each case only
to the extent such obligations, agreements and conditions are intended for its
benefit. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party, but such extension or waiver or failure to insist on strict
compliance with an obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
19 ARTICLE
20 GENERAL PROVISIONS
20.1 PUBLIC STATEMENTS. Neither Financiero nor Eurobancshares shall make any
public announcement or statement with respect to the Merger, this Agreement or
any related transactions without the approval of the other party; provided,
however, that either Eurobancshares or Financiero may, upon reasonable notice to
the other party, make any public announcement or statement that it believes is
required by law or applicable regulations. To the extent practicable, each of
Eurobancshares and Financiero will consult with the other with respect to any
such public announcement or statement.
20.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be sufficiently given if made by hand delivery, by telecopier,
by overnight delivery service, or by registered or certified mail (postage
prepaid and return receipt requested) to the parties at the following addresses
(or at such other address for a party as shall be specified by it by like
notice):
if to Eurobancshares or Eurobank:
Eurobank
000 Xxxxx Xxxxxx Xxx
Xxx Xxxx, Xxxxxx Xxxx 00000-0000
Attention: Xxxxxx Xxxxxxxxx Xxxxxxx, Xx.
Telecopy: (000) 000-0000
with a copy to:
Xxxxxxxxxxx Mendez& Xxxxxxx, LLP
Banco Popular Center - Suite 1901
000 Xxxxx Xxxxxx Xxx.
Xxx Xxxx, Xxxxxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxx
Telecopy: (000) 000-0000
if to Financiero:
Banco Financiero de Puerto Rico
Mayor Street, corner Isabela Street
Xxxxx, Puerto Rico
Attention: Xxxxxxx X. Xxxxx
Telecopy: (000) 000-0000
with a copy to:
Xxxx Xxxxxxx, Xxxx Xxxxx, Asociados
Suite 300
000 Xxxxx xx Xxxx Xxx.
Xxxx Xxx, XX 00000
Attn: Xxxx Xxxx Xxxxxxx, Esq.
Telecopy: (000) 000-0000
All such notices and other communications shall be deemed to have been duly
given as follows: when delivered by hand, if personally delivered; on the fifth
business day after being deposited in the mail, postage prepaid, if delivered by
mail; when receipt acknowledged, if telecopied; and the next day after being
delivered to an overnight delivery service.
20.3 INTERPRETATION. When a reference is made in this Agreement to "previously
disclosed", it means disclosed in writing to the other party hereto, which
writing refers to the relevant Section of this Agreement. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. References to Sections and
Articles refer to Sections and Articles of this Agreement unless otherwise
stated. Words such as "herein", "hereinafter", "hereof", "hereto", "hereby" and
"hereunder", and words of like import, unless the context requires otherwise,
refer to this Agreement (including the Exhibits and Schedules hereto). As used
in this Agreement, the masculine, feminine and neuter genders shall be deemed to
include the others if the context requires.
20.4 SEVERABLE. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no
way be affected, impaired or invalidated, and the parties shall negotiate in
good faith to modify this Agreement and to preserve each party's anticipated
benefits under this Agreement.
20.5 MISCELLANEOUS. This Agreement (a) is not intended to, and shall not,
confer upon any person other than each party hereto any rights or remedies
hereunder, except as provided in SECTION 7.14(e); (b) shall be governed in all
respects, including validity, interpretation and effect, by the internal laws of
the Commonwealth applicable to agreements made and wholly to be performed in the
Commonwealth; and (c) shall not be assigned by operation of law or otherwise
(and any purported assignment shall be null and void). This Agreement may be
executed in two or more counterparts which together shall constitute a single
agreement.
20.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants (other than SECTIONS 1.2, 1.6, 7.12,
7.13, 7.15 AND 7.16) of the parties set forth herein shall not survive the
consummation of the Merger. In addition, if this Agreement is terminated
pursuant to Section 9.1, the covenants contained in SECTIONS 7.4 AND 7.7(c)
shall survive such termination.
20.7 SCHEDULES. The Schedules referred to in this Agreement shall be delivered
as of the date hereof under cover of a letter from the Chief Executive Officer
or Chief Financial Officer of Eurobancshares or Financiero (as the case may be).
Notwithstanding anything to the contrary contained herein, any Schedule
referenced in this Agreement shall be deemed to be have been delivered as of the
date hereof if (a) it is delivered or amended within ten business days of the
date hereof and (b) any matter or item contained in the Schedule or amendment to
the Schedule not disclosed to Eurobancshares prior to or on the date hereof does
not either alone or in combination with all other matters and items in the
Schedule, result in any representation, without giving effect to the Schedule or
amendment to the Schedule, being materially incorrect.
IN WITNESS WHEREOF, Eurobancshares, Eurobank and Financiero have caused
this Agreement to be executed on the date first written above by their
respective officers.
EUROBANCSHARES, INC.
By /s/ Xxxxxx Xxxxxxxxx Xxxxxxx, Xx.
----------------------------------
Name: Xxxxxx Xxxxxxxxx Xxxxxxx, Xx.
Title: President and Chief
Executive Officer
EUROBANK
By:
Name: Xxxxxx Xxxxxxxxx Xxxxxxx, Xx.
Title: President and Chief
Executive Officer
BANCO FINANCIERO DE PUERTO RICO
By /s/ Xxxxxxx X. Xxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chairman of the Board
