SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 23, 1996
Commission file number 2-76555
SDN BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3683748
(State or other jurisdiction of (I.R.S. Employer or
incorporation or organization) Identification No.)
135 Saxony Road, Encinitas, California 92024-0905
(Address of principal executive offices) (Zip Code)
(619) 436-6888
(Registrant's telephone number, including area code)
<PAGE>
Item 5. OTHER EVENTS
On April 23, 1996, SDN Bancorp, Inc, a Delaware corporation
("Bancorp"), and Commerce Security Bank, a California banking corporation
("Commerce"), entered into an Agreement and Plan of Reorganization (the
"Reorganization Agreement") pursuant to which a holding company ("Holdco")
to be organized by Bancorp will acquire Commerce for a combination of cash
and stock.
Under the terms of the Reorganization Agreement, each share of Bancorp
stock will be exchanged for one share of common stock in the Holdco. Sixty
percent of the Commerce common stock will be exchanged for cash equal to
approximately 1.5 times Commerce's book value per share as of December 31,
1995. The balance of the Commerce common stock will be exchanged for
Holdco common stock having a pro forma book value as of December 31, 1995
approximately equal to the book value per share of Commerce common stock as
of that date.
The transaction will be effected by means of two reverse triangular
mergers (collectively, the "Reorganization"). Bancorp will cause Holdco to
be organized under Delaware law and to become a subsidiary of Bancorp.
Holdco will form two wholly-owned interim subsidiaries, one a California
business corporation (the "CSB Merger Sub") and the other a Delaware
business corporation (the "SDN Merger Sub"). The Reorganization Agreement
provides that CSB Merger Sub will merge with and into Commerce (the
"Commerce Acquisition") and SDN Merger Sub will merge with and into Bancorp
(the "SDN Merger") in contemporaneous reverse triangular transactions. As
a result of the Reorganization, Bancorp and Commerce will become wholly-owned
subsidiaries of Holdco and all of the then former Bancorp
shareholders and some or all of the then former Commerce shareholders will
become shareholders of Holdco.
Bancorp expects that the shares of Holdco common stock issued in the
Commerce Acquisition will be exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to
Section 3(a)(10) thereof, which is expected to be confirmed by receipt of a
so-called no-action letter issued by the Securities and Exchange Commission
(the "SEC"). Section 3(a)(10) contemplates that a fairness hearing would
take place, and the parties intend to have such a hearing transpire before
the California Department of Corporations. Alternatively, if Holdco is not
able to obtain such a no-action letter, Holdco will file a registration
statement with the SEC to register such shares under the Securities Act.
The Commerce Acquisition will be accounted for as a purchase, and it
is expected that the Commerce shareholders will recognize gain or loss for
federal income tax purposes only to the extent they receive cash in the
Reorganization. It is expected that Bancorp shareholders will not
recognize any gain or loss for federal income tax purposes as a result of
the Reorganization.
The Reorganization Agreement sets forth certain covenants by both
parties prior to the closing of the Reorganization, including, but not
limited to, an agreement by Commerce not to solicit additional proposals to
acquire Commerce and with limited exceptions, not to respond to any such
proposal from a third party.
The consummation of the Reorganization is subject to certain standard
closing conditions, including, but not limited to, the approval of the
Reorganization Agreement by a majority of the holders Commerce common stock
and the receipt of all required regulatory approvals.
Peter H. Paulsen, Commerce's Chairman and one of its founding
shareholders, beneficially owns approximately 86% of the Commerce common
stock. Subject to the occurrence of certain conditions precedent,
Mr. Paulsen and the other directors of Commerce have agreed to vote all of
the stock which they own or control in favor of the Commerce Acquisition
and against any comparable transaction with a third party.
The Reorganization Agreement provides for two potential reductions in
the amount of consideration paid to Commerce shareholders in the Commerce
Acquisition (the "Commerce Acquisition Price"). The first, which will be
resolved prior to closing, is intended to address the potential exposure to
Commerce inherent in certain pending litigation, recourse loan claims and
real estate assets. Those risks, and the manner in which any adjustment to
the Commerce Acquisition Price will be calculated are set forth in an
exhibit to the Reorganization Agreement. The maximum reduction will be
$400,000. Sixty percent (60%) of any such reduction will be allocated to
the cash component of the Commerce Acquisition Price and forty percent
(40%) will be allocated to the stock component of the Commerce Acquisition
Price.
The second potential reduction in the Commerce Acquisition Price
relates to the contingency that a special assessment may be levied against
SAIF-insured institutions such as Commerce. Subject to the maximum
adjustments specified below, an agreed upon portion (i.e., 57.5%) of the
after-tax cost of the SAIF contingency (the "SAIF Allocation") generally
would be allocated pro rata among the cash and stock received by Commerce
shareholders. The maximum effect of the SAIF Allocation with respect to
the cash component of the Commerce Acquisition Price would be to reduce
such amount by $345,000. The maximum effect on the stock component of the
Commerce Acquisition Price would be to decrease the number of shares of
Holdco common stock that Holdco otherwise would distribute to Commerce
shareholders by an amount which has an aggregate pro forma book value as of
December 31, 1995 of $230,000. If legislation resolving the SAIF
contingency is not enacted prior to the closing of the Commerce
Acquisition, SDN and Commerce expect that cash and Holdco shares will be
set aside in an escrow as of the closing to address that contingency. If
the SAIF contingency is not resolved within two (2) years after the
closing, the cash and stock in the escrow will be distributed to the former
Commerce shareholders and to Holdco in accordance with a formula contained
in an escrow agreement, the form of which is an exhibit to the
Reorganization Agreement.
Bancorp estimates that approximately $15.5 million of cash will be
necessary to fund the payment of the cash consideration to the Commerce
shareholders and Reorganization-related expenses. Bancorp is seeking
regulatory approval to utilize $4.0 million of Commerce's capital to fund a
portion of the cash payable to Commerce shareholders. Accordingly, Bancorp
expects that it will be necessary for it to raise approximately $11.5 of
addition equity. Bancorp expects that it will raise that equity by selling
$11.5 million of Bancorp common stock prior to the closing of the SDN
Merger to Dartmouth Capital Group, L.P. ("Dartmouth"), the controlling
shareholder of Bancorp. Dartmouth has irrevocably agreed to purchase up to
$16.0 million of such shares at a price of $3.95 per share.
Assuming Dartmouth purchases $11.5 million of Bancorp common stock in
connection with the SDN Merger, upon the closing of the Reorganization,
Dartmouth and certain affiliates of Dartmouth would own approximately 48%
and 30%, respectively, of Holdco common stock on a pro forma basis, and Mr.
Paulsen will own approximately 17% on the same basis. The Reorganization
Agreement provides that Mr. Paulsen will be a director of Holdco as of the
closing of the Reorganization.
Either party may terminate the Reorganization Agreement by written
notice after noon (Pacific time) on December 31, 1996 if the
Reorganization has failed to close for any reason other than a breach of
any representation, warranty, covenant or agreement by the terminating
party.
Generally, each party to the Reorganization Agreement is
responsible for its own expenses. However, Commerce is obligated to pay
the expenses of Bancorp, subject to a specified limit, if Commerce is
unable to obtain shareholder approval or if Bancorp terminates the
Reorganization Agreement due to certain conditions to the obligations of
Bancorp having not been satisfied.
Commerce is obligated to pay Bancorp a termination fee if Commerce or
Bancorp terminates the Reorganization Agreement under certain
circumstances, the amount of which fee depends upon the basis for the
termination. The permitted bases for termination giving rise to a fee
payable by Commerce include Commerce's pursuit of a "Qualifying Strategic
Transaction Proposal," as defined in the Reorganization Agreement, in which
case Bancorp's receipt of the termination fee is a condition precedent to
any termination of the Reorganization Agreement by Commerce. Bancorp is
obligated to pay Commerce a termination fee if Commerce or Bancorp
terminates the Reorganization Agreement under certain other circumstances,
the amount of which fee also depends upon the basis for the termination.
The permitted bases for termination giving rise to a fee payable by Bancorp
include breaches by Bancorp of representations and warranties contained in
the Reorganization Agreement, failure to obtain regulatory approval for the
Reorganization, and failure to provide funding for or otherwise to perform
Bancorp's obligations under the Reorganization Agreement.
Commerce is a California chartered, SAIF insured, commercial bank.
Commerce conducts its business from thirteen locations, consisting of a
main banking office in Sacramento, California and 12 loan production
offices, comprised of seven in California and one in each of Arizona,
Colorado, Nevada, Oregon and Washington. Commerce has three principal
business divisions: a commercial banking division, which focuses on
generating loans and raising deposits primarily in the greater Sacramento
area, a commercial equipment leasing division and a residential mortgage
division. As of March 31, 1996, Commerce had $213 million in total assets
and $195 million in deposits and was "well capitalized" for federal
regulatory purposes.
Between February 1994 and April 1996, Commerce operated under a
Memorandum of Understanding ("MOU") with the California State Banking
Department and the FDIC. The MOU required Commerce to, among other things,
(i) reduce classified assets to prescribed amounts by specified dates; (ii)
establish a policy for determining the adequacy of Commerce's allowance for
loan losses; (iii) implement a liquidity policy; (iv) reduce Commerce's
volatile liability dependency ratio to certain prescribed levels by
specified dates; and (v) maintain a leverage capital ratio of at least 6.5%
provided that total Tier I capital not be less than $12.5 million. In
January 1996, and April 1996, respectively, the California State Banking
Department and the FDIC terminated their respective interests in the MOU,
in each case replacing it with resolutions adopted by the Commerce Board of
Directors at the direction of those regulators.
The joint press release issued by Bancorp and Commerce announcing the
Reorganization Agreement and the Reorganization Agreement are attached
hereto as exhibits and are incorporated herein by reference in their
entirety. The foregoing summary of the Reorganization Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Reorganization Agreement.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements NA
b) Pro Forma Financial Statements NA
c) Exhibits:
1. Form of Press Release dated April 26, 1996
2. Agreement and Plan of Reorganization
dated April 23, 1996
<PAGE>
SIGNATURE
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.
SDN BANCORP, INC.
Date: May 15, 1996 /s/ Curt A. Christianssen
--------------------------------
Curt A. Christianssen
Senior Vice President
Chief Financial Officer
<PAGE>
FOR IMMEDIATE RELEASE
April 26, 1996
Contact: Robert P. Keller, Chairman Bob Connelly, President
(619) 436-6888 (916) 922-9500
SDN BANCORP, INC AND COMMERCE SECURITY BANK SIGN AGREEMENT
Robert P. Keller, Chairman and Chief Executive Officer of SDN Bancorp,
Inc. of Encinitas, California and Peter H. Paulsen, Chairman of the Board
of Directors of Commerce Security Bank of Sacramento, California jointly
announced that SDN Bancorp, Inc. and Commerce Security Bank have signed an
Agreement and Plan of Reorganization to form a new holding company which
will become the sole shareholder of both companies. The new holding
company will have pro forma total assets in excess of $420 million, based
on March 31, 1996 financial statements. SDN Bancorp, Inc. is controlled by
Dartmouth Capital Group, L.P., a Delaware Limited Partnership which Mr.
Keller and his associates formed to pursue financial institution
investments in California. Mr. Paulsen is the founder and majority
shareholder of Commerce Security Bank.
L.R. (Bob) Connelly, President and CEO of Commerce Security Bank said,
"The purpose of this new affiliation is to enable Commerce Security Bank to
provide even more services to our customers. Our historic and continuing
commitment to the Sacramento area business community will be enhanced by
continuity of account officers and staff and by gaining access to the
financial market resources and other capabilities of SDN Bancorp, Inc.
Commerce Security Bank will go forward as Sacramento's premier independent
community bank under our locally based management and Board of Directors".
Mr. Keller stated "SDN Bancorp, Inc. is delighted with the purposed
affiliation with Commerce Security Bank. We believe the association will
add strength to both parties. Commerce Security Bank will retain its local
identity with local board and management, and be able to call upon a larger
organization for additional support and expertise."
Under the terms of the agreement, each share of SDN Bancorp, Inc.
stock will be exchanged for one share of common stock in the holding
company. Sixty percent of the
Commerce Security Bank shares will be exchanged for cash equal to
approximately 1.5 times
Commerce Security Bank's book value per share as of December 31, 1995. The
balance of the Commerce Security Bank shares will be exchanged for common
stock in the holding company having a pro forma book value approximately
equal to Commerce Security Bank's book value per share as of the same date.
Mr. Keller will serve as the Chief Executive Officer of the holding company
and Chairman of Commerce Security Bank's Board of Directors, and Mr.
Paulsen will become a Director of the holding company. The transaction will
be accounted for as a purchase, and it is expected that shareholders will
recognize gain or loss for federal income tax purposes only to the extent
they receive cash in the transaction. At the closing of the transaction,
Commerce Security Bank shareholders would own approximately 18.0% of the
outstanding stock on a pro forma basis. Dartmouth and certain affiliates
of Dartmouth would own approximately 48% and 30% respectively on the same
basis.
Commerce Security Bank had total assets in excess of $213 million at
March 31, 1996 and conducts its business from twenty-one functional
offices. Commerce Security is metropolitan Sacramento's premier commercial
bank, offering loan and deposit products to businesses and individuals
throughout the area. It also provides mortgage banking and equipment
finance services in more than thirty states.
Mr. Keller, the Chief Executive Officer of SDN Bancorp, Inc. has had a
lengthy and successful career in banking. From 1994 to 1995, he served as
President and Chief Executive Officer of Independent Bancorp of Arizona,
Inc., a NASDAQ listed bank holding company with assets of $1.8 billion.
Prior to that he served as President and Chief Executive Officer of New
Dartmouth Bank, a privately owned financial institution with assets of
approximately $2 billion located in Manchester, New Hampshire. SDN
Bancorp, Inc. currently owns San Dieguito National Bank of Encinitas,
California and Liberty National Bank of Huntington Beach, California.
The transaction is contingent upon the approval of shareholders and
the state and federal regulators.
The parties expect that the transaction will close in the third
quarter of 1996.
For further information, please contact Robert Keller of SDN Bancorp,
Inc. at
(619) 436-6888 or Bob Connelly, President of Commerce Security Bank at
(916) 922-9500.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
by and between
SDN BANCORP, INC.
and
COMMERCE SECURITY BANK
Dated as of April 23, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Rules of Construction. . . . . . . . . . . . . . . . . . . . . .9
ARTICLE II. Holdco, the Merger Subsidiaries and the Merger. . . . . . . 10
2.1 Holdco and the Merger Subsidiaries . . . . . . . . . . . . . . 10
2.2 Capital Contribution . . . . . . . . . . . . . . . . . . . . . 11
2.3 The SDN Merger . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3.1 Effecting the Merger . . . . . . . . . . . . . . . 11
2.3.2 Treatment of SDN Common Stock and Holdco
Common Stock. . . . . . . . . . . . . . . . . . . . 11
2.4 The CSB Merger . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4.1 Effecting the Merger . . . . . . . . . . . . . . . 12
2.4.2 Treatment of CSB Common Stock. . . . . . . . . . . 12
2.5 Elections by CSB Shareholders. . . . . . . . . . . . . . . . . 13
2.5.1 Election Procedure . . . . . . . . . . . . . . . . 13
2.5.2 Shares Held for Third Parties. . . . . . . . . . . 14
2.5.3 Effectiveness of Election Statement. . . . . . . . 14
2.5.4 Amendment and Revocation of Election
Statement. . . . . . . . . . . . . . . . . . . . . . 14
2.5.5 Fractional Shares. . . . . . . . . . . . . . . . . 15
2.6 Proration and Allocation of Stock Consideration and
Cash Consideration 15
2.7 Dissenting CSB Shares. . . . . . . . . . . . . . . . . . . . . 17
2.8 Exchange of Certificates . . . . . . . . . . . . . . . . . . . 17
2.8.1 CSB Common Stock Exchange Procedures . . . . . . . 17
2.8.2 SDN Common Stock Exchange Procedures . . . . . . . 18
2.8.3 Transfers; Certain Taxes . . . . . . . . . . . . . 19
2.8.4 Lost, Stolen or Destroyed Certificates . . . . . . 19
2.8.5 Unclaimed Monies . . . . . . . . . . . . . . . . . 19
2.8.6 Exchange Agent to have no Voting or
Other Rights . . . . . . . . . . . . . . . . . . . . 19
2.9 Closing of Transfer Books. . . . . . . . . . . . . . . . . . . 20
2.10 Securities Law Matters . . . . . . . . . . . . . . . . . . . . 20
2.11 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . 20
2.11.1 . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE III. Representations and Warranties. . . . . . . . . . . . . . 21
3.1 By CSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.1.1 Organization, Standing and Power . . . . . . . . . 21
3.1.2 Capital Structure. . . . . . . . . . . . . . . . . 22
3.1.3 Interests in Other Entities. . . . . . . . . . . . 23
3.1.4 Authority and Related Matters. . . . . . . . . . . 23
3.1.5 Certain Agreements by Shareholders . . . . . . . . 23
3.1.6 Conflicts. . . . . . . . . . . . . . . . . . . . . 24
3.1.7 Consents . . . . . . . . . . . . . . . . . . . . . 24
3.1.8 Financial Statements . . . . . . . . . . . . . . . 24
3.1.9 Regulatory Filings and Agreements. . . . . . . . . 25
3.1.10 Undisclosed Liabilities . . . . . . . . . . . . . 25
3.1.11 Classified and OLEM Assets, Reserves and Certain Other
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1.12 Investment Securities; Derivatives. . . . . . . . 26
3.1.13 Absence of Certain Changes or Events. . . . . . . 26
3.1.14 Compliance with Applicable Laws . . . . . . . . . 27
3.1.15 Litigation and Other Disputes . . . . . . . . . . 27
3.1.16 Administration of Fiduciary Accounts. . . . . . . 27
3.1.17 Taxes . . . . . . . . . . . . . . . . . . . . . . 27
3.1.18 Certain Agreements. . . . . . . . . . . . . . . . 28
3.1.19 Employees and Employee Benefit Plans. . . . . . . 30
3.1.20 Properties. . . . . . . . . . . . . . . . . . . . 31
3.1.21 Environmental . . . . . . . . . . . . . . . . . . 32
3.1.22 Intellectual Property . . . . . . . . . . . . . . 32
3.1.23 Brokers . . . . . . . . . . . . . . . . . . . . . 32
3.1.24 Disclosure of All Material Matters. . . . . . . . 33
3.2 By SDN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.2.1 Organization, Standing and Power . . . . . . . . . 33
3.2.2 Capital Structure. . . . . . . . . . . . . . . . . 34
3.2.3 Interests in Other Entities. . . . . . . . . . . . 35
3.2.4 Authority and Related Matters. . . . . . . . . . . 35
3.2.5 Conflicts. . . . . . . . . . . . . . . . . . . . . 35
3.2.6 Consents . . . . . . . . . . . . . . . . . . . . . 36
3.2.7 Financial Statements . . . . . . . . . . . . . . . 36
3.2.8 Regulatory Filings and Agreements. . . . . . . . . 36
3.2.9 Undisclosed Liabilities. . . . . . . . . . . . . . 37
3.2.10 Classified and OLEM Assets, Reserves and Certain Other
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.2.11 Investment Securities; Derivatives. . . . . . . . 38
3.2.12 Absence of Certain Changes or Events. . . . . . . 38
3.2.13 Compliance with Applicable Laws . . . . . . . . . 38
3.2.14 Litigation and Other Disputes . . . . . . . . . . 39
3.2.15 Administration of Fiduciary Accounts. . . . . . . 39
3.2.16 Taxes . . . . . . . . . . . . . . . . . . . . . . 39
3.2.17 Certain Agreements. . . . . . . . . . . . . . . . 40
3.2.18 Employees and Employee Benefit Plans. . . . . . . 42
3.2.19 Properties. . . . . . . . . . . . . . . . . . . . 43
3.2.20 Environmental . . . . . . . . . . . . . . . . . . 44
3.2.21 Intellectual Property . . . . . . . . . . . . . . 45
3.2.22 Brokers . . . . . . . . . . . . . . . . . . . . . 45
3.2.23 Financing of Reorganization . . . . . . . . . . . 45
3.2.24 Disclosure of All Material Matters. . . . . . . . 46
3.3 By Holdco. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.3.1 Organization, Standing and Power . . . . . . . . . 46
3.3.2 Holdco Common Stock. . . . . . . . . . . . . . . . 46
3.3.3 Authority and Related Matters. . . . . . . . . . . 46
3.3.4 No Conflicts . . . . . . . . . . . . . . . . . . . 47
3.3.5 Consents . . . . . . . . . . . . . . . . . . . . . 47
3.3.6 Capital Resources. . . . . . . . . . . . . . . . . 47
3.3.7 Securities Law Compliance. . . . . . . . . . . . . 47
3.3.8 Litigation and Other Disputes. . . . . . . . . . . 48
ARTICLE IV. Additional Agreements. . . . . . . . . . . . . . . . . . . 48
4.1 Discussions with Third Parties . . . . . . . . . . . . . . . . 48
4.2 Shareholder Approval; Information and Registration Statements. 49
4.2.1 Shareholder Approval . . . . . . . . . . . . . . . 49
4.2.2 Information Statement. . . . . . . . . . . . . . . 50
4.2.4 Letter of CSB's Accountants. . . . . . . . . . . . 51
4.2.5 Letter of SDN's Accountants. . . . . . . . . . . . 51
4.2.6 Affiliates . . . . . . . . . . . . . . . . . . . . 51
4.2.7 Effect of Qualifying Strategic Transaction Proposal51
4.3 Regulatory Approvals and Related Matters . . . . . . . . . . . 52
4.3.1 Responsibility for Bank Regulatory Matters . . . . 52
4.3.2 Cooperation by CSB . . . . . . . . . . . . . . . . 52
4.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . 52
4.5 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.6 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.7 Advice of Changes. . . . . . . . . . . . . . . . . . . . . . . 54
4.8 Current Information. . . . . . . . . . . . . . . . . . . . . . 54
4.9 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . 55
4.10 Negative Covenants of CSB. . . . . . . . . . . . . . . . . . . 55
4.11 Negative Covenants of SDN. . . . . . . . . . . . . . . . . . . 59
4.12 Consultation by SDN. . . . . . . . . . . . . . . . . . . . . . 59
4.13 Ratification of Agreement by Holdco. . . . . . . . . . . . . . 60
ARTICLE V. Conditions to Closing . . . . . . . . . . . . . . . . . . . 60
5.1 Conditions to Obligations of Both Parties. . . . . . . . . . . 60
5.1.1 Regulatory Approvals . . . . . . . . . . . . . . . 60
5.1.2 No Pending or Threatened Claims. . . . . . . . . . 60
5.2 Conditions to the Obligations of SDN and Holdco. . . . . . . . 61
5.2.1 Accuracy of Representations and Warranties;
Compliance with Covenants 61
5.2.2 Bringdown of Representations and Warranties. . . . 61
5.2.3 Approval by CSB Shareholders;
Dissenting Shares. . . . . . . . . . . . . . . . . . 61
5.2.4 Third Party Consents . . . . . . . . . . . . . . . 61
5.2.5 Receipt of Legal Opinion . . . . . . . . . . . . . 61
5.2.6 Updated Schedule of Classified and OLEM Assets . . 62
5.2.7 Certificates and Documents . . . . . . . . . . . . 62
5.2.8 Documents and Instruments in Satisfactory Form . . 62
5.2.9 Escrow of CSB Redemption Amount. . . . . . . . . . 62
5.2.10 Appointment of Committee Under Escrow
Agreement. . . . . . . . . . . . . . . . . . . . . . 62
5.3 Conditions to the Obligations of CSB . . . . . . . . . . . . . 62
5.3.1 Accuracy of Representations and Warranties;
Compliance with Covenants 62
5.3.2 Bringdown of Representations and Warranties. . . . 62
5.3.3 Receipt of Legal Opinions. . . . . . . . . . . . . 63
5.3.4 Updated Schedule of Classified and
OLEM Assets. . . . . . . . . . . . . . . . . . . . . 63
5.3.5 Receipt of SDN Closing Certificate . . . . . . . . 63
5.3.6 Receipt of Holdco Closing Certificate. . . . . . . 63
5.3.7 Documents and Instruments in Satisfactory
Form . . . . . . . . . . . . . . . . . . . . . . . . 64
5.3.8 Receipt of Capital Contribution and
Funding of Exchange Agent. . . . . . . . . . . . . . 64
5.3.9 Holdco Ratification. . . . . . . . . . . . . . . . 64
5.3.10 Execution and Funding of Escrow Agreement . . . . 64
5.3.11 Appointment of Paulsen. . . . . . . . . . . . . . 64
ARTICLE VI. Termination. . . . . . . . . . . . . . . . . . . . . . . . 64
6.1 By Mutual Agreement. . . . . . . . . . . . . . . . . . . . . . 65
6.2 Regulatory Impediment. . . . . . . . . . . . . . . . . . . . . 65
6.3 By SDN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.4 By CSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.5 Effect of Termination. . . . . . . . . . . . . . . . . . . . . 66
ARTICLE VII. Termination Fee; Liquidated Damages; Expenses. . . . . . . 66
7.1 Termination Fee. . . . . . . . . . . . . . . . . . . . . . . . 67
7.2 Liquidated Damages Payable by CSB. . . . . . . . . . . . . . . 67
7.3 Liquidated Damages Payable by SDN. . . . . . . . . . . . . . . 67
7.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.4.1 Generally. . . . . . . . . . . . . . . . . . . . . 68
7.4.2 Payment of Expenses upon Certain
Termination Events . . . . . . . . . . . . . . . . . 68
ARTICLE VIII. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 69
8.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.2 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 70
8.5 Non-Survival of Representations, Warranties
and Agreements. . . . . . . . . . . . . . . . . . . . . . 70
8.6 Benefits; Binding Effect; Assignment and Designation . . . . . 71
8.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.8 No Third Party Beneficiary . . . . . . . . . . . . . . . . . . 71
8.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.11 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . 71
8.12 Applicable Law; Consent to Jurisdiction. . . . . . . . . . . . 72
8.13 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . 72
<PAGE>
EXHIBITS
Exhibit 1.1-A Exchange Ratio (Part E omitted)
Exhibit 1.1-B Pro Forma Balance Sheet for SDN (consolidated
with Liberty) (omitted)
Exhibit 1.1-C Valuation Adjustment
Exhibit 2.11-A Escrow Agreement
Exhibit 2.11-B Stock Escrow Deposit
Exhibit 3.1.5 Voting Agreement (omitted)
Exhibit 4.2.6 Affiliate Letter (omitted)
Exhibit 5.2.5 Form of Opinion of CSB Counsel (omitted)
Exhibit 5.3.3 Form of Opinion of SDN Counsel (omitted)
SCHEDULES (omitted)
CSB Disclosures
Schedule 3.1.3 Subsidiaries
Schedule 3.1.7 Governmental Approvals
Schedule 3.1.9 Regulatory Agreements and related matters
Schedule 3.1.10 Undisclosed Liabilities; Letters of Credit
Schedule 3.1.11 Classified Assets; Loans to Directors
Schedule 3.1.12 Investment Securities; Derivatives
Schedule 3.1.13 Adverse Changes; Increases in Executive
Compensation
Schedule 3.1.14 Compliance with Laws
Schedule 3.1.15 Litigation
Schedule 3.1.18 Certain Agreements
Schedule 3.1.19 Employee Benefits Matters
Schedule 3.1.20 Real Property
Schedule 3.1.23 Brokers
SDN Disclosures
Schedule 3.2.2 Registration Rights Agreements
Schedule 3.2.6 Governmental Approvals
Schedule 3.2.8 Regulatory Agreements and related matters
Schedule 3.2.9 Undisclosed Liabilities; Letters of Credit
Schedule 3.2.10 Classified Assets; Loans to Directors
Schedule 3.2.11 Investment Securities
Schedule 3.2.12 Adverse Changes; Increases in Executive
Compensation
Schedule 3.2.14 Litigation
Schedule 3.2.16 Tax Matters
Schedule 3.2.17 Certain Agreements
Schedule 3.2.18 Employee Benefits Matters
Schedule 3.2.19 Real Property
General
Schedule 4.10.11 Contemplated Changes in CSB Securities Portfolio<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of April 23, 1996,
by and between SDN BANCORP, INC., a Delaware business corporation
("SDN"), and COMMERCE SECURITY BANK, a California banking corporation
("CSB").
Recitals
A. The Boards of Directors of SDN and CSB have deemed it
advisable and in the best interests of their respective companies and
shareholders to consummate the transactions contemplated herein (the
"Reorganization"), pursuant to which SDN shall cause a new corporation,
Holdco (as hereinafter defined), to be formed which will then acquire,
through the SDN Merger (as hereinafter defined), all of the shares of
SDN Common Stock in exchange for Holdco Common Stock and acquire,
through the CSB Merger (as hereinafter defined), all of the shares of
CSB Common Stock in exchange for Holdco Common Stock and/or cash.
B. For federal income tax purposes, it is intended that (i)
the SDN Merger qualify as a reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and/or as an
exchange under Section 351 of the Code, and that (ii) the CSB Merger
qualify as an exchange under Section 351 of the Code, and that as a
consequence the CSB Shareholders will not recognize income or loss for
federal income tax purposes except to the extent they receive cash in
exchange for their respective shares of CSB Common Stock in the CSB
Merger.
C. SDN and CSB desire to make certain representations,
warranties, covenants and agreements in connection with the
Reorganization, as contained herein.
Agreement
NOW THEREFORE, in consideration of the mutual undertakings and the
representations, warranties, covenants and agreements contained herein,
SDN and CSB hereby agree as follows:
ARTICLE I.
Definitions
1.1 Definitions. Capitalized terms contained in this
Agreement and not defined in the preamble or the recitals above shall
have the meanings set forth in this Section 1.1:
"Agreement" means this Agreement and Plan of Reorganization,
including all Schedules and Exhibits hereto, as the same may be
hereafter amended.
"Aggregate Cash Pool" means $15,078,111 minus the Cash Valuation
Adjustment.
"Balance Sheet Date" means December 31, 1995.
"Bank Regulators" means any and all Federal or state Governmental
Entities charged with the supervision or regulation of banks or bank
holding companies or engaged in the insurance of bank deposits.
"Benefit Plan" means any employee benefit plan (including any
"employee benefit plan" as defined in Section 3(3) of ERISA) maintained
or contributed to by the applicable entity.
"Borrower Group Obligations" means all loans from CSB to, and
other obligations to CSB of, (a) the applicable borrower, (b) all
guarantors of such borrower, and (c) all affiliates and associates of
such borrower and guarantors.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday or
Friday that banks in Los Angeles, California are not required by Law to
be closed.
"Capital Contribution" means an amount which either is (a) the
arithmetic difference resulting from the Maximum Required Capital
Contribution minus the CSB Redemption Amount, if any, or (b) such amount
of capital greater than that required under clause (a) of this
subsection as SDN may determine, in its sole discretion, is desirable
under the circumstances; provided, however, that in no event shall the
amount of the Capital Contribution be less than the Minimum Required
Capital Contribution; and provided, further, that in no event shall SDN
have any obligation to raise more capital in connection with the
Reorganization than the Maximum Required Capital Contribution, subject
to the remedies of CSB set forth in Section 7.3.3.
"Cash Consideration" shall have the meaning given that term in
Section 2.4.2.
"Cash Escrow Deposit" means (a) the Cash Escrow Deposit as defined
in the Escrow Agreement, equal to $345,000, if SAIF Recapitalization
Legislation has not been enacted or adopted prior to the Closing Date,
and (b) zero, if SAIF Recapitalization Legislation has been enacted or
adopted prior to the Closing Date.
"Cash Valuation Adjustment" means a dollar amount equal to (i) the
product of the Valuation Adjustment multiplied by 60%, minus (ii) the
product of the Valuation Adjustment multiplied by a fraction consisting
of the total number of Dissenting CSB Shares over the total number of
shares of CSB Common Stock issued and outstanding immediately prior to
the Closing.
"Classified Asset" means (a) any loan or lease asset that is
classified on the books and records of the applicable entity as
"Substandard", "Doubtful" or "Loss", and (b) any property classified on
the books and records of the applicable entity as OREO.
"Closing" means the closing of the Reorganization, to be held on
the Closing Date at a location fixed pursuant to Section 8.1.
"Closing Date" shall mean the date as of which the Closing of the
Reorganization occurs, as the same may be fixed pursuant to Section 8.1.
"CSB" means CSB including, unless the context clearly indicates
otherwise, all direct and indirect subsidiaries of CSB as of the
applicable time.
"CSB Common Stock" means the common stock of CSB, no par value per
share.
"CSB Governmental Approvals" means the approvals listed on
Schedule 3.1.7.
"CSB Merger" means the merger of CSB and CSB Merger Sub, as more
particularly described in Section 2.4.
"CSB Merger Sub" means a wholly-owned subsidiary of Holdco, whose
type of entity and jurisdiction of organization shall be determined by
SDN in its discretion, to be formed for the sole purpose of completing
the CSB Merger.
"CSB Merger Agreement" means an Agreement and Plan of Merger, in
a form to be mutually agreed upon by SDN and CSB, pursuant to which CSB
Merger Sub will merge with and into (or consolidate with) CSB at the
Effective Time.
"CSB Redemption Amount" means the amount of cash, if any, that CSB
contributes to the Exchange Agent, as approved by all applicable Bank
Regulators, if any, to fund a portion of the Distributable Cash Pool,
which amount shall not be greater than Four Million Dollars
($4,000,000).
"CSB Shareholder" means a holder of CSB Common Stock.
"CSB Shareholder Agreement" means that certain Stock Purchase
Agreement dated March 8, 1985 by and among CSB and certain stockholders
of CSB.
"Dissenting CSB Shares" means all shares of CSB Common Stock whose
holders have perfected dissenters' rights under Section 1300 et seq. of
the California Corporations Code (as incorporated by Section 101 of the
California Financial Code).
"Distributable Cash Pool" means the arithmetic difference
resulting from Aggregate Cash Pool minus the product of the number of
Dissenting CSB Shares multiplied by $17.50 (the latter being the product
of $29.17 multiplied by 60%).
"Distributable Stock Pool" means a number of authorized but
unissued shares of Holdco Common Stock equal to the product of the
Exchange Ratio multiplied by the number of Net Stock Consideration
Shares.
"Effective Time" means the time as of which the Reorganization is
deemed to have become effective, as agreed upon by the Parties.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agreement" shall have the meaning given that term in
Section 2.11.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" means an unaffiliated, independent banking
institution, corporate trust company or entity regularly engaged in a
stock transfer business that SDN shall appoint, after consultation with
CSB, to act as exchange agent hereunder.
"Exchange Ratio," means the number of shares of Holdco Common
Stock, rounded to the nearest thousandth, into which each of the Net
Stock Consideration Shares is to be converted in connection with the
Reorganization, such Exchange Ratio to be determined in accordance with
the methodology set forth on Exhibit 1.1-A.
"Expenses" means all legal, accounting, consulting, investment
banking and other fees and expenses incurred by the applicable Party in
connection with the Reorganization (including expenses incurred in
connection with the preparation of this Agreement and all negotiations,
due diligence and other activities conducted prior hereto, and including
all broker's, finder's and similar fees and expenses. The Expenses of
SDN shall include the Expenses, if any, of Holdco and the Merger
Subsidiaries.
"FDIC" means the Federal Deposit Insurance Corporation.
"Final Approval Date" means the later of (a) the date on which the
final Regulatory Approval is received, and (b) the date on which the CSB
Shareholders approve the Reorganization.
"Final Financial Statements" means the applicable entity's audited
balance sheet, income statement, cash flow statement and statement of
shareholders' equity, with footnotes, prepared in accordance with GAAP,
as at December 31, 1995 and for the year then ended, as certified by the
applicable entity's independent auditors.
"GAAP" means Generally Accepted Accounting Principles as in effect
in the United States, consistently applied.
"Governmental Approval" means the approval of a Governmental
Entity necessary or desirable for the consummation of the Reorganization
(including the expiration of any waiting period imposed thereby),
including the CSB Governmental Approvals and the SDN Governmental
Approvals.
"Governmental Entity" means any administrative agency, commission,
court or other governmental authority or instrumentality, domestic or
foreign, including any government-sponsored corporation having
regulatory authority under law.
"Hazardous Material" means any pollutant, contaminant, waste or
hazardous or toxic substance regulated by Law as such, and petroleum or
petroleum products.
"Holdco" means a corporation formed under the Delaware General
Corporation Law which, prior to the Effective Time, shall be a wholly-owned
subsidiary of SDN and which, as of and following the Effective
Time, shall be the parent corporation and holding company of SDN and
CSB.
"Holdco Common Stock" means the common stock of Holdco, par value
$.01 per share.
"Holdco Ratification Date" means the date, which shall be no later
than two Business Days prior to the Closing Date, on which Holdco
ratifies, accepts and joins in this Agreement.
"Information Statement" means an information or proxy statement
(including any offering materials contained therein) by which CSB will
solicit either written consents to the Reorganization by the CSB
Shareholders or proxies from the CSB Shareholders to vote such CSB
Shareholders' shares in favor of the Reorganization in a meeting of CSB
Shareholders held for such purpose, and describing Holdco, the members
of the SDN Group, and the Holdco Shares.
"IRS" means the United States Internal Revenue Service.
"Law" means any statute, law, ordinance, rule or regulation of any
Governmental Entity that is applicable to the referenced Person.
"Letter of Intent" means that certain letter dated as of January
24, 1996 from SDN to CSB, accepted and agreed to by CSB as of the same
date, as supplemented by that certain letter dated as of February 29,
1996 from SDN to CSB, accepted and agreed to by CSB as of the same date,
together describing certain anticipated terms of the Reorganization.
"Liberty" means Liberty National Bank, a national banking
association formed under the laws of the United States of America, or
any successor thereto.
"Major Covenant" means any of the agreements set forth in Section
4.1, Section 4.2.1, Section 4.3.2, Section 4.9, Sections 4.10.1 through
4.10.6 inclusive, Section 4.10.9, and Section 4.10.16.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the business, properties, assets,
liabilities, prospects, results of operations or financial condition of
such Person (including such an effect caused indirectly through any of
its Subsidiaries), or on the ability of such Person to consummate the
Reorganization on the terms hereof; provided, however, that a Material
Adverse Effect does not include a change with respect to, or effect on,
such Person resulting from a change in Law, GAAP, RAP, or a change with
respect to, or effect on, such Person resulting from any other matter
affecting financial institutions or their holding companies generally.
"Maximum Required Capital Contribution" means the sum of the
Aggregate Cash Pool plus the aggregate amount of Expenses incurred by
SDN and CSB.
"Merger Subsidiaries" means, collectively, CSB Merger Sub and SDN
Merger Sub.
"Minimum Required Capital Contribution" means Eleven Million
Ninety Thousand Dollars ($11,090,000).
"Net Cash Consideration Shares" means a number of shares of CSB
Common Stock equal to the arithmentic difference resulting from (a)
516,879 (i.e., 60% of 861,465, the maximum number of shares of CSB
Common Stock outstanding as of the date of this Agreement) minus (b) the
product of the number of Dissenting CSB Shares multiplied by 60%.
"Net Stock Consideration Shares" means a number of shares of CSB
Common Stock equal to the arithmentic difference resulting from (a)
344,586 (i.e., 40% of 861,465, the maximum number of shares of CSB
Common Stock outstanding as of the date of this Agreement) minus (b) the
product of the number of Dissenting CSB Shares multiplied by 40%.
"OCC" means the Office of the Comptroller of the Currency.
"OLEM Asset" means any loan or lease asset of the applicable
entity classified on the books and records of the applicable entity as
"Other Loans Especially Mentioned", "Special Mention", "Criticized",
"Credit Risk Assets", "Concerned Loans" or by words of similar import.
"OREO" means real property (i) acquired by the applicable entity,
in the ordinary course of the applicable entity's banking business,
through purchase at a foreclosure sale conducted on a lien in favor of
the applicable entity (or a comparable sale by a trustee under a deed of
trust) or by acceptance of a deed in lieu of foreclosure or (ii) any
asset of the applicable entity classified as "in-substance foreclosure"
on the books and records of the applicable entity.
"Parties" means, collectively, CSB, SDN and, following its
acceptance and ratification of this Agreement, Holdco.
"Person" means any natural person, corporation, limited liability
company, general or limited partnership, limited liability partnership,
joint venture, joint stock company, trust, unincorporated organization,
association, sole proprietorship, governmental body, or agency or
political subdivision of any government.
"Principal Stockholder" means a holder of five percent (5%) or
more of the outstanding common stock of the referenced entity.
"Pro Forma SDN/Liberty Balance Sheet" means the pro forma balance
sheet as at December 31, 1995 for SDN and Liberty, assuming that SDN's
acquisition of Liberty had been consummated as of such date, which
balance sheet is attached as Exhibit 1.1-B.
"Qualifying Strategic Transaction Proposal" shall have the meaning
given that term in Section 4.1.2.
"RAP" means Regulatory Accounting Principles, as interpreted by
the applicable entity's principal Federal Bank Regulator.
"Record Date" shall have the meaning given that term in Section
2.8.1.
"Registration Statement" shall have the meaning given that term
in Section 2.10.
"Regulatory Agreement" means any regulatory agreement, memorandum
of understanding or similar agreement with, any cease and desist or
similar order or directive entered or issued by, commitment letter or
similar undertaking to, any extraordinary supervisory letter from, any
Bank Regulator.
"Representatives" means each of the applicable Person's directors,
officers, employees, agents, representatives and advisors.
"Requested Cash Consideration" shall have the meaning given that
term in Section 2.5.2.
"San Dieguito" means San Dieguito National Bank, a national
banking association organized under the laws of the United States of
America, or any successor thereto.
"SAIF Recapitalization Legislation" means any Law enacted by the
United States Government, including any final regulation adopted by any
federal Bank Regulator, that imposes one or more special assessments on
depository institutions that have deposits insured by the Savings
Association Insurance Fund.
"SDN" means SDN including, unless the context clearly indicates
otherwise, all direct and indirect subsidiaries of SDN as of the
applicable time.
"SDN Common Stock" means the common stock of SDN, par value $.01
per share.
"SDN Governmental Approvals" means the approvals listed on
Schedule 3.2.6.
"SDN Group" means, collectively, SDN, San Dieguito and Liberty.
"SDN Merger" means the merger of SDN Merger Sub and SDN, as more
particularly described in Section 2.3.
"SDN Merger Agreement" means an Agreement and Plan of Merger, in
a form to be mutually agreed upon by SDN and CSB, pursuant to which SDN
Merger Sub will merge with and into SDN at the Effective Time.
"SDN Merger Sub" means a wholly-owned subsidiary of Holdco to be
organized under the Delaware General Corporation Law for the sole
purpose of completing the SDN Merger.
"SDN Shareholder" means a holder of SDN Common Stock.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Small Holder" means a CSB Shareholder beneficially owning an
aggregate of one hundred (100) or fewer shares of CSB Common Stock.
"Stock Consideration" shall have the meaning given that term in
Section 2.4.2.
"Stock Escrow Deposit" means (a) the Stock Escrow Deposit as
defined in the Escrow Agreement, as calculated in accordance with
Exhibit 2.11-B, if SAIF Recapitalization Legislation has not been
enacted or adopted prior to the Closing Date, and (b) zero, if SAIF
Recapitalization Legislation has been enacted or adopted prior to the
Closing Date.
"Strategic Transaction" means any acquisition or purchase of all
or a significant (i.e., more than 5%) portion of the assets of, or a
significant equity interest in, CSB, or any merger or other business
combination involving CSB or any recapitalization involving CSB
resulting in an extraordinary dividend or distribution to CSB's
shareholders or a self-tender for or the redemption of some or all of
the CSB Common Stock.
"Strategic Transaction Proposal" means any proposal regarding a
Strategic Transaction.
"Tax" means, except where the context otherwise requires, all
Federal, state, local and foreign income, profits, franchise, gross
receipts, payroll, sales, employment, use, property, withholding,
excise, occupancy and other taxes, duties or assessments of any nature
whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts.
"Valuation Adjustment" means a dollar amount calculated in
accordance with Exhibit 1.1-C, which amount shall not be less than zero
and shall not be more than the maximum amount provided in such
Exhibit 1.1-C, subject to the exceptions contained therein.
1.2 Rules of Construction. The following rules of
construction shall apply to the interpretation of this Agreement:
1.2.1 Any reference to any event, change or effect being "material"
with respect to any Person means an event, change or effect
which is material in relation to the condition (financial or
otherwise), properties, assets, liabilities, businesses or
operations of such entity and its Subsidiaries taken as a
whole.
1.2.2 Disclosure of any matter in the Schedules hereto shall not be
deemed to imply that such matter is or is not material, and
shall not constitute an admission or raise any inference that
such matter constitutes a violation of law or an admission of
liability or facts supporting liability.
1.2.3 Whenever used in this Agreement, the word "including" shall be
non-exclusive and shall mean "including without limitation."
1.2.4 All references to Sections, Articles and Schedules shall,
unless another agreement is expressly referenced, mean the
applicable sections or articles of, or schedules to, this
Agreement.
1.2.5 The section titles and other headings contained in this
Agreement are for reference purposes only and shall not affect
the meaning or interpretation of any provisions of this
Agreement.
1.2.6 The terms "herein", "hereunder", and terms of similar import
refer to this Agreement as a whole and not to the specific
Section or Article in which they are used.
1.2.7 This Agreement is the joint product of SDN and CSB and each
provision hereof has been subject to the mutual consultation,
negotiation and agreement of SDN and CSB, and shall not be
construed for or against any Party.
ARTICLE II.
Holdco, the Merger Subsidiaries and the Merger
2.1 Holdco and the Merger Subsidiaries. Prior to the Closing, SDN
shall cause to be formed Holdco, SDN Merger Sub and CSB Merger Sub.
Subject to the other terms of this Agreement, Holdco's Certificate of
Incorporation (including the authorized capital provided thereunder) and
By-laws shall be substantially identical to the Certificate of
Incorporation and By-laws of SDN as in effect immediately prior to the
Closing. Each of the Merger Subsidiaries' charters and By-laws shall be
in such forms as SDN may reasonably determine. Subject only to the
receipt of all necessary approvals of Governmental Entities with respect
to such persons (which approvals SDN shall use all reasonable efforts to
obtain), the directors and officers of Holdco as of immediately prior to
the Effective Time shall consist of all of the directors and officers of
SDN duly elected, qualified and in office as of such time, one of whom
shall be Peter H. Paulsen. The initial directors and officers of each
of the Merger Subsidiaries shall consist of one or more persons, each of
whom shall be designated by SDN.
2.2 Capital Contribution. On or before the Closing Date, SDN
shall (a) raise through the issuance of SDN common stock (or other means
mutually agreeable to SDN and CSB) the amount of the Capital
Contribution, and (b) take all actions necessary to ensure that Holdco
has cash in Holdco not less than the amount of the Capital Contribution
less SDN's Expenses. Subject to the terms and conditions hereof,
immediately prior to the Closing, Holdco shall deliver or cause to be
delivered (and SDN agrees to cause Holdco to deliver or cause to be
delivered) to the Exchange Agent an amount of cash not less than the
Distributable Cash Pool less the CSB Redemption Amount.
2.3 The SDN Merger.
Effecting the Merger. Subject to the terms and conditions of this
Agreement and the terms and conditions of the SDN Merger Agreement,
at the Effective Time, SDN Merger Sub shall merge with and into SDN
pursuant to Section 251(g) of the Delaware General Corporation Law,
with SDN as the surviving entity. As a consequence of the SDN
Merger, at the Effective Time, each share of common stock of SDN
Merger Sub outstanding immediately prior to the Effective Time
shall be converted into one share of SDN Common Stock, and from and
after the Effective Time, SDN shall be a wholly-owned subsidiary of
Holdco.
2.3.1 Treatment of SDN Common Stock and Holdco Common Stock. At the
Effective Time, each share of SDN Common Stock issued and
outstanding immediately prior to the Effective Time shall, by
virtue of the SDN Merger and without any action on the part of
the holder thereof, be converted into the right to receive
from Holdco one share of Holdco Common Stock. At the
Effective Time, all shares of Holdco Common Stock issued and
outstanding immediately prior to the Effective Time shall be
converted into the right to receive cash in the amount of One
Dollar ($1.00) per share.
2.4 The CSB Merger.
2.4.1 Effecting the Merger. Subject to the terms and conditions of
this Agreement and the terms and conditions of the CSB Merger
Agreement, at the Effective Time, CSB Merger Sub shall merge
with and into CSB pursuant to Section 1100 et seq. of the
California Corporations Code, with CSB as the surviving
entity. As a consequence of the CSB Merger, at the Effective
Time each share of common stock of CSB Merger Sub outstanding
immediately prior to the Effective Time shall be converted
into one share of CSB Common Stock, and from and after the
Effective Time, CSB shall be a wholly-owned subsidiary of
Holdco. At and after the Effective Time, each of the members
of the Board of Directors and each of the officers of CSB, in
each case as of immediately prior to the Effective Time, shall
continue to hold the same office of CSB following the CSB
Merger, without change until their successors have been duly
elected or appointed and qualified or until their earlier
death, resignation or removal in accordance with CSB's
Articles of Incorporation and By-laws and applicable law.
2.4.2 Treatment of CSB Common Stock. Subject to the provisions of
Section 2.5 and Section 2.6 and except as provided in Section
2.7, at the Effective Time, each share of CSB Common Stock
issued and outstanding immediately prior to the Effective Time
shall be converted in the CSB Merger, without any action on
the part of the holder thereof, into a right to receive either
cash ("Cash Consideration") or newly-issued Holdco Common
Stock ("Stock Consideration"), as follows:
(a) the holder of each share of CSB Common Stock to be
converted into Cash Consideration shall be entitled to receive, for
each such share, cash in the amount of the arithmetic difference
resulting from (i) $29.17, minus (ii) a pro rata portion of the
Cash Valuation Adjustment, minus (iii) a pro rata portion of the
Cash Escrow Deposit (each such pro rata amount being determined in
proportion to all shares of CSB Common Stock to be exchanged for
cash pursuant to this Section 2.4.2), and
(b) each CSB shareholder who holds one or more shares of
CSB Common Stock to be converted into Stock Consideration shall be
entitled to receive a number of shares of Holdco Common Stock equal
to the arithmetic difference resulting from (i) the product of the
Exchange Ratio multiplied by the number of shares of CSB Common
Stock to be so converted, minus (ii) a pro rata portion of the
Stock Escrow Deposit (such pro rata portion being determined in
proportion to all shares of CSB Common Stock to be exchanged for
Holdco Common Stock pursuant to this Section 2.4.2).
2.5 Elections by CSB Shareholders. Each holder of record of
shares of CSB Common Stock as of the Record Date will have the right,
subject to proration in accordance with Section 2.6, the treatment of
fractional shares set forth in Section 2.5.5 and the other terms of this
Agreement, to specify such holder's election to have his or her shares
of CSB Common Stock converted in whole or in part into Holdco Common
Stock or in whole or in part into cash, or to specify that such holder
has no election, in accordance with the procedures set forth in this
Section 2.5; provided, however, that in no event shall the aggregate Cash
Consideration paid in respect of all CSB Common Stock (excluding
Dissenting CSB Shares) be greater than the Distributable Cash Pool, and
in no event shall the aggregate Stock Consideration paid in respect of
all CSB Common Stock be greater than the Distributable Stock Pool.
2.5.1 Election Procedure. Not later than two (2) Business Days
following the Final Approval Date (including, in SDN's
discretion, prior to the Final Approval Date but not earlier
than the date on which the CSB shareholders have approved the
Reorganization), SDN shall cause to be distributed the each
CSB Shareholder a form of letter of transmittal and election
statement, in a form mutually agreed upon by CSB and SDN,
providing for such CSB Shareholder's specification of election
to receive Cash Consideration and/or Stock Consideration and
for the tender to the Exchange Agent of the related share
certificates (an "Election Statement"). CSB will also make
such form available at its executive offices and such other
places as it deems appropriate. Each CSB Shareholder may
specify, in an Election Statement meeting the requirements of
Section 2.5.3, that, as to all shares of CSB Common Stock
covered by such Election Statement:
(a) All such shares shall be converted to Stock
Consideration ("Stock Election Shares"); or
(b) All such shares shall be converted to Cash
Consideration ("Cash Election Shares"); or
(c) A designated number of such shares shall be
converted to Cash Consideration as Cash Election Shares and the
remaining shares shall be converted to Stock Consideration as Stock
Election Shares; or
(d) The CSB Shareholder has no preference and
accordingly makes no election; or
(e) The CSB Shareholder has previously dissented from
the Reorganization and intends to perfect his or her dissenter's
rights under applicable law.
2.5.2 Shares Held for Third Parties. Any CSB Shareholder who is
holding such shares for a beneficial owner, or as a nominee
for one or more beneficial owners, may submit an Election
Statement on behalf of each such beneficial owner. Any
beneficial owner of CSB Common Stock on whose behalf a record
owner of CSB Common Stock has submitted an Election Statement
in accordance with this Section will be considered a separate
holder of CSB Common Stock with respect to such shares.
2.5.3 Effectiveness of Election Statement. An Election Statement
will be effective only if a properly completed and signed copy
thereof shall have been actually received by the Exchange
Agent no later than the deadline (the "Election Deadline")
fixed by SDN and CSB by mutual agreement and specified in the
form of letter of transmittal and Election Statement, which
deadline shall be (i) not earlier than the twenty-first (21st)
calendar day after the mailing of the Election Statements to
the CSB Shareholders and (ii) not later than the last Business
Day prior to the Closing Date. An Election Statement which
meets the requirements of this Section 2.5.3 is hereinafter
referred to as an "Effective Election Statement." Holdco and
CSB, acting by agreement, will have the right to make rules
governing the form, terms and conditions of Election
Statement, the validity and effectiveness of Election State-
ments and the manner and extent to which they are to be taken
into account in prorating the Stock Consideration and the Cash
Consideration pursuant to Section 2.5.5, the issuance and
delivery of certificates evidencing Holdco Common Stock and
cash into which shares of CSB Common Stock are converted in
the CSB Merger pursuant to Section 2.4.2. Shares of CSB
Common Stock as to which a record holder makes no election
pursuant to an Effective Election Statement, or as to which no
Effective Election Statement is filed, are hereinafter
referred to as "No Election Shares."
2.5.4 Amendment and Revocation of Election Statement. Any CSB
Shareholder who has submitted an Effective Election Statement
may at any time until the Election Deadline amend such
Election Statement if the Exchange Agent actually receives, no
later than the Election Deadline, a later-dated, properly
completed and signed, amended Effective Election Statement, or
may at any time prior to the Election Deadline revoke his
Election Statement by written notice actually received by the
Exchange Agent no later than the Election Deadline. Any
notice of withdrawal will be effective only if it is executed
and specifies the record holder of the shares to be withdrawn
and, if the certificates representing such shares have
previously been tendered to the Exchange Agent, if it
specifies the serial numbers shown on the certificates
representing the shares to be withdrawn. If for any reason
this Agreement is terminated and the Reorganization is not
consummated, any Election Statement previously submitted shall
be deemed withdrawn and any certificate for CSB Common Stock
previously deposited with the Exchange Agent shall be returned
to the applicable CSB Shareholder.
2.5.5 Fractional Shares. The Exchange Agent shall treat each
Election Statement that requests to exchange any shares of CSB
Common Stock for Stock Consideration (including those
requesting to exchange 100% of the holder's shares for Stock
Consideration) as an election to exchange the closest number
of whole or fractional shares of CSB Common Stock to the
number actually requested as will result in the number of
shares of Holdco Common Stock so issued being a whole number.
Any fractional share of CSB Common Stock remaining after
giving effect to the preceding sentence (including a
fractional share so held by a CSB Shareholder requesting to
exchange 100% of his or her CSB Common Stock for Stock
Consideration) shall be deemed to be a fractional Cash
Election Share and exchanged for the applicable amount of Cash
Consideration.
2.6 Proration and Allocation of Stock Consideration and Cash
Consideration. The allocation of the Stock Consideration and the Cash
Consideration among holders of CSB Common Stock (other than holders of
Dissenting CSB Shares) shall be effected as follows:
2.6.1 If the number of shares of CSB Common Stock that are Stock
Election Shares is less than the number of Net Stock
Consideration Shares, an allocation of the Distributable Stock
Pool and the Distributable Cash Pool will be made as follows:
(a) First, all Stock Election Shares shall be exchanged
for Stock Consideration;
(b) Second, the Exchange Agent shall convert all No
Election Shares to Stock Election Shares ("Additional Stock
Election Shares") and exchange the same for Stock Consideration,
provided that the aggregate number of Stock Election Shares
(including Additional Stock Election Shares) is equal to or less
than the number of Net Stock Consideration Shares; in the event
that conversion of all No Election Shares to Additional Stock
Election Shares would cause the aggregate number of Stock Election
Shares (including Additional Stock Election Shares) to exceed the
number of Net Stock Consideration Shares, the number of No Election
Shares converted to Additional Stock Election Shares and exchanged
for Stock Consideration shall be reduced so that the aggregate
number of Stock Election Shares (including Additional Stock
Election Shares) equals the number of Net Stock Consideration
Shares, with the aggregate Additional Stock Election Shares created
upon the conversion of No Election Shares being allocated pro rata
to each holder of No Election Shares in the proportion that the
total No Election Shares of such holder bear to the total number of
No Election Shares of all CSB Shareholders;
(c) Third, in the event that conversion of all No
Election Shares to Additional Stock Election shares pursuant to
clause (c) of this Section 2.6.1 would cause the aggregate number
of Stock Election Shares (including Additional Stock Election
Shares) to be less than the number of Net Stock Consideration
Shares, in addition to all No Election Shares, the Exchange Agent
shall convert a number of Cash Election Shares (excluding shares
tendered by Small Holders, as provided below) to Additional Stock
Election Shares and exchange the same for Stock Consideration such
that the aggregate number of Stock Election Shares and Additional
Stock Election Shares shall equal the number of Net Stock
Consideration Shares, with the aggregate Additional Stock Election
Shares that are to be created upon the conversion of Cash Election
Shares being allocated pro rata to each holder of Cash Election
Shares in the proportion that the total Cash Election Shares of
such holder bear to the total number of Cash Election Shares of all
CSB Shareholders; provided, however, that no Small Holder who filed
an Effective Election Statement for Cash Election Shares shall have
such Cash Election Shares converted to Additional Stock Election
Shares; and
(d) Fourth, after the allocation in clauses (a) through
(d) of this Section 2.6.1 have been made, all remaining shares of
CSB Common Stock (other than Dissenting CSB Shares) shall be
converted into Cash Consideration.
2.6.2 If the number of shares of CSB Common Stock that are Stock
Election Shares is greater than the number of Net Stock
Consideration Shares, an allocation of the Distributable Stock
Pool and the Distributable Cash Pool will be made as follows:
(a) First, all Cash Election Shares will be exchanged
for Cash Consideration;
(b) Second, the Exchange Agent shall convert all No
Election Shares to Cash Election Shares ("Additional Cash Election
Shares") and exchange the same for Cash Consideration, provided
that the aggregate number of Cash Election Shares (including
Additional Cash Election Shares) is equal to or less than the
number of Net Cash Consideration Shares; in the event that
conversion of all No Election Shares to Additional Cash Election
Shares would cause the aggregate number of Cash Election Shares
(including Additional Cash Election Shares) to exceed the number of
Net Cash Consideration Shares, the number of No Election Shares
converted to Additional Cash Election Shares and exchanged for Cash
Consideration shall be reduced so that the aggregate number of Cash
Election Shares (including Additional Cash Election Shares) equals
the number of Net Cash Consideration Shares, with the aggregate
Additional Cash Election Shares created upon the conversion of No
Election shares being allocated pro rata to each holder of No
Election Shares in the proportion that the total No Election Shares
of such holder bear to the total number of No Election Shares of
all CSB Shareholders;
(c) Third, in the event that conversion of all No
Election Shares to Additional Cash Election Shares pursuant to
clause (c) of this Section 2.6.2 would cause the aggregate number
of Cash Election Shares (including Additional Cash Election Shares)
to be less than the number of Net Cash Consideration Shares, in
addition to all No Election Shares, the Exchange Agent shall
convert a number of Stock Election Shares to Additional Cash
Election Shares and exchange the same for Cash Consideration such
that the aggregate number of Cash Election Shares (including Addi-
tional Cash Election Shares) shall equal the number of Net Cash
Consideration Shares, with the aggregate Additional Cash Election
Shares that are to be created upon the conversion of Stock Election
Shares being allocated pro rata to each holder of Stock Election
Shares in the proportion that the total Stock Election Shares of
such holder bear to the total number of Stock Election Shares of
all CSB Shareholders; and
(d) Fourth, any No Election Shares not converted to
Additional Cash Election Shares pursuant to clause (c) of this
Section 2.6.2 and any Stock Election Shares not converted to
Additional Cash Election Shares pursuant to clause (d) of this
Section 2.6.2 shall be converted into Stock Consideration.
2.7 Dissenting CSB Shares. Notwithstanding Section 2.4.2,
Dissenting CSB Shares shall not be converted into the right to receive,
or be exchangeable for, Cash Consideration or Stock Consideration, but
instead the holders thereof shall be entitled to payment, by Holdco on
behalf of CSB, of the value of such Dissenting CSB Shares as agreed upon
or determined in accordance with the provisions of Section 1300 et seq.
of the California Corporations Code (as incorporated by Section 101 of
the California Financial Code).
2.8 Exchange of Certificates.
2.8.1 CSB Common Stock Exchange Procedures. Immediately following
the Effective Time, each holder of a certificate or
certificates theretofore representing shares of issued and
outstanding CSB Common Stock (other than Dissenting CSB
Shares) shall, upon the surrender of such certificates to the
Exchange Agent (whether such tender is made before or after
the Effective Time), be entitled to receive in exchange
therefor the consideration into which the certificate or
certificates so surrendered shall have been converted as
provided under Section 2.4.2 (subject in all events to Section
2.6), without interest and subject to any required withholding
of taxes. The holder of a certificate that prior to the
Reorganization represented issued and outstanding shares of
CSB Common Stock shall have no rights, after the Effective
Time, with respect to such shares except to surrender the
certificate in exchange for the consideration provided under
Section 2.4.2 without interest thereon or, if applicable, to
perfect the rights as a holder of Dissenting CSB Shares that
such holder may have pursuant to the applicable provisions of
Section 1300 et seq. of the California Corporation Code. By
the date set forth in Section 2.5.1, SDN will send, or will
cause the Exchange Agent to send, to each holder of record of
CSB Common Stock as of the last Business Day prior to the date
of such mailing (the "Record Date") a letter of transmittal in
a form mutually agreed upon by SDN and CSB for use in such
exchange. Upon surrender to the Exchange Agent of one or more
certificates formerly representing shares of CSB Common Stock
for exchange accompanied by a duly executed letter of
transmittal in proper form, the Exchange Agent shall, promptly
after the Closing Date in the case of certificates surrendered
prior to the Closing Date, and promptly after surrender in the
case of certificates surrendered after the Closing Date,
deliver to the holder of such surrendered certificates one or
more new certificates representing the appropriate number of
shares of Holdco Common Stock and/or one or more checks for
the appropriate amount of cash, as determined in accordance
with Section 2.6. In the case of the CSB Common Stock to be
exchanged for Stock Consideration, until the applicable holder
surrenders for exchange his or her certificates formerly
representing such CSB Common Stock, no dividend payable to
holders of record of Holdco Common Stock shall be paid
thereon; however, upon the surrender of any such outstanding
certificate there shall be paid to the holder, without
interest, the full amount of any such dividends or
distributions.
2.8.2 SDN Common Stock Exchange Procedures. After the Effective
Time, each holder of a certificate or certificates theretofore
representing shares of issued and outstanding SDN Common Stock
shall, upon the surrender of such certificates to the Exchange
Agent, be entitled to receive in exchange therefor a like
number of shares of Holdco Common Stock as provided under
Section 2.3.2, without interest and subject to any required
withholding of taxes. The holder of a certificate that prior
to the Reorganization represented issued and outstanding
shares of SDN Common Stock shall have no rights, after the
Effective Time, with respect to such shares except to
surrender the certificate in exchange for shares of Holdco
Common stock as provided under Section 2.3.2 without interest
thereon. As soon as practicable after the Effective Time,
Holdco will send, or will cause the Exchange Agent to send, to
each Person who was a SDN Shareholder at the Effective Time a
letter of transmittal for use in such exchange. Promptly
after the surrender to the Exchange Agent of one or more
certificates formerly representing shares of SDN Common Stock
for exchange, accompanied by a duly executed letter of
transmittal in proper form, the Exchange Agent shall deliver
to the holder of such surrendered certificates one or more new
certificates representing the appropriate number of shares of
Holdco Common Stock. Until a holder surrenders for exchange
his or her certificate formerly representing SDN Common Stock,
no dividend payable to holders of record of Holdco Common
Stock shall be paid thereon; however, upon the surrender of
any such outstanding certificate there shall be paid to the
holder, without interest, the full amount of any such
dividends or distributions.
2.8.3 Transfers; Certain Taxes. If any Holdco Common Stock or cash
consideration to be issued or paid in exchange for shares of
CSB Common Stock or SDN Common Stock is to be issued or made
in a name other than that in which the certificate surrendered
in exchange therefor is registered, it shall be a condition of
such payment and/or issuance that the certificate so
surrendered shall be properly endorsed (or accompanied by an
appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such
exchange shall pay to the Exchange Agent, in advance, any
transfer or other taxes required by reason of the payment
and/or issuance to a person other than the registered holder
of the certificate surrendered, or required for any other
reason, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
2.8.4 Lost, Stolen or Destroyed Certificates. In the event any
certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming
such certificate to be lost, stolen or destroyed and, if
required by Holdco, the posting by such person of a bond in
such amount as Holdco may direct as indemnity against any
claim that may be made against it with respect to such
certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed certificate the consideration
deliverable in respect thereof pursuant to this Agreement.
2.8.5 Unclaimed Monies. Any portion of the cash or Holdco Common
Stock delivered to the Exchange Agent by or on behalf of
Holdco (together with any investment income earned thereon)
that remains unclaimed by CSB Shareholders or SDN
Shareholders, as applicable, pursuant to the provisions of
Section 2.3 or Section 2.4 six months after the Closing Date
shall be returned to Holdco upon demand, and any CSB
Shareholder or SDN Shareholder who has not exchanged his, her
or its shares of CSB Common Stock or SDN Common Stock for the
consideration provided therefor in accordance with Section 2.3
or Section 2.4 prior to that time shall thereafter look solely
to Holdco for payment of cash and/or issuance of Holdco Common
Stock in respect of such shares, as applicable.
Notwithstanding the foregoing, none of Holdco, SDN or CSB
shall be liable to any CSB Shareholder or SDN Shareholder for
any funds or shares (including dividends or distributions
thereon) delivered to a public official pursuant to applicable
abandoned property laws. Any amounts remaining unclaimed by
CSB Shareholders or SDN Shareholders, as applicable six years
after the Closing Date (or such earlier date immediately prior
to such time as such amounts would otherwise escheat to or
become property of any Governmental Entity) shall, to the
extent permitted by applicable law, become the property of
Holdco free and clear of any claims or interest of any Person
previously entitled thereto.
2.8.6 Exchange Agent to have no Voting or Other Rights. The Exchange
Agent shall not be entitled to vote or exercise any rights of
ownership with respect to the shares of Holdco Common Stock,
CSB Common Stock or SDN Common Stock held by it from time to
time hereunder, except that it shall receive and hold all
dividends or other distributions paid or distributed with
respect to such shares for the account of the persons entitled
thereto.
2.9 Closing of Transfer Books. At the close of business on the
Record Date, the transfer books for CSB Common Stock shall be closed,
and no transfer of shares of CSB Common Stock shall thereafter be made
on such books. At the Effective Time, the transfer books for SDN Common
Stock shall be closed, and no transfer of shares of SDN Common Stock
shall thereafter be made on such books. If, after the CSB Record Date,
certificates representing shares of CSB Common Stock are presented for
transfer to the Exchange Agent, they shall be held until the Effective
Time and thereupon cancelled and exchanged for the consideration
provided therefor in this Article II; provided, however, such certificates
shall promptly be returned if the Closing shall not occur for any
reason. If, after the Effective Time, certificates representing shares
of SDN Common Stock, are presented for transfer to the Exchange Agent,
they shall be cancelled and exchanged for the consideration provided
therefor in this Article II.
2.10 Securities Law Matters. The Parties agree that the CSB Merger
will, if permitted under applicable Law, be consummated under an
exemption from the registration requirements of the Securities Act. SDN
represents and CSB acknowledges that SDN expects to request a so-called
No Action Letter from the SEC confirming the availability of an
exemption for the issuance of the Holdco Common Stock in the CSB Merger
under Section 3(a)(10) of the Securities Act, and that failing the
availability of such exemption such stock will be registered with the
Securities and Exchange Commission under the Securities Act pursuant to
registration statement (the "Registration Statement") duly filed with
the SEC. If any filing, registration or other action under any Law
relating to securities or the registration thereof is legally required
under federal or state Law to consummate the Reorganization (including
the Registration Statement, if applicable), SDN shall prepare and file
all such filings and registrations and take such other actions, and
thereafter shall use all reasonable efforts to prosecute the same.
2.11 Escrow Agreement.
2.11.1 If no SAIF Recapitalization Legislation has been enacted or
adopted prior to the Closing Date, at the Closing, Holdco and
the Escrow Agent shall enter into, and SDN shall take
appropriate action prior to the Closing to cause Holdco and
the Escrow Agent to enter into, an Escrow Agreement (the
"Escrow Agreement") substantially in the form of
Exhibit 2.11-A, which Escrow Agreement is intended to serve as
an adjustment to the aggregate amount of consideration payable
to the CSB Shareholders in connection with the CSB Merger. In
such event, at the Closing, Holdco shall deposit with the
Escrow Agent cash in the amount of the Cash Escrow Deposit and
one or more stock certificates representing newly-issued
shares of Holdco Common Stock equal to the number of shares in
the Stock Escrow Deposit, which number of shares shall be
calculated in accordance with Exhibit 2.11-B. If the Escrow
Agreement has been entered into, from and after the Closing
for so long as the Escrow Agreement shall remain in effect,
Holdco shall use all reasonable efforts (consistent in all
events with applicable Law and with good business judgment) to
cause deposits of CSB to become insured by the FDIC Bank
Insurance Fund and to cease to be insured by the FDIC Savings
Association Insurance Fund, whether by migration of such
deposits to a Bank Insurance Fund-insured subsidiary of Holdco
or otherwise; provided, however, that the foregoing shall not
require Holdco to convert such deposits to the Bank Insurance
Fund if such conversion would cause Holdco or any of its
subsidiaries to incur any so-called exit fees, entrance fees
or other special assessments or cause the imposition of a
higher premium rate for Bank Insurance Fund deposit insurance,
or if the aggregate administrative, legal, accounting and
other expense required to effect such conversion would be
material to Holdco.
2.11.2 SDN and CSB agree that, at SDN's request, prior to the Closing
Date the parties will modify the Escrow Agreement to provide
that (a) in lieu of a Cash Escrow Deposit delivered to the
Escrow Agent, Holdco will be obligated to deliver to the
Escrow Agent prior to the Notification Date an amount of cash
equal the arithmetic difference between (x) the amount of cash
that would have been in the Cash Escrow Fund as of the
Notification Date had the Cash Escrow Deposit been delivered
to the Escrow Agent as of the Closing and (y) the amount of
the SAIF Cash Allocation or SAIF Imputed Cash Allocation, as
the case may be, and (b) such obligation of Holdco would be
secured by a standby letter of credit from Liberty National
Bank to the Escrow Agent in an amount of not less than
$400,000, which letter of credit would be delivered to the
Escrow Agent prior to the Closing. Notwithstanding the
immediately preceding sentence, CSB shall have no obligation
to agree to any change in the Escrow Agreement if in the
reasonable opinion of Deloitte & Touche, CSB's tax advisors,
there is a potential that such a change would result in
adverse tax consequences for the CSB Shareholders. If and to
the extent that the parties change the Escrow Agreement under
the circumstances contemplated by this Section 2.11.2, SDN and
CSB agree to amend the terms of this Agreement to conform to
such changes.
ARTICLE III.
Representations and Warranties
3.1 By CSB. Except where a different date is expressly
specified, CSB makes the representations and warranties set forth below
as of the date of this Agreement:
3.1.1 Organization, Standing and Power. CSB is a commercial banking
corporation duly organized, validly existing and in good
standing under the laws of the State of California. The
deposit accounts of CSB are insured by the FDIC through the
Savings Association Insurance Fund, and all premiums and
assessments required in connection therewith have been paid by
CSB as the same have become due. CSB has all requisite power
and authority to own, lease and operate its properties and to
carry on its business as now being conducted, and is duly
qualified and in good standing to do business in each
jurisdiction in which a failure to be so qualified would have
a Material Adverse Effect on CSB. Copies of the Articles of
Incorporation and By-Laws of CSB, including all amendments
thereto as of the date of this Agreement, have been delivered
to SDN and are complete and correct. The minute books of CSB
accurately reflect in all material respects all corporate
actions held or taken by CSB's shareholders and Board of
Directors, including all committees of such Board of
Directors.
3.1.2 Capital Structure.
(a) Capital Stock of CSB. As of the date hereof, the
authorized capital stock of CSB consists of 10,000,000 shares of
CSB Common Stock, no par value, of which not more than 861,465
shares are issued and outstanding, no shares are held in treasury
by CSB and no shares are reserved for future issuance. All
outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable (subject to
Section 662 of the California Financial Code) and are not subject
to preemptive rights. All of the issued and outstanding shares of
CSB Common Stock have been offered, issued and sold by CSB in
compliance with applicable federal and state securities laws and
regulations and in compliance with any preemptive right held by any
Person. There are no dividends which have accrued or been declared
but are unpaid on the CSB Common Stock. CSB has no contractual
obligation to register any shares of Common Stock under the
Securities Act except those obligations under the CSB Shareholder
Agreement, which obligations shall have been terminated at the
Effective Time. CSB has delivered to SDN a true and correct list
of all holders of CSB Common Stock as of March 31, 1996.
(b) Other Securities. There are no options, warrants,
calls, rights, commitments or agreements of any character,
including any stock option or equity incentive plan, outstanding or
in existence as of the date hereof to which CSB is a party or by
which CSB is bound obligating it to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital
stock or other securities of CSB or obligating CSB to grant, extend
or enter into any such option, warrant, call, right, commitment or
agreement. The only options previously granted by CSB were granted
pursuant CSB's 1985 incentive stock option plan, all of which
either have expired pursuant to their terms or have previously been
exercised. There are no outstanding contractual obligations of CSB
to repurchase, redeem or otherwise acquire any shares of capital
stock of CSB. There are no bonds, debentures, notes or other
instruments evidencing indebtedness of CSB issued or outstanding
that entitle the holders thereof to vote on any matters on which
CSB Shareholders may vote.
3.1.3 Interests in Other Entities. Except as set forth on Part A of
Schedule 3.1.3, CSB has no subsidiaries and does not otherwise
hold more than 1% of the outstanding equity securities of any
corporation or other entity, is not a member of any
partnership, joint venture or similar entity or collectivity,
and is not a party to any partnership agreement or joint
venture agreement, however named. Except as set forth on Part
B of Schedule 3.1.3, CSB does not hold any "Acquisition,
Development and Construction" ("ADC") loans, as that term is
used under GAAP. CSB holds no shares of SDN Common Stock,
other than shares owned in a fiduciary capacity or as a result
of debts previously contracted.
3.1.4 Authority and Related Matters. Subject only to the approvals
of the holders of the Common Stock as specified in the
immediately following sentence, CSB (a) has all requisite
corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby (including
the Reorganization), and (b) has duly authorized the execution
and delivery of this Agreement and the consummation of such
transactions (including the Reorganization) by all necessary
corporate action on the part of CSB (including approval by its
Board of Directors). The only vote of the holders of any
class or series of CSB's securities necessary to approve this
Agreement or the consummation of the Reorganization is the
affirmative vote of the holders of a majority of the
outstanding shares of CSB Common Stock entitled to vote
thereon approving the Reorganization, and the Board of
Directors has directed the officers of CSB to submit the
Reorganization and this Agreement to the CSB Shareholders for
approval at a meeting of such shareholders or by solicitation
of written consents of such shareholders. No other corporate
proceedings on the part of CSB not heretofore taken are
necessary to approve this Agreement or to consummate the
Reorganization. This Agreement has been duly executed and
delivered by CSB and, subject to such approval by the CSB
Shareholders and assuming due authorization, execution and
delivery by SDN, constitutes the valid and binding obligation
of CSB, enforceable in accordance with its terms subject only
to laws regarding bankruptcy, insolvency, reorganization
moratorium or otherwise affecting creditors' rights generally,
and to the application of general principles of equity
(whether considered in a proceeding in law or at equity).
3.1.5 Certain Agreements by Shareholders.
(a) Directors of CSB who (i) constitute not less than
one-half in number of the total number of CSB Directors and (ii)
own, in the aggregate, more than 50% of the outstanding shares of
CSB Common Stock, have executed and delivered to CSB, and CSB has
executed and delivered to SDN, a valid and binding agreement in the
form of Exhibit 3.1.5 (a "Voting Agreement"), whereby each such
Person has irrevocably agreed to vote all shares of CSB Common
Stock directly or beneficially owned by such Person (including
shares held as community property) or over which such Person has
voting control, in favor of any facet of the Reorganization that
may require approval by the CSB Shareholders and against any
competing transaction.
(b) Each party to the CSB Shareholder Agreement has
entered into a valid and binding agreement, in form and substance
satisfactory to SDN, terminating the CSB Shareholder Agreement
(which termination may, in the discretion of the parties thereto,
be made effective immediately prior to the Effective Time). A
counterpart original of such termination agreement has been
delivered to SDN and remains in full force and effect.
3.1.6 Conflicts. The execution and delivery of this Agreement does
not, and the consummation of the Reorganization will not,
result in any conflict with or violation of any provision of
the Articles of Incorporation or By-laws of CSB. Subject only
to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings
included among the CSB Governmental Approvals, the execution
and delivery of this Agreement does not, and the consummation
of the Reorganization will not result in any violation,
conflict, default, creation of a right of termination,
cancellation, acceleration, or loss of a material benefit
under any Law or under any loan or credit agreement, note,
mortgage, indenture, lease, employee benefit plan or other
agreement, obligation, instrument, permit, concession,
franchise or license, or any judgment, order or decree,
applicable to CSB or its properties or assets which violation,
conflict, default, creation of a right of termination,
cancellation, acceleration, or loss of a material benefit
would have a Material Adverse Effect on CSB.
3.1.7 Consents. Except as disclosed on Schedule 3.1.7
(collectively, the "CSB Governmental Approvals"), no consent,
approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is
required in connection with CSB's execution and delivery of
this Agreement or its consummation of the Reorganization, as
to which the failure to obtain the same would have a Material
Adverse Effect on CSB or materially interfere with CSB's
ability to consummate the Reorganization.
3.1.8 Financial Statements. CSB has provided to SDN the CSB Final
Financial Statements, certified by Deloitte & Touche, LLP, as
well as audited financial statements for CSB for the years
ended December 31, 1994 and December 31, 1993. The CSB Final
Financial Statements and the prior two years' audited
financial statements comply, in all material respects, with
applicable accounting requirements and have been prepared in
accordance with GAAP (except as may be indicated in the notes
thereto) and fairly present the financial position of CSB
(consolidated with any subsidiaries then in existence) as of
the dates thereof and the results of its (their) operations
and cash flows for the periods then ended. The books and
records of CSB have been, and are being, maintained in all
material respects in accordance with GAAP and reflect only
actual transactions.
3.1.9 Regulatory Filings and Agreements. Except as disclosed on
Schedule 3.1.9, CSB has timely filed all reports,
registrations and statements, together with any amendments
required to be made with respect thereto, that it was required
to file since December 31, 1992 with any Bank Regulator as to
which a failure to file the same could reasonably be expected
to have a Material Adverse Effect on CSB, including any such
report or statement required to be filed pursuant to the Laws
of the United States (including regulations of the FDIC and
the Board of Governors of the Federal Reserve) or the State of
California (including the State Banking Department), and has
paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Bank
Regulator in the regular course of the business of CSB, and
except as disclosed on Schedule 3.1.9, no Bank Regulator has
initiated any proceeding or investigation or, to the best
knowledge of CSB, has threatened to initiate any proceeding or
investigation, into the business or operations of CSB since
December 31, 1992. Except as disclosed on Schedule 3.1.9, CSB
is not a party to or subject to, and since December 31, 1992
has not been a party to or subject to, any Regulatory
Agreement with or from, and has not adopted any board
resolutions at the request of, any Bank Regulator that
restricts the conduct of CSB's business or in any manner
relates to its capital adequacy, credit policies, loan
origination practices or management nor, to the knowledge of
CSB, is any Bank Regulator contemplating issuing or requesting
(or considering the appropriateness of issuing or requesting)
any such Regulatory Agreement. Except as disclosed on
Schedule 3.1.9, there is no material unresolved violation,
criticism, or exception by any Bank Regulator with respect to
any report or statement relating to any examination of CSB.
3.1.10 Undisclosed Liabilities. Except as and to the extent
reflected in CSB's Final Financial Statements or on Part A of
Schedule 3.1.10, CSB does not have any liabilities,
commitments or obligations of any nature, whether absolute,
accrued, contingent or otherwise, and whether due or to become
due, including, without limitation, liabilities that may
become known or arise after the date hereof and which relate
to transactions entered into, or any state of facts existing,
on or before the Balance Sheet Date and which would be
required under GAAP to be shown in such balance sheet or
referenced in the notes thereto, other than (a) obligations
(including guarantees and letters of credit) not required by
GAAP to be reflected, reserved against or disclosed in CSB's
Final Financial Statements, all of which are set forth on Part
B of Schedule 3.1.10 and none of which, individually or in the
aggregate, could reasonably be expected to have a Material
Adverse Effect on CSB and (b) those incurred in the ordinary
course of business consistent with past practice since the
Balance Sheet Date.
3.1.11 Classified and OLEM Assets, Reserves and Certain Other Assets.
As of the date hereof, the only assets of CSB that are (a)
Classified Assets or OLEM Assets on CSB's books and records,
or (b) over 90 days delinquent in payment of principal or
interest whether or not the same are Classified Assets or OLEM
Assets, are those listed on Part A of Schedule 3.1.11 hereto
(which schedule identifies the asset by loan number or other
designation and sets forth the original principal amount, the
current book balance, the amount of any reserve (or portion of
the general reserve) allocated thereto, and the loan
classification). The loan and other asset classification
procedures utilized by CSB are in accordance with RAP and
prudent banking practice, and are consistently applied.
Part B of Schedule 3.1.11 hereto sets forth all loans of CSB
outstanding as of the date hereof (whether or not they are
Classified Assets, OLEM Assets or are otherwise in default) to
any director, executive officer or Principal Stockholder of
CSB, or to CSB's knowledge, any person, corporation or
enterprise controlling, controlled by or under common control
with any of the foregoing.
3.1.12 Investment Securities; Derivatives. Part A of Schedule 3.1.12
describes all of the investment securities (including mortgage
backed securities, and whether actively traded, available for
sale or held to maturity) owned by CSB as of the date hereof,
including identification of the type of security, CUSIP
numbers, pool face values (where applicable), book values,
market values, coupon rates, paydown speeds, book yields,
durations, weighted average life and weighted average coupons,
in each case as of March 31, 1996 (or as of the date of
acquisition, if later acquired). Except as identified on Part
B of Schedule 3.1.12, since December 31, 1993, CSB has not
engaged in any transaction in or involving forwards, futures,
options on futures, swaps or other derivative instruments. To
the knowledge of CSB, none of the counterparties to any
contract or agreement with respect to any such instrument is
in default with respect to such contract or agreement and no
such contract or agreement, were it to be a loan held by CSB,
would be a Classified Asset or OLEM Asset. The financial
position of CSB under or with respect to each such instrument
has been reflected in the books and records of CSB in
accordance with GAAP, and each such derivative security was
entered into as a hedge against financial risks then inherent
in CSB's assets, liabilities and commitments.
3.1.13 Absence of Certain Changes or Events. Except as disclosed on
Schedule 3.1.13, since the Balance Sheet Date, (a) there has
been no material adverse change in the business, property,
assets (including loan and servicing portfolios), liabilities
(whether absolute, contingent or otherwise) prospects,
operations, liquidity, income or condition (financial or
otherwise) of CSB (other than as a result of changes in
banking laws or regulations of general applicability or
interpretation thereof), and (b) CSB has carried on its
business in the ordinary and usual course consistent with its
past practices. Except as disclosed on Schedule 3.1.13,
between the Balance Sheet Date and the date hereof, CSB has
not increased the wages, salaries, compensation, pension, or
other fringe benefits or perquisites payable to any executive
officer, employee, or director, granted any severance or
termination pay, entered into any employment contract, salary
continuation (or similar) contract or any contract to make or
grant any severance or termination pay, or paid any bonus, in
each case except for normal increases and payments for or to
persons other than directors or senior officers of CSB in the
ordinary course of business consistent with past practice or
except as required by applicable law.
3.1.14 Compliance with Applicable Laws. Except as set forth in
Schedule 3.1.14, (a) the business of CSB is, and at all times
since December 31, 1992 has been, conducted in compliance with
all Laws (including those relating to equal credit, fair
lending, fair housing and community reinvestment), except
where a failure to so comply would not have a Material Adverse
Effect on CSB, and (b) CSB holds all permits, licenses,
variances, exemptions, orders and approvals of all
Governmental Entities that are material to the operation of
the business of CSB, and is in compliance with the terms of
the same except where the failure so to comply would not have
a Material Adverse Effect on CSB. Except as disclosed on
Schedule 3.1.9 or Schedule 3.1.14, no investigation by any
Governmental Entity with respect to CSB is pending or, to
CSB's knowledge, contemplated.
3.1.15 Litigation and Other Disputes. Except as disclosed on
Schedule 3.1.15, there is no suit, action, or proceeding
(including any cross- or counter-claim) pending or, to the
knowledge of CSB, threatened, against or affecting CSB or any
of its assets, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator
outstanding against CSB the obligations under which have not
heretofore been fully performed. Except as set forth on
Schedule 3.1.15, CSB has not accrued nor set aside any
reserves relating to any suit, action, or proceeding
(including any cross- or counter-claim) pending or, to the
knowledge of CSB, threatened, against or affecting CSB or any
of its assets. Except as disclosed on Schedule 3.1.15, since
December 31, 1992, CSB has not been a defendant, either
directly or as defendant-in-counterclaim or cross-claim, in
any litigation in which any "lender liability" cause of action
was asserted against CSB.
3.1.16 Administration of Fiduciary Accounts. CSB has properly
administered in all material respects all accounts for which
it acts as a fiduciary (including but not limited to accounts
for which it serves as a trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor)
in accordance with the terms of the governing documents and
applicable Law, including state and federal common law. To
the knowledge of CSB, neither CSB nor any of its directors,
officers or employees has committed any breach of trust with
respect to any such fiduciary account which has had or could
reasonably be expected to have a Material Adverse Effect on
CSB, and the accounting for each such fiduciary account are
true and correct in all material respects and accurately
reflect the assets of such fiduciary account.
3.1.17 Taxes.
(a) CSB has filed all federal, state and, to the best of
CSB's knowledge, material local tax returns and information returns
required to be filed by it, and all such returns have been accurate
and complete. CSB has paid or has set up an adequate reserve for
the payment of all Taxes required to be paid as shown on such
returns, and CSB's Final Financial Statements reflect an adequate
reserve for all Taxes payable by CSB accrued through the date of
such financial statements. No deficiencies for any Taxes have been
proposed, asserted or assessed against CSB that are not adequately
reserved for in the reasonable judgment of CSB's independent
auditors. The federal income tax returns of CSB have been examined
by and settled with the IRS, or the statute of limitations with
respect to each such year has expired (and no waiver extending the
statute of limitations has been requested or granted), for all
years through 1991. The federal income tax returns of CSB for the
years 1992 through 1994 are currently open to IRS examination but
no audit is pending for any of such years and, to CSB's knowledge,
no challenge or deficiency is contemplated by the IRS with regard
to any of such years. CSB has not been requested to give any
currently effective waivers extending the statutory period of
limitation applicable to any Federal, state, county or local income
tax return for any period. CSB has not (i) filed any consent to
the application of Section 341(f) of the Code, (ii) filed any
election under Section 338(g) or 338(h)(10) of the Code or caused
or permitted any deemed election under Section 338(e) of the Code,
(iii) applied for any revenue ruling, private letter ruling or
other ruling relating to Taxes, (iv) entered into any closing
agreement with any Governmental Entity relating to Taxes, (v) been
required to include in income any adjustment pursuant to Section
481 of the Code by reason of a voluntary change in accounting
method initiated by CSB and the Internal Revenue Service has not
initiated or proposed any such adjustment or change in accounting
method, (vi) except as set forth on Schedule 3.1.17, entered into
a transaction which is being accounted for as an installment
obligation under Section 453 of the Code which would be reasonably
likely to have a Material Adverse Effect on CSB, or (vii) been, at
any time, a member of any affiliated group filing any consolidated
tax return except the existing affiliated group consisting of CSB
and CSB Ventures, Inc.
(b) No employee, officer or director of CSB or any of
its affiliates who is a "Disqualified Individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation
arrangement, or CSB Benefit Plan currently in effect, would receive
as a result of the Reorganization any amount which would be
characterized as an "excess parachute payment" as such term is
defined in Section 280G(b)(1) of the Code.
3.1.18 Certain Agreements. Except as disclosed on Schedule 3.1.18,
CSB is not party to (nor are any of its assets bound by) any
oral or written contract, lease or other agreement of any name
or nature, in effect as of the date hereof:
(a) that would be required to be filed as an exhibit to
an annual report on Form 10-K filed with the SEC (assuming CSB were
a reporting company under the Exchange Act),
(b) the benefits of which (to either party) will accrue
or be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of the Reorganization (either alone
or upon the occurrence of any additional acts or events), or the
value of any of the benefits of which will be calculated on the
basis of the Reorganization or any portion or aspect thereof
(including any so-called retention or similar bonuses),
(c) relating to employment, salary continuation,
severance, consulting, collective bargaining or otherwise relating
to the provision of personal services or payment therefor
(including data processing, software programming and licensing
contracts),
(d) which, upon the consummation of the Reorganization,
will result in any payment (whether of severance pay or otherwise)
becoming due from CSB, SDN or Holdco to any officer or employee of
CSB,
(e) relating to non-competition or secrecy,
(f) that materially restricts the conduct of any line
of business by CSB, or
(g) that was entered into in connection with the
consummation of a federally assisted acquisition of a depository
institution pursuant to which CSB is entitled to receive financial
assistance or indemnification from any Governmental Entity.
CSB is not materially in default under, conflict with, violation of, nor
has CSB, to its knowledge, through any act or omission created a
material right of termination under, cancellation of, acceleration of
any obligation under, loss of material benefit under, or created any
material lien, pledge, security interest or other encumbrance on its
assets under any contract, lease or other agreement described by any of
the foregoing clauses (a) through (g), and to its knowledge, no other
party to any such contract, lease or other agreement has committed (by
act or omission) any such material default or violation of the same.
CSB has previously delivered to SDN true and correct copies of all
employment, consulting and deferred compensation agreements that are in
writing to which CSB is a party, and has delivered to SDN complete and
accurate summaries of all employment, consulting and deferred
compensation agreements that are not in writing to which CSB is a party.
Except as disclosed on Schedule 3.1.18, CSB is not a party to, and since
December 31, 1992 has not been a party to (nor are any of its assets
bound by), any oral or written contract, lease or other agreement of any
name or nature with a Person who was, as of or within one year prior to
the date of such agreement, a director, officer or Principal Stockholder
of CSB.
3.1.19 Employees and Employee Benefit Plans.
(a) Except as disclosed on Schedule 3.1.19(a) or on
Schedule 3.1.18, no employee of or consultant retained by CSB shall
have the right to receive from CSB, Holdco or SDN any severance
payment or other payment in the nature thereof (including so-called
salary continuation payments, golden parachute payments, severance
benefits or unemployment compensation), in the event his or her
employment is terminated by CSB, Holdco or SDN at or after the
Effective Time, whether such right arises as a matter of contract,
past policy or understanding, by operation of Law, or otherwise.
(b) Schedule 3.1.19(b) sets forth a true and complete
list of each material Benefit Plan of CSB. CSB has made available
to SDN true and correct copies of (i) each such CSB Benefit Plan,
(ii) the most recent annual report (Form 5500) filed with IRS with
regard to each CSB Benefit Plan requiring such a filing, (iii) each
trust agreement relating to any CSB Benefit Plan, (iv) the most
recent summary plan description for each CSB Benefit Plan for which
a summary plan description is required, (v) the most recent
actuarial report or valuation for each CSB Benefit Plan subject to
Title IV of ERISA, (vi) the most recent determination letter issued
by the IRS in the case of CSB Benefit Plans qualified under Section
401(a) of the Code, and (vii) all personnel policies and manuals of
CSB.
(c) Except as disclosed on Schedule 3.1.19(c), (i) each
of the CSB Benefit Plans intended to be "qualified" within the
meaning of Section 401(a) of the Code is so qualified; (ii) with
respect to each CSB Benefit Plan which is subject to Title IV of
ERISA, the present value of accrued benefits under such CSB Benefit
Plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such CSB
Benefit Plan's actuary with respect to such CSB Benefit Plan, did
not, as of its latest valuation date, exceed the then-current value
of the assets of such CSB Benefit Plan allocable to such accrued
benefits; and (iii) no CSB Benefit Plan provides benefits,
including without limitation death or medical benefits (whether or
not insured), with respect to current or former employees of CSB or
any affiliate of CSB beyond such employees' retirement or other
termination of service, other than (A) coverage mandated by
applicable law, (B) retirement benefits or death benefits under a
Benefit Plan qualified under Section 401(k) of the Code, (C) or
benefits the full cost of which is borne by the current or former
employee (or his beneficiary).
(d) With respect to the CSB Benefit Plans, individually
and in the aggregate, to the knowledge of CSB, no event has
occurred and there exists no condition or set of circumstances in
connection with which CSB could be subject to any liability that
could have a Material Adverse Effect on CSB (except liability for
benefits claims and funding obligations payable in the ordinary
course) under ERISA, the Code or any other applicable Law.
(e) Except as disclosed on Schedule 3.1.19(e), there are
no material disputes, employee grievances, or disciplinary actions
pending or, to the knowledge of CSB, threatened by or between any
of CSB's employees and CSB. CSB has complied in all material
respects with all Laws relating to the employment of labor and has
no liability for any arrears of wages or employment-related taxes,
or penalties for failure to comply with any such Law, or for any
severance or termination payments of any type. No election or
proceeding relating to CSB's labor relations is pending or, to
CSB's knowledge, contemplated. To the knowledge of CSB, CSB has
had no union activity or any material labor trouble (including any
strike, work stoppage, slow-down, or similar disturbance) of any
kind, nature or description at any time.
3.1.20 Properties. Except as disclosed on Part A of Schedule 3.1.20,
CSB does not hold title to or a beneficial interest in any
real property other than OREO. Disclosed on Part B of
Schedule 3.1.20 are the only real properties leased by,
otherwise occupied by, or in the possession of CSB (excluding
OREO and property occupied only as lender in possession, in
each case provided that CSB is conducting no business in such
property, and excluding the owned properties disclosed on Part
A of Schedule 3.1.20). Except for assets disposed of in the
ordinary course of business consistent with past practice
since the Balance Sheet Date, CSB has good and valid title to
all of the tangible personal property and assets which are
used in and material to the operation of its business and
which it owns or purports to own, including all assets
reflected as owned by CSB in its Final Financial Statements,
and has good and valid title to all of the leasehold interests
in all leases of real or personal property which it leases or
purports to lease (in each case, as lessee), including all
assets reflected as leased by CSB in its Draft Financial
Statements, in each case free and clear of any liens,
encumbrances or other imperfections of title other than such
liens, encumbrances or imperfections as (a) are reflected,
reserved against or otherwise disclosed in CSB's Final
Financial Statements, (b) arise out of Taxes not yet due or
payable, or (c) relate to immaterial properties or assets or
otherwise could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on
CSB. CSB enjoys peaceful and undisturbed possession of the
applicable leased asset under all leases of real or personal
property under which it is operating or to which it is a party
excepting only those properties noted on Part B of Schedule
3.1.20 as subleased to third parties, as to which CSB's
sublessee enjoys peaceful and undisturbed possession. All of
such leases are valid, subsisting and in full force and effect
and there are no existing defaults or events which, with the
passage of time or the giving of notice, or both, would
constitute defaults by CSB or, to the knowledge of CSB, by any
other party thereto, except for such defaults, if any, which
could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on CSB. All items
of real or personal property owned or used by CSB and material
to its business have been properly maintained and, to CSB's
knowledge, are in good operating order and repair.
3.1.21 Environmental. To the knowledge of CSB, CSB and all real
property (including OREO) in the possession of CSB or over
which CSB exercises control are, and at all times while in the
possession or control of CSB each property at any time owned,
possessed or controlled by CSB has been, in compliance with
all applicable Laws relating to pollution or protection of
human health or the environment (including Laws relating to
emissions, discharges, releases or threatened releases of
Hazardous Material or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Material), except for any
violations of Law that, either individually or in the
aggregate, have not had and cannot reasonably be expected to
have a Material Adverse Effect on CSB. To the knowledge of
CSB, there has not occurred any release of Hazardous Material
on, under or affecting any real property during the period of
CSB's ownership, possession or operation of such property
(including its participation in the management of any business
located on such property) or during any prior period. To the
knowledge of CSB, neither CSB nor any property now or
heretofore in its possession is or has ever been a defendant
in or the subject of any suit, claim, action, proceeding,
investigation or notice before any Governmental Entity or
other forum relating to an alleged violation (including by any
predecessor) of any environmental Law or any Law relating to
the release or threatened release into the environment of any
Hazardous Material, whether or not occurring at or on a site
owned, leased or operated by CSB.
3.1.22 Intellectual Property. CSB owns, or possesses valid and
binding licenses and other rights to use without payment, all
material trademarks, trade names, servicemarks, copyrights,
trade secrets and patents used in its businesses, and CSB has
not received any challenge of the same by any Person or any
notice of alleged conflict between the same and the rights of
any other Person. CSB has, in all material respects,
performed all of its obligations under, is not materially in
default under, and has not created any right of termination
under, cancellation of, acceleration of any obligation under,
or loss of a material benefit under, any contract, agreement,
arrangement or commitment relating to any of the foregoing.
3.1.23 Brokers. Except as set forth on Schedule 3.1.23, CSB has not
employed any broker, finder, investment banker or similar
Person in connection with the Reorganization, and has not
incurred and will not incur any broker's, finder's, investment
banker's or similar fees, commissions or expenses payable by
CSB in connection with the Reorganization. Schedule 3.1.23
summarizes the material terms of all agreements required to be
disclosed thereon.
3.1.24 Disclosure of All Material Matters. No statement of fact set
forth in (a) this Agreement (including all information in the
Schedules and Exhibits hereto), (b) CSB's Final Financial
Statements, (c) CSB's audited financial statements as at and
for the periods ended December 31, 1994 and December 31, 1993,
(d) CSB's Reports of Condition and Income filed with the FDIC
between the date hereof and the Closing Date (when the same
are filed), (e) the Information Statement (when the same is
distributed to CSB Shareholders) and (f) any application,
petition or similar document filed by CSB with any
Governmental Entity in connection with the Reorganization
(when the same are filed), excepting in the case of clauses
(e) and (f) statements made in reliance upon, and in
conformity with, information provided by SDN, is or will be,
as of the date delivered, false or misleading in any material
respect; nor does any of the materials referenced in this
Section 3.1.24 omit to state any material fact necessary in
order to make the statements made or information disclosed, in
the light of the circumstances under which they were made or
disclosed, not misleading.
3.2 By SDN. Except where a different date is expressly specified,
SDN makes the representations and warranties set forth below regarding
itself and the other members of the SDN Group, as of the date of this
Agreement:
3.2.1 Organization, Standing and Power.
(a) SDN is a business corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware. SDN has all requisite power and authority to own,
lease and operate its properties and to carry on its business as
now being conducted, and is duly qualified and in good standing to
do business in each jurisdiction in which a failure to be so
qualified would have a Material Adverse Effect on SDN. Copies of
the Certificate of Incorporation and By-Laws of SDN, including all
amendments thereto as of the date of this Agreement, have been
delivered to CSB and are complete and correct. The minute books of
SDN accurately reflect in all material respects all corporate
actions held or taken by SDN's shareholders and Board of Directors,
including all committees of such Board of Directors.
(b) San Dieguito and Liberty are national banking
associations duly organized, validly existing and in good standing
under the laws of the United States of America. San Dieguito and
Liberty are both wholly-owned subsidiaries of SDN. The deposit
accounts of San Dieguito and Liberty are insured by the FDIC
through the Bank Insurance Fund, and all premiums and assessments
required in connection therewith have been paid by San Dieguito and
Liberty, respectively, as the same have become due. San Dieguito
and Liberty have no current or future liability (whether contingent
or fixed) to the Savings Association Insurance Fund or any
predecessor thereto for "exit fees" or otherwise, and no current or
future liability (whether contingent or fixed) to the Bank
Insurance Fund for "entrance fees." Each of San Dieguito and
Liberty has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted and is duly qualified to do business in each jurisdiction
in which a failure to be so qualified would have a Material Adverse
Effect on it.
3.2.2 Capital Structure.
(a) Capital Stock of SDN. As of the date hereof, the
authorized capital stock of SDN consists of 12,000,000 shares of
Common Stock, $.01 par value, and 1,000,000 shares of preferred
stock, $.01 par value, of which not more than 4,287,910 shares of
SDN Common Stock are issued and outstanding, no shares of SDN
preferred stock are issued and outstanding, no shares of SDN Common
Stock are held in treasury by SDN and no shares of SDN Common Stock
are reserved for future issuance other than (A) an adequate but
indefinite number required to be issued upon the conversion of the
SDN Debentures, and (B) an undetermined number (estimated to be no
more than 40 shares) required to be issued on account of fractional
shares in connection with SDN's September 27, 1995 redomiciliation
merger. All outstanding shares of SDN Common Stock have been
validly issued and are fully paid and nonassessable and are not
subject to preemptive rights. All of the issued and outstanding
shares of SDN Common Stock have been duly offered, issued and sold
by SDN in compliance with applicable Federal and state securities
laws and regulations and in compliance with any preemptive right
held by any Person. There are no dividends which have accrued or
been declared but are unpaid on the SDN Common Stock. Except as
disclosed on Schedule 3.2.2, SDN has no contractual obligation to
register any shares of SDN Common Stock under the Securities Act.
SDN has delivered to CSB a true and correct list of all holders of
SDN Common Stock as of a date on or after January 1, 1996.
(b) Other Securities. Excepting only SDN Debentures in
the aggregate face amount of $537,451, there are no options,
warrants, calls, rights, commitments or agreements of any
character, including any stock option or equity incentive plan,
outstanding or in existence as of the date hereof to which SDN is
a party or by which SDN is bound obligating it to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares
of capital stock or other securities of SDN or obligating SDN to
grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. There are no outstanding contractual
obligations of SDN to repurchase, redeem or otherwise acquire any
shares of capital stock of SDN. There are no bonds, debentures,
notes or other instruments evidencing indebtedness of SDN issued or
outstanding that entitle the holders thereof to vote on any matters
on which SDN Shareholders may vote.
(c) Holdco Common Stock. The offer and sale of the
Holdco Common Stock to the CSB Shareholders in the CSB Merger will
not violate in any material respect any applicable federal or state
Law relating to the sale or issuance of securities.
3.2.3 Interests in Other Entities. Excepting only San Dieguito and
Liberty, SDN has no subsidiaries and does not otherwise hold
more than 1% of the outstanding equity securities of any
corporation or other entity, is not a member of any
partnership, joint venture or similar entity or collectivity,
and is not a party to any partnership agreement or joint
venture agreement, however named. Neither San Dieguito nor
Liberty has any subsidiaries or otherwise holds more than 1%
of the outstanding equity securities of any corporation or
other entity, is a member of any partnership, joint venture or
similar entity or collectivity, or is a party to any
partnership agreement or joint venture agreement, however
named. No member of the SDN Group holds any "Acquisition,
Development and Construction" ("ADC") loans, as that term is
used under GAAP. No member of the SDN Group holds any shares
of CSB Common Stock, other than shares owned in a fiduciary
capacity or as a result of debts previously contracted.
3.2.4 Authority and Related Matters. SDN has all requisite
corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby (including
the Reorganization), and has duly authorized the execution and
delivery of this Agreement and the consummation of such
transactions (including the Reorganization) by all necessary
corporate action on the part of SDN (including approval by its
Board of Directors). No other corporate proceedings on the
part of SDN not heretofore taken are necessary to approve this
Agreement or to consummate the Reorganization. This Agreement
has been duly executed and delivered by SDN and (assuming due
authorization, execution and delivery by CSB) constitutes the
valid and binding obligation of SDN, enforceable in accordance
with its terms subject only to laws regarding bankruptcy,
insolvency, reorganization moratorium or otherwise affecting
creditors' rights generally, and to the application of general
principles of equity (whether considered in a proceeding in
law or at equity).
3.2.5 Conflicts. The execution and delivery of this Agreement does
not, and the consummation of the Reorganization will not,
result in any conflict with or violation of any provision of
the Certificate of Incorporation or By-laws of SDN. Subject
only to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings
included among the SDN Governmental Approvals, the execution
and delivery of this Agreement does not, and the consummation
of the Reorganization will not, result in any violation,
conflict, default, creation of a right of termination,
cancellation, acceleration, or loss of a material benefit
under any Law or under any loan or credit agreement, note,
mortgage, indenture, lease, employee benefit plan or other
agreement, obligation, instrument, permit, concession,
franchise or license, or any judgment, order or decree,
applicable to any member of the SDN Group or any of their
properties or assets, which violation, conflict, default,
creation of a right of termination, cancellation,
acceleration, or loss of a material benefit would have a
Material Adverse Effect on the SDN Group or any member
thereof.
3.2.6 Consents. Except as disclosed on Schedule 3.2.6
(collectively, the "SDN Governmental Approvals"), no consent,
approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is
required in connection with SDN's or Holdco's execution and
delivery of this Agreement or either of their consummation of
the Reorganization, as to which the failure to obtain the same
would have a Material Adverse Effect on SDN or Holdco or
materially interfere with SDN's or Holdco's ability to
consummate the Reorganization.
3.2.7 Financial Statements. SDN has provided to CSB copies of SDN's
consolidated Final Financial Statements as audited by Price
Waterhouse, LLP, Liberty's Final Financial Statements as
audited by Arthur Anderson LLP, and audited financial
statements for SDN and for Liberty for the years ended
December 31, 1994 and December 31, 1993. The foregoing
financial statements comply in all material respects with
applicable accounting requirements and have been prepared in
accordance with GAAP (except as may be indicated in the notes
thereto) and fairly present the financial position of SDN and
Liberty, as applicable, (consolidated in each case with any
subsidiaries then in existence) as of the dates thereof and
the results of their operations and cash flows for the periods
then ended. The books and records of each of SDN and Liberty
have been, and are being, maintained in all material respects
in accordance with GAAP and reflect only actual transactions.
3.2.8 Regulatory Filings and Agreements. Each member of the SDN
Group has timely filed all reports, registrations and
statements, together with any amendments required to be made
with respect thereto, that it was required to file since
December 31, 1992 with any Bank Regulator as to which a
failure to file the same could reasonably be expected to have
a Material Adverse Effect on such entity, including any report
or statement required to be filed pursuant to the Laws of the
United States (including regulations of the Board of Governors
of the Federal Reserve, the OCC and the FDIC), and has paid
all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Bank
Regulator in the regular course of the business of SDN Group,
and except as disclosed on Schedule 3.2.8, no Bank Regulator
has initiated any proceeding or investigation or, to the best
knowledge of SDN, has threatened to initiate any proceeding or
investigation, into the business or operations of any member
of the SDN Group since December 31, 1992. Except as disclosed
on Schedule 3.2.8, no member of the SDN Group is a party to or
is subject to, and since December 31, 1992 no member of the
SDN Group has been a party to or subject to, any Regulatory
Agreement with or from, and has adopted any board resolutions
at the request of, any Bank Regulator that restricts the
conduct of such SDN Group member's business or in any manner
relates to its capital adequacy, credit policies, loan
origination practices or management nor, to the knowledge of
SDN, is any Bank Regulator contemplating issuing or requesting
(or considering the appropriateness of issuing or requesting)
any such Regulatory Agreement. Except as disclosed on
Schedule 3.2.8, there is no material unresolved violation,
criticism, or exception by any Bank Regulator with respect to
any report or statement relating to any examination of any
member of the SDN Group.
3.2.9 Undisclosed Liabilities. Except as and to the extent
reflected in each of SDN's and Liberty's Final Financial
Statements or on Part A of Schedule 3.2.9, no member of the
SDN Group has any liabilities, commitments or obligations of
any nature, whether absolute, accrued, contingent or
otherwise, and whether due or to become due, including,
without limitation, liabilities that may become known or arise
after the date hereof and which relate to transactions entered
into, or any state of facts existing, on or before the Balance
Sheet Date and which would be required under GAAP to be shown
in such balance sheet or referenced in the notes thereto,
other than (a) obligations (including guarantees and letters
of credit) not required by GAAP to be reflected, reserved
against or disclosed in the applicable Final Financial
Statements, all of which are set forth on Part B of Schedule
3.2.9 and none of which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect
on the SDN Group or any member thereof and (b) those incurred
in the ordinary course of business consistent with past
practice since the Balance Sheet Date.
3.2.10 Classified and OLEM Assets, Reserves and Certain Other Assets.
As of the date hereof, the only assets of San Dieguito that
are (a) Classified Assets or OLEM Assets on the books and
records of San Dieguito, or (b) over 90 days delinquent in
payment of principal or interest whether or not the same are
Classified Assets or OLEM Assets, are those listed on Part A
of Schedule 3.2.10 hereto (which schedule identifies the asset
by loan number or other designation and sets forth the
original principal amount, the current book balance, the
amount of any reserve (or portion of the general reserve)
allocated thereto, and the loan classification). As of the
date hereof, the only assets of Liberty that are (a)
Classified Assets or OLEM Assets on the books and records of
Liberty, or (b) over 90 days delinquent in payment of
principal or interest whether or not the same are Classified
Assets or OLEM Assets, are those listed on Part B of Schedule
3.2.10 hereto (which schedule identifies the asset by loan
number or other designation and sets forth the original
principal amount, the current book balance, the amount of any
reserve (or portion of the general reserve) allocated thereto,
and the loan classification). The loan and other asset
classification procedures utilized by each member of the SDN
Group are in accordance with RAP and prudent banking practice,
and are consistently applied. Part C of Schedule 3.2.10
hereto sets forth all loans of any member of the SDN Group
outstanding as of the date hereof (whether or not they are
Classified Assets, OLEM Assets or are otherwise in default) to
any director, executive officer or Principal Stockholder of
that or any other member of the SDN Group, or to SDN's
knowledge, any person, corporation or enterprise controlling,
controlled by or under common control with any of the
foregoing.
3.2.11 Investment Securities; Derivatives. Part A of Schedule 3.2.11
describes all of the investment securities (including mortgage
backed securities and whether actively traded, available for
sale or held to maturity) owned by SDN or San Dieguito as of
the date hereof, and Part B of Schedule 3.2.11 describes all
of the investment securities (including mortgage backed
securities and whether actively traded, available for sale or
held to maturity) owned by Liberty as of the date hereof,
including in each case identification of the type of security,
CUSIP numbers, pool face values (where applicable), book
values, market values, coupon rates, paydown speeds, book
yields, durations, weighted average life and weighted average
coupons, in each case as of March 31, 1996 (or as of the date
of acquisition, if later acquired). Since December 31, 1993,
no member of the SDN Group has engaged in any transaction in
or involving forwards, futures, options on futures, swaps or
other derivative instruments.
3.2.12 Absence of Certain Changes or Events. Except as disclosed on
Schedule 3.2.12, since the Balance Sheet Date, (a) there has
been no material adverse change in the business, property,
assets (including loan and servicing portfolios), liabilities
(whether absolute, contingent or otherwise) prospects,
operations, liquidity, income or condition (financial or
otherwise) of any member of the SDN Group (other than as a
result of changes in banking laws or regulations of general
applicability or interpretation thereof), and (b) each member
of the SDN Group has carried on its business in the ordinary
and usual course consistent with its past practices. Except
as disclosed on Schedule 3.2.12, between the Balance Sheet
Date and the date hereof, no member of the SDN Group has
increased the wages, salaries, compensation, pension, or other
fringe benefits or perquisites payable to any executive
officer, employee, or director, granted any severance or
termination pay, entered into any employment contract, salary
continuation (or similar) contract or any contract to make or
grant any severance or termination pay, or paid any bonus, in
each case except for normal increases and payments for or to
persons other than directors or senior officers of the
applicable member of the SDN Group in the ordinary course of
business consistent with past practice or except as required
by applicable law.
3.2.13 Compliance with Applicable Laws. The business of each member
of the SDN Group is, and at all times since December 31, 1992
has been, conducted in compliance with all Laws (including
those relating to equal credit, fair lending, fair housing and
community reinvestment), except where a failure to so comply
would not have a Material Adverse Effect on the SDN Group.
Each member of the SDN Group holds all permits, licenses,
variances, exemptions, orders and approvals of all
Governmental Entities that are material to the operation of
its business, and is in compliance with the terms of the same
except where the failure so to comply would not have a
Material Adverse Effect on the SDN Group. Except as disclosed
on Schedules 3.2.8, no investigation by any Governmental
Entity with respect to any member of the SDN Group is pending
or, to SDN's knowledge, contemplated.
3.2.14 Litigation and Other Disputes. Except as disclosed on
Schedule 3.2.14, there is no suit, action, or proceeding
(including any cross- or counter-claim) pending or, to the
knowledge of the applicable member of the SDN Group,
threatened, against or affecting any member of the SDN Group
or any of its assets, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or
arbitrator outstanding against any member of the SDN Group the
obligations under which have not heretofore been fully
performed. Except as set forth on Schedule 3.2.14, no member
of the SDN Group has accrued or set aside any reserves
relating to any suit, action, or proceeding (including any
cross- or counter-claim) pending or, to the knowledge of SDN,
threatened, against or affecting any member of the SDN Group
or any of their respective assets. Except as disclosed on
Schedule 3.2.14, since December 31, 1992, no member of the SDN
Group has been a defendant, either directly or as defendant-in-
counterclaim or cross-claim, in any litigation in which any
"lender liability" cause of action was asserted against it.
3.2.15 Administration of Fiduciary Accounts. Each member of the SDN
Group has properly administered in all material respects all
accounts for which it acts as a fiduciary (including but not
limited to accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or
investment advisor) in accordance with the terms of the
governing documents and applicable Law, including state and
federal common law. To the knowledge of SDN, neither any
member of the SDN Group nor any of their respective directors,
officers or employees has committed any breach of trust with
respect to any such fiduciary account which has had or could
reasonably be expected to have a Material Adverse Effect on
the SDN Group, and the accounting for each such fiduciary
account are true and correct in all material respects and
accurately reflect the assets of such fiduciary account.
3.2.16 Taxes.
(a) Each member of the SDN Group has filed (either
individually or as a part of a consolidated group) all federal,
state and, to the best of SDN's knowledge, material local tax
returns and information returns required to be filed by it, and all
such returns have been accurate and complete. The applicable
entity has paid or has set up an adequate reserve for the payment
of all Taxes required to be paid as shown on such returns, and
SDN's Final Financial Statements reflect an adequate reserve for
all Taxes payable by SDN and Liberty, respectively, accrued through
the date of such financial statements. No deficiencies for any
Taxes have been proposed, asserted or assessed against any member
of the SDN Group that are not adequately reserved for in the
reasonable judgment of the applicable entity's independent
auditors. The federal income tax returns of SDN have been examined
by and settled with the IRS, or the statute of limitations with
respect to each such year has expired (and no waiver extending the
statute of limitations has been requested or granted), for all
years through 1992. The federal income tax returns of SDN for the
years 1993 through 1994 are currently open to IRS examination but
no audit is pending for any of such years and, to SDN's knowledge,
no challenge or deficiency is contemplated by the IRS with regard
to any of such years. The federal income tax returns of Liberty
have been examined by and settled with the IRS, or the statute of
limitations with respect to each such year has expired (and no
waiver extending the statute of limitations has been requested or
granted), for all years through 1991. The federal income tax
returns of Liberty for the years 1992 through 1994 are currently
open to IRS examination but except as disclosed on Part A of
Schedule 3.2.16, no audit is pending for any of such years, and to
SDN's knowledge, no challenge or deficiency is contemplated by the
IRS with regard to any of such years. No member of the SDN Group
has not been requested to give any currently effective waivers
extending the statutory period of limitation applicable to any
Federal, state, county or local income tax return for any period.
No member of the SDN Group has (i) filed any consent to the
application of Section 341(f) of the Code, (ii) filed any election
under Section 338(g) or 338(h)(10) of the Code or caused or
permitted any deemed election under Section 338(e) of the Code,
(iii) applied for any revenue ruling, private letter ruling or
other ruling relating to Taxes, (iv) entered into any closing
agreement with any Governmental Entity relating to Taxes, (v) been
required to include in income any adjustment pursuant to Section
481 of the Code by reason of a voluntary change in accounting
method initiated by SDN and the Internal Revenue Service has not
initiated or proposed any such adjustment or change in accounting
method, (vi) except as set forth on Part B of Schedule 3.2.16,
entered into a transaction which is being accounted for as an
installment obligation under Section 453 of the Code which would be
reasonably likely to have a Material Adverse Effect on the SDN
Group or (vii) been, at any time, a member of any affiliated group
filing any consolidated tax return other than (x) the existing
group consisting of SDN and San Dieguito, and (y) as of immediately
prior to the Effective Time, the group consisting of Holdco, SDN,
San Dieguito and Liberty.
(b) No employee, officer or director of SDN or any
affiliates of SDN who is a "Disqualified Individual" (as such term
is defined in proposed Treasury Regulation Section 1.280G-1) under
any employment, severance or termination agreement, other
compensation arrangement, or SDN Benefit Plan currently in effect,
would receive as a result of the Reorganization any amount which
would be characterized as an "excess parachute payment" as such term
is defined in Section 280G(b)(1) of the Code.
3.2.17 Certain Agreements. Except as disclosed on Schedule 3.2.17,
no member of the SDN Group is a party to (nor are any of their
respective assets bound by) any oral or written contract,
lease or other agreement of any name or nature in effect as of
the date hereof:
(a) that would be required to be filed as an exhibit to
an annual report on Form 10-K filed with the SEC (assuming such
entity were a reporting company under the Exchange Act),
(b) the benefits of which (to either party) will accrue
or be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of the Reorganization (either alone
or upon the occurrence of any additional acts or events) or the
value of any of the benefits of which will be calculated on the
basis of the Reorganization or any portion or aspect thereof
(including any so-called retention or similar bonuses),
(c) relating to employment, salary continuation,
severance, consulting, collective bargaining or otherwise relating
to the provision of personal services or payment therefor
(including data processing, software programming and licensing
contracts),
(d) which, upon the consummation of the Reorganization,
will result in any payment (whether of severance pay or otherwise)
becoming due from CSB, any member of the SDN Group or Holdco to any
officer or employee of any member of the SDN Group,
(e) relating to non-competition or secrecy,
(f) that materially restricts the conduct of any line
of business by any member of the SDN Group, or
(g) that was entered into in connection with the
consummation of a federally assisted acquisition of a depository
institution pursuant to which any member of the SDN Group is
entitled to receive financial assistance or indemnification from
any Governmental Entity.
The applicable member of the SDN Group is not materially in default
under, conflict with, violation of, nor has it, to its knowledge,
through any act or omission created any material right of termination
under, cancellation of, acceleration of any obligation under, loss of
material benefit under, or created any material lien, pledge, security
interest or other encumbrance on its assets under any contract, lease or
other agreement described by any of the foregoing paragraphs (a) through
(g), and to its knowledge, no other party to any such contract, lease or
other agreement has committed (by act or omission) any such material
default or violation of the same. SDN has previously delivered or
caused to be delivered to CSB true and correct copies of all employment,
consulting and deferred compensation agreements that are in writing and
to which any member of the SDN Group is a party, and has delivered to
CSB complete and accurate summaries of all employment, consulting and
deferred compensation agreements that are not in writing and to which
any member of the SDN Group is a party. Except as disclosed on Schedule
3.2.17, no member of the SDN Group is a party to, and since December 31,
1992 no member of the SDN Group has been a party to (nor are any of
their respective assets bound by), any oral or written contract, lease
or other agreement of any name or nature with a Person who was, as of,
or within one year prior to, the date of such agreement a director,
officer or Principal Stockholder of the applicable entity or its
corporate parent.
3.2.18 Employees and Employee Benefit Plans.
(a) Except as disclosed on Schedule 3.2.18(a) or on
Schedule 3.17, no employee of or consultant retained by any member
of the SDN Group shall have the right to receive from Holdco, CSB
or such member of the SDN Group any severance payment or other
payment in the nature thereof (including so-called salary
continuation payments, golden parachute payments, severance
benefits or unemployment compensation), in the event his or her
employment is terminated by Holdco, CSB or such member of the SDN
Group at or after the Effective Time, whether such right arises as
a matter of contract, past policy or understanding, by operation of
law, or otherwise.
(b) Schedule 3.2.18(b) sets forth a true and complete
list of each material Benefit Plan of each member of the SDN Group.
SDN has made available to CSB true and correct copies of (i) each
such SDN Group Benefit Plan, (ii) the most recent annual report
(Form 5500) filed with IRS with regard to each SDN Group Benefit
Plan requiring such a filing, (iii) each trust agreement relating
to any SDN Group Benefit Plan, (iv) the most recent summary plan
description for each SDN Group Benefit Plan for which a summary
plan description is required, (v) the most recent actuarial report
or valuation for each SDN Group Benefit Plan subject to Title IV of
ERISA, and (vi) the most recent determination letter issued by the
IRS in the case of SDN Group Benefit Plans qualified under Section
401(a) of the Code, and (vii) all personnel policies and manuals of
each member of the SDN Group.
(c) (i) Each of the SDN Group Benefit Plans intended to
be "qualified" within the meaning of Section 401(a) of the Code is
so qualified; (ii) with respect to each SDN Group Benefit Plan
which is subject to Title IV of ERISA, the present value of accrued
benefits under such SDN Group Benefit Plan, based upon the
actuarial assumptions used for funding purposes in the most recent
actuarial report prepared by such SDN Group Benefit Plan's actuary
with respect to such SDN Group Benefit Plan, did not, as of its
latest valuation date, exceed the then-current value of the assets
of such SDN Group Benefit Plan allocable to such accrued benefits;
and (iii) no SDN Group Benefit Plan provides benefits, including
without limitation death or medical benefits (whether or not
insured), with respect to current or former employees of the
applicable member of the SDN Group or any affiliate of such entity
beyond such employees' retirement or other termination of service
other than (A) coverage mandated by applicable law, (B) retirement
benefits or death benefits under a Benefit Plan qualified under
Section 401(k) of the Code, or (C) benefits the full cost of which
is borne by the current or former employee (or his beneficiary).
(d) With respect to the SDN Group Benefit Plans,
individually and in the aggregate, to the knowledge of SDN, no
event has occurred and there exists no condition or set of
circumstances in connection with which the applicable member of the
SDN Group could be subject to any liability that could have a
Material Adverse Effect on the SDN Group (except liability for
benefits claims and funding obligations payable in the ordinary
course) under ERISA, the Code or any other applicable Law.
(e) There are no material disputes, employee grievances,
or disciplinary actions pending or, to the knowledge of SDN,
threatened by or between any employees of any member of the SDN
Group and such employer. Each member of the SDN Group has complied
in all material respects with all Laws relating to the employment
of labor and has no liability for any arrears of wages or
employment-related taxes, or penalties for failure to comply with
any such Law, or for any severance or termination payments of any
type. No election or proceeding relating to the labor relations of
any member of the SDN Group is pending or, to SDN's knowledge,
contemplated. To the knowledge of SDN, no member of the SDN Group
has had union activity or any material labor trouble (including any
strike, work stoppage, slow-down, or similar disturbance) of any
kind, nature or description at any time.
3.2.19 Properties. Except as disclosed on Part A of Schedule 3.2.19,
no member of the SDN Group holds title to or a beneficial
interest in any real property other than OREO. Disclosed on
Part B of Schedule 3.2.19 are the only real properties leased
by, otherwise occupied by, or in the possession of any member
of the SDN Group (excluding OREO and property occupied only as
lender in possession, in each case provided that SDN is
conducting no business in such property, and excluding the
owned properties disclosed on Part A of Schedule 3.2.19).
Except for assets disposed of in the ordinary course of
business consistent with past practice since the Balance Sheet
Date, the applicable member of the SDN Group has good and
valid title to all of the tangible personal property and
assets which are used in and material to the operation of its
business and which it owns or purports to own, including all
assets reflected as owned by members of the SDN Group in SDN's
Final Financial Statements, and has good and valid title to
all of the leasehold interests in all leases of real or
personal property which it leases or purports to lease,
including all assets reflected as leased by members of the SDN
Group in SDN's Final Financial Statements, in each case free
and clear of any liens, encumbrances or other imperfections of
title other than such liens, encumbrances or imperfections as
(a) are reflected, reserved against or otherwise disclosed in
SDN's Final Financial Statements, (b) arise out of Taxes not
yet due or payable, or (c) relate to immaterial properties or
assets or otherwise could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect on the SDN Group or any member thereof. The applicable
member of the SDN Group enjoys peaceful and undisturbed
possession of the applicable leased asset under all leases of
real or personal property under which it is operating or to
which it is a party. All of such leases are valid, subsisting
and in full force and effect and there are no existing
defaults or events which, with the passage of time or the
giving of notice, or both, would constitute defaults by the
applicable member of the SDN Group or, to the knowledge of
SDN, by any other party thereto, except for such defaults, if
any, which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on
the SDN Group or any member thereof. All items of real or
personal property owned or used by members of the SDN Group
and material to their collective business have been properly
maintained and, to SDN's knowledge, are in good operating
order and repair.
3.2.20 Environmental. To the knowledge of SDN, each member of the
SDN Group and all real property (including OREO) in the
possession of any member of the SDN Group or over which any
such member exercises control are, and at all times while in
the possession or control of a member of the SDN Group each
property at any time owned, possessed or controlled by a
member of the SDN Group has been, in compliance with all
applicable Laws relating to pollution or protection of human
health or the environment (including Laws relating to
emissions, discharges, releases or threatened releases of
Hazardous Material or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Material), except for any
violations of Law that, either individually or in the
aggregate, have not had and cannot reasonably be expected to
have a Material Adverse Effect on the SDN Group. To the
knowledge of SDN, there has not occurred any release of
Hazardous Material on, under or affecting any real property
during the period of any member of the SDN Group's ownership,
possession or operation of such property (including its
participation in the management of any business located on
such property) or, to SDN's knowledge, during any prior
period. To the knowledge of SDN, neither the members of the
SDN Group nor any property now or heretofore in the possession
of any of them is or has ever been a defendant in or the
subject of any suit, claim, action, proceeding, investigation
or notice before any Governmental Entity or other forum
relating to an alleged violation (including by any
predecessor) of any environmental Law, rule or regulation or
relating to the release or threatened release into the
environment of any Hazardous Material, whether or not
occurring at or on a site owned, leased or operated by a
member of the SDN Group.
3.2.21 Intellectual Property. Each member of the SDN Group owns, or
possesses valid and binding licenses and other rights to use
without payment, all material trademarks, trade names,
servicemarks, copyrights, trade secrets and patents used in
its businesses, and no member of the SDN Group has received
any challenge of the same by any Person or any notice of
alleged conflict between the same and the rights of any other
Person. Each member of the SDN Group has, in all material
respects, performed all of its obligations under, and is not
in material conflict with, violation of, default under,
creation of a right of termination under, cancellation of,
acceleration of any obligation under, loss of a material
benefit under, any contract, agreement, arrangement or
commitment relating to any of the foregoing.
3.2.22 Brokers. No member of the SDN Group has employed any broker,
finder, investment banker or similar Person in connection with
the Reorganization, or has incurred or will incur any
broker's, finder's, investment banker's or similar fees,
commissions or expenses payable by any member of the SDN Group
in connection with the Reorganization.
3.2.23 Financing of Reorganization. SDN has received one or more
valid and binding subscription agreements providing for
investments in SDN, payable on or before the Closing Date,
that, in the aggregate, will provide SDN with the full amount
of the Maximum Required Capital Contribution (or such lesser
amount as SDN may take down thereunder consistent with its
obligations under Section 2.2). SDN has also received one or
more valid and binding subscription agreements, assignable to
Holdco, providing for investments in Holdco, payable within a
reasonable time following demand made on or after the Closing
Date, that, in the aggregate, will provide Holdco with the
lesser of (a) the excess of (i) such amount as may become
payable to holders of Dissenting CSB Shares in consideration
of such shares over (ii) the arithmetic difference resulting
from the Aggregate Cash Pool minus the Distributable Cash
Pool, or (b) the arithmetic difference resulting from the
Maximum Required Capital Contribution minus the actual Capital
Contribution, or such amount lesser than the amount specified
in clause (i) or clause (ii), as applicable, as Holdco may
take down thereunder, in consideration of which investments
Holdco shall issue to such subscriber(s) Holdco Common Stock
at a price per share calculated such that the shares issued
shall equal the number of shares of Holdco Common Stock that
such subscriber(s) would have received in the SDN Merger had
such investments been part of the Capital Contribution. Each
of the foregoing subscription agreements has been executed by
a Person that, to SDN's knowledge after reasonable
investigation, has the financial capacity to perform
thereunder. Notwithstanding the foregoing, the obligations of
SDN hereunder are not conditioned upon SDN's obtaining
financing.
3.2.24 Disclosure of All Material Matters. No statement of fact
(which shall be deemed to exclude any projection, estimate or
pro forma financial statement) set forth in (a) this Agreement
(including all information in the Schedules and Exhibits
hereto), (b) SDN's Final Financial Statements, (c) the audited
financial statements of SDN and Liberty as at and for the
periods ended December 31, 1994 and December 31, 1993, (d) San
Dieguito's and Liberty's Reports of Condition and Income filed
with the OCC between the date hereof and the Closing Date
(when the same are filed), (e) the Registration Statement, if
applicable (when the same becomes effective), and (f) any
application, petition or similar document (excepting the
Registration Statement) filed by any member of the SDN Group
with any Governmental Entity in connection with the
Reorganization (when the same are filed), excepting in the
case of clauses (e) and (f) statements made in reliance upon,
and in conformity with, information provided by CSB, is or
will be, as of the date delivered, false or misleading in any
material respect; nor does any of the materials referenced in
this Section 3.2.24 omit to state a material fact necessary in
order to make the statements made or information disclosed, in
the light of the circumstances under which they were made or
disclosed, not misleading. Notwithstanding the foregoing, the
unaudited pro forma balance sheet included as Exhibit 1.1-B
has been prepared on a reasonable basis and based on SDN
position that GAAP does not require SDN to use purchase
accounting to account for its 1995 recapitalization,
Exhibit 1.1-B reflects all adjustments necessary to present
fairly in all material respects the pro forma balance sheet of
SDN as December 31, 1995 giving effect to SDN's acquisition of
Liberty.
3.3 By Holdco. Holdco makes the following representations and
warranties as of the Holdco Ratification Date:
3.3.1 Organization, Standing and Power. Holdco is a business
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Holdco has
all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties make
such qualification necessary. As of the Closing Date, Holdco
will be a Bank Holding Company duly registered under the Bank
Holding Company Act.
3.3.2 Holdco Common Stock. As of the Holdco Ratification Date, SDN
is the sole holder of Holdco Common Stock. At the Effective
Time, (a) all outstanding shares of Holdco Common Stock will
have been duly authorized, validly issued, and will be fully
paid and non-assessable and not subject to preemptive rights,
and (b) Holdco will be the sole holder of SDN Common Stock.
3.3.3 Authority and Related Matters. Holdco has all requisite power
and authority to enter into this Agreement and to consummate
the Reorganization. The execution and delivery of this
Agreement and the consummation of the Reorganization have been
duly authorized by all necessary action on the part of Holdco.
This Agreement has been duly executed and delivered by Holdco
and (assuming due authorization, execution and delivery by CSB
and SDN) constitutes the valid and binding obligation of
Holdco, enforceable in accordance with its terms subject only
to laws regarding bankruptcy, insolvency, reorganization
moratorium or otherwise affecting creditors' rights generally,
and to the application of general principles of equity
(whether considered in a proceeding in law or at equity).
3.3.4 No Conflicts. The execution and delivery of this Agreement
does not, and the consummation of the Reorganization will not,
result in any conflict with or violation of any provision of
the Certificate of Incorporation or By-laws of Holdco.
Subject only to the receipt or completion of the consents,
approvals, orders, authorizations, registrations, declarations
and filings included among the CSB Governmental Approvals and
the SDN Governmental Approvals, the execution and delivery of
this Agreement does not, and the consummation of the
Reorganization will not, result in any violation, conflict,
default, creation of a right of termination, cancellation,
acceleration, or loss of a material benefit under any Law or
under any loan or credit agreement, note, mortgage, indenture,
lease, employee benefit plan or other agreement, obligation,
instrument, permit, concession, franchise or license, or any
judgment, order or decree, applicable to Holdco or its
properties or assets which violation, conflict, default,
creation of a right of termination, cancellation,
acceleration, or loss of a material benefit would have a
Material Adverse Effect on Holdco.
3.3.5 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental
Entity is required on the part of Holdco in connection with
Holdco's execution and delivery of this Agreement or Holdco's
consummation of the Reorganization, including the offer, sale
or issuance of the Holdco Common Stock upon the consummation
of the SDN Merger and the CSB Merger, respectively, as to
which the failure to obtain the same could reasonably be
expected to have a Material Adverse Effect on Holdco or
materially interfere with Holdco's ability to consummate the
Reorganization (including the SDN Merger and the CSB Merger),
except (a) those matters included in the SDN Governmental
Approvals or the CSB Governmental Approvals, (b) such filings
as have been made prior to the Closing, and (c) such post-closing
filings as may be required under applicable state
securities Laws, all of which shall be filed within the
applicable periods therefor.
3.3.6 Capital Resources. As of the Effective Time, Holdco will have
funds not less than the arithmetic difference between the
amount of the Capital Contribution minus the amount of SDN's
Expenses.
3.3.7 Securities Law Compliance. The offer and sale of Holdco
Common Stock to the CSB Shareholders in the CSB Merger and the
issuance of Holdco Common Stock to the SDN Shareholders in the
SDN Merger will not violate in any material respect any
applicable federal or state Law relating to the sale or
issuance of securities.
3.3.8 Litigation and Other Disputes. There is no suit, action, or
proceeding (including any cross- or counter-claim) pending or,
to the knowledge of SDN or Holdco, threatened, against or
affecting Holdco or any of its assets, nor is there any
judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Holdco
the obligations under which have not heretofore been fully
performed. Holdco has not accrued or set aside any reserves
relating to any suit, action, or proceeding (including any
cross- or counter-claim) pending or, to the knowledge of SDN
or Holdco, threatened, against or affecting Holdco or any of
its assets. Holdco has not at any time been a defendant,
either directly or as defendant-in-counterclaim or cross-claim, in
any litigation in which any "lender liability" cause
of action was asserted against it.
ARTICLE IV.
Additional Agreements
4.1 Discussions with Third Parties.
4.1.1 CSB (a) shall not, and shall instruct and cause each of its
Representatives not to, solicit or encourage, directly or
indirectly, inquiries or proposals with respect to any
Strategic Transaction Proposal, and, (b) except as expressly
permitted by Section 4.1.2, shall not, and shall instruct and
cause each of its Representatives not to, furnish any non-public
information relating to or participate in any
negotiations, discussions or other activities concerning, any
Strategic Transaction with any party other than SDN. CSB
shall notify SDN promptly after any Strategic Transaction
Proposal is received by, or any negotiations or discussions
regarding a Strategic Transaction Proposal are sought to be
initiated with, directly or indirectly, CSB or any of its
Representatives, and shall disclose to SDN the identity of the
third party making or seeking to make such Strategic
Transaction Proposal, the terms and conditions thereof and
such other information as SDN reasonably may request;
provided, however, that if CSB receives a Strategic Transaction
Proposal and the foregoing disclosure of such Proposal to SDN
would violate a confidentiality agreement by which CSB is
bound, CSB (a) shall make the foregoing disclosure only to the
maximum extent permissible under such confidentiality
agreement, (b) shall return such Strategic Transaction
Proposal to the initiating party without substantive response,
and (c) to the extent such disclosure has not been made under
clause (a), shall notify SDN that a Strategic Transaction
Proposal has been received and that the same has been returned
to the initiating party without substantive response.
4.1.2 Notwithstanding Section 4.1.1, following receipt of a
Qualifying Strategic Transaction Proposal, neither CSB nor any
of its representatives shall be prohibited from (a) engaging
in discussions or negotiations with a third party which has
made a proposal that satisfies the requirements of a
Qualifying Strategic Transaction Proposal and thereafter
providing to such third party information previously provided
or made available to SDN, provided the third party shall have
entered into a confidentiality agreement substantially similar
to the confidentiality provisions of Section 4.5, or (b)
terminating this Agreement pursuant to, and subject to the
conditions contained in, Section 6.4.1. A "Qualifying
Strategic Transaction Proposal" shall mean a bona fide written
Strategic Transaction Proposal with respect to which the CSB
Board of Directors shall have determined, after consultation
with CSB's counsel, that the action by CSB contemplated under
either clause (a) or clause (b), as applicable, of the
immediately preceding sentence is required under the fiduciary
duties owed by the Board of Directors to the CSB Shareholders,
which determination has been made acting in good faith and on
the basis of a written opinion from a financial advisor
retained by CSB to the effect that the financial terms of such
Strategic Transaction Proposal are, from the CSB Shareholders'
perspective, financially superior to the Reorganization.
4.1.3 In the event that CSB receives a Qualifying Strategic
Transaction Proposal, it shall, within thirty (30) calendar
days of its receipt thereof, give notice to SDN either
(i) reaffirming its intent to proceed under this Agreement and
to consummate the Reorganization, or (ii) terminating this
Agreement pursuant to Section 6.4.1. If CSB does not, within
the period specified above, either expressly reaffirm its
intent to proceed under this Agreement or terminate this
Agreement pursuant to Section 6.4.1, SDN may at any time
thereafter terminate this Agreement pursuant to Section 6.3.4
and be entitled to liquidated damages as set forth in
Section 7.2.1.
4.2 Shareholder Approval; Information and Registration Statements.
4.2.1 Shareholder Approval. CSB shall take all reasonable steps
necessary either (a) to duly call, give notice of, convene and
hold a meeting of stockholders for purposes of voting upon the
approval of this Agreement, or (b) to solicit written consents
of the CSB Shareholders approving this Agreement. Notice of
such meeting shall be given and such meeting shall be held, or
such written consents shall be solicited and approval shall be
sought to be obtained, as applicable, in either event as soon
as practicable after the distribution of the Information
Statement. SDN and CSB shall coordinate and cooperate with
respect to the foregoing matters. CSB shall use all
reasonable efforts to distribute the Information Statement to
CSB Shareholders in contemplation of such meeting or such
written consents as promptly as practicable after (and shall
not distribute the same before) (a) SDN and CSB have approved
the definitive form thereof (with respect to such matters as
to which SDN's approval is required in accordance with Section
4.2.2), which approval shall not be unreasonably withheld or
delayed, and (b) in the event the Information Statement has
been incorporated into a Registration Statement, such
Registration Statement shall have been declared effective
under the Securities Act.
4.2.2 Information Statement. SDN and CSB shall jointly prepare the
Information Statement as soon as practicable after the date of
this Agreement. Except as expressly provided in Section
4.2.6, the Information Statement shall include an unqualified
recommendation by the CSB Board of Directors that the CSB
Shareholders approve the Reorganization. Each of SDN and CSB
shall deliver to the other, and afford the other an
opportunity to comment on, drafts of the disclosure to be
included in the Information Statement prior to the
distribution thereof to CSB's Shareholders. The Information
Statement shall not be distributed without SDN's prior
approval (which shall not be unreasonably withheld) of all
portions thereof which describe a member of the SDN Group,
Holdco, or the terms of the Reorganization. SDN shall also
take any action (other than qualifying to do business in any
jurisdiction in which it is now not so qualified) required to
be taken under any applicable state securities Laws in
connection with the issuance of Holdco Common Stock, and CSB
shall furnish all information concerning CSB and the holders
of CSB Common Stock as SDN may reasonably request in
connection with any such action. CSB warrants that all
information regarding CSB or the CSB Shareholders set forth in
the Information Statement or in any filing made under
applicable state securities laws (a) will comply in all
material respects with all applicable Laws and (b) will not
contain any untrue statement of material fact or omit to state
a material fact required to be stated therein or necessary to
make the statements contained therein, in light of the
circumstances under which they were made, not misleading,
provided, however, in no event shall CSB be liable for any
untrue statement of material fact or omission to state a
material fact in the Information Statement made in reliance
upon, and in conformity with, written information concerning
any member of the SDN Group furnished by SDN specifically for
use in the Information Statement. SDN warrants that all
information regarding the SDN Group set forth in the
Information Statement or otherwise in the Registration
Statement, or in any filing made under applicable securities
laws (a) will comply in all material respects with all
applicable Laws and (b) will not contain any untrue statement
of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which
they were made, not misleading, provided, however, in no event
shall SDN be liable for any untrue statement of material fact
or omission to state a material fact in the Information
Statement or otherwise in the Registration Statement made in
reliance upon, and in conformity with, written information
concerning CSB furnished by CSB specifically for use in the
Information Statement or the Registration Statement.
4.2.3 Registration Statement. In the event that, pursuant to Section
2.10, the Holdco Common Stock to be issued as Stock
Consideration is to be issued pursuant to a Registration
Statement, SDN shall use all reasonable efforts to prepare and
file with the SEC the Registration Statement (which
Registration Statement shall include the Information
Statement) promptly following the preparation of the
Information Statement, and thereafter to cause such
Registration Statement to become effective. Without limiting
the foregoing, if SDN has not received such a No Action Letter
confirming the availability of an exemption from registration
within forty-five (45) calendar days of the date of this
Agreement, SDN shall use all reasonable efforts to prepare and
file the Registration Statement not later than the fifty-fifth
(55th) calendar day (or the next subsequent Business Day)
after the date of this Agreement; provided, however, SDN may in
its discretion cease preparation of the Registration
Statement, or may withdraw the Registration Statement if
previously filed, if SDN shall receive such a No Action Letter
after such forty-fifth (45th) day but before SDN's receipt of
a comment letter on the Registration Statement from the SEC,
or thereafter with the consent of CSB which consent shall not
be unreasonably withheld. CSB will cooperate with SDN in all
reasonable respects in the preparation, filing and prosecution
of the Registration Statement.
4.2.4 Letter of CSB's Accountants. In the event the Registration
Statement is to be filed, CSB shall use all reasonable efforts
to cause to be delivered to SDN a letter of Deloitte & Touche
LLP, CSB's independent auditors, dated a date within two
business days before the date on which the Registration
Statement is filed with the SEC and addressed to Holdco, in
form and substance reasonably satisfactory to Holdco,
customary in scope and substance for letters delivered by
independent public accountants in connection with documents
similar to the Registration Statement and similar in scope to
the letter described in Section 4.2.5.
4.2.5 Letter of SDN's Accountants. In the event the Registration
Statement is to be filed, SDN shall use all reasonable efforts
to cause to be delivered to CSB a letter of Price Waterhouse
LLP, SDN's independent auditors, dated a date within two
business days before the date on which the Registration
Statement is filed with the SEC and addressed to CSB and
Holdco, in form and substance reasonably satisfactory to CSB,
customary in scope and substance for letters delivered by
independent public accountants in connection with documents
similar to the Registration Statement and similar in scope to
the letter described in Section 4.2.4.
4.2.6 Affiliates. CSB shall use its best efforts to cause each
director, executive officer and other person who is, or as of
the date on which the Information Statement is distributed to
CSB Shareholders, will be, an "affiliate" of CSB for purposes
of Rule 145 under the Securities Act (each an "Affiliate") to
deliver to SDN, as soon as practicable after the date of this
Agreement but not less than two business days before the date
on which the Information Statement is distributed to CSB
Shareholders, a written agreement in substantially the form of
Exhibit 4.2.6.
4.2.7 Effect of Qualifying Strategic Transaction Proposal. In the
event that CSB has received a Strategic Transaction Proposal
and the CSB Board of Directors has determined, in accordance
with Section 4.1.2, that such Strategic Transaction Proposal
constitutes a Qualifying Strategic Transaction Proposal, then
the CSB Board of Directors may (a) omit from the Information
Statement an unqualified recommendation that the CSB
Shareholders approve the Reorganization, (b) retract or
qualify its recommendation, if previously given, or
(c) postpone or adjourn the meeting of CSB Shareholders called
for the purpose of approving the Reorganization.
4.3 Regulatory Approvals and Related Matters.
4.3.1 Responsibility for Bank Regulatory Matters. SDN shall use all
reasonable efforts to prepare and file all applications
necessary to obtain the Governmental Approvals needed to
consummate the Reorganization as promptly as practicable. SDN
shall thereafter use all reasonable efforts to prosecute such
applications and to obtain such Governmental Approvals.
4.3.2 Cooperation by CSB. CSB shall provide such information and
shall execute such applications and other documents as are
reasonably necessary for SDN to obtain any Governmental
Approval, provided that any application or other document to
be executed by CSB shall be in form and substance reasonably
acceptable to CSB and its counsel. Without the prior written
consent of SDN (which consent shall not be unreasonably
withheld or delayed), CSB shall take no action which
reasonably could be expected to adversely affect or delay, in
either case to a material extent, the ability of CSB, SDN or
Holdco to obtain any Governmental Approval.
4.4 Financial Statements. Each Party shall use its best efforts
to cause its independent accountants to make its work papers relating to
its Final Financial Statements available to the other Party. As soon as
reasonably available, but in no event later than the last Business Day
of each month, CSB will deliver to SDN, and SDN shall deliver to CSB,
their respective internal financial statements for the preceding month
and for the calendar year to date, in the same form as delivered (or to
be delivered) to the members of the CSB's and SDN's respective Boards of
Directors.
4.5 Access. From the date hereof through the Closing Date, CSB
shall make available to SDN all information regarding CSB, and SDN shall
make available to CSB all information regarding the members of the SDN
Group, as SDN or CSB (as applicable) reasonably may request, and shall
authorize all reasonable visits to its premises with such staff,
consultants and experts as the other Party reasonably may request,
provided, however, that (a) in its discretion, SDN may limit to CSB's
Chairman the provision of and access to information relating to any
actual or proposed acquisition or business combination by any member of
the SDN Group that is unrelated to the Reorganization, and (b) the
foregoing provision of and access to information shall not apply to any
Strategic Transaction, the rights and duties with regard to which are
governed solely by Section 4.1. Each Party agrees to coordinate closely
all such activities with the other Party's President or Chief Financial
Officer and to conduct any such inquiries with appropriate discretion
and sensitivity to the other Party's relationships with its employees,
customers and suppliers. The Parties acknowledge that certain of the
information made available to the Parties may be confidential,
proprietary or otherwise nonpublic, and each Party agrees, for itself
and for each of Representatives, that it (i) shall hold in confidence
all confidential information received by it from or with regard to any
other Party ("Confidential Information") subject to the terms of this
Section 4.5, (ii) shall disclose such Confidential Information only to
those of its Representatives and, in the case of SDN, its current or
prospective investors and other sources of capital, in each case having
a need to know the same for purposes of evaluating, negotiating or
financing the Reorganization, and (iii) shall inform each Representative
or investor to whom Confidential Information is disclosed that such
information is confidential and direct such Representative or investor
not to disclose the same. The Parties shall remain responsible for any
disclosure of Confidential Information by any of its Representatives or
investors. Each Party further agrees that, upon the request of the
other Party given following any termination of this Agreement, it and
each of its Representatives either shall return to such other Party all
Confidential Information received by it and its Representatives
(including all compilations, analyses or other documents prepared by it
that contain Confidential Information) or shall certify that the same
has been destroyed. As used herein, Confidential Information shall not
include (i) information that is or becomes generally available to the
public other than as a result of a breach of the Letter of Intent or of
this Agreement, (ii) information that the receiving Party demonstrates
was known to it on a non-confidential basis prior to receiving such
information from the other Party hereto, (iii) information that the
receiving Party develops independently without relying on Confidential
Information, and (iv) information that becomes available to the
receiving Party on a non-confidential basis from another source if the
source was not known to or not reasonably believed by the receiving
Party to be subject to any prohibition against disclosing such
information.
4.6 Cooperation. The Parties shall cooperate with each other and
use their best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and
filings, and to obtain as promptly as practicable all permits, consents,
approvals and authorizations of all third parties and Governmental
Entities (in addition to the Governmental Approvals) which are necessary
or advisable to consummate the Reorganization. CSB shall take primary
responsibility, in consultation with SDN, for obtaining all such
consents from lessors under CSB's real property leases; provided,
however, that CSB shall not agree to modify any such lease in any
material respect without the express written consent of SDN which
consent may be granted or withheld in SDN's sole discretion. SDN shall
take sole responsibility for obtaining all such consents, if any, from
lessors under SDN's real property leases. The Parties agree that they
will consult with each other with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the
Reorganization and each Party will keep the other apprised of the status
of matters relating to completion of the Reorganization. Each Party
shall, upon request, furnish the other Party with all information
concerning itself as may be reasonably necessary or advisable in
connection with any filing or application made by or on behalf of such
Party to any Governmental Entity in connection with the Reorganization.
Each Party shall promptly advise the other Party upon receiving any
communication from any Governmental Entity whose consent or approval is
required for consummation of the Reorganization which causes such Party
to believe that there is a reasonable likelihood that any required
Governmental Approval will not be obtained or that the receipt of any
such Governmental Approval will be materially delayed.
4.7 Advice of Changes. Each Party shall promptly advise each
other Party of any change or event having a Material Adverse Effect on
it or which it believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations, warranties
or covenants contained herein. From time to time prior to the Closing
Date, each Party will promptly advise the other Party, in writing, of
any matter that, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in any
of the Schedules to this Agreement (excepting Schedules 3.1.11, 3.1.12,
3.2.10 and 3.2.11) or that is necessary to correct any information in
such Schedules which has been rendered inaccurate thereby, which writing
shall in each case identify the Schedule that was inaccurate or has been
rendered inaccurate. No such supplement to the information provided in
such Schedules shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Article V or the compliance
by any Party with any other provision of this Agreement.
4.8 Current Information. During the period from the date of this
Agreement to the Closing Date, each Party will cause one or more of its
designated representatives to confer on a regular and frequent basis
(not less than bi-weekly) with representatives of the other Party and to
report the general status of the its operations. Each Party will
promptly notify the other Party of any material change in the normal
course of business or in the operation of its properties of and of any
governmental complaint, investigation or hearing (or communications
indicating that the same may be contemplated), or the institution or the
threat of significant litigation involving such party, and will keep the
other Party fully informed of such events. CSB will keep SDN fully
informed of the status of, and the action proposed to be taken with
respect to, Classified Assets (including those that become Classified
Assets after the date hereof) that, individually or in combination with
one or more other loans to the same borrower thereunder, have an
aggregate carry value of $100,000 or more. CSB will advise SDN from
time to time of the interest rates offered to be paid by CSB on each of
its deposit products, such information to be provided by forwarding a
rate sheet by facsimile to SDN's Chief Financial Officer on or before
each day on which any such rate has changed. CSB will provide to SDN
copies of all materials delivered to members of the CSB Board of
Directors simultaneously with the delivery to such Directors and, to the
extent not included in such materials, shall provide to SDN copies of
the minutes of each meeting of the CSB Board of Directors (or consents
in lieu of meeting) and of each committee thereof (including its loan
committee) promptly after the same are prepared, but in no event later
than 45 calendar days after the date of each such meeting; provided,
however, that (a) such minutes may be in draft form if final minutes have
not been approved by such 45th day, and (b) CSB may omit therefrom any
portion of such minutes that it determines, with the concurrence of its
counsel, relates to (i) the Parties' compliance or non-compliance with
the terms of this Agreement, or (ii) any Strategic Transaction Proposal
other than the Reorganization. SDN will provide to CSB copies of all
materials delivered to members of the SDN, San Dieguito and Liberty
Boards of Directors simultaneously with the delivery to such Directors
and, to the extent not included in such materials, shall provide to CSB
copies of the minutes of each meeting of the SDN, San Dieguito and
Liberty Boards of Directors (or consents in lieu of meetings) promptly
after the same are prepared, but in no event later than 45 calendar days
after the date of such meeting; provided, however, that (a) such minutes
may be in draft form if final minutes have not been approved by such
45th day, and (b) SDN may (i) omit therefrom any portion of such minutes
that it determines, with the concurrence of its counsel, relates to the
Parties' compliance or non-compliance with the terms of this Agreement,
and (ii) in its discretion, limit to CSB's Chairman any portion of such
materials and minutes that relates to an acquisition or other business
combination other than the Reorganization.
4.9 Conduct of Business. CSB shall conduct its business, and SDN
shall cause San Dieguito and Liberty to conduct their respective
business, in the usual, regular and ordinary course of business
consistent with the past practice (except as required by applicable Law
or as required by this Agreement), and use all reasonable efforts to
maintain and preserve intact their respective business organizations,
employees and advantageous business relationships and retain the
services of their respective officers and key employees.
4.10 Negative Covenants of CSB. Without SDN's prior written
consent (which consent, in the case of Sections 4.10.8 through 4.10.16
and, to the extent specified therein, Section 4.10.3, shall not be
unreasonably withheld or delayed, and which consent, in the case of
Sections 4.10.4 through 4.10.16, shall be deemed to have been granted if
SDN does not grant or refuse its consent or reasonably request
additional information regarding the proposed action within five (5)
Business Days of SDN's receipt of CSB's request for consent or such
shorter period as is expressly specified in the applicable section), CSB
shall not:
4.10.1 declare or make any payment or distribution with respect to
the capital stock of CSB, whether by way of dividend,
redemption, payment of interest or principal or otherwise;
4.10.2 (a) create, authorize, issue, sell or deliver any of its
capital stock, bonds or other of its securities (whether
authorized and unissued or held in treasury) or any instrument
convertible into any of them; (b) grant or otherwise issue any
options, warrants or other rights with respect thereto; or (c)
split up, combine or reclassify any of its outstanding stock;
4.10.3 acquire, by merging or consolidating with, by purchasing a
substantial equity interest in or a substantial portion of the
assets of or by any other manner, any business or any
corporation, partnership, association or other business
organization or division thereof; provided, however, that this
Section 4.10.3 shall not apply to (i) any purchase at a
foreclosure sale other than a sale in which CSB is foreclosing
on the majority of the stock of or a majority of the assets of
a business (in this context, "business" being deemed to
exclude any investment real estate project), in which latter
event SDN shall not unreasonably withhold its consent provided
that such foreclosure sale is being conducted by CSB in the
ordinary course of business, or (ii) any repossession of
leased equipment of which CSB is the lessor;
4.10.4 enter into any new line of business;
4.10.5 change its methods of accounting in effect at December 31,
1995, except as required by changes in GAAP or RAP as
concurred with by CSB's independent auditors;
4.10.6 make any equity investment in any new real estate or new real
estate development project, other than in connection with
foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructurings in the ordinary course of business
consistent with prudent banking practices;
4.10.7 commit any act or omission which constitutes a violation of or
default under, which conflicts with, creates a right of
termination, cancellation or acceleration of any obligation
under, or which causes any loss of a benefit under, any
Regulatory Agreement, any board resolution adopted at the
request of a Bank Regulator, or any contract or license to
which CSB is a party or by which it or any of its properties
is bound, if such violation, default, conflict, termination or
similar consequence has had or could reasonably be expected to
have a Material Adverse Effect on CSB;
4.10.8 (a) create, renew, amend or terminate, or give notice of a
proposed renewal, amendment or termination of, any material
contract, agreement or lease for goods, services or office
space to which CSB is a party (excluding leases under which
CSB is lessor) or by which CSB or any of its properties is
bound, excepting only contracts, agreements and leases under
which the aggregate annual payments by either party do not
exceed $15,000, (b) make any single capital expenditure
exceeding $15,000 or any capital expenditures exceeding
$50,000 in the aggregate, or (c) relocate or terminate, or
file any application to relocate or terminate, the operations
of any of its banking offices (including loan production
offices);
4.10.9 pay any pension or retirement allowance to any Person not
required by a plan or agreement disclosed on Schedule 3.1.18
or Schedule 3.1.19(a), or enter into any agreement with any
labor union or association representing any employee;
4.10.10 sell, lease, assign, transfer or otherwise dispose of any
property or asset, except for (a) investment portfolio
transactions in the ordinary course of business and
substantially consistent with past practice; (b) sales in the
ordinary course of business of (i) individual residential
mortgage loans, (ii) pools of such loans having a par value of
less than $1,250,000, (iii) individual leases under which CSB
is lessor, and (iv) pools of such leases having a book value
of less than $1,250,000; (c) sales of property acquired at
foreclosure, provided that such sale will not result in a loss
to CSB in excess of $25,000, individually, or $100,000, in the
aggregate, in each case relative to the carry value of such
property on CSB's books immediately prior to the time of sale;
and (d) sales of assets (excluding those described in clause
(a), (b) or (c)) having a gross book value not in excess of
$25,000, individually, or $100,000, in the aggregate;
4.10.11 except as provided in Schedule 4.10.11, restructure or
materially change its investment securities portfolio through
purchases, sales or otherwise, or the manner in which the
portfolio is classified or reported, it being understood and
agreed that investment portfolio transactions in the ordinary
course of business and substantially consistent with past
practice shall be deemed to constitute a material change in
CSB's investment portfolio only if the number and/or nature of
such transactions causes a material change in the makeup of
the portfolio taken as a whole;
4.10.12 (a) institute, amend or terminate any Employee Benefit Plan,
or (b) increase in any manner the compensation or fringe
benefits of, or pay any bonus to, any officer or employee
other than (i) customary annual (or less frequent) increases
in the wages or salaries of non-officer employees consistent
with past practice which in the aggregate do not increase
personnel costs for all non-officer employees by more than 3%
over the levels in effect as of December 31, 1995 and which on
an annualized basis do not increase the salary or wage of any
individual employee by more than 4% (other than increases in
connection with promotions of employees to a level below vice
president, which increases may, individually, exceed 4%), and
(ii) incentive compensation payments in accordance with CSB's
incentive compensation programs and schedules in effect at
December 31, 1995, or (c) otherwise increase any other direct
or indirect compensation or employee benefit for or to any of
its officers, directors or employees;
4.10.13 make, amend or compromise any loan or advance (whether in cash
or other property) to any officer, director, or Principal
Stockholder of CSB, except advances made to employees in the
usual, regular and ordinary course of business consistent with
the past practice;
4.10.14 make, amend, renew or purchase, or enter into any commitment
to make, amend, renew or purchase, (a) any loan other than a
loan described in clause (b) of this Section, if, as a result
of the disbursement of the proceeds of such loan or the
assignment of such loan to CSB, the total Borrower Group
Obligations (including accrued and unpaid interest) of the
borrower to CSB would exceed $300,000, or (b) any residential
(excluding multi-family) mortgage loan if, as a result of the
disbursement of the proceeds of such loan or the assignment of
such loan to CSB, the total Borrower Group Obligations
(including accrued and unpaid interest) of the borrower to CSB
would exceed (i) $500,000, if the loan-to-value ratio is 80%
or less, or (ii) $300,000, if the loan-to-value ratio is
greater than 80%; provided, however, that in the cases of both
clause (a) and clause (b), if SDN does not grant or refuse its
consent within three (3) calendar days of SDN's receipt of
CSB's request for consent, then SDN shall be deemed to have
granted its consent, and provided further that this Section
4.10.14 shall not apply to any loan meeting the loan
underwriting criteria of a third Person which loan CSB intends
and reasonably expects to sell to such Person, without
recourse to CSB and consistent with past practice, promptly
following the origination thereof, pursuant to an agreement
with such Person entered into prior to the origination of such
loan;
4.10.15 except in the usual, regular and ordinary course of business
consistent with the past practice, incur any indebtedness for
borrowed money, assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any
other individual, corporation or other entity (other than
short-term indebtedness incurred to refinance short-term
indebtedness), it being understood and agreed that incurrence
of indebtedness in the ordinary course of business shall
include, without limitation, the creation of deposit
liabilities, purchases of Federal funds, Federal Home Loan
Bank advances, sales of certificates of deposit and entering
into repurchase agreements, and it being further understood
and agreed that so-called gestation repurchase agreements are
not borrowings for purposes of this Section 4.10.15;
4.10.16 take any action which would adversely affect or delay, in
either case to a material extent, the ability of CSB, SDN or
Holdco (a) to obtain any necessary approvals of any
Governmental Entity required for the Reorganization or (b) to
perform its covenants and agreements under this Agreement;
4.10.17 enter into any agreement or commitment to do any of the
foregoing.
4.11 Negative Covenants of SDN. Prior to the Effective Time, SDN
will not (i) adjust, split or otherwise reclassify the SDN Common Stock,
or (ii) make, declare or pay any dividend on the SDN Common Stock, or
(iii) make any other distribution on, or directly or indirectly redeem,
purchase or acquire any shares of, SDN Common Stock, or (iv) otherwise
adopt any plan or arrangement (other than one or more equity
compensation plans for its employees), or (v) take or cause to be taken
any other action, if in any case such action would adversely affect the
CSB Shareholders receiving Stock Consideration in a manner
disproportionate to the manner in which such action affects or would
affect the then current holders of SDN Common Stock.
4.12 Consultation by SDN. SDN shall consult with the Chairman of
CSB prior to any member of the SDN Group undertaking any of the
following actions:
4.12.1 (a) creating, authorizing, issuing, selling or delivering any
of its capital stock, bonds or other of its securities
(whether authorized and unissued or held in treasury) or any
instrument convertible into any of them; (b) granting or
otherwise issuing any options, warrants or other rights with
respect thereto; or (c) splitting up, combining or
reclassifying any of its outstanding stock;
4.12.2 acquiring, by merging or consolidating with, by purchasing a
substantial equity interest in or a substantial portion of the
assets of or by any other manner, any business or any
corporation, partnership, association or other business
organization or division thereof; provided, however, that this
Section 4.12.2 shall not apply to any purchase at a
foreclosure sale;
4.12.3 entering into any new line of business;
4.12.4 changing its methods of accounting in effect at December 31,
1995, except as required by changes in GAAP or RAP as
concurred with by SDN's independent auditors;
4.12.5 making any equity investment in any real estate or real estate
development project, other than in connection with
foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructurings in the ordinary course of business
consistent with prudent banking practices;
4.12.6 except in the usual, regular and ordinary course of business
consistent with the past practice, incurring any indebtedness
for borrowed money, assuming, guaranteeing, endorsing or
otherwise as an accommodation becoming responsible for the
obligations of any other individual, corporation or other
entity (other than short-term indebtedness incurred to
refinance short-term indebtedness), it being understood and
agreed that incurrence of indebtedness in the ordinary course
of business shall include, without limitation, the creation of
deposit liabilities, purchases of Federal funds, sales of
certificates of deposit and entering into repurchase
agreements;
4.12.7 take any action which would adversely affect or delay, in
either case to a material extent, the ability of CSB, SDN or
Holdco (a) to obtain any necessary approvals of any
Governmental Entity required for the Reorganization or (b) to
perform its covenants and agreements under this Agreement; or
4.12.8 entering into any agreement or commitment to do any of the
foregoing.
4.13 Ratification of Agreement by Holdco. Subject to the receipt
of all necessary approvals of Bank Regulators, SDN agrees to cause
Holdco to execute, ratify and join in this Agreement and to take all
necessary action to complete the transactions contemplated hereby,
subject to the terms and conditions hereof.
4.14 SDN will comply, and will cause Holdco to comply, in all
material respects, with all applicable federal and state securities Laws
in connection with the Reorganization.
ARTICLE V.
Conditions to Closing
5.1 Conditions to Obligations of Both Parties. The obligations of
SDN and CSB to consummate the Reorganization are subject to the
satisfaction of each of the following conditions; provided, however, that
any failure of such conditions shall not limit the Parties' rights and
obligations under Article VII.
5.1.1 Regulatory Approvals. All Governmental Approvals shall have
been obtained and shall remain in full force and effect, all
statutory or other required waiting periods in respect thereof
shall have expired, and no Governmental Approval shall have
imposed any condition or requirement which, in the reasonable
opinion of SDN acting in good faith, would so materially
adversely affect the economic or business benefits of the
Reorganization to SDN and Holdco so as to render inadvisable
the consummation thereof.
5.1.2 No Pending or Threatened Claims. There shall be no claim,
action, suit, investigation or other proceeding pending or
overtly threatened before any court or other Governmental
Entity that presents a substantial risk of the restraint or
prohibition of the Reorganization or the obtaining of material
damages from CSB, SDN, Holdco or their respective officers or
directors in connection therewith; and no such restraint or
prohibition shall be effective as of the Closing, whether or
not the action in which the same was entered shall remain
pending.
5.2 Conditions to the Obligations of SDN and Holdco. The
obligations of SDN and Holdco to consummate the Reorganization and of
SDN Merger Sub and SDN to consummate the SDN Merger, are subject to the
satisfaction of, or SDN's written waiver of, each of the following
conditions:
5.2.1 Accuracy of Representations and Warranties; Compliance with
Covenants. CSB's representations and warranties contained in
this Agreement were true and correct as of the dates when
made. CSB shall have performed, satisfied and complied with,
in all material respects, each of the agreements and covenants
contained herein.
5.2.2 Bringdown of Representations and Warranties. CSB's
representations and warranties contained in this Agreement,
without taking into consideration any amendments, supplements
or updates to any Schedules relating to such representations
and warranties, remain true and correct as of the Closing as
though made at and as of the Closing, excepting only
representations and warranties which speak expressly as of an
earlier specified date.
5.2.3 Approval by CSB Shareholders; Dissenting Shares. The
Reorganization shall have been approved by the affirmative
vote of the holders of a majority of all shares of CSB Common
Stock entitled to vote thereon, and the aggregate number of
shares of CSB Common Stock whose holders have perfected
dissenters' rights pursuant to Section 1300 et seq. of the
California Corporations Code (as incorporated by Section 101
of the California Financial Code) shall not constitute more
than more than 10.0% of all shares of CSB Common Stock
outstanding immediately prior to the Effective Time.
5.2.4 Third Party Consents. The consent, approval or waiver of each
Person whose consent, approval or waiver shall be required in
order to permit the consummation of the Reorganization or the
preservation of the contractual rights of CSB or with respect
to its business (other than the Governmental Approvals
referred to in Section 5.1.1) shall have been obtained, except
where the failure to obtain such consent, approval or waiver
would not have a Material Adverse Effect on CSB or a Material
Adverse Effect with respect to the economic or business
benefits to SDN and Holdco of the Reorganization as
contemplated by this Agreement in the reasonable judgment of
SDN.
5.2.5 Receipt of Legal Opinion. SDN shall have received a legal
opinion from Fried, Bird & Crumpacker, counsel for CSB, dated
the Closing Date and addressed to SDN, Holdco and CSB Merger
Sub, in form and substance reasonably satisfactory to SDN,
opining to the matters set forth on Exhibit 5.2.5, subject to
customary assumptions and qualifications.
5.2.6 Updated Schedule of Classified and OLEM Assets. CSB shall have
delivered to SDN and Holdco a Schedule, certified by the
President or the Chief Financial Officer of CSB and dated as
of a date not more than three calendar days prior to the
Closing Date, identifying all assets of CSB that were (a)
Classified Assets or OLEM Assets on CSB's books and records as
of such date or (b) over 90 days delinquent in payment of
principal or interest as of such date.
5.2.7 Certificates and Documents. CSB shall have delivered to SDN and
Holdco a certificate, executed by the President and Chief
Financial Officer of CSB and dated as of the Closing Date,
certifying to the fulfillment of the conditions specified in
Section 5.1 (with regard to CSB only) and Section 5.2,
including a certification that each representation or warranty
contained in Section 3.1 is true and correct as of the Closing
Date, excepting only representations and warranties which
speak expressly as of an earlier specified date.
5.2.8 Documents and Instruments in Satisfactory Form. All corporate
and other proceedings in connection with this Agreement and
with the Reorganization and all documents and instruments
incident to the Reorganization shall be reasonably
satisfactory in substance and form to SDN and its counsel, and
SDN and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as
they may reasonably request.
5.2.9 Escrow of CSB Redemption Amount. The Exchange Agent shall have
received from CSB the full amount of the CSB Redemption
Amount, if any; provided, however, that only if all requisite
Governmental Approvals have been obtained shall this be a
condition to SDN's and Holdco's obligations hereunder.
5.2.10 Appointment of Committee Under Escrow Agreement. If the Escrow
Agreement is to be entered into pursuant to Section 2.11, CSB
shall have designated the persons who will initially
constitute the Committee thereunder.
5.3 Conditions to the Obligations of CSB. The obligations of CSB
to consummate the Reorganization are subject to the satisfaction of, or
CSB's written waiver of, each of the following conditions:
5.3.1 Accuracy of Representations and Warranties; Compliance with
Covenants. SDN's and Holdco's representations and warranties
contained in this Agreement were true and correct as of the
dates when made. SDN and Holdco shall have performed,
satisfied and complied with, in all material respects, each of
the agreements and covenants contained herein.
5.3.2 Bringdown of Representations and Warranties. SDN's and Holdco's
representations and warranties contained in this Agreement,
without taking into account any amendments, supplements or
updates to any Schedules relating to such representations and
warranties, remain true and correct as of the Closing as
though made at and as of the Closing, excepting only
representations and warranties which speak expressly as of an
earlier specified date.
5.3.3 Receipt of Legal Opinions. CSB shall have received (i) a legal
opinion from Nutter, McClennen & Fish, LLP, counsel for SDN,
Holdco and CSB Merger Sub, addressed to CSB and dated the
Closing Date, in form and substance reasonably satisfactory to
CSB and its counsel, opining to the matters set forth on
Exhibit 5.3.3, subject to customary assumptions and
qualifications, and (ii) an opinion of Nutter, McClennen &
Fish, LLP, in form and substance customary for opinions of its
type and based upon reasonable assumptions and qualifications
and reasonably requested representation letters, to the effect
that the (x) CSB Merger will be treated as a contribution of
property to Holdco pursuant to Section 351 of the Code, (y)
the CSB Shareholders shall recognize no income for federal
income tax purposes as a consequence of the Reorganization
except to the extent they receive cash in exchange for their
respective shares of CSB Common Stock in the CSB Merger, and
(z) none of the Parties shall recognize gain or loss for
federal income tax purposes as a consequence of the
Reorganization; provided, however, that such opinion shall not
purport to address the tax consequences to the CSB
Shareholders of the Escrow Agreement or the distributions or
other transactions contemplated thereby.
5.3.4 Updated Schedule of Classified and OLEM Assets. SDN shall have
delivered to CSB a Schedule, certified by the President or the
Chief Financial Officer of SDN and dated as of a date not more
than three calendar days prior to the Closing Date,
identifying all assets of San Dieguito and Liberty that were
(a) Classified Assets or OLEM Assets on San Dieguito's or
Liberty's books and records (as applicable) as of such date or
(b) over 90 days delinquent in payment of principal or
interest as of such date.
5.3.5 Receipt of SDN Closing Certificate. CSB shall have received
from SDN a certificate, executed by the President and
Treasurer of SDN and dated as of the Closing Date, certifying
to the fulfillment of the conditions specified in Section 5.1
(other than with regard to CSB) and Section 5.3, including a
certification that each representation or warranty with
respect to any member of the SDN Group that is contained in
Section 3.2 is true and correct as of the Closing Date,
excepting only (i) representations and warranties which speak
expressly as of an earlier specified date and (ii) as limited
by the proviso to Section 5.3.2.
5.3.6 Receipt of Holdco Closing Certificate. CSB shall have received
from Holdco a certificate, executed by the President and Chief
Financial Officer of Holdco (or the persons who will hold such
offices as of the Effective Time) and dated as of the Closing
Date, certifying to the fulfillment of the conditions
specified in Section 5.1 (with regard to Holdco only) and
Section 5.3, including a certification that each
representation or warranty with respect to Holdco that is
contained in Section 3.3 is true and correct as of the Closing
Date, excepting only representations and warranties which
speak expressly as of an earlier specified date.
5.3.7 Documents and Instruments in Satisfactory Form. All corporate
and other proceedings in connection with this Agreement and
with the Reorganization and all documents and instruments
incident to the Reorganization shall be reasonably
satisfactory in substance and form to CSB and its counsel, and
CSB and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as
they may reasonably request.
5.3.8 Receipt of Capital Contribution and Funding of Exchange Agent.
(a) SDN shall have received the full amount of the Capital
Contribution, the full amount of which (net of SDN's Expenses)
shall have been contributed to Holdco as an investment
therein, (b) Holdco shall have provided to the Exchange Agent
the full amount the Distributable Cash Pool other than the CSB
Redemption Amount (if any), and (c) Holdco shall have
delivered to the Exchange Agent the full number of shares of
Holdco Common Stock constituting the Distributable Stock Pool.
5.3.9 Holdco Ratification. Holdco shall have executed, ratified and
joined in this Agreement.
5.3.10 Execution and Funding of Escrow Agreement. If the Escrow
Agreement is to be entered into pursuant to Section 2.11,
Holdco and the Escrow Agent shall have executed the Escrow
Agreement and Holdco shall have deposited the Cash Escrow
Deposit and the Stock Escrow Deposit with the Escrow Agent.
5.3.11 Appointment of Paulsen. Provided that all necessary approvals
of Governmental Entities have been obtained, SDN shall have
taken appropriate action prior to the Effective Time to cause
Peter Paulsen (a) to become a Director of SDN not later than
immediately prior to the Effective Time, and (b) to become a
Director of Holdco not later than immediately following the
Effective Time.
ARTICLE VI.
Termination
This Agreement may be terminated, and the Reorganization abandoned,
prior to the Closing as follows:
6.1 By Mutual Agreement. CSB and SDN may terminate this Agreement
by mutual written agreement at any time.
6.2 Regulatory Impediment. Either CSB or SDN may unilaterally
terminate this Agreement at any time prior to the Closing:
6.2.1 if a Bank Regulator shall have made a final determination
denying an application of CSB, SDN or any of their respective
Affiliates the granting of which is essential to the
consummation of the Reorganization, or
6.2.2 if the occurrence of the Closing would violate any final
order, decree or judgment of any court having competent
jurisdiction.
6.3 By SDN. SDN may unilaterally terminate this Agreement:
6.3.1 with or without cause, by written notice to CSB, such
termination to take effect upon the later of (i) the giving of
such notice to CSB and (ii) the payment of the Termination Fee
to CSB by or on behalf of SDN;
6.3.2 if CSB has breached any representation or warranty contained
in this Agreement, or has failed to perform, satisfy or comply
with, in any material respect, any of its agreements and
covenants contained in this Agreement, if such breach or
failure has not been cured within ten (10) Business Days
following notice from SDN to CSB identifying the same;
6.3.3 if any of the conditions to the obligations of SDN and Holdco
contained in Section 5.1 or Section 5.2 has not been satisfied
as of the Closing Date;
6.3.4 at any time on or after the thirtieth (30th) calendar day
following CSB's receipt of a Strategic Transaction Proposal
from a third party, if CSB has not reaffirmed its intent to
proceed under this Agreement pursuant to Section 4.1.3;
6.3.5 if any Bank Regulator shall have, directly or indirectly,
conditioned the granting or effectiveness of a Governmental
Approval essential to the consummation of the Reorganization
on SDN making the Capital Contribution in an amount in excess
of the Maximum Required Capital Contribution; or
6.3.6 at any time after 12:00 noon (Pacific time) on December 31,
1996, if the Closing shall not have occurred prior to such
date and time, unless such failure results primarily from SDN
or Holdco breaching any representation, warranty, covenant or
agreement of such Party contained in this Agreement.
6.4 By CSB. CSB may unilaterally terminate this Agreement:
6.4.1 with or without cause (including because of CSB's receipt of
a Qualifying Strategic Transaction Proposal or because the CSB
Shareholders have failed to approve the Reorganization by
written consent or at a meeting called for the purpose of
voting on the same), by written notice to SDN, such
termination to take effect upon the later of (i) the giving of
such notice to SDN and (ii) the payment of the Termination Fee
to SDN by or on behalf of CSB;
6.4.2 if SDN or Holdco has breached any representation or warranty
contained in this Agreement excepting those contained in
Section 3.2.23 or Section 3.3.6, or has failed to perform,
satisfy or comply with, in any material respect, any of its
agreements and covenants contained in this Agreement excepting
those contained in Section 2.2, if such breach or failure has
not been cured within ten (10) Business Days following notice
from CSB to SDN identifying the same;
6.4.3 if SDN or Holdco, as applicable, has breached any
representation or warranty contained in Section 3.2.23 or
Section 3.3.6, or has failed to perform, satisfy or comply
with, in any material respect, any of its agreements and
covenants contained in Section 2.2, if such breach or failure
has not been cured within ten (10) Business Days following
notice from CSB to SDN identifying the same;
6.4.4 if any of the conditions to the obligations of CSB contained
in Section 5.1 or Section 5.3 has not been satisfied as of the
Closing Date; or
6.4.5 after 12:00 noon (Pacific time) on December 31, 1996, if the
Closing shall not have occurred prior to such date and time,
unless the failure results primarily from CSB itself breaching
any representation, warranty, covenant or agreement of CSB
contained in this Agreement.
6.5 Effect of Termination. In the event this Agreement is
terminated pursuant to this Article VI, all rights and obligations of
the Parties hereunder shall terminate without liability of any Party to
any other Party (except for any liability of any Party then in breach)
other than as expressly provided in Article VII; provided, however, that
notwithstanding any such termination the provisions of this Section 6.5,
the confidentiality provisions of Section 4.5, and the provisions of
Article VII shall remain in full force and effect.
ARTICLE VII.
Termination Fee; Liquidated Damages; Expenses
7.1 Termination Fee. As a condition to either Party's exercise of
its right to terminate this Agreement under, respectively, Section 6.3.1
or Section 6.4.1, the terminating Party agrees to pay to the non-terminating
Party the sum of $1,200,000 (the "Termination Fee"). No
purported termination under Section 6.3.1 or Section 6.4.1 shall be
effective until the receipt by the other Party of good funds in the
amount of the Termination Fee.
7.2 Liquidated Damages Payable by CSB. CSB agrees to pay to SDN,
as liquidated damages:
7.2.1 the sum of $1,200,000 in the event that (a) SDN terminates
this Agreement (i) pursuant to Section 6.3.2 on account of a
breach of a Major Covenant, or (ii) pursuant to Section 6.3.4,
or (b) all conditions to closing set forth in Section 5.1 and
Section 5.3 have been satisfied as of the Closing Date, and
CSB has nonetheless failed to consummate the Reorganization;
7.2.2 the sum of $300,000 in the event that SDN terminates this
Agreement pursuant to subsection 6.3.2 other than on account
of a breach of a Major Covenant.
7.2.3 If CSB pays (or causes to be paid) to SDN the amount provided
in Section 7.2.1 or Section 7.2.2, as applicable, within ten
(10) Business Days of CSB's receipt from SDN of a notice of
demand therefor, which period shall be extended by an
additional reasonable time if CSB has reasonably disputed the
propriety of SDN's termination of this Agreement, SDN's
receipt of such payment shall constitute an exclusive remedy,
and following such receipt and acceptance, SDN and Holdco
shall be barred from recovering damages from any Person for
any breach of any term of this Agreement.
7.3 Liquidated Damages Payable by SDN. SDN and (upon its becoming
a Party to this Agreement) Holdco jointly and severally agree to pay to
CSB, as liquidated damages:
7.3.1 the sum of $1,200,000 in the event that (a) CSB terminates
this Agreement pursuant to Section 6.4.3, or (b) all
conditions to closing set forth in Section 5.1 and Section 5.2
have been satisfied as of the Closing Date, and SDN, Holdco
and CSB Merger Sub have nonetheless failed to consummate the
Reorganization;
7.3.2 the sum of $300,000 in the event that CSB terminates this
Agreement pursuant to subsection 6.4.2; and
7.3.3 the sum of $150,000 in the event that (a) either CSB or SDN
terminates this Agreement pursuant to subsection 6.2.1 or (b)
SDN terminates this Agreement pursuant to subsection 6.3.5;
provided that the denial or conditioning of the Governmental
Approval giving rise to such termination shall not have been
occasioned by any action (or failure to act) on the part of
CSB or any of its Representatives.
7.3.4 If SDN pays (or causes to be paid) to CSB the amount provided
in Section 7.3.1, Section 7.3.2 or Section 7.3.3, as
applicable, within ten (10) Business Days of SDN's receipt
from CSB of a notice of demand therefor, which period shall be
extended by an additional reasonable time if SDN has
reasonably disputed the propriety of CSB's termination of this
Agreement, CSB's receipt of such payment shall constitute an
exclusive remedy, and following such receipt and acceptance,
CSB shall be barred from recovering damages from any Person
for any breach of any term of this Agreement.
7.4 Expenses.
7.4.1 Generally. Each Party shall be responsible for its own
Expenses, except as expressly provided in Section 7.4.2.
7.4.2 Payment of Expenses upon Certain Termination Events. If this
Agreement is terminated by SDN pursuant to Section 6.3.3
(other than (i) on account of a failure of the condition set
forth in Section 5.1, or (ii) under circumstances which also
permit a termination by SDN under one or more other provisions
of Section 6.3), CSB shall reimburse SDN for all of its
reasonable and actual Expenses, provided that CSB's liability
hereunder for Expenses of SDN shall not exceed $200,000. If
this Agreement is terminated by CSB pursuant to Section 6.4.4
(other than (i) on account of a failure of the condition set
forth in Section 5.1, or (ii) under circumstances which also
permit a termination by CSB under one or more other provisions
of Section 6.4), SDN shall reimburse CSB for all of its
reasonable and actual Expenses other than those relating to
broker's, finder's, investment banker's or similar fees,
commissions or expenses, provided that SDN's liability
hereunder for Expenses of CSB shall not exceed $200,000. If
the Party obligated to reimburse Expenses hereunder reimburses
the requested amount within ten (10) Business Days after its
receipt of an invoice therefor from the Party to be
reimbursed, which period shall be extended by an additional
reasonable time if the reimbursing Party has reasonably
disputed the existence or amount of such obligation, the
terminating Party's timely recovery of its Expenses pursuant
to this Section 7.4.2 shall constitute an exclusive remedy,
and following its receipt and acceptance of the same the
terminating Party (including, in the case of SDN, Holdco and
the Merger Subsidiaries) shall be barred from recovering
damages for any breach of any term of this Agreement.
ARTICLE VIII.
Miscellaneous
8.1 Closing. The Closing Date shall be that date (or the next
subsequent Tuesday, Wednesday or Thursday that is a Business Day) that
is five Business Days following the receipt of the final Governmental
Approval, or such other date upon which the Parties may mutually agree.
Subject to the fulfillment or waiver of the conditions precedent set
forth in Article VI, the Closing of the Reorganization shall take place
at a location (within California) to be mutually determined by the
Parties, at 10:00 a.m. (local time) on the Closing Date. Except as
otherwise provided herein, all proceedings to be taken and all documents
to be executed at the Closing shall be deemed to have been taken,
delivered and executed simultaneously as of the Effective Time, and no
proceeding shall be deemed taken nor documents deemed executed or
delivered until all have been taken, delivered and executed.
8.2 Publicity. Promptly following the execution and delivery of
this Agreement, CSB and SDN shall issue a joint press release in a form
mutually to be agreed upon. CSB and SDN shall not, and shall instruct
their Representatives not to, issue or cause the publication of any
press release or other public announcement with respect to, or otherwise
make any public statement concerning, this Agreement or the
Reorganization without the consent of the other Party, which consent
shall not be unreasonably withheld; provided, however, that the foregoing
shall not apply to reports and other documents filed with the SEC or
with any other Governmental Entity in connection with the
Reorganization.
8.3 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person or by electronic facsimile
transmission (with written confirmation) or on the next business day
after dispatch by an overnight courier of national reputation to the
respective Parties as follows:
If to SDN or Holdco, to it or them at:
SDN Bancorp, Inc.
135 Saxony Road
Encinitas, CA 92023-0926
Attention: Robert P. Keller, President
fax: (619) 436-2882
with a copy to:
Nutter, McClennen & Fish, LLP
One International Place
Boston, MA 02110-2699
Attention: Michael K. Krebs, Esquire
Hugh A. O'Reilly, Esquire
fax: (617) 973-9748
If to CSB, to it at:
Commerce Security Bank
1545 River Park Drive, Suite 200
Sacramento, CA 95815
Attention: L.R. Connelly, President
fax: (916) 922-4472
with a copy to:
Fried, Bird & Crumpacker
10100 Santa Monica Boulevard
Los Angeles, CA 90067
Attention: David M. Schachter, Esq.
fax: (310) 556-4487
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth
above (provided that notice of any change of address shall be effective
only upon receipt thereof).
8.4 Entire Agreement. This Agreement constitutes the entire
agreement among the Parties and supersedes all prior agreements,
understandings, negotiations and discussions, both written and oral,
among the Parties with respect to the subject matter hereof. No
knowledge gained by either Party through any diligence review of the
other Party or otherwise and which is not currently set forth on any
Schedule hereto shall be deemed to be included on any of the Schedules
to this Agreement for purposes of determining the accuracy of such
Schedules.
8.5 Non-Survival of Representations, Warranties and Agreements.
None of the representations, warranties, covenants and agreements
contained herein or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time, except (a) the
confidentiality provisions of Section 4.5, and (b) those covenants and
agreements that by their express terms apply in whole or in part to
periods after the Effective Time.
8.6 Benefits; Binding Effect; Assignment and Designation. This
Agreement shall be for the benefit of and binding upon the Parties,
their respective successors and, where applicable, assigns. No Party
may assign this Agreement or any of its rights, interests or obligations
hereunder without the prior written consent of the other Party; provided,
however, that (a) SDN shall designate the entity that shall be Holdco,
and (b) CSB shall not unreasonably withhold its consent to any
assignment by SDN to any entity controlling or controlled by SDN as of
the time of assignment. Notwithstanding such designation of Holdco by
SDN or any other assignment or delegation of any Party's rights,
interests or obligations, each Party shall nonetheless remain
responsible for the performance of all of its obligations provided
hereunder.
8.7 Waiver. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall any such waiver constitute a
continuing waiver unless otherwise expressly so provided.
8.8 No Third Party Beneficiary. Nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon or
give any Person other than the Parties and their respective successors
and permitted assigns any rights or remedies under or by reason of this
Agreement.
8.9 Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses, Sections or Articles contained in this
Agreement shall not affect the enforceability of the remaining portions
of the Agreement or any part hereof, all of which are inserted
conditionally on the assumption of their being valid under applicable
Law. In the event that any one or more of the words, phrases,
sentences, clauses, sections or subsections contained in this Agreement
shall be declared invalid, this Agreement shall be construed as if such
invalid word or words, phrase or phrases, sentence or sentences, clause
or clauses, section or sections, or subsection or subsections, had not
been inserted; provided, however, that if any provision is declared to be
unenforceable because it is determined to be overbroad, then, to the
extent possible, such provision shall be modified to the minimum extent
necessary to render such provision enforceable.
8.10 Counterparts. This Agreement may be executed in any number of
counterparts and by the several Parties in separate counterparts, each
of which shall be deemed to be one and the same instrument.
8.11 Remedies Cumulative. Except where a remedy is expressly
stated to be exclusive (including, where applicable, the Termination Fee
provided under Section 7.1, the liquidated damages provided under
Section 7.2 and Section 7.3, and the Expense reimbursement provided
under Section 7.4, in each case to the extent paid in compliance with
such Sections), no remedy made available by any of the provisions of
this Agreement is intended to be exclusive of any other remedy, and each
and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in
equity.
8.12 Applicable Law; Consent to Jurisdiction. THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF THE UNITED STATES AND THE INTERNAL LAW OF THE
STATE OF CALIFORNIA (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS
THEREOF) AND ALL QUESTIONS CONCERNING THE VALIDITY AND CONSTRUCTION
THEREOF SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF SAID STATE.
EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE FEDERAL AND STATE COURTS SITTING IN THE STATE OF CALIFORNIA IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND
HEREBY IRREVOCABLY AGREES, ON BEHALF OF ITSELF AND ON BEHALF OF SUCH
PARTY'S SUCCESSORS AND PERMITTED ASSIGNS, THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT
AND IRREVOCABLY WAIVES ANY OBJECTION SUCH PERSON MAY NOW OR HEREAFTER
HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.
8.13 Waiver of Jury Trial. THE PARTIES HEREBY WAIVE TRIAL BY JURY
IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT, THE RELATED DOCUMENTS OR
THE RELATIONSHIP ESTABLISHED HEREUNDER.
[The rest of this page is intentionally left blank.]<PAGE>
IN WITNESS WHEREOF, the Parties have each executed and delivered
this Agreement as of the day and year first above written.
SDN BANCORP, INC.
ATTEST:
By:
Robert P. Keller, President &
Chief Executive Officer
COMMERCE SECURITY BANK
By:
ATTEST: Peter H. Paulsen, Chairman
By:
L.R. Connelly, President &
Chief Executive Officer
<PAGE>
ACCEPTANCE AND RATIFICATION
BY HOLDCO
The undersigned ("Holdco") has caused this Agreement to be executed
and delivered by its officers thereunto duly authorized, under seal, on
______________, 1996, and thereby ratifies, joins in and becomes a Party
to this Agreement and agrees to be bound by all the provisions hereof.
_______________________________
Name of Holdco
By:____________________________
Name:
Title:
<PAGE>
Exhibit 1.1-A
The Exchange Ratio under the Agreement and Plan of
Reorganization, of which this Exhibit 1.1-A is a part, and the amount
of Holdco Common Stock into which shares CSB Common Stock will be
converted under the Agreement, shall be calculated in accordance with
the following methodology (capitalized terms not defined herein
having the meanings ascribed those terms in Section 1.1):
A. CALCULATION OF AGGREGATE CSB INTEREST IN HOLDING COMPANY
The number of shares to be issued to CSB Shareholders shall be
calculated based upon the following formula, where
A = CSB's Book Value per CSB's Final Financial
Statements (i.e., without giving any effect to the
Valuation Adjustment);
B = SDN/Liberty Pro-Forma Book Value as of December 31,
1995 determined in the manner set forth on Part C of
this Exhibit 1.1-A;
C = the gross amount of the Capital Contribution;
D = Holdco Pro-Forma Book Value as of December 31, 1995,
determined in the manner set forth on Part C of this
Exhibit 1.1-A (i.e., being equal to
([A - VA] x 40%) + B + C);
VA = the Valuation Adjustment, if any; and
X = equals the aggregate amount of Holdco Common Stock
that CSB Shareholders can receive in the
Reorganization, inclusive of shares in the Stock
Escrow Deposit (if applicable), expressed as a
percentage of the pro forma shares of Holdco Common
Stock outstanding upon consummation of the
Reorganization.
(A x 40%) - (VA x 40%) = X
D
(A - VA) x 40% = X
([A - VA] x 40%) + B + C
B. CALCULATION OF EXCHANGE RATIO
(i) The Exchange Ratio at which the agreed-upon portion of
CSB Common Stock (i.e., 344,584 shares, or 40% of the
shares of CSB common stock outstanding) will be converted
into Stock Consideration shall be calculated based upon
the following formula, where
E = the "Exchange Ratio" (i.e., the number of shares of
Holdco Common Stock into which each share of CSB
Common Stock that is to be converted into Stock
Consideration is so converted), rounded to the
nearest thousandth;
X = equals the aggregate amount (determined pursuant to
subsection (i) above) of Holdco Common Stock that
CSB Shareholders can receive in the Reorganization,
inclusive of shares in the Stock Escrow Deposit (if
applicable), expressed as a percentage of the pro
forma shares of Holdco Common Stock outstanding upon
consummation of the Reorganization;
Y = equals the pro forma number of shares of SDN Common
Stock outstanding as of December 31, 1995, giving
effect to the Liberty acquisition and the Capital
Contribution (assuming a one-for-one exchange of SDN
Common Stock for Holdco Common Stock in the SDN
Merger); and
Z = 344,584 (i.e., 40%, rounded to the nearest share, of
the 861,460 shares of CSB Common Stock outstanding).
= E
Z
(ii) The foregoing formula and the variables contained therein
shall be computed and applied consistent with the
illustrations contained in Parts C, D and E of this
Exhibit 1.1-A.
<PAGE>
C. PRO FORMA CONDENSED STATEMENT OF CONDITION FOR HOLDCO
See attached Unaudited Pro Forma Consolidating Statement of
Condition for New Holding Company and Subsidiaries, with schedule of
assumptions.
D. SUPPORTING SCHEDULES
See attached Unaudited Pro Forma Statements of Condition for Liberty
and CSB, each with schedule of assumptions, supporting Unaudited Pro
Forma Consolidating Statement of Condition for New Holding Company
and Subsidiaries.
E. ILLUSTRATION OF CSB OWNERSHIP; PRO FORMA CAPITAL RATIOS
See attached Examples of Calculation of CSB Ownership In Holding
Company and Resultant Capital Levels (Pro Forma).
NEW HOLDING COMPANY AND SUBSIDIARIES
Unaudited Pro Forma Consolidating Statement of Condition
Part C of Exhibit 1.1-A
(dollars in thousands)
<TABLE>
<CAPTION>
Capital
Injection
and Adjsted LNB/SDN
SDNB SDN Acquistn LNB Elimintng Combined
12/31/95 12/31/95 of LNB 12/31/95 Entries 12/31/95
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $4,431 $278 $723 $6,742 $(80) $12,094
Federal funds sold 2,300 7,150 9,450
Securities 7,009 34,754 41,763
Investment in subsidiary 3,832 8,319 (12,151) -
Loans, net 38,977 88,930 127,907
Less: allowance for loan loss 639 1,841 2,480
Premises and equipment, net 597 1,226 1,823
Goodwill/intangibles 4,508 4,508
Other assets 2,944 88 3,966 6,998
-------- -------- -------- ------- -------- --------
Total assets $55,619 $4,198 $13,550 $140,927 $(12,231) $202,063
======== ======== ======== ======= ======== ========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Deposits:
Non-interest bearing $13,525 $22,419 $(80) $35,864
Interest bearing 37,986 108,461 146,447
-------- -------- -------- ------- -------- --------
Total deposits 51,511 130,880 (80) 182,311
Accrued interest payable
and other liabilities 276 657 1,728 2,661
-------- -------- -------- ------- -------- --------
Total liabilities 51,787 657 132,608 (80) 184,972
Common stock 1,581 9 34 2,636 (4,217) 43
Additional paid-in capital 5,537 7,593 13,516 3,284 (8,821) 21,109
Retained earnings(deficit) (3,286) (4,061) 2,339 887 (4,061)
-------- -------- -------- ------- -------- --------
Total shareholders'
equity 3,832 3,541 13,550 8,319 (12,151) 17,091
-------- -------- -------- ------- -------- --------
Total liabilities and
shareholders'
equity $55,619 $4,198 $13,550 $140,927 $(12,231) $202,063
======== ======== ======== ======= ======== ========
</TABLE>
NEW HOLDING COMPANY AND SUBSIDIARIES
Unaudited Pro Forma Consolidating Statement of Condition
Part C of Exhibit 1.1-A
(dollars in thousands)
<TABLE>
<CAPTION>
Capital
Injection
and Adjsted LNB/SDN
SDNB SDN Acquistn LNB Elimintng Combined
12/31/95 12/31/95 of LNB 12/31/95 Entries 12/31/95
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MEMORANDUM
Average Assets 57,155 142,860 200,015
Risk Weighted Assets 40,831 97,745 138,576
Tier 1 capital 3,832 3,541 9,042 8,100 (12,151) 12,364
Tier 2 capital 510 657 1,219 2,386
Tier 1/RWA 9.4% 8.3% 8.9%
Tier 1&2/RWA 10.6% 9.5% 10.6%
Leverage ratio 6.7% 5.7% 6.2%
</TABLE>
NEW HOLDING COMPANY AND SUBSIDIARIES
Unaudited Pro Forma Consolidating Statement of Condition
Part C of Exhibit 1.1-A
(dollars in thousands)
<TABLE>
<CAPTION>
LNB/SDN
Capital Post Acquistn SDN/
Injectn Capital of CSB LNB/
LNB/SDN Antcptn Injection Adjusted and CSB
Combined of CSB Combined CSB Elimintng Combined
12/31/95 Acquistn 12/31/95 12/31/95 Entries 12/31/95
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $12,094 $11,138 $23,232 $9,481 $(11,138) $21,575
Federal funds sold 9,450 9,450 24,000 33,450
Securities 41,763 41,763 18,028 59,791
Loans, net 127,907 127,907 135,168 263,075
Less: allowance for loan loss 2,480 2,480 2,396 4,876
Premises and equipment, net 1,823 1,823 2,431 4,254
Goodwill/intangibles 4,508 4,508 5,384 9,892
Other assets 6,998 6.998 22,697 29,965
-------- -------- -------- ------- -------- --------
Total assets $202,063 $11,138 $213,201 $209,679 $(5,754) $417,126
======== ======== ======== ======= ======== ========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Deposits:
Non-interest bearing $35,864 $35,864 $69,326 $105,190
Interest bearing 146,447 146,447 122,329 268,776
-------- -------- -------- ------- -------- --------
Total deposits 182,311 182,311 191,655 373,966
Accrued interest payable
and other liabilities 2,661 2,661 5,729 8,390
-------- -------- -------- ------- -------- --------
Total liabilities 184,972 184,972 197,384 382,356
Common stock 43 28 71 2,623 (2,606) 88
Additional paid-in capital 21,109 11,110 32,219 788 5,736 38,743
Retained earnings(deficit) (4,061) (4,061) 8,884 (8,884) (4,061)
-------- -------- -------- ------- -------- --------
Total shareholders'
equity 17,091 11,138 28,229 12,295 (5,754) 34,770
-------- -------- -------- ------- -------- --------
Total liabilities and
shareholders'
equity $202,063 $11,138 $213,201 $209,679 $(5,754) $417,126
======== ======== ======== ======= ======== ========
</TABLE>
NEW HOLDING COMPANY AND SUBSIDIARIES
Unaudited Pro Forma Consolidating Statement of Condition
Part C of Exhibit 1.1-A
(dollars in thousands)
<TABLE>
<CAPTION>
LNB/SDN
Capital Post Acquistn SDN/
Injectn Capital of CSB LNB/
LNB/SDN Antcptn Injection Adjusted and CSB
Combined of CSB Combined CSB Elimintng Combined
12/31/95 Acquistn 12/31/95 12/31/95 Entries 12/31/95
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MEMORANDUM
Average Assets 200,015 200,015 198,387 398,402
Risk Weighted Assets 138,576 138,576 139,299 277,875
Tier 1 capital 12,364 11,138 23,502 12,295 (11,138) 24,659
Tier 2 capital 2,386 2,386 1,745 4,131
Tier 1/RWA 8.9% 17.0% 8.8% 8.9%
Tier 1&2/RWA 10.6% 18.7% 10.1% 10.4%
Leverage ratio 6.2% 11.8% 6.2% 6.2%
</TABLE>
LIBERTY NATIONAL BANK
Unaudited Pro Forma Statement of Condition
Part D of Exhibit 1.1-A
(dollars in thousands)
Adjusted
LNB Closing Partial LNB
12/31/95 Adjstmnt Redemptn 12/31/95
-------- -------- -------- --------
ASSETS
Cash and due from banks $7,874 $(1,132) $ - $6,742
Federal funds sold 9,350 (2,200) 7,150
Securities 34,754 34,754
Loans, net 88,930 88,930
Less: allowance for loan loss 1,686 155 1,841
Premises and equipment, net 1,226 1,226
Other assets 3,652 314 3,966
-------- -------- -------- --------
Total assets $144,100 $(973) ($2,200) $140,927
======== ======== ======== ========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Deposits:
Non-interest bearing $22,419 $22,419
Interest bearing 108,461 108,461
-------- -------- -------- --------
Total deposits 130,880 130,880
Accrued interest payable
and other liabilities 1,728 1,728
-------- -------- -------- --------
Total liabilities 132,608 132,608
Common stock 3,260 (624) 2,636
Additional paid-in capital 4,062 (778) 3,284
Retained earnings(deficit) 4,170 (973) (798) 2,339
-------- -------- -------- --------
Total shareholders'
equity 11,492 (973) (2,200) 8,319
-------- -------- -------- --------
Total liabilities and
shareholders'
equity $144,100 $(973) $(2,200) $140,927
======== ======== ======== ========
LIBERTY NATIONAL BANK
Unaudited Pro Forma Statement of Condition
Part D of Exhibit 1.1-A
(dollars in thousands)
Adjusted
LNB Closing Partial LNB
12/31/95 Adjstmnt Redemptn 12/31/95
-------- -------- -------- --------
MEMORANDUM
Average Assets 142,860 142,860
Risk Weighted Assets 97,871 (440) 97,745
Tier 1 capital 11,273 314 (2,220) 8,100
Tier 2 capital 1,229 (973) (10) 1,219
Tier 1/RWA 11.5% 8.3%
Tier 1&2/RWA 12.8% 9.5%
Leverage ratio 7.9% 5.7%
<PAGE>
LIBERTY NATIONAL BANK
Unaudited Pro Forma Balance Sheet
Assumptions
1) Closing Entries - closing expenses
Cancellation of 121,676 options,
assuming $14.80 closing price with
average exercise price at $9.4857646,618
Management bonuses and separation pay 437,816
Termination of and mark to market of
office leases 206,710
Increase allowance for loan loss 155,100
OREO writedowns 50,000
Legal and accounting fees 48,000
Total closing expenses 1,544,244
Tax benefit at 42% (648,582)
Net effect to capital 895,662
2) Closing entries - asset writedowns
State deferred tax asset writedown
50% of $154,786 asset at 12/31/95 77,393
<PAGE>
COMMERCE SECURITY BANK
Unaudited Pro Forma Statement of Condition
Part D of Exhibit 1.1-A
(dollars in thousands)
Adjusted
CSB Closing Partial CSB
12/31/95 Adjstmnt Redemptn 12/31/95
-------- -------- -------- --------
ASSETS
Cash and due from banks $9,481 $ - $9,481
Federal funds sold 28,000 (4,000) 24,000
Securities 18,028 18,028
Loans, net 135,168 135,168
Less: allowance for loan loss 2,396 2,396
Premises and equipment, net 2,431 2,431
Other assets 22,635 332 22,967
-------- -------- -------- --------
Total assets $213,347 $332 ($4,000) $209,679
======== ======== ======== ========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Deposits:
Non-interest bearing $69,326 $69,326
Interest bearing 122,329 122,329
-------- -------- -------- --------
Total deposits 191,655 191,655
Accrued interest payable
and other liabilities 4,939 790 5,729
-------- -------- -------- --------
Total liabilities 196,655 790 197,384
Common stock 3,446 (624) 2,623
Additional paid-in capital 1,035 (778) 788
Retained earnings(deficit) 12,272 (458) (798) 8,884
-------- -------- -------- --------
Total shareholders'
equity 16,753 (458) (4,000) 12,295
-------- -------- -------- --------
Total liabilities and
shareholders'
equity $213,347 $332 $(4,000) $209,679
======== ======== ======== ========
<PAGE>
COMMERCE SECURITY BANK
Unaudited Pro Forma Statement of Condition
Part D of Exhibit 1.1-A
(dollars in thousands)
Adjusted
CSB Closing Partial CSB
12/31/95 Adjstmnt Redemptn 12/31/95
-------- -------- -------- --------
MEMORANDUM
Average Assets 198,387 198,387
Risk Weighted Assets 139,767 332 (800) 139,299
Tier 1 capital 16,753 (458) (4,000) 12,295
Tier 2 capital 1,755 (10) 1,745
Tier 1/RWA 12.0% 8.8%
Tier 1&2/RWA 13.2% 10.1%
Leverage ratio 8.4% 6.2%
<PAGE>
COMMERCE SECURITY BANK
Unaudited Pro Forma Balance Sheet
Assumptions
1) Closing Entries - closing expenses
Investment banking fees @3% of
deal value 641,370
Legal and accounting fees 150,000
Total closing expenses 791,370
Tax benefit at 42% (332,375)
Net effect to capital 458,995
<PAGE>
NEW HOLDING COMPANY AND SUBSIDIARIES
Unaudited Pro Forma Balance Sheet
Assumptions
Purchase of LNB
- -----------------------------------------------------------------------
1) Purchase price of LNB
978,160 shares at $14.80 14,477
Transaction costs capitalized 250
Investment banker fees-stock/cash 300
---------
15,027
2) Goodwill generated by transaction
LNB Equity before closing adjustments 11,492
Closing adjustments (973)
---------
LNB equity after closing 10,519
---------
Goodwill 4,508
3) Funding of transaction
Partial redemption by LNB 2,200
Capital Contribution by DCG 13,400
Stock issued to Carpenter & Co 150
---------
15,750
NOTE: In accordance with GAAP, the LNB and CSB transactions will require
"push-down" accounting of the purchase price with adjustment to goodwill for
the fair value of the assets and liabilities. The pro forma statements of
condition do not reflect this accounting treatment, and
on a consolidated basis, will not have a material effect.
NEW HOLDING COMPANY AND SUBSIDIARIES
Unaudited Pro Forma Balance Sheet
Assumptions
Purchase of CSB
- ----------------------------------------------------------------------
1) Purchase price of CSB
Book value 12/31/95 16,753
60% Cash @ 1.5x Adj BV 15,078
Valuation adjustment (400x60%) (240)
----------
14,838
40% Stock at Adj BV 6,701
Valuation adjustment(400x40%) (160)
----------
6,541
Transaction costs capitalized 300
----------
21,679
2) Goodwill generated by transaction
CSB Equity before closing adjustments 16,753
Closing adjustments (458)
----------
CSB equity after closing adjustments 16,295
----------
Goodwill 5,384
3) Funding of transaction
Partial redemption by CSB 4,000
Capital contribution by DCG 11,138
Stock issued to CSB shareholders 6,541
----------
21,679
NOTE: In accordance with GAAP, the LNB and CSB transactions will require
"push-down" accounting of the purchase price with adjustment to goodwill for
the fair value of the assets and liabilities. The pro forma statements of
condition do not reflect this accounting treatment, and
on a consolidated basis, will not have a material effect.
SDN BANCORP, INC AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statement of Condition
Exhibit 1.1-B
(dollars in thousands)
Combined
12/31/95
-----------
ASSETS
Cash and due from banks $12,094
Federal funds sold 9,450
Securities 41,763
Loans, net 127,907
Less: allowance for loan loss 2,480
Premises and equipment, net 1,823
Goodwill/intangibles 4,508
Other assets 6,998
-----------
Total assets $202,063
=======
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Deposits:
Non-interest bearing $35,864
Interest bearing 146,447
-----------
Total deposits 182,311
Accrued interest payable
and other liabilities 2,661
-----------
Total liabilities 184,972
Common stock 43
Additional paid-in capital 21,109
Retained earnings(deficit) (4,061)
-----------
Total shareholders'
equit 17,091
-----------
Total liabilities and
shareholders'
equity $202,063
=======
Exhibit 1.1-C
As used in this Agreement and Plan or Reorganization, of which this
Exhibit 1.1-C is a part, the Valuation Adjustment shall equal an amount
computed in accordance with the following provisions (capitalized terms not
defined herein having the meanings ascribed to those terms in Section 1.1):
(a) Definitions
(i) "Valuation Debits" shall mean each of the following:
(w) all expenses incurred by CSB during the Valuation Period in
connection with the following (each, a "Lawsuit", and
collectively, the "Specified Lawsuits"):
(1) Martha E. Junco v. Commerce Security Bank; Tom Ruemmler
(Sacramento County Superior Court Case No. 541252) (the
"Junco Lawsuit");
(2) Commerce Security Bank v. Thomas R. Ruemmler
(Sacramento County Superior Court Case No. 538499 -
T.R.O.);
(3) Commerce Security Bank vs. Thomas R. Ruemmler, et al.
(including related cross action) (San Joaquin County
Superior Court Case No. 273702) (collectively with
the Lawsuit identified in clause 2 above, the
"Ruemmler Lawsuits"); and
(4) Priest, Russell, Garcia v. Commerce Security Bank,
Crothers, et al.
(San Joaquin County Superior Court Case No. 285881) (the
"Russell Lawsuit").
(x) the amount of any judgment or settlement payment (including
any adverse party's attorneys' fees and/or costs) ordered or
agreed to be paid by CSB in either the Ruemmler Lawsuits or
the Russell Lawsuit, the amount of any judgment or settlement
payment (including the plaintiff's attorneys' fees and/or
costs) actually paid by CSB in the Junco Lawsuit in excess of
the amount accrued therefor on the books of CSB as of
December 31, 1995, and the amount of any accrual made on the
books of CSB on account of any Lawsuit in excess of any
amount accrued on the books of CSB for that Lawsuit as of
December 31, 1995;
(y) the amount of any loss, including, for purposes of this
Exhibit 1.1-C, Out-of-Pocket Costs, incurred by CSB upon any
Resolution (as defined below) of the CIP Southgate property
prior to the Valuation Date, in excess of specific reserves,
if any, therefor on the books of CSB as of December 31, 1995,
and/or the amount of any charge-off taken with regard to such
property during the Valuation Period;
(z) any payment by CSB to the VA or any holder or servicer of any
Enumerated VA Loan (as hereinafter defined) with regard to
any Enumerated VA Loan during the Valuation Period, any
reserve established or reserve adjustment made (or required
to be established or made under GAAP) upon any repurchase of
any Enumerated VA Loan by CSB during the Valuation Period,
and any loss (including, for purposes of this Exhibit 1.1-C,
Out-of-Pocket Costs) incurred by CSB following any repurchase
of an Enumerated VA Loan in excess of reserves already
debited pursuant to the immediately preceding clause (as used
herein the "Enumerated VA Loans" shall consist of, and only
of, the Ervin, Roberson, Scott, Torres and Ramey loans
identified on the audit report dated on or about January 18,
1996 prepared by the Department of Veterans' Affairs (the
"VA")).
(ii) "Valuation Credits" shall mean each of the following that is
realized (in accordance with GAAP) during the Valuation Period:
(x) the amount of any reversal (made in accordance with GAAP) of
CSB's prior accrual for the Junco Lawsuit, as such accrual
existed on the books of CSB as of December 31, 1995;
(y) the amount of any gain (net of Out-of-Pocket Costs) on sales
during the Valuation Period of (A) Other Real Estate Owned
("OREO") that was held as such by CSB as of December 31,
1995, (B) the Sierra Meadows property and (C) the CIP
Southgate property (sale, for purposes of this Exhibit 1.1-C,
being deemed to include sale transactions in escrow as of the
Valuation Date as to which transaction there remain no
significant conditions to the buyer's obligations and the
buyer has placed in escrow a non-refundable deposit in an
amount equal to 2.5% of the purchase price or such greater
amount as SDN and CSB may mutually agree is reasonable under
the circumstances); and
(z) the amount, if any, of recoveries (net of legal and related
expenses paid to third parties and directly attributable to
seeking such recovery) realized during the Valuation Period
with regard to loans and leases fully charged off by CSB on
or before December 31, 1995, and with regard to the
charged-off portions of loans and leases partially
charged off by CSB on or before December 31, 1995.
(iii) "Valuation Period" shall mean the period from January 1, 1996
through the Valuation Date, inclusive.
(iv) "Valuation Date" shall mean the fifth Business Day prior
to the Closing, with all measurements being made at the
close of business on such date.
(v) "Resolved" shall mean:
(w) in the case of the CIP Southgate or Sierra Meadows properties
and all OREO, sold or otherwise disposed of in a manner such
that, as of the Valuation Date, such real property is not
recorded as an asset on CSB's balance sheet;
(x) with regard to any Lawsuit, either entry of a judgment which
has become final with no appeal perfected or the execution
and delivery of a settlement agreement binding on and
resolving all claims of all parties to such Lawsuit; and
(y) with regard to any Enumerated VA Loan, either (A) repayment
in full of such loan, (B) foreclosure on and sale of the
collateral securing such loan, or (C) receipt by CSB of
written notice from the VA that the VA no longer seeks
indemnity from CSB with regard to such loan, without any
repurchase of such loan by CSB or any undertaking by CSB to
indemnify or reimburse in any way the current holder of such
loan or any other person in connection therewith.
(vi) "Out-of-Pocket Costs" shall mean each of the following amounts
that become payable (or in the case of sales pending at the
Valuation Date, that are anticipated to become payable) to
third parties by CSB in connection with the referenced
property or the disposition thereof (except to the extent
recognized by CSB on or before December 31, 1995):
brokers' fees and expenses; property
taxes that were past-due as of January 1, 1996; recording fees,
deed stamps or similar payments; and capital expenditures
relating to repairing the property or preparing the
property for sale.
(b) Calculations
1. Asset/Liability Valuation Adjustment:
(i) The Asset/Liability Valuation Adjustment shall equal (x)
$400,000 minus (y) the sum of all Valuation Credits;
provided, however, that the Asset/Liability Valuation
Adjustment shall not be less than zero.
(ii) Notwithstanding the foregoing subparagraph (i), prior to the
Valuation Date CSB shall have the right, in CSB's sole
discretion, to request a reduction in the Asset/Liability
Valuation Adjustment, based on CSB's judgement that the
Asset/Liability Valuation Adjustment is overstated for the net
risk then inherent in (x) the matters described in the
definition of Valuation Debits, taking into account
Valuation Debits incurred during the Valuation Period and any
additional loss or expense that reasonably can be expected to
be incurred after the Valuation Date with respect to any
such matter that is not Resolved as of the Valuation Date,
and (y) the Sierra Meadows property (if a sale of the latter
has not been consummated as of the Valuation Date on
economic terms which are substantially the
same as, or more favorable to, CSB than those of the sale
transaction now pending). Upon such request, SDN agrees to
discuss such a reduction; provided, however, that the
decision as to whether or not to reduce the Asset/Liability
Valuation Adjustment calculated in accordance with the terms
this Exhibit 1.1-C shall be SDN's in its sole and absolute
discretion.
(iii) CSB having represented to SDN that the Sierra Meadows
property (having a carry value of approximately $2.9 million)
is in escrow and under a binding purchase and sale agreement
to be sold for a sale price that will result in no net loss
to CSB (taking into account Out-of-Pocket Costs not
recognized on or before December 31, 1995), SDN and CSB have
not sought to reflect any risk associated with Sierra Meadows
in the Asset/Liability Valuation Adjustment. In the event
that CSB is unable to complete a sale of Sierra Meadows on or
before the Valuation Date on economic terms which are
substantially the same as or more favorable to CSB than those
of the sale transaction now pending, and no agreement for
such a sale is then in effect, SDN shall have the right, in
SDN's sole discretion, to request an increase in the amount
of the Asset/Liability Valuation Adjustment as otherwise
calculated in accordance with this Exhibit 1.1-C in order to
reflect the additional risk to SDN and CSB that, as a
consequence of the failure to complete such sale, CSB may not
be able to realize its net carrying value for Sierra Meadows.
Upon any such request under this subparagraph (iii), CSB
agrees to discuss such whether or not the base
Asset/Liability Valuation Adjustment should be increased;
provided, however, that the decision as to whether or not to
increase the Asset/Liability Valuation Adjustment shall be
CSB's in its sole and absolute discretion.
2. SAIF Recapitalization Adjustment
(i) If SAIF Recapitalization Legislation has been enacted or adopted
prior to the Closing, the SAIF Recapitalization Adjustment shall
be a dollar amount, not to exceed $575,000, equal to 57.5%
multiplied by the present value, as estimated by SDN in good
faith using a 10% discount rate, of the cost that CSB will incur
as a result of such SAIF Recapitalization Legislation, net of the
tax benefit, if any, related to such expense calculated in
accordance with GAAP using the effective combined Federal and
state tax rate projected for Holdco for the first full fiscal
quarter year following the Closing Date as estimated by SDN's
independent public accountants.
(ii) If SAIF Recapitalization Legislation has not been enacted or
adopted prior to the Closing, the SAIF Recapitalization
Adjustment shall equal zero.
3. Valuation Adjustment
The Valuation Adjustment shall equal the sum of the Asset/Liability
Valuation Adjustment plus the SAIF Recapitalization Adjustment.
<PAGE>
Exhibit 2.11-A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of , 1996 (the
"Agreement"), is by and between , a Delaware
corporation (the "Company"), and Liberty National Bank, a national banking
association organized under the laws of the United States (the "Escrow
Agent").
WHEREAS, the Company is a party to that certain Agreement and Plan of
Reorganization, dated as of April , 1996 (the "Reorganization
Agreement"), by and among the Company, SDN Bancorp, Inc. and Commerce
Security Bank ("CSB");
WHEREAS, pursuant to the Reorganization Agreement, the Company has agreed
to acquire CSB through the merger (the "CSB Merger") of CSB Merger Sub (as
defined in the Reorganization Agreement) with and into CSB, in consideration
of which CSB Merger the shareholders of record (the "CSB Shareholders") of
the issued and outstanding shares of CSB common stock as of the effective
time of the CSB Merger (the "Effective Time") will receive either Cash
Consideration or Stock Consideration or a combination of Cash Consideration
and Stock Consideration (each as defined in the Reorganization Agreement);
WHEREAS, in order to mitigate the potential adverse effect on the
Company's consolidated financial condition and operating results that may
result from the enactment of SAIF Recapitalization Legislation (as
hereinafter defined), the Reorganization Agreement provides that $345,000
(the "Cash Escrow Deposit") of the funds that would otherwise constitute Cash
Consideration and [ ] shares of Company Common Stock (the "Stock
Escrow Deposit") shall be held in escrow by the Escrow Agent to be
distributed after the Effective Time in accordance with this Agreement; and
WHEREAS, the Escrow Agent has agreed to serve as escrow agent for such
purpose;
NOW, THEREFORE, in consideration of the mutual premises contained herein,
the Company and the Escrow Agent agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. Capitalized terms contained in this Agreement shall
have the meanings set forth in this Section 1.1:
"Acceleration Event" means the occurrence of either of the following
events:
(a) the enactment of any law by the United States Congress, or the
adoption of any final regulation by a federal Governmental Entity, that would
permit the Company to cause CSB or any other subsidiary to transfer or
convert the SAIF Insured Deposits to a BIF-insured depository institution
without the Company, CSB, such other depository institution or any of their
affiliates incurring any actual or contingent obligation to SAIF or BIF in
connection therewith, whether in the form of a special assessment, such as an
exit or entrance fee, the imposition of a higher premium rate for BIF
insurance or otherwise; provided, however, that in the reasonable judgment of
the Company (i) the effectiveness of such legislation or regulation is not in
doubt as a result of pending judicial or regulatory action and (ii) the
administrative, legal, accounting and other expense of effecting such a
transfer or conversion would not be material to the Company; or
(b) there is a Change in Control of the Company.
"After-Tax Cost" means the Company's good faith estimate of the present
value, calculated as of the Determination Date using a 10.0% discount rate,
of the cost that the Company will incur, solely in connection with the SAIF
Insured Deposits, as a result of SAIF Recapitalization Legislation, net of
the tax benefit, if any, related to such expense calculated in accordance
with GAAP using the Company's effective combined Federal and state tax rate
as of the end of the fiscal quarter next preceding the Determination Date.
"Agreement" means this Escrow Agreement, as amended from time to time in
accordance with Section 8.3 of this Agreement.
"Bank Regulator" means any Federal or state Governmental Entity charged
with the supervision or regulation of banks or bank holding companies or
engaged in the insurance of bank deposits.
"Book Value" means, with respect to the Common Stock, the book value per
share of the Common Stock as of the end of the fiscal quarter next preceding
the relevant measurement date, which Book Value shall be calculated in
accordance with GAAP except that the number of shares of Common Stock
outstanding as of such balance sheet date shall be deemed to include the
number of shares of Common Stock to be distributed to the Stock Right Holders
in accordance with the terms of this Agreement.
"BIF" means the Bank Insurance Fund established pursuant to the Federal
Deposit Insurance Act (12 U.S.C. sec 1811 et seq.) and administered by the FDIC
or any successor deposit insurance fund.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday or Friday
that banks in Los Angeles, California are not required by law to be closed.
"Cash Escrow Deposit" means the $345,000 deposited by the Company with
the Escrow Agent contemporaneously with the execution of this Agreement.
"Cash Escrow Fund" means the Cash Escrow Deposit and the investment
earnings thereon from the Effective Date through the Business Day next
preceding the Notification Date, inclusive.
"Cash Right Certificate" means the Certificate of Beneficial Interest in
the Cash Escrow Fund, which Cash Right Certificate shall be in the form of
Exhibit 1.1-C to this Agreement.
"Cash Right Holder" means a Holder registered on the books of the Escrow
Agent of a Cash Right Certificate.
"Certificates" means the Cash Right Certificates and the Stock Right
Certificates.
"Change in Control of the Company" means (a) a merger or consolidation,
or any similar transaction, involving the Company, (b) a purchase, lease or
other acquisition of assets of the Company and/or one or more subsidiaries of
the Company, which assets represent all or a majority of the Company's assets
on a consolidated basis, or (c) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) by a single
Person, or one or more affiliated Persons (other than Dartmouth Capital
Group, L.P. and its affiliates), of securities representing 50% or more of
the voting power of the Company; provided, however, that in no event shall any
merger, consolidation or acquisition of voting securities be deemed to
constitute a change in control of the Company if (x) the voting securities of
the Company outstanding immediately prior thereto continue to represent (by
either remaining outstanding or being converted into the voting securities of
the surviving entity of any such transaction) a majority of the combined
voting power of the voting securities of the Company or the surviving entity
outstanding immediately after the consummation of such transaction or (y) the
directors of the Company immediately prior to the time that the Company
enters into the definitive agreement providing for such transaction represent
a majority of the directors of the Company or the surviving entity
immediately after the consummation of such transaction.
"Committee" means the three persons designated by CSB prior to the
Effective Time and their respective successors, if any, designated by a
majority of the then remaining Committee members.
"Committee Representative" means the member of the Committee designated
from time to time by Committee to receive, on behalf of the Committee,
notices and other communication from the Company or the Escrow Agent, which
designation shall be made pursuant to a written instrument delivered by the
Committee to the Company and the Escrow Agent and shall be effective upon
receipt.
"Common Stock" means the common stock, $.01 par value per share, of the
Company, or any other securities into which such shares of Common Stock may
have been converted or exchanged.
"Company" means [ ], a Delaware corporation.
"CSB" means Commerce Security Bank, a party to the Reorganization
Agreement and the CSB Merger.
"CSB Merger" means the merger of CSB Merger Sub with and into CSB, as
defined in the recitals to this Agreement.
"CSB Merger Sub" means a wholly-owned subsidiary of the Company formed
for the purpose of completing the CSB Merger.
"CSB Shareholders" has the meaning set forth in the recitals to this
Agreement.
"Determination Date" means the date on which the Company sends written
notice of the Company's calculations of the SAIF Allocations or the Imputed
SAIF Allocations, as the case may be, to the Escrow Agent, with a copy to the
Committee Representative, in accordance with Section 6.1 or Section 6.2 of
this Agreement.
"Effective Date" means the date on which the Effective Time of the CSB
Merger occurs.
"Effective Time" means the effective time of the CSB Merger.
"Escrow Account" shall have the meaning set forth in Section 3.1 of this
Agreement.
"Escrow Agent" means Liberty National Bank, any successor thereto or any
successor escrow agent appointed in accordance with the terms of this
Agreement.
"Escrow Assets" means collectively the Cash Escrow Fund and the Stock
Escrow Fund.
"FDIC" means the Federal Deposit Insurance Corporation.
"GAAP" means Generally Accepted Accounting Principles as in effect in the
United States, consistently applied.
"Governmental Entity" means any administrative agency, commission, court
or other governmental authority or instrumentality, domestic or foreign,
including any government-sponsored corporation having regulatory authority
under law.
"Holder" means a Cash Right Holder or Stock Right Holder.
"Imputed SAIF Allocations" means collectively the Imputed SAIF Cash
Component and the Imputed SAIF Stock Component.
"Imputed SAIF Cash Component" means an amount calculated pursuant to the
following formula, but in no event more than the value of the Cash Escrow
Fund as of the Notification Date:
C = [(.85% D) 60%] 25.556%
where
C = the Imputed SAIF Cash Component; and
D = the amount of SAIF Insured Deposits as of the end of the month
next preceding the Second Anniversary.
"Imputed SAIF Stock Component" means an amount calculated pursuant to the
following formula, but in no event more than the value of the Stock Escrow
Fund as of the Notification Date:
S = {[(.85% D) 60%] 17.037%} divided by V
where
S = the Imputed SAIF Stock Component expressed as a number of shares of
Common Stock, rounded to the nearest whole share;
D = the amount of SAIF Insured Deposits as of the end of the month
next preceding the Second Anniversary; and
V = the greater of the Market Value or Book Value per share of the Common
Stock as of the Second Anniversary.
"Initial Holder" means a CSB Shareholder who receives a Certificate in
connection with the CSB Merger.
"Insured Deposits" means insured deposits within the meaning of the
Federal Deposit Insurance Act (12 U.S.C. sec 1813(m)) or any successor
provision and the applicable regulations promulgated thereunder.
"Market Value" means, as it relates to the Common Stock or any other
security or other non-cash asset in the Stock Escrow Fund on any given date,
(i) the mean of the high and low sales prices of such security for the twenty
(20) Business Days immediately preceding such date, as reported by the
National Association of Securities Dealers Automated Quotation System
("Nasdaq")and published in the Wall Street Journal (or, if not so reported or
published, as reported by the system then regarded as the most reliable
source of such quotations) or, if there are no reported sales for such
period, the mean of the closing bid and asked prices for such period as so
reported; or (ii) if such security is listed on any domestic stock exchange,
the mean of the high and low sales prices of Common Stock for the twenty (20)
consecutive Business Days immediately preceding such date as reported by the
Composite Tape of the New York Stock Exchange and published in the Wall
Street Journal (or, if not so reported or published, as reported by the
principal domestic stock exchange on which the security was traded during
that period); or (iii) if neither of the foregoing clauses (i) and (ii)
applies, the Market Value of the Common Stock shall be deemed to be the Book
Value of the Common Stock and the Market Value of any other security or non-
cash asset shall be the fair market value thereof as determined in good faith
by the Company's Board of Directors.
"Notification Date" means the date on which the Escrow Agent sends
written notice to of each Holder pursuant to Section 6.1, Section 6.2 or
Section 6.3 of this Agreement.
"Officers' Certificate" means a certificate signed jointly by the
Company's Chief Executive Officer and its Chief Financial Officer delivered
to the Escrow Agent pursuant to Section 6.1 or Section 6.2 of this Agreement,
which Officers' Certificate shall set forth the following information:
(a) the calculation of the After-Tax Cost, if applicable;
(b) the calculation of the Market Value of the Common Stock and other
non-cash assets, if any, in the Stock Escrow Fund;
(c) the calculation of the SAIF Stock Component or the Imputed SAIF Stock
Component, as the case may be; and
(d) the calculation of the SAIF Cash Component or the Imputed SAIF Cash
Component, as the case may be.
"Person" means any natural person, corporation, limited liability
company, general or limited partnership, limited liability partnership, joint
venture, joint stock company, trust, unincorporated organization,
association, sole proprietorship, Governmental Entity or political
subdivision of any government.
"Pro Rata Cash Distribution" means Cash Right Holder's share of the Cash
Escrow Fund, which Pro Rata Cash Distribution shall be equal to such Holder's
Pro Rata Cash Percentage multiplied by the amount of cash in the Cash Escrow
Fund as of the Notification Date, after giving effect to the distribution of
the SAIF Cash Allocation or Imputed SAIF Allocation, if any.
"Pro Rata Distribution" means the Pro Rata Cash Distribution and/or the
Pro Rata Stock Distribution, as the case may be.
"Pro Rata Stock Distribution" means Stock Right Holder's share of the
Stock Escrow Fund, which Pro Rata Stock Distribution shall be equal to such
Holder's Pro Rata Stock Percentage multiplied by (a) the number of shares of
Common Stock in the Stock Escrow Fund and (b) the amount of cash and non-cash
assets, if any, in the Stock Escrow Fund, in each case as of the Notification
Date and after giving effect to the distribution of the SAIF Stock Allocation
or Imputed SAIF Allocation, if any, subject in each case to the treatment of
fractional shares as provided in Section 6.6 of this Agreement.
"Pro Rata Cash Percentage" means Cash Right Holder's share of the Cash
Escrow Fund available for distribution to the Cash Right Holders, being a
percentage rounded to the nearest thousandth equal to the quotient obtained
by dividing (x) the amount of cash distributable directly to such Holder as
Cash Consideration in connection with the CSB Merger by (y) the aggregate
amount of Cash Consideration distributable to all Holders in connection with
the CSB Merger.
"Pro Rata Percentage" means the Pro Rata Cash Percentage and/or the Pro
Rata Stock Percentage as the case may be.
"Pro Rata Stock Percentage" means Stock Right Holder's share of the Stock
Escrow Fund available for distribution to the Stock Right Holders, being a
percentage rounded to the nearest thousandth equal to the quotient obtained
by dividing (x) the number of shares of Common Stock distributable directly
to such Holder as Stock Consideration in connection with the CSB Merger by
(y) the aggregate number of shares of Common Stock distributable to all
Holders as Stock Consideration in connection with the CSB Merger.
"Reorganization Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"SAIF" means the Savings Association Insurance Fund established pursuant
to the Federal Deposit Insurance Act (12 U.S.C. sec 1811 et seq.) and
administered by the Federal Deposit Insurance Corporation or any successor
federal deposit insurance fund.
"SAIF Allocations" means collectively the SAIF Cash Component and the
SAIF Stock Component.
"SAIF Cash Component" means 34.50% of the After-Tax Cost of the SAIF
Recapitalization Legislation but in no event more than the amount of the Cash
Escrow Fund as of the Notification Date.
"SAIF Insured Deposits" means the Insured Deposits of CSB and the
portion, if any, of the BIF Insured Deposits of any other depository
institution controlled by the Company which are deemed to be SAIF Insured
Deposits as a consequence of either the acquisition of shares of CSB by the
Company or the Company's compliance with the last sentence of Section 2.11.1
of the Reorganization Agreement.
"SAIF Recapitalization Legislation" means any law enacted by the United
States government, or any final regulation adopted by any Federal Bank
Regulator, that imposes one or more special assessments on depository
institutions that have deposits insured by SAIF.
"SAIF Stock Component" means an amount calculated pursuant to the
following formula, but in no event more than the value of the Stock Escrow
Fund as of the Notification Date.
S = (A 23.0%) divided by V
where
S = the SAIF Stock Component expressed as a number of shares of Common
Stock, rounded to the nearest whole share;
A = the After-Tax Cost of the SAIF Recapitalization Legislation; and
V = the greater of the Market Value or Book Value per share of the Common
Stock as of the Determination Date.
"Second Anniversary" means that date which is twenty-four (24) months
after the Effective Date.
"Stock Escrow Deposit" means the [ ] shares of Common Stock
deposited by the Company with the Escrow Agent contemporaneously with the
execution of this Agreement.
"Stock Escrow Fund" means the Stock Escrow Deposit and any other property
later deposited with the Escrow Agent pursuant to this Escrow Agreement,
including without limitation any cash or stock dividends paid on the shares
of Common Stock comprising the Stock Escrow Deposit, any stock, securities or
assets received with respect to or in exchange for such Common Stock
including, without limitation, in connection with any reorganization,
reclassification, stock split, consolidation, merger, sale, lease or other
transfer.
"Stock Right Certificate" means the Certificate of Beneficial Interest in
the Stock Escrow Fund, which Stock Right Certificate shall be in the form of
Exhibit 1.1-S to this Agreement.
"Stock Right Holder" means a Holder registered on the books of the Escrow
Agent of a Stock Right Certificate.
1.2 Rules of Construction. The following rules of construction shall
apply to the interpretation of this Agreement:
1.2.1 Any reference to any event, change or effect being
"material" with respect to any Person means an event, change or effect which
is material in relation to the condition (financial or otherwise), properties,
assets, liabilities, businesses or operations of such entity and its
Subsidiaries taken as a whole.
1.2.2. Whenever used in this Agreement, the word "including" shall be
non-exclusive and shall mean "including without limitation."
1.2.3. All references to Sections, Articles and Schedules shall,
unless another agreement is expressly referenced, mean the applicable
sections or articles of, or schedules to, this Agreement.
1.2.4. The section titles and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
1.2.5. The terms "herein", "hereunder", and terms of similar import
refer to this Agreement as a whole and not to the specific Section or Article
in which they are used.
1.2.6. This Agreement is the joint product of the Company, CSB and
the Escrow Agent and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of such parties and shall not be
construed for or against the Company, the Escrow Agent or the Holders.
ARTICLE II
DEPOSIT OF ESCROWED FUNDS;
APPOINTMENT OF ESCROW AGENT
2.1 Deposits. Substantially contemporaneously with the execution
hereof, the Company has deposited the Cash Escrow Deposit and the Stock Escrow
Deposit with the Escrow Agent.
2.2 Acceptance by Escrow Agent. The Escrow Agent hereby acknowledges
receipt of the Cash Escrow Deposit and the Stock Escrow Deposit and agrees to
act as escrow agent as set forth herein, and as such escrow agent to receive,
administer and distribute the Escrow Assets pursuant to the terms of this
Agreement.
ARTICLE III
MAINTENANCE OF AND BENEFICIAL INTEREST IN ESCROW ACCOUNT
3.1 Establishment of Escrow Account. The Escrow Agent shall hold the
Cash Escrow Fund, and the cash, if any, in the Stock Escrow Fund, in a
single, interest bearing account (the "Escrow Account"). From the Effective
Date through the Business Day next preceding the Notification Date,
inclusive, interest shall accrue daily on the Cash Escrow Fund at an annual
rate equal to the posted rate then offered by the Escrow Agent on so-called
jumbo certificates having a maturity of one (1) year, as such posted rate may
be adjusted from time to time.
3.2 Interest in Escrow Account Prior to Effective Time. Until the
Effective Time, the Escrow Agent shall hold the Escrow Assets for the benefit
of the Company. Upon receipt of written notice issued jointly by either the
Company or SDN and CSB indicating that the CSB Merger has been abandoned or
otherwise indicating that the Escrow Assets are to be returned, the Escrow
Agent shall deliver the Escrow Assets to the Company.
3.3 Interest in Escrow Account After Effective Time. Upon receipt
of a written notice, substantially in the form of Exhibit 3.3 hereto, jointly
issued by the Holding Company and CSB confirming that the CSB Merger has been
consummated, from and after the Effective Time, the Escrow Agent shall hold
the Escrow Assets for the benefit of the Holders and the Company for
distribution in accordance with the provisions of Article VI hereof. After
the Effective Time and prior to the Notification Date, the Committee
Representative shall be entitled to vote the shares of Common Stock, and any
other voting securities, in the Stock Escrow Fund.
ARTICLE IV
RIGHTS, DUTIES AND IMMUNITIES OF ESCROW AGENT
4.1 Rights and Immunities. Acceptance by the Escrow Agent of its duties
under this Agreement is subject to the following terms and conditions, which
the parties hereby agree shall exclusively govern and control the rights,
duties and immunities of the Escrow Agent:
4.1.1 The duties and obligations of the Escrow Agent shall be
determined solely by the express provisions of this Agreement; the Escrow
Agent shall not be responsible for the performance of any duties or
obligations other than the performance of such duties and obligations as are
specifically set forth in this Agreement; and the Escrow Agent shall not be
deemed to have any knowledge of or responsibility for the terms of any other
agreement or instrument other than the Certificates;
4.1.2 The Escrow Agent shall not be responsible in any manner
whatsoever for any failure or inability of any other party to honor any of
the provisions of this Agreement or any other agreement;
4.1.3 The Escrow Agent shall be entitled, but not obligated, to
request joint written instructions from the Company and the Committee
Representative, and shall have the right to refrain from acting until it has
received such written instructions. The Escrow Agent shall be fully
protected in acting on and relying upon any written notice, direction,
request, waiver, consent, receipt or other paper or document which the Escrow
Agent in good faith believes to have been signed or presented by the proper
party or parties, and shall be entitled to rely upon any notice, instruction,
waiver or other document requested and/or received from the Company and the
Committee Representative jointly;
4.1.4 The Escrow Agent shall not be liable for any error of
judgment, or for any act done or step taken or omitted by it in good faith or
for any mistake of fact or law, or for anything which it may do or refrain
from doing in connection herewith, unless caused by or arising out of its
willful misconduct or gross negligence, and in no event shall the Escrow
Agent be held liable for special, indirect or consequential loss or damage of
any kind whatsoever (including, but not limited to, lost profits), even if it
has been advised of the likelihood of such loss or damage and regardless of
the form of action;
4.1.5 The Escrow Agent may seek the advice of legal counsel of its
own selection in the event of any dispute or question as to the construction
of any of the provisions of this Agreement or its duties hereunder, provided,
however, that such counsel may not be counsel which has represented the
Company or any of its affiliates during the preceding twelve (12) months, and
in the absence of willful misconduct or of gross negligence in its choice of
counsel, it shall incur no liability and shall be fully protected in respect
of any action taken, omitted or suffered by it in accordance with the advice
of such counsel;
4.1.6 The Escrow Agent makes no representation as to the validity,
value, genuineness or collectibility of any security, document or instrument
held by or delivered to it; and
4.1.7 No provision of this Agreement shall require the Escrow Agent
to risk or expend any of its own funds or otherwise to incur any financial
liability in the exercise or performance of any of its powers or duties
hereunder; provided that the Escrow Agent will be promptly paid or reimbursed
upon request for any and all expenses, fees, costs, disbursements and/or
advances which may be incurred or made by it in accordance with the
provisions of Section 4.4 of this Agreement (including reasonable
compensation in accordance with Exhibit 4.4 hereto, and any expenses and
disbursements of Escrow Agent's counsel, and all agents not regularly in
Escrow Agent's employ).
4.2 Duties in Event of Controversy. If a controversy arises between the
Company and the Committee or any Holder, or between any two or more Holders,
as to whether or not or to whom the Escrow Agent shall deliver any of the
Escrow Assets or as to any other matter arising out of or relating to the
Escrow Assets or this Agreement, the Escrow Agent shall not be required to
determine the same and shall not make any delivery of the Escrow Assets or
any portion thereof but shall retain the Escrow Assets until the rights of
the parties to the dispute shall have been finally determined by written
agreement among the parties in the dispute or by final order of a court of
competent jurisdiction after the time for appeal of any such final order has
expired without an appeal having been made. The Escrow Agent shall deliver
the Escrow Assets (or the applicable portion thereof) as promptly as
practicable after the Escrow Agent has received joint written notice from the
Company and the Committee Representative of any such agreement or final order
(accompanied by an affidavit that the time for appeal has expired without an
appeal having been made, and a duly executed copy of such agreement or order,
as the case may be) in accordance with the instructions set forth in such
agreement or order. The Escrow Agent shall be entitled to assume
conclusively that no such controversy has arisen unless it receives, prior to
its distribution of such Escrow Assets, a written notice that such a
controversy has arisen which refers specifically to this Agreement,
identifies by name and address the adverse claimants in the controversy and
requests that the Escrow Agent not deliver any of the Escrow Assets. If a
controversy of the type referred to in this Section 4.2 arises, the Escrow
Agent may, in its sole discretion (but shall not be obligated to), commence
interpleader or similar actions or proceedings for determination of the
controversy.
4.3 Indemnity. The Company agrees to indemnify, defend and hold harmless
the Escrow Agent against any and all losses, expenses, claims, suits,
obligations, liabilities and damages, including attorneys' fees, based upon
or arising out of or in connection with the performance or non-performance by
the Escrow Agent of its obligations hereunder, unless such performance or
non-performance constitutes willful misconduct or gross negligence. This
indemnity shall survive the resignation or termination of the Escrow Agent
and the termination of this Agreement.
4.4 Compensation. In consideration of the Escrow Agent's service
hereunder, the Company shall pay compensation to the Escrow Agent and
reimburse the Escrow Agent's out-of-pocket expenses, as set forth on Exhibit
4.4 hereto. All such compensation and expenses shall be borne by the
Company, except as otherwise provided in Section 8.7 of this Agreement.
ARTICLE V
CERTIFICATES OF BENEFICIAL INTEREST
5.1. Issuance of Certificates to Initial Holders. As promptly as
practicable following the Effective Date, but in no event more than thirty
(30) days after the Effective Date, the Escrow Agent will execute and deliver
to the Initial Holders the Certificates. The Escrow Agent shall set forth on
each Certificate the Holder's Pro Rata Cash Percentage and/or Pro Rata Stock
Percentage.
5.2 Transfer of Certificates
5.2.1 A Cash Right Certificate may be assigned or transferred from
time to time prior to the Determination Date in whole, but not in part, only
upon the books of the Escrow Agent in accordance with Section 5.2.3.
5.2.2 A Stock Right Certificate shall not be assignable or
transferable by the Holder other than a transfer in whole which occurs by
will or by the laws of descent and distribution and thereafter is registered
on the books of the Escrow Agent in accordance with Section 5.2.3 of this
Agreement.
5.2.3 In order for a Holder to assign or transfer a Certificate
under circumstances permitted by this Agreement, such Holder must deliver the
Certificate to the Escrow Agent for transfer, accompanied by written
instructions regarding the delivery of the same and such other documents as
the Escrow Agent may reasonably request to confirm the Holder's ownership of
the Certificate and authority to cause such assignment or transfer. Upon
receipt of such documentation, the Escrow Agent promptly shall cancel the
Certificate so delivered and execute one or more new Certificates and shall
deliver the same to such transferee(s) and, if applicable, the transferor, in
each case as instructed in writing by the Holder requesting such assignment
or transfer.
5.3 Replacement of Certificates. Upon receipt by the Escrow Agent of
evidence satisfactory to it in its sole discretion of the ownership of, and
the loss, theft, destruction or mutilation of a Certificate and, in the case
of loss, theft or destruction, of indemnity satisfactory to it in its sole
discretion, and, in the case of mutilation, upon surrender and cancellation
thereof, the Escrow Agent will execute in lieu thereof a substitute
Certificate, and deliver the same to the Holder.
ARTICLE VI
DISTRIBUTION OF ESCROW ASSETS
6.1 Notice and Distribution of SAIF Allocations. If SAIF
Recapitalization Legislation is enacted prior to the Second Anniversary, the
Company shall deliver to the Escrow Agent and the Committee Representative
within ten (10) Business Days after such enactment the Officers' Certificate
which sets forth the calculation of the SAIF Allocations. The Committee
shall have ten (10) Business Days after the Determination Date within which
to deliver to the Company, with a copy to the Escrow Agent, a written
objection to the calculation of the SAIF Allocations set forth in the
Officers' Certificate. The calculation of the SAIF Allocations set forth in
the Officers' Certificate shall be deemed final if the Committee does not
deliver a written objection thereto by the close of business on the tenth
(10th) Business Day after the Determination Date or if, prior to the
expiration of such period, the Committee acknowledges in writing that it
accepts the Company's determination of the SAIF Allocations. Within five (5)
Business Days after the Escrow Agent receives notice that the SAIF
Allocations calculation is final, the Escrow Agent shall (i) distribute to
the Company from the Cash Escrow Fund an amount of cash equal to the SAIF
Cash Component, and from the Stock Escrow Fund a number of shares of Common
Stock equal to the SAIF Stock Component (and if the value of the shares of
Common Stock in the Stock Escrow Fund, calculated for purposes of this
Agreement using the greater of Market Value or Book Value, is less than the
SAIF Stock Component, the Escrow Agent also shall distribute to the Company
some or all of any additional property distributed with respect to assets in
the Stock Escrow Fund such that the sum of the value of such shares of Common
Stock and the Market Value of such other property is equal to the aggregate
value of the SAIF Stock Component), and (ii) send written notice to each
Holder with instructions for returning such Holder's Certificate(s) in
exchange for the Holder's Pro Rata Percentage of the Cash Escrow Fund and/or
Stock Escrow Fund, if any, remaining after the distribution of the SAIF
Allocations to the Company.
6.2 Notice and Distribution of Imputed SAIF Allocations. If SAIF
Recapitalization Legislation has not been enacted prior to the Second
Anniversary, within five (5) Business Days after the Second Anniversary, the
Company shall deliver to the Escrow Agent and the Committee Representative,
the Officers' Certificate setting forth the amount of the Imputed SAIF
Allocations. The Committee shall have ten (10) Business Days after the
Determination Date within which to deliver to the Company, with a copy to the
Escrow Agent, a written objection to the calculation of the Imputed SAIF
Allocations set forth in the Officers' Certificate. The calculation of the
Imputed SAIF Allocations set forth in the Officers' Certificate shall be
deemed final if the Committee does not deliver a written objection thereto by
the close of business on the tenth (10th) Business Day after the
Determination Date or if, prior to the expiration of such period, the
Committee acknowledges in writing that it accepts the Company's determination
of the Imputed SAIF Allocations. Within five (5) Business Days after the
Escrow Agent receives notice that the Imputed SAIF Allocations calculation is
final, the Escrow Agent shall (i) distribute to the Company from the Cash
Escrow Fund an amount of cash equal to the Imputed SAIF Cash Component, and
from the Stock Escrow Fund a number of shares of Common Stock equal to the
Imputed SAIF Stock Component (and if the value of the shares of Common Stock
in the Stock Escrow Fund, calculated for purposes of this Agreement using the
greater of Market Value or Book Value, is less than the Imputed SAIF Stock
Component, the Escrow Agent also shall distribute to the Company some or all
of any additional property distributed with respect to assets in the Stock
Escrow Fund such that the sum of the value of such shares of Common Stock and
the Market Value of such other property is equal to the aggregate value of
the Imputed SAIF Stock Component), and (ii) send written notice to each
Holder with instructions for returning such Holder's Certificate(s) in
exchange for the Holder's Pro Rata Percentage of the Cash Escrow Fund and/or
Stock Escrow Fund, if any, remaining after the distribution of the Imputed
SAIF Allocations to the Company.
6.3 Accelerated Disposition of Escrow Assets. If an Acceleration Event
shall occur prior to the earlier of the enactment of SAIF Recapitilization
Legislation or the Second Anniversary, the Company shall provide the Escrow
Agent and the Committee Representative with notice thereof within five (5)
Business Days after such event, and within five (5) Business Days after the
receipt of such notice, the Escrow Agent shall send written notice to each
Holder with instructions for returning such Holder's Certificate(s) in
exchange for the Holder's Pro Rata Percentage of the Cash Escrow Fund and/or
Stock Escrow Fund.
6.4 Dispute Resolution. If the Committee objects to the Company's
calculation of the SAIF Allocations or the Imputed SAIF Allocations, as the
case may be, as set forth in the Officers' Certificate, the Company's Chief
Executive Officer shall use his best efforts to meet with the Committee
Representative as soon as practicable after receipt of such objection to
negotiate in good faith to resolve the dispute. If the Company and the
Committee Representative have not agreed upon the amount of the SAIF
Allocations or the Imputed SAIF Allocations, as the case may be, within
fifteen (15) Business Days after receipt of the Committee's objection, either
the Company or the Committee Representative may initiate binding arbitration
in accordance with terms of Section 8.7 of this Agreement.
6.5 Distribution to Holders. Upon return of the Holder's Certificate(s)
for cancellation following the Notification Date, the Escrow Agent shall
promptly deliver a check representing the Holder's Pro Rata Cash
Distribution, without interest after the Notification Date, and/or one or
more stock certificates and other indicia of ownership representing the
Holder's Pro Rata Stock Distribution, subject to the provisions of Section
6.6 of this Agreement. The Company agrees to cause its transfer agent to
issue one or more additional stock certificates or other instruments as
necessary to effect the distribution of the Escrow Stock Fund to the Stock
Right Holders.
6.6 Treatment of Fractional Shares. No fractional shares of Common Stock
or of any other security shall be delivered to the Stock Right Holders. In
the event that the application of the formulae contained in this Agreement
would otherwise result in a fractional share of Common Stock or of another
security being distributed to a Stock Right Holder, the Company may in its
discretion direct the Escrow Agent either to round up the number of shares of
such security to be distributed to the Stock Right Holder to the next whole
number of shares without payment by the Stock Right Holder or to round down
to the next whole number of shares with payment to the Stock Right Holder of
the then current value of such fractional share, which value shall be the
greater of Book Value or Market Value per share if the security is Common
Stock or Market Value per share if the security is not Common Stock. If the
Company elects to pay cash to Holders in lieu of fractional shares in
accordance with this Section 6.6, the Company shall instruct the Escrow Agent
to compute the aggregate amount of such payments at the time that it computes
the Holders' respective Pro Rata Stock Distribution and to provide to the
Company written notice of the aggregate amount of cash to be delivered to the
Stock Right Holders in lieu of fractional shares. Within two (2) Business
Days after receipt of such notice from the Escrow Agent, the Company shall
deliver such sum to the Escrow Agent which in turn shall (i) distribute such
cash among the applicable Stock Right Holders and (ii) deliver to the Company
any portion of the Stock Escrow Fund that remains as a result of the
Company's election to round down fractional shares and to pay cash to Stock
Right Holders in lieu thereof. If the Company elects to round up all
fractional shares to the next higher whole share in accordance with this
Section 6.6, and if as a result of such rounding the Escrow Agent determines
that the number of shares of Common Stock then held in the Stock Escrow Fund
is inadequate to permit the distribution of the required number of shares to
each applicable Stock Right Holder, the Escrow Agent shall provide the
Company with written notice of the aggregate number of additional shares of
Common Stock required to be delivered to the Stock Right Holders. Within two
(2) Business Days after receipt of such notice from the Escrow Agent, the
Company shall deliver the required number of additional shares to the Escrow
Agent which in turn shall deliver such shares to the applicable Stock Right
Holders.
6.7 Unclaimed Escrow Assets. Any portion of the Escrow Assets that
remains unclaimed by any Holder six (6) months after the Notification Date
shall be returned to the Company upon demand, and any Holder who has not
received his Pro Rata Distribution prior to that time shall thereafter look
solely to the Company for payment of such Pro Rata Distribution without
interest after the Notification Date. Notwithstanding the foregoing, neither
the Company nor the Escrow Agent shall be liable to any Holder for any amount
paid to a public official pursuant to applicable abandoned property laws.
ARTICLE VII
TERM OF ESCROW
7.1 Term of Escrow. The term of the escrow governed hereby shall
commence on the date hereof and end upon the disbursement of all of the
Escrow Assets in accordance with the terms hereof.
ARTICLE VIII
MISCELLANEOUS
8.1 Notices. Unless otherwise indicated, all notices, demands, requests
and other communications required or permitted to be given hereunder shall be
in writing and shall be deemed duly given on the fifth (5th) day after
personal delivery (including by professional delivery service) or delivery by
facsimile, provided that the sender receives telephonic or electronic
confirmation that the facsimile was received by the recipient, addressed as
follows (or at such other address as the addressed party may have substituted
by notice pursuant to this Section 8.1):
(a) If to the Company: [ ]
c/o Liberty National Bank
One Pacific Plaza
7777 Center Avenue
Huntington Beach, CA 92647
Attention: Chief Executive Officer
facsimile: (714) 891-8884
with a copy to: Nutter, McClennen & Fish, LLP
One International Place
Boston, Massachusetts 02110-2699
Attention: Michael K. Krebs, Esquire
Hugh A. O'Reilly, Esquire
facsimile: (617) 973-9748
(b) If to the Escrow Agent: Liberty National Bank
One Pacific Plaza
7777 Center Avenue
Huntington Beach, CA 92647
Attention: Chief Financial Officer
facsimile: (714) 891-8884
(c) If to the Committee
Representative: [ ]
[ ]
[ ]
facsimile: ( ) [ ]
with a copy to: [ ]
[ ]
[ ]
facsimile: ( ) [ ]
8.2 Headings. The headings of the paragraphs of this Agreement are
inserted as a matter of convenience and for reference purposes only, are of
no binding effect and in no respect define, limit or describe the scope of
this Agreement or the intent of any paragraph.
8.3 Amendments. This Agreement may not amended, modified, supplemented,
extended, terminated, discharged or changed except by an agreement in writing
which makes specific reference to this Agreement and which is signed by the
Company and the Escrow Agent and to which the Committee Representative
consents, which consent shall not be unreasonably withheld. As soon as
practicable and in any event not more than five (5) Business Days after the
Escrow Agent receives notice that the Committee Representative has consented
to such an amendment, modification or other instrument affecting the terms of
this Agreement, the Escrow Agent shall send a copy of such instrument to each
Holder.
8.4 Binding Effect; Assignment; Third Party Beneficiaries. This
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their permitted successors and assigns and, except as otherwise
provided in this Section 8.4, shall not be enforceable by or create or
evidence any right of any third party. This Agreement cannot be assigned by
the Company without the express written consent of the Committee
Representative, which consent shall not be unreasonably withheld. This
Agreement cannot be assigned by the Escrow Agent without the consent of the
Company and Committee, which consent shall not be unreasonably withheld. The
Holders are intended third-party beneficiaries of this Agreement, and the
Committee Representative, or any Holder acting with the consent of a majority
in interest of the affected class of Certificate Holders, may initiate
binding arbitration under Section 8.7 of this Agreement to resolve any
dispute regarding the terms of this Agreement.
8.5 Resignation and Termination of Escrow Agent. The Escrow Agent may
resign at any time upon sixty (60) days' written notice thereof to the
Company and the Committee Representative. With the consent of the Committee
Representative, which consent shall not be unreasonably withheld, the Company
may terminate the appointment of the Escrow Agent effective immediately upon
written notice thereof to the Escrow Agent or upon such later date as may be
stated in such notice. Upon the effective date of such resignation or
termination, as applicable, all obligations of the Escrow Agent under this
Agreement and under the Certificates shall terminate except the obligations
to (i) hold any Escrow Assets then in the possession of the Escrow Agent
until the Company and the Committee Representative provide to the Escrow
Agent joint written notice of the name and address of a successor escrow
agent who has accepted such appointment and (ii) thereupon deliver all such
Escrow Assets to such successor escrow agent; provided, however, that if a
successor escrow agent shall fail to be appointed within sixty (60) days of
a notice of resignation or the Escrow Agent's receipt of a notice of
termination, the Escrow Agent may petition a court of competent jurisdiction
to appoint a successor escrow agent hereunder.
8.6 Severability. Any provision of this Agreement which may be
determined by a court of competent jurisdiction to be prohibited or
unenforceable shall be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
8.7 Dispute Resolution. Subject only to the terms of Section 6.4 and
Section 8.4 of this Agreement, any dispute that may arise under this
Agreement between the Company and the Committee Representative or any Holder,
or between two or more Holders, and that cannot be settled following
negotiations between the Chief Executive of the Company and the Committee
Representative shall be submitted to binding arbitration pursuant to the
Commercial Arbitration Rules, as the amended and in then effect, of the
American Arbitration Association (the "Rules"), subject to the following:
(a) The arbitration shall take place in Los Angeles, California.
(b) There shall be three arbitrators, who shall be selected under
the normal procedures prescribed in the Rules, except that one such
arbitrator shall be a certified public accountant and one arbitrator (who
shall chair the arbitration panel) shall be a member of the American Board of
Trial Advocates or the American College of Trial Lawyers.
(c) Subject to legal privileges, each party shall be entitled to
discovery in accordance with the Federal Rules of Civil Procedure.
(d) At the arbitration hearing, each party may make written and
oral presentations to the arbitrator, present testimony and written evidence
and examine witnesses.
(e) The arbitrators' decision shall be in writing, shall be binding
and final and may be entered and enforced in any court of competent
jurisdiction.
(f) No party shall be eligible to receive, and the arbitrators
shall not have the authority to award, exemplary or punitive damages.
(g) The Company shall bear its own expenses incurred in connection
with any such arbitration and shall pay one-half of the fees and expenses of
the arbitrators and the American Arbitration Association. The Committee's
expenses and one-half of the fees and expenses of the arbitrators and the
American Arbitration Association shall be deducted from the amount of the
Escrow Assets, if any, remaining after the SAIF Allocations are distributed
to the Company. If the amount of the Escrow Cash Fund remaining after the
distribution of the SAIF Allocations is insufficient to pay the expenses
allocable to the Escrow Assets, the Escrow Agent shall sell, in consultation
with the Committee Representative, some or all of the Escrow Stock Fund in
order to provide proceeds sufficient to pay such expenses. Neither the
Company nor the Escrow Agent shall have any liability for such expenses if
the amount of the Escrow Assets remaining after the distribution of the SAIF
Allocations to the Company is insufficient.
8.8 Notwithstanding anything to the contrary in this Agreement, the
Committee Representative, or any Holder acting with the consent of a majority
in interest of the affected class of Certificate Holders, may seek
appropriate relief in a court of competent jurisdiction for purposes of any
provisional remedy, including without limitation injunctive relief. No such
application shall be deemed a waiver of the Committee Representative's or
such Holder's rights to seek binding arbitration as provided elsewhere
herein. The parties hereto submit to the jurisdiction of the California
state courts sitting in the counties of Los Angeles and Orange for the
purpose of the Committee Representative's or a Holder's seeking such a
provisional remedy.
8.9 Intent of Escrow. The Company represents to the Escrow Agent, as
holder of record of the Escrow Assets for the benefit of the Holders and the
Company, that the Company intends the escrow created under this Agreement to
have the effect of adjusting (if and to the extent resulting from the terms
of this Agreement) the purchase price paid for CSB under the Reorganization
Agreement.
8.10 Applicable Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of California, without
regard to its principles of conflicts of law.
8.11 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each were upon the
same instrument.
8.12 Entire Agreement. This Agreement (including the forms of the Cash
Right Certificate and the Stock Right Certificate and the Compensation
Schedule attached respectively as Exhibits 1.1-C, 1.1-S and 3.3 hereto)
represents the entire understanding and agreement among the parties hereto
with respect to the subject matter hereof and supersedes all prior
negotiations among the parties.
* * *
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed in its name and on its behalf, all as of the date first
above written.
[HOLDCO]
By
Robert P. Keller, President
LIBERTY NATIONAL BANK,
as Escrow Agent
By
Its President
DEFINITIVE
EXHIBIT 2.11-B
Calculation of Stock Escrow Deposit
(Variables whose derivations are not fully set forth in this
Exhibit are used as derived in Exhibit 1.1-A, the derivation of
the Exchange Ratio)
Previously defined variables:
D = Holdco Pro-Forma Book Value as of December 31, 1995
X = equals the aggregate amount of Holdco Common Stock that CSB
Shareholders can receive in the Reorganization, inclusive of
the shares in the Stock Escrow Deposit, expressed as a
percentage of the pro forma shares of Holdco Common Stock
outstanding upon consummation of the Reorganization
Y = equals the pro forma number of shares of SDN Common Stock
outstanding as of December 31, 1995, giving effect to the
Liberty acquisition and the Capital Contribution (assuming a
one-for-one exchange of SDN Common Stock for Holdco Common
Stock in the SDN Merger)
Calculation of Numberof Shares Explanation
in Stock Escrow Deposit:
H = $230,000 H equals the amount of shares
constituting the Stock
D Escrow Deposit, expressed as a
percentage of the pro forma Holdco
Common Stock outstanding upon
consummation of the Reorganization
S = 100% - X S equals the percentage of the pro forma
Holdco Common Stock outstanding upon
consummation of the Reorganization that
is represented by shares issued in
exchange for SDN Common Stock
P = Y P equals the number of shares of
Holdco Common
S Stock outstanding on a pro forma basis
upon the consummation of the
Reorganization
N = H x P N equals the number of shares of Holdco
Common Stock constituting the Stock
Escrow Deposit
