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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) April 13, 1998
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Susquehanna Bancshares, Inc.
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Pennsylvania 0-10674 23-2201716
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
26 North Cedar Street, Lititz, Pennsylvania 17543
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (717) 626-4721
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Not Applicable
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(Former Name or Address, if Changed Since Last Report)
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Item 5. Other Events.
On April 13, 1998, Susquehanna Bancshares, Inc. (herein referred to as "SBI" or
the "Registrant"), a Pennsylvania business corporation registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"), entered into an Agreement and Plan of Affiliation with Susquehanna
Bancshares West, Inc. ("SBI West"), a Pennsylvania corporation and a wholly-
owned subsidiary of SBI, Cardinal Bancorp, Inc. ("Cardinal"), a Pennsylvania
corporation registered as a bank holding company under the BHC Act, and First
American National Bank of Pennsylvania ("FANBP"), a national banking association
and a wholly-owned subsidiary of Cardinal (the "Cardinal Merger Agreement"). On
April 16, 1998, SBI entered into an Agreement and Plan of Affiliation with
Susquehanna Interim Bank ("SBI Interim Bank"), a Pennsylvania state-chartered
bank and a wholly-owned subsidiary of SBI, and First Capitol Bank ("First
Capitol"), a Pennsylvania state-chartered bank (the "First Capitol Merger
Agreement"). A copy of each of the Cardinal Merger Agreement and the First
Capitol Merger Agreement, as well as a copy of each of the Press Release
announcing the execution of the Cardinal Merger Agreement and the Press Release
announcing the execution of the First Capitol Merger Agreement, are filed as
exhibits to this Current Report on Form 8-K.
1. Cardinal Merger Agreement. The following is a summary of the terms and
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conditions of the Cardinal Merger Agreement and the merger described therein
(the "Cardinal Merger"). This summary is qualified in its entirety by reference
to the full text of the Cardinal Merger Agreement which is filed as an exhibit
to this Current Report on Form 8-K.
General.
Pursuant to the Cardinal Merger Agreement, SBI West will merge with and
into Cardinal, with Cardinal as the surviving entity (sometimes referred to as
the "Surviving Corporation"), as a result of which Cardinal will become a direct
wholly-owned subsidiary of SBI, and FANBP will become a second-tier subsidiary
of SBI. The name of the Surviving Corporation will be "Susquehanna Bancshares
West, Inc."
At the effective time of the Cardinal Merger (the "Cardinal Effective
Time), (i) the articles of incorporation and bylaws of SBI West in effect
immediately prior to the Cardinal Effective Time will be the articles of
incorporation and bylaws of the Surviving Corporation, and (ii) the directors
and officers of SBI West immediately prior to the Cardinal Effective Time will
be the directors and officers of the Surviving Corporation. At and immediately
following the Cardinal Effective Time, the directors of FANBP shall consist of
(a) the persons who were the directors of FANBP immediately prior to the
Cardinal Effective Time, and (b) up to two other persons who shall be
recommended for appointment by SBI, who shall be reasonably acceptable to the
FANBP board and elected to the FANBP board, effective at the Cardinal Closing
(as defined below), to hold office until the next annual meeting of FANBP.
Additionally, the board of directors of SBI shall elect one person, nominated by
the Cardinal board of directors and acceptable to the SBI board in its
reasonable discretion, to become a member of the SBI board of directors on the
Cardinal Effective Date. The Cardinal Merger Agreement further provides that
the President and Chief Executive Officer of SBI propose to the SBI board of
directors that the board adopt resolutions providing that upon expiration of
the initial term of the person from the Cardinal board elected to the board of
directors of SBI, the board of directors of SBI shall nominate and recommend to
the shareholders of SBI, at the subsequent SBI annual meeting of shareholders,
the election to the board of directors of SBI a member of the board of directors
of FANBP who meets the eligibility requirements for directors of SBI, such
person to be proposed by the FANBP board and agreed to by SBI, which agreement
shall not be unreasonably withheld. Such a resolution was proposed and adopted
by the SBI board on April 15, 1998.
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Cardinal Exchange Ratio; Exchange.
As consideration for all of the outstanding capital stock of Cardinal, SBI
has agreed to exchange the outstanding Cardinal common stock, par value $.50 per
share (the "Cardinal Common Stock"), for common stock of SBI, par value $2.00
per share (the "SBI Common Stock"), at the exchange rate (the "Cardinal Exchange
Ratio") provided in the Cardinal Merger Agreement.
At the Cardinal Effective Time, each share of Cardinal Common Stock issued
and outstanding (other than shares the holders of which are exercising appraisal
rights pursuant to the Pennsylvania Business Corporation Law of 1988, as amended
(the "BCL") and shares held by SBI other than shares held in a fiduciary
capacity or in satisfaction of a debt previously contracted) shall become and be
converted into the right to receive shares of SBI Common Stock determined in
conformity with the Cardinal Exchange Ratio, as set forth below:
(i) So long as the Average Price Per Share of SBI Common Stock Before
the Cardinal Closing (as herein defined) is between or including $34.00 and
$40.00, then 1.28 shares of SBI Common Stock (the "Cardinal Merger
Consideration") shall be exchanged for each of the outstanding shares of
Cardinal Common Stock and the Cardinal Exchange Ratio shall be 1.28. The
Average Price Per Share of SBI Common Stock Before the Cardinal Closing
(the "Average Closing Price") will be determined by adding the price at
which SBI Common Stock is reported to have closed by NASDAQ's NMS (or if
SBI Common Stock is not quoted on NASDAQ's NMS then as reported by a
recognized source as to the principal trading market on which such shares
are traded) over the period of ten business days ending on the second
business day preceding the date set for the Cardinal Closing, and dividing
such total by ten.
(ii) If the Average Closing Price is greater than $40.00, then
$50,688,000 divided by the Average Closing Price shall be the total number
of shares of SBI Common Stock to be exchanged for all of the outstanding
Cardinal Common Stock, and the Cardinal Exchange Ratio shall be the total
number of shares of SBI Common Stock to be exchanged for all of the
outstanding Cardinal Common Stock divided by the total number of shares of
Cardinal Common Stock outstanding on the Cardinal Effective Date (defined
as the day on which the Cardinal Effective Time for the merger occurs).
Notwithstanding the foregoing, Cardinal may terminate the Cardinal Merger
Agreement upon written notice within one business day of such determination
if the Average Closing Price is greater than $40.00.
(iii) If the Average Closing Price is less than $34.00, then $43,085,000
divided by the Average Closing Price shall equal the total number of shares
of SBI Common Stock to be exchanged for all of the outstanding Cardinal
Common Stock, and the Cardinal Exchange Ratio shall be the total number of
shares of SBI Common Stock to be exchanged for all of the outstanding
Cardinal Common Stock divided by the total number of shares of Cardinal
Common Stock outstanding on the Cardinal Effective Date. Notwithstanding
the foregoing, SBI may terminate the Cardinal Merger Agreement upon written
notice within one business day of such determination if the Average Closing
Price is less than $34.00.
As of the Cardinal Effective Time, each share of Cardinal Common Stock held
by SBI, other than shares held in a fiduciary capacity or in satisfaction of a
debt previously contracted, will be canceled, and no exchange or payment will
be made with respect thereto.
The shares of common stock of SBI West and FANBP issued and outstanding
immediately prior to the Cardinal Effective Time shall remain outstanding and
unchanged after the merger, and shall thereafter constitute all of the issued
and outstanding shares of the capital stock of the Surviving
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Corporation and FANBP, respectively. At such time, all of the capital stock of
FANBP will be owned by the Surviving Corporation and all of the shares of the
Surviving Corporation will be owned by SBI.
If prior to the Cardinal Effective Time, the outstanding shares of SBI
Common Stock are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities through a reclassification, stock
dividend, stock split or reverse stock split, or other similar change, the
Cardinal Exchange Ratio will be adjusted so that each Cardinal shareholder shall
be entitled to receive such number of shares of SBI Common Stock as he or she
would have been entitled to receive if the Cardinal Effective Time had occurred
prior to the happening of such event.
Within five business days after the Cardinal Effective Time, SBI shall
cause to be sent to each person who immediately prior to the Cardinal Effective
Time was a holder of record of Cardinal Common Stock, transmittal materials and
instructions for surrendering certificates for Cardinal Common Stock in exchange
for the number of whole shares of SBI Common Stock to which such person is
entitled pursuant to the Cardinal Exchange Ratio.
No certificates for fractional shares of SBI Common Stock will be issued;
rather, SBI will furnish to any holder of Cardinal Common Stock entitled to a
fractional share a check for an amount of cash equal to the fraction of a share
of SBI Common Stock represented by the certificates so surrendered in accordance
with the Cardinal Exchange Ratio.
Cardinal Stock Option Agreement.
Concurrently with the execution and delivery of the Cardinal Merger
Agreement, as a condition and an inducement to SBI's willingness to enter into
the agreement, Cardinal, SBI and SBI West entered into a Stock Option Agreement
dated April 13, 1998 (the "Cardinal Stock Option Agreement"), granting SBI an
irrevocable option (the "Cardinal Option") to purchase from Cardinal up to that
number of shares of Cardinal Common Stock as shall equal 15% of Cardinal's
shares of common stock outstanding immediately prior to the purchase, at a
purchase price that is the average price per share of Cardinal Common Stock
during the five trading days immediately preceding the date of execution of the
Cardinal Merger Agreement. The Cardinal Option may be exercised by SBI, in
whole or in part, at any time or from time to time after the date of the
Cardinal Stock Option Agreement and prior to earlier to occur of (i) the
Cardinal Effective Time, or (ii) upon a Purchase Event (as defined below), the
date six months following the event, provided that if an exercise notice has
been given on or before the expiration of such six month period and the Cardinal
Option cannot be exercised on such day because of an injunction or similar court
order, the Cardinal Option shall expire on the tenth business day after such
injunction or order has been dismissed or withdrawn.
Under the Cardinal Stock Option Agreement, a Purchase Event means any of
the following: (i) any person (other than SBI or a subsidiary of SBI) shall
have commenced a tender offer or an exchange offer to purchase Cardinal Common
Stock such that, upon consummation of such offer, the person could own or
control ten percent or more of the outstanding Cardinal Common Stock; (ii)
Cardinal shall have authorized, recommended, proposed or announced an intention
to authorize, recommend or propose, or entered into, an agreement with any
person (other than SBI or a subsidiary of SBI) to (a) merge or consolidate with
Cardinal or enter into a similar truncation, (b) sell, lease or otherwise
dispose of all or substantially all of the assets of Cardinal to such person, or
(c) sell or otherwise dispose of securities representing ten percent or more of
the voting power of Cardinal, and as to (a), (b) and (c), the same shall have
been scheduled by Cardinal to close within 365 calendar days following the date
of termination of the Cardinal Merger Agreement; or (iii) any person (other than
SBI or a subsidiary of SBI) shall have acquired beneficial ownership (as such
term is defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the
"Exchange Act") or the right to acquire beneficial ownership, or a new group has
been formed which beneficially owns, ten percent or more of the outstanding
Cardinal Common Stock.
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The Cardinal Stock Option Agreement also grants SBI certain option share
appreciation rights upon a Purchase Event, if requested by SBI and the Cardinal
Stock Option Agreement has not expired. Upon such a request, Cardinal must pay
to SBI an amount equal to the product of (i) the excess, if any of, (a) the
greater of (A) the highest price paid or proposed to be paid in connection with
such Purchase Event for any shares of Cardinal Common Stock and (B) the
aggregate consideration paid or proposed to be paid in connection with such
Purchase Event divided by the number of shares of Cardinal Common Stock then
outstanding, over (b) the purchase price, multiplied by (ii) the total number of
Cardinal Option shares as to which the Cardinal Option has not yet been
exercised. If such appreciation rights are paid to SBI, all other rights of SBI
under the Cardinal Stock Option Agreement shall be extinguished (but the rights
of SBI under the Cardinal Merger Agreement shall not be affected).
Cardinal Options.
At the Cardinal Effective Time, all options outstanding and disclosed to
SBI in accordance with the terms of the Cardinal Merger Agreement (individually
a "Cardinal Option" and collectively, the "Cardinal Options") shall remain
outstanding following the Cardinal Effective Time for the remainder of their
terms and in accordance with the terms of the respective Cardinal Options. At
the Cardinal Effective Time, the Cardinal Options shall, by virtue of the
Cardinal Merger and without any action on the part of Cardinal or the holder of
any of the Cardinal Options, whether the same shall be vested or exercisable, be
assumed by SBI and constitute an option to acquire, on the same terms and
conditions as were applicable under such assumed Cardinal Options, a number of
shares of SBI Common Stock equal to the product of the Cardinal Exchange Ratio
and the number of shares of Cardinal Common Stock subject to such Cardinal
Options. The option exercise price per share of SBI Common Stock shall be equal
to the option exercise price per share of Cardinal Common Stock divided by the
Cardinal Exchange Ratio (the option price per share, as so determined, being
rounded upward to the nearest full cent). From and after the date of the
Cardinal Merger Agreement, no additional options of any kind shall be granted by
Cardinal, or any or its respective subsidiaries, under any plan, arrangement,
agreement or program whatsoever.
Dividends.
The Cardinal Merger Agreement provides that Cardinal shall not declare, pay
or set aside any dividend or other distribution in respect of its capital stock
except in conformity with past practice as to the amount and timing of such
dividends, with increases in conformity with past practices.
Closing; Effective Date; Termination.
The Cardinal Merger Agreement provides that the closing (the "Cardinal
Closing") will occur at such time and place as shall be agreed upon by the
parties, but no later than the 30th business day after (i) the last approval of
required governmental authorities is granted and any related waiting periods
expire, (ii) the lifting, discharge or dismissal of any stay of any such
governmental approval or of any injunction against the Cardinal Merger, and
(iii) all shareholder approvals required by the parties pursuant to the Cardinal
Merger Agreement are received. The Cardinal Merger, and the transactions
described by the Cardinal Merger Agreement, will become effective at 11:59 p.m.
on the day the articles of merger (the "Cardinal Articles of Merger") are filed
with the Department of State of the Commonwealth of Pennsylvania (the
"Department of State"). The presentation of the certificate for acceptance and
filing is subject to the rights of the boards of directors of SBI and Cardinal
to terminate the Cardinal Merger Agreement under certain circumstances.
The Cardinal Merger Agreement provides that, whether before or after its
approval by the shareholders of Cardinal, it may be terminated and the
transactions contemplated in the Cardinal Merger Agreement abandoned at any time
prior to the Cardinal Effective Date (i) by the mutual, written consent of SBI
and Cardinal, if the board of directors of each so determines by majority vote
of the members of the entire board; (ii) by Cardinal in the event (a) of a
material breach by SBI of any
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representation, warranty, covenant or agreement contained in the Cardinal Merger
Agreement which is not cured within 30 days after written notice of such breach
is given to SBI by Cardinal or (b) by written notice to SBI that any condition
precedent to Cardinal's obligations as set forth in the Article V of the
Cardinal Merger Agreement has not been met or waived by Cardinal at such time as
such condition can no longer be satisfied, or (c) the board of directors of
Cardinal fails to make, withdraws or modifies or changes the favorable
recommendation described at Section 4.2 of the Cardinal Merger Agreement or (d)
the board of directors of Cardinal recommends to the shareholders of Cardinal
that an Acquisition Proposal (as defined in the Cardinal Merger Agreement) is
likely to be more favorable, from a financial point of view, to the shareholders
of Cardinal than the Cardinal Merger; (iii) by SBI in the event (a) of a
material breach by Cardinal or FANBP of any representation, warranty, covenant
or agreement contained in the Cardinal Merger Agreement which is not cured
within 30 days after written notice of such breach is given to Cardinal by SBI
or (b) any condition precedent to SBI's obligations as set forth in Article V of
the Cardinal Merger Agreement has not been met or waived by SBI at such time as
such condition can no longer be satisfied; (iv) by Cardinal, by giving written
notice of such election to SBI within one business day following a determination
that the Average Closing Price is greater than $40.00 per share at the time such
calculation is required to be made pursuant to the Cardinal Merger Agreement;
(v) by SBI, if it chooses to give written notice of such election within one
business day following a determination that the Average Closing Price is less
than $34.00 per share; or (vi) by SBI or Cardinal if the Cardinal Merger and the
transactions described in the Cardinal Merger Agreement are not consummated by
December 31, 1998, unless the parties agree to extend the time by which such
closing must occur.
Waiver; Amendment.
Prior to the Cardinal Effective Time, any provision of the Cardinal Merger
Agreement may be (i) waived by the party benefited by the provision, or (ii)
amended or modified at any time (including the structure of the transaction) by
an agreement in writing between the parties approved by their respective boards
of directors, except that no amendment or waiver may be made that would change
the form or the amount of the Cardinal Merger Consideration or otherwise have
the effect of prejudicing the Cardinal shareholders' interest in the Cardinal
Merger Consideration following the Cardinal Shareholders' Meeting (as defined in
the Cardinal Merger Agreement).
Conditions Precedent.
In addition to the approval by the Cardinal shareholders, the Cardinal
Merger is contingent upon the satisfaction of a number of conditions, including,
among others, (i) all required approvals, consents, or waivers, including
without limitation, approval by the Board of Governors of the Federal Reserve
System and the Pennsylvania Department of Banking (the "Department of Banking"),
and all applicable statutory waiting periods shall have expired except those
approvals for which failure to obtain would not, individually or in the
aggregate, have a Materially Adverse Effect (as defined in the Cardinal Merger
Agreement) on SBI, SBI West, Cardinal or FANBP; (ii) all other requirements
prescribe by law which are necessary to the consummation of the transactions
contemplated by the Cardinal Merger Agreement shall have been satisfied; (iii)
the absence of any order, decree or injunction of a court or agency of competent
jurisdiction which would enjoin or prohibit the consummation of the Cardinal
Merger, or any litigation or proceeding pending against SBI or Cardinal or their
subsidiaries by any governmental agency seeking to prevent consummation of the
transactions described in the Cardinal Merger Agreement; (iv) the absence of any
statute, rule, regulation, order, injunction or decree enacted, entered,
promulgated or enforced by any governmental authority which would prohibit,
restrict or make illegal consummation of the Cardinal Merger; (v) the Cardinal
Merger shall meet the requirements for pooling-of-interests accounting treatment
under generally accepted accounting principles and under the accounting rules of
the Securities and Exchange Commissions (the "SEC"), (vi) the Registration
Statement (as defined in the Cardinal Merger Agreement) shall have been filed by
SBI with the SEC under the Securities Act of 1933 (the "Securities Act") and
shall have been declared effective prior to the time the Proxy
Statement/Prospectus (as defined in the Cardinal Merger Agreement) is first
mailed to the shareholders of Cardinal, and no stop order with respect to the
effectiveness of the Registration Statement
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shall have been issued, and the SBI Common Stock to be issued pursuant to the
Cardinal Merger Agreement shall have been registered or qualified under the
securities or "blue sky" laws in all states in which such action is required;
(vii) a ruling from the Internal Revenue Service, or an opinion of counsel of
Morgan, Lewis & Bockius LLP, regarding the tax consequences of the Cardinal
Merger, shall have been delivered in accordance with the terms of the Cardinal
Merger Agreement; and (viii) the existing employment contract between Cardinal
and FANBP, on the one side, and Merle W. Helsel, on the other side, shall have
been canceled and Mr. Helsel shall have entered into an agreement with SBI in
accordance with the terms of the Cardinal Merger Agreement.
Additionally, the obligations of SBI and SBI West to effect the Cardinal
Merger are subject to satisfaction of the following conditions prior to the
Cardinal Effective Time: (i) each of the representations and warranties of
Cardinal and FANBP contained in the Cardinal Merger Agreement shall be true and
correct in all material respects, each of Cardinal and FANBP shall have
performed each of the covenants and agreements material to its operations and
prospects contained in the Cardinal Merger Agreement, and certificates to such
effect shall have been delivered to SBI and SBI West; (ii) S.R. Snodgrass, A.C.,
or such other accounting firm as is acceptable to the parties, shall have
furnished to SBI an "agreed upon procedures" letter dated the Cardinal
Effective Date, in form and substance satisfactory to SBI to the effect that,
based upon a procedure performed with respect to the financial condition of
Cardinal, FANBP and affiliates, for a period from December 31, 1997 to a
specified date not more than five days prior to such letter, nothing has come to
their attention that would indicate that there has been a change in the
capitalization of Cardinal or FANBP on a consolidated basis, or any material
adjustments would be required to the audited financial statements for the period
ended December 31, 1997 in order for them to be in conformity with generally
accepted accounting principles applied on a consistent basis with that of prior
periods; (iii) an opinion of counsel of Shumaker William's, P.C., special
counsel to Cardinal and FANBP, shall have been delivered to SBI; (iv) there
shall not have occurred any change in the financial condition, properties,
assets, business or results of operation of Cardinal or FANBP which,
individually or in the aggregate, has had or might reasonably be expected to
result in a Material Adverse Effect on Cardinal or FANBP other than changes
resulting from changes in banking laws or regulations or changes in generally
accepted accounting principles, or interpretations thereof, that affect the
banking or thrift industries; (v) SBI shall have received from each person
identified by Cardinal to be an affiliate of Cardinal an executed counterpart of
an affiliates agreement in the form contemplated by the Cardinal Merger
Agreement; and (vi) except as otherwise provided in the Cardinal Merger
Agreement, all issued and outstanding options, warrants or rights to acquire
Cardinal Common Stock or any capital stock of FANBP shall have been canceled.
The obligations of Cardinal and FANBP to effect the Cardinal Merger are
subject to satisfaction of the following conditions prior to the Cardinal
Effective Time: (i) each of the representations and warranties of SBI and SBI
West contained in the Cardinal Merger Agreement shall be true and correct in all
material respects, each of SBI and SBI West shall have performed each of the
covenants and agreements material to its operations and prospects contained in
the Cardinal Merger Agreement, and certificates to such effect shall have been
delivered to Cardinal; (ii) an opinion of counsel of Morgan, Lewis & Bockius,
LLP, counsel to SBI and SBI West, shall have been delivered to Cardinal; (iii)
there shall not have occurred any change in the financial condition, properties,
assets, business or results of operation of SBI or SBI West, which individually
or in the aggregate, had or might reasonably be expected to result in a Material
Adverse Effect on SBI or the SBI Subsidiaries (as defined in the Cardinal Merger
Agreement) taken as a whole; (iv) Cardinal shall have received an updated
opinion from Garland McPherson & Associates, Inc. dated as of a date no later
than the date of the Proxy Statement/Prospectus mailed to the Cardinal
shareholders in connection with the Cardinal Merger and not subsequently
withdrawn, to the effect that the Cardinal Merger Consideration is fair to
Cardinal's shareholders from a financial point of view; (v) the shares of SBI
Common Stock to be issued in the Cardinal Merger shall have been authorized to
be listed for quotation on NASDAQ's NMS; (vi) a certificate for the required
number of whole shares of the SBI Common Stock, as determined in accordance with
Section 1.2 and Schedule 1.2 of the Cardinal Merger Agreement, and cash payable
for the fractional shares interests, shall have irrevocably been delivered to
Farmers First Bank, as Exchange Agent; (vii) no transaction or event involving
SBI shall
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have occurred that would result in (A) a material change to the nature of the
securities described in SBI's articles of incorporation as amended at SBI's 1998
annual meeting of shareholders, (B) a change in the identity of the legal entity
of the issuer of the securities to be issued in the Cardinal Merger to holders
of Cardinal Common Stock, or (C) SBI's ceasing to own a Material Subsidiary (as
defined in the Cardinal Merger Agreement) accounting for 10% or more of SBI's
total assets, provided SBI shall be permitted to reorganize or merge its
Material Subsidiaries in any manner whatsoever within its bank holding company
system; and (viii) the side letter (the "Side Letter") required by the Cardinal
Merger Agreement shall have been executed. The Side Letter generally provides
that (a) the current employees of FANBP will be retained after the Cardinal
Merger in substantially the same positions and at current salary levels, subject
to the ongoing needs of FANBP, or any successor, and changes in the future as
may be appropriate, as determined by its governing body, and (b) SBI shall
continue the separate corporate existence of FANBP as an operating subsidiary of
SBI or a subsidiary of SBI until at least December 31, 2000, unless a majority
of the continuing FANBP directors agree otherwise or an applicable regulatory
agency recommends otherwise.
Representations and Warranties.
The representations and warranties of SBI, SBI West, Cardinal and FANBP are
set forth in Article III of the Cardinal Merger Agreement. The representations
and warranties relate, among other things, to representations as to corporate
existence and authority and the ability of each party to carry out the
transactions as contemplated by the Cardinal Merger Agreement; capitalization;
subsidiaries; no violations of law; regulatory reports and financial statements;
the absence of certain changes or events; the absence of material litigation not
otherwise disclosed; the absence of regulatory actions; labor and employee
benefits matters; environmental matters; board action; fees; compliance with
laws; taxes; material contracts and agreements; regulatory and capital
compliance; fully paid assessments; Year 2000 compliance except as otherwise
disclosed; and information to be provided in the Proxy Statement/Prospectus.
Cardinal and FANBP have made additional representations as to the status of
title to assets; the adequacy of allowances for losses on loans; the
inapplicability of certain anti-takeover provisions, the material interests of
certain persons; insurance; dividends; books and records; fairness opinions;
fidelity bonds; the condition of tangible assets; and loans by FANBP. On the
Cardinal Effective Date, SBI, Cardinal and FANBP must each present to the other
certificates evidencing the continued accuracy of the representations and
warranties.
Dissenters' Rights.
In accordance with the provisions of Section 1571 et seq. of the BCL and
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applicable law, the Cardinal shareholders are entitled to exercise dissenters'
rights in connection with the Cardinal Merger.
Expenses.
If the Cardinal Merger Agreement is terminated, in accordance with the
terms of the agreement: (i) by the mutual, written consent of Cardinal and SBI;
(ii) by Cardinal or SBI in the event the Cardinal Merger is not consummated by
December 31, 1998; (iii) by Cardinal if the Average Closing Price is greater
than $40.00 per share; or (iv) by SBI if the Average Closing Price is less than
$34.00 per share, it shall be without cost, expense or liability on the part of
any party to the other party and the Cardinal Stock Option Agreement shall be
null and void. If the Cardinal Merger Agreement is terminated by reason of the
board of directors of Cardinal failing to make, withdrawing, modifying or
changing its favorable recommendation described at Section 4.2 of the Cardinal
Merger Agreement, other than as a result of a Material Adverse Change in SBI's
financial condition, properties, assets, liabilities, business or results of
operation and other than as a result of the failure of Cardinal's financial
advisor to update its fairness opinion, Cardinal must pay to SBI, within two
business days after the termination, a fee of one percent of the aggregate
consideration that would be paid if the date of termination were the Cardinal
Effective Date. In all other instances, termination of the agreement shall be
without cost, liability or expense on the part of any party to the other
parties, unless the breach of a representation, warranty or covenant is caused
by the
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willful conduct or gross negligence of the party, in which event such party will
be liable to the other parties for all out-of-pocket costs and expenses.
2. First Capitol Merger Agreement. The following is a summary of the terms and
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conditions of the First Capitol Merger Agreement and the merger described
therein (the "First Capitol Merger"). This summary is qualified in its entirety
by reference to the full text of the First Capitol Merger Agreement which is
filed as an exhibit to this Current Report on Form 8-K.
General.
Pursuant to the First Capitol Merger Agreement, SBI Interim Bank will
merge with and into First Capitol, with First Capitol as the surviving entity
(sometimes referred to as the "Surviving Bank"), as a result of which First
Capitol will become a direct wholly-owned subsidiary of SBI. The name of the
Surviving Bank will be "First Capitol Bank."
At the effective time of the First Capitol Merger (the "First Capitol
Effective Time), (i) the articles of incorporation and bylaws of SBI Interim
Bank in effect immediately prior to the First Capitol Effective Time will be the
articles of incorporation and bylaws of the Surviving Bank, and (ii) the
directors and officers of First Capitol immediately prior to the First Capitol
Effective Time will be the directors and officers of the Surviving Bank with
such additions or deletions to which senior management of SBI and First Capitol
shall mutually agree. Additionally, at the meeting of the SBI board of
directors next following the First Capitol Effective Time, Owen O. Freeman, Jr.,
shall become a director of SBI.
First Capitol Exchange Ratio; Exchange.
As consideration for all of the outstanding capital stock of First
Capitol, SBI has agreed to exchange the outstanding First Capitol common stock,
par value $10.00 per share (the "First Capitol Common Stock"), for common stock
of SBI, par value $2.00 per share (the "SBI Common Stock"), at the exchange rate
(the "First Capitol Exchange Ratio") provided in the First Capitol Merger
Agreement.
At the First Capitol Effective Time, each share of First Capitol Common
Stock issued and outstanding (other than shares the holders of which are
exercising appraisal rights pursuant to the BCL and shares held by SBI other
than shares held in a fiduciary capacity or in satisfaction of a debt previously
contracted) shall become and be converted into the right to receive shares of
SBI Common Stock determined in conformity with the First Capitol Exchange Ratio,
as set forth below:
(i) So long as the Average Price Per Share of SBI Common Stock Before
the First Capitol Closing (as herein defined) is between or including
$32.00 and $42.00, then 1.352 shares of SBI Common Stock (the "First
Capitol Merger Consideration") shall be exchanged for each of the
outstanding shares of First Capitol Common Stock and the First Capitol
Exchange Ratio shall be 1.352. The Average Price Per Share of SBI
Common Stock Before the First Capitol Closing (the "Average Closing
Price") will be determined by adding the price at which SBI Common
Stock is reported to have closed by NASDAQ's NMS (or if SBI Common
Stock is not quoted on NASDAQ's NMS then as reported by a recognized
source as to the principal trading market on which such shares are
traded) over the period of ten business days ending on the second
business day preceding the date set for the First Capitol Closing, and
dividing such total by ten.
(ii) If the Average Closing Price is greater than $42.00, then
28,729,000 divided by the Average Closing Price shall be the total
number of shares of SBI Common Stock to be exchanged for all of the
outstanding First Capitol Common Stock, and the First Capitol Exchange
Ratio shall be the total number of shares of SBI Common Stock to be
exchanged for all of the outstanding First Capitol Common Stock divided
by the total
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<PAGE>
number of shares of First Capitol Common Stock outstanding on the First
Capitol Effective Date (defined as the day on which the First Capitol
Effective Time for the merger occurs). Notwithstanding the foregoing,
First Capitol may terminate the First Capitol Merger Agreement upon
written notice within one business day of such determination if the
Average Closing Price is greater than $42.00.
(iii) If the Average Closing Price is less than $32.00, then
21,889,000 divided by the Average Closing Price shall equal the total
number of shares of SBI Common Stock to be exchanged for all of the
outstanding First Capitol Common Stock, and the First Capitol Exchange
Ratio shall be the total number of shares of SBI Common Stock to be
exchanged for all of the outstanding First Capitol Common Stock divided
by the total number of shares of First Capitol Common Stock outstanding
on the First Capitol Effective Date. Notwithstanding the foregoing, SBI
may terminate the First Capitol Merger Agreement upon written notice
within one business day of such determination if the Average Closing
Price is less than $32.00.
As of the First Capitol Effective Time, each share of First Capitol
Common Stock held by SBI, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted, will be canceled, and no exchange
or payment will be made with respect thereto.
The shares of common stock of SBI Interim Bank issued and outstanding
immediately prior to the First Capitol Effective Time shall remain outstanding
and unchanged after the merger, and shall thereafter constitute all of the
issued and outstanding shares of the capital stock of the Surviving Bank.
If prior to the First Capitol Effective Time, the outstanding shares of
SBI Common Stock are increased or decreased through a reclassification, stock
dividend, stock split or reverse stock split, or other similar change,
appropriate adjustment will be made to the First Capitol Exchange Ratio.
Within five business days after the First Capitol Effective Time, SBI
shall cause to be sent to each person who immediately prior to the First Capitol
Effective Time was a holder of record of First Capitol Common Stock, transmittal
materials and instructions for surrendering certificates for First Capitol
Common Stock in exchange for the number of whole shares of SBI Common Stock to
which such person is entitled pursuant to the First Capitol Exchange Ratio.
No certificates for fractional shares of SBI Common Stock will be
issued; rather, SBI will furnish to any holder of First Capitol Common Stock
entitled to a fractional share a check for an amount of cash equal to the
fraction of a share of SBI Common Stock represented by the certificates so
surrendered in accordance with the First Capitol Exchange Ratio.
First Capitol Stock Option Agreement.
Concurrently with the execution and delivery of the First Capitol
Merger Agreement, as a condition and an inducement to SBI's and SBI Interim
Bank's willingness to enter into the agreement, First Capitol, SBI and SBI
Interim Bank entered into a Stock Option Agreement dated April 16, 1998 (the
"First Capitol Stock Option Agreement"), granting SBI an irrevocable option (the
"First Capitol Option") to purchase from First Capitol up to 100,681 shares of
First Capitol Common Stock, at a purchase price per share of 95% of the average
price per share of First Capitol Common Stock during the 30 trading days
immediately preceding the day prior to the announcement of a Purchase Event (as
herein defined). The First Capitol Option may be exercised by SBI, in whole or
in part, at any time or from time to time after the date of the First Capitol
Stock Option Agreement and prior to earlier to occur of (i) the First Capitol
Effective Time, or (ii) upon a Purchase Event (as defined below), the date six
months following the event, provided that if an exercise notice has been given
on or before the expiration of such six month period and the First Capitol
Option cannot be exercised on such day because of an injunction or similar court
order,
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<PAGE>
the First Capitol Option shall expire on the tenth business day after such
injunction or order has been dismissed or withdrawn.
Under the First Capitol Stock Option Agreement, a Purchase Event means
any of the following: (i) any person (other than SBI or a subsidiary of SBI)
shall have commenced a tender offer or an exchange offer to purchase First
Capitol Common Stock such that, upon consummation of such offer, the person
could own or control ten percent or more of the outstanding First Capitol Common
Stock; (ii) First Capitol shall have authorized, recommended, proposed or
announced an intention to authorize, recommend or propose, or entered into, an
agreement with any person (other than SBI or a subsidiary of SBI) to (a) merge
or consolidate with First Capitol or enter into a similar truncation, (b) sell,
lease or otherwise dispose of all or substantially all of the assets of First
Capitol to such person, or (c) sell or otherwise dispose of securities
representing ten percent or more of the voting power of First Capitol, and as to
(a), (b) and (c), the same shall have been scheduled by First Capitol to close
within 365 calendar days following the date of termination of the First Capitol
Merger Agreement; (iii) any person (other than SBI or a subsidiary of SBI) shall
have acquired beneficial ownership (as such term is defined in Rule 13d-3 under
the Exchange Act or the right to acquire beneficial ownership, or a new group
has been formed which beneficially owns, ten percent or more of the outstanding
First Capitol Common Stock; or (iv) the shareholders of First Capitol shall have
disapproved the First Capitol Merger after any person (other than SBI or a
subsidiary of SBI) shall have publicly announced a proposal to acquire First
Capitol by merger, consolidation, purchase of all or substantially all of its
assets or any other similar transaction, and the same shall have been scheduled
by First Capitol to close within 365 calendar days following the date of
termination of the First Capitol Merger.
The First Capitol Stock Option Agreement also grants SBI certain option
share appreciation rights upon a Purchase Event, if requested by SBI and the
First Capitol Stock Option Agreement has not expired. Upon such a request,
First Capitol must pay to SBI an amount equal to the product of (i) the excess,
if any of, (a) the greater of (A) the highest price paid or proposed to be paid
in connection with such Purchase Event for any shares of First Capitol Common
Stock and (B) the aggregate consideration paid or proposed to be paid in
connection with such Purchase Event divided by the number of shares of First
Capitol Common Stock then outstanding, over (b) the purchase price, multiplied
by (ii) the total number of First Capitol Option shares as to which the First
Capitol Option has not yet been exercised. If such appreciation rights are paid
to SBI, all other rights of SBI under the First Capitol Stock Option Agreement
shall be extinguished (but the rights of SBI under the First Capitol Merger
Agreement shall not be affected).
Warrant Substitution Agreement.
Concomitant with the execution of the First Capitol Merger Agreement,
First Capitol, National Penn Investment Company ("National Penn") and David A.
Friedman ("Friedman") executed a Warrant Substitution Agreement, dated April 16,
1998 (the "Warrant Substitution Agreement"). Pursuant to the agreement, Friedman
agreed to forbear from exercising his warrants to acquire 11, 250 shares of
First Capitol Common Stock (the "Friedman Warrant") until the earliest to occur
of (i) termination of the First Capitol Merger Agreement for a reason other than
the First Capitol Closing (as defined below); (ii) December 10, 1998 if the
First Capitol Closing has not been scheduled to occur prior to December 31,
1998, or (iii) the First Capitol Closing. Upon the occurrence of the events
described in (i) and (ii) in the preceding sentence, Friedman shall be released
from the provisions of the Warrant Substitution Agreement. Upon the First
Capitol Closing, SBI shall transfer and convey to Friedman, as part of the First
Capitol Merger Consideration, 9,206 shares of SBI Common Stock representing the
value of the Friedman Warrant (the "Warrant Consideration"). Upon payment of the
Warrant Consideration, the Friedman Warrant shall be canceled.
The Warrant Substitution Agreement also provides, that upon payment of
the Warrant Consideration, at the First Capitol Closing, SBI shall transfer and
convey to National Penn, as part of the First Capitol Merger Consideration,
2,056 shares of SBI Common Stock representing the value of the
11
<PAGE>
shares of First Capitol Common Stock which National Penn could have acquired
pursuant to an agreement between National Penn and First Capitol dated July 25,
1988 (the "Preemptive Rights Agreement") upon full exercise of the Friedman
Warrant. Upon delivery of such shares of SBI Common Stock, all rights and
interests of National Penn in and under the Preemptive Rights Agreement shall be
terminated and the agreement shall be canceled.
Notwithstanding the foregoing, the Warrant Substitution Agreement also
provides that if at any time prior to the First Capitol Closing, SBI shall enter
into an agreement which provides that SBI shall merge or consolidate with any
other entity or that SBI shall sell a material subsidiary to an entity not
affiliated with SBI (herein, collectively, a "SBI Acquisition Agreement"), then
Friedman shall have the right, during the Break Period (as herein defined), to
provide notice to the other parties that he intends to exercise his rights under
the Friedman Warrant, and all the parties to the Warrant Substitution Agreement
shall be released from the terms of the Warrant Substitution Agreement and the
agreement shall be canceled and of no further force and effect. The "Break
Period" is defined under the Warrant Substitution Agreement to mean the period
beginning the business day following the public announcement of a SBI
Acquisition Agreement and ending the earlier to occur of (i) ten business days
there following, or (ii) one business day prior to the date announced for the
First Capitol Closing.
Dividends.
The First Capitol Merger Agreement provides that First Capitol shall not
declare, pay or set aside any dividend or other distribution in respect of its
capital stock except that it shall have the right, after January 1, 1999, to
declare and pay a dividend corresponding in amount and timing with past
practice.
Closing; Effective Date; Termination.
The First Capitol Merger Agreement provides that the closing (the "First
Capitol Closing") will occur at such time and place, and on such date following
three business days notice to First Capitol, as shall be agreed upon by the
parties, but no later than the 30th business day after (i) the last approval of
required governmental authorities is granted and any related waiting periods
expire, (ii) the lifting, discharge or dismissal of any stay of any such
governmental approval or of any injunction against the First Capitol Merger, and
(iii) all shareholder approvals required by the parties pursuant to the First
Capitol Merger Agreement are received. Immediately following the First Capitol
Closing, and provided the First Capitol Merger Agreement has not been terminated
or abandoned pursuant to Article VI of the First Capitol Merger Agreement, SBI
Interim Bank and First Capitol Bank will request that the Department of Banking
cause articles of merger ("First Capitol Articles of Merger") to be delivered
and properly filed with the Department of State of the Commonwealth of
Pennsylvania (the "Department of State"). The First Capitol Merger shall become
effective at the time specified by the Department of Banking in its transmittal
to the Department of State, which, at the request of SBI, shall be at 12:01 a.m.
on the business day of the First Capitol Closing.
The First Capitol Merger Agreement provides that, whether before or after
its approval by the shareholders of First Capitol, it may be terminated and the
transactions contemplated in the First Capitol Merger Agreement abandoned at any
time prior to the First Capitol Effective Date (i) by the mutual, written
consent of SBI and First Capitol, if the board of directors of each so
determines by majority vote of the members of the entire board; (ii) by First
Capitol in the event (a) of a material breach by SBI of any representation,
warranty, covenant or agreement contained in the First Capitol Merger Agreement
which is not cured within 30 days after written notice of such breach is given
to SBI by First Capitol or (b) by written notice to SBI that any condition
precedent to First Capitol's obligations as set forth in the Article V of the
First Capitol Merger Agreement has not been met or waived by First Capitol at
such time as such condition can no longer be satisfied, or (c) the board of
directors of First Capitol fails to make, withdraws or modifies or changes the
favorable recommendation described at Section 4.2 of the First Capitol Merger
Agreement or (d) the board of directors of First Capitol recommends to the
shareholders of
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<PAGE>
First Capitol that an Acquisition Proposal (as defined in the First Capitol
Merger Agreement) is likely to be more favorable, from a financial point of
view, to the shareholders of First Capitol than the First Capitol Merger; (iii)
by SBI in the event (a) of a material breach by First Capitol of any
representation, warranty, covenant or agreement contained in the First Capitol
Merger Agreement which is not cured within 30 days after written notice of such
breach is given to First Capitol by SBI or (b) any condition precedent to SBI's
obligations as set forth in Article V of the First Capitol Merger Agreement has
not been met or waived by SBI at such time as such condition can no longer be
satisfied; (iv) by First Capitol, by giving written notice of such election to
SBI within one business day following a determination that the Average Closing
Price is greater than $42.00 per share at the time such calculation is required
to be made pursuant to the First Capitol Merger Agreement; (v) by SBI, if it
chooses to give written notice of such election within one two business day
following a determination that the Average Closing Price is less than $32.00 per
share; or (vi) by SBI or First Capitol if the First Capitol Merger and the
transactions described in the First Capitol Merger Agreement are not consummated
by March 31, 1999, unless the parties agree to extend the time by which such
closing must occur.
Waiver; Amendment.
Prior to the First Capitol Effective Time, any provision of the First
Capitol Merger Agreement may be (i) waived by the party benefited by the
provision, or (ii) amended or modified at any time (including the structure of
the transaction) by an agreement in writing between the parties approved by
their respective boards of directors, except that no amendment or waiver may be
made that would change the form or the amount of the First Capitol Merger
Consideration or otherwise have the effect of prejudicing the First Capitol
shareholders' interest in the First Capitol Merger Consideration following the
First Capitol Shareholders' Meeting (as defined in the First Capitol Merger
Agreement).
Conditions Precedent.
In addition to the approval by the First Capitol shareholders, the First
Capitol Merger is contingent upon the satisfaction of a number of conditions,
including, among others, (i) all required approvals, consents, or waivers,
including without limitation, approval by the Board of Governors of the Federal
Reserve System and the Department of Banking, and all applicable statutory
waiting periods shall have expired except those approvals for which failure to
obtain would not, individually or in the aggregate, have a Materially Adverse
Effect (as defined in the First Capitol Merger Agreement) on SBI or First
Capitol; (ii) all other requirements prescribe by law which are necessary to the
consummation of the transactions contemplated by the First Capitol Merger
Agreement shall have been satisfied; (iii) the absence of any order, decree or
injunction of a court or agency of competent jurisdiction which would enjoin or
prohibit the consummation of the First Capitol Merger, or any litigation or
proceeding pending against SBI or First Capitol or their subsidiaries by any
governmental agency seeking to prevent consummation of the transactions
described in the First Capitol Merger Agreement; (iv) the absence of any
statute, rule, regulation, order, injunction or decree enacted, entered,
promulgated or enforced by any governmental authority which would prohibit,
restrict or make illegal consummation of the First Capitol Merger; (v) the
First Capitol Merger shall meet the requirements for pooling-of-interests
accounting treatment under generally accepted accounting principles and under
the accounting rules of the SEC, (vi) the Registration Statement (as defined in
the First Capitol Merger Agreement) shall have been filed by SBI with the SEC
under the Securities Act and shall have been declared effective prior to the
time the Proxy Statement/Prospectus (as defined in the First Capitol Merger
Agreement) is first mailed to the shareholders of First Capitol, and no stop
order with respect to the effectiveness of the Registration Statement shall have
been issued, and the SBI Common Stock to be issued pursuant to the First Capitol
Merger Agreement shall have been registered or qualified under the securities or
"blue sky" laws in all states in which such action is required; (vii) a ruling
from the Internal Revenue Service, or an opinion of counsel of Morgan, Lewis &
Bockius LLP, regarding the tax consequences of the First Capitol Merger, shall
have been delivered in accordance with the terms of the First Capitol Merger
Agreement; and (viii) all litigation pending against First Capitol which,
individually or in the aggregate, would have a Material Adverse Effect on First
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<PAGE>
Capitol's consolidated operations, shall have been settled or otherwise resolved
on terms satisfactory to SBI and First Capitol.
Additionally, the obligations of SBI and SBI Interim Bank to effect the
First Capitol Merger are subject to satisfaction of the following conditions
prior to the First Capitol Effective Time: (i) each of the representations and
warranties of First Capitol contained in the First Capitol Merger Agreement
shall be true and correct in all material respects, First Capitol shall have
performed each of the covenants and agreements material to its operations and
prospects contained in the First Capitol Merger Agreement, and certificates to
such effect shall have been delivered to SBI and SBI Interim Bank; (ii) KMPG
Peat Marwick LLP, or such other accounting firm as is acceptable to the parties,
shall have furnished to SBI an "agreed upon procedures" letter dated the First
Capitol closing Date, in form and substance satisfactory to SBI to the effect
that, based upon a procedure performed with respect to the financial condition
of First Capitol, for a period from December 31, 1997 to a specified date not
more than five days prior to such letter, nothing has come to their attention
that would indicate that there has been a change in the capitalization of First
Capitol on a consolidated basis, or any material adjustments would be required
to the audited financial statements for the period ended December 31. 1997 in
order for them to be in conformity with generally accepted accounting principles
applied on a consistent basis with that of prior periods; (iii) an opinion of
counsel of Saul, Ewing, Remick & Saul LLP, counsel to First Capitol, shall have
been delivered to SBI; (iv) there shall not have occurred any change in the
financial condition, properties, assets, business or results of operation of
First Capitol which, individually or in the aggregate, has had or might
reasonably be expected to result in a Material Adverse Effect on First Capitol
other than changes resulting from changes in banking laws or regulations or
changes in generally accepted accounting principles, or interpretations thereof,
that affect the banking or thrift industries; (v) SBI shall have received from
each person identified by First Capitol to be an affiliate of First Capitol an
executed counterpart of an affiliates agreement in the form contemplated by the
First Capitol Merger Agreement; (vi) except as otherwise provided in the First
Capitol Merger Agreement, all issued and outstanding options, warrants or rights
to acquire First Capitol Common Stock or any capital stock of FANBP shall have
been canceled; (vii) concomitant with the signing of the First Capitol Merger
Agreement, each of the directors of First Capitol and National Penn shall have
executed in favor of and delivered to SBI, a voting agreement ("Voting
Agreement"), pursuant to which each shall agree, among others, to take such
action as shall be necessary to cause the shares of First Capitol Common Stock
owned by them to be voted in favor of the First Capitol Merger Agreement and
the First Capitol Merger; and (viii) concomitant with the signing of the First
Capitol Merger Agreement, the parties to the Warrant Substitution Agreement
shall have executed the same.
The obligations of First Capitol to effect the First Capitol Merger are
subject to satisfaction of the following conditions prior to the First Capitol
Effective Time: (i) each of the representations and warranties of SBI contained
in the First Capitol Merger Agreement shall be true and correct in all material
respects, SBI shall have performed each of the covenants and agreements
material to its operations and prospects contained in the First Capitol Merger
Agreement, and a certificate to such effect shall have been delivered to First
Capitol; (ii) an opinion of counsel of Morgan, Lewis & Bockius, LLP, counsel
to SBI and SBI Interim Bank, shall have been delivered to First Capitol; (iii)
there shall not have occurred any change in the financial condition, properties,
assets, business or results of operation of SBI, which individually or in the
aggregate, had or might reasonably be expected to result in a Material Adverse
Effect on SBI other than such changes resulting from (A) changes in banking laws
or regulations, or (B) changes in generally accepted accounting principles, or
interpretations thereof, that affect the banking or thrift industries; (iv)
First Capitol shall have received an updated opinion from Danielson Associates,
Inc. dated as of a date no later than the date of the Proxy Statement/Prospectus
mailed to the First Capitol shareholders in connection with the First Capitol
Merger and not subsequently withdrawn, to the effect that the First Capitol
Merger Consideration is fair to First Capitol's shareholders from a financial
point of view; (v) the shares of SBI Common Stock to be issued in the First
Capitol Merger shall have been authorized to be listed for quotation on NASDAQ's
NMS; or (vi) a transaction or event involving SBI or any SBI subsidiary shall
have occurred or be pending that would result in (A) a change to the nature of
the securities described in SBI's articles of incorporation, (B) a change in the
identity of the legal entity of the
14
<PAGE>
issuer of the securities to be issued in the First Capitol Merger to holders of
First Capitol Common Stock, or (C) SBI's ceasing to own a Material Subsidiary
(as defined in the First Capitol Merger Agreement).
Representations and Warranties.
The representations and warranties of SBI, SBI Interim Bank, First Capitol
are set forth in Article III of the First Capitol Merger Agreement. The
representations and warranties relate, among other things, to representations as
to corporate existence and authority and the ability of each party to carry out
the transactions as contemplated by the First Capitol Merger Agreement;
capitalization; subsidiaries; no violations of law; regulatory reports and
financial statements; the absence of certain changes or events; the absence of
material litigation not otherwise disclosed; the absence of regulatory actions;
employee benefits matters; environmental matters; board action; fees; compliance
with laws; taxes; material contracts and agreements; regulatory and capital
compliance; fully paid assessments; Year 2000 compliance except as otherwise
disclosed; and information to be provided in the Proxy Statement/Prospectus.
First Capitol has made additional representations as to the status of title to
assets; the adequacy of allowances for losses on loans; the inapplicability of
certain anti-takeover provisions, the material interests of certain persons;
insurance; dividends; books and records; labor matters; fairness opinions;
fidelity bonds; the condition of tangible assets; and loans by First Capitol.
On the First Capitol Effective Date, SBI, SBI Interim Bank and First Capitol
must each present to the other certificates evidencing the continued accuracy of
the representations and warranties.
Dissenters' Rights.
In accordance with the provisions of Sections 1607 and 1222 of the
Pennsylvania Banking Code and Section 1571 et seq. of the BCL and applicable
-------
law, the First Capitol shareholders are entitled to exercise dissenters' rights
in connection with the First Capitol Merger.
Expenses.
If the First Capitol Merger Agreement is terminated, in accordance with the
terms of the agreement: (i) by the mutual, written consent of First Capitol and
SBI; (ii) by First Capitol or SBI in the event the First Capitol Merger is not
consummated by March 31, 1999; (iii) by First Capitol if the Average Closing
Price is greater than $42.00 per share; or (iv) by SBI if the Average Closing
Price is less than $32.00 per share, it shall be without cost, expense or
liability on the part of any party to the other party. If the First Capitol
Merger Agreement is terminated by reason of the board of directors of First
Capitol failing to make, withdrawing, modifying or changing its favorable
recommendation described at Section 4.2 of the First Capitol Merger Agreement as
a result of a Material Adverse Change in SBI's financial condition, properties,
assets, liabilities, business or results of operation or the failure of First
Capitol's financial advisor to update its fairness opinion, it shall be without
cost, expense or liability on the part of First Capitol to any other party. If
the First Capitol Agreement is terminated by First Capitol because the board of
directors of First Capitol (a) failed to make, withdrew, or changed its
favorable recommendation to the First Capitol shareholders to approve the First
Capitol Merger Agreement and the transactions contemplated thereby, or (b)
recommends to the First Capitol shareholders that an Acquisition Proposal (as
defined in the First Capitol Merger Agreement) is more favorable, from a
financial point of view, to the Capitol shareholders than the First Capitol
Merger, then First Capitol must pay to SBI, within two business days after the
termination, a fee of $500,000. In all other instances, termination of the
agreement shall be without cost, liability or expense on the part of any party
to the other parties, unless the breach of a representation, warranty or
covenant is caused by the willful conduct or gross negligence of the party, in
which event such party will be liable to the other parties for all out-of-pocket
costs and expenses.
15
<PAGE>
Item 7. Financial Statements and Exhibits.
(c) Exhibits. Reference is made to the Exhibit Index annexed
--------
hereto and made a part hereof.
16
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SUSQUEHANNA BANCSHARES, INC.
Date: April 28, 1998 By: /s/ Robert S. Bolinger
------------------------------------
Robert S. Bolinger
President and Chief Executive
Officer
17
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
- -------
2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
2.1 Agreement and Plan of Affiliation Dated as of the
13th Day of April, 1998, By and Among Susquehanna
Bancshares, Inc., Susquehanna Bancshares West, Inc.,
Cardinal Bancorp, Inc. and First American National Bank of
Pennsylvania
Schedule 1.2 Exchange Provisions
The Disclosure Annexes to the above-referenced
Agreement are omitted. Pursuant to paragraph (2) of Item
601(b) of Regulation S-K, the Registrant agrees to furnish a
copy of such schedules to the Commission upon request.
2.2 Agreement and Plan of Affiliation Dated as of the
16th Day of April, 1998, By and Among Susquehanna
Bancshares, Inc., Susquehanna Interim Bank, and First
Capitol Bank
Schedule 1.2 Exchange Provisions
The Disclosure Annexes to the above-referenced
Agreement are omitted. Pursuant to paragraph (2) of Item
601(b) of Regulation S-K, the Registrant agrees to furnish a
copy of such schedules to the Commission upon request.
99 Press Release
99.1 Press Release of the Registrant, Dated April 14,
1998, Regarding the Execution of the Cardinal Merger
Agreement
99.2 Press Release of the Registrant, Dated April 16,
1998, Regarding the Execution of the First Capitol Merger
Agreement
18
<PAGE>
EXHIBIT 2.1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF AFFILIATION
DATED AS OF THE 13TH DAY OF APRIL 1998
BY AND AMONG
SUSQUEHANNA BANCSHARES, INC.,
SUSQUEHANNA BANCSHARES WEST, INC.,
CARDINAL BANCORP, INC.
AND
FIRST AMERICAN NATIONAL BANK OF PENNSYLVANIA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page(s)
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ARTICLE I THE PLAN OF MERGER................................................. 2
SECTION 1.1 The Merger; Closing; Effective Time..................... 2
SECTION 1.2 Effect on Outstanding Shares............................ 3
SECTION 1.3 Surrender and Exchange of Cardinal Certificates......... 3
SECTION 1.4 Dissenters' Rights...................................... 5
SECTION 1.5 Other Matters........................................... 5
SECTION 1.6 Cardinal Options........................................ 6
ARTICLE II CONDUCT PENDING THE MERGER........................................ 6
SECTION 2.1 Conduct of Cardinal's and FANBP's Businesses
Prior to the Effective Time............................. 6
SECTION 2.2 Forbearance by Cardinal and FANBP....................... 6
SECTION 2.3 Cooperation............................................. 8
SECTION 2.4 Conduct of SBI's Business Prior to the Effective Time... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES................................... 8
SECTION 3.1 Representations and Warranties of Cardinal and FANBP.... 8
SECTION 3.2 Representations and Warranties of SBI and its Material
Subsidiaries............................................23
ARTICLE IV COVENANTS.........................................................30
SECTION 4.1 Acquisition Proposals...................................30
SECTION 4.2 Securities Registration and Disclosure..................31
SECTION 4.3 Employees...............................................32
SECTION 4.4 Access and Information..................................33
SECTION 4.5 Certain Filings, Consents and Arrangements..............35
SECTION 4.6 Takeover Statutes.......................................35
SECTION 4.7 Additional Agreements...................................35
SECTION 4.8 Publicity...............................................35
SECTION 4.9 Meeting.................................................36
SECTION 4.10 Notification of Certain Matters.........................36
SECTION 4.11 Insurance...............................................36
SECTION 4.12 Dividends...............................................36
SECTION 4.13 Directors...............................................36
i
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ARTICLE V CONDITIONS TO CONSUMMATION.........................................38
SECTION 5.1 Conditions to Closing...................................38
SECTION 5.2 Conditions to Obligations of SBI and SBI Merger Sub.....40
SECTION 5.3 Conditions to the Obligations of Cardinal and FANBP.....41
ARTICLE VI TERMINATION.......................................................42
SECTION 6.1 Termination.............................................42
SECTION 6.2 Effect of Termination...................................43
SECTION 6.3 Expenses................................................43
ARTICLE VII OTHER MATTERS....................................................44
SECTION 7.1 Certain Definitions; Interpretation.....................44
SECTION 7.2 Survival................................................45
SECTION 7.3 Parties in Interest.....................................45
SECTION 7.4 Waiver and Amendment....................................45
SECTION 7.5 Counterparts............................................45
SECTION 7.6 Governing Law...........................................45
SECTION 7.7 Expenses................................................45
SECTION 7.8 Notices.................................................46
SECTION 7.9 Entire Agreement; Etc...................................47
ii
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AGREEMENT AND PLAN OF AFFILIATION dated as of the 13th day of April,
1998 (this "Plan" or this "Agreement"), is entered into by and among Susquehanna
Bancshares, Inc., a Pennsylvania corporation ("SBI"), Susquehanna Bancshares
West, Inc., a Pennsylvania corporation, ("SBI Merger Sub"), Cardinal Bancorp,
Inc., a Pennsylvania corporation ("Cardinal"), and First American National Bank
of Pennsylvania, a national banking association ("FANBP").
RECITALS:
WHEREAS, SBI is a multi-state, multi-institution bank holding company;
and
WHEREAS, SBI Merger Sub is a wholly-owned subsidiary of SBI created
solely to facilitate the transactions described in this Agreement; and
WHEREAS, Cardinal is a Pennsylvania bank holding company; and
WHEREAS, FANBP is the wholly-owned bank subsidiary of Cardinal with a
strong record of performance; and
WHEREAS, the boards of directors of SBI, SBI Merger Sub, Cardinal and
FANBP have each determined that it is in the best interest of their respective
shareholders for SBI to acquire Cardinal and FANBP by means of a merger of SBI
Merger Sub with and into Cardinal (the "Merger"), as a result of which FANBP
will become a wholly-owned, second tier subsidiary of SBI, all upon the terms
and subject to the conditions set forth herein; and
WHEREAS, the parties desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement and to
set forth the conditions to the Merger; and
WHEREAS, Cardinal, SBI and SBI Merger Sub desire to merge in the
manner provided for herein and to adopt this Agreement as a plan of
reorganization and to consummate such plan in accordance with the provisions of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, SBI will continue the separate corporate existence of FANBP
as an operating subsidiary until at least December 31, 2000; and
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to SBI's willingness to enter into
this Agreement, Cardinal, SBI and SBI Merger Sub have entered into a stock
option agreement of even date herewith (the "Stock Option Agreement") granting
SBI an option to purchase from Cardinal authorized and unissued shares equal to
15% of the shares of Cardinal's common stock outstanding on the date of the
Stock Option Agreement, subject to the terms and conditions set forth therein.
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises and
obligations hereunder, the parties hereto adopt and make this Agreement and
prescribe the terms and conditions hereof and the manner and basis of carrying
it into effect, which shall be as follows:
ARTICLE I
THE PLAN OF MERGER
SECTION 1.1 The Merger; Closing; Effective Time.
-----------------------------------
(a) Subject to the terms and conditions of this Agreement and in
accordance with the applicable laws of the Commonwealth of Pennsylvania, at the
Effective Time (as defined in Section 1.1(c)), SBI Merger Sub shall be merged
with and into Cardinal and the separate corporate existence of SBI Merger Sub
shall thereupon cease. Cardinal shall be the surviving corporation in the
Merger (sometimes hereinafter referred to as the "Surviving Corporation") and
shall continue to be governed by the laws of the Commonwealth of Pennsylvania
and shall continue to be a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, and the separate corporate existence of
Cardinal with all its rights, privileges, immunities, powers and franchises
shall continue unaffected by the Merger. The name of the Surviving Corporation
shall be "Susquehanna Bancshares West, Inc." The Merger shall have the effects
specified in the Pennsylvania Business Corporation Law of 1988, as amended (the
"PBCL").
(b) The closing of the Merger (the "Closing") shall take place at such
place and time and on such date as shall be agreed upon by all parties, which
date shall not be later than the 30th business day after (i) the last approval
of required governmental authorities is granted and any related waiting periods
expire, (ii) the lifting, discharge or dismissal of any stay of any such
governmental approval or of any injunction against the Merger and (iii) all
shareholder approvals required by the parties hereunder are received.
(c) Immediately following the Closing, and provided that this
Agreement has not been terminated or abandoned pursuant to Article VI hereof,
SBI Merger Sub and Cardinal will cause articles of merger (the "Articles of
Merger") to be delivered and properly filed with the Department of State of the
Commonwealth of Pennsylvania (the "Department of State"). The Merger shall
become effective at 11:59 p.m. on the day the Articles of Merger are filed with
the Department of State (the "Effective Time"). The "Effective Date" when used
herein means the day on which the Effective Time for the Merger occurs.
(d) At the Effective Time, the articles of incorporation and bylaws of
SBI Merger Sub in effect immediately prior to the Effective Time shall be the
articles of incorporation and bylaws of the Surviving Corporation. At the
Effective Time, the directors and officers of SBI Merger Sub immediately prior
to the Effective Time shall be and become the directors and officers of the
Surviving Corporation with such additions or deletions as SBI, in its sole
discretion, may determine. At and immediately following the Effective Time, the
directors of FANBP shall consist
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of (i) the persons who were the directors of FANBP immediately prior to the
Effective Time, and (ii) up to two other persons who shall be recommended for
appointment by SBI; who shall be reasonably acceptable to the FANBP Board; and
who shall be elected to the FANBP Board, effective at Closing, to hold office
until the next annual meeting of FANBP.
SECTION 1.2 Effect on Outstanding Shares.
----------------------------
(a) At the Effective Time, by virtue of the Merger, automatically and
without any action on the part of the holder thereof, subject to the provisions
of Section 1.3 hereof with respect to the payment of fractional shares in cash,
each share of common stock, par value $.50 per share, of Cardinal (the "Cardinal
Common Stock") issued and outstanding at the Effective Time (other than (i)
shares the holders of which (each a "Dissenting Shareholder") are exercising
appraisal rights pursuant to the PBCL (the "Dissenters' Shares"), if any, and
(ii) shares held directly or indirectly by SBI, other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted) shall
become and be converted into the right to receive shares of common stock, par
value $2.00 per share, of SBI ("SBI Common Stock") determined in conformity with
the Exchange Ratio set forth at Schedule 1.2 hereof (such SBI Common Stock,
determined on the basis of the Exchange Ratio, as to each Cardinal shareholder
and, collectively, to all Cardinal shareholders is the "Merger Consideration").
As of the Effective Time, each share of Cardinal Common Stock held directly or
indirectly by SBI, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted, shall be canceled and retired and
cease to exist, and no exchange or payment shall be made with respect thereto.
(b) The shares of common stock of SBI Merger Sub issued and
outstanding immediately prior to the Effective Time, by virtue of and after the
Merger, shall be converted into and thereafter constitute the issued and
outstanding shares of the capital stock of the Surviving Corporation.
(c) If prior to the Effective Time, the outstanding shares of SBI
Common Stock shall have been increased, decreased, changed into or exchanged for
a different number or kind of shares or securities through a reclassification,
stock dividend, stock split or reverse stock split, or other similar change, the
Exchange Ratio shall be adjusted such that each Cardinal shareholder shall be
entitled to receive such number of shares of SBI Common Stock as such
shareholder would have been entitled to receive if the Effective Time had
occurred prior to the happening of such event. (By way of illustration, if SBI
shall declare a stock dividend of 7% payable with respect to a record date on or
prior to the Effective Time and the conditions set forth above are satisfied,
the Exchange Ratio shall be adjusted upward by 7%.)
SECTION 1.3 Surrender and Exchange of Cardinal Certificates.
-----------------------------------------------
(a) Within five (5) business days after the Effective Time, SBI shall
cause to be sent to each person who immediately prior to the Effective Time was
a holder of record of Cardinal Common Stock transmittal materials and
instructions for surrendering certificates for Cardinal
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<PAGE>
Common Stock ("Old Certificates") in exchange for a certificate for the number
of whole shares of SBI Common Stock to which such person is entitled under
Section 1.2 hereof.
(b) No certificates for fractional shares of SBI Common Stock shall be
issued in connection with the Merger. In lieu thereof, SBI shall issue to any
holder of Cardinal Common Stock certificates otherwise entitled to a fractional
share, upon surrender of such certificates in accordance with the instructions
furnished by SBI, a check for an amount of cash equal to the fraction of a share
of SBI Common Stock represented by the certificates so surrendered multiplied by
the Average Price Per Share of SBI Common Stock Before Closing as defined and
determined in conformity with Schedule 1.2.
(c) If the record date of any dividend on SBI Common Stock occurs
after the Effective Time, the declaration shall include dividends on all whole
shares of SBI Common Stock into which shares of Cardinal Common Stock have been
converted under this Agreement, but no former holder of Cardinal Common Stock
shall be entitled to receive payment of any such dividend until surrender of the
shareholder's Old Certificates shall have been effected in accordance with the
instructions furnished by SBI. Upon surrender for exchange of a shareholder's
Old Certificates, such shareholder shall be entitled to receive from SBI an
amount equal to all such dividends, without interest thereon and less the amount
of taxes, if any, which may have been imposed or paid thereon, declared, and for
which the payment date has occurred, on the whole shares of SBI Common Stock
into which the shares represented by such Old Certificates have been converted.
(d) After the Effective Time, there shall be no transfer on the stock
transfer books of Cardinal, Surviving Corporation, or SBI of shares of Cardinal
Common Stock. If Old Certificates are presented for transfer after the
Effective Time, they shall be canceled and certificates representing whole
shares of SBI Common Stock (and a check in lieu of any fractional share) shall
be issued in exchange therefor as provided herein.
(e) In the event that any Old Certificates have not been surrendered
for exchange in accordance with this Section on or before the second anniversary
of the Effective Time, SBI may at any time thereafter, with or without notice to
the holders of record of such Old Certificates, sell for the accounts of any or
all of such holders any or all of the shares of SBI Common Stock which such
holders are entitled to receive under Section 1.2 hereof (the "Unclaimed
Shares"). Any such sale may be made by public or private sale or sale at any
broker's board or on any securities exchange in such manner and at such times as
SBI shall determine. If, in the opinion of counsel for SBI, it is necessary or
desirable, any Unclaimed Shares may be registered for sale under the Securities
Act of 1933, as amended (the "Securities Act") and applicable state laws. SBI
shall not be obligated to make any sale of Unclaimed Shares if it shall
determine not do so, even if notice of sale of the Unclaimed Shares has been
given. The net proceeds of any such sale of Unclaimed Shares shall be held for
holders of the unsurrendered Old Certificates whose Unclaimed Shares have been
sold, to be paid to them upon surrender of the Old Certificates. From and after
any such sale, the sole right of the holders of the unsurrendered Old
Certificates whose Unclaimed Shares have been sold shall be the right to collect
the net sale proceeds held by SBI for their respective accounts,
4
<PAGE>
plus accrued dividends from the Effective Time to the date of the sale, and such
holders shall not be entitled to receive any interest on such net sale proceeds
or accrued dividends held by SBI.
(f) If outstanding certificates for shares of Cardinal Common Stock
are not surrendered prior to the date on which such certificates would otherwise
escheat to or become the property of any governmental unit or agency, the
unclaimed items shall, to the extent permitted by abandoned property and any
other applicable law, become the property of SBI (and to the extent not in its
possession shall be paid over to it), free and clear of all claims or interest
of any person previously entitled to such claims. Notwithstanding the
foregoing, neither SBI nor its agents or any other person shall be liable to any
former holder of Cardinal Common Stock for any property delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(g) In the event any Old Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Old Certificate to be lost, stolen or destroyed and the posting by such
person of a bond in such amount as SBI may direct as indemnity against any claim
that may be made against it with respect to such Certificate, SBI will issue in
exchange for such lost, stolen or destroyed Old Certificate, the shares of SBI
Common Stock into which such Old Certificates has been converted pursuant to
this Agreement.
SECTION 1.4 Dissenters' Rights. In accordance with the provisions of
------------------
Section 1571 et. seq. of the PBCL and applicable law, the Cardinal shareholders
--------
are entitled to exercise dissenters rights.
SECTION 1.5 Other Matters.
-------------
(a) Notwithstanding any term of this Agreement to the contrary, SBI
may, in its discretion at any time prior to the Effective Time, designate a
direct or indirect wholly-owned subsidiary to substitute for SBI Merger Sub as
the constituent corporation in the Merger by written notice to Cardinal so long
as the exercise of this right does not materially, adversely affect the
interests or rights of the Cardinal shareholders or cause a material delay in or
otherwise materially adversely affect consummation of the transactions
contemplated herein, such determination to be solely within the exercise of
reasonable judgment by Cardinal. SBI shall also have the right to cause SBI
Merger Sub or such substitute to be the Surviving Corporation of the Merger
described at Section 1.1(a), so long as the exercise of such right does not have
a material adverse effect on the interests or rights of the Cardinal
shareholders or cause a material delay in, or otherwise adversely affect,
consummation of the transactions contemplated herein, such determination to be
solely within the exercise of reasonable judgment by Cardinal. If such right is
exercised, this Agreement shall be deemed to be modified to accord such change.
(b) Subject to the provisions of Section 7.1 of this Agreement,
nothing in this Agreement shall be deemed to restrict the ability of SBI or any
of its subsidiaries to merge with or with and into another entity so long as
such other transaction shall not materially, adversely affect
5
<PAGE>
the parties' ability to consummate the Merger or cause a material delay in, or
otherwise adversely affect, consummation of the transactions contemplated
herein.
SECTION 1.6 Cardinal Options. All options outstanding at the
----------------
Effective Time under the benefit plans described at Annex 3.1(m) and as fully
listed at Annex 1.6 hereof (individually, a "Cardinal Option" and collectively,
the "Cardinal Options") shall remain outstanding following the Effective Time
for the remainder of their terms and in accordance with the terms of the
respective Cardinal Options. At the Effective Time, the Cardinal Options shall,
by virtue of the Merger and without any action on the part of Cardinal or the
holder of any of the Cardinal Options, whether the same shall be vested or
exercisable, be assumed by SBI and constitute an option to acquire, on the same
terms and conditions as were applicable under such assumed Cardinal Options, a
number of shares of SBI Common Stock equal to the product of the Exchange Ratio
and the number of shares of Cardinal Common Stock subject to such Cardinal
Option. The option exercise price per share of SBI Common Stock shall be equal
to the option exercise price per share of Cardinal Common Stock divided by the
Exchange Ratio (the option price per share, as so determined, being rounded
upward to the nearest full cent). From and after the date of this Agreement, no
additional options of any kind shall be granted by Cardinal, or any of its
respective subsidiaries, under any plan, arrangement, agreement or program
whatsoever.
ARTICLE II
CONDUCT PENDING THE MERGER
SECTION 2.1 Conduct of Cardinal's and FANBP's Businesses Prior to the
---------------------------------------------------------
Effective Time. Except as expressly provided in this Agreement, during the
- --------------
period from the date of this Agreement to the Effective Time, Cardinal and FANBP
shall (and the word "it" in this Article II refers to Cardinal and FANBP and
each subsidiary of either) (i) conduct its business in the usual, regular and
ordinary course consistent with past practice, (ii) maintain and preserve intact
in all material respects its business organization, assets, leases, properties,
investment securities, employees and advantageous business relationships and use
its reasonable efforts to retain the services of its officers and key employees,
(iii) not knowingly take any action which would materially or adversely affect
or delay its ability to obtain any necessary approvals, consents or waivers of
any governmental authority required for the transactions contemplated hereby or
to perform its covenants and agreements on a timely basis under this Agreement,
and (iv) not knowingly take any action that is reasonably likely to have a
Material Adverse Effect (as defined in Section 7.1 hereof) on Cardinal.
SECTION 2.2 Forbearance by Cardinal and FANBP. During the period
---------------------------------
from the date of this Agreement to the Effective Time, Cardinal and FANBP shall
not, without the prior written consent of SBI:
(a) other than in the ordinary course of business consistent with past
practice, make any advance or loan or incur any indebtedness for borrowed money,
assume, guarantee,
6
<PAGE>
endorse or otherwise as an accommodation become responsible for, the obligations
of any other individual, corporation or other person;
(b) adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend other than the regular quarterly dividend referred
to in Section 4.12 or make any distribution on, or directly or indirectly
redeem, purchase or otherwise acquire, any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any shares of its
capital stock, or grant any stock appreciation rights or grant, sell or issue to
any individual, corporation or other person any shares of its capital stock
(other than the Stock Option Agreement or in connection with the exercise of
options granted pursuant to the Cardinal Options provided, however, Cardinal
represents hereby that no new or additional options have been granted or issued
since January 1, 1998 or will be granted or issued hereafter pursuant to the
Cardinal Options) or any right to acquire, or securities evidencing a right to
convert into or acquire any shares of its capital stock, or issue any additional
shares of capital stock;
(c) other than in the ordinary course of business consistent with past
practice and pursuant to policies, if any, currently in effect, sell, transfer,
mortgage, encumber or otherwise dispose of any of its properties, leasehold
interests or assets to any individual, corporation or other entity, or cancel,
release or assign any indebtedness of any such person or any contracts or
agreements as in force at the date of this Agreement;
(d) increase in any manner the compensation or fringe benefits of any
of its employees or pay any pension or retirement allowance not required by law
or by any existing plan or agreement to any such employees, or become a party
to, amend or commit itself to any pension, retirement, profit-sharing or welfare
benefit plan or agreement or employment agreement with or for the benefit of any
employee, or voluntarily accelerate the vesting of any stock options or other
compensation or benefit, other than payment of bonuses in the ordinary course of
business consistent with past practice and general increases in compensation to
individual employees in the ordinary course of business consistent with past
practice, provided that any such general increase to any individual employee
made after the date of this Agreement, when combined with such general increases
made to such individual employee prior to the date of this Agreement but after
September 30, 1997, does not exceed 3% of the individual employee's September
30, 1997 compensation (or in the event the employee was hired after September
30, 1997, the employee's date of hire compensation);
(e) amend its articles of incorporation, or charter, or its bylaws,
except as expressly contemplated by this Agreement or required by law or
regulation, in each case as concurred in by its counsel;
(f) change its method of accounting as in effect at December 31, 1997,
except as required by changes in generally accepted accounting principles or
required by law or regulation, in each case as concurred in by its independent
auditors; or
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<PAGE>
(g) permit or allow its direct or indirect ownership of the capital
stock of any subsidiary described in the annex hereto to be less than 100% of
its respective total capital stock.
SECTION 2.3 Cooperation. Each of Cardinal and FANBP shall cooperate
-----------
with SBI and SBI Merger Sub and SBI and SBI Merger Sub shall cooperate with
Cardinal and FANBP in completing the transactions contemplated hereby and each
shall not take, cause to be taken or agree or make any commitment to take any
action (i) that would cause any of the representations or warranties of it that
are set forth in Article III hereof not to be true and correct in all material
respects, or (ii) in the case of Cardinal and FANBP, that is inconsistent with
or prohibited by Section 2.1 or Section 2.2.
SECTION 2.4 Conduct of SBI's Business Prior to the Effective Time.
-----------------------------------------------------
Except as expressly provided in this Agreement, during the period from the date
of this Agreement to the Effective Time, SBI shall not knowingly take any action
and shall not knowingly cause its Material Subsidiaries (as defined in Section
3.2(d) hereof) to take any action that is reasonably likely to have a Material
Adverse Effect on SBI, on a consolidated basis.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Cardinal and FANBP.
----------------------------------------------------
Cardinal and FANBP represent and warrant to SBI and SBI Merger Sub (and the word
"it" in this Article III refers to Cardinal, FANBP and each subsidiary of
either) that, except as specifically disclosed in the Annex of disclosure
schedules included herewith, to the best of its knowledge (which knowledge
limitation shall apply to all representations and information described in
annexes attached hereto):
(a) Corporate Organization and Qualification. Cardinal is a
corporation duly incorporated, validly existing and duly subsisting under the
laws of the Commonwealth of Pennsylvania and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or operated,
or the business conducted, by Cardinal requires such qualification, except for
such failure to qualify or be in such good standing which, when taken together
with all other such failures, would not have a Material Adverse Effect on
Cardinal and its subsidiaries, taken as a whole. FANBP is a national banking
association duly organized and in good standing under the laws of the United
States of America. Cardinal and FANBP each have the requisite corporate and
other power and authority (including all federal, state, local and foreign
governmental authorizations) to carry on their respective businesses as now
being conducted and to own its properties and assets. Cardinal has made
available to SBI a complete and correct copy of the articles of incorporation
and bylaws of Cardinal and FANBP has made available to SBI and SBI Merger Sub a
complete and correct copy of the charter and bylaws of FANBP and such charter or
articles, as applicable, and such bylaws are in full force and effect as of the
date hereof.
8
<PAGE>
(b) Authorized Capital. The authorized capital stock of Cardinal consists
of 2,000,000 shares of Cardinal Common Stock, $.50 par value per share, of which
990,000 shares of Cardinal Common Stock were issued and outstanding as of the
date of this Agreement and no shares of Cardinal Common Stock were issued and
held as treasury shares as of the date of this Agreement. The authorized capital
stock of FANBP consists of 1,000,000 shares of common stock, $.50 par value per
share, of which 600,000 shares of common stock were issued and outstanding as of
the date of this Agreement; all of these are held by Cardinal. All of the
outstanding shares of capital stock of Cardinal and FANBP have been duly
authorized and are validly issued, fully paid and nonassessable. Neither
Cardinal nor FANBP has any shares of capital stock reserved for issuance except
pursuant to the Stock Option Agreement and the Cardinal Options and no new or
additional options have been granted since January 1, 1998. Options
representing 94,000 shares of Cardinal Common Stock have been granted and remain
outstanding and are all the Cardinal Options. The terms of the Cardinal
Options, together with a list of all holders of options thereunder and the
number of shares of Cardinal Common Stock covered thereby, are described in
Annex 3.1 (b) or Annex 1.6 hereto, as the case may be. Neither Cardinal nor
FANBP has any outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with shareholders on any matter. The
shares of FANBP's common stock owned by Cardinal are owned free and clear of
all liens, pledges, security interests, claims or other encumbrances. The
outstanding shares of capital stock of Cardinal and FANBP have not been issued
in violation of any preemptive rights. Except as set forth in Annex 3.1(b) and
in Annex 3.1(m), and as provided in the Stock Option Agreement, there are no
outstanding subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of Cardinal and FANBP. After the
Effective Time, Cardinal will have no obligation which is being assumed by SBI
or SBI Merger Sub which will result in any obligation to issue, transfer or sell
any shares of capital stock pursuant to any Employee Plan (as defined in Section
3.1(m), other than as provided at Section 1.6).
(c) Subsidiaries. The only subsidiaries of Cardinal are as listed and
described at Annex 3.1(c). The only subsidiaries of FANBP are as listed and
described at Annex 3.1(c).
Each such subsidiary is duly organized and existing as a corporation,
is in good standing under the laws of the jurisdiction in which it was
organized, and has adequate corporate power to carry on its business as now
conducted. All of the outstanding capital stock of all such subsidiaries has
been validly issued, is fully paid and nonassessable (other than as provided at
12 U.S.C. (S)55) and is owned by Cardinal or FANBP, free and clear of all liens,
security interests and encumbrances. All such subsidiaries are organized under
Pennsylvania law and make no use of fictitious names in the conduct of their
respective businesses.
(d) Corporate Authority. Subject only to approval of this Agreement
by the holders of the number of votes required by Cardinal's articles of
incorporation or bylaws cast by all holders of Cardinal Common Stock (without
any minority, class or series voting requirement), and, subject to all required
regulatory approvals, Cardinal and FANBP each has the requisite corporate
9
<PAGE>
power and authority, and legal right, and has taken all corporate action
necessary to execute and deliver this Agreement and to consummate the
transactions applicable to either Cardinal or FANBP contemplated hereby. This
Agreement has been duly and validly executed and delivered by Cardinal and FANBP
and constitutes the valid and binding obligations of Cardinal and FANBP
enforceable against each, in accordance with its terms, except to the extent
enforcement is limited by bankruptcy, insolvency and other similar laws
affecting creditors' rights or the application by a court of equitable
principles.
(e) No Violations. The execution, delivery and performance of this
Agreement by it does not, and the consummation of the transactions contemplated
herein by it will not, constitute (i) subject to receipt of all required
regulatory approvals, a breach or violation of, or a default under, any law,
rule or regulation or any judgment, decree, order, governmental permit or
license, to which it (or any of its respective properties) is subject, which
breach, violation or default would have a Material Adverse Effect on it, or
enable any person to enjoin the Merger, (ii) a breach or violation of, or a
default under Cardinal's articles of incorporation, the charter of FANBP, or the
bylaws of either of them, or (iii) except as disclosed in Annex 3.1(e), a breach
or violation of, or a default under (or an event which with due notice or lapse
of time or both would constitute a default under), or result in the termination
of, accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
properties or assets of it under any of the terms, conditions or provisions of
any note, bond, indenture, deed of trust, loan agreement or other agreement,
instrument or obligation to which it is a party, or to which any of their
respective properties or assets may be bound or affected, except for any of the
foregoing that, individually or in the aggregate, would not have a Material
Adverse Effect on it or enable any person to enjoin the Merger; and the
consummation of the transactions contemplated hereby will not require any
approval, consent or waiver under any such law, rule, regulation, judgment,
decree, order, governmental permit or license or the approval, consent or waiver
of any other party to any such agreement, indenture or instrument, other than
(i) all required approvals, consents and waivers of governmental authorities,
(ii) the approval of its shareholders referred to in Section 3.1(d), (iii) any
such approval, consent or waiver that already has been obtained, and (iv) any
other approvals, consents or waivers, the absence of which, individually or in
the aggregate, would not result in a Material Adverse Effect on it or enable any
person to enjoin the Merger.
(f) Reports.
i. Cardinal's consolidated statement of financial condition as
of December 31, 1997 previously provided to SBI and each statement of financial
condition provided after the date hereof to SBI (including in each case any
related notes and schedules) as required by Section 4.4 hereof fairly presents
or will fairly present the financial position of it as of its date and each of
the statements of income and shareholders' equity and of cash flows provided
therewith (including in each case any related notes and schedules), fairly
presents or will fairly present the results of operations, shareholders' equity
and cash flows, as the case may be, of it for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end audit
10
<PAGE>
adjustments that are not material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein.
ii. Except as disclosed in Annex 3.1(f), it has timely filed all
material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that it was required to file since
January 1, 1994 with (A) the Office of the Comptroller of the Currency (the
"OCC"), (B) the Federal Deposit Insurance Corporation (the "FDIC"), (C) the
Board of Governors of the Federal Reserve System (the "Board"), (D) the
Securities and Exchange Commission (the "SEC"), (E) any state banking department
or commission or other regulatory authority ("State Regulator") and collectively
with the SEC, the OCC, the FDIC, and the Board, the "Cardinal Regulatory
Agencies", and (F) any other regulatory authority, and all other material
reports and statements required to be filed by it since January 1, 1994
including, without limitation, any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States or any Cardinal
Regulatory Agency and has paid all fees and assessments due and payable in
connection therewith, and no such report, registration or statement contains any
material misstatement or omission or is otherwise in material noncompliance with
any law, regulation or requirement.
(g) Absence of Certain Changes or Events. Since January 1, 1998 to
the date hereof, it has not incurred any material liability, except in the
ordinary course of its business consistent with past practice, nor has there
been any change in the financial condition, properties, assets, business,
results of operations or prospects of it which, individually or in the
aggregate, has had, or might reasonably be expected to result in, a Material
Adverse Effect on it.
(h) Taxes. Its federal income tax returns have been examined and
closed or otherwise closed by operation of law through 1994. All federal,
state, local and foreign tax returns required to be filed by it or on its behalf
have been timely filed or requests for extensions have been timely filed and any
such extension shall have been granted and not have expired, and, to the
knowledge of management, all such filed returns are complete and accurate in all
material respects. All taxes shown on such returns, and all taxes required to be
shown on returns for which extensions have been granted, have been paid in full
or adequate provision has been made for any such taxes on its balance sheet (in
accordance with generally accepted accounting principles) other than those taxes
which are being contested in appropriate forums in proceedings which are being
diligently pursued. Adequate provision has been made on its balance sheet (in
accordance with generally accepted accounting principles consistently applied)
for all federal, state, local and foreign tax liabilities for periods subsequent
to those for which returns have been filed. There is no audit examination,
deficiency, or refund litigation pending or, to the knowledge of Cardinal or
FANBP, threatened, with respect to any taxes that could result in a
determination that would have a Material Adverse Effect on it. All taxes,
interest, additions and penalties due with respect to completed and settled
examinations or concluded litigation relating to it have been paid in full or
adequate provision has been made for any such taxes on its balance sheet (in
accordance with generally accepted
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accounting principles). It has not executed an extension or waiver of any
statute of limitations on the assessment or collection of any tax due that is
currently in effect.
(i) Litigation and Liabilities. Except as set forth in Annex 3.1(i),
there are no (i) civil, criminal or administrative actions, suits, claims,
hearings, investigations or proceedings before any court, governmental agency or
otherwise pending or, to the knowledge of management, threatened against it or
(ii) obligations or liabilities, whether or not accrued, contingent or
otherwise, including, without limitation, those relating to environmental and
occupational safety and health matters, or any other facts or circumstances of
which its management is aware that could reasonably be expected to result in any
claims against or obligations or liabilities of it, that, alone or in the
aggregate, are reasonably likely to have a Material Adverse Effect on it or to
hinder or delay, in any material respect, consummation of the transactions
contemplated by this Agreement.
(j) Absence of Regulatory Actions. It is not a party to any current
cease and desist order, written agreement or memorandum of understanding with,
or a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any extraordinary supervisory
letter from, or has adopted any board resolutions at the request of, federal or
state governmental authorities, including, without limitation, the Cardinal
Regulatory Agencies, charged with the supervision or regulation of financial or
depository institutions or engaged in the insurance of bank deposits nor has it
been advised by any Cardinal Regulatory Agency that such body is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, directive, written agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter, board
resolution or similar undertaking.
(k) Agreements.
i. Except for the Stock Option Agreement and as set forth in
Annex 3.1(k) attached hereto, as of the date of this Agreement, it is not a
party to, or bound by, any oral or written:
(A) "material contract" as such term is defined in Item
601(b)(10) of Regulation S-K promulgated by the SEC;
(B) consulting agreement not terminable on thirty (30)
days' or less notice involving the payment of more than $10,000 per annum, in
the case of any such agreement;
(C) agreement with any officer or other key employee the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction of the nature contemplated by this
Agreement;
(D) agreement with respect to any officer providing any
term of employment or compensation guarantee extending for a period longer than
one year or for a payment in excess of $50,000;
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(E) agreement or plan, including any stock option plan,
stock appreciation rights plan, employee stock ownership plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(F) agreement containing covenants that limit its ability
to compete in any line of business or with any person, or that involve any
restriction on the geographic area in which, or method by which, it may carry on
its business (other than as may be required by law or any regulatory agency);
(G) agreement, contract or understanding, other than this
Agreement, the Cardinal Options, and the Stock Option Agreement, regarding the
capital stock of Cardinal and/or FANBP or committing to dispose of some or all
of the capital stock or substantially all of the assets of Cardinal and/or
FANBP; or
(H) collective bargaining agreement, contract, or other
agreement or understanding with a labor union or labor organization.
ii. It is not in default under or in violation of any provision
of any note, bond, indenture, mortgage, deed of trust, loan agreement, lease or
other agreement to which it is a party or by which it is bound or to which any
of its respective properties or assets is subject, other than such defaults or
violations as could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on it.
(l) Labor Matters. It is not the subject of any proceeding asserting
that it has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike, other labor dispute or organizational effort involving
it pending or threatened.
(m) Employee Benefit Plans. Annex 3.1(m) contains a complete list of
all pension, retirement, stock option, stock purchase, stock ownership, savings,
stock appreciation right, profit sharing, deferred compensation, consulting,
bonus, group insurance, severance and other employee benefits, incentive and
welfare policies, contracts, plans and arrangements, and all trust agreements
related thereto, in respect to any of its present or former directors, officers,
or other employees (hereinafter referred to collectively as the "Employee
Plans").
i. All of the Employee Plans comply in all material respects
with all applicable requirements of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), the Code and other applicable laws; it has not
engaged in a "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to any Employee Plan
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which is likely to result in any material penalties, taxes or other events under
Section 502(i) of ERISA or Section 4975 of the Code which would have a Material
Adverse Effect on it.
ii. Other than for premiums currently due, no liability to the
Pension Benefit Guaranty Corporation has been or is expected by it to be
incurred with respect to any Employee Plan which is subject to Title IV of ERISA
("Pension Plan"), or with respect to any "single-employer plan" (as defined in
Section 4001(a)(15) of ERISA) currently or formerly maintained by it or any
entity which is considered one employer with Cardinal or FANBP under Section
4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate").
iii. No Pension Plan or single-employer plan of an ERISA
Affiliate had an "accumulated funding deficiency" (as defined in Section 302 of
ERISA (whether or not waived)) as of the last day of the end of the most recent
plan year ending prior to the date hereof; all contributions to any Pension Plan
or single-employer plan of an ERISA Affiliate that were required by Section 302
of ERISA and were due prior to the date hereof have been made on or before the
respective dates on which such contributions were due; the fair market value of
the assets of each Pension Plan or single-employer plan of an ERISA Affiliate
exceeds the present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under such Pension Plan or single-employer plan of an
ERISA Affiliate as of the end of the most recent plan year with respect to the
respective Pension Plan or single-employer plan of an ERISA Affiliate ending
prior to the date hereof, calculated on the basis of the actuarial assumptions
used in the most recent actuarial valuation for such Pension Plan or single-
employer plan of an ERISA Affiliate as of the date hereof; and no notice of a
"reportable event" (as defined in 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 single-employer plan of an ERISA Affiliate within the 12-month
period ending on the date hereof.
iv. Neither has it provided, nor is it required to provide,
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
v. Neither it nor any ERISA Affiliate has contributed to any
"multi-employer plan," as defined in Section 3(37) of ERISA, on or after
September 26, 1980.
vi. Each Employee Plan of it which is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) and which is intended to be
qualified under Section 401(a) of the Code (a "Qualified Plan") has received a
favorable determination letter from the Internal Revenue Service ("IRS")
covering the requirements of the Tax Equity and Fiscal Responsibility Act of
1982, the Retirement Equity Act of 1984 and the Deficit Reduction Act of 1984
and the Tax Reform Act of 1986; it is not aware of any circumstances likely to
result in revocation of any such favorable determination letter; each such
Employee Plan has been amended to reflect the requirements of subsequent
legislation applicable to such plans; and each Qualified Plan has complied at
all relevant times in all material respects with all applicable requirements of
Section 401(a) of the Code.
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vii. Each Qualified Plan which is an "employee stock ownership
plan" (as defined in Section 4975(e)(7) of the Code) has at all relevant times
satisfied all of the applicable requirements of Sections 409 and 4975(e)(7) of
the Code and the regulations thereunder.
viii. Neither it nor any ERISA Affiliate has committed any
act or omission or engaged in any transaction that has caused it to incur, or
created a material risk that it may incur, liability for any excise tax under
Sections 4971 through 4980B, 4980D or 4980E of the Code, other than excise taxes
which heretofore have been paid and fully reflected in its financial statements.
ix. There is no pending or threatened litigation, administrative
action or proceeding relating to any Employee Plan other than routine claims for
benefits.
x. Except as disclosed on Annex 3.1(m)(x), there has been no
announcement or legally binding commitment by it to create an additional
Employee Plan, or to amend an Employee Plan except for amendments required by
applicable law which do not materially increase the cost of such Employee Plan,
and it does not have any obligations for retiree health and life benefits under
any Employee Plan that cannot be terminated without incurring any liability
thereunder.
xi. Except as disclosed on Annex 3.1(m)(xi), the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby will not result in any payment or series of payments by Cardinal or FANBP
to any person which is an "excess parachute payment" (as defined in Section 280G
of the Code) under any Employee Plan, increase any benefits payable under any
Employee Plan, or accelerate the time of payment or vesting of any such benefit.
xii. All annual reports have been filed timely with respect to
each Employee Plan, it has made available to SBI a true and correct copy of (A)
reports on the applicable form of the Form 5500 series filed with the IRS for
plan years beginning after 1987, (B) such Employee Plan, including amendments
thereto, (C) each trust agreement and insurance contract relating to such
Employee Plan, including amendments thereto, (D) the most recent summary plan
description for such Employee Plan, including amendments thereto, if the
Employee Plan is subject to Title I of ERISA, (E) the most recent actuarial
report or valuation if such Employee Plan is a Pension Plan and (F) the most
recent determination letter issued by the IRS if such Employee Plan is a
Qualified Plan.
xiii. Except as disclosed on Annex 3.1(m)(xiii), there are no
retiree health benefit plans except as required to be maintained by COBRA.
(n) Title to Assets. It has good and marketable title to its properties and
assets (other than property as to which it is lessee), except for (i) such items
shown in the Cardinal consolidated financial statements or notes thereto; (ii)
liens on real property for current real estate taxes not yet delinquent or (iii)
such defects in title which would not, individually or in the
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aggregate, have a Material Adverse Effect on it. With respect to any property
leased by it, there are no defaults by it, or any of the other parties thereto,
or any events which, with the giving of notice or lapse of time or both, would
become defaults by it or any of the other parties thereto, under any of such
leases, except for such defaults or events which would not, individually or in
the aggregate, have a Material Adverse Effect on it; and all such leases are in
full force and effect and are enforceable against it, as the case may be, and
there is no circumstance existing as of the date of this Agreement which causes
or would cause such leases to be unenforceable against any of the other parties
thereto except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors
generally as well as principles of equity to the extent enforcement by a court
of equity is required.
(o) Compliance with Laws. It has all permits, licenses, certificates
of authority, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local and foreign governmental or
regulatory bodies that are required in order to permit it to carry on its
business as it is presently conducted and the absence of which could,
individually or in the aggregate, have a Material Adverse Effect on it; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect, and no suspension or cancellation of any of them is
threatened.
(p) Fees. Except as set forth in Annex 3.1(p) attached hereto,
neither it nor any of its respective officers, directors, employees or agents,
has employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions, or finder's fees, and no broker or
finder has acted directly or indirectly for it in connection with this Agreement
or the transactions contemplated hereby.
(q) Environmental Matters. Except as to such matters which, either
individually or in the aggregate, would have a Materially Adverse Effect on
Cardinal or FANBP and any of its subsidiaries taken as a whole:
i. (A) It, its Participation Facilities and its Loan
Properties (each as defined below) are, and have been, in material compliance
with all Environmental Laws (as defined below), except where non-compliance
would, either individually or in the aggregate, not have a Material Adverse
Effect on it or any of its subsidiaries taken as a whole. Except as disclosed
in Annex 3.1(q), there are no Participation Facilities or other real estate
owned ("OREO") located in the States of New Jersey, California, Connecticut,
Rhode Island, Vermont, Massachusetts, New Hampshire, or Maine.
(B) It, its Participation Facilities and its Loan
Properties hold all permits, licenses, registrations and other authorizations
(the "Environmental Permits") necessary under the Environmental Laws, and all
such Environmental Permits are currently in effect. The Environmental Permits
are listed in Annex 3.1(q)(B), and any that will expire or terminate as a result
of the transactions contemplated by this Agreement are so designated. It, its
Participation Facilities and its Loan Properties are in material compliance with
all the terms and conditions of such
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Environmental Permits and have not materially violated any of them. Neither it,
its Participation Facilities nor its Loan Properties have received any notice of
any proposal to amend, revoke, reissue or replace any Environmental Permit, nor
have any events occurred (other than a change in applicable law) that could form
a reasonable basis for any such action. It, its Participation Facilities, and
its Loan Properties have filed timely and complete applications for renewal of
any such Environmental Permits that are required prior to the Closing.
(C) There is no suit, claim, action, demand, penalty,
executive or administrative order, directive, investigation or proceeding
pending or threatened before any court, governmental agency or board or other
forum against it or any Participation Facility (x) for alleged noncompliance
(including by any predecessor) with, or liability under, any Environmental Law
or (y) relating to the release into the environment of any Hazardous Material
(as defined below) or oil, whether or not occurring at or on a site owned,
leased or operated by it or any Participation Facility.
(D) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or
threatened before any court, governmental agency or board or other forum
relating to or against any Loan Property (or it in respect of such Loan
Property) (x) relating to alleged noncompliance (including by any predecessor)
with, or liability under, any Environmental Law or (y) relating to the release
into the environment of any Hazardous Material or oil, whether or not occurring
at or on a site owned, leased or operated by any Loan Property, except as to
such matters which, either individually or in the aggregate, would not have a
Material Adverse Effect on Cardinal or FANBP and any of its subsidiaries taken
as a whole.
(E) There is no reasonable basis for any suit, claim,
action, demand, executive or administrative order, directive or proceeding of a
type described in Section 3.1(q)(i)(D) or (C).
(F) The properties currently or formerly owned or operated
(including, without limitation, in a fiduciary capacity) by it (including,
without limitation, soil, groundwater or surface water on, under or adjacent to
the properties, and buildings thereon) do not contain any Hazardous Material
other than as permitted under applicable Environmental Law (provided, however,
that with respect to properties formerly owned or operated by it, such
representation is limited to the period it owned or operated such properties).
(G) It has not received any notice, demand letter, executive
or administrative order, directive or request for information from any federal,
state, local or foreign governmental entity or any third party indicating that
it may be in violation of, or liable under, any Environmental Law.
(H) Except as disclosed in Annex 3.1(q)(i)(H), there are no
underground storage tanks on, in or under, and during the period of its
ownership and operation no
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underground storage tanks have been closed or removed from, any properties or
Participation Facility which are or have been in its ownership.
(I) During the period of (l) its ownership or operation
(including without limitation in a fiduciary capacity) of any of its respective
current properties, (m) its participation in the management of any Participation
Facility, or (n) its holding of a security interest in a Loan Property, there
has been no release of Hazardous Material or oil in, on, under or affecting such
properties, except as permitted under applicable Environmental Law. Prior to the
period of (x) its ownership or operation of any of its respective current
properties, (y) its participation in the management of any Participation
Facility, or (z) its holding of a security interest in a Loan Property, there
was no release of Hazardous Material or oil in, on, under or affecting any such
property, Participation Facility or Loan Property, except as permitted under
applicable Environmental Law.
(J) There has not been and is not any Environmental
Condition (as hereinafter defined) at or relating to any property at which
wastes have been deposited or disposed by or at the behest or direction of it,
its Participation Facilities or its Loan Properties, nor has it, its
Participation Facilities or its Loan Properties received written notice of any
such Environmental Condition. For purposes of this Agreement the term
"Environmental Condition" means any condition or circumstance, that (i) requires
abatement or remediation under any Environmental Law currently in effect, (ii)
gives rise to any civil or criminal liability under any Environmental Law
currently in effect, or (iii) constitutes a public or private nuisance based on
the presence of Hazardous Materials, under laws applicable on the date of
Closing.
(K) There are no environmental liens on any properties owned
or leased by it or on its Loan Properties ("Properties") and no government
actions which could subject the Properties to such liens have been taken, are
pending, or threatened.
(L) No notice or restriction relating to the presence of
Hazardous Materials is required to be placed in the deed to any property subject
to this Agreement and no property subject to this Agreement has such a notice or
restriction in its deed.
(M) The only Loan Properties or Participation Facilities in
which it participates in management are those described in Annex 3.1 hereto.
ii. The following definitions apply for purposes of this Section
3.1(q): (a) "Loan Property" means any property in which it holds a security
interest (except that with respect to loans which are secured by residential
property, all representation in this Section 3.1(q) are given to the best
knowledge, without inquiry), and where required by the context, includes the
owner or operator of such property, but only with respect to such property; (b)
"Participation Facility" means any facility in which it participates in the
management (including all property on which it conducts operations of its
business, or which is held as trustee or in any other fiduciary capacity) and,
where required by the context, includes the owner or operator of such property,
but only with respect to such property; (c) "Environmental Law" means (i) any
federal, state or local law, statute, ordinance,
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rule, regulation, code, license, permit, authorization, approval, consent, legal
doctrine, order, directive, executive or administrative order, judgment, decree,
injunction, requirement or agreement with any governmental entity, relating to
(A) the protection, preservation or restoration of the environment (which
includes, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, structures, soil, surface land, subsurface land, plant
and animal life or any other natural resource), or to human health or safety, or
(B) the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of, Hazardous Materials, in each case as amended and as now in effect;
"Environmental Law" includes, without limitation, the federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the federal Clean Air Act, the federal Clean
Water Act, the federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the federal Solid Waste
Disposal Act and the federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and
Health Act of 1970, the Federal Hazardous Materials Transportation Act, or any
so-called "Superfund" or "Superlien" law enacted by any state having
jurisdiction over any Loan Property or Participation Facility, each as amended
and as now or hereafter in effect, and (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose liability
or obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Material; and (d) "Hazardous Material"
means any substance which is detrimental to human health or safety or to the
environment, currently listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated, under any Environmental
Law, whether by type or by quantity, including any substance containing any such
substance as a component. Hazardous Material includes, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance, oil or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos,
asbestos-containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyls, any of which is regulated by, or subject to
regulation under, any Environmental Law.
(r) Allowance. The allowance for loan and lease losses shown on
Cardinal's consolidated statement of financial condition as of December 31, 1997
was, and the allowance for loan and lease losses shown on Cardinal's
consolidated statement of financial condition for periods ending after the date
of this Agreement will be, in the opinion of management of Cardinal and FANBP,
adequate, as of the date thereof, under generally accepted accounting principles
applicable to commercial banks and all other applicable regulatory requirements
for all losses reasonably anticipated in the ordinary course of business as of
the date thereof based on information available as of such date. It has
disclosed to SBI in writing prior to the date hereof the amounts of all loans,
leases, advances, credit enhancements, other extensions of credit, commitments
and interest-bearing assets of it that it has classified internally as "Other
Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful,"
"Loss," "Classified," "Criticized," "Credit Risk Assets," "Concerned Loans" or
words of similar import, and it shall promptly after the end of each quarter
after the date hereof and on the Effective Date inform SBI of the amount of each
such classification. The OREO
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and in-substance foreclosures included in any of its non-performing assets are
carried net of reserves at the lower of cost or market value based on current
independent appraisals or current management appraisals.
(s) Anti-takeover Provisions Inapplicable. The provisions of
Chapter 25 of the PBCL relating to protection of shareholders do not apply to
Cardinal, this Agreement, the Stock Option Agreement, the Merger and the
transactions contemplated hereby.
(t) Material Interests of Certain Persons. Except as noted in
Annex 3.1(t), none of its respective officers or directors, or any "associate"
(as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934
(the "Exchange Act")) of any such officer or director, has any material interest
in any material contract or property (real or personal), tangible or intangible,
used in or pertaining to its business.
(u) Insurance. It is presently insured, and has been insured, in
the amounts, with the companies and since the periods set forth in Annex 3.1(u).
All of the insurance policies and bonds maintained by it are in full force and
effect, it is not in default thereunder and all material claims thereunder have
been filed in due and timely fashion. In the judgment of its management, such
insurance coverage is adequate.
(v) Dividends. The only dividends or other distributions which
it has made on its capital stock since January 1, 1995 are set forth in Annex
3.1(v).
(w) Books and Records. Its books and records have been, and are
being, maintained in accordance with applicable legal and accounting
requirements and reflect in all material respects the substance of events and
transactions that should be included therein.
(x) Board Action. Its board of directors (at a meeting duly
called and held) has been duly convened and by the requisite vote of all
directors (a) determined that the Merger is advisable and in the best interests
of it and its shareholders, (b) approved this Agreement, the Stock Option
Agreement and the transactions contemplated hereby and thereby and (c) directed
that the Agreement be submitted for consideration by its shareholders at the
Cardinal Shareholders' Meeting (as hereafter defined).
(y) Fairness Opinions. Its board of directors has received a
written opinion, a copy of which has been furnished to SBI, to the effect that
the consideration to be received by its shareholders pursuant to this Agreement,
at the time of its execution, is fair to such holders from a financial point of
view.
(z) INTENTIONALLY OMITTED.
(aa) Fidelity Bonds. Since at least January 1, 1994, FANBP has
continuously maintained fidelity bonds insuring it against acts of dishonesty by
its employees in such amounts
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as is customary for a bank of its size. Since January 1, 1994, the aggregate
amount of all potential claims under such bonds has not exceeded $100,000 and
neither Cardinal nor FANBP is aware of any facts which would reasonably form the
basis of a claim under such bonds. Neither Cardinal nor FANBP has reason to
believe that its fidelity coverage will not be renewed by its carrier on
substantially the same terms as its existing coverage.
(bb) Condition of Tangible Assets. Except as set forth in Annex
3.1(bb), all buildings, structures and improvements on the real property owned
or leased by it are in good condition, ordinary wear and tear excepted, and are
free from structural defects in all material respects. The equipment, including
heating, air conditioning and ventilation equipment owned by it, is in good
operating condition, ordinary wear and tear excepted. The operation and use of
the property in the business conform in all material respects to all applicable
laws, ordinances, regulations, permits, licenses and certificates.
(cc) Loans by FANBP. Since January 1, 1991, and except as shown
on Annex 3.1(cc), in the aggregate, the loans by FANBP have been lawfully made,
constitute valid debts of the obligors, have been incurred in the ordinary
course of business, are subject to the terms of payment as shall have been
agreed upon between FANBP and each customer and FANBP does not know of any
applicable set off or counterclaim which in the aggregate would have a Material
Adverse Effect on it. A list of all loans thirty (30) days or more past due as
of January 31, 1998, and as of the last day of each month for each of the
preceding twelve (12) months thereto is attached hereto as Annex 3.1(cc)-A. No
part of the amount collectible under any loan is contingent upon performance by
FANBP of any obligation and no agreement for participation, in which FANBP has
relinquished or agreed to share control with a participation in management of
the facility, or agreement providing for deductions or discounts have been made
with respect to any part of such debts, except as expressly disclosed in Annex
3.1(cc). FANBP does not know of any pending, threatened or expected actions in
connection with any material loans or commitments presently or previously made
by FANBP relating to claims based on theories of "lenders' liability" or any
other basis.
(dd) Regulatory Compliance - OCC. FANBP is in compliance in all
material respects with the applicable rules and regulations of the OCC, except
as noted in Annex 3.1(dd) and except where the failure to comply would not have
a Material Adverse Effect on FANBP.
(ee) Regulatory Compliance - FDIC. Except as noted on Annex
3.1(ee) hereto and except where the failure to comply would not have a Material
Adverse Effect on it, it is in compliance in all material respects with the
rules and regulations of the FDIC to the extent such rules and regulations are
deemed applicable by regulatory determination.
(ff) Capital Compliance. As of December 31, 1997, FANBP was in
compliance with the minimum capital requirements applicable to national banking
associations, including as to leverage ratio requirements, tangible capital
requirements and risk based capital requirements.
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(gg) Year 2000 Compliance. Cardinal and FANBP are in material
compliance with all requirements announced or promulgated by the Cardinal
Regulatory Agencies and by the Federal Financial Institutions Examination
Council.
(hh) INTENTIONALLY OMITTED.
(ii) INTENTIONALLY OMITTED.
(jj) INTENTIONALLY OMITTED.
(kk) INTENTIONALLY OMITTED.
(ll) INTENTIONALLY OMITTED.
(mm) Assessments Fully Paid. All payments, fees and charges
assessed by appropriate state and federal agencies against FANBP, and due on or
prior to the date of this Agreement, have been paid in full.
(nn) Annual Reports and Financial Statements. Cardinal has
delivered to SBI true and complete copies of (i) Cardinal's Annual Report on
Form 10-K for Cardinal's fiscal year ended December 31, 1997, containing
consolidated balance sheets of Cardinal at December 31, 1997 and December 31,
1996 and consolidated statements of earnings, changes in shareholders' equity
and cash flows of Cardinal for the three years ended December 31, 1997, 1996 and
1995 and such financial statements have been certified by independent public
accountants, and (ii) Cardinal's Quarterly Reports for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997 containing unaudited consolidated
balance sheets of Cardinal as at such dates and unaudited consolidated
statements of earnings and cash flows of Cardinal for the three, six and nine-
month periods reflected therein. Cardinal has also delivered to SBI true and
correct copies of its annual reports on Form 10-K for the years 1996, 1995 and
1994, together with its annual reports to shareholders for the same periods. All
such reports (collectively, the "Cardinal Reports") (i) comply in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC, (ii) do not contain any untrue statement of a material fact and
(iii) do not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. No documents to be filed by Cardinal
with the SEC or any regulatory agency in connection with this Agreement, or the
transactions contemplated hereby will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading. All documents which Cardinal is responsible
for filing with the SEC or any regulatory agency in connection with the Merger
will comply as to form in all material respects with the requirements of
applicable law.
(oo) Proxy Statement/Prospectus, Etc. Except for information
relating to SBI and its subsidiaries and pro forma financial information
reflecting the combined operations of SBI and
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Cardinal, neither (i) the Proxy Statement portion of the Registration Statement
(as defined hereinafter at Section 4.2), to the extent prepared by Cardinal or
based on information provided by Cardinal, or any amendment or supplement
thereto, at the time it is filed with the SEC, at the time the Registration
Statement is declared effective, at the time the Proxy Statement/Prospectus is
mailed to the shareholders of Cardinal or at the date of the meeting of the
Cardinal shareholders at which the shareholders will consider this Agreement
(the "Cardinal Shareholders' Meeting") nor (ii) any other documents to be filed
by Cardinal with the SEC or any regulatory agency in connection with this
Agreement, or the transactions contemplated hereby will contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
SECTION 3.2 Representations and Warranties of SBI and its Material
------------------------------------------------------
Subsidiaries. SBI represents and warrants to Cardinal and FANBP (and the word
- ------------
"it" in this Article III refers to SBI and each of its Material Subsidiaries, as
that term is defined at Section 3.2(d) hereof), that, except as specifically
disclosed in the Annex of disclosure schedules included herewith, to the best of
its knowledge:
(a) Corporate Organization and Qualification. SBI is a
corporation duly incorporated, validly existing and duly subsisting under the
laws of the Commonwealth of Pennsylvania and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or operated,
or the business conducted, by SBI requires such qualification, except for such
failure to qualify or be in such good standing which, when taken together with
all other such failures, would not have a Material Adverse Effect on SBI. It has
the requisite corporate and other power and authority (including all federal,
state, local and foreign governmental authorizations) to carry on its business
as now conducted and to own its properties and assets. SBI owns, or will own at
Closing, directly or indirectly, all of the outstanding shares of capital stock
of SBI Merger Sub. SBI has made available to Cardinal complete and correct
copies of the articles of incorporation and bylaws of SBI and will make
available to Cardinal complete and correct copies of the articles of
incorporation and bylaws of SBI Merger Sub; such articles and bylaws of SBI are
in full force and effect as of the date hereof.
(b) Corporate Authority. Subject only to the regulatory
approvals specified in Section 5.1(b) hereof, SBI has the requisite corporate
power and authority, and legal right, and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate the
transactions applicable to SBI contemplated hereby. This Agreement has been duly
and validly executed and delivered by SBI and constitutes the valid and binding
obligations of SBI, enforceable against SBI in accordance with its terms, except
to the extent enforcement is limited by bankruptcy, insolvency and other similar
laws affecting creditors' rights or the application by a court of equitable
principles.
(c) Capitalization. As of December 31, 1997, SBI Common Stock
was held of record by more than 6,000 shareholders and the authorized capital
stock of SBI consisted of 32,000,000 shares of SBI Common Stock, of which
approximately 22,554,962 shares are issued and
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outstanding (an additional 30,454 shares are held as treasury stock) and
5,000,000 shares of Preferred Stock, no par value per share, of which none are
outstanding. Sufficient shares of authorized, but unissued, shares of SBI Common
Stock to effect the transactions herein contemplated will be reserved by SBI for
such purpose. Except as disclosed in SBI's draft Proxy Statement for its 1998
Annual Meeting, there are no outstanding subscriptions, options, warrants,
rights, convertible securities or other agreements or commitments of any
character relating to the issued or unissued capital stock or other securities
of SBI.
(d) Bank Subsidiaries. SBI owns, directly or indirectly, all of
the issued and outstanding shares of capital stock of Farmers First Bank, a bank
and trust company organized under the laws of the Commonwealth of Pennsylvania;
Farmers & Merchants Bank and Trust, a bank organized under the laws of the State
of Maryland; Citizens National Bank of Southern Pennsylvania, a national banking
association with headquarters in Greencastle, Pennsylvania; First National Trust
Bank, a national banking association with headquarters in Sunbury, Pennsylvania;
Williamsport National Bank, a national banking association with headquarters in
Williamsport, Pennsylvania; Equity National Bank, a national banking association
with headquarters in Marlton, New Jersey; Farmers National Bank, a national
banking association with headquarters in Mullica Hill, New Jersey; and Founders'
Bank, a bank organized under the laws of the Commonwealth of Pennsylvania
(collectively the "Bank Subsidiaries"). All of the issued and outstanding
capital stock of the Bank Subsidiaries is duly and validly authorized and
issued, fully paid and nonassessable (other than as provided at 12 U.S.C.A.
(S)55 with respect to national banks) and is owned by SBI free and clear of any
liens, security interests, encumbrances, restrictions on transfer or other
rights of any third person with respect thereto. SBI owns, directly or
indirectly, all of the issued and outstanding shares of capital stock of
Susquehanna Bank, a federal savings bank operating in Maryland. All of the
issued and outstanding capital stock of the Susquehanna Bank is duly and validly
authorized and issued, free and clear of any liens, security interests,
encumbrances, restrictions on transfer or other rights of any third person with
respect thereto other than rights of account holders to liquidation accounts
maintained by Susquehanna Bank in accordance with the rules of the Office of
Thrift Supervision ("OTS"). The Bank Subsidiaries and Susquehanna Bank are the
"Material Subsidiaries." There are no options, calls, warrants, conversion
privileges or other agreements obligating any Material Subsidiary at present or
upon the occurrence of any event to issue or sell any shares of its capital
stock. Each of Farmers First Bank, Founders' Bank and Farmers & Merchants Bank
and Trust is a bank and trust company duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania or the State of
Maryland and is duly authorized to engage in the banking and trust business as
an insured bank under the Federal Deposit Insurance Act, as amended. Each of
Citizens National Bank of Southern Pennsylvania, First National Trust Bank,
Williamsport National Bank, Equity National Bank and Farmers National Bank is a
national banking association duly organized, validly existing and in good
standing under the laws of the United States and is duly authorized to engage in
the banking and trust business as an insured bank under the Federal Deposit
Insurance Act, as amended. Susquehanna Bank is a federal savings and loan
association, duly organized, validly existing and in good standing under the
laws of the United States and is duly authorized to engage in the savings and
loan business under the Federal Deposit Insurance Act, as amended. Each Material
Subsidiary has corporate power and legal
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authority and governmental authorizations which are material to its respective
operations and to transact the respective businesses in which it is presently
engaged.
(e) No Violations. The execution, delivery and performance of
this Agreement by SBI and SBI Merger Sub does not, and the consummation of the
transactions contemplated hereby by SBI and SBI Merger Sub will not, constitute
(i) a breach or violation of, or a default under, any law, rule or regulation or
any judgment, decree, order, governmental permit or license, or agreement,
indenture or instrument to which SBI or SBI Merger Sub (or any of SBI's
respective properties or assets) is subject, which breach, violation or default
would have a Material Adverse Effect on SBI on a consolidated basis, or enable
any person to enjoin the Merger, (ii) a breach or violation of, or a default
under, SBI's or SBI Merger Sub's articles of incorporation or bylaws or (iii) a
breach or violation of, or a default under (or an event which with due notice or
lapse of time or both would constitute a default under), or result in the
termination of, accelerate the performance required by, or result in the
creation of any lien, pledge, security interest, charge or other encumbrance
upon any of SBI's properties or assets under, any of the terms, conditions or
provisions of any note, bond, indenture, deed of trust, loan agreement or other
agreement, instrument or obligation to which it is a party, or to which any of
SBI's properties or assets may be bound or affected, except for any of the
foregoing that, individually or in the aggregate, would not have a Material
Adverse Effect on SBI, on a consolidated basis; and the consummation of the
transactions contemplated hereby will not require any approval, consent or
waiver under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent or waiver of any other
party to any such agreement, indenture or instrument, other than (i) the
required approvals, consents and waivers of governmental authorities referred to
in Section 5.1(b), (ii) any such approval, consent or waiver that already has
been obtained, (iii) the approval of SBI as the sole shareholder of SBI Merger
Sub, and (iv) any other approvals, consents or waivers the absence of which,
individually or in the aggregate, would not result in a Material Adverse Effect
on SBI, on a consolidated basis, or enable any person to enjoin the Merger.
(f) Required Consents. SBI has no reason to believe that it will
be unable to obtain consents and approvals, including without limitation all
such consents and approvals of Regulatory Agencies (as hereinafter defined),
necessary to consummate the transactions contemplated by this Agreement by
September 30, 1998 or that any such consents or approvals would contain any
condition or requirement that would result in a Material Adverse Effect on SBI.
(g) Board Action. SBI's board of directors (at a meeting duly
called and held) has been duly convened and by the requisite vote of all
directors (a) determined that the Merger is advisable and in the best interests
of it and its shareholders, and (b) approved this Agreement and the transactions
contemplated hereby.
(h) SBI Merger Sub.
i. SBI Merger Sub is a corporation duly organized, validly
existing and duly subsisting under the laws of the Commonwealth of Pennsylvania.
All of the outstanding shares
25
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of capital stock of SBI Merger Sub have been validly issued, are fully paid and
nonassessable and are owned directly by SBI free and clear of any lien, charge
or other encumbrance. SBI Merger Sub possesses no assets nor is subject to any
liabilities and will not acquire assets or incur liabilities prior to the
Effective Time. Since the date of its incorporation, SBI Merger Sub has not
engaged in any activities other than in connection with the consummation of the
Merger or as expressly contemplated by this Agreement.
ii. SBI Merger Sub has the corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution, delivery and performance of this Agreement by SBI Merger Sub and the
consummation of the transactions described herein have been duly and validly
authorized by all necessary corporate actions (including without limitation
shareholder action) in respect thereof on the part of SBI Merger Sub. This
Agreement is a valid and binding obligation of SBI Merger Sub, enforceable
against SBI Merger Sub in accordance with its terms.
iii. All of the authorized capital stock of SBI Merger Sub,
which consists solely of 100 shares of common stock, $.01 par value per share,
is presently issued and outstanding.
iv. SBI will, as the sole shareholder of SBI Merger Sub,
vote to approve this Agreement and the Merger.
(i) SBI Reports. SBI has furnished to Cardinal and FANBP true
and complete copies of (i) all of its annual reports on Form 10-K filed with the
SEC since January 1, 1994 and its annual reports to shareholders for each of the
three years ended December 31, 1994, 1995 and 1996, respectively; (ii) all of
its quarterly reports on Form 10-Q and current reports, if any, on Form 8-K
filed with the SEC since January 1, 1996; (iii) each final registration
statement, prospectus or offering circular which SBI has used in connection with
the sale of securities since January 1, 1996; and (iv) each definitive proxy
statement distributed by SBI to its shareholders since January 1, 1996.
All such reports (i) comply in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder, (ii) do not contain any untrue statement of a material fact and
(iii) do not omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(j) SBI Benefit Plans. SBI has furnished to Cardinal and FANBP
-----------------
true, correct and complete copies of the employee pension benefit plans (within
the meaning of ERISA Section 3(2)), employee welfare benefit plans (within the
meaning of ERISA Section 3(1)), stock purchase plans, deferred compensation and
supplemental income plans, supplemental executive retirement plans, annual
incentive plans, group insurance plans, and all other employee benefit plans,
policies, agreements and arrangements, maintained or contributed to by SBI or
any subsidiary of SBI in which any Continued Employee (as defined in Section 4.3
(b)) will be eligible to participate after the
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Effective Time, together with the most recent actuarial report, financial
statements and determination letter for the tax qualified cash balance pension
plan (or its predecessor) sponsored by SBI.
(k) Financial Reports. Each of SBI and its subsidiaries has
timely filed all material reports, registrations and statements, together with
any amendments required to be made with respect thereto, that it was required to
file since January 1, 1994 with (A) the Board, (B) the FDIC, (C) the OCC, (D)
the SEC, (E) the OTS, (F) the Pennsylvania Department of Banking and (G) the
Maryland Banking Commission (the regulatory agencies listed at (A) through (G)
are, collectively, the "SBI Regulatory Agencies"), and (H) any other regulatory
authority, and all other material reports and statements required to be filed by
it since January 1, 1994, including, without limitation, any report or statement
required to be filed pursuant to the laws, rules or regulations of the United
States or any regulatory agency and has paid all fees and assessments due and
payable in connection therewith, and no such report, registration or statement
contains any material misstatement or omission or is otherwise in material
noncompliance with any law, regulation or requirement.
(l) SBI's Balance Sheets. SBI's consolidated balance sheets as
of December 31, 1997 previously provided to Cardinal and each consolidated
balance sheet provided after the date hereof to Cardinal (including in each case
any related notes and schedules) fairly presents or will fairly present SBI and
its subsidiaries' financial position as of the dates thereof and each of the
consolidated statements of income and shareholders' equity and of cash flows
provided therewith (including in each case any related notes and schedules),
fairly presents or will fairly present the results of operations, shareholders'
equity and cash flows, as the case may be, of SBI and its subsidiaries for the
periods set forth therein (subject, in the case of unaudited interim statements,
to normal year-end audit adjustments that are not material in amount or effect),
in each case in accordance with generally accepted accounting principles
consistently applied during the periods involved.
(m) Absence of Certain Changes or Events. Since December 31,
1997, SBI has not incurred any material liability, except in the ordinary course
of its business consistent with past practice, nor has there been any change in
the financial condition, properties, assets, business, results of operation or
prospects of SBI and its subsidiaries which, individually or in the aggregate,
has had, or might reasonably be expected to result in, a Material Adverse Effect
on SBI and its subsidiaries, taken as a whole.
(n) Fees. Neither SBI nor any of its officers, directors,
employees or agents, has employed any broker or finder or incurred any liability
for any financial advisory fees, brokerage fees, commissions, or finder's fees,
and no broker or finder has acted directly or indirectly for it in connection
with the Agreement or the transactions contemplated hereby.
(o) Registration Statement, Etc. Except for information relating
to Cardinal and FANBP, neither (i) the Registration Statement, the Proxy
Statement/Prospectus or any amendment or supplement thereto, or any other
registration statement filed with the SEC during the term of this
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Agreement, at the time it is filed with the SEC, at the time it is declared
effective, at the time the Proxy Statement/Prospectus is mailed to the
shareholders of Cardinal or at the date of the Cardinal Shareholders' Meeting to
consider the approval of this Agreement nor (ii) any other documents to be filed
by SBI with the SEC or any regulatory agency in connection with this Agreement
or the transactions contemplated thereby will contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading. All documents which SBI is responsible for
filing with the SEC or any regulatory agency in connection with the Merger will
comply as to form in all material respects with the requirements of applicable
law.
(p) Compliance with Laws. It has the permits, licenses,
certificates of authority, orders and approvals of, and has made all filings,
applications and registrations with, federal, state, local and foreign
governmental authorities, including regulatory agencies that are required in
order to permit it to carry on its business as it is presently conducted and the
absence of which would, individually or in the aggregate, have a Material
Adverse Effect on SBI, on a consolidated basis; all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect,
and no suspension or cancellation of any of them is threatened.
(q) Absence of Regulatory Actions. It is not a party to any
cease and desist order, written agreement or memorandum of understanding with,
or a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any extraordinary supervisory
letter from, or has adopted any board resolutions at the request of, federal or
state governmental authorities, including, without limitation, the SBI
Regulatory Agencies, charged with the supervision or regulation of banks or bank
holding companies or savings and loan holding companies or engaged in the
insurance of bank and/or savings and loan deposits nor has it been advised by
any SBI Regulatory Agency 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, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
(r) Litigation and Liabilities. Except as set forth in Annex
3.2(r), there are no (i) civil, criminal or administrative actions, suits,
claims, hearings, investigations or proceedings before any court, governmental
agency or otherwise pending or, to the knowledge of management, threatened
against it or (ii) obligations or liabilities, whether or not accrued,
contingent or otherwise, including, without limitation, those relating to
environmental and occupational safety and health matters, or any other facts or
circumstances of which its management is aware that could reasonably be expected
to result in any claims against or obligations or liabilities of it, that, alone
or in the aggregate, are reasonably likely to have a Material Adverse Effect on
SBI, on a consolidated basis, or to hinder or delay, in any material respect,
consummation of the transactions contemplated by this Agreement.
(s) Environmental Matters. There is no activity or condition on
or in any property owned, occupied, leased, or held as security by SBI or a
Material Subsidiary which would
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subject SBI or any Material Subsidiary to damages, penalties, injunctive relief
or cleanup costs under any Environmental Law that individually or in the
aggregate would have a Material Adverse Effect on SBI, on a consolidated basis.
(t) Taxes. SBI's federal income tax returns have been examined
and closed or otherwise closed by operation of law through December 31, 1993.
All federal, state, local and foreign tax returns required to be filed by it or
on its behalf have been timely filed or requests for extensions have been timely
filed and any such extensions shall have been granted and not have expired, and,
to the knowledge of management, all such filed returns are complete and accurate
in all material respects. All taxes shown on such returns, and all taxes
required to be shown on returns for which extensions have been granted, have
been paid in full or adequate provision has been made for any such taxes on its
balance sheet (in accordance with generally accepted accounting principles)
other than those taxes which are being contested in appropriate forums in
proceedings which are being diligently pursued. Adequate provision has been made
on its balance sheet (in accordance with generally accepted accounting
principles consistently applied) for all federal, state, local and foreign tax
liabilities for periods subsequent to those for which returns have been filed.
There is no audit examination, deficiency, or refund litigation pending or, to
its knowledge, threatened with respect to any taxes that could result in a
determination that would have a Material Adverse Effect on SBI and its
subsidiaries, taken as a whole. All taxes, interest, additions and penalties due
with respect to completed and settled examinations or concluded litigation
relating to it have been paid in full or adequate provision has been made for
any such taxes on its balance sheet (in accordance with generally accepted
accounting principles). It has not executed an extension or waiver of any
statute of limitations or the assessment or collection of any tax due that is
currently in effect, except as disclosed on Annex 3.2(t).
(u) Agreements. It is not in default under or in violation of
any provision of any note, bond, indenture, mortgage, deed of trust, loan
agreement, lease or other agreement to which it is a party or by which it is
bound or to which any of its respective properties or assets is subject, other
than such defaults or violations as could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on SBI.
(v) Regulatory Compliance--State Banking Departments, OTS and
OCC. SBI and its state-chartered bank subsidiaries are in compliance in all
material respects with the applicable rules and regulations of the Banking
Department, in the case of Farmers First Bank and Founders' Bank, and the
Maryland Banking Commission, in the case of Farmers & Merchants Bank and Trust,
the Material Subsidiaries which are national banks are in compliance in all
material respects with applicable rules and regulations of the Office of the
Comptroller of the Currency and the Material Subsidiaries which are federally
chartered thrifts are in compliance in all material respects with applicable
rules and regulations of the OTS, except where the failure to comply would not
have a Material Adverse Effect on SBI and its subsidiaries, taken as a whole.
(w) Capital Compliance. As of December 31, 1997, SBI and its
Material Subsidiaries were in compliance with the minimum capital requirements
applicable to them under
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state and federal laws, including as to leverage ratio requirements, tangible
capital requirements and risk-based capital requirements.
(x) Assessments Fully Paid. All payments, fees and charges assessed
by appropriate state and federal agencies against SBI and its Material
Subsidiaries, and due on or prior to the date of this Agreement, have been paid
in full.
(y) Regulatory Compliance--FDIC and Federal Reserve. Except where the
failure to comply would not have a Material Adverse Effect on SBI and its
subsidiaries, taken as a whole and except as disclosed herein, SBI and its
Material Subsidiaries are in compliance in all material respects with the rules
and regulations of the FDIC and Federal Reserve to the extent such rules and
regulations are applicable by regulatory determination.
(z) Year 2000 Compliance. Except as provided in Annex 3.2(z) hereof,
SBI and its Material Subsidiaries are in material compliance with all
requirements announced or promulgated by the SBI Regulatory Agencies and the
Federal Financial Institutions Examination Council.
ARTICLE IV
COVENANTS
SECTION 4.1 Acquisition Proposals. Each of Cardinal and FANBP agrees
---------------------
that it and its officers and directors shall not, and that it shall direct and
use its best efforts to cause its employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it) not to, initiate, solicit or encourage, directly or indirectly,
any inquiries or the making of any proposal or offer (including, without
limitation, any proposal or offer to its shareholders) with respect to a merger,
consolidation or similar transaction involving, or any purchase, sale or other
disposition of all or any significant portion of the assets or any equity
securities of, Cardinal or FANBP (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal") or, except to the extent legally
required for the discharge by its board of directors of its fiduciary duties as
determined upon consultation with counsel, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal.
Each of Cardinal and FANBP agrees that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. Each of Cardinal and
FANBP agrees that it will take the necessary steps to inform the appropriate
individuals or entities referred to in the first sentence hereof of the
obligations undertaken by each of them in this Section 4.1. Each of Cardinal
and FANBP agrees that it will notify SBI immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations, or discussions are sought to be initiated or continued with, it.
Notwithstanding the foregoing, Cardinal, after written notice to SBI, may
respond to unsolicited inquiries of third parties and engage in
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discussions or negotiations with third parties following such unsolicited
inquiries by third parties if, in each case, following consultation with
counsel, the Cardinal Board of Directors determines that failure to respond to
such unsolicited inquiry or to engage in such discussions or negotiation is
likely to be deemed a breach or failure on the part of the Cardinal Board of
Directors to perform the duties of their office under applicable Pennsylvania
law.
SECTION 4.2 Securities Registration and Disclosure. Cardinal and
--------------------------------------
FANBP shall cooperate with SBI in the preparation, in accordance with the
requirements of the proxy rules under the Exchange Act, of the Proxy
Statement/Prospectus and the filing thereof as part of the Registration
Statement. Following the date hereof, SBI will prepare and file with the SEC
under the Securities Act a registration statement for the registration of the
shares of SBI Common Stock to be issued pursuant hereto (the "Registration
Statement"), and Cardinal will file with the SEC under the Exchange Act the
preliminary form of the Proxy Statement/Prospectus included in the Registration
Statement, and each party shall be responsible for providing all information
concerning itself and its subsidiaries required to be included therein. SBI
shall take any action required to be taken under any applicable state securities
or "blue sky" laws in connection with the issuance of shares of SBI Common Stock
pursuant to this Agreement and Cardinal shall furnish SBI all information
concerning Cardinal and its shareholders as SBI may reasonably request in
connection with any such action. At least five (5) business days prior to its
filing with the SEC, SBI shall provide a copy of the Registration Statement to
Cardinal and its counsel for review. Each party will promptly provide the other
with copies of all correspondence, comment letters, notices or other
communications to or from the SEC relating to the Registration Statement, the
Proxy Statement/Prospectus or any amendment or supplement thereto, and SBI will
advise Cardinal promptly after it receives notice thereof, of the effectiveness
of the Registration Statement, of the issuance of any stop order with respect to
the effectiveness thereof, of the suspension of the qualification of the SBI
Common Stock issuable in connection herewith for offering or sale in any
jurisdiction, or the initiation or threat of any proceeding for any such
purpose.
Cardinal will take appropriate action to call the Cardinal
Shareholders' Meeting, to be held not more than sixty (60) days following the
effective date of the Registration Statement (which meeting may be the Annual
Meeting of Shareholders of Cardinal), to consider approval of this Agreement
and, except to the extent legally required for the discharge by Cardinal's board
of directors of its fiduciary duties and subject to receipt of an updated
fairness opinion from its financial advisor dated on or immediately prior to the
date of the Proxy Statement, will use its best efforts to secure such approval.
In connection with the Cardinal Shareholders' Meeting, Cardinal will duly
solicit, in compliance with Section 14(a) of the Exchange Act and the proxy
rules of the SEC thereunder, the vote of its shareholders by mailing or
delivering to each such shareholder, as soon as practicable after the
effectiveness of the Registration Statement, the Proxy Statement/Prospectus, and
as soon as practicable thereafter, any amendments or supplements thereto as may
be necessary to assure that at the date of the Cardinal Shareholders' Meeting
the Proxy Statement/Prospectus shall conform to the requirements of Sections
3.1(oo) and 3.2(o) hereof.
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Cardinal will furnish to SBI a list of all persons known to Cardinal
who at the date of the Cardinal Shareholders' Meeting may be deemed to be
"affiliates" of Cardinal within the meaning of Rule 145 under the Securities
Act. Cardinal will use its best efforts to cause each such person identified in
its list to deliver at or prior to the Closing a written agreement providing
that such person will not sell, pledge, transfer or otherwise dispose of the
shares of SBI Common Stock to be received by such person hereunder except (i) in
compliance with the applicable provisions of the Securities Act and the rules
and regulations thereunder and (ii) after such time as financial results
covering at least thirty (30) days of post-merger combined operations have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies.
SECTION 4.3 Employees.
---------
(a) Except as otherwise agreed in writing, SBI and any of its
affiliates shall have the right (but not the obligation) to employ, as officers
or employees of SBI, the Surviving Corporation, FANBP or other affiliates of SBI
immediately following the Effective Time, any persons who are officers or
employees of either of Cardinal and FANBP immediately before the Effective Time.
It shall be a condition to employment by SBI or any of its affiliates that any
former officer or employee of Cardinal or FANBP agree to cancel any existing
employment contract, agreement or understanding between him or herself and
Cardinal or FANBP, including without limitation all benefits related to
severance arrangements upon a change of control or otherwise, prior to accepting
such new employment and without accepting any of the severance benefits or other
benefits or payments associated with such contract, agreement or understanding.
(b) Each person employed by Cardinal or FANBP prior to the Effective
Time who remains an employee of the Surviving Corporation or FANBP following the
Effective Time (each a "Continued Employee") shall be entitled, as an employee
of SBI or an SBI subsidiary, to credit for past service with Cardinal or FANBP
for purposes of eligibility, vesting and accrual and to participate in whatever
employee health, welfare, pension and fringe benefit plans, or whatever stock
option, bonus or incentive plans or other fringe benefit programs that may be in
effect generally for similarly situated employees of SBI or SBI's subsidiaries
from time to time ("SBI's Plans"), if such Continued Employee shall be selected
or otherwise eligible for participation therein; provided, however, that any
Continued Employee who continues to participate in a defined benefit pension
plan sponsored by FANBP or the Surviving Corporation shall not participate in
the cash balance pension plan sponsored by SBI prior to the merger of the two
plans as provided herein, and any Continued Employee who continues to
participate in a 401(k) plan sponsored by FANBP or the Surviving Corporation
shall not participate in the 401(k) plan sponsored by SBI prior to the merger of
the two plans as provided herein. All such participation in SBI's Plans shall
be subject to such terms of such plans as may be in effect from time to time,
provided that Continued Employees will be eligible to participate in SBI's Plans
on the same basis as similarly situated employees of SBI or SBI's subsidiaries
as provided herein. Such Continued Employees will receive credit for past
service with Cardinal or FANBP for purposes of eligibility under SBI's Plans and
calculation of benefits under SBI's severance benefits plan, if applicable, and
vesting under the 401(k) plan sponsored by SBI.
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(c) Cardinal and FANBP shall take all timely and necessary action to
cease participation or accrual of benefits, effective as of the Effective Time,
by each person employed by Cardinal or FANBP prior to the Effective Time in each
Employee Plan (as defined in Section 3.1(m)), and to terminate each Employee
Plan, other than the defined benefit pension plan sponsored by FANBP (the
"Surviving Corporation") [or an Employee Plan containing a cash or deferred
arrangement qualified under Section 401(k) of the Code ("Employee 401(k) Plan"],
effective as of the Effective Time; provided that SBI may, in its sole
discretion, give notice to Cardinal or FANBP not less than twenty (20) days
(sixty-one (61) days in the case of any Pension Plan (as defined in Section
3.1(m)) prior to the Effective Time, that any Employee Plan shall not be
terminated and/or participation or accrual of benefits thereunder shall not
cease pursuant to this Section 4.3(c).
(d) Subject to SBI's satisfaction that the defined benefit pension
plan sponsored by FANBP (the "Defined Benefit Plan") meets the requirements for
tax qualification under sections 401(a) and 501(a) of the Code, the Defined
Benefit Plan shall be merged with and into the cash balance pension plan
sponsored by SBI (the "Cash Balance Plan"), effective January 1, 1999. Each
participant in the Defined Benefit Plan as of December 31, 1998 shall be
credited with an initial balance under the Cash Balance Plan as of January 1,
1999 equal to 105% of the present value of the accrued benefit of such
participant calculated by application of the benefit formula under the
predecessor to the Cash Balance Plan as of December 31, 1998, as if all of the
service and earnings credited to such participant for purposes of calculating
his accrued benefit under the Defined Benefit Plan had been service with and
earnings paid by SBI. The present value of accrued benefits shall be calculated
based on mortality assumptions determined by the actuary for the Cash Balance
Plan and an interest rate equal to average of the annual rates of interest on
30-year Treasury securities for each of the business days of August, 1998.
SECTION 4.4 Access and Information.
----------------------
(a) Upon reasonable notice, and subject to applicable laws relating to
the exchange of information, each of Cardinal and FANBP shall afford to SBI and
its representatives (including, without limitation, directors, officers and
employees of SBI and its affiliates, and counsel, accountants and other
professionals retained) such access during normal business hours throughout the
period prior to the Effective Time to the books, records (including, without
limitation, tax returns and work papers of independent auditors), properties,
personnel and such other information as SBI may reasonably request (other than
reports or documentation which are not permitted to be disclosed under
applicable law); provided, however, that no investigation pursuant to this
Section 4.4 shall affect or be deemed to modify any representation or warranty
made herein. SBI will not, and will cause its representatives not to, use any
information obtained pursuant to this Section 4.4 for any purpose unrelated to
the consummation of the transactions contemplated by this Agreement and in no
event will SBI directly or indirectly use such information for any competitive
or commercial purpose. Subject to the requirements of law, SBI will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Section 4.4 unless such
information (i) was already known to SBI or an affiliate of SBI, (ii) becomes
available to SBI or an affiliate of SBI from other sources not known by such
person to be
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bound by a confidentiality agreement, (iii) is disclosed with the prior written
approval of Cardinal or FANBP, as the case may be, (iv) is or becomes readily
ascertainable from published information or trade sources or (v) was already
publicly available. Without in any way limiting the foregoing, Cardinal and
FANBP shall provide to SBI within forty-five (45) days of the end of each
calendar quarter consolidated financial statements (including a balance sheet
and income statement) as of the end of, and for, such period that are in
conformance with generally accepted accounting principles and the representation
set forth in Section 3.1(f). In the event that this Agreement is terminated or
the transactions contemplated by this Agreement shall otherwise not be
consummated, each party shall, if so requested, promptly cause all copies of
documents or extracts thereof containing information and data as to another
party hereto (or an affiliate of any party hereto) to be returned to the party
which furnished the same. This Section 4.4 supersedes and terminates any
agreement between the parties relating to the confidentiality of information
which may have been exchanged (the "Confidentiality Agreement").
(b) During the period from the date of this Agreement to the Effective
Date, SBI shall provide to Cardinal and FANBP the following documents and
information:
i. As soon as reasonably available, but in no event more than
forty-five (45) days after the end of each fiscal quarter of SBI ending after
the date of this Agreement, SBI will deliver to Cardinal and FANBP its quarterly
report on Form 10-Q as filed with the SEC.
ii. As soon as reasonably available, but in no event more than
ninety (90) days after the end of each fiscal year of SBI ending after the date
of this Agreement, SBI will deliver to Cardinal and FANBP its annual report on
Form 10-K as filed with the SEC.
iii. SBI will deliver to Cardinal and FANBP, contemporaneously
with its being filed with the SEC, a copy of each current report on Form 8-K
filed by SBI after the date of this Agreement.
iv. At least five (5) business days prior to submission, SBI
will furnish to Cardinal and FANBP the portions which describe the transactions
(including any financial information or pro forma financial information of, or
including, Cardinal or FANBP) contemplated herein of (A) registration
statements, prospectuses or offering circulars used by SBI in connection with
the sale of securities after the date of this Agreement, (B) proxy statements
distributed by SBI to its shareholders after the date of this Agreement, and (C)
all other publicly-available reports, statements or other documents which are
either distributed to shareholders or filed by SBI or any of its subsidiaries
with the SEC. Any comments timely received by SBI from Cardinal in connection
with the foregoing will be reviewed and considered in good faith, but SBI shall
not be bound to comply with the recommendations set forth in such comments. SBI
also shall furnish Cardinal with copies of the foregoing in the form filed with
the SEC or otherwise distributed to shareholders.
v. SBI shall notify Cardinal and FANBP within 5 business days
of any material changes to the SBI Benefit Plans.
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SECTION 4.5 Certain Filings, Consents and Arrangements. SBI shall
------------------------------------------
use all reasonable efforts to obtain all necessary approvals required to carry
out the transactions contemplated by this Agreement and to consummate the
Merger. Cardinal and FANBP shall cooperate with SBI in connection therewith,
including without limitation furnishing all information concerning Cardinal or
FANBP as may be reasonably requested by SBI in connection with any such action.
SBI shall use all reasonable efforts to provide, five (5) days prior to
submission, Cardinal with copies of all material applications, notices,
petitions or other filings or submissions prepared by SBI in connection with
consummation of the Merger. Any comments timely received by SBI from Cardinal
in connection with the foregoing will be reviewed and considered in good faith,
but SBI shall not be bound to comply with the recommendations set forth in such
comments. SBI will consult with Cardinal with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
governmental authorities necessary or advisable to consummate the transactions
contemplated by this Agreement and SBI will keep Cardinal apprised of the status
of matters relating to completion of the transactions contemplated hereby. SBI
shall promptly furnish Cardinal with copies of applications to any governmental
authority in respect of the transactions contemplated hereby.
SECTION 4.6 Takeover Statutes. No "fair price," "moratorium," or
-----------------
other form of anti-takeover statute or regulation or any similar provision of
Cardinal's articles of incorporation are applicable to the transactions
contemplated by this Agreement and, if any such statute, regulation or
provisions shall become applicable to the transactions contemplated by this
Agreement, Cardinal and FANBP and the members of the boards of directors of
Cardinal and FANBP shall grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
eliminate or minimize the effects of such statute or regulation or provision on
the transactions contemplated hereby.
SECTION 4.7 Additional Agreements. Subject to the terms and
---------------------
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all actions
and to do promptly, or cause to be done promptly, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement as promptly as
practicable, including using efforts to obtain all necessary actions or non-
actions, extensions, waivers, consents and approvals from all applicable
governmental authorities, or other entities, effecting all necessary
registrations, applications and filings and obtaining any required contractual
consents and regulatory approvals.
SECTION 4.8 Publicity. Except as required by law or regulation,
---------
Cardinal and FANBP shall not, without the prior consent of SBI (which consent
shall not be unreasonably withheld), issue any press releases or otherwise make
public filings under securities laws, with respect to this Agreement or the
transactions described herein. Prior to issuing any press release or making any
public filings under securities laws which makes any reference to Cardinal or
FANBP, SBI shall provide a copy to Cardinal for comment and in all such
instances the parties shall cooperate.
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SECTION 4.9 Meeting. INTENTIONALLY OMITTED.
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SECTION 4.10 Notification of Certain Matters. Each party shall give
-------------------------------
prompt notice to the others of: (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by it or any of its subsidiaries subsequent to
the date of this Agreement and prior to the Effective Time, under any contract
material to the financial condition, properties, businesses, results of
operations or prospects of it to which it is a party or is subject; and (b) any
Material Adverse Change in its financial condition, properties, business, or
results of operations taken as a whole or the occurrence of any event which, so
far as reasonably can be foreseen at the time of its occurrence, is reasonably
likely to result in any such change. Each party shall give prompt notice to the
other parties of any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the transactions contemplated by this Agreement.
SECTION 4.11 Insurance. Cardinal and FANBP shall use best efforts to
---------
retain no less than the level of insurance coverage presently held by them as of
the date hereof.
SECTION 4.12 Dividends. Cardinal shall not declare, pay or set aside
---------
any dividend or other distribution in respect of its capital stock except in
conformity with past practice as to amount and timing of such dividends, with
increases in conformity with past practices, it being understood on the basis of
Cardinal's representations of past practice that a dividend of $0.16 per share
for the first quarter of 1998, $0.18 per share for the second quarter of 1998,
$0.20 per share for the third quarter of 1998, and $0.22 per share for the
fourth quarter of 1998, is consistent with the past practice of Cardinal as to
amount and timing of dividends.
SECTION 4.13 Directors.
---------
(a) The board of directors of SBI shall elect one person who is a
director of Cardinal as of the date of execution of this Agreement to the board
of directors of SBI as of the Effective Date. Such person shall be nominated by
the Cardinal board of directors and his name forwarded to SBI at least one month
prior to the Effective Date. Subject to the approval of such person by the SBI
board of directors (said approval not to be unreasonably withheld), such person
shall become a director of SBI on the Effective Date. The President and CEO of
SBI shall propose at the 15 April 1998 meeting of the SBI Board that the SBI
Board adopt resolutions providing that upon the expiration of the initial term
of the person elected to the board of directors of SBI pursuant to this Section
4.13(a), the board of directors of SBI shall nominate and recommend to the
shareholders of SBI, at the subsequent SBI Annual Meeting of Shareholders, the
election to the board of directors of SBI of a member of the board of directors
of FANBP who meets the eligibility requirements for directors of SBI, such
person to be proposed by the FANBP Board and agreed to by SBI, which agreement
shall not be unreasonably withheld.
(b) Each person who is a director of FANBP as of the date of the
execution of this Agreement shall remain a director of FANBP for a period of at
least three years from the Effective
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Date and shall receive compensation of $7,980 per year for each year in which
such director attends at least 10 meetings of the FANBP board of directors,
provided that in the event that a FANBP director fails to attend the minimum
number of meetings per year required pursuant to OCC regulations, or otherwise
fails to meet the minimum standards required by the OCC, such director shall be
removed absent a showing of compelling circumstances that would warrant
retention. FANBP directors who fail to attend at least 10 meetings per year
shall receive only $665 per meeting actually attended as compensation during
said year.
(c) On the Effective Date and thereafter, FANBP or its successor(s)
shall continue to meet its obligations under that certain Deferred Compensation
Agreement made and entered into April 1, 1988 by and between Ray E. Koontz and
FANBP, a true and complete copy of which is attached hereto as Annex 4.13(c).
(d) The existing Directors' Deferred Income Agreements, including all
Addenda, with Messrs. Koontz, DeArment, Dodson and Morris, true and complete
copies of which are attached hereto as Annexes 4.13(d)(1)-(4), shall each be
amended prior to June 30, 1998 to provide that on June 30, 1998, the
Compensation (as defined in the Directors' Deferred Income Agreements) provided
under the Directors' Deferred Income Agreements will be equal to the amounts set
forth in Schedule 4.13(d) attached hereto, adjusted to reflect additional
deferrals between January 1, 1998 and June 30, 1998. FANBP shall not amend the
Directors' Deferred Income Agreements, except as provided in this Section
4.13(d). True and complete copies of all other Directors' Deferred Income
Agreements, including all Addenda, are set forth in Annex 4.13(d)(5). From the
Effective Date, FANBP directors shall participate, if at all, only in the
deferred director fee plans established by SBI or SBI Merger Sub, if any, for
which FANBP directors are eligible for participation.
(e) As of the Effective Date and at all times thereafter, no director
of FANBP shall receive health insurance, life insurance or any kind of bonus
compensation and all such arrangements shall terminate without any further
obligation on the part of Cardinal or Surviving Corporation.
(f) On and after the Effective Time, SBI shall indemnify and hold
harmless all former and present directors, officers, employees and agents of
Cardinal and FANBP for all losses, claims, damages, costs, expenses, liabilities
or judgments or amounts that are paid in settlement (with the approval of SBI,
which approval shall not be unreasonably withheld) in connection with any claim,
action, suit, proceeding or investigation based in whole or in part on the
operation of the business of Cardinal or FANBP prior to the Effective Time, to
the fullest extent permitted under the articles of incorporation of Cardinal,
the charter of FANBP, and the bylaws of each, as in effect as of the date of the
execution of this Agreement.
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ARTICLE V
CONDITIONS TO CONSUMMATION
SECTION 5.1 Conditions to Closing. The respective obligations of the
---------------------
parties to effect the Merger shall be subject to the satisfaction or waiver
prior to the Effective Time of the following conditions:
(a) The Agreement and the transactions contemplated hereby shall have
been approved by the requisite vote of the shareholders of Cardinal and SBI (if
applicable) in accordance with applicable law, as well as the articles of
incorporation and bylaws of each of Cardinal and SBI.
(b) All approvals, consents or waivers required by any of the Cardinal
Regulatory Agencies or the SBI Regulatory Agencies with respect to this
Agreement (including the Merger) and the transactions contemplated hereby
including, without limitation, the approvals, notices to, consents or waivers of
(i) the Board, and (ii) the Pennsylvania Department of Banking (the Cardinal
Regulatory Agencies and the SBI Regulatory Agencies, are, collectively the
"Regulatory Agencies") shall have been obtained and shall remain in full force
and effect, and all applicable statutory waiting periods (including without
limitation all applicable statutory waiting periods relating to the Merger)
shall have expired; and the parties shall have procured all other regulatory
approvals, consents or waivers of governmental authorities or other persons that
are necessary or appropriate to the consummation of the transactions
contemplated by this Agreement except those approvals, consents or waivers, if
any, for which failure to obtain would not, individually or in the aggregate,
have a Material Adverse Effect on SBI, SBI Merger Sub, Cardinal or FANBP (after
giving effect to the transaction contemplated hereby); provided, however, that
no approval, consent or waiver referred to in this Section 5.1(b) shall be
deemed to have been received if it shall include any condition or requirement
that reasonably would result in a Material Adverse Effect on SBI or SBI Merger
Sub.
(c) All other requirements prescribed by law which are necessary to
the consummation of the transactions contemplated by this Agreement shall have
been satisfied.
(d) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger or any other transaction contemplated
by this Agreement, and no litigation or proceeding shall be pending against any
of the parties herein or any of their subsidiaries brought by any governmental
agency seeking to prevent consummation of the transactions contemplated hereby.
(e) No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any governmental
authority which prohibits, restricts or makes illegal consummation of the Merger
or any other transaction contemplated by this Agreement.
(f) The Merger shall as of the date of the Closing meet the
requirements for pooling-of-interests accounting treatment under generally
accepted accounting principles and under
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the accounting rules of the SEC, and SBI shall have received a letter from
Coopers & Lybrand L.L.P. in form and substance reasonably satisfactory to SBI as
to the matters specified in this Section 5.1(f).
(g) The Registration Statement shall have been filed (the date of
which is referred to herein as the "Filing Date") by SBI with the SEC under the
Securities Act, and shall have been declared effective prior to the time the
Proxy Statement/ Prospectus is first mailed to the shareholders of Cardinal, and
no stop order with respect to the effectiveness of the Registration Statement
shall have been issued; the SBI Common Stock to be issued pursuant to this
Agreement shall be duly registered or qualified under the securities or "blue
sky" laws of all states in which such action is required for purposes of the
initial issuance of such shares and the distribution thereof to the shareholders
of Cardinal entitled to receive such shares.
(h) A ruling from the IRS or an opinion of Morgan, Lewis & Bockius
LLP, counsel to SBI and SBI Merger Sub, to the effect that:
i. The Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and Cardinal and SBI will each be a "party
to a reorganization" within the meaning of Section 368(b) of the Code;
ii. No gain or loss will be recognized by Cardinal or SBI by
reason of the Merger;
iii. Except for cash received in lieu of fractional shares or
with respect to any shareholder of Cardinal who receives cash as a dissenting
shareholder, no gain or loss will be recognized by the shareholders of Cardinal
who receive solely SBI Common Stock upon the exchange of their shares of
Cardinal Common Stock for shares of SBI Common Stock;
iv. The basis of the SBI Common Stock to be received by the
Cardinal shareholders will be, in each instance, the same as the basis of the
Cardinal Common Stock surrendered in exchange therefor;
v. The holding period of the SBI Common Stock received by a
Cardinal shareholder receiving SBI Common Stock will include the period during
which the Cardinal Common Stock surrendered in exchange therefor was held; and
vi. Cash received by a Cardinal shareholder in lieu of a
fractional share interest of SBI Common Stock will be treated as having been
received as a distribution in full payment in exchange for the fractional share
interest of SBI Common Stock which he would otherwise be entitled to receive and
will qualify as capital gain or loss.
vii. No gain or loss will be recognized by the holders of the
Cardinal Options as a result of the assumption of the Cardinal Options by SBI
pursuant to Section 1.6 of this Agreement.
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In case a ruling from the IRS is sought, Cardinal and SBI shall
cooperate and each shall furnish to the other and to the IRS such information
and representations as shall, in the opinion of counsel for SBI and Cardinal, be
necessary or advisable to obtain such ruling.
(i) The existing employment contract between Cardinal and FANBP, on
the one side, and Merle W. Helsel, on the other side, shall be canceled
immediately prior to the Effective Time, without prejudice to either side
(including, without limitation, by way of any payment or severance, bonus,
change of control benefit or any other amount) and Mr. Helsel shall have entered
into an agreement with SBI in the form attached hereto as Schedule 5.1 (i).
SECTION 5.2 Conditions to Obligations of SBI and SBI Merger Sub. The
---------------------------------------------------
obligations of SBI and SBI Merger Sub to effect the Merger shall be subject to
the satisfaction or waiver prior to the Effective Time of the following
additional conditions:
(a) Each of the representations and warranties of Cardinal and FANBP
contained in this Agreement shall be true and correct in all material respects
as of the Effective Date as if made on such date (or on the date when made in
the case of any representation or warranty which specifically relates to an
earlier date); each of Cardinal and FANBP shall have performed each of its
covenants and agreements, which are material to its operations and prospects,
contained in this Agreement; and SBI and SBI Merger Sub shall have received
certificates signed by the Chief Executive Officer and the Chief Financial
Officer of FANBP and the President and Treasurer of Cardinal, dated as of the
date of the Closing, to the foregoing effect.
(b) S.R. Snodgrass, A.C. or such other accounting firm as is
acceptable to the parties, shall have furnished to SBI an "agreed upon
procedures" letter, dated the Effective Date, in form and substance satisfactory
to SBI to the effect that, based upon a procedure performed with respect to the
financial condition of Cardinal, FANBP and affiliates, for the period from
December 31, 1997 to a specified date not more than five (5) days prior to the
date of such letter, including but not limited to (a) their inspection of the
minute books of Cardinal, FANBP and affiliates, (b) inquiries made by them of
officers and other employees of Cardinal, FANBP and affiliates responsible for
financial and accounting matters as to transactions and events during the
period, as to consistency of accounting procedures with prior periods and as to
the existence and disclosure of any material contingent liabilities, and (c) of
other specified procedures and inquiries performed by them, nothing has come to
their attention that would indicate that (A) during the period from December 31,
1997 to a specified date not more than five (5) days prior to the date of such
letter, there was any change in the capitalization of Cardinal or FANBP on a
consolidated basis, or (B) any material adjustments would be required to the
audited financial statements for the period ended December 31, 1997 in order for
them to be in conformity with generally accepted accounting principles applied
on a consistent basis with that of prior periods.
(c) SBI shall have received an opinion or opinions dated as of the
Effective Date, from Shumaker Williams, P.C., Camp Hill, Pennsylvania, Special
Counsel to Cardinal and FANBP, substantially in the form attached hereto as
Exhibit 5.2(c).
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(d) There shall not have occurred any change in the financial
condition, properties, assets, business or results of operation of Cardinal or
FANBP which, individually or in the aggregate, has had or might reasonably be
expected to result in a Material Adverse Effect on Cardinal or FANBP other than
such changes resulting from (i) changes in banking laws or regulations, or (ii)
changes in generally accepted accounting principles, or interpretations thereof,
that affect the banking or thrift industries.
(e) SBI shall have received from each of the persons identified by
Cardinal pursuant to Section 4.2 hereof an executed counterpart of an
affiliate's agreement in the form contemplated by such Section.
(f) Except as otherwise provided in this Agreement at Section 1.6
prior to Closing, all issued and outstanding options, warrants or rights to
acquire Cardinal Common Stock or any capital stock of FANBP ("FANBP Common
Stock") shall have been canceled. No compensation or other rights will be
payable or exchangeable in the Merger in respect of any such rights which remain
unexercised at the Effective Time.
SECTION 5.3 Conditions to the Obligations of Cardinal and FANBP. The
---------------------------------------------------
obligations of Cardinal to effect the Merger shall be subject to the
satisfaction or waiver prior to the Effective Time of the following additional
conditions:
(a) Each of the representations, warranties and covenants of SBI and
SBI Merger Sub contained in this Agreement shall be true and correct in all
material respects on the Effective Date as if made on such date (or on the date
when made in the case of any representation or warranty which specifically
relates to an earlier date); SBI and SBI Merger Sub shall have performed each of
its covenants and agreements, which are material to its operations and
prospects, contained in this Agreement; and Cardinal shall have received
certificates signed by the President or Vice President and Secretary of SBI and
SBI Merger Sub.
(b) Cardinal shall have received an opinion dated as of the Effective
Date, from Morgan, Lewis & Bockius LLP, Harrisburg, Pennsylvania, counsel to SBI
and SBI Merger Sub, substantially in the form attached hereto as Exhibit 5.3(b).
(c) There shall not have occurred any change in the financial
condition, properties, assets or business or results of operation of SBI and SBI
Merger Sub which, individually or in the aggregate, has had or might reasonably
be expected to result in a Material Adverse Effect on SBI or the SBI
Subsidiaries taken as a whole.
(d) Cardinal shall have received an updated opinion from Garland
McPherson & Associates, Inc. as of a date no later than the date of the Proxy
Statement/Prospectus mailed to the Cardinal shareholders in connection with the
Merger and not subsequently withdrawn, to the effect that the Merger
consideration is fair to Cardinal's shareholders from a financial point of view.
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(e) The shares of SBI Common Stock to be issued in the Merger shall
have been authorized to be listed for quotation on the NASDAQ National Market
System.
(f) A certificate for the required number of whole shares of the SBI
Common Stock, as determined in accordance with Section 1.2 and Schedule 1.2, and
cash payable for the fractional shares interests shall have been irrevocably
delivered to Farmers First Bank, as Exchange Agent, subject to Section 1.3 of
this Agreement.
(g) No transaction or event involving SBI shall have occurred that
would result in (i) a material change to the nature of the securities described
in SBI's Articles of Incorporation as amended at the 1998 Annual Meeting of
Shareholders, (ii) a change in the identity of the legal entity of the issuer of
the securities to be issued in the Merger to holders of Cardinal Common Stock,
or (iii) SBI's ceasing to own a Material Subsidiary accounting for 10% or more
of SBI's total assets, provided that SBI shall be permitted to reorganize or
merge its Material Subsidiaries in any manner whatsoever within its bank holding
company system.
(h) The side letter in the form attached as Exhibit 5.3(h) hereto
shall be executed and delivered concurrent with the signing of this Agreement.
ARTICLE VI
TERMINATION
SECTION 6.1 Termination. This Agreement may be terminated, and the
-----------
Merger abandoned, prior to the Effective Date, either before or after its
approval by the shareholders of Cardinal:
(a) by the mutual, written consent of Cardinal and SBI if the board of
directors of each so determines by a vote of a majority of the members of the
entire board;
(b) by Cardinal if (i) by written notice to SBI that there has been a
material breach by SBI of any representation, warranty, covenant or agreement
contained herein and such breach is not cured within thirty (30) days after
written notice of such breach is given to SBI by Cardinal, (ii) by written
notice to SBI that any condition precedent to Cardinal's obligations as set
forth in Article V of this Agreement has not been met or waived by Cardinal at
such time as such condition can no longer be satisfied, (iii) the board of
directors of Cardinal fails to make, withdraws or modifies or changes the
favorable recommendation described at Section 4.2, or (iv) receipt of an
Acquisition Proposal that results in a determination by the board of directors
of Cardinal that such Acquisition Proposal is likely to be more favorable to the
shareholders of Cardinal than the Merger.
(c) by SBI by written notice to the other parties, in the event (i) of
a material breach by Cardinal or FANBP of any representation, warranty, covenant
or agreement contained herein and such breach is not cured within thirty (30)
days after written notice of such breach is
42
<PAGE>
given to Cardinal by SBI or (ii) any condition precedent to SBI's obligations as
set forth in Article V of this Agreement has not been met or waived by SBI at
such time as such condition can no longer be satisfied.
(d) by SBI or Cardinal by written notice to the other, in the event
that the Merger is not consummated by December 31, 1998, unless the failure to
so consummate by such time is due to the breach of any representation, warranty
or covenant contained in this Agreement by the party seeking to terminate,
provided, however, that such date may be extended by the written agreement of
the parties hereto.
(e) by Cardinal, whether before or after approval of the Merger by the
Cardinal shareholders, by giving written notice of the election described in
Schedule 1.2 to SBI within one (1) business day following a determination that
the Average Closing Price of the SBI Common Stock is greater than $40.00 per
share (subject to adjustment in accordance with Section 1.2 (c) herein) at the
time such calculation is required to be made pursuant to Schedule 1.2 hereof.
(f) by SBI if it chooses to give written notice of the election
described in Schedule 1.2 to Cardinal, but if at all, within one (1) business
day following a determination that the Average Closing Price of SBI Common Stock
is less than $34.00 per share (subject to adjustment in accordance with Section
1.2 (c) herein) at the time such calculation is required to be made pursuant to
Schedule 1.2 hereof.
SECTION 6.2 Effect of Termination. In the event of the termination
---------------------
of this Agreement, as provided above, this Agreement shall thereafter become
void and have no effect, except that the provisions of Sections 3.1(p) and
3.2(n) (Fees), 4.4 (solely as it relates to confidentiality and return of
documents), and 6.3 and 7.7 (Expenses) of this Agreement shall survive any such
termination and abandonment.
SECTION 6.3 Expenses. Any termination of this Agreement pursuant to
--------
Sections 6.1(a), 6.1(d), 6.1(e) or 6.1(f) hereof shall be without cost, expense
or liability on the part of any party to the others and the Stock Option
Agreement shall be null and void. Any termination of this Agreement pursuant to
Section 6.1(b)(i), (ii) or (iv) or 6.1(c)(i) or (ii) hereof shall also be
without cost, liability or expense on the part of any party to the others,
unless the breach of a representation or warranty or covenant is caused by the
willful conduct or gross negligence of a party, in which event said party shall
be liable to the other parties for all out-of-pocket costs and expenses,
including without limitation, reasonable legal, accounting and investment
banking fees and expenses, incurred by such other party in connection with their
entering into this Agreement and their carrying out of any and all acts
contemplated hereunder ("Expenses").
So long as SBI shall not have breached its obligations hereunder, if
this Agreement is terminated by reason of clause (iii) of Section 6.1(b) hereof
other than as a result of a Material Adverse Change in SBI's financial
condition, properties, assets, liabilities (including contingent liabilities),
business or results of operations and other than as a result of the failure of
Cardinal's
43
<PAGE>
financial advisor to update its fairness opinion as contemplated by Section
5.3(d), Cardinal shall promptly, but in no event later than two (2) business
days after such termination, pay SBI a fee of 1% of the aggregate consideration
that would be paid if the date of the termination were the Effective Date, which
amount shall be payable by wire transfer of same day funds. If Cardinal fails to
promptly pay the amount due pursuant to this Section 6.3, and, in order to
obtain such payment, SBI commences a suit which results in a judgment against
Cardinal for all or a substantial portion of the fee set forth in this Section
6.3, Cardinal shall pay to SBI all costs and expenses (including reasonable
attorneys' fees) incurred by SBI in connection with such suit.
ARTICLE VII
OTHER MATTERS
SECTION 7.1 Certain Definitions; Interpretation. As used in this
-----------------------------------
Agreement, the following terms shall have the meanings indicated:
"material" means material to the party in question (as the case may
be) and its respective subsidiaries, taken as a whole.
"Material Adverse Effect," with respect to a person, means any
condition, event, change or occurrence that has or results in an effect
which is material and adverse to (A) the financial condition, properties,
assets, business or results of operations of such person and its
subsidiaries, taken as a whole, or (B) the ability of such person to
perform its obligations under, and to consummate the transactions
contemplated by, this Agreement. In the case of FANBP, receipt of a CAMELS
rating in connection with a safety and soundness examination or an FDIC
premium assessment for insurance which is, in either case, less favorable
than the rating given to FANBP in connection with the safety and soundness
examination most recently reported prior to the date of this Agreement or
the FDIC premium assessment reported prior to the date of this Agreement,
as the case may be, shall be deemed to have a "Material Adverse Effect" on
FANBP. In the case of SBI, merger by SBI with or into any third party, or
any material change (as determined by Cardinal in its sole discretion) in
or to any of the SBI Plans, shall be deemed to have a "Material Adverse
Effect" on SBI.
"person" includes an individual, corporation, partnership,
association, trust or unincorporated organization.
"subsidiary," with respect to a person, means any other person
controlled by such person.
When a reference is made in this Agreement to Exhibits, Sections, Annexes or
Schedules, such reference shall be to a Section of, or Annex or Schedule to,
this Agreement unless otherwise
44
<PAGE>
indicated. The table of contents, tie sheet and headings contained in this
Agreement are for ease of reference only and shall not affect the meaning or
interpretation of this Agreement. Whenever the words "include," "includes," or
"including" are used in this Agreement, they shall be deemed followed by the
words "without limitation". Any singular term in this Agreement shall be deemed
to include the plural, and any plural term the singular.
SECTION 7.2 Survival. The representations, warranties and agreements
--------
of the parties set forth in this Agreement shall not survive the Effective Time,
and shall be terminated and extinguished at the Effective Time, and from and
after the Effective Time none of the parties hereto shall have any liability to
the other on account of any breach or failure of any of those representations,
warranties and agreement; provided, however, that the foregoing clause shall not
-------- -------
(i) apply to agreements of the parties which by their terms are intended to be
performed either in whole or in part after the Effective Time, including, but
not limited to, the covenants contained in Sections 4.3 and 4.13 of Article IV
hereof, and (ii) shall not relieve any person of liability for fraud, deception
or intentional misrepresentation.
SECTION 7.3 Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto and their respective
successors and assigns, and, other than the right to receive the consideration
payable in the Merger pursuant to Article I hereof, is not intended to and shall
not confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 7.4 Waiver and Amendment. Prior to the Effective Time, any
--------------------
provision of this Agreement may be: (i) waived by the party benefitted by the
provision; or (ii) amended or modified at any time (including the structure of
the transaction) by an agreement in writing between the parties hereto approved
by their respective boards of directors, except that no amendment or waiver may
be made that would change the form or the amount of the Merger Consideration or
otherwise have the effect of prejudicing the Cardinal shareholders' interest in
the Merger Consideration following the Cardinal Shareholders' Meeting.
SECTION 7.5 Counterparts. This Agreement may be executed in
------------
counterparts each of which shall be deemed to constitute an original, but all of
which together shall constitute one and the same instrument.
SECTION 7.6 Governing Law. This Agreement shall be governed by, and
-------------
interpreted in accordance with, the laws of the Commonwealth of Pennsylvania,
or, to the extent it may control, federal law, without reference to the choice
of law principles thereof.
SECTION 7.7 Expenses. Subject to the provisions of Section 6.3
--------
hereof, each party hereto will bear all Expenses incurred by it in connection
with this Agreement and the transactions contemplated hereby; provided, however,
that all filing and other fees (other than federal and state income taxes)
required to be paid to any governmental agency or authority in connection with
the consummation of the transactions contemplated hereby shall be paid by SBI.
45
<PAGE>
SECTION 7.8 Notices. All notices, requests, acknowledgments and
-------
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, telecopy, telegram or
telex (confirmed in writing) to such party at its address set forth below or
such other address as such party may specify by notice to the other party
hereto.
If to Cardinal, to:
Cardinal Bancorp, Inc.
140 East Main Street
Everett, PA 15537
Attention: Merle W. Helsel
President and Chief Executive Officer
With copies to:
Shumaker Williams, P.C.
3425 Simpson Ferry Road
Camp Hill, PA 17011
Attention: Nicholas Bybel, Jr., Esquire
If to FANBP, to:
First American National Bank of Pennsylvania
140 East Main Street
Everett, PA 15537
Attention: Merle W. Helsel
President and Chief Executive Officer
With copies to:
Shumaker Williams, P.C.
3425 Simpson Ferry Road
Camp Hill, PA 17011
Attention: Nicholas Bybel, Jr., Esquire
46
<PAGE>
If to SBI, to:
Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543
Attention: Robert S. Bolinger
President and Chief Executive Officer
With copies to:
Morgan, Lewis & Bockius LLP
One Commerce Square
417 Walnut Street
Harrisburg, PA 17101-1904
Attention: Charles L. O'Brien, Esquire
If to SBI Merger Sub, to:
Susquehanna Bancshares West, Inc.
c/o Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543
Attention: Robert S. Bolinger
President and Chief Executive Officer
With copies to:
Morgan, Lewis & Bockius LLP
One Commerce Square
417 Walnut Street
Harrisburg, PA 17101-1904
Attention: Charles L. O'Brien, Esquire
SECTION 7.9 Entire Agreement; Etc. This Agreement, together with
---------------------
such other agreements as are executed by the parties in connection herewith,
including, but not limited to, Exhibit 5.1(i) and Exhibit 5.3(h), on the date
hereof, represent the entire understanding of the parties hereto with reference
to the transactions contemplated hereby and supersede any and all other oral or
written agreements heretofore made. All terms and provisions of this Agreement,
together with such other agreements as are executed by the parties in connection
herewith, on the date hereof, shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Nothing in this Agreement is intended to confer upon any other person any rights
or
47
<PAGE>
remedies of any nature whatsoever under or by reason of this Agreement except as
expressly provided.
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be
executed by their duly authorized officers as of the day and year first above
written.
SUSQUEHANNA BANCSHARES, INC.
/s/ Robert S. Bolinger
-----------------------------------------------
By: Robert S. Bolinger
Title: President and Chief Executive Officer
SUSQUEHANNA BANCSHARES WEST, INC.
/s/ Robert S. Bolinger
-----------------------------------------------
By: Robert S. Bolinger
Title: President and Chief Executive Officer
CARDINAL BANCORP, INC.
/s/ Merle W. Helsel
-----------------------------------------------
By: Merle W. Helsel
Title: President and Chief Executive Officer
FIRST AMERICAN NATIONAL BANK
OF PENNSYLVANIA
/s/ Merle W. Helsel
-----------------------------------------------
By: Merle W. Helsel
Title: President and Chief Executive Officer
48
<PAGE>
SCHEDULE 1.2
Exchange Provisions
-------------------
So long as the Average Price Per Share of SBI Common Stock Before
Closing is at or between $34.00 and $40.00, then 1.28 shares of SBI Common Stock
shall be exchanged for each of the outstanding shares of Cardinal Common Stock
and the Exchange Ratio shall be 1.28.
The Average Price Per Share of SBI Common Stock Before Closing shall
be determined by adding the price at which SBI Common Stock is reported to have
closed by NASDAQ's NMS (or if SBI Common Stock is not quoted on NASDAQ's NMS
then as reported by a recognized source as to the principal trading market on
which such shares are traded) over the period of ten business days ending on the
second business day preceding the date set for Closing, pursuant to Section 1.1
(b) hereof, and dividing such total by 10 (such Average Price Per Share Before
Closing is also referred to as the "Average Closing Price").
If the Average Closing Price is greater than $40.00, then $50,688,000
divided by the Average Closing Price shall be the total number of shares of SBI
Common Stock to be exchanged for all of the outstanding Cardinal Common Stock,
and the Exchange Ratio shall be the total number of shares of SBI Common Stock
to be exchanged for all of the outstanding Cardinal Common Stock divided by the
total number of shares of Cardinal Common Stock outstanding on the Effective
Date.
If the Average Closing Price is less than $34.00, then $43,085,000
divided by the Average Closing Price shall equal the total number of shares of
SBI Common Stock to be exchanged for all of the outstanding Cardinal Common
Stock, and the Exchange Ratio shall be the total number of shares of SBI Common
Stock to be exchanged for all of the outstanding Cardinal Common Stock divided
by the total number of shares of Cardinal Common Stock outstanding on the
Effective Date.
Notwithstanding the foregoing, Cardinal shall have the right to
terminate this Agreement, in accordance with Section 6.1 (e), if the Average
Closing Price is greater than $40.00, and SBI shall have the right to terminate
this Agreement, in accordance with Section 6.1 (f), if the Average Closing Price
is less than $34.00.
The Exchange Ratio in all instances set forth herein is subject to
adjustment in accordance with Section 1.2(c).
<PAGE>
EXHIBIT 2.2
<PAGE>
________________________________________________________________________________
________________________________________________________________________________
AGREEMENT AND PLAN OF AFFILIATION
DATED AS OF THE 16TH DAY OF APRIL, 1998
BY AND AMONG
SUSQUEHANNA BANCSHARES, INC.,
SUSQUEHANNA INTERIM BANK
AND
FIRST CAPITOL BANK
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PAGE(S)
-------
ARTICLE I THE PLAN OF MERGER...................................................2
SECTION 1.1 The Merger; Closing; Effective Time..........................2
SECTION 1.2 Effect on Outstanding Shares.................................3
SECTION 1.3 Surrender and Exchange of Bank Certificates..................3
SECTION 1.4 Dissenters' Rights...........................................5
SECTION 1.5 Other Matters................................................5
SECTION 1.6 Bank Warrants................................................5
ARTICLE II CONDUCT PENDING THE MERGER..........................................6
SECTION 2.1 Conduct of Bank's Businesses Prior to the Effective Time.....6
SECTION 2.2 Forbearance by Bank..........................................6
SECTION 2.3 Cooperation..................................................7
SECTION 2.4 Conduct of SBI's Business Prior to the Effective Time........7
ARTICLE III REPRESENTATIONS AND WARRANTIES.....................................7
SECTION 3.1 Representations and Warranties of Bank.......................7
SECTION 3.2 Representations and Warranties of SBI and its Material
Subsidiaries................................................22
ARTICLE IV COVENANTS..........................................................29
SECTION 4.1 Acquisition Proposals.......................................29
SECTION 4.2 Securities Registration and Disclosure......................29
SECTION 4.3 Employees...................................................30
SECTION 4.4 Access and Information......................................32
SECTION 4.5 Certain Filings, Consents and Arrangements..................33
SECTION 4.6 Takeover Statutes...........................................33
SECTION 4.7 Additional Agreements.......................................34
SECTION 4.8 Publicity...................................................34
SECTION 4.10 Notification of Certain Matters............................34
SECTION 4.11 Insurance..................................................34
SECTION 4.12 Dividends..................................................34
SECTION 4.13 Indemnification; Insurance.................................34
<PAGE>
AGREEMENT AND PLAN OF AFFILIATION dated as of the 16th day of April,
1998 (this "Plan" or this "Agreement"), is entered into by and among Susquehanna
Bancshares, Inc., a Pennsylvania corporation ("SBI"), Susquehanna Interim Bank,
a Pennsylvania state chartered bank ("Interim Bank"), and First Capitol Bank,
also a Pennsylvania state chartered bank ("Bank").
RECITALS:
WHEREAS, SBI is a multi-state, multi-institution bank holding company;
and
WHEREAS, Interim Bank will be a wholly-owned bank subsidiary of SBI
created solely for the purpose of facilitating the transactions described in
this Agreement; and
WHEREAS, Bank is an independent financial institution with a strong
record of performance; and
WHEREAS, the boards of directors of SBI and Bank have each determined
that it is in the best interest of their respective shareholders for SBI to
acquire Bank by means of a merger of Interim Bank with and into Bank (the
"Merger") as a result of which Bank will become a wholly-owned subsidiary of
SBI, all upon the terms and subject to the conditions set forth herein; and
WHEREAS, the parties desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement and to
set forth the conditions to the Merger; and
WHEREAS, as a condition and inducement to SBI's and Interim Bank's
willingness to enter into this Agreement, the following agreements of even date
herewith have been concurrently executed and delivered herewith: (i) a stock
option agreement (the "Stock Option Agreement") among SBI, Interim Bank and the
Bank; (ii) a voting agreement (a "Voting Agreement") between each of the
directors of the Bank and National Penn Investment Company ("National Penn") and
SBI; and (iii) a warrant substitution agreement (the "Warrant Substitution
Agreement") among SBI, the Bank, National Penn and David A. Friedman, a director
of the Bank; and
WHEREAS, Bank, SBI and Interim Bank desire to merge in the manner
provided for herein and to adopt this Agreement as a plan of reorganization and
to consummate such plan in accordance with the provisions of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of their mutual promises and
obligations hereunder, the parties hereto adopt and make this Agreement and
prescribe the terms and conditions hereof and the manner and basis of carrying
it into effect, which shall be as follows:
<PAGE>
ARTICLE I
THE PLAN OF MERGER
SECTION 1.1 The Merger; Closing; Effective Time.
-----------------------------------
(a) Subject to the terms and conditions of this Agreement and in
accordance with the applicable laws of the Commonwealth of Pennsylvania, at the
Effective Time (as defined in Section 1.1(c)), Interim Bank shall be merged with
and into Bank and the separate corporate existence of Interim Bank shall
thereupon cease. Bank shall be the surviving bank in the Merger (sometimes
hereinafter referred to as the "Surviving Bank") and shall continue to be
governed by the laws of the Commonwealth of Pennsylvania and shall continue to
be a Pennsylvania state chartered commercial bank, and the separate corporate
existence of Bank with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. The name of the Surviving
Bank shall be "First Capitol Bank." The Merger shall have the effects specified
in the Pennsylvania Banking Code of 1965, as amended ("Banking Code") and the
Pennsylvania Business Corporation Law of 1988, as amended ("PBCL").
(b) The closing of the Merger (the "Closing") shall take place at such
place and time and on such date following three (3) business days' notice to
Bank, as shall be agreed upon by all parties, which date shall not be later than
the 30th business day after (i) the last approval of required governmental
authorities is granted and any related waiting periods expire, (ii) the lifting,
discharge or dismissal of any stay of any such governmental approval or of any
injunction against the Merger and (iii) all shareholder approvals required by
the parties hereunder are received.
(c) Immediately following the Closing, and provided that this
Agreement has not been terminated or abandoned pursuant to Article VI hereof,
Interim Bank and Bank will request that the Pennsylvania Department of Banking
("Banking Department") cause the articles of merger (the "Articles of Merger")
to be delivered and properly filed with the Department of State of the
Commonwealth of Pennsylvania (the "Department of State"). The Merger shall
become effective at the time specified by the Department of Banking in its
transmittal to the Department of State, which, at the request of SBI, shall be
at 12:01 a.m. on the business day of the Closing (the "Effective Time"). The
"Effective Date" when used herein means the day on which the Effective Time for
the Merger occurs.
(d) At the Effective Time, the articles of incorporation and bylaws of
Interim Bank in effect immediately prior to the Effective Time shall be the
articles of incorporation and bylaws of the Surviving Bank. At the Effective
Time, the directors and officers of Bank immediately prior to the Effective Time
shall be and become the directors and officers of the Surviving Bank with such
additions or deletions to which senior management of SBI and Bank shall mutually
agree.
(e) At the meeting of the SBI Board of Directors next following the
Effective Time, Owen O. Freeman, Jr. shall become a director of SBI.
2
<PAGE>
SECTION 1.2 Effect on Outstanding Shares.
----------------------------
(a) At the Effective Time, by virtue of the Merger, automatically and
without any action on the part of the holder thereof, subject to the provisions
of Section 1.3 hereof with respect to the payment of fractional shares in cash
and Section 1.4 hereof with respect to dissenters' rights, if any, each share of
common stock, par value $10.00 share, of Bank (the "Bank Common Stock") issued
and outstanding at the Effective Time (other than (i) shares the holders of
which (each a "Dissenting Shareholder") are exercising appraisal rights pursuant
to the PBCL (the "Dissenters' Shares"), if any, and (ii) shares held directly or
indirectly by SBI, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted) shall become and be converted into
the right to receive shares of Common Stock par value $2.00 per share, of SBI
("SBI Common Stock") determined in conformity with the Exchange Ratio set forth
at Schedule 1.2 hereof (such SBI Common Stock, determined on the basis of the
Exchange Ratio, as to each Bank shareholder and, collectively, to all Bank
shareholders is the "Merger Consideration"). As of the Effective Time, each
share of Bank Common Stock held directly or indirectly by SBI, other than shares
held in a fiduciary capacity or in satisfaction of a debt previously contracted,
shall be canceled and retired and cease to exist, and no exchange or payment
shall be made with respect thereto.
(b) The shares of common stock of Interim Bank issued and outstanding
immediately prior to the Effective Time, by virtue of and after the Merger,
shall be converted into and thereafter constitute the issued and outstanding
shares of the capital stock of the Surviving Bank.
(c) If prior to the Effective Time, the number of outstanding shares
of SBI Common Stock shall have been increased or decreased through a
reclassification, stock dividend, stock split or reverse stock split, or other
similar change, appropriate adjustment shall be made to the Exchange Ratio.
SECTION 1.3 Surrender and Exchange of Bank Certificates.
-------------------------------------------
(a) Within five (5) business days after the Effective Time, SBI shall
cause to be sent to each person who immediately prior to the Effective Time was
a holder of record of Bank Common Stock transmittal materials and instructions
for surrendering certificates for Bank Common Stock ("Old Certificates") in
exchange for a certificate for the number of whole shares of SBI Common Stock to
which such person is entitled under Section 1.2 hereof.
(b) No certificates for fractional shares of SBI Common Stock shall be
issued in connection with the Merger. In lieu thereof, SBI shall issue to any
holder of Bank Common Stock certificates otherwise entitled to a fractional
share, upon surrender of such certificates in accordance with the instructions
furnished by SBI, a check for an amount of cash equal to the fraction of a share
of SBI Common Stock represented by the certificates so surrendered multiplied by
the Average Closing Price per share of SBI Common Stock as determined in
conformity with Schedule 1.2 and as defined therein.
3
<PAGE>
(c) If the record date of any dividend on SBI Common Stock occurs
after the Effective Time, the declaration shall include dividends on all whole
shares of SBI Common Stock into which shares of Bank Common Stock have been
converted under this Agreement, but no former holder of Bank Common Stock shall
be entitled to receive payment of any such dividend until surrender of the
shareholder's Old Certificates shall have been effected in accordance with the
instructions furnished by SBI. Upon surrender for exchange of a shareholder's
Old Certificates, such shareholder shall be entitled to receive from SBI an
amount equal to all such dividends, without interest thereon and less the amount
of taxes, if any, which may have been imposed or paid thereon, declared, and for
which the payment date has occurred, on the whole shares of SBI Common Stock
into which the shares represented by such Old Certificates have been converted.
(d) After the Effective Time, there shall be no transfer on the stock
transfer books of Bank, Surviving Bank or SBI of shares of Bank Common Stock.
If Old Certificates are presented for transfer after the Effective Time, they
shall be canceled and certificates representing whole shares of SBI Common Stock
(and a check in lieu of any fractional share) shall be issued in exchange
therefor as provided herein.
(e) In the event that any Old Certificates have not been surrendered
for exchange in accordance with this Section on or before the second anniversary
of the Effective Time, SBI may at any time thereafter, with or without notice to
the holders of record of such Old Certificates, sell for the accounts of any or
all of such holders any or all of the shares of SBI Common Stock which such
holders are entitled to receive under Section 1.2 hereof (the "Unclaimed
Shares"). Any such sale may be made by public or private sale or sale at any
broker's board or on any securities exchange in such manner and at such times as
SBI shall determine. If, in the opinion of counsel for SBI, it is necessary or
desirable, any Unclaimed Shares may be registered for sale under the Securities
Act of 1933, as amended (the "Securities Act") and applicable state laws. SBI
shall not be obligated to make any sale of Unclaimed Shares if it shall
determine not do so, even if notice of sale of the Unclaimed Shares has been
given. The net proceeds of any such sale of Unclaimed Shares shall be held for
holders of the unsurrendered Old Certificates whose Unclaimed Shares have been
sold, to be paid to them upon surrender of the Old Certificates. From and after
any such sale, the sole right of the holders of the unsurrendered Old
Certificates whose Unclaimed Shares have been sold shall be the right to collect
the net sale proceeds held by SBI for their respective accounts, and such
holders shall not be entitled to receive any interest on such net sale proceeds
held by SBI.
(f) If outstanding certificates for shares of Bank Common Stock are
not surrendered prior to the date on which such certificates would otherwise
escheat to or become the property of any governmental unit or agency, the
unclaimed items shall, to the extent permitted by abandoned property and any
other applicable law, become the property of SBI (and to the extent not in its
possession shall be paid over to it), free and clear of all claims or interest
of any person previously entitled to such claims. Notwithstanding the
foregoing, neither SBI nor its agents or any other person shall be liable to any
former holder of Bank Common Stock for any property delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
4
<PAGE>
(g) In the event any Old Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Old Certificate to be lost, stolen or destroyed and the posting by such
person of a bond in such amount as SBI may direct as indemnity against any claim
that may be made against it with respect to such Certificate, SBI will issue in
exchange for such lost, stolen or destroyed Old Certificate, the shares of SBI
Common Stock into which such Old Certificates has been converted pursuant to
this Agreement.
SECTION 1.4 Dissenters' Rights. In accordance with the provisions of
------------------
Sections 1607 and 1222 of the Banking Code and Section 1571 of the PBCL, the
Bank shareholders are entitled to exercise dissenters rights.
SECTION 1.5 Other Matters.
-------------
(a) Notwithstanding any term of this Agreement to the contrary, SBI
may, in its discretion at any time prior to the Effective Time, designate a
direct or indirect wholly-owned subsidiary to substitute for Interim Bank as a
constituent corporation in the Merger by written notice to Bank so long as the
exercise of this right does not materially, adversely affect the interests of
the Bank shareholders or cause a material delay in consummation of the
transactions contemplated herein. For purposes of this Section 1.5(a), the
directors of the Bank shall solely determine whether the exercise of this right
by SBI would constitute a material adverse effect on the interests of the Bank
shareholders. SBI shall also have the right to cause Interim Bank or such
substitute to be the Surviving Bank of the Merger described at Section 1.1(a),
so long as the exercise of such right does not have a material adverse effect on
the interests of the holders of the capital stock of Bank or cause a material
delay in, or otherwise adversely affect, consummation of the transactions
contemplated herein; if such right is exercised, this Agreement shall be deemed
to be modified to accord such change.
(b) Subject to Section 5.3, nothing in this Agreement shall be deemed
to restrict the ability of SBI or any of its subsidiaries to merge with or with
and into another entity so long as such other transaction shall not materially,
adversely affect the parties' ability to consummate the Merger or cause a
material delay in, or otherwise adversely affect, consummation of the
transactions contemplated herein.
SECTION 1.6 Bank Warrants. Bank hereby represents and warrants that
-------------
no warrants, options or other right to acquire capital stock of Bank are
presently outstanding other than warrants to purchase 11,250 shares of Bank
Common Stock which are held by David A. Friedman (the "Friedman Warrant") and by
virtue of a stock purchase agreement dated July 25, 1988 by and between Bank and
National Penn, pursuant to which National Penn has preemptive rights to purchase
shares of Bank Common Stock if the Friedman Warrant is exercised ("Preemptive
Rights Agreement"). In order to induce SBI to execute this Agreement, the
Warrant Substitution Agreement has been executed and delivered, in the form
attached hereto as Exhibit 1.6, for the purpose of superseding and governing the
rights of the parties under the Friedman Warrant and the Preemptive Rights
Agreement.
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ARTICLE II
CONDUCT PENDING THE MERGER
SECTION 2.1 Conduct of Bank's Businesses Prior to the Effective Time.
--------------------------------------------------------
Except as expressly provided in this Agreement, during the period from the date
of this Agreement to the Effective Time, Bank shall (and the word "it" in this
Article II refers to Bank and each subsidiary of Bank) (i) conduct its business
in the usual, regular and ordinary course consistent with past practice, (ii)
use reasonable efforts to maintain and preserve intact in all material respects
its business organization, assets, leases, properties, employees and
advantageous business relationships and use its reasonable efforts to retain the
services of its officers and key employees, and (iii) not knowingly take any
action which would materially or adversely affect or delay its ability to obtain
any necessary approvals, consents or waivers of any governmental authority
required for the transactions contemplated hereby or to perform its covenants
and agreements on a timely basis under this Agreement, and (iv) not knowingly
take any action that is reasonably likely to have a Material Adverse Effect (as
defined in Section 7.1 hereof) on Bank.
SECTION 2.2 Forbearance by Bank. During the period from the date of
-------------------
this Agreement to the Effective Time, Bank shall not, without the prior written
consent of SBI:
(a) other than in the ordinary course of business consistent with past
practice in all material respects, (i) make any advance or loan, (ii) incur any
indebtedness for borrowed money, except in replacement of existing or maturing
debt, or (iii) assume, guarantee, endorse or otherwise as an accommodation
become responsible for, the obligations of any other individual, corporation or
other person;
(b) adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend or make any distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, or grant any stock appreciation rights or grant,
sell or issue to any individual, corporation or other person any shares of its
capital stock (other than in connection with the agreements and a stock purchase
warrant set forth on Annex 2.2(b)) or any right to acquire, or securities
evidencing a right to convert into or acquire any shares of its capital stock;
(c) other than in the ordinary course of business, consistent with
past practice and pursuant to policies, if any, currently in effect, (i) sell,
transfer, mortgage, encumber or otherwise dispose of any of its properties,
leasehold interests or assets which are material to Bank or its subsidiaries, to
any individual, corporation or other entity, (ii) cancel, release or assign any
indebtedness of any such person, or (iii) assign any contracts or agreements as
in force at the date of this Agreement;
(d) increase in any manner the compensation or fringe benefits of any
of its employees or pay any pension or retirement allowance not required by law
or by any existing plan
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or agreement to any such employees, or become a party to, amend or commit itself
to any pension, retirement, profit-sharing or welfare benefit plan or agreement
or employment agreement with or for the benefit of any employee, other than
general or individual increases in compensation in the ordinary course of
business consistent with past practice not in excess of 4%, on an aggregated
basis, in any 12-month period, and payment of bonuses in the ordinary course, or
voluntarily accelerate the vesting of any stock options or other compensation or
benefit;
(e) amend its articles of incorporation, or its bylaws, except as
expressly contemplated by this Agreement or required by law or regulation, in
each case as concurred in by its counsel;
(f) except as set forth in Annex 2.2(f) hereto, change its method of
accounting as in effect at December 31, 1997, except as required by changes in
generally accepted accounting principles or required by law or regulation, in
each case, as concurred in by its independent auditors; or
(g) permit or allow its direct or indirect ownership of the capital
stock of any subsidiary described in the annex hereto to be less than 100% of
their respective total capital stock.
SECTION 2.3 Cooperation. Bank shall cooperate with SBI and SBI shall
-----------
cooperate with Bank in completing the transactions contemplated hereby and each
shall not knowingly take, or cause to be taken, or knowingly agree or make any
commitment to take, any action (i) that would cause any of the representations
or warranties of it that are set forth in Article III hereof not to be true and
correct in all material respects, or (ii) in the case of Bank, that is
inconsistent with or prohibited by Section 2.1 or Section 2.2.
SECTION 2.4 Conduct of SBI's Business Prior to the Effective Time.
-----------------------------------------------------
Except as expressly provided in this Agreement, during the period from the date
of this Agreement to the Effective Time, SBI shall not knowingly take any action
and shall not knowingly cause its Material Subsidiaries (as hereinafter defined
in Section 3.2(d) hereof) to take any action that is reasonably likely to have a
Material Adverse Effect on SBI, on a consolidated basis.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Bank. Bank represents
--------------------------------------
and warrants to SBI (and the word "it" in this Article III refers to Bank and
each subsidiary of Bank), that, except as specifically disclosed in the Annex of
disclosure schedules included herewith, to the best of its knowledge:
(a) Corporate Organization and Qualification. Bank is a corporation
duly incorporated, validly existing and duly subsisting under the laws of the
Commonwealth of
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Pennsylvania and is in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased or operated, or the business
conducted, by Bank requires such qualification, except for such failure to
qualify or be in such good standing which, when taken together with all other
such failures, would not have a Material Adverse Effect on Bank and its
subsidiaries, taken as a whole. Bank is a Pennsylvania state chartered bank and
is a member of the Federal Reserve System. Bank has the requisite corporate and
other power and authority (including all federal, state, local and foreign
governmental authorizations) to carry on its businesses as now being conducted
and to own its properties and assets. Bank has made available to SBI a complete
and correct copy of the articles of incorporation and bylaws of Bank and such
articles and bylaws are in full force and effect as of the date hereof.
(b) Authorized Capital. The authorized capital stock of Bank consists
of 2,000,000 shares of common stock, par value $10.00 per share, of which
505,933 shares were issued and outstanding as of the date of this Agreement and
500,000 shares of preferred stock, par value $10.00 per share, of which none
were issued as of the date of this Agreement. No other equity securities are
authorized for issuance by the Bank. All of the outstanding shares of capital
stock of Bank have been duly authorized and are validly issued, fully paid and
nonassessable. Bank does not have any shares of capital stock reserved for
issuance except pursuant to the Friedman Warrant, the Preemptive Rights
Agreement and the Stock Option Agreement. Bank does not have any outstanding
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote) with shareholders on any matter. The outstanding shares of
capital stock of Bank have not been issued in violation of any preemptive
rights. Except as set forth in Annex 3.1(b) or in Annex 3.1(m) and as provided
in the Stock Option Agreement, there are no outstanding subscriptions, options,
warrants, rights, convertible securities or other agreements or commitments of
any character relating to the issued or unissued capital stock or other
securities of Bank. After the Effective Time neither SBI nor Interim Bank will
have any obligation to issue, transfer or sell any shares of capital stock
pursuant to any Employee Plan (as defined in Section 3.1(m)).
(c) Subsidiaries. The Bank has no subsidiaries.
(d) Corporate Authority. Subject only to approval of this Agreement
by the holders of the number of votes required by Bank's articles of
incorporation or bylaws cast by all holders of Bank Common Stock (without any
minority, class or series voting requirement), and, subject to the regulatory
approvals specified in Section 5.1(b) hereof, Bank has the requisite corporate
power and authority, and legal right, and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate the
transactions applicable to Bank contemplated hereby. This Agreement has been
duly and validly executed and delivered by Bank and constitutes the valid and
binding obligations of Bank, enforceable against Bank in accordance with its
terms, except to the extent enforcement is limited by bankruptcy, insolvency and
other similar laws affecting creditors' rights or the application by a court of
equitable principles.
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(e) No Violations. The execution, delivery and performance of this
Agreement by it does not, the execution, delivery and performance of the Stock
Option Agreement by it will not, and the consummation of the transactions
contemplated hereby by it will not, constitute (i) subject to receipt of the
required regulatory approvals specified in Section 5.1(b), a breach or violation
of, or a default under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, to which it (or any of its respective
properties) is subject, which breach, violation or default would have a Material
Adverse Effect on it, or enable any person to enjoin the Merger, (ii) a breach
or violation of, or a default under Bank's articles of incorporation or bylaws,
(iii) a breach of any duty owed by Bank to any person holding an interest in
Bank, or (iv) except as disclosed in Annex 3.1(e), a breach or violation of, or
a default under (or an event which with due notice or lapse of time or both
would constitute a default under), or result in the termination of, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the properties or
assets of it under any of the terms, conditions or provisions of any note, bond,
indenture, deed of trust, loan agreement or other agreement, instrument or
obligation to which it is a party, or to which any of their respective
properties or assets may be bound or affected, except for any of the foregoing
that, individually or in the aggregate, would not have a Material Adverse Effect
on it or enable any person to enjoin the Merger; and the consummation of the
transactions contemplated hereby or, upon its execution and delivery, the Stock
Option Agreement, will not require any approval, consent or waiver under any
such law, rule, regulation, judgment, decree, order, governmental permit or
license or the approval, consent or waiver of any other party to any such
agreement, indenture or instrument, other than (i) the required approvals,
consents and waivers of governmental authorities referred to in Section 5.1(b)
and (ii) the approval of its shareholders referred to in Section 3.1(d), (iii)
any such approval, consent or waiver that already has been obtained and (iv) any
other approvals, consents or waivers, the absence of which, individually or in
the aggregate, would not result in a Material Adverse Effect on it or enable any
person to enjoin the Merger.
(f) Reports.
i. Bank's audited statement of financial condition as of and
for the year ended December 31, 1997, and the unaudited statement of financial
condition as of and for the nine-month period ended September 30, 1997,
previously provided to SBI and each statement of financial condition provided
after the date hereof to SBI (including in each case any related notes and
schedules) as required by Section 4.4 hereof fairly presents or will fairly
present the financial position of Bank as of its date and each of the statements
of income and stockholders' equity and of cash flows provided therewith
(including in each case any related notes and schedules), fairly presents or
will fairly present the results of operations, stockholders' equity and cash
flows, as the case may be, of Bank for the periods set forth therein (subject,
in the case of unaudited interim statements, to year-end audit adjustments that
are not material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein.
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ii. Except as set forth in Annex 3.1(f), it has timely filed
all material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that it was required to file since
January 1, 1993 with (A) the Banking Department, (B) the Federal Deposit
Insurance Corporation (the "FDIC"), (C) the Board of Governors of the Federal
Reserve System (the "Board"), and (D) any other regulatory authority
(collectively, the "Bank Regulatory Agencies"), and all other material reports
and statements required to be filed by it since January 1, 1993, including,
without limitation, any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States or any Bank Regulatory Agency
and has paid all fees and assessments due and payable in connection therewith,
and no such report, registration or statement contains any material misstatement
or omission or is otherwise in material noncompliance with any law, regulation
or requirement.
(g) Absence of Certain Changes or Events. Since January 1, 1998, to
the date hereof, it has not incurred any material liability, except in the
ordinary course of its business consistent with past practice, nor has there
been any change in the financial condition, properties, assets, business,
results of operations or prospects of it which, individually or in the
aggregate, has had, or might reasonably be expected to result in, a Material
Adverse Effect on it.
(h) Taxes. Its federal income tax returns have been examined and
closed or otherwise closed by operation of law through December 31, 1993. All
federal, state, local and foreign tax returns required to be filed by it or on
its behalf have been timely filed or requests for extensions have been timely
filed and any such extension shall have been granted and not have expired, and,
to the knowledge of management, all such filed returns are complete and accurate
in all material respects. All taxes shown on such returns, and all taxes
required to be shown on returns for which extensions have been granted, have
been paid in full or adequate provision has been made for any such taxes on its
balance sheet (in accordance with generally accepted accounting principles)
other than those taxes which are being contested in appropriate forums in
proceedings which are being diligently pursued. Adequate provision has been
made on its balance sheet (in accordance with generally accepted accounting
principles consistently applied) for all federal, state, local and foreign tax
liabilities for periods subsequent to those for which returns have been filed.
There is no audit examination, deficiency, or refund litigation pending or, to
the knowledge of Bank, threatened, with respect to any taxes that could result
in a determination that would have a Material Adverse Effect on it. All taxes,
interest, additions and penalties due with respect to completed and settled
examinations or concluded litigation relating to it have been paid in full or
adequate provision has been made for any such taxes on its balance sheet (in
accordance with generally accepted accounting principles). It has not executed
an extension or waiver of any statute of limitations on the assessment or
collection of any tax due that is currently in effect.
(i) Litigation and Liabilities. Except as set forth in Annex 3.1(i),
there are no (i) civil, criminal or administrative actions, suits, claims,
hearings, investigations or proceedings before any court, governmental agency or
otherwise pending or, to the knowledge of management, threatened against it or
(ii) obligations or liabilities, whether or not accrued, contingent or
otherwise, including, without limitation, those relating to environmental and
occupational safety and health
10
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matters, or any other facts or circumstances of which its management is aware
that could reasonably be expected to result in any claims against or obligations
or liabilities of it, that, alone or in the aggregate, are reasonably likely to
have a Material Adverse Effect on it or to hinder or delay, in any material
respect, consummation of the transactions contemplated by this Agreement.
(j) Absence of Regulatory Actions. It is not a party to any cease and
desist order, written agreement or memorandum of understanding with, or a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any extraordinary supervisory letter from,
or has adopted any board resolutions at the request of, federal or state
governmental authorities, including, without limitation, the Bank Regulatory
Agencies, charged with the supervision or regulation of financial or depository
institutions or engaged in the insurance of bank deposits nor has it been
advised by any Bank Regulatory Agency that such body is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolution or similar
undertaking.
(k) Agreements.
i. Except for the Stock Option Agreement and as set forth in
Annex 3.1(k) attached hereto, as of the date of this Agreement it is not a party
to, or bound by, any oral or written:
(A) "material contract" as such term is defined in Item
601(b)(10) of Regulation S-K promulgated by the Securities and Exchange
Commission (the "SEC");
(B) consulting agreement not terminable on thirty (30)
days' or less notice involving the payment of more than $10,000 per annum, in
the case of any such agreement;
(C) agreement with any officer or other key employee the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction of the nature contemplated by this
Agreement;
(D) agreement with respect to any officer providing any
term of employment or compensation guarantee extending for a period longer than
one year or for a payment in excess of $50,000;
(E) agreement or plan, including any stock option plan,
stock appreciation rights plan, employee stock ownership plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
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(F) agreement containing covenants that limit its ability
to compete in any line of business or with any person, or that involve any
restriction on the geographic area in which, or method by which, it may carry on
its business (other than as may be required by law or any regulatory agency);
(G) agreement, contract or understanding, other than this
Agreement, regarding the capital stock of Bank or committing to dispose of some
or all of the capital stock or substantially all of the assets of Bank; or
(H) collective bargaining agreement, contract, or other
agreement or understanding with a labor union or labor organization.
ii. It is not in default under or in violation of any provision
of any note, bond, indenture, mortgage, deed of trust, loan agreement, lease or
other agreement to which it is a party or by which it is bound or to which any
of its respective properties or assets is subject, other than such defaults or
violations as could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on it.
(l) Labor Matters. It is not the subject of any proceeding asserting
that it has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike, other labor dispute or organizational effort involving
it pending or threatened.
(m) Employee Benefit Plans. Annex 3.1(m) contains a complete list of
all pension, retirement, stock option, stock purchase, stock ownership, savings,
stock appreciation right, profit sharing, deferred compensation, consulting,
bonus, group insurance, severance and other employee incentive and welfare
contracts and plans, and all trust agreements related thereto, that it maintains
or to which it contributes for any of its present or former directors, officers,
or other employees (hereinafter referred to collectively as the "Employee
Plans").
i. All of the Employee Plans comply in all material respects
with all applicable requirements of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), the Code and other applicable laws; it has not
engaged in a "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to any Employee Plan which is likely to
result in any material penalties, taxes or other events under Section 502(i) of
ERISA or Section 4975 of the Code which would have a Material Adverse Effect on
it.
ii. No liability to the Pension Benefit Guaranty Corporation
has been or is expected by it to be incurred with respect to any Employee Plan
which is subject to Title IV of ERISA ("Pension Plan"), or with respect to any
"single-employer plan" (as defined in Section 4001(a)(15) of ERISA) currently or
formerly maintained by it or any entity which is considered one employer with
Bank under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate").
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iii. No Pension Plan or single-employer plan of an ERISA
Affiliate had an "accumulated funding deficiency" (as defined in Section 302 of
ERISA (whether or not waived)) as of the last date of the end of the most recent
plan year ending prior to the date hereof; all contributions to any Pension Plan
or single-employer plan of an ERISA Affiliate that were required by Section 302
of ERISA and were due prior to the date hereof have been made on or before the
respective dates on which such contributions were due; the fair market value of
the assets of each Pension Plan or single-employer plan of an ERISA Affiliate
exceeds the present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under such Pension Plan or single-employer plan of an
ERISA Affiliate as of the end of the most recent plan year with respect to the
respective Pension Plan or single-employer plan of an ERISA Affiliate ending
prior to the date hereof, calculated on the basis of the actuarial assumptions
used in the most recent actuarial valuation for such Pension Plan or single-
employer plan of an ERISA Affiliate as of the date hereof; and no notice of a
"reportable event" (as defined in Section 4043 of ERISA) for which the reporting
requirement has not been waived has been required to be filed for any Pension
Plan or single-employer plan of an ERISA Affiliate within the 12-month period
ending on the date hereof.
iv. Neither has it provided, nor is it required to provide,
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
v. Neither it nor any ERISA Affiliate has contributed to any
"multi-employer plan," as defined in Section 3(37) of ERISA, on or after
September 26, 1980.
vi. Each Employee Plan of it which is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) and which is intended to be
qualified under Section 401(a) of the Code (a "Qualified Plan") has received a
favorable determination letter from the Internal Revenue Service ("IRS")
covering the requirements of the Tax Equity and Fiscal Responsibility Act of
1982, the Retirement Equity Act of 1984 and the Deficit Reduction Act of 1984
and the Tax Reform Act of 1986; it is not aware of any circumstances likely to
result in revocation of any such favorable determination letter; each such
Employee Plan has been amended to reflect the requirements of subsequent
legislation applicable to such plans; and each Qualified Plan has complied at
all relevant times in all material respects with all applicable requirements of
Section 401(a) of the Code.
vii. Each Qualified Plan which is an "employee stock ownership
plan" (as defined in Section 4975(e)(7) of the Code) has at all relevant times
satisfied all of the applicable requirements of Sections 409 and 4975(e)(7) of
the Code and the regulations thereunder.
viii. Neither it nor any ERISA Affiliate has committed any act or
omission or engaged in any transaction that has caused it to incur, or created a
material risk that it may incur, liability for any excise tax under Sections
4971 through 4980B, 4980D or 4980E of the Code, other than excise taxes which
heretofore have been paid and fully reflected in its financial statements.
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ix. There is no pending or threatened litigation, administrative
action or proceeding relating to any Employee Plan other than routine claims for
benefits.
x. Except as disclosed in Annex 3.1(m), there has been no
announcement or legally binding commitment by it to create an additional
Employee Plan, or to amend an Employee Plan except for amendments required by
applicable law which do not materially increase the cost of such Employee Plan,
and it does not have any obligations for retiree health and life benefits under
any Employee Plan that cannot be terminated without incurring any liability
thereunder except as required to be maintained by the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA").
xi. Except as disclosed in Annex 3.1(m), the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby will not result in any payment or series of payments by Bank to any
person which is an "excess parachute payment" (as defined in Section 280G of the
Code) under any Employee Plan, increase any benefits payable under any Employee
Plan, or accelerate the time of payment or vesting of any such benefit.
xii. Except as disclosed in Annex 3.1(m), all required annual
reports have been filed timely with respect to each Employee Plan, and it has
made available to SBI a true and correct copy of (A) reports on the applicable
form of the Form 5500 series filed with the IRS for plan years beginning after
1987, (B) such Employee Plan, including amendments thereto, (C) each trust
agreement and insurance contract relating to such Employee Plan, including
amendments thereto, (D) the most recent summary plan description for such
Employee Plan, including amendments thereto, if the Employee Plan is subject to
Title I of ERISA, and (E) the most recent actuarial report or valuation if such
Employee Plan is a Pension Plan and (F) the most recent determination letter
issued by the IRS if such Employee Plan is a Qualified Plan.
(n) Title to Assets. It has good and marketable title to its properties
and assets (other than property as to which it is lessee), except for (i) such
items shown in the Bank consolidated financial statements or notes thereto; (ii)
liens on real property for current real estate taxes not yet delinquent or (iii)
such defects in title which would not, individually or in the aggregate, have a
Material Adverse Effect on it. With respect to any property leased by it, there
are no defaults by it, or any of the other parties thereto, or any events which,
with the giving of notice or lapse of time or both, would become defaults by it
or any of the other parties thereto, under any of such leases, except for such
defaults or events which would not, individually or in the aggregate, have a
Material Adverse Effect on it; and all such leases are in full force and effect
and are enforceable against it, as the case may be, and there is no circumstance
existing as of the date of this Agreement which causes or would cause such
leases to be unenforceable against any of the other parties thereto except as
the same may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally as well as principles
of equity to the extent enforcement by a court of equity is required.
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(o) Compliance with Laws. It has all permits, licenses, certificates
of authority, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local and foreign governmental or
regulatory bodies that are required in order to permit it to carry on its
business as it is presently conducted and the absence of which could,
individually or in the aggregate, have a Material Adverse Effect on it; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect, and no suspension or cancellation of any of them is
threatened.
(p) Fees. Except as set forth in Annex 3.1(p) attached hereto,
neither it nor any of its respective officers, directors, employees or agents,
has employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions, or finder's fees, and no broker or
finder has acted directly or indirectly for it in connection with the Agreement
or the transactions contemplated hereby.
(q) Environmental Matters.
i. Except as disclosed in Annex 3.1(q):
(A) It, its Participation Facilities and its Loan
Properties (each as defined at subparagraph (ii) below) are, and have been, in
material compliance with all Environmental Laws (as defined below), except where
non-compliance would, either individually or in the aggregate, not have a
Material Adverse Effect on Bank or any of its subsidiaries taken as a whole.
There are no Participation Facilities or other real estate owned ("OREO")
located in the States of California, Connecticut, Rhode Island, Vermont,
Massachusetts, New Hampshire, or Maine.
(B) It, its Participation Facilities and its Loan
Properties hold all permits, licenses, registrations and other authorizations
(the "Environmental Permits") necessary under the Environmental Laws, and all
such Environmental Permits are currently in effect. The Environmental Permits
for properties owned or leased by it and for its Participation Facilities are
listed in Annex 3.1(q)(B), and any thereof that will expire or terminate as a
result of the transactions contemplated by this Agreement are so designated. It,
its Participation Facilities and its Loan Properties are in material compliance
with all the terms and conditions of such Environmental Permits and have not
materially violated any of them. Neither it, its Participation Facilities nor
its Loan Properties have received any notice of any proposal to amend, revoke,
reissue or replace any Environmental Permit, nor have any events occurred (other
than a change in applicable law) that could form a reasonable basis for any such
action. It, its Participation Facilities, and its Loan Properties have filed
timely and complete applications for renewal of any such Environmental Permits
that are required prior to the Closing.
(C) There is no suit, claim, action, demand, penalty,
executive or administrative order, directive, investigation or proceeding
pending or threatened before any court, governmental agency or board or other
forum against it or any Participation Facility (x) for alleged
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noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the release into the environment of any
Hazardous Material (as defined below) or oil, whether or not occurring at or on
a site owned, leased or operated by it or any Participation Facility.
(D) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or
threatened before any court, governmental agency or board or other forum
relating to or against any Loan Property (or it in respect of such Loan
Property) (x) relating to alleged noncompliance (including by any predecessor)
with, or liability under, any Environmental Law or (y) relating to the release
into the environment of any Hazardous Material or oil, whether or not occurring
at or on a site owned, leased or operated by any Loan Property, except as to
such matters which, either individually or in the aggregate, would not have a
Material Adverse Effect on Bank and any of its subsidiaries taken as a whole.
(E) There is no reasonable basis for any suit, claim,
action, demand, executive or administrative order, directive or proceeding of a
type described in Section 3.1(q)(i)(D) or (C).
(F) The properties currently or formerly owned or operated
(including, without limitation, in a fiduciary capacity) by it (including,
without limitation, soil, groundwater or surface water on, under or adjacent to
the properties, and buildings thereon) do not contain any Hazardous Material
other than as permitted under applicable Environmental Law (provided, however,
that with respect to properties formerly owned or operated by it, such
representation is limited to the period it owned or operated such properties).
(G) It has not received any notice, demand letter,
executive or administrative order, directive or request for information from any
federal, state, local or foreign governmental entity or any third party
indicating that it may be in violation of, or liable under, any Environmental
Law.
(H) There are no underground storage tanks on, in or under,
and during the period of its ownership and operation no underground storage
tanks have been closed or removed from, any properties or Participation Facility
which are or have been in its ownership.
(I) During the period of (l) its ownership or operation
(including without limitation in a fiduciary capacity) of any of its respective
current properties, (m) its participation in the management of any Participation
Facility, or (n) its holding of a security interest in a Loan Property, there
has been no release of Hazardous Material or oil in, on, under or affecting such
properties, except as permitted under applicable Environmental Law. Prior to the
period of (x) its ownership or operation of any of its respective current
properties, (y) its participation in the management of any Participation
Facility, or (z) its holding of a security interest in a Loan Property, there
was no release of Hazardous Material or oil in, on, under or affecting any such
property, Participation Facility or Loan Property, except as permitted under
applicable Environmental Law.
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(J) There has not been and is not any Environmental
Condition (as hereinafter defined) at or relating to any property at which
wastes have been deposited or disposed by or at the behest or direction of it,
its Participation Facilities or its Loan Properties, nor has it, its
Participation Facilities or its Loan Properties received written notice of any
such Environmental Condition. For purposes of this Agreement the term
"Environmental Condition" means any condition or circumstance, that (i) requires
abatement or remediation under any Environmental Law currently in effect, (ii)
gives rise to any civil or criminal liability under any Environmental Law
currently in effect, or (iii) constitutes a public or private nuisance based on
the presence of Hazardous Materials, under laws applicable on the date of
Closing.
(K) There are no environmental liens on any properties
owned or leased by it or on its Loan Properties ("Properties") and no government
actions which could subject the Properties to such liens have been taken, are
pending, or threatened.
(L) No notice or restriction relating to the presence of
Hazardous Materials is required to be placed in the deed to any property subject
to this Agreement and no property subject to this Agreement has such a notice or
restriction in its deed.
(M) The only Loan Properties or Participation Facilities in
which it participates in management are those described in Annex 3.1(q) hereto.
ii. The following definitions apply for purposes of this Section
3.1(q): (a) "Loan Property" means any property in which it holds a security
interest, as to which property all representations in this Section 3.1(q) are
given to the best knowledge, without inquiry, and where required by the context,
include the owner or operator of such property, but only with respect to such
property; (b) "Participation Facility" means any facility in which it
participates in the management (including all property on which it conducts
operations of its business, or which is held as trustee or in any other
fiduciary capacity) and, where required by the context, includes the owner or
operator of such property, but only with respect to such property; (c)
"Environmental Law" means (i) any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, legal doctrine, order, directive, executive or administrative order,
judgment, decree, injunction, requirement or agreement with any governmental
entity, relating to (A) the protection, preservation or restoration of the
environment (which includes, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, structures, soil, surface land,
subsurface land, plant and animal life or any other natural resource), or to
human health or safety, or (B) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of, Hazardous Materials, in each case as amended
and as now in effect; "Environmental Law" includes, without limitation, the
federal Comprehensive Environmental Response Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act, the federal Clean Air
Act, the federal Clean Water Act, the federal Resource Conservation and Recovery
Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the
federal Solid Waste Disposal Act and the federal Toxic Substances Control Act,
the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational
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Safety and Health Act of 1970, the Federal Hazardous Materials Transportation
Act, or any so-called "Superfund" or "Superlien" law enacted by any state having
jurisdiction over any Loan Property or Participation Facility, each as amended
and as now or hereafter in effect, and (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose liability
or obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Material; and (d) "Hazardous Material"
means any substance which is detrimental to human health or safety or to the
environment, currently listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated, under any Environmental
Law, whether by type or by quantity, including any substance containing any such
substance as a component. Hazardous Material includes, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance, oil or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos,
asbestos-containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyls, any of which is regulated by, or subject to
regulation under, any Environmental Law.
(r) Allowance. The allowance for loan and lease losses shown on
Bank's statement of financial condition as of December 31, 1997 was, and the
allowance for loan and lease losses shown on Bank's statement of financial
condition for periods ending after the date of this Agreement and before the
Closing Date will be, in the opinion of management of Bank, adequate, as of the
date thereof, under generally accepted accounting principles applicable to
commercial banks and all other applicable regulatory requirements for all losses
reasonably anticipated in the ordinary course of business as of the date thereof
based on information available as of such date. It has disclosed to SBI in
writing prior to the date hereof the amounts of all loans, leases, advances,
credit enhancements, other extensions of credit, commitments and interest-
bearing assets of it that it has classified internally as "Other Loans Specially
Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss," "Classified,"
"Criticized," "Credit Risk Assets," "Concerned Loans" or words of similar
import, and it shall promptly after the end of each quarter after the date
hereof and on the Effective Date inform SBI of the amount of each such
classification. The OREO and in-substance foreclosures included in any of its
non-performing assets are carried net of reserves at the lower of cost or market
value based on current independent appraisals or current management appraisals.
(s) Anti-takeover Provisions Applicable. The provisions of Chapter 25
of the PBCL relating to protection of shareholders do not apply to Bank, this
Agreement, the Merger and the transactions contemplated hereby.
(t) Material Interests of Certain Persons. Except as noted in Annex
3.1(t), none of its respective officers or directors, or any "associate" (as
such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934
(the "Exchange Act")) of any such officer or director, has any material interest
in any material contract or property (real or personal), tangible or intangible,
used in or pertaining to its business.
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(u) Insurance. It is presently insured, and has been insured, in the
amounts, with the companies and since the periods set forth in Annex 3.1(u).
All of the insurance policies and bonds maintained by it are in full force and
effect, it is not in default thereunder and all material claims thereunder have
been filed in due and timely fashion. In the judgment of its management, such
insurance coverage is adequate.
(v) Dividends. The only dividends or other distributions which it has
made on its capital stock since January 1, 1994 are set forth in Annex 3.1(v).
(w) Books and Records. Its books and records have been, and are
being, maintained in accordance with applicable legal and accounting
requirements and reflect in all material respects the substance of events and
transactions that should be included therein.
(x) Board Action. Its board of directors (at a meeting duly called
and held) has been duly convened and by the requisite vote of all directors (a)
determined that the Merger is advisable and in the best interests of it and its
shareholders, (b) approved this Agreement and the transactions contemplated
hereby and thereby and (c) directed that the Agreement be submitted for
consideration by its shareholders at the Bank Meeting (as hereafter defined).
(y) Fairness Opinions. Its board of directors has received a written
opinion, a copy of which has been furnished to SBI, to the effect that the
consideration to be received by its shareholders pursuant to this Agreement, as
of the date of this Agreement, is fair to such holders from a financial point of
view.
(z) INTENTIONALLY OMITTED.
(aa) Fidelity Bonds. Since at least January 1, 1994, Bank has
continuously maintained fidelity bonds insuring it against acts of dishonesty by
its employees in such amounts as is customary for a bank of its size. Since
January 1, 1994, the aggregate amount of all potential claims under such bonds
has not exceeded $10,000 and Bank is not aware of any facts which would
reasonably form the basis of a claim under such bonds. It has no reason to
believe that its fidelity coverage will not be renewed by its carrier on
substantially the same terms as its existing coverage.
(bb) Condition of Tangible Assets. Except as set forth in Annex
3.1(bb), in all material respects: (i) all buildings, structures and
improvements on the real property owned or leased by it are in good condition,
ordinary wear and tear excepted, and are free from structural defects, and (ii)
the equipment, including heating, air conditioning and ventilation equipment
owned by it, is in good operating condition, ordinary wear and tear excepted.
The operation and use of the property in the business conform in all material
respects to all applicable laws, ordinances, regulations, permits, licenses and
certificates.
(cc) Loans by Bank. Since January 1, 1993, and except as shown on
Annex 3.1(cc), in the aggregate, the loans by Bank have been lawfully made,
constitute valid debts of the
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obligors, have been incurred in the ordinary course of business, are subject to
the terms of payment as shall have been agreed upon between Bank and each
customer and Bank does not know of any applicable setoff or counterclaim which
in the aggregate would have a Material Adverse Effect on it. A list of all loans
thirty (30) days past due, as of March 25, 1998, together with a list of all
loans thirty (30) days past due on the last day of each of the preceding eleven
(11) months is attached hereto at Annex 3.1(cc). No part of the amount
collectible under any loan is contingent upon performance by Bank of any
obligation and no agreement for participation, in which Bank has relinquished or
agreed to share control with a participation in management of the facility, or
agreement providing for deductions or discounts have been made with respect to
any part of such debts, except as expressly disclosed in Annex 3.1(cc). Except
as disclosed in Annex 3.1(cc), Bank does not know of any pending, threatened or
expected actions in connection with any material loans or commitments presently
or previously made by Bank relating to claims based on theories of "lenders'
liability" or any other basis.
(dd) Regulatory Compliance - Banking Department. Bank is in
compliance in all material respects with the applicable rules and regulations of
the Banking Department, except as noted in Annex 3.1(dd) and except where the
failure to comply would not have a Material Adverse Effect on Bank.
(ee) Regulatory Compliance - FDIC and Board. Except as noted on Annex
3.1(ee) hereto and except where the failure to comply would not have a Material
Adverse Effect on it, it is in compliance in all material respects with the
rules and regulations of the FDIC and Board to the extent such rules and
regulations are deemed applicable by regulatory determination.
(ff) Capital Compliance. As of December 31, 1997, Bank was in
compliance with the minimum capital requirements applicable to a Pennsylvania
chartered commercial bank, including as to leverage ratio requirements, tangible
capital requirements and risk based capital requirements.
(gg) Year 2000 Compliance. Except as provided in Annex 3.1(gg)
hereof, Bank has undertaken an assessment of its software and hardware in order
to reveal those portions thereof which will require modification or replacement
to utilize properly dates beyond December 31, 1999, and has contracted with
appropriate third parties to modify or replace existing software and hardware to
mitigate against any Material Adverse Effect upon its computer programs and
systems caused by the change in the Year 2000. Bank has contacted its vendors
and borrowers in order to assess their efforts to mitigate any adverse effects
to their computer programs and systems beyond December 31, 1999. Furthermore,
Bank has taken all actions required to be taken to be in compliance with
announced or promulgated directives by or from the Bank Regulatory Agencies and
the Federal Financial Institutions Examination Council relating to Year 2000
compliance including, but not limited to, the adoption of a formal Year 2000
plan which includes a contingency plan in the event internal or external
computer programs and systems, as the case may be, will not be in compliance
beyond December 31, 1999. The most recent regulatory examination of Bank
relating to Year 2000
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compliance was conducted on December 4, 1997. The findings of this examination
have been separately disclosed to SBI.
(hh) Assessments Fully Paid. All payments, fees and charges assessed
by appropriate state and federal agencies against Bank, and due on or prior to
the date of this Agreement, have been paid in full. Bank's assessment category
with the Board and Banking Department is well-capitalized.
(ii) Annual Reports and Financial Statements. Bank has delivered to
SBI (i) Bank's audited report for Bank's fiscal year ended December 31, 1997,
containing balance sheets of Bank at December 31, 1997 and December 31, 1996 and
statements of earnings, changes in shareholders' equity and cash flows of Bank
for the three years ended December 31, 1997, 1996, and 1995 and such financial
statements have been certified by independent public accountants, and (ii)
Bank's Quarterly Reports for the quarters ended March 31, 1997, June 30, 1997
and September 30, 1997 containing unaudited balance sheets of Bank as at such
dates and unaudited statements of earnings and cash flows of Bank for the three,
six and nine-month periods reflected therein. Bank has also delivered to SBI
true and correct copies of its Annual Reports for the years ended December 31,
1996, 1995 and 1994, together with all Annual Reports to Shareholders for the
same periods. All such reports (collectively, the "Bank Reports") (i) comply in
all material respects with the requirements of the rules and regulations of the
Board, (ii) do not contain any untrue statement of a material fact and (iii) do
not omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. No documents to be filed by Bank with the Board
or any regulatory agency in connection with this Agreement, or the transactions
contemplated hereby will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they are made,
not misleading. All documents which Bank is responsible for filing with the
Board or any regulatory agency in connection with the Merger will comply as to
form in all material respects with the requirements of applicable law.
(jj) Proxy Statement/Prospectus, Etc. Except for information relating
to SBI and its subsidiaries and pro forma financial information reflecting the
combined operations of SBI and Bank, neither (i) the Proxy Statement/Prospectus
(as defined hereinafter at Section 4.2) or any amendment or supplement thereto,
at the time it is filed with the SEC, at the time the Registration Statement (as
defined hereinafter at Section 4.2) is declared effective, at the time the Proxy
Statement/Prospectus is mailed to the shareholders of Bank or at the date of the
Bank Shareholders' Meeting to consider this Agreement nor (ii) any other
documents to be filed by Bank with the FDIC or any regulatory agency in
connection with this Agreement, or the transactions contemplated hereby will
contain any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading.
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SECTION 3.2 Representations and Warranties of SBI and its Material
------------------------------------------------------
Subsidiaries. SBI represents and warrants to Bank (and the word "it" in this
- ------------
Article III refers to SBI and each of its Material Subsidiaries, as that term is
defined at Section 3.2(d) hereof), that, except as specifically disclosed in the
Annex of disclosure schedules included herewith, to the best of its knowledge:
(a) Corporate Organization and Qualification. SBI is a corporation
duly incorporated, validly existing and duly subsisting under the laws of the
Commonwealth of Pennsylvania and is in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or operated, or the
business conducted, by SBI requires such qualification, except for such failure
to qualify or be in such good standing which, when taken together with all other
such failures, would not have a Material Adverse Effect on SBI. It has the
requisite corporate and other power and authority (including all federal, state,
local and foreign governmental authorizations) to carry on its business as now
conducted and to own its properties and assets. SBI owns, or will own at
Closing, directly or indirectly, all of the outstanding shares of capital stock
of Interim Bank. SBI has made available to Bank complete and correct copies of
the articles of incorporation and bylaws of SBI and will make available to Bank
complete and correct copies of the articles of incorporation and bylaws of
Interim Bank; such articles and bylaws of SBI are in full force and effect as of
the date hereof.
(b) Corporate Authority. Subject only to the regulatory approvals
specified in Section 5.1(b) hereof, SBI has the requisite corporate power and
authority, and legal right, and has taken all corporate action necessary in
order to execute and deliver this Agreement and to consummate the transactions
applicable to SBI contemplated hereby. This Agreement has been duly and validly
executed and delivered by SBI and constitutes the valid and binding obligations
of SBI enforceable against SBI, in accordance with its terms, except to the
extent enforcement is limited by bankruptcy, insolvency and other similar laws
affecting creditors' rights or the application by a court of equitable
principles.
(c) Capitalization. As of December 31, 1997, SBI Common Stock was
held of record by more than 6,000 shareholders and the authorized capital stock
of SBI consisted of 32,000,000 shares of SBI Common Stock, of which
approximately 22,554,962 shares are issued and outstanding (an additional 30,454
shares are held as treasury stock) and 5,000,000 shares of Preferred Stock, no
par value per share, of which none are outstanding. Sufficient shares of
authorized, but unissued, shares of SBI Common Stock to effect the transactions
herein contemplated will be reserved by SBI for such purpose.
(d) Bank Subsidiaries. SBI owns, directly or indirectly, all of the
issued and outstanding shares of capital stock of Farmers First Bank, a bank and
trust company organized under the laws of the Commonwealth of Pennsylvania;
Farmers & Merchants Bank and Trust, a bank organized under the laws of the State
of Maryland; Citizens National Bank of Southern Pennsylvania, a national banking
association with headquarters in Greencastle, Pennsylvania; First National Trust
Bank, a national banking association with headquarters in Sunbury, Pennsylvania;
Williamsport National Bank, a national banking association with headquarters in
Williamsport,
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Pennsylvania; Equity National Bank, a national banking association with
headquarters in Marlton, New Jersey; Farmers National Bank, a national banking
association with headquarters in Mullica Hill, New Jersey; and Founders' Bank, a
bank organized under the laws of the Commonwealth of Pennsylvania (collectively
the "Bank Subsidiaries"). All of the issued and outstanding capital stock of the
Bank Subsidiaries is duly and validly authorized and issued, fully paid and
nonassessable (other than as provided at 12 U.S.C.A. (S) 55 with respect to
national banks) and is owned by SBI free and clear of any liens, security
interests, encumbrances, restrictions on transfer or other rights of any third
person with respect thereto. SBI owns, directly or indirectly, all of the issued
and outstanding shares of capital stock of Susquehanna Bank, a federal savings
bank operating in Maryland (the "Savings Bank Subsidiary"). All of the issued
and outstanding capital stock of the Savings Bank Subsidiary is duly and validly
authorized and issued, free and clear of any liens, security interests,
encumbrances, restrictions on transfer or other rights of any third person with
respect thereto other than rights of account holders to liquidation accounts
maintained by the Savings Bank Subsidiary in accordance with the rules of the
Office of Thrift Supervision ("OTS"). The Bank Subsidiaries and the Savings Bank
Subsidiary are the "Material Subsidiaries." There are no options, calls,
warrants, conversion privileges or other agreements obligating any Material
Subsidiary at present or upon the occurrence of any event to issue or sell any
shares of its capital stock. Each of Farmers First Bank, Founders' Bank and
Farmers & Merchants Bank and Trust is a bank and trust company duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania or the State of Maryland and is duly authorized to engage in the
banking and trust business as an insured bank under the Federal Deposit
Insurance Act, as amended. Each of Citizens National Bank of Southern
Pennsylvania, First National Trust Bank, Williamsport National Bank, Equity
National Bank and Farmers National Bank is a national banking association duly
organized, validly existing and in good standing under the laws of the United
States and is duly authorized to engage in the banking and trust business as an
insured bank under the Federal Deposit Insurance Act, as amended. Susquehanna
Bank is a federal savings and loan association, duly organized, validly existing
and in good standing under the laws of the United States and is duly authorized
to engage in the savings and loan business under the Federal Deposit Insurance
Act, as amended. Each Material Subsidiary has corporate power and legal
authority and governmental authorizations which are material to its respective
operations and to transact the respective businesses in which it is presently
engaged.
(e) No Violations. The execution, delivery and performance of this
Agreement by SBI and Interim Bank does not, and the consummation of the
transactions contemplated hereby by SBI and Interim Bank will not, constitute
(i) a breach or violation of, or a default under, any law, rule or regulation or
any judgment, decree, order, governmental permit or license, or agreement,
indenture or instrument to which SBI or Interim Bank (or any of SBI's respective
properties or assets) is subject, which breach, violation or default would have
a Material Adverse Effect on SBI on a consolidated basis, or enable any person
to enjoin the Merger, (ii) a breach or violation of, or a default under, SBI's
or Interim Bank's articles of incorporation or bylaws or (iii) a breach or
violation of, or a default under (or an event which with due notice or lapse of
time or both would constitute a default under), or result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
pledge, security interest, charge or other encumbrance upon any
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of SBI's properties or assets under, any of the terms, conditions or provisions
of any note, bond, indenture, deed of trust, loan agreement or other agreement,
instrument or obligation to which it is a party, or to which any of SBI's
properties or assets may be bound or affected, except for any of the foregoing
that, individually or in the aggregate, would not have a Material Adverse Effect
on SBI, on a consolidated basis; and the consummation of the transactions
contemplated hereby will not require any approval, consent or waiver under any
such law, rule, regulation, judgment, decree, order, governmental permit or
license or the approval, consent or waiver of any other party to any such
agreement, indenture or instrument, other than (i) the required approvals,
consents and waivers of governmental authorities referred to in Section 5.1(b),
(ii) any such approval, consent or waiver that already has been obtained and
(iii) any other approvals, consents or waivers the absence of which,
individually or in the aggregate, would not result in a Material Adverse Effect
on SBI, on a consolidated basis, or enable any person to enjoin the Merger.
(f) Required Consents. SBI has no reason to believe that it will be
unable to obtain consents and approvals, including without limitation all such
consents and approvals of Regulatory Agencies (as hereinafter defined),
necessary to consummate the transactions contemplated by this Agreement by
September 30, 1998 or that any such consents or approvals would contain any
condition or requirement that would result in a Material Adverse Effect on SBI.
(g) Board Action. SBI's board of directors (at a meeting duly called
and held) has been duly convened and by the requisite vote of all directors (a)
determined that the Merger is advisable and in the best interests of it and its
shareholders, and (b) approved this Agreement and the transactions contemplated
hereby.
(h) Interim Bank.
i. Interim Bank is a Pennsylvania state chartered bank duly
organized, validly existing and duly subsisting under the laws of the
Commonwealth of Pennsylvania. All of the outstanding shares of capital stock of
Interim Bank have been validly issued, are fully paid and nonassessable and are
owned directly by SBI free and clear of any lien, charge or other encumbrance.
Interim Bank possesses no assets nor is subject to any liabilities and will not
acquire assets or incur liabilities prior to the Effective Time. Since the date
of its incorporation, Interim Bank has not engaged in any activities other than
in connection with the consummation of the Merger or as expressly contemplated
by this Agreement.
ii. Interim Bank has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement by Interim Bank and the consummation
of the transactions described herein have been duly and validly authorized by
all necessary corporate actions (including without limitation shareholder
action) in respect thereof on the part of Interim Bank. This Agreement is a
valid and binding obligation of Interim Bank, enforceable against Interim Bank
in accordance with its terms.
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iii. All of the authorized capital stock of Interim Bank, which
consists solely of 100 shares of common stock, $.01 par value per share, is
presently issued and outstanding.
iv. SBI will, as the sole shareholder of Interim Bank, vote to
approve this Agreement and the Merger.
(i) SBI Reports. SBI has furnished to Bank true and complete copies
of (i) all of its annual reports on Form 10-K filed with the SEC since January
1, 1994 and its annual reports to shareholders for each of the three years ended
December 31, 1994, 1995 and 1996, respectively; (ii) all of its quarterly
reports on Form 10-Q and current reports, if any, on Form 8-K filed with the SEC
since January 1, 1996; (iii) each final registration statement, prospectus or
offering circular which SBI has used in connection with the sale of securities
since January 1, 1996; and (iv) each definitive proxy statement distributed by
SBI to its shareholders since January 1, 1996.
All such reports (i) comply in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder, (ii) do not contain any untrue statement of a material fact and
(iii) do not omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(j) SBI Benefit Plans. SBI has furnished to Bank true, correct and
complete copies of all of SBI's bonus, deferred compensation, pension, profit-
sharing, retirement, medical, group life, disability income, stock purchase,
stock option, other "employee benefit plans" (as that term is used within the
meaning of Section 3(3) of ERISA) or any other fringe benefit plan, agreement,
arrangement or practice, all amendments thereto and all summary plan
descriptions thereof, or, in the alternative, SBI has provided materials
generally descriptive of the foregoing, and in such case, SBI will provide such
specific additional information as may reasonably be requested. The foregoing
are collectively referred to as the "SBI Benefit Plans."
(k) Financial Reports. SBI has timely filed all material reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that it was required to file since January 1, 1994 with
(A) the Board, (B) the FDIC, (C) the OCC, (D) the SEC, (E) the OTS, (F) the
Pennsylvania Department of Banking and (G) the Maryland Banking Commission (the
regulatory agencies listed at (A) through (G) are, collectively, the "SBI
Regulatory Agencies"), and (H) any other regulatory authority, and all other
material reports and statements required to be filed by it since January 1,
1994, including, without limitation, any report or statement required to be
filed pursuant to the laws, rules or regulations of the United States or any
regulatory agency and has paid all fees and assessments due and payable in
connection therewith, and no such report, registration or statement contains any
material misstatement or omission or is otherwise in material noncompliance with
any law, regulation or requirement.
(l) SBI's Balance Sheets. SBI's balance sheets as of December 31,
1997 previously provided to Bank and each balance sheet provided after the date
hereof to Bank
25
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(including in each case any related notes and schedules) fairly presents or will
fairly present SBI's financial position as of its date and each of the
statements of income and shareholders' equity and of cash flows provided
therewith (including in each case any related notes and schedules), fairly
presents or will fairly present the results of operations, shareholders' equity
and cash flows, as the case may be, of it for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved.
(m) Absence of Certain Changes or Events. Since December 31, 1997,
SBI has not incurred any material liability, except in the ordinary course of
its business consistent with past practice, nor has there been any change in the
financial condition, properties, assets, business, results of operation or
prospects of it which, individually or in the aggregate, has had, or might
reasonably be expected to result in, a Material Adverse Effect on it.
(n) Fees. Neither SBI nor any of its officers, directors, employees
or agents, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's fees, and no
broker or finder has acted directly or indirectly for it in connection with the
Agreement or the transactions contemplated hereby.
(o) Registration Statement, Etc. Except for information relating to
Bank, neither (i) the Registration Statement, the Proxy Statement/Prospectus or
any amendment or supplement thereto, or any other registration statement filed
with the SEC during the term of this Agreement, at the time it is filed with the
SEC, at the time it is declared effective, at the time the Proxy
Statement/Prospectus is mailed to the shareholders of Bank or at the date of the
Bank Shareholders' Meeting to consider the approval of this Agreement nor (ii)
any other documents to be filed by SBI with the SEC or any regulatory agency in
connection with this Agreement or the transactions contemplated thereby will
contain any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading. All
documents which SBI is responsible for filing with the SEC or any regulatory
agency in connection with the Merger will comply as to form in all material
respects with the requirements of applicable law.
(p) Compliance with Laws. It has the permits, licenses, certificates
of authority, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local and foreign governmental
authorities, including regulatory agencies that are required in order to permit
it to carry on its business as it is presently conducted and the absence of
which would, individually or in the aggregate, have a Material Adverse Effect on
SBI, on a consolidated basis; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect, and no suspension
or cancellation of any of them is threatened.
(q) Absence of Regulatory Actions. It is not a party to any cease and
desist order, written agreement or memorandum of understanding with, or a party
to any commitment letter or
26
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similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any board
resolutions at the request of, federal or state governmental authorities,
including, without limitation, the SBI Regulatory Agencies, charged with the
supervision or regulation of banks or bank holding companies or savings and loan
holding companies or engaged in the insurance of bank and/or savings and loan
deposits nor has it been advised by any SBI Regulatory Agency 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, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking.
(r) Litigation and Liabilities. Except as set forth in Annex 3.2(r),
there are no (i) civil, criminal or administrative actions, suits, claims,
hearings, investigations or proceedings before any court, governmental agency or
otherwise pending or, to the knowledge of management, threatened against it or
(ii) obligations or liabilities, whether or not accrued, contingent or
otherwise, including, without limitation, those relating to environmental and
occupational safety and health matters, or any other facts or circumstances of
which its management is aware that could reasonably be expected to result in any
claims against or obligations or liabilities of it, that, alone or in the
aggregate, are reasonably likely to have a Material Adverse Effect on SBI, on a
consolidated basis, or to hinder or delay, in any material respect, consummation
of the transactions contemplated by this Agreement.
(s) Environmental Matters. SBI is unaware of any activity or
conditions on or in any property owned, occupied, leased, or held as security by
SBI or a Material Subsidiary which would subject SBI or any Material Subsidiary
to damages, penalties, injunctive relief or cleanup costs under any
Environmental Law that individually or in the aggregate would have a Material
Adverse Effect on SBI, on a consolidated basis.
(t) Taxes. SBI's federal income tax returns have been examined and
closed or otherwise closed by operation of law through December 31, 1993. All
federal, state, local and foreign tax returns required to be filed by it or on
its behalf have been timely filed or requests for extensions have been timely
filed and any such extensions shall have been granted and not have expired, and,
to the knowledge of management, all such filed returns are complete and accurate
in all material respects. All taxes shown on such returns, and all taxes
required to be shown on returns for which extensions have been granted, have
been paid in full or adequate provision has been made for any such taxes on its
balance sheet (in accordance with generally accepted accounting principles)
other than those taxes which are being contested in appropriate forums in
proceedings which are being diligently pursued. Adequate provision has been
made on its balance sheet (in accordance with generally accepted accounting
principles consistently applied) for all federal, state, local and foreign tax
liabilities for periods subsequent to those for which returns have been filed.
There is no audit examination, deficiency, or refund litigation pending or, to
its knowledge, threatened with respect to any taxes that could result in a
determination that would have a Material Adverse Effect on SBI and its
subsidiaries, taken as a whole. All taxes, interest, additions and penalties
due with respect to completed and settled examinations or concluded litigation
relating to it have been paid
27
<PAGE>
in full or adequate provision has been made for any such taxes on its balance
sheet (in accordance with generally accepted accounting principles). It has not
executed an extension or waiver of any statute of limitations or the assessment
or collection of any tax due that is currently in effect, except as disclosed on
Annex 3.2(t).
(u) Agreements. It is not in default under or in violation of any
provision of any note, bond, indenture, mortgage, deed of trust, loan agreement,
lease or other agreement to which it is a party or by which it is bound or to
which any of its respective properties or assets is subject, other than such
defaults or violations as could not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect on SBI.
(v) Regulatory Compliance--State and Federal Regulators. SBI and its
state-chartered bank subsidiaries are in compliance in all material respects
with the applicable rules and regulations of the Banking Department, in the case
of Farmers First Bank and Founders' Bank, and the Maryland Banking Commission,
in the case of Farmers & Merchants Bank and Trust, the Material Subsidiaries
which are national banks are in compliance in all material respects with
applicable rules and regulations of the Office of the Comptroller of the
Currency and the Material Subsidiaries which are federally chartered thrifts are
in compliance in all material respects with applicable rules and regulations of
the OTS, except where the failure to comply would not have a Material Adverse
Effect on SBI and its subsidiaries, taken as a whole.
(w) Capital Compliance. As of December 31, 1997, SBI and its Material
Subsidiaries were in compliance with the minimum capital requirements applicable
to them under state and federal laws, including as to leverage ratio
requirements, tangible capital requirements and risk-based capital requirements.
(x) Assessments Fully Paid. All payments, fees and charges assessed
by appropriate state and federal agencies against SBI and its Material
Subsidiaries, and due on or prior to the date of this Agreement, have been paid
in full.
(y) Regulatory Compliance--FDIC and Board. Except where the failure
to comply would not have a Material Adverse Effect on SBI and its subsidiaries,
taken as a whole, and except as discussed herein SBI and its Material
Subsidiaries are in compliance in all material respects with the rules and
regulations of the FDIC and Board to the extent such rules and regulations are
deemed applicable by regulatory determination.
(z) Year 2000 Compliance. Except as provided in Annex 3.2(z) hereof,
SBI and its Material Subsidiaries are in material compliance with all
requirements announced or promulgated by the Bank Regulatory Agencies and the
Federal Financial Institutions Examination Council relating to Year 2000
compliance.
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ARTICLE IV
COVENANTS
SECTION 4.1 Acquisition Proposals. Bank agrees that it and its
---------------------
officers and directors shall not, and that it shall direct and use its best
efforts to cause its employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal or offer (including, without limitation, any proposal or
offer to its shareholders) with respect to a merger, consolidation or similar
transaction involving, or any purchase, sale or other disposition of all or any
significant portion of the assets or any equity securities of, Bank (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal")
or, except to the extent legally required for the discharge by its board of
directors of its fiduciary duties as determined upon consultation with counsel,
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal. Bank agrees that it will immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. Bank agrees
that it will take the necessary steps to inform the appropriate individuals or
entities referred to in the first sentence hereof of the obligations undertaken
by each of them in this Section 4.1. Bank agrees that it will notify SBI
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations, or discussions are
sought to be initiated or continued with, it.
SECTION 4.2 Securities Registration and Disclosure. Bank shall
--------------------------------------
cooperate with SBI in the preparation, in accordance with the requirements of
the proxy rules under the Exchange Act and the rules and regulations of the
Board, of the Proxy Statement/Prospectus and the filing thereof as part of the
Registration Statement. Following the date hereof, SBI will prepare and file
with the SEC under the Securities Act a registration statement for the
registration of the shares of SBI Common Stock to be issued pursuant hereto (the
"Registration Statement"). Each party shall be responsible for providing all
information concerning itself and its subsidiaries required to be included
therein. SBI shall take any action required to be taken under any applicable
state securities or "blue sky" laws in connection with the issuance of shares of
SBI Common Stock pursuant to this Agreement and Bank shall furnish SBI all
information concerning Bank and its shareholders as SBI may reasonably request
in connection with any such action.
SBI shall use reasonable efforts to provide ten (10) business days
prior to its filing with the SEC, a copy of the Registration Statement to Bank
and its counsel for review. Each party will promptly provide the other with
copies of all correspondence, comment letters, notices or other communications
to or from the SEC or the Board relating to the Registration Statement, the
Proxy Statement/Prospectus or any amendment or supplement thereto, and SBI will
advise Bank promptly after it receives notice thereof, of the effectiveness of
the Registration Statement, of the issuance of any stop order with respect to
the effectiveness thereof, of the suspension of the qualification of the
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SBI Common Stock issuable in connection herewith for offering or sale in any
jurisdiction, or the initiation or threat of any proceeding for any such
purpose.
Bank will take appropriate action to call the Bank Shareholders'
Meeting, to be held not more than forty-five (45) days following the effective
date of the Registration Statement, to consider approval of this Agreement and,
except to the extent it would result in a reasonable likelihood that the Bank's
board of directors would breach its fiduciary duties under the PBCL and Banking
Code and subject to receipt of an updated fairness opinion from its financial
advisor dated on or immediately prior to the date of the Proxy Statement, will
use its best efforts to secure such approval. In connection with the Bank
Shareholders' Meeting, Bank will duly solicit, in compliance with the proxy
rules of the Board, the vote of its shareholders by mailing or delivering to
each such shareholder, as soon as practicable after the effectiveness of the
Registration Statement, the Proxy Statement/Prospectus, and as soon as
practicable thereafter, any amendments or supplements thereto as may be
necessary to assure that at the date of the Bank Shareholders' Meeting the Proxy
Statement/Prospectus shall conform to the requirements of Sections 3.1(oo) and
3.2(o) hereof.
Bank will furnish to SBI a list of all persons known to Bank who at
the date of the Bank Shareholders' Meeting may be deemed to be "affiliates" of
Bank within the meaning of Rule 145 under the Securities Act. Bank will use its
best efforts to cause each such person identified in its list to deliver at or
prior to the Closing a written agreement providing that such person will not
sell, pledge, transfer or otherwise dispose of the shares of SBI Common Stock to
be received by such person hereunder except (i) in compliance with the
applicable provisions of the Securities Act and the rules and regulations
thereunder and (ii) after such time as financial results covering at least
thirty (30) days of post-merger combined operations have been published within
the meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies.
SECTION 4.3 Employees.
---------
(a) SBI and any of its affiliates shall have the right (but not the
obligation) to employ, as officers and employees of SBI, the Surviving Bank,
Bank or other affiliates of SBI immediately following the Effective Time, any
persons who are officers and employees of Bank immediately before the Effective
Time. It shall be a condition to employment by SBI or any of its affiliates
that any former officer or employee of Bank agrees to cancel any existing
employment contract, agreement or understanding between him or herself and Bank,
including without limitation all benefits related to severance arrangements upon
a change of control or otherwise, prior to accepting such new employment and
without accepting any of the severance benefits or other benefits or payments
associated with such contract, agreement or understanding.
Notwithstanding the foregoing, SBI shall assume the Executive
Employment Agreement of Timothy K. Ames dated November 6, 1997; the Executive
Employment Agreement of Owen O. Freeman, Jr., dated June 18, 1997, and amended
as of the date of this Agreement; the Executive Employment Agreement of Thomas
S. Capello dated April 28, 1993, as amended June 18, 1997 and amended as of the
date of this Agreement; the Executive Employment Agreement of
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Thomas A. Sauer dated November 6, 1997, and amended as of the date of this
Agreement; the Severance Agreements of Patricia A. Claubaugh, Marsha J. Stoffa,
Lois C. Derry, Karen L. Steinfelt, and Kimberly Grim; and the stock appreciation
rights awarded pursuant to the Bank's Stock Appreciation Rights Plan as
previously discussed with and disclosed to SBI. A copy of each of the referenced
Employment Agreements, with all amendments, the Severance Agreements and the
Stock Appreciation Rights Plan (including a schedule of Stock Appreciation
Rights through 1997) are attached hereto as Annex 4.3(a). After the date of this
Agreement, there shall be no further amendment, modification or alteration to
any of the afore described agreements or grants made under the plan without the
express written consent of SBI.
(b) Each person employed by Bank prior to the Effective Time who
remains an employee of the Surviving Bank, Bank or other SBI subsidiary
following the Effective Time (each a "Continued Employee") shall be entitled, as
an employee of SBI or an SBI subsidiary, to participate in whatever employee
benefit plans, as defined in Section 3(3) of ERISA, or whatever stock option,
bonus or incentive plans or other fringe benefit programs that may be in effect
generally for employees of SBI or SBI's subsidiaries from time to time ("SBI's
Plans"), if such Continued Employee shall be eligible or selected for
participation therein and otherwise shall not be participating in a similar plan
which continues to be maintained by the Surviving Bank or Bank for such
employee. All such participation shall be subject to such terms of such plans
as may be in effect from time to time provided, further that Continued Employees
will be eligible to participate in SBI's plans on the same basis as similarly
situated employees of SBI or SBI's subsidiaries. Such Continued Employees will
receive credit for past service with Bank for purposes of eligibility and
vesting, but not benefit accrual, under SBI's Plans.
(c) Bank shall take all timely and necessary action to cease
participation or accrual of benefits, effective as of the Effective Time, by
each person employed by Bank prior to the Effective Time in each Employee Plan
(as defined in Section 3.1(m)), including timely notice to all participants
under Section 204(h) of ERISA, if applicable, and to terminate each Employee
Plan, other than an Employee Plan containing a cash or deferred arrangement
qualified under Section 401(k) of the Code ("Employee 401(k) Plan") and other
than those specified in Annex 4.3(c), effective as of the Effective Time;
provided that SBI may, in its sole discretion, give notice to Bank not less than
twenty (20) days (sixty-one (61) days in the case of any employment contract or
other employee plan which by its terms requires thirty (30) or more days'
advance notice of termination) prior to the Effective Time, that any Employee
Plan shall not be terminated and/or participation or accrual of benefits
thereunder shall not cease pursuant to this Section 4.3(c). At the sole
discretion of SBI, any Employee 401(k) Plan shall be merged with any similar
such plan maintained and designated by SBI, effective at or after the Effective
Time, as elected by SBI, and Bank shall take any and all timely and necessary
action to effect such merger.
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SECTION 4.4 Access and Information.
----------------------
(a) Upon reasonable notice, and subject to applicable laws relating
to the exchange of information, Bank shall afford to SBI and its representatives
(including, without limitation, directors, officers and employees of SBI and its
affiliates, and counsel, accountants and other professionals retained) such
access during normal business hours throughout the period prior to the Effective
Time to the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and such other
information as SBI may reasonably request (other than reports or documentation
which are not permitted to be disclosed under applicable law); provided,
however, that no investigation pursuant to this Section 4.4 shall affect or be
deemed to modify any representation or warranty made herein. SBI will not, and
will cause its representatives not to, use any information obtained pursuant to
this Section 4.4 or Section 3.1 for any purpose unrelated to the consummation of
the transactions contemplated by this Agreement and in no event will SBI
directly or indirectly use such information for any competitive or commercial
purpose. Subject to the requirements of law, SBI will keep confidential, and
will cause its representatives to keep confidential, all information and
documents obtained pursuant to this Section 4.4 and Section 3.1 unless such
information (i) was already known to SBI or an affiliate of SBI, (ii) becomes
available to SBI or an affiliate of SBI from other sources not known by such
person to be bound by a confidentiality agreement, (iii) is disclosed with the
prior written approval of Bank (iv) is or becomes readily ascertainable from
published information or trade sources or (v) was already publicly available.
Without in any way limiting the foregoing, Bank shall provide to SBI within
forty-five (45) days of the end of each calendar quarter consolidated financial
statements (including a balance sheet and income statement) as of the end of,
and for, such period that are in conformance with generally accepted accounting
principles and the representation set forth in Section 3.1(f). In the event that
this Agreement is terminated or the transactions contemplated by this Agreement
shall otherwise not be consummated, each party shall, if so requested, promptly
cause all copies of documents or extracts thereof containing information and
data as to another party hereto (or an affiliate of any party hereto) to be
returned to the party which furnished the same. This Section 4.4 supersedes and
terminates any agreement between the parties relating to the confidentiality of
information which may have been exchanged (the "Confidentiality Agreement").
(b) During the period from the date of this Agreement to the Effective
Date, SBI shall provide to Bank the following documents and information:
i. As soon as reasonably available, but in no event more than
forty-five (45) days after the end of each fiscal quarter of SBI ending after
the date of this Agreement, SBI will deliver to Bank its quarterly report on
Form 10-Q as filed with the SEC.
ii. As soon as reasonably available, but in no event more than
ninety (90) days after the end of each fiscal year of SBI ending after the date
of this Agreement, SBI will deliver to Bank its annual report on Form 10-K as
filed with the SEC.
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iii. SBI will deliver to Bank, contemporaneously with its being
filed with the SEC, a copy of each current report on Form 8-K filed by SBI after
the date of this Agreement.
iv. At least five (5) business days prior to submission, SBI
will furnish to Bank the portions which describe the transactions (including any
financial information or pro forma financial information of, or including, Bank)
contemplated herein of (A) registration statements, prospectuses or offering
circulars used by SBI in connection with the sale of securities after the date
of this Agreement, (B) proxy statements distributed by SBI to its shareholders
after the date of this Agreement, and (C) all other publicly-available reports,
statements or other documents which are either distributed to shareholders or
filed by SBI or any of its subsidiaries with the SEC. Any comments timely
received by SBI from Bank in connection with the foregoing will be reviewed and
considered in good faith, but SBI shall not be bound to comply with the
recommendations set forth in such comments. SBI also shall furnish Bank with
copies of the foregoing in the form filed with the SEC or otherwise distributed
to shareholders.
v. SBI will promptly notify Bank of any material changes to the
SBI Benefit Plans.
SECTION 4.5 Certain Filings, Consents and Arrangements. SBI shall
------------------------------------------
use all reasonable efforts to obtain all necessary approvals required to carry
out the transactions contemplated by this Agreement and to consummate the
Merger. Bank shall cooperate with SBI in connection therewith, including
without limitation furnishing all information concerning Bank as may be
reasonably requested by SBI in connection with any such action. SBI shall use
all reasonable efforts to provide, five (5) days prior to submission, Bank with
copies of all material applications, notices, petitions or other filings or
submissions prepared by SBI in connection with consummation of the Merger. Any
comments timely received by SBI from Bank in connection with the foregoing will
be reviewed and considered in good faith, but SBI shall not be bound to comply
with the recommendations set forth in such comments. SBI will consult with Bank
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and governmental authorities necessary or
advisable to consummate the transactions contemplated by this Agreement and SBI
will keep Bank apprised of the status of matters relating to completion of the
transactions contemplated hereby. SBI shall promptly furnish Bank with copies
of applications to any governmental authority in respect of the transactions
contemplated hereby.
SECTION 4.6 Takeover Statutes. No "fair price," "moratorium," or
-----------------
other form of anti-takeover statute or regulation or any similar provision of
Bank's articles of incorporation are applicable to the transactions contemplated
by this Agreement and, if any such statute, regulation or provisions shall
become applicable to the transactions contemplated by this Agreement, Bank and
the members of its board of directors shall grant such approvals and take such
actions as are necessary so that the transactions contemplated hereby and
thereby may be consummated as promptly as practicable on the terms contemplated
hereby and thereby and otherwise act to eliminate or minimize the effects of
such statute or regulation or provision on the transactions contemplated hereby
and thereby.
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SECTION 4.7 Additional Agreements. Subject to the terms and
---------------------
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all actions
and to do promptly, or cause to be done promptly, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement as promptly as
practicable, including using efforts to obtain all necessary actions or non-
actions, extensions, waivers, consents and approvals from all applicable
governmental authorities, or other entities, effecting all necessary
registrations, applications and filings and obtaining any required contractual
consents and regulatory approvals.
SECTION 4.8 Publicity. Except as required by law, Bank shall not,
---------
without the prior consent of SBI (which consent shall not be unreasonably
withheld), issue any press releases or otherwise make public filings under
securities laws, with respect to this Agreement or the transactions described
herein. Prior to issuing any press release or making any public filings under
securities laws which makes any reference to Bank, SBI shall provide a copy to
Bank for comment and in all such instances the parties shall cooperate.
SECTION 4.9 INTENTIONALLY OMITTED.
SECTION 4.10 Notification of Certain Matters. Each party shall give
-------------------------------
prompt notice to the others of: (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by it or any of its subsidiaries subsequent to
the date of this Agreement and prior to the Effective Time, under any contract
material to the financial condition, properties, businesses, results of
operations or prospects of it to which it is a party or is subject; and (b) any
material adverse change in its financial condition, properties, business, or
results of operations taken as a whole or the occurrence of any event which, so
far as reasonably can be foreseen at the time of its occurrence, is reasonably
likely to result in any such change. Each party shall give prompt notice to the
other parties of any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the transactions contemplated by this Agreement.
SECTION 4.11 Insurance. Bank shall use its best efforts to retain no
---------
less than the level of insurance coverage presently held by it as of the date
hereof.
SECTION 4.12 Dividends. Bank shall not declare, pay or set aside any
---------
dividend or other distribution in respect of its capital stock except that it
shall have the right, after January 1, 1999, to declare and pay a dividend
corresponding in amount and timing with past practice.
SECTION 4.13 Indemnification; Insurance.
--------------------------
(a) From and after the Effective Time, SBI agrees to indemnify and
hold harmless each present and former director and officer of Bank and each
officer or employee of Bank that is serving as a director or trustee of another
entity expressly at Bank's request or direction (each, an "Indemnified Party"),
against any costs or expenses (including reasonable attorneys' fees),
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judgments, fines, losses, claims, damages or liabilities (collectively, the
"Costs") incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, and
whether or not the Indemnified Party is a party thereto, arising out of matters
existing or occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement), whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent permitted under the
Articles of Incorporation or the Bylaws of Bank in effect on the date hereof.
(b) SBI shall maintain the Bank's existing directors' and officers'
liability insurance policy (or a policy providing comparable coverage amounts on
terms generally no less favorable, including SBI's existing policy if it meets
the foregoing standard) covering persons who are currently covered by such
insurance for a period of two years after the Effective Time; provided, however,
that in no event shall SBI be obligated to expend, in order to maintain or
provide insurance coverage pursuant to this Section 4.13(b), any amount per
annum in excess of 150% of the amount of the annual premiums paid as of the date
hereof by the Bank for such insurance (the "Maximum Amount"). If the amount of
the annual premiums necessary to maintain or procure such insurance coverage
exceeds the Maximum Amount, SBI shall use all reasonable efforts to maintain the
most advantageous policies of directors' and officers' insurance obtainable for
an annual premium equal to the Maximum Amount. In the event that SBI acts as
its own insurer for all of its directors and officers with respect to matters
typically covered by a directors' and officers' liability insurance policy,
SBI's obligations under this Section 4.13(b) may be satisfied by such self
insurance, so long as its senior ratings by Standard & Poor's Corporation and
Moody's Investors Services, Inc. are not lower than such ratings as of the date
hereof.
(c) In the event that SBI or any of its respective successors or
assigns (i) consolidate with or merge into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then, and in each such case, the successors and assigns of such entity
shall assume the obligations set forth in this Section 4.13.
ARTICLE V
CONDITIONS TO CONSUMMATION
SECTION 5.1 Conditions to Closing. The respective obligations of the
---------------------
parties to effect the Merger shall be subject to the satisfaction or waiver
prior to the Effective Time of the following conditions:
(a) The Agreement and the transactions contemplated hereby shall have
been approved by the requisite vote of the shareholders of Bank in accordance
with applicable law.
(b) All of the required approvals, consents or waivers of governmental
authorities with respect to this Agreement (including the Merger) and the
transactions contemplated hereby
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including, without limitation, the approvals, notices to, consents or waivers of
(i) the Board, and (ii) the Banking Department (together with the Bank
Regulatory Agencies and the SBI Regulatory Agencies, the "Regulatory Agencies")
shall have been obtained and shall remain in full force and effect, and all
applicable statutory waiting periods (including without limitation all
applicable statutory waiting periods relating to the Merger) shall have expired;
and the parties shall have procured all other regulatory approvals, consents or
waivers of governmental authorities that are necessary or appropriate to the
consummation of the transactions contemplated by this Agreement except those
approvals, consents or waivers, if any, for which failure to obtain would not,
individually or in the aggregate, have a Material Adverse Effect on SBI or Bank
(after giving effect to the transaction contemplated hereby); provided, however,
that no approval, consent or waiver referred to in this Section 5.1(b) shall be
deemed to have been received if it shall include any condition or requirement
that reasonably would result in a Material Adverse Effect on SBI.
(c) All other requirements prescribed by law which are necessary to
the consummation of the transactions contemplated by this Agreement shall have
been satisfied.
(d) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger, or any other transaction contemplated
by this Agreement, and no litigation or proceeding shall be pending against any
of the parties herein or any of their subsidiaries brought by any governmental
agency seeking to prevent consummation of the transactions contemplated hereby.
(e) No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any governmental
authority which prohibits, restricts or makes illegal consummation of the
Merger, or any other transaction contemplated by this Agreement.
(f) The Merger shall as of the date of the Closing meet the
requirements for pooling-of-interests accounting treatment under generally
accepted accounting principles and under the accounting rules of the SEC, and
SBI shall have received a letter from Coopers & Lybrand L.L.P. in form and
substance reasonably satisfactory to SBI as to the matters specified in this
Section 5.1(f).
(g) The Registration Statement shall have been filed (the date of
which is referred to herein as the "Filing Date") by SBI with the SEC under the
Securities Act, and shall have been declared effective prior to the time the
Proxy Statement/Prospectus is first mailed to the shareholders of Bank, and no
stop order with respect to the effectiveness of the Registration Statement shall
have been issued; the SBI Common Stock to be issued pursuant to this Agreement
shall be duly registered or qualified under the securities or "blue sky" laws of
all states in which such action is required for purposes of the initial issuance
of such shares and the distribution thereof to the shareholders of Bank entitled
to receive such shares.
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<PAGE>
(h) SBI and Bank shall have received a ruling from the IRS or an
opinion of Morgan, Lewis & Bockius LLP, counsel to SBI and Interim Bank, to the
effect that:
i. The Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and Bank and SBI will each be a "party to
a reorganization" within the meaning of Section 368(b) of the Code;
ii. No gain or loss will be recognized by Bank or SBI by reason
of the Merger;
iii. Except for cash received in lieu of fractional shares, no
gain or loss will be recognized by the shareholders of Bank who receive solely
SBI Common Stock upon the exchange of their shares of Bank Common Stock for
shares of SBI Common Stock;
iv. The basis of the SBI Common Stock to be received by the Bank
shareholders will be, in each instance, the same as the basis of the Bank Common
Stock surrendered in exchange therefor;
v. The holding period of the SBI Common Stock received by a
Bank shareholder receiving SBI Common Stock will include the period during which
the Bank Common Stock surrendered in exchange therefor was held; and
vi. Cash received by a Bank shareholder in lieu of a fractional
share interest of SBI Common Stock will be treated as having been received as a
distribution in full payment in exchange for the fractional share interest of
SBI Common Stock which he would otherwise be entitled to receive and will
qualify as capital gain or loss.
In case a ruling from the IRS is sought, Bank and SBI shall
cooperate and each shall furnish to the other and to the IRS such information
and representations as shall, in the opinion of counsel for SBI and Bank, be
necessary or advisable to obtain such ruling.
(i) All litigation pending against Bank which, individually or in the
aggregate, would have a Material Adverse Effect on Bank's consolidated
operations, shall have been settled or otherwise resolved on terms satisfactory
to SBI and Bank.
(j) INTENTIONALLY OMITTED.
SECTION 5.2 Conditions to Obligations of SBI and Interim Bank. The
-------------------------------------------------
obligations of SBI and Interim Bank to effect the Merger shall be subject to the
satisfaction or waiver prior to the Effective Time of the following additional
conditions:
(a) Each of the representations and warranties of Bank contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date as if made on such
37
<PAGE>
date (or on the date when made in the case of any representation or warranty
which specifically relates to an earlier date); Bank shall have performed each
of its covenants and agreements, which are material to its operations and
prospects, contained in this Agreement; and SBI and Interim Bank shall have
received certificates signed by the Chief Executive Officer and the Controller
of the Bank, dated the Closing Date, to the foregoing effect.
(b) KMPG Peat Marwick LLP, or such other accounting firm as is
acceptable to the parties, shall have furnished to SBI an "agreed upon
procedures" letter, dated the Closing Date, in form and substance satisfactory
to SBI to the effect that, based upon a procedure performed with respect to the
financial condition of Bank for the period from December 31, 1997 to a specified
date not more than five (5) days prior to the date of such letter, including but
not limited to (a) their inspection of the minute books of Bank, (b) inquiries
made by them of officers and other employees of Bank and affiliates responsible
for financial and accounting matters as to transactions and events during the
period, as to consistency of accounting procedures with prior periods and as to
the existence and disclosure of any material contingent liabilities, and (c) of
other specified procedures and inquiries performed by them, nothing has come to
their attention that would indicate that (A) during the period from December 31,
1997 to a specified date not more than five (5) days prior to the date of such
letter, there was any change in the capitalization of Bank on a consolidated
basis, or (B) any material adjustments would be required to the audited
financial statements for the period ended December 31, 1997 in order for them to
be in conformity with generally accepted accounting principles applied on a
consistent basis with that of prior periods.
(c) SBI shall have received an opinion or opinions dated as of the
Closing Date, from Saul, Ewing, Remick & Saul LLP, counsel to Bank,
substantially in the form attached hereto as Exhibit 5.2(c).
(d) There shall not have occurred any change in the financial
condition, properties, assets, liabilities (including contingent liabilities),
business or results of operation of Bank which, individually or in the
aggregate, has had or might reasonably be expected to result in a Material
Adverse Effect on Bank other than such changes resulting from (i) changes in
banking laws or regulations, or (ii) changes in generally accepted accounting
principles, or interpretations thereof, that affect the banking or thrift
industries.
(e) SBI shall have received from each of the persons identified by
Bank pursuant to Section 4.2 hereof an executed counterpart of an affiliate's
agreement in the form contemplated by such Section.
(f) Except as otherwise provided in this Agreement, prior to Closing
all issued and outstanding options, warrants or rights to acquire Bank Common
Stock or any capital stock of Bank shall have been exercised or cancelled. No
compensation or other rights will be payable or exchangeable in the Merger in
respect of any such rights which remain unexercised at the Effective Time.
38
<PAGE>
(g) Concomitant with the signing of this Agreement, each of the
directors of Bank and National Penn shall have executed in favor of, and
delivered to, SBI a Voting Agreement, substantially in the form attached hereto
as Exhibit 5.2(g). Furthermore, concomitant with the signing of this Agreement,
the parties to the Warrant Substitution Agreement shall have executed such
agreement substantially in the form attached hereto as Exhibit 1.6
SECTION 5.3 Conditions to the Obligations of Bank. The obligations
-------------------------------------
of Bank to effect the Merger shall be subject to the satisfaction or waiver
prior to the Effective Time of the following additional conditions:
(a) Each of the representations, warranties and covenants of SBI
contained in this Agreement shall be true and correct in all material respects
on the Closing Date as if made on such date (or on the date when made in the
case of any representation or warranty which specifically relates to an earlier
date); SBI shall have performed each of its covenants and agreements, which are
material to its operations and prospects, contained in this Agreement; and Bank
shall have received certificates signed by the President or Vice President and
Secretary of SBI, dated the Closing Date, to the foregoing effect.
(b) Bank shall have received an opinion dated as of the Closing Date,
from Morgan, Lewis & Bockius LLP, Harrisburg, Pennsylvania, counsel to SBI and
Interim Bank, substantially in the form attached hereto as Exhibit 5.3(b).
(c) There shall not have occurred any change in the financial
condition, properties, assets, liabilities (including contingent liabilities),
business or results of operation of SBI which, individually or in the aggregate,
has had or might reasonably be expected to result in a Material Adverse Effect
on SBI other than such changes resulting from (i) change in banking laws or
regulations or (ii) changes in generally accepted accounting principles, or
interpretations thereof, that affect the banking or thrift industries.
(d) Bank shall have received an updated opinion from Danielson
Associates, Inc. of Rockville, Maryland, dated as of a date no later than the
date of the Proxy Statement/Prospectus mailed to the Bank shareholders in
connection with the Merger and not subsequently withdrawn, to the effect that
the Merger Consideration is fair to Bank's shareholders from a financial point
of view.
(e) The shares of SBI Common Stock to be issued in the Merger shall
have been authorized to be listed for quotation on the NASDAQ National Market
System.
(f) No transaction or event involving SBI or any subsidiary of SBI
shall have occurred or be pending which would result in a change in the nature
of the securities as the same are described in SBI Articles of Incorporation as
in effect on the date of this Agreement or in the issuer of the securities to be
issued in the Merger to holders of Bank Common Stock or which would result in
SBI's ceasing to own any Material Subsidiary.
39
<PAGE>
ARTICLE VI
TERMINATION
SECTION 6.1 Termination. This Agreement may be terminated, and the
-----------
Merger abandoned, prior to the Effective Date, either before or after its
approval by the shareholders of Bank:
(a) by the mutual, written consent of Bank and SBI if the board of
directors of each so determines by a vote of a majority of the members of the
entire board;
(b) by Bank if (i) by written notice to SBI that there has been a
material breach by SBI of any representation, warranty, covenant or agreement
contained herein and such breach is not cured or not curable within thirty (30)
days after written notice of such breach is given to SBI by Bank, (ii) by
written notice to SBI that any condition precedent to Bank's obligations as set
forth in Article V of this Agreement has not been met or waived by Bank at such
time as such condition can no longer be satisfied, (iii) the board of directors
of Bank fails to make, withdraws or modifies or changes the favorable
recommendation described at Section 4.2, or (iv) the board of directors of Bank
recommends to the stockholders of Bank that an Acquisition Proposal is likely to
be more favorable, from a financial point of view, to the stockholders of Bank
than the Merger;
(c) by SBI by written notice to the other parties, in the event (i)
of a material breach by Bank of any representation, warranty, covenant or
agreement contained herein and such breach is not cured or not curable within
thirty (30) days after written notice of such breach is given to Bank by SBI or
(ii) any condition precedent to SBI's obligations as set forth in Article V of
this Agreement has not been met or waived by SBI at such time as such condition
can no longer be satisfied.
(d) by SBI or Bank by written notice to the other, in the event that
the Merger is not consummated by March 31, 1999, unless the failure to so
consummate by such time is due to the breach of any representation, warranty or
covenant contained in this Agreement by the party seeking to terminate;
provided, however, that such date may be extended by the written agreement of
the parties hereto.
(e) by Bank, whether before or after approval of the Merger by Bank's
shareholders, by giving written notice of such election to Susquehanna within
one (1) business day following determination of the Average Closing Price per
share of SBI Common Stock before Closing if such Average Closing Price is
greater than $42.00 per share (subject to adjustment in accordance with Section
1.2 herein) at the time such calculation is required to be made pursuant to
Schedule 1.2 hereof.
(f) by Susquehanna, whether before or after approval of the Merger by
Bank's shareholders, by giving written notice of such election to Bank within
one (1) business day following determination of the Average Closing Price per
share of SBI Common Stock before Closing if such
40
<PAGE>
Average Closing Price is less than $32.00 per share (subject to adjustment in
accordance with Section 1.2 herein) at the time such calculation is required to
be made pursuant to Schedule 1.2 hereof.
SECTION 6.2 Effect of Termination. In the event of the termination
---------------------
of this Agreement, as provided above, this Agreement shall thereafter become
void and have no effect, except that the provisions of Sections 3.1(p) and
3.2(n) (Fees), 4.4 (relating to confidentiality and return of documents), 4.8
(Publicity) and 6.3 and 7.7 (Expenses) of this Agreement shall survive any such
termination and abandonment.
SECTION 6.3 Expenses. Any termination of this Agreement pursuant to
--------
Section 6.1(a), 6.1(d), 6.1(e) or 6.1(f) hereof shall be without cost, expense
or liability on the part of any party to the others. Any termination of this
Agreement pursuant to clause (iii) of Section 6.1(b) shall be without cost,
expense or liability on the part of Bank to any other party, if the board of
directors of Bank failed to make, withdrew, modified or changed its favorable
recommendation described in Section 4.2 as a result of a material adverse change
in SBI's financial condition, properties, assets, liabilities (including
contingent liabilities), business or results of operations, or failed to make
such favorable recommendation due to its financial advisor's failure to update
its fairness opinion as contemplated by Section 4.2. Any termination of this
Agreement pursuant to Section 6.1(b)(i) or (ii) or 6.1(c) hereof shall also be
without cost, liability or expense on the part of any party to the others,
unless the breach of a representation or warranty or covenant is caused by the
willful conduct or gross negligence of a party, in which event said party shall
be liable to the other parties for all out-of-pocket costs and expenses,
including without limitation, reasonable legal, accounting and investment
banking fees and expenses, incurred by such other party in connection with their
entering into this Agreement and their carrying out of any and all acts
contemplated hereunder ("Expenses").
If this Agreement is terminated by the Bank, because the board of
directors of the Bank: (a) failed to make, withdrew, modified or changed its
favorable recommendation to the Bank shareholders to approve this Agreement and
the transactions contemplated thereby or (b) recommends to the Bank shareholders
that an Acquisition Proposal is more favorable, from a financial point of view,
to the Bank Shareholders than the Merger, then the Bank shall promptly, but in
no event later than two (2) business days after such termination, pay SBI a fee
of $500,000 which amount shall be payable by wire transfer of same day funds.
If Bank fails to promptly pay the amount due pursuant to this Section 6.3, and,
in order to obtain such payment, SBI commences a suit which results in a
judgment against Bank for all or a substantial portion of the fee set forth in
this Section 6.3, Bank shall pay to SBI all costs and expenses (including
reasonable attorneys' fees) incurred by SBI in connection with such suit.
41
<PAGE>
ARTICLE VII
OTHER MATTERS
SECTION 7.1 Certain Defined Terms. As used in the Agreement, the
---------------------
following terms shall have the meanings indicated:
"Acquisition Proposal" shall be defined as at Section 4.1.
"Articles of Merger" shall be defined as at Section 1.1(c).
"Average Closing Price" means the average closing price per share of
SBI Common Stock as determined in conformity with Schedule 1.2 and as defined
therein.
"Bank" or "Surviving Bank" is First Capitol Bank, a Pennsylvania state
chartered bank, and shall be defined as at Section 1.1(a).
"Bank Common Stock" shall be defined as at Section 1.2(a).
"Bank Warrants" and "Bank Warrants Plans" shall be defined as
identified on Annex 3.1(b) and Annex 3.1(m).
"Bank Regulatory Agencies" shall be defined as at Section 3.1(f)(ii).
"Bank Reports" shall be defined as at Section 3.1(nn).
"Bank Subsidiaries" shall be defined as at Section 3.2(d).
"Banking Code" is the Pennsylvania Banking Code of 1965, as amended
and defined as at Section 1.1(a).
"Banking Department" is the Pennsylvania Department of Banking and
defined as at Section 1.1(c).
"Board" is the Board of Governors of the Federal Reserve System and
shall be defined as at Section 3.1(f)(ii).
"COBRA" is the Consolidated Omnibus Budget Reconciliation Act of 1985
and shall be defined as at Section 3.1(m)(xiii).
"Closing" shall be defined as at Section 1.1(b).
"Code" is Section 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended.
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<PAGE>
"Continued Employee" shall be defined as at Section 4.3(b).
"corporate affiliate" shall mean, with respect to a person, any other
corporation controlling, controlled by, or under common control with, such
person.
"Department of State" is the Pennsylvania Department of State and
shall be defined as at Section 1.1(c).
"Dissenters' Rights" shall be defined as at Section 1.4.
"Dissenters' Shares" shall be defined as at Section 1.2(a).
"Dissenting Shareholder" shall be defined as at Section 1.2(a).
"ERISA" is the Employee Retirement Income Security Act and defined as
at Section 3.1(m)(i).
"ERISA Affiliate" shall be defined as at Section 3.1(m)(ii).
"Effective Date" is the day in which the Effective Time for the Merger
occurs and shall be defined as at Section 1.1(c).
"Effective Time" is at 12:01 a.m. on the business day of the Closing
and defined as at Section 1.1(c).
"Employee 401(k) Plan" shall be defined as at Section 4.3(c).
"Environmental Condition" shall be defined as at Section 3(q)(J).
"Environmental Laws" shall be defined as at Section 3.1(q)(M)(ii).
"Environmental Permits" shall be defined as at Section 3(q)(B) and
identified on Annex 3.1(q)B.
"Exchange Act" is the Securities Exchange Act of 1934 and defined as
at Section 3.1(t).
"Exchange Ratio" shall be described on Schedule 1.2 hereof.
"FDIC" is the Federal Deposit Insurance Corporation and shall be
defined as at Section 3.1(f)(ii).
"Filing Date" shall be defined as at Section 5.1(g).
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<PAGE>
"Hazardous Material" shall be defined as at Section 3(q)(M)(ii).
"IRS" is the Internal Revenue Service and shall be defined as at
Section 3.1(m)(vii).
"Interim Bank" shall be Susquehanna Interim Bank, a Pennsylvania state
chartered bank.
"Loan Properties" shall be defined as at Section 3.1(q)(ii) and
identified on Annex 3.1(q).
"material" means material to the party in question (as the case may
be) and its respective subsidiaries, taken as a whole.
"Material Adverse Effect," with respect to a person, means any
condition, event, change or occurrence that has or results in a material adverse
effect upon (A) the financial condition, properties, assets, liabilities
(including contingent liabilities), business or results of operations of such
person and its subsidiaries and corporate affiliates, taken as a whole, or (B)
the ability of such person to perform its obligations under, and to consummate
the transactions contemplated by, this Agreement. In the case of Bank, receipt
of a CAMELS rating in connection with a safety and soundness examination which
is lower than the rating given to Bank in connection with the safety and
soundness examination most recently reported prior to the date of this Agreement
shall be deemed to have a "Material Adverse Effect" on Bank.
"Material Subsidiaries" shall be defined as at Section 3.2(d).
"Merger" shall be the acquisition by Susquehanna Bancshares, Inc. of
First Capitol Bank by means of a merger of Susquehanna Interim Bank with and
into First Capitol Bank.
"Merger Consideration" shall be determined on the basis of the
Exchange Ratio set forth at Schedule 1.2 hereof, and shall be defined as at
Section 1.2(a).
"OCC" is the Office of the Comptroller of the Currency and defined as
at Section 3.2(k).
"OREO" is other real estate owned and shall be defined as at Section
3.1(q)(A).
"OTS" is the Office of Thrift Supervision and shall be defined as at
Section 3.2(d).
"Old Certificates" shall be defined as at Section 1.3(a).
"PBCL" is the Pennsylvania Business Corporation Law of 1988, as
amended.
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<PAGE>
"Participation Facilities" shall be defined as at Section 3.1(q)(ii)
and identified on Annex 3.1(q).
"Pension Plan" is an employee benefit plan subject to Title IV of
ERISA and shall be defined as at Section 3.1(m)(ii).
"person" includes an individual, corporation, partnership,
association, trust or unincorporated organization.
"Plan" or "Agreement" shall be this Agreement and Plan of Affiliation
dated as of the 15th day of April, 1998 by and among Susquehanna Bancshares,
Inc., Susquehanna Interim Bank and First Capitol Bank.
"Properties" shall be defined as at Section 3.1(q)(i)(K).
"Qualified Plan" shall be defined as at Section 3.1(m)(vi).
"Registration Statement" shall be defined as at Section 4.2.
"Regulatory Agencies" shall be defined as at Section 5.1(b).
"SBI" shall be Susquehanna Bancshares, Inc., a Pennsylvania
corporation and a multi-state, multi-institutional bank holding company.
"SBI Benefit Plans" shall be defined as at Section 3.2(j).
"SBI Common Stock" shall be defined as at Section 1.2(a).
"SBI Plans" shall be defined as at Section 4.3(b).
"SBI Regulatory Agencies" shall be defined as at Section 3.2(k).
"SEC" is the Securities and Exchange Commission and shall be defined
as at Section 3.1(i)(A).
"Savings Bank Subsidiary" shall be defined as at Section 3.2(d).
"Securities Act" is the Securities Act of 1933, as amended, and shall
be defined as at Section 1.3(e).
"subsidiary" with respect to a person, means any other person
controlled by such person.
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<PAGE>
"Unclaimed Shares" shall be defined as at Section 1.3(e).
When a reference is made in this Agreement to Exhibits, Sections, Annexes or
Schedules, such reference shall be to a Section of, or Exhibit, Annex or
Schedule to, this Agreement unless otherwise indicated. The table of contents,
tie sheet and headings contained in this Agreement are for ease of reference
only and shall not affect the meaning or interpretation of this Agreement.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed followed by the words "without limitation." Any
singular term in this Agreement shall be deemed to include the plural and any
plural term the singular.
SECTION 7.2 Survival. The representations, warranties and agreements
--------
of the parties set forth in this Agreement shall not survive the Effective Time,
and shall be terminated and extinguished at the Effective Time, and from and
after the Effective Time none of the parties hereto shall have any liability to
the other on account of any breach or failure of any of those representations,
warranties and agreement; provided, however, that the foregoing clause shall not
(i) apply to agreements of the parties which by their terms are intended to be
performed either in whole or in part after the Effective Time, and (ii) shall
not relieve any person of liability for fraud, deception or intentional
misrepresentation.
SECTION 7.3 Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto and their respective
successors and assigns, and, other than the right to receive the consideration
payable in the Merger pursuant to Article I hereof, is not intended to and shall
not confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 7.4 Waiver and Amendment. Prior to the Effective Time, any
--------------------
provision of this Agreement may be: (i) waived by the party benefitted by the
provision; or (ii) amended or modified at any time (including the structure of
the transaction) by an agreement in writing between the parties hereto approved
by their respective boards of directors, except that no amendment or waiver may
be made that would change the form or the amount of the Merger Consideration or
otherwise have the effect of prejudicing the Bank shareholders' interest in the
Merger Consideration following the Bank Shareholders' Meeting.
SECTION 7.5 Counterparts. This Agreement may be executed in
------------
counterparts each of which shall be deemed to constitute an original, but all of
which together shall constitute one and the same instrument.
SECTION 7.6 Governing Law. This Agreement shall be governed by, and
-------------
interpreted in accordance with, the laws of the Commonwealth of Pennsylvania,
or, to the extent it may control, federal law, without reference to the choice
of law principles thereof.
SECTION 7.7 Expenses. Subject to the provisions of Section 6.3
--------
hereof, each party hereto will bear all expenses incurred by it in connection
with this Agreement and the transactions
46
<PAGE>
contemplated hereby; provided, however, that all filing and other fees (other
than federal and state income taxes) required to be paid to any governmental
agency or authority in connection with the consummation of the transactions
contemplated hereby shall be paid by SBI.
SECTION 7.8 Notices. All notices, requests, acknowledgments and
-------
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, telecopy, telegram or
telex (confirmed in writing) to such party at its address set forth below or
such other address as such party may specify by notice to the other party
hereto.
If to Bank, to:
First Capitol Bank
2951 Whiteford Road
York, PA 17402
Attention: Owen O. Freeman, Jr., Chairman
With copies to:
Saul, Ewing, Remick & Saul LLP
Penn National Insurance Tower
2 North Second Street, 7th Floor
Harrisburg, PA 17101
Attention: John B. Lampi, Esquire
If to SBI, to:
Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543
Attention: Robert S. Bolinger, President and Chief Executive
Officer
With copies to:
Morgan, Lewis & Bockius LLP
One Commerce Square
417 Walnut Street
Harrisburg, PA 17101-1904
Attention: Charles L. O'Brien, Esquire
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<PAGE>
If to Interim Bank, to:
Susquehanna Interim Bank
c/o Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543
Attention: Robert S. Bolinger, President and Chief Executive
Officer
With copies to:
Morgan, Lewis & Bockius LLP
One Commerce Square
417 Walnut Street
Harrisburg, PA 17101-1904
Attention: Charles L. O'Brien, Esquire
SECTION 7.9 Entire Agreement; Etc. This Agreement, together with
---------------------
such other agreements as are executed by the parties in connection herewith, on
the date hereof, represent the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and thereby and supersede any
and all other oral or written agreements heretofore made. All terms and
provisions of this Agreement, together with such other agreements as are
executed by the parties in connection herewith, on the date hereof, and thereof,
shall be binding upon and shall inure to the benefit of the parties hereto and
thereto and their respective successors and assigns. Nothing in this Agreement
is intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement except as expressly provided.
SECTION 7.10 Intentionally Omitted Sections. The term "Intentionally
------------------------------
Omitted" appearing after certain sections of this Agreement has been used for
convenience only, and does not in any way limit or alter the provisions hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be
executed by their duly authorized officers as of the day and year first above
written.
SUSQUEHANNA BANCSHARES, INC.
By:/s/ Robert S. Bolinger
----------------------------------------
Title: Robert S. Bolinger, President
SUSQUEHANNA INTERIM BANK
By:/s/ Robert S. Bolinger
----------------------------------------
Title: Robert S. Bolinger, President
FIRST CAPITOL BANK
By:/s/ Owen O. Freeman
----------------------------------------
Title: Owen O. Freeman, Jr., Chairman
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<PAGE>
SCHEDULE 1.2
Exchange Provisions
-------------------
So long as the Average Price Per Share of SBI Common Stock Before
Closing is at or between $32.00 and $42.00, then 1.352 shares of SBI Common
Stock shall be exchanged for each of the outstanding shares of Bank Common Stock
and the Exchange Ratio shall equal 1.352.
The Average Price Per Share of SBI Common Stock Before Closing shall
be determined by adding the price at which SBI Common Stock is reported to have
closed by NASDAQ's NMS (or if SBI Common Stock is not quoted on NASDAQ's NMS
then as reported by a recognized source as to the principal trading market on
which such shares are traded) over the period of ten business days ending on the
second business day preceding the date set for Closing, pursuant to Section 1.1
(b) hereof, and dividing such total by 10 (such Average Price Per Share Before
Closing is also referred to as the "Average Closing Price").
If the Average Closing Price is greater than $42.00, then 28,729,000
divided by the Average Closing Price shall be the total number of shares of SBI
Common Stock to be exchanged for all of the outstanding Bank Common Stock, and
the Exchange Ratio shall equal the total number of shares of SBI Common Stock to
be exchanged for all of the outstanding Bank Common Stock divided by the total
number of shares of Bank Common Stock outstanding on the Effective Date.
If the Average Closing Price is less than $32.00, then 21,889,000
divided by the Average Closing Price shall equal the total number of shares of
SBI Common Stock to be exchanged for all of the outstanding Bank Common Stock,
and the Exchange Ratio shall equal the total number of shares of SBI Common
Stock to be exchanged for all of the outstanding Bank Common Stock divided by
the total number of shares of Bank Common Stock outstanding on the Effective
Date.
Notwithstanding the foregoing, Bank shall have the right to terminate
this Agreement, in accordance with Section 6.1 (e), if the Average Closing Price
is greater than $42.00, and SBI shall have the right to terminate this
Agreement, in accordance with Section 6.1(f), if the Average Closing Price is
less than $32.00.
The Exchange Ratio in all instances set forth herein is subject to
adjustment in accordance with Section 1.2(c).
<PAGE>
EXHIBIT 99.1
<PAGE>
SUSQUEHANNA BANCSHARES, INC.
26 NORTH CEDAR STREET, P.O. BOX 1000
LITITZ, PA 17543-7000
(717) 626-4721
FOR IMMEDIATE RELEASE: Date: April 14, 1998
Lititz, Pennsylvania
SUSQUEHANNA BANCSHARES, INC., A $3.5 BILLION MULTI-STATE
BANK HOLDING COMPANY TO ACQUIRE A PENNSYLVANIA
BANK WITH $130 MILLION IN ASSETS
Susquehanna Bancshares, Inc., Lititz, Pennsylvania ("Susquehanna") (NASDAQ
NMS: SUSQ), announced today that it has signed a definitive agreement to acquire
Cardinal Bancorp, Inc. ("Cardinal"). Pursuant to the definitive agreement,
Susquehanna will acquire Cardinal and its wholly-owned subsidiary, First
American National Bank of Pennsylvania ("FANBP") for approximately 1,267,200
shares of Susquehanna common stock which, based upon the closing price of
Susquehanna common stock as of April 13, 1998, represents approximately $46.72
per share of each Cardinal share.
The acquisition is subject to federal and state regulatory approvals as
well as approval of the shareholders of Cardinal. Cardinal issued an option
enabling Susquehanna to purchase up to 15% of all Cardinal's total, issued and
outstanding shares in the event the transaction fails to be consummated for
specified reasons.
This transaction represents Susquehanna's first venture into western
Pennsylvania. FANBP is a national banking association. In addition to its
headquarters in Everett, FANBP has branch offices in Bedford, Breezewood,
Altoona/Duncansville and Woodbury, Pennsylvania. As of December 31, 1997, FANBP
has total assets of $130 million. FANBP was formed in 1902 and will continue to
provide service focused on the citizens, businesses and public institutions in
the communities it serves. Cardinal is traded over the counter under the symbol
CADL. This acquisition is expected to qualify for pooling of interest
treatment.
Susquehanna owns five banks in Pennsylvania with $1.8 billion in assets, a
bank and a savings bank in Maryland with $1.4 billion in assets and two banks in
New Jersey with $0.3 billion in assets.
On a pro forma consolidated basis at December 31, 1997, as a result of
these transactions announced today, Susquehanna's assets will increase from $3.5
billion to $3.7 billion.
<PAGE>
Robert S. Bolinger, President of Susquehanna, and Merle W. Helsel,
President of Cardinal, expressed their pleasure with the acquisition which is
expected to be completed later this year. Mr. Bolinger noted that Cardinal and
FANBP have a long tradition of service to the communities of Bedford County.
The products offered to FANBP's customers can be significantly enhanced as a
result of the addition of Susquehanna's resources. "The addition of FANBP
represents Susquehanna's commitment to expand in western Pennsylvania and to
help assure the continuance of community banking throughout central and western
Pennsylvania. We are delighted to be welcoming FANBP's employees and
customers," said Mr. Bolinger. Cardinal will have the right to appoint a
member, from among its board of directors, to the Susquehanna board of
directors.
"I believe this is a tremendous opportunity for the customers and
shareholders of Cardinal," explained Mr. Helsel. "Unlike other bank mergers
where banks lose their identity, First American will maintain its name, local
board of directors and ability to serve its community with the same degree of
personalized service and concern as currently exists, while being able to offer
additional products and services through the resources of Susquehanna.
Additionally, our shareholders will have increased liquidity in their stock and
ownership in a dynamic financial services company." Mr. Helsel added, "Being
part of Susquehanna will provide us with more ways to remain competitive with
larger lending institutions and other financial service providers while
providing First American a relatively unique opportunity to retain the community
bank atmosphere our customers enjoy."
Mr. Helsel and Mr. Bolinger joined together noting "We believe this
acquisition will inure to the benefit of all parties. Even more importantly, we
expect the communities and customers to benefit as we continue to provide the
quality banking services that all of our customers have come to expect and
appreciate, delivered in a friendly, personalized manner by local people through
a network of 10 financial institutions with 126 community banking offices."
Susquehanna Bancshares, Inc. is the holding company for Citizens National
Bank of Southern Pennsylvania, Greencastle, Pa; Equity National Bank, Marlton,
NJ; Farmers & Merchants Bank and Trust, Hagerstown, Md; Farmers First Bank,
Lititz, Pa; Farmers National Bank, Mullica Hill, NJ; First National Trust Bank,
Sunbury, Pa; Founders' Bank, Bryn Mawr, Pa; Susquehanna Bank, Baltimore, Md;
Williamsport National Bank, Williamsport, Pa; Susquehanna Bancshares Life
Insurance Company, Lititz, PA; and Susque-Bancshares Leasing Co., Inc., Lititz,
PA.
Susquehanna Bancshares, Inc.'s common stock is listed on the NASDAQ
National Market System under the symbol SUSQ. Susquehanna member banks now have
121 community banking offices throughout central Pennsylvania, Maryland and New
Jersey.
Robert S. Bolinger
President and C.E.O.
SUSQUEHANNA BANCSHARES, INC.
Office: (717) 626-4721
<PAGE>
EXHIBIT 99.2
<PAGE>
SUSQUEHANNA BANCSHARES, INC.
26 NORTH CEDAR STREET, P.O. BOX 1000
LITITZ, PA 17543-7000
(717) 626-4721
FOR IMMEDIATE RELEASE: Date: April 16, 1998
Lititz, Pennsylvania
SUSQUEHANNA BANCSHARES, INC., A $3.5 BILLION MULTI-STATE
BANK HOLDING COMPANY TO ACQUIRE A PENNSYLVANIA
BANK WITH $108 MILLION IN ASSETS
Susquehanna Bancshares, Inc., Lititz, Pennsylvania ("Susquehanna") (NASDAQ
NMS: SUSQ), announced today that it has signed a definitive agreement to acquire
First Capitol Bank ("First Capitol"). Pursuant to the definitive agreement,
Susquehanna will acquire First Capitol for approximately 684,021 shares of
Susquehanna common stock which, based upon the closing price of Susquehanna
common stock as of April 15, 1998, represents approximately $50.02 per share of
each First Capitol share.
The acquisition is subject to federal and state regulatory approvals as
well as approval of the shareholders of First Capitol. First Capitol issued an
option enabling Susquehanna to purchase up to 19.9% of all First Capitol's
total, issued and outstanding shares in the event the transaction fails to be
consummated for specified reasons.
First Capitol is a Pennsylvania state-chartered bank. In addition to its
headquarters at 2951 Whiteford Road, York, Pennsylvania, First Capitol has
branch offices in York at 49 East Market Street, 2290 South George Street, and
2170 White Street. As of December 31, 1997, First Capitol had total assets of
$108 million. First Capitol was formed in 1988 and will continue to provide
service focused on the citizens, businesses and public institutions in the
communities it serves. This acquisition is expected to qualify for pooling of
interest treatment.
Susquehanna owns five banks in Pennsylvania with $1.8 billion in assets, a
bank and a savings bank in Maryland with $1.4 billion in assets and two banks in
New Jersey with $0.3 billion in assets. On April 14, 1998, Susquehanna
announced the execution of a definitive agreement with Cardinal Bancorp, Inc.
On a pro forma consolidated basis at December 31, 1997, as a result of these two
transactions, Susquehanna's assets will increase from $3.5 billion to $3.8
billion.
Robert S. Bolinger, President of Susquehanna, and Owen O. Freeman, Jr.,
Chairman of the Board of Directors of First Capitol, expressed their pleasure
with the acquisition which is expected to be completed next year. Mr. Bolinger
noted that First Capitol has a long tradition of service to the communities of
York County. The products offered to First Capitol's customers can be
significantly enhanced as a result of the addition of Susquehanna's resources.
"The addition of First Capitol represents Susquehanna's continued commitment to
serve the communities of York County and to help assure the continuance of
community banking throughout the county. We are delighted to be welcoming First
Capitol's employees and
<PAGE>
customers," said Mr. Bolinger. Upon consummation of the merger, Mr. Freeman will
become a member of Susquehanna's board of directors.
Mr. Freeman stated that "this transaction has achieved my stated goals of a
fair value for the loyal shareholders of First Capitol Bank while also
preserving its independence through the retention of its dedicated staff and the
continuation of a local banking alternative created to serve the small business
and professional communities."
Mr. Freeman and Mr. Bolinger joined together noting "We believe this
acquisition will inure to the benefit of all parties. Even more importantly, we
expect the communities and customers to benefit as we continue to provide the
quality banking services that all of our customers have come to expect and
appreciate, delivered in a friendly, personalized manner by local people through
a network of 11 financial institutions (including the Cardinal transaction) with
130 community banking offices."
Susquehanna Bancshares, Inc. is the holding company for Citizens National
Bank of Southern Pennsylvania, Greencastle, Pa; Equity National Bank, Marlton,
NJ; Farmers & Merchants Bank and Trust, Hagerstown, Md; Farmers First Bank,
Lititz, Pa; Farmers National Bank, Mullica Hill, NJ; First National Trust Bank,
Sunbury, Pa; Founders' Bank, Bryn Mawr, Pa; Susquehanna Bank, Baltimore, Md;
Williamsport National Bank, Williamsport, Pa; Susquehanna Bancshares Life
Insurance Company, Lititz, PA; and Susque-Bancshares Leasing Co., Inc., Lititz,
PA.
Susquehanna Bancshares, Inc.'s common stock is listed on the NASDAQ
National Market System under the symbol SUSQ. Susquehanna member banks now have
121 community banking offices throughout central Pennsylvania, Maryland and New
Jersey.
Robert S. Bolinger
President and C.E.O.
SUSQUEHANNA BANCSHARES, INC.
Office: (717) 626-4721
