<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1994
COMMISSION FILE NUMBER 1-9371
ALLEGHANY CORPORATION
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
DELAWARE
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION
51-0283071
INTERNAL REVENUE SERVICE EMPLOYER IDENTIFICATION NUMBER
PARK AVENUE PLAZA, NEW YORK, NEW YORK 10055
ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE
212/752-1356
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
NOT APPLICABLE
FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR
FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE
SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
FOR THE PAST 90 DAYS.
YES X NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASS OF COMMON STOCK, AS OF THE CLOSE OF THE PERIOD COVERED BY
THIS REPORT:
6,747,524
(AS OF JUNE 30, 1994)
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
JUNE 30, 1994 AND 1993
(dollars in thousands, except share and per share amounts)
(unaudited)
1994 1993*
=====================
<S> <C> <C>
REVENUES
Title premiums, escrow
and trust fees $338,773 $331,095
Net reinsurance premiums earned 43,856 0
Interest, dividend and other income 37,552 27,551
Net mineral and filtration sales 41,562 37,735
Net gain on investment transactions 6,427 519
---------------------
Total revenues 468,170 396,900
---------------------
COSTS AND EXPENSES
Salaries, commissions and
other employee benefits 254,681 224,122
Administrative, selling
and other operating expenses 86,072 80,390
Provisions for title losses and
other claims 27,491 30,144
Property and casualty losses and
loss adjustment expenses 35,622 0
Cost of mineral and filtration sales 28,943 27,041
Interest expenses 6,847 6,735
Corporate administration 6,907 3,630
---------------------
Total costs and expenses 446,563 372,062
---------------------
Earnings from continuing
operations, before income taxes 21,607 24,838
Income taxes 5,277 8,483
---------------------
Earnings from continuing operations 16,330 16,355
---------------------
Discontinued operations:
Earnings from discontinued
operations, net of tax 2,275 4,972
Benefit of excess of tax basis
over book 16,800 0
---------------------
Net earnings $35,405 $21,327
=====================
EARNINGS PER SHARE OF COMMON STOCK
Operations $2.42 $2.41
Discontinued operations 0.33 0.73
Benefit of excess of tax basis
over book 2.49 0.00
---------------------
Total earnings per share $5.24 $3.14
=====================
Dividends per share of common stock ** **
=====================
Average number of outstanding shares
of common stock *** 6,755,999 6,801,675
=====================
</TABLE>
* Restated to reflect discontinued operations.
** In March 1994 and 1993, Alleghany declared a dividend
consisting of one share of Alleghany common stock for
every fifty shares outstanding.
*** Adjusted to reflect 2% stock dividends declared in
March 1993 and 1994.
<PAGE>
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED
JUNE 30, 1994 AND 1993
(dollars in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
1994 1993 *
====================
<S> <C> <C>
REVENUES
Title premiums, escrow and
trust fees $691,532 $620,945
Net reinsurance premiums earned 96,535 0
Interest, dividend and other
income 76,041 55,336
Net mineral and filtration sales 77,526 73,726
Net gain on investment
transactions 6,519 11,831
--------------------
Total revenues 948,153 761,838
====================
COSTS AND EXPENSES
Salaries, commissions
and other employee benefits 522,132 436,972
Administrative, selling and
other operating expenses 170,403 155,730
Provisions for title losses
and other claims 50,912 55,789
Property and casualty losses
and loss adjustment expenses 79,782 0
Cost of mineral and
filtration sales 54,423 53,366
Interest expenses 13,923 13,611
Corporate administration 10,414 7,752
--------------------
Total costs and expenses 901,989 723,220
--------------------
Earnings from continuing
operations, before income taxes 46,164 38,618
Income taxes 12,845 (6,900)
--------------------
Earnings from continuing
operations 33,319 45,518
--------------------
Discontinued operations:
Earnings from discontinued
operations, net of tax 5,225 9,152
Benefit of excess of
tax basis over book 16,800 0
Net earnings $55,344 $54,670
====================
EARNINGS PER SHARE OF COMMON STOCK
Operations $4.93 $6.69
Discontinued operations 0.77 1.35
Benefit of excess of tax basis
over book 2.49 0.00
--------------------
Total earnings per share $8.19 $8.04
=====================
Dividends per share of common stock ** **
=====================
Average number of outstanding shares
of common stock *** 6,757,382 6,801,289
=====================
</TABLE>
* Restated to reflect discontinued operations.
** In March 1994 and 1993, Alleghany declared a dividend
consisting of one share of Alleghany common stock for every
fifty shares outstanding.
*** Adjusted to reflect 2% stock dividends declared in
March 1993 and 1994.
<PAGE>
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
(dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30,
1994 December 31,
(Unaudited) 1993*
========================
<S> <C> <C> <C>
ASSETS
Investments
Fixed maturities - available
for sale
U.S. Government,
government agency
and municipal amorti-
obligations zed cost $893,104 855,507 850,257
Certificates of
deposit and
commercial amorti-
paper zed cost $74,839 74,839 143,830
Bonds, notes amorti-
and other zed cost $413,942 404,771 380,821
Equity securities cost $117,454 134,281 144,616
--------------------
1,469,398 1,519,524
</TABLE>
<TABLE>
<S> <C> <C>
Cash 30,810 40,774
Notes receivable 91,536 91,536
Accounts and other receivables,
less allowances 208,522 177,669
Title records and indexes 155,376 155,121
Property and equipment - at cost,
less accumulated depreciation
and amortization 203,509 205,042
Reinsurance receivable 387,926 353,903
Other assets 380,410 364,416
Assets pledged to secure trust
and escrow deposits 352,601 359,537
Net assets of discontinued operations 200,371 201,601
---------------------
$3,480,459 $3,469,123
=====================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Title losses and other claims $539,188 $533,190
Property and casualty losses
and loss adjustment expenses 903,013 861,204
Other liabilities 396,411 400,678
Long-term debt of parent company 59,600 59,600
Long-term debt of subsidiaries 329,433 345,703
Trust and escrow deposits secured
by pledged assets 345,570 353,014
Total liabilities 2,573,215 2,553,389
Common stockholders' equity 907,244 915,734
---------------------
$3,480,459 $3,469,123
=====================
Shares of common stock outstanding 6,747,524 6,759,142**
Common stockholders' equity per share $134.26 $135.48**
=====================
</TABLE>
* Restated to reflect discontinued operations.
** Adjusted to reflect the 2% stock dividend declared
in March 1994.
<PAGE>
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1994 AND 1993
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
1994 1993 *
=====================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings from continuing operations $33,319 $45,518
Adjustments to reconcile earnings
from continuing operations to cash
provided by continuing operations:
Depreciation and amortization 22,307 19,406
Net gain on investment transactions (6,519) (11,831)
Other charges to operations, net 5,665 (353)
Increase in accounts and other
receivables, less allowances (30,853) (8,758)
Increase in reinsurance receivable (34,023) 0
Increase in title losses and
other claims 5,998 1,184
Increase in property and
casualty loss and loss
adjustment expenses 41,809 0
Decrease in other assets 6,180 2,528
Decrease in other liabilities (4,370) (7,237)
Decrease (increase) in net assets
pledged to secure trust
and escrow deposits 508 (5,771)
--------------------
Net adjustments 6,702 (10,832)
--------------------
Cash provided by continuing operations 40,021 34,686
--------------------
Cash provided by discontinued operations 5,602 4,740
--------------------
Cash provided by operations 45,623 39,426
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (538,317) (394,764)
Maturities of investments 252,954 58,866
Sales of investments 257,466 315,124
Purchases of property and equipment (13,411) (22,637)
Other 3,754 2,210
--------------------
Net cash used in investing activities (37,554) (41,201)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (16,328) (5,073)
Other 1,705 1,191
--------------------
Net cash provided by financing activities (18,033) (3,882)
--------------------
Net increase (decrease) in cash (9,964) (5,657)
Cash at beginning of period 40,774 33,478
--------------------
Cash at end of period $30,810 $27,821
====================
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $41,957 $42,313
Income taxes $17,493 $13,880
</TABLE>
* Restated to reflect discontinued operations.
<PAGE>
Notes to Consolidated Financial Statements
This report should be read in conjunction with the
Annual Report on Form 10-K for the year ended December 31,
1993, and the Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994 (the "1994 First-Quarter Form 10-Q
Report"), of Alleghany Corporation (the "Company").
The information included in this report is
unaudited but reflects all adjustments which, in the opinion
of management, are necessary to a fair statement of the
results of the interim period covered thereby. All
adjustments are of a normal and recurring nature except as
described herein.
Pending Disposition
- - -------------------
On May 18, 1994, the Company entered into a Stock
Purchase Agreement with First Interstate Bank of California,
the principal subsidiary of First Interstate Bancorp,
providing for the sale by the Company to First Interstate
Bank of California of Sacramento Savings Bank ("Sacramento
Savings") and an ancillary company, for a cash purchase
price of $331 million, subject to adjustment. As part of
the transaction, the Company will purchase certain real
estate and real estate-related assets of Sacramento Savings
(to the extent not sold to third parties prior to the
closing) at their book value as of the closing. At April
30, 1994, such assets had a book value of about $132
million. The closing, which is subject to customary legal
conditions and approvals by federal and California state
banking authorities, is expected to take place in the fourth
quarter of 1994.
Because of their impending sale, Sacramento
Savings and the ancillary company have been treated as
discontinued operations in the accompanying consolidated
financial statements. Such statements include a credit to
earnings of $16.8 million in the second quarter of 1994,
representing a tax benefit related to the impending sale;
the tax benefit reflects the excess of the Company's tax
basis in Sacramento Savings over its book basis. Completion
of the sale of Sacramento Savings is expected to result in a
further addition to the Company's 1994 net earnings of about
$50 million, or about $7.00 per share.
Following is selected financial information
relating to the discontinued operations of Sacramento
Savings and the ancillary company (in thousands):
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
June 30 June 30
---------------------------------------
1994 1993 1994 1993
---------------------------------------
<S> <C> <C> <C> <C>
REVENUES
- - --------
Interest on loans
receivable $38,425 $43,968 $76,509 $ 88,670
Interest, dividend
and other income 10,898 9,600 21,767 18,248
Net (loss)/gain on
investment
transactions (26) 939 55 939
------------------------------------------
Total revenues 49,297 54,507 98,331 107,857
------------------------------------------
COSTS AND EXPENSES
Salaries, commissions
& other employment
benefits 7,069 6,998 14,110 13,997
Administrative,
selling & other
operating expenses 9,580 9,899 18,243 20,187
Interest on deposits 28,185 28,835 56,126 57,517
Interest expense 292 133 496 261
------------------------------------------
Total costs and
expenses 45,126 45,865 88,975 91,962
------------------------------------------
Earnings from
operations,
before income
taxes 4,171 8,642 9,356 15,895
Income taxes 1,896 3,670 4,131 6,743
-----------------------------------------
Earnings from
operations $ 2,275 $ 4,972 $ 5,225 $ 9,152
=========================================
</TABLE>
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
1994 1993
----------------------------------
<S> <C> <C>
ASSETS
Investments $ 617,242 $ 634,899
Cash 22,173 122,974
Loans receivable 2,141,791 2,072,596
Real estate 85,003 81,917
Other assets 114,822 105,032
---------------------------------
Total $2,981,031 $3,017,418
=================================
LIABILITIES & COMMON
STOCKHOLDER'S EQUITY
Deposits $2,736,306 $2,750,573
Other liabilities 44,354 65,244
--------------------------------
Total liabilities 2,780,660 2,815,817
Common stockholder's equity 200,371 201,601
--------------------------------
Total liabilities &
common stockholder's
equity $2,981,031 $3,017,418
================================
</TABLE>
Contingencies
- - -------------
The Company's subsidiaries and division are
parties to claims and litigation in the ordinary course of
their businesses. Each such operating unit makes provisions
on its books in accordance with generally accepted
accounting principles for estimated losses to be incurred as
a result of such claims and litigation, including related
legal costs. In the opinion of management, such provisions
are adequate as of June 30, 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
The Company reported net earnings of $35.4 million
in the second quarter of 1994 compared with $21.3 million in
the second quarter of 1993, and $55.3 million in the first
six months of 1994 compared with $54.7 million in the first
six months of 1993. These net earnings included
contributions from continuing operations and discontinued
operations, and the credits and gains described below.
Continuing operations contributed net earnings of
$16.3 million on revenues of $468.2 million in the 1994
second quarter, compared with $16.4 million on revenues of
$396.9 million in the 1993 second quarter. Net earnings
from continuing operations of $33.3 million on revenues of
$948.2 million in the first six months of 1994 compared with
$45.5 million on revenues of $761.8 million in the first six
months of 1993. Discontinued operations contributed net
earnings of $2.3 million in the 1994 second quarter compared
with $4.9 million in the 1993 second quarter, and $5.2
million in the first half of 1994 compared with $9.2 million
in the first half of 1993.
The Company's net earnings in the second quarter
and first half of 1994 include a credit of $16.8 million
representing a tax benefit related to the impending sale of
Sacramento Savings and an ancillary company, as described
above. The Company's net earnings in the first half of 1993
include a credit of $20.0 million in the provision for
income taxes, resulting from an adjustment of the Company's
tax reserves upon the favorable resolution of major tax
issues raised by the Internal Revenue Service relating to
the Company's sale of Investors Diversified Services, Inc.
to American Express Company in 1984. Net gains on
investment transactions after taxes in the first half of
1994 totalled $4.2 million, compared with $7.7 million in
the first half of 1993. Disregarding these credits and
gains, the Company's net earnings totalled $34.3 million in
the first six months of 1994, compared with $27.0 million in
the first six months of 1993.
Chicago Title and Trust Company ("CT&T")
contributed pre-tax earnings of $13.3 million on revenues of
$350.4 million in the 1994 second quarter, compared with
$26.7 million on revenues of $345.1 million in the second
quarter of 1993. In the first six months of 1994, CT&T
contributed pre-tax earnings of $36.6 million on revenues of
$715.3 million, compared with $37.7 million on revenues of
$653.2 million in the first six months of 1993.
Title insurance orders for residential
refinancings dropped precipitously in the wake of the
increase in interest rates beginning in February of this
year. Refinancings accounted for about 10 percent of total
orders in the 1994 second quarter, compared with 25 percent
in the 1994 first quarter and 38 percent in the second
quarter of 1993. However, new construction, resales and
commercial activity showed significant improvement during
the 1994 first half, more than offsetting the decline in
revenues from refinancings.
CT&T's revenues in 1994 reflected significantly
more agency activity, as compared with activity in CT&T's
owned offices, than in the corresponding periods of 1993,
due to several factors. Revenues generated by a significant
number of agency orders in late 1993 were recognized in the
1994 first quarter. In addition, the return of a strong
conventional housing market, particularly in the smaller
markets where more agencies operate, contributed to the
increase. The recent acquisition of a few large agencies by
CT&T's title insurance subsidiaries also positively impacted
agency revenues in the 1994 periods. The resulting increase
in the cost of agents' commissions caused a decrease in
profit margins.
Acquired by the Company in October 1993,
Underwriters Reinsurance Company ("Underwriters")
contributed pre-tax earnings of $3.6 million on revenues of
$53.4 million in the second quarter of 1994, and $1.0
million on revenues of $112.9 million in the first six
months of the year. The six-month results reflected a
pre-tax charge of about $5 million for estimated losses
associated with the earthquake in Los Angeles, California in
January 1994. In addition, Underwriters recorded net
pre-tax losses of $3.5 million on sales of fixed-maturity
investments during the six-month period, most of which were
due to a restructuring by Underwriters of a portion of its
portfolio in the first quarter.
World Minerals Inc. ("World Minerals") contributed
pre-tax earnings of $4.8 million on revenues of $41.7
million in the 1994 second quarter, compared with $3.1
million on revenues of $37.8 million in the second quarter
of 1993. In the first six months of 1994, World Minerals
contributed pre-tax earnings of $8.0 million on revenues of
$77.9 million, compared with $4.3 million on revenues of
$73.8 million in the first six months of 1993.
Sales volume was higher in the first half of 1994,
reflecting in part the results of recent efforts to upgrade
sales effectiveness. The improved earnings are also due to
lower production and administrative expenses in 1994,
resulting from World Minerals' cost reduction efforts during
the past year. All areas of World Minerals' operations
contributed to these improvements, including the perlite
operations of World Minerals' Harborlite subsidiary, which
were enhanced by two small acquisitions in the past year.
Discontinued Operations
- - -----------------------
Due to their impending sale, Sacramento Savings
and an ancillary company have been treated as discontinued
operations in the accompanying consolidated financial
statements. Sacramento Savings and the ancillary company
recorded pre-tax earnings of $4.2 million on revenues of
$49.3 million in the 1994 second quarter, compared with $8.6
million on revenues of $54.5 million in the second quarter
of 1993. In the first six months of 1994, Sacramento
Savings and the ancillary company recorded pre-tax earnings
of $9.4 million on revenues of $98.3 million, compared with
$15.9 million on revenues of $107.9 million in the first six
months of 1993.
Sacramento Savings reported lower net interest
margins in the 1994 periods than in the corresponding
periods in 1993. Total deposits declined, from $2.8 billion
at March 31, 1994 to $2.7 billion at June 30, 1994.
Increased deposits from public sources (such as local city
and county funds) were more than offset by the loss of
deposits in savings accounts in 1994. Interest rates paid
on deposits from public sources closely follow currently
rising interest rates, whereas the rates that Sacramento
Savings earns on its outstanding mortgage loans are repriced
at much less frequent intervals, resulting in narrowing
margins. In addition, Sacramento Savings' success in
marketing new adjustable rate mortgages, which are offered
at lower initial rates, adversely affected margins. Also,
deposits totalling $190 million in one large deferred
compensation plan for government employees established many
years ago, which until expiration at 1994 year-end earn a
fixed rate of interest of 10 percent, continued to have a
depressing effect on results in the first half of 1994.
Sacramento Savings' non-performing assets other
than real estate investments (net of specific reserves
relating thereto) declined from $91.0 million, or 3.16
percent of Sacramento Savings' assets, at June 30, 1993 to
$84.7 million, or 2.84 percent of Sacramento Savings'
assets, at June 30, 1994. The aggregate net book value of
non-earning real estate investments was $35.7 million at the
end of the second quarter of 1994, down from $37.8 million a
year earlier. Continuing a trend, monthly additions to
reserves for foreclosed property and non-performing loans
totalled only $1.4 million in the 1994 second quarter,
compared with $3.4 million in the 1993 second quarter,
reflecting Sacramento Savings' belief that real estate
values in its market are stabilizing.
The Company's results in the first half of 1994
are not indicative of operating results in future periods.
Upon completion of the sale of Sacramento Savings, the
Company and its subsidiaries will have substantially
enhanced financial resources, which they intend to use to
expand their operations through internal growth and possible
further operating-company acquisitions.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
-----------------
On January 7, 1985, the Federal Trade Commission
(the "FTC") filed a complaint alleging that six of the
nation's largest title insurance companies, including the
three principal title insurance companies now owned by CT&T,
violated Section 5 of the Federal Trade Commission Act in
connection with their participation in rating bureaus in
thirteen states. The status of such proceedings was last
reported in Item 1 of Part II of the Company's 1994
First-Quarter Form 10-Q Report.
As previously reported, in June 1992 the United
States Supreme Court issued a decision in favor of the FTC
with respect to two states, holding that rating-bureau
activity in Montana and Wisconsin had not been sufficiently
active to permit the title insurers to invoke the
state-action immunity doctrine. Upon remand, the Third
Circuit Court of Appeals issued a decision in June 1993 in
favor of the FTC with respect to two additional states,
Arizona and Connecticut, on the same grounds. After the
Third Circuit Court of Appeals dismissed the title insurers'
petition for a rehearing en banc in August 1993, the title
insurers filed a petition for a writ of certiorari to the
United States Supreme Court. The title insurers' petition
was denied on March 21, 1994. The FTC action was for
injunctive relief only. On April 22, 1994, the FTC issued a
final cease and desist order with respect to the title
insurers' participation in rating bureaus in the states of
Montana, Wisconsin, Arizona and Connecticut. CT&T
anticipates no practical adverse consequences from this
order since its title insurance subsidiaries are not engaged
in any of the types of activities proscribed thereby.
In April 1990, a class action seeking treble
damages was filed in the United States District Court for
the District of Arizona against the title insurers involved
in the FTC action, challenging rating-bureau activity in
Arizona and Wisconsin. As previously reported, that case
was decided on motion in favor of the title insurers, but
the decision was reversed by the Ninth Circuit Court of
Appeals. In June 1993, the title insurers filed a petition
for a writ of certiorari to the United States Supreme Court
seeking review of the Ninth Circuit Court of Appeals
decision. The parties to the litigation subsequently
entered into a memorandum of understanding which outlined
the terms of a settlement of such litigation. The
memorandum of understanding provided for a definitive
written agreement and application for the necessary approval
of the District Court. The parties also submitted a request
to the Supreme Court to defer action, pending the District
Court's consideration of the settlement, on the title
insurers' petition for a writ of certiorari. Despite such
request, the Supreme Court granted the title insurers'
petition on October 4, 1993. However, on April 4, 1994,
after full argument by the parties on the merits of the
case, the Supreme Court dismissed the writ as improvidently
granted. Pursuant to the memorandum of understanding, a
definitive written agreement embodying the terms of the
settlement has been executed.
On April 21, 1994, a class action seeking treble
damages was filed in the United States District Court for
the Eastern District of Wisconsin asserting federal
antitrust claims against several defendants, including the
title insurance subsidiaries of CT&T, arising from the
Wisconsin rating-bureau activity that was the subject of the
FTC action. On June 22, 1994, plaintiffs filed a motion to
intervene in the litigation pending in the U.S. District
Court in Arizona. On July 11, 1994, plaintiffs filed a
motion with the Judicial Panel on Multi-District Litigation
to transfer the Wisconsin case to the U.S. District Court in
Arizona in order to consolidate the Wisconsin and Arizona
actions.
It is expected that the U.S. District Court in
Arizona shortly will convene a conference to discuss the
status of the settlement agreement and any rights of
intervenors. The title insurers are preparing a response to
the motion that plaintiffs filed with the Judicial Panel.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
The Company's 1994 Annual Meeting of Stockholders
was held on April 22, 1994. At the Annual Meeting, three
directors were re-elected to serve for three-year terms on
the Company's Board of Directors, by the following votes:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
John J. Burns, Jr. 5,575,441 13,255
Dan R. Carmichael 5,575,115 13,581
William K. Lavin 5,402,202 186,494
</TABLE>
The Alleghany Corporation Amended and Restated
Directors' Stock Option Plan was approved at the Annual
Meeting by a vote of 5,221,913 shares in favor and 170,119
shares opposed. A total of 196,664 shares abstained from
voting.
At the Annual Meeting, the selection of KPMG Peat
Marwick as auditors for the Company for the year 1994 was
ratified by a vote of 5,561,648 shares in favor and 24,201
shares opposed. A total of 2,847 shares abstained from
voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits.
--------
<TABLE>
<CAPTION>
Exhibit Number Description
- - -------------- -----------
<C> <S>
10.1(a) Stock Purchase Agreement dated
as of May 18, 1994 by and
between First Interstate Bank
of California and Alleghany
Corporation (the "Sacramento
Savings Stock Purchase
Agreement").
10.1(b) List of Contents of Exhibits
and Schedules to the
Sacramento Savings Stock
Purchase Agreement which are
not being filed herewith. The
Company hereby agrees to
furnish to the Commission
supplementally a copy of any
omitted Exhibit or Schedule
upon request.
</TABLE>
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the
second quarter of 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
ALLEGHANY CORPORATION
---------------------
Registrant
Date: August 12, 1994 /s/ David B. Cuming
-------------------
David B. Cuming
Senior Vice President
(and principal financial
officer)
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number Description
- - -------------- -----------
<C> <S>
10.1(a) Stock Purchase Agreement dated as of
May 18, 1994 by and between First
Interstate Bank of California and
Alleghany Corporation (the
"Sacramento Savings Stock Purchase
Agreement").
10.1(b) List of Contents of Exhibits and
Schedules to the Sacramento Savings
Stock Purchase Agreement which are
not being filed herewith. The
Company hereby agrees to furnish to
the Commission supplementally a copy
of any omitted Exhibit or Schedule
upon request.
</TABLE>
<PAGE>
Exhibit 10.1(a)
---------------
- - --------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and between
FIRST INTERSTATE BANK OF CALIFORNIA
and
ALLEGHANY CORPORATION
dated as of May 18, 1994
- - --------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I CERTAIN DEFINITIONS ................ 1
ARTICLE II PURCHASE AND SALE
2.1 Purchases by Purchaser and Seller .. 9
2.2 Purchase Prices .................... 10
2.3 Closing; Payment of Estimated
Excluded Assets Purchase Price .... 11
2.4 Closing Adjustment Documents ....... 13
2.5 Final Settlement ................... 15
2.6 Purchase Price Allocation .......... 16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Corporate Organization ............. 16
3.2 Capitalization ..................... 17
3.3 Authority; No Violation ............ 18
3.4 Consents and Approvals ............. 19
3.5 Financial Statements ............... 20
3.6 Broker's Fees ...................... 21
3.7 Absence of Certain Changes
or Events ......................... 21
3.8 Legal Proceedings .................. 22
3.9 Tax Matters ........................ 22
3.10 Compliance with Applicable Law ..... 26
3.11 Property ........................... 26
3.12 Employee Benefit Plans ............. 28
3.13 Insurance .......................... 29
3.14 Certain Contracts .................. 30
3.15 Agreements with Regulatory
Agencies........................... 31
3.16 Investment Securities .............. 32
3.17 Absence of Certain Business
Practices ......................... 32
3.18 Undisclosed Liabilities ............ 32
3.19 Bank Accounts, Powers .............. 32
3.20 Administration of Fiduciary
Accounts .......................... 33
3.21 Environmental Matters .............. 33
3.22 Derivative Transactions ............ 34
3.23 Intercompany Transactions .......... 35
3.24 Approvals .......................... 35
3.25 [reserved].......................... 35
<PAGE>
Page
----
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER
(CONTINUED)
3.26 Excluded Assets Schedule ........... 35
3.27 Intellectual Property .............. 36
3.28 [reserved] ......................... 36
3.29 Detailed Listing of Loans .......... 36
3.30 Employees and Insider Loans ........ 36
3.31 Data Processing Contracts .......... 36
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
PURCHASER
4.1 Corporate Organization ............. 37
4.2 Authority; No Violation ............ 37
4.3 Consents and Approvals ............. 38
4.4 Broker's Fees ...................... 38
4.5 Financing .......................... 38
4.6 Acquisition for Investment ......... 39
4.7 Approvals .......................... 39
ARTICLE V COVENANTS
5.1 Covenants of Seller ................ 39
5.2 Permitted Dividends ................ 43
5.3 Joint Covenants of Purchaser and
Seller ............................ 43
5.4 D&O Indemnification ................ 44
5.5 Management Agreements .............. 44
ARTICLE VI ADDITIONAL AGREEMENTS
6.1 Regulatory Matters ................. 45
6.2 Access to Information and Personnel. 46
6.3 Legal Conditions to Transaction .... 47
6.4 Employee Matters ................... 47
6.5 Advice of Changes .................. 49
6.6 Current Information ................ 50
6.7 Certain Revaluations, Changes, and
Adjustments ....................... 50
6.8 Intercompany Accounts Settlement ... 51
6.9 Termination of Intercompany
Agreements ........................ 51
6.10 Covenants Not to Compete and Solicit. 52
<PAGE>
Page
----
ARTICLE VI ADDITIONAL AGREEMENTS (CONTINUED)
6.11 Assistance in Conversion of Data
Processing and Consolidation of
Operations ........................ 52
6.12 [reserved] ......................... 53
6.13 General Notices to Depositors ...... 53
6.14 Compliance with Loan Agreements .... 54
6.15 Directors' and Officers' Insurance . 54
6.16 Collapse of Security Co. ........... 54
6.17 SERP Liability ..................... 55
ARTICLE VII CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation
To Effect the Closing ............. 55
7.2 Conditions to Obligations of
Purchaser ......................... 55
7.3 Conditions to Obligations of Seller. 58
ARTICLE VIII TERMINATION AND AGREEMENT
8.1 Termination ........................ 59
8.2 Effect of Termination .............. 60
8.3 Amendment .......................... 61
8.4 Extension; Waiver .................. 61
ARTICLE IX CERTAIN TAX MATTERS
9.1 Tax Returns, Payments of Taxes,
Transfer Taxes, Refunds and
Withholding ....................... 61
9.2 Control of Contest and Carrybacks .. 65
9.3 Access to Information and Records .. 66
9.4 Resolution of Disagreements Among
Parties ........................... 67
9.5 Distribution of Tax Reserve ........ 67
9.6 Successors ......................... 68
9.7 Federal Tax Provision .............. 68
9.8 Income Tax Adjustments ............. 68
<PAGE>
Page
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ARTICLE X INDEMNIFICATION
10.1 Seller to Indemnify ................ 68
10.2 Purchaser to Indemnify ............. 70
10.3 Procedure for Indemnification ...... 70
10.4 Production of Witnesses ............ 76
10.5 Survival ........................... 76
10.6 Indemnification for Certain
Matters ........................... 76
ARTICLE XI GENERAL PROVISIONS
11.1 Expenses .......................... 77
11.2 Notices ........................... 77
11.3 Interpretation .................... 78
11.4 Counterparts ...................... 79
11.5 Entire Agreement .................. 79
11.6 Governing Law ..................... 79
11.7 Enforcement of Agreement .......... 79
11.8 Severability ...................... 79
11.9 Publicity ......................... 79
11.10 Assignment ........................ 80
11.11 No Third Party Beneficiaries ...... 80
11.12 Dispute Resolution ................ 80
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, dated as of May 18, 1994, by
and between First Interstate Bank of California, a California
banking corporation ("Purchaser"), and Alleghany Corporation, a
Delaware corporation ("Seller").
WHEREAS, Seller beneficially owns, through Alleghany
Financial Inc., a wholly owned subsidiary of Seller ("AFI"), all
of the outstanding capital stock of Sacramento Savings Bank, a
California savings and loan association (the "Bank"), and Central
Valley Security Company, a California corporation ("Security
Co."); and
WHEREAS, Seller has adopted a plan of liquidation
pursuant to which AFI shall be merged with and into Seller prior
to the Closing (as hereinafter defined), as a result of which
Seller shall become the direct owner of all of the outstanding
capital stock of each of the Bank and Security Co.; and
WHEREAS, Seller desires to sell, and Purchaser desires
to buy, all of the outstanding capital stock of each of the Bank
and Security Co. for the consideration described herein.
NOW, THEREFORE, in consideration of the mutual cove-
nants, representations, warranties and agreements contained
herein, and intending to be legally bound hereby, the parties
agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, except as otherwise
expressly provided herein, the terms defined in this Article I
shall have the meanings ascribed to them in this Article I and
include the plural as well as the singular.
"Actual Dividend Amount" means the actual aggregate
amount of dividends declared or paid by the Bank and Security
Co., respectively, to Seller or any Affiliate thereof during the
period commencing on January 1, 1994 and ending immediately prior
to the Closing.
"Adams Farm Loan" means that certain loan (i) made to
Angelides Developments II, a joint venture composed of Philip N.
Angelides, Sotiris K. Kolokotronis, and Opper Adams Farms, a
general partnership; and Christo D. Bardis, John D. Reynen,
Thomas P. Winn, Angelo K. Tsakopoulos, Laguna Creek West 289
Investors, a California general partnership, and Aerojet Building
Investors, a California general partnership; (ii) having a
principal balance, as of April 30, 1994, of $12,959,701; (iii)
bearing the Bank's account numbers 070028261 & 070019823; and
(iv) secured by real property located in the County of Sacramento
comprising tax assessor parcel numbers 201-0300-036, 201-0300-
054, 201-0300-055, 201-0300-057, 201-0310-002, 201-0310-003, 201-
0310-004, 201-0310-005, 201-0310-006, 201-0310-008, 201-0310-011,
201-0310-020, 201-0310-021, 225-0030-007, 225-0300-008, 225-0300-
011, 225-0300-046, 225-0040-009, 225-0040-010, 225-0040-018, 225-
0040-021, and 225-0040-025.
"Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by,
or is under common control with, a specified Person except in
those cases where the controlling Person exercises control solely
in a fiduciary capacity.
"Agreement" means this Agreement by and between Pur-
chaser and Seller, together with all Exhibits and Schedules
attached or incorporated by reference.
"Ancillary Company" means Security Co.
"Balance Sheet" has the meaning set forth in Section
3.5.
"Bank" has the meaning set forth in the first paragraph
of the recitals to this Agreement.
"Bank Employees" means all persons employed by the Bank
or any of the Other Companies immediately prior to the Closing.
"Bank Merger" means the merger of the Bank with and
into Purchaser immediately following the Closing.
"Bank Merger Agreement" means the agreement between the
Bank and the Purchaser providing for the Bank Merger, a form of
which is attached as Exhibit A hereto.
"Benefit Plan" means any pension, profit-sharing, or
other employee benefit plan as defined in ERISA Section 3(3) and
any other plan or arrangement (including the Management Agree-
ments) relating to deferred compensation, incentive compensation,
fringe benefits, severance or other welfare benefits maintained
for current or former employees or directors of the Bank or any
of its Affiliates or with respect to which contributions are made
by the Bank, the Other Companies, Seller, or any of its Affili-
ates in connection with the current or former employees of the
Bank and the Other Companies.
"BHC Act" means the Bank Holding Company Act of 1956,
as amended.
"Burdensome Condition" has the meaning set forth in
Section 7.2(f).
"Business Day" means any day except Saturday, Sunday,
and any day which shall be in California a legal holiday or a day
on which banking institutions are authorized or required by law
or other government action to close.
"Closing" has the meaning set forth in Section 2.3(b)
hereof.
"Closing Date" has the meaning set forth in Section
2.3(b) hereof.
"COBRA" means the Consolidated Omnibus Budget Reconcil-
iation Act of 1986, as amended.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Common Shares" has the meaning set forth in Section
2.1(a) hereof.
"Common Stock" has the meaning set forth in Section
2.1(a) hereof.
"Confidentiality Agreement" has the meaning set forth
in Section 6.2(a).
"Encumbrance" means any lien, pledge, security inter-
est, claim, charge, easement, limitation, commitment, restriction
or encumbrance of any kind or nature whatsoever.
"Excluded Assets" has the meaning set forth in Section
2.1(b)
"Excluded Assets Closing Date" has the meaning set
forth in Section 2.3(d).
"Excluded Assets Schedule" means the schedule attached
as Exhibit B hereto.
"Excluded Liabilities" has the meaning set forth in
Section 2.1(b).
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"Federal Funds Rate" means, for any day, the rate per
annum (expressed on a basis of calculation of actual days in a
year) equal to the weighted average of the rates on overnight
federal funds transactions as published by the Federal Reserve
Bank of New York for such day (or for any day that is not a
Business Day, for the immediately preceding Business Day).
"GAAP" means, with respect to any financial statement,
generally accepted accounting principles as used in the United
States of America as in effect at the time such financial state-
ment was prepared.
"GAAP Book Balance" means, with respect to the Excluded
Assets and Excluded Liabilities taken as a whole, the net book
value of the Excluded Assets as reflected on the Closing Date
Balance Sheets, after deduction of charge-offs and specific loss
reserves, determined in a manner consistent with the book balanc-
es set forth in the Excluded Assets Schedule, but not including
any allocation of general valuation allowances, less the net book
value of the Excluded Liabilities as reflected on the Closing
Date Balance Sheets, determined in a manner consistent with the
book balances set forth in the Excluded Assets Schedule, and with
respect to any individual asset, the net book value of such asset
as reflected on the books and records of the Bank as of the
appropriate date, determined (to the extent relevant) in a manner
consistent with the book balances set forth in the Excluded
Assets Schedule, but not including any allocation of general
valuation allowance, less the net book value (if any) of any
related Excluded Liability.
"Governmental Entity" means any government or any
agency, bureau, board, commission, court, department, official,
political subdivision, tribunal or other instrumentality of any
government having authority in the United States or any other
nation, whether federal, state or local.
"Hazardous Material" has the meaning set forth in
Section 3.21.
"Indemnified Party" means the party seeking indemni-
fication pursuant to the terms of Article IX or Article X.
"Indemnifying Party" means the party from whom the
Indemnified Party seeks indemnification under Article IX or
Article X.
"Independent Accounting Firm" means any "Big Six"
accounting firm or its successor, except for the independent
public accountants of either Purchaser or Seller.
"IRS" means the Internal Revenue Service or any succes-
sor entity.
"ISF Portfolio" shall mean the loans and properties set
forth under the heading "In-Substance Foreclosure" of the Exclud-
ed Assets Schedule, and the non-cash proceeds of any sales
thereof prior to the Closing.
"Law" means any statute, whether federal, state or
local, applicable in the United States or any other nation, any
other law, rule, regulation or interpretation of any Governmental
Entity, any applicable common law, and any Order.
"Loss" has the meaning set forth in Section 10.1.
"Management Agreements" means all severance agreements,
plans, programs, letters, arrangements or promises that are
between the Seller, the Bank and any Management Employee, as set
forth in Schedule 3.7(a)(v) hereto, which are currently in effect
and might subject the Bank or the Other Companies to any obliga-
tion.
"Management Agreement Payments" means the cash lump sum
severance payments and certain other cash payments under the
Management Agreements for which Seller shall be responsible.
"Management Employee" means a Bank Employee whose name
is set forth in Schedule 1.1 hereto.
"Material Adverse Effect" means a material adverse
effect on the business, properties, assets, liabilities, results
of operations or financial condition of the Bank and the Other
Companies, taken as a whole.
"Order" means any decree, injunction, judgment, order,
ruling, or writ of any Governmental Entity.
"Other Companies" means the Bank's Subsidiary and
Security Co., and any Subsidiary or predecessor of any of the
foregoing.
"Other Real Estate" means real or personal property
acquired by foreclosure or in full or partial satisfaction of
judgments or indebtedness.
"Pass Land Loan Portfolio" means all land loans other
than those set forth on the Excluded Assets Schedule or otherwise
included among the Excluded Assets pursuant to Section 2.3(b)
hereof.
"Permitted Dividend Amount" means an amount equal to
the aggregate of (i) the consolidated net income of the Bank and
its Subsidiary, (ii) the net income of Security Co., in each case
for the period commencing on January 1, 1994 and ending immedi-
ately prior to the Closing, all as determined in accordance with
GAAP applied on the same basis as would be applied in connection
with the preparation of the Interim Period Income Statements and,
in the case of the Bank, reflecting the accounting methods and
practices currently followed by the Bank for the establishment of
loan loss reserves, and (iii) the amount of any cash capital
contributions made by Seller to the Bank during the period
commencing on the date of this Agreement and ending immediately
prior to the Closing, provided, however, that in no event shall
the Permitted Dividend Amount exceed the sum of (i) $1 million
multiplied by the number of calendar months (or fractions there-
of) between the date of this Agreement and the earlier of the
Closing Date or December 31, 1994, (ii) $1.5 million multiplied
by the number of calendar months (or fraction thereof) between
January 1, 1995 and the Closing Date, and (iii) the amount of any
cash capital contributions made by Seller to the Bank during the
period commencing on the date of this Agreement and ending
immediately prior to the Closing, provided further, however, that
in no event shall the Permitted Dividend Amount exceed an amount
such that, if the full Permitted Dividend Amount had been paid as
a dividend prior to the Closing, the condition set forth in
Section 7.2(j) would not be satisfied.
"Person" means an association, a corporation, an
individual, a partnership, a trust, or any other entity or
organization, including a Governmental Entity.
"Pre-Closing Period" has the meaning set forth in
Section 9.1(a).
"Purchaser" has the meaning set forth in the first
paragraph of this Agreement.
"Regulatory Agreement" has the meaning set forth in
Section 3.15.
"REI Portfolio" means the properties and interests set
forth under the heading "Real Estate Investments" of the Excluded
Assets Schedule, and the non-cash proceeds of any sales thereof
prior to the Closing.
"REO Portfolio" means the loans and properties set
forth under the heading "Real Estate Owned" of the Excluded
Assets Schedule, and the non-cash proceeds of any sales thereof
prior to the Closing.
"Requisite Regulatory Approvals" has the meaning set
forth in Section 7.1(a).
"Security Co." has the meaning set forth in the first
paragraph of the recitals to this Agreement.
"Security Co. Merger" has the meaning set forth in
Section 6.16.
"Security Co. Shares" has the meaning set forth in
Section 2.1(a) hereof.
"Seller" has the meaning set forth in the first para-
graph of this Agreement.
"Seller's Auditors" means KPMG Peat Marwick, indepen-
dent public accountants to Seller, or such other firm of indepen-
dent public accountants as Seller shall engage as its auditors.
"Seller Disclosure Schedule" has the meaning set forth
in Section 3.2(b).
"Shares" has the meaning set forth in Section 2.1(a)
hereof.
"Special Mention Land Loan Portfolio" means the loans
and properties set forth under the heading "Special Mention" of
the Excluded Assets Schedule, and the non-cash proceeds of any
sales thereof prior to the Closing.
"Straddle Period" has the meaning set forth in Section
9.1(b).
"Subsidiary" means, with respect to any Person, any
corporation, partnership or other organization, whether incorpo-
rated or unincorporated, which is required by GAAP to be consol-
idated with such Person for financial reporting purposes.
"Substandard Land Loan Portfolio" means the loans and
properties set forth under the headings "Performing Substandard
Loans" and "Non-Performing Substandard Loans" of the Excluded
Assets Schedule and any non-cash proceeds of any sales thereof
prior to the Closing.
"Taxes" means each and all taxes, levies, imposts,
duties, assessments, charges, and withholdings imposed or re-
quired to be collected by any federal, state, local or foreign
Governmental Entity or by any political subdivision thereof or
any combination thereof (including, without limitation, income,
gross receipts, ad valorem, value added, minimum tax, franchise,
sales, use, excise, license, real or personal property, employ-
ment, payroll, social security, unemployment, disability, stock
transfer, estimated, withholding or other tax, governmental fee
or other like assessment or charge of any kind whatsoever),
including any interest, penalties, fines, assessments or addi-
tions to tax imposed in respect of the foregoing, or in respect
of any failure to comply with any requirement regarding Tax
Returns.
"Tax Return" means a report, return, information
return, payee statement or other information required to be
retained, or filed or otherwise provided to any federal, state,
local or foreign Governmental Entity with respect to Taxes,
including any reports, returns or information required to be re-
tained, or filed or otherwise provided to any Governmental Entity
pursuant to 31 U.S.C. Sections 5311-5328 and regulations promul-
gated thereunder.
"United States" means the United States of America, its
territories and possessions.
"Violation" has the meaning set forth in Section
3.3(b).
ARTICLE II
PURCHASE AND SALE
-----------------
2.1 PURCHASES BY PURCHASER AND SELLER. (a) Subject to the
terms and conditions set forth in this Agreement, on the Closing
Date, Purchaser agrees to purchase from Seller, and Seller agrees
to sell to Purchaser, (i) all of the 1,801 issued and outstanding
shares (the "Common Shares") of the common stock, par value $100
per share, of the Bank (the "Common Stock") and (ii) unless the
Security Co. Merger shall have occurred, all of the 80 issued and
outstanding shares (the "Security Co. Shares," and together with
the Common Shares, the "Shares") of the common stock, par value
$10 per share, of Security Co. (the "Security Co. Common
Stock."), owned by Seller, free and clear of any and all Encum-
brances.
(b) Subject to the terms and conditions set forth
in this Agreement, on the Excluded Assets Closing Date, Seller
agrees to (I) purchase from the Bank, and shall cause the Bank to
sell to Seller, all of the Bank's rights, titles, and interests
in and to (i) the REI Portfolio, (ii) the REO Portfolio, (iii)
the ISF Portfolio, (iv) the Substandard Land Loan Portfolio and
(v) the Special Mention Land Loan Portfolio, together in each
case with all accrued interest, purchase adjustments, deferred
interest, accrued expenses and specific loan loss reserves
related thereto (collectively, the "Excluded Assets") owned by
the Bank on such date and (II) accept and assume, and to thereaf-
ter pay, honor, perform and discharge, all liabilities and
obligations (whether absolute, accrued, contingent or otherwise,
due or to become due and whether arising prior to, on or after
the Closing Date) that are related to, or arise under any con-
tract, document, agreement or other instrument executed in
connection with, any Excluded Asset (collectively, the "Excluded
Liabilities"). Purchaser shall have the right, during the 30 day
period subsequent to the execution of this Agreement, to desig-
nate the Adams Farm Loan for treatment as an Excluded Asset for
purposes of this Agreement. If Purchaser exercises such right,
it shall, prior to the expiration of such 30 day period, desig-
nate one or more assets (each a "Removed Asset") set forth on the
Excluded Assets Schedule which, as of the last day of the month
immediately preceding the date of such notice, have an aggregate
GAAP Book Balance equal to or greater than the GAAP Book Balance
of the Adams Farm Loan on such last day of such month, provided
however, that Seller shall have the right, during such 30 day
period to designate any asset in the REO Portfolio as not eligi-
ble for designation by Purchaser as a Removed Asset if Seller
reasonably believes that it will be able to sell, or contract for
the sale of, such asset prior to the Closing Date. In the event
that, as a result of Seller's exclusion of any asset from those
assets eligible for designation as Removed Assets, Purchaser is
unable to designate assets with a sufficient GAAP Book Balance as
Removed Assets prior to the expiration of the 30 day period
following the execution of this Agreement, Purchaser shall have
an additional 15 days to designate Removed Assets. For purposes
of this Agreement, notwithstanding anything to the contrary
contained herein, no Removed Asset shall be considered to be an
Excluded Asset.
(c) Purchaser and Seller agree that each will, or will
cause its Affiliates to, at any time and from time to time after
the Closing Date, upon request of the other party, do, execute,
acknowledge and deliver or cause to be done, executed, acknowl-
edged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may
in the requesting party's reasonable opinion be necessary or
advisable to confirm Seller's title to and interest in, or
assumption of, or to enable it to deal with and dispose of, the
Excluded Assets to be conveyed, transferred and delivered by Bank
to Seller (or, in the case of the Excluded Liabilities, assumed
by Seller) under this Agreement.
2.2 PURCHASE PRICES. (a) The purchase price to be
paid by Purchaser to Seller for the Shares, whether or not the
Security Co. Merger shall have occurred, shall be $331 million in
cash (the "Share Purchase Price").
(b) The aggregate purchase price to be paid by
Seller to the Bank for the Excluded Assets (the "Excluded Assets
Purchase Price") shall be an amount in cash equal to the aggre-
gate GAAP Book Balance of the Excluded Assets and the Excluded
Liabilities.
(c) If a Governmental Entity determines that the
consideration to be paid by Seller or any of its Affiliates
pursuant to the terms of this Agreement with respect to any
Excluded Asset is less than the amount required to be paid for
such asset pursuant to applicable law, then Seller or any such
Affiliate shall pay any additional required amount with respect
to such asset; provided, however, that Seller shall be indemni-
fied by Purchaser with respect to any such additional payment
(less any liability for Taxes incurred by the Bank or Purchaser
as a result of the receipt of any such payment from Seller or any
such Affiliate) pursuant to Section 10.2 hereof.
2.3 CLOSING; PAYMENT OF ESTIMATED EXCLUDED ASSETS
PURCHASE PRICE. (a) At least five Business Days prior to the
Excluded Assets Closing Date (the "Estimation Date"), Seller
shall deliver to Purchaser an estimate of the amount of the
Excluded Assets Purchase Price (the "Estimated Excluded Assets
Purchase Price") contemplated by Section 2.2(b) hereof, which
estimate shall be accompanied by a schedule setting forth in
reasonable detail the estimated GAAP Book Balance of each of the
portfolios listed in clauses (i)-(v) of Section 2.1(b).
(b) The sale and purchase of the Shares (the
"Closing") hereunder shall be deemed to occur at the close of
business on the Closing Date at the offices of Purchaser in Los
Angeles, California, or at such other time and place as shall be
mutually agreeable to the parties. The Closing shall take place
on the first day which is the last Business Day of a month and is
no earlier than the second Business Day after the conditions set
forth in Article VII (other than the conditions relating to the
receipt of officer's certificates and legal opinions) hereof have
first been satisfied or, where permissible, waived (the "Closing
Date"), provided that Purchaser shall have the right to designate
that the Closing Date occur on a date other than the last Busi-
ness Day of a month.
(c) On the Closing Date, the following actions
shall be taken:
(i) Purchaser shall pay the Share Purchase
Price to Seller by wire transfer of immediately avail-
able funds to such account or accounts as Seller shall
designate in writing at least two Business Days prior
to the Closing Date;
(ii) Purchaser shall deliver to Seller a
copy of the resolutions of the board of directors of
Purchaser authorizing the execution of this Agreement
and the Bank Merger Agreement and the consummation of
the transactions contemplated hereby and thereby, which
resolutions shall be certified by an appropriate offi-
cer of the Purchaser as true, complete and correct;
(iii) Seller shall deliver certificates for the
Common Shares and, unless the Security Co. Merger shall have
occurred, the Security Co. Shares, respectively, duly en-
dorsed in blank or with stock powers duly endorsed in blank,
together with such other documents as Purchaser may reason-
ably request to evidence the transfer to Purchaser of good
and marketable title in and to all of the Shares, free and
clear of any and all Encumbrances;
(iv) Seller shall deliver to Purchaser
copies of the resolutions of the executive committee of
the board of directors of Seller and the board of the
directors of the Bank authorizing the execution of this
Agreement and the Bank Merger Agreement, respectively,
and the consummation of the transactions contemplated
hereby and thereby, which resolutions shall be certi-
fied by an appropriate officer of Seller and the Bank
as true, complete and correct;
(v) immediately following the Closing, the Bank
shall merge into Purchaser pursuant to the terms of the Bank
Merger Agreement; and
(vi) each party shall take such other actions,
and shall execute and deliver such other instruments or
documents, as shall be required under the terms of this
Agreement.
(d) The sale and purchase of the Excluded Assets
and the assumption of the Excluded Liabilities (the "Excluded
Assets Closing") hereunder shall occur at the offices of the
Bank, or at such other place as shall be mutually agreeable to
the parties. The Excluded Assets Closing shall take place on any
Business Day designated by Purchaser which is prior to the day
which has been scheduled as the Closing Date, provided that such
closing shall occur no earlier than five Business Days prior to
the scheduled Closing Date and provided further that Seller shall
have no obligation to effect the Excluded Assets Closing unless
Purchaser agrees in writing that all the conditions to Purc-
haser's obligation to consummate the Closing set forth in Article
VII hereof (other than the conditions relating to the receipt of
officer's certificates and legal opinions) have been satisfied
or, where permissible, waived (the "Excluded Assets Closing
Date"). Notwithstanding anything to the contrary contained
herein, in the event that Seller and Purchaser mutually agree,
the transfer of the REI Portfolio may be accelerated to any time
prior to the Excluded Assets Closing Date described in the
previous sentence, with appropriate adjustments made on the
Excluded Assets Closing Date to treat any such earlier transfer
of the REI Portfolio as if it had occurred on the Excluded Assets
Closing Date.
(e) On the Excluded Assets Closing Date, the
following actions shall be taken:
(i) Seller shall pay the Estimated Excluded
Assets Purchase Price to the Bank by wire transfer to such
account of the Bank as the Bank shall designate in writing
to Seller at least two Business Days prior to the Excluded
Assets Closing Date; and
(ii) Seller shall cause the Bank to transfer all
of the Bank's rights, titles and interests in and to the Ex-
cluded Assets and the Excluded Liabilities to Seller or one
of its Affiliates pursuant to such bills of sale, assign-
ments, quitclaim deeds and instruments of assumption, as the
case may be, as Seller may designate in forms reasonably ac-
ceptable to Purchaser, provided that with respect to the
Excluded Assets which comprise the REI Portfolio, such
transfers shall be made pursuant to an agreement (each an
"REI Transfer Agreement") substantially in the form of
Exhibit C.
2.4 CLOSING ADJUSTMENT DOCUMENTS. In order to prepare
for the final adjustment of the Excluded Assets Purchase Price as
contemplated in Section 2.5 hereof, the parties shall proceed as
follows:
(a) As soon as reasonably practicable following
the Closing Date, and in no event more than 20 days thereafter,
Seller shall direct the preparation of and deliver to Purchaser
(i) an unaudited consolidated balance sheet of the Bank and its
Subsidiary as of the Closing Date (it being agreed that notwith-
standing the purchase of the Excluded Assets and assumption of
the Excluded Liabilities by Seller, the Excluded Assets and
Excluded Liabilities shall be reflected on such consolidated
balance sheet), an unaudited balance sheet of the Ancillary
Company as of the Closing Date (collectively, the "Closing Date
Balance Sheets"), and an unaudited consolidated statement of
income of the Bank and its Subsidiary for the period commencing
on January 1, 1994 and ending on the Closing Date, and an unau-
dited statement of income of the Ancillary Company for the period
commencing on January 1, 1994 and ending on the Closing Date
(collectively, the "Interim Period Income Statements"), which
Closing Date Balance Sheets and Interim Period Income Statements
shall be prepared in accordance with GAAP (subject to normal
recurring adjustments and the exceptions set forth in this
sentence) consistent with the accounting principles used in the
preparation of the Balance Sheet, the Income Statement, the
Ancillary Company's Balance Sheet and the Ancillary Company's
Income Statement, as appropriate (except that footnote presen-
tation may be used as permitted by Form 10-Q of the Securities
and Exchange Commission), and consistent with existing accounting
practices and methods currently followed by the Bank for the
establishment of loan loss reserves, and which Closing Date
Balance Sheets and Interim Period Income Statements shall be
prepared without regard to any transactions, liabilities or
adjustments created by reason of the acquisition of the Bank by
Purchaser pursuant to this Agreement, and, accordingly shall not
give effect to the acquisition by Purchaser of the Common Shares,
either the acquisition by Purchaser of the Security Co. Shares or
the Security Co. Merger, the Bank Merger, the sale of the Exclud-
ed Assets and the assumption of the Excluded Liabilities, or any
adjustments made pursuant to Section 6.7 hereof, or any severance
costs or expenses that may be incurred by the Bank after the
Closing, or any liability which would otherwise be reflected on
the Closing Date Balance Sheets and the Interim Period Income
Statements, in accordance with GAAP, but which Purchaser has
expressly agreed to pay or assume under this Agreement, (ii) a
schedule calculating the amount of the Excluded Assets Purchase
Price, (iii) a schedule calculating the Actual Dividend Amount,
and (iv) a schedule setting forth in reasonable detail the calcu-
lations contemplated by Section 2.5 below (collectively, the
"Closing Adjustment Documents"). The parties shall cooperate in
the preparation of the Closing Adjustment Documents in accordance
with this Section 2.4 and Section 2.5 hereof, including such
additional documents as may be necessary to calculate the final
purchase price adjustments.
(b) Within twenty calendar days after delivery of
the Closing Adjustment Documents to Purchaser, Purchaser may
dispute all or any portion of the Closing Adjustment Documents by
giving written notice (a "Notice of Disagreement") to Seller
setting forth in reasonable detail the basis for any such dispute
(any such dispute being hereinafter called a "Disagreement").
The parties shall promptly commence good faith negotiations with
a view to resolving all such Disagreements. If Purchaser does
not give a Notice of a Disagreement within the twenty-day period
set forth in this paragraph (b), Purchaser shall be deemed to
have irrevocably accepted the Closing Adjustment Documents in the
form delivered by Seller; provided, however, that the failure of
Purchaser to timely give such a Notice of Disagreement shall not
be deemed a waiver of its right to make a claim for indemnifi-
cation in accordance with the terms and conditions of Article X
hereof.
(c) If Purchaser shall deliver a Notice of
Disagreement, and within twenty calendar days following the
delivery to Seller of such notice Purchaser and Seller do not
resolve the Disagreement, such Disagreement shall be referred to
an Independent Accounting Firm mutually selected by Seller and
Purchaser for a resolution of such Disagreement in accordance
with the terms of this Agreement. If Purchaser and Seller do not
promptly agree on the selection of an Independent Accounting
Firm, their respective independent public accountants shall
select such firm. The determinations of such firm with respect
to any Disagreement shall be final and binding upon the parties
and the amount so determined shall be used to complete the final
Closing Adjustment Documents. Purchaser and Seller shall use
their best efforts to cause the Independent Accounting Firm to
render its determination as soon as practicable after referral of
the Disagreement to such firm, and each shall cooperate with such
firm and provide such firm with reasonable access to the books,
records, personnel and representatives of it and its Subsidiaries
and such other information as such firm may require in order to
render its determination. All of the fees and expenses of any
Independent Accounting Firm retained pursuant to this paragraph
(c) shall be paid one-half by Purchaser and one-half by Seller.
2.5 FINAL SETTLEMENT. On the Business Day immediately
following the day on which the Closing Adjustment Documents shall
have been finally determined pursuant to the terms of Section 2.4
of this Agreement (the "Final Settlement Date"), the Excluded
Assets Purchase Price shall be recalculated (as so recalculated,
the "Final Excluded Assets Purchase Price"), and the Actual
Dividend Amount and the Permitted Dividend Amount shall be calcu-
lated, in each case using the amounts reflected in the final
Closing Adjustment Documents. If the Final Excluded Assets Pur-
chase Price plus the Actual Dividend Amount exceeds the Estimated
Excluded Assets Purchase Price plus the Permitted Dividend
Amount, Seller shall pay the difference to Purchaser by wire
transfer in immediately available funds to such party's account.
If the Estimated Excluded Assets Purchase Price plus the Permit-
ted Dividend Amount exceeds the Final Excluded Assets Purchase
Price plus the Actual Dividend Amount, Purchaser shall pay, or
cause the payment of, the difference to Seller, by wire transfer
in immediately available funds to an account designated in
writing by Seller ("Seller's Account"). Any payment pursuant to
this Section 2.5 shall include interest on such amount for the
number of days from and including the Closing Date to but exclud-
ing the Final Settlement Date at the Federal Funds Rate.
2.6 PURCHASE PRICE ALLOCATION. Seller and the Pur-
chaser hereby agree that, of the Share Purchase Price, $321
million shall be allocated between the Common Shares and the
Security Co. Shares as Purchaser and Seller shall mutually agree,
and $10 million to the covenant not to compete described in
Section 6.10 hereof. Any payments pursuant to Section 2.5 hereof
shall be treated as an adjustment to the purchase price of the
Common Shares and the Security Co. Shares respectively in an
amount equal to the proportion of the aggregate Share Purchase
Price (excluding any amount allocated to the covenant not to com-
pete) represented by such shares. Notwithstanding the foregoing,
in the event that the Security Co. Merger shall have occurred
prior to the Closing, then $321 million of the Purchase Price
shall be allocated to the Common Shares and $10 million to the
covenant not to compete, and any payments made pursuant to
Section 2.5 shall be treated as an adjustment to the purchase
price of the Common Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Purchaser as
follows:
3.1 CORPORATE ORGANIZATION. (a) Seller is a corpora-
tion duly organized, validly existing and in good standing under
the laws of the State of Delaware. The Bank is a savings and
loan association duly organized, validly existing and in good
standing under the laws of California. Each of the Other Compa-
nies is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation
or organization. Seller, the Bank and each of the Other Compa-
nies each have the corporate power and authority to own or lease
all of its properties and assets and to carry on its business as
is now being conducted and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business
conducted by it or the character or the location of the proper-
ties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so
licensed or qualified, individually or in the aggregate with all
other such failures, would not have a Material Adverse Effect.
The Articles of Incorporation and By-laws of the Bank, and
similar governing documents of each of the Other Companies,
copies of which have previously been delivered to Purchaser, are
true, complete and correct copies of such documents as in effect
as of the date of this Agreement. The deposit accounts of the
Bank are insured by the Federal Deposit Insurance Corporation
through the Savings Association Insurance Fund to the full extent
permitted by law, and all premiums and assessments required in
connection therewith have been paid when due by the Bank.
3.2 CAPITALIZATION. (a) Except as set forth on
Section 3.2(a) of the Seller Disclosure Schedule (as defined
below), as of the date of this Agreement, AFI owns the Common
Shares and the Security Co. Shares, respectively, beneficially,
free and clear of any and all Encumbrances. On the Closing Date,
Seller will own the Common Shares and, unless the Security Co.
Merger shall have occurred, the Security Co. Shares, respective-
ly, beneficially and of record, free and clear of any and all
Encumbrances, except for those Encumbrances set forth in Section
3.2(a) of the Seller Disclosure Schedule. Upon payment of the
Share Purchase Price at Closing, Seller will convey good and
valid title to the Common Shares and the Security Co. Shares,
respectively, free and clear of any and all Encumbrances. The
authorized capital stock of the Bank consists of 10,000 shares of
Common Stock and no shares of preferred stock. There are 1,801
shares of Common Stock issued and outstanding, and no shares of
Common Stock are reserved for issuance. All of the Shares are
duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights, with no personal liability attaching
to the ownership thereof. There are no outstanding subscrip-
tions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of
Common Stock or any other equity security of the Bank or any
securities representing the right to purchase or otherwise
receive any shares of Common Stock or any other equity security
of the Bank.
(b) Section 3.2(b) of the Disclosure Schedule which is
being delivered by Seller to Purchaser concurrently herewith (the
"Seller Disclosure Schedule") sets forth a true and correct list
of all of the Subsidiaries of the Bank. Except as set forth on
Section 3.2(b) of the Seller Disclosure Schedule, the Bank owns,
directly or indirectly, all of the issued and outstanding shares
of capital stock of each of such Subsidiaries, free and clear of
all Encumbrances, and all of such shares are duly authorized and
validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the
ownership thereof. The authorized capital stock of Security Co.
consists of 2,500 shares of Security Co. Common Stock. There are
80 shares of Security Co. Common Stock issued and outstanding,
and no shares of Security Co. Common Stock are reserved for issu-
ance. No Other Company has or is bound by any outstanding sub-
scriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any
shares of capital stock or any other equity security of such
Other Company or any securities representing the right to pur-
chase or otherwise receive any shares of capital stock or any
other equity security of such Other Company.
3.3 AUTHORITY; NO VIOLATION. (a) Seller has full
corporate power and authority to execute and deliver this Agree-
ment and to consummate the transactions contemplated hereby. The
Bank has full corporate power and authority to execute and
deliver the Bank Merger Agreement and to consummate the transac-
tions contemplated thereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of
Directors of Seller, and no other corporate proceedings on the
part of Seller, the Bank or any of the Other Companies are neces-
sary to approve this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of the Bank
Merger Agreement and the consummation of the transactions contem-
plated thereby have been duly and validly authorized by the Board
of Directors of the Bank and by Seller as the sole stockholder of
the Bank, and no other corporate proceedings on the part of
Seller, the Bank or any of the Other Companies are necessary to
approve the Bank Merger Agreement and to consummate the transac-
tions contemplated thereby. This Agreement and the Bank Merger
Agreement have been duly and validly executed and delivered by
Seller and the Bank, as the case may be, and (assuming the due
authorization, execution and delivery of this Agreement and the
Bank Merger Agreement by Purchaser) each agreement constitutes a
valid and binding obligation of Seller (or, in the case of the
Bank Merger Agreement, of the Bank), enforceable against Seller
(or, in the case of the Bank Merger Agreement, the Bank) in
accordance with its terms, except as enforcement may be limited
by general principles of equity whether applied in a court of law
or a court of equity and by bankruptcy, insolvency and similar
laws affecting creditors' rights and remedies generally.
(b) Except as set forth in Section 3.3(b) of the
Seller Disclosure Schedule, neither the execution and delivery of
this Agreement by Seller nor the Bank Merger Agreement by the
Bank, nor the consummation by Seller or the Bank, as the case may
be, of the transactions contemplated hereby or thereby, nor
performance by Seller or the Bank of any of their respective
obligations hereunder or thereunder (except for the transfer of
the Excluded Assets to Seller or one of its Affiliates, as to
which no representation is made in this Section 3.3(b)), will (i)
violate any provision of the Certificate of Incorporation or
By-Laws of Seller or the articles of incorporation, by-laws or
similar governing documents of the Bank or any of the Other
Companies or (ii) assuming that the consents and approvals
referred to in Section 3.4 hereof are duly obtained, (x) violate
in any material respect any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction appli-
cable to Seller, the Bank or any of the Other Companies, or any
of their respective properties or assets, or (y) violate, con-
flict with, result in a breach of any provision of or the loss of
any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default)
under, result in the termination of or a right of termination or
cancellation under, accelerate the performance required by, or
result in the creation of an Encumbrance upon any of the respec-
tive properties or assets of Seller, the Bank or any of the Other
Companies under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which
Seller, the Bank or any of the Other Companies is a party, or by
which Seller, the Bank or any of the Other Companies or any of
their respective properties or assets may be bound or affected,
which Violation, individually or in the aggregate with all other
such Violations, would have a Material Adverse Effect. For
purposes of this Agreement, any conflict, violation, default,
result, right, termination, cancellation, acceleration, loss or
creation of the type described in this Section 3.3(b) shall be
referred to as a "Violation."
3.4 CONSENTS AND APPROVALS. Except for (a) the filing
of applications and notices, as applicable, with the Board of
Governors of the Federal Reserve System (the "Federal Reserve
Board") under the BHC Act, the Bank Merger Act and the Federal
Reserve Act (the "FRA") and approval of such applications and
notices, (b) the filing of any required applications or notices
with the Federal Deposit Insurance Corporation (the "FDIC"), (c)
the filing of any required applications with the Superintendent
of Banks of the State of California and the Commissioner of the
Department of Savings and Loan of the State of California and the
approval of such applications and notices (the "State Banking
Approvals"), (d) the filing of applications and notices, as
applicable, with the Office of Thrift Supervision and the approv-
al of such applications and notices, (e) such filings, authoriza-
tions or approvals as may be set forth in Section 3.4 of the
Seller Disclosure Schedule, and (f) the transfer of the Excluded
Assets to Seller or any of its Affiliates, as to which no repre-
sentation is made in this Section 3.4, no consents or approvals
of or filings or registrations with any Governmental Entity or
with any third party are necessary in connection with (i) the
execution and delivery by Seller of this Agreement or by the Bank
of the Bank Merger Agreement or (ii) the consummation by Seller
or the Bank, as the case may be, of the transactions contemplated
hereby or thereby.
3.5 FINANCIAL STATEMENTS. Seller has previously
delivered to Purchaser the audited consolidated balance sheets of
the Bank and its Subsidiary as of December 31, 1993 and 1992 (the
"Balance Sheet") and the related consolidated statements of earn-
ings, stockholder's equity and cash flows and changes in finan-
cial position for the years then ended (the "Income Statement")
and the unaudited balance sheet of Security Co. as of December
31, 1993 and 1992 (the "Ancillary Company's Balance Sheets") and
the related statements of earnings for the years then ended (the
"Ancillary Company's Income Statements"). The Balance Sheet and
Income Statement are sometimes collectively called the "Financial
Statements". Except as set forth in the notes to the Financial
Statements, the Financial Statements present fairly the consoli-
dated financial position and results of operations of the Bank
and its Subsidiary as of the dates and for the periods indicated
therein and have been prepared in accordance with GAAP (including
the related notes and schedules thereto) consistently applied
during the periods involved (except as otherwise stated therein).
The Ancillary Company's Balance Sheet and the Ancillary Company's
Income Statement are sometimes collectively called the "Ancillary
Company's Financial Statements." Except as set forth in the
notes to the Ancillary Company's Financial Statements, the
Ancillary Company's Financial Statements present fairly the
financial position and results of operations of the Ancillary
Company as of the dates and for the periods indicated therein and
have been prepared in accordance with GAAP (including the related
notes and schedules thereto) consistently applied during the
periods involved (except as otherwise stated therein). All
changes in accounting methods reflected in the Financial State-
ments or the Ancillary Company's Financial Statements and all
adjustments resulting from such changes were made in accordance
with GAAP. The Bank maintains its reserve for loan losses in
accordance with its policies, as such policies were in effect on
December 31, 1993, which policies conform with GAAP, as applica-
ble, and such reserves are at a level that is consistent with
GAAP.
3.6 BROKER'S FEES. Neither Seller nor the Bank nor
any of the Other Companies has employed any broker or finder or
incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contem-
plated by this Agreement, except that Seller has engaged, and
will pay a fee to Chemical Bank ("Chemical"), in accordance with
the terms of a letter agreement (the "Letter Agreement") between
Chemical and Seller. Neither the Bank nor any of the Other
Companies has incurred any liabilities (x) pursuant to the Letter
Agreement or (y) for any outside legal fees or expenses in
connection with any of the transactions contemplated by this
Agreement, except for liabilities to be paid in full prior to the
Closing Date.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
may be set forth in Section 3.7 of the Seller Disclosure Schedule
and for any sale, transfer or other disposition of the Excluded
Assets, since December 31, 1993: (a) neither the Bank nor any of
the Other Companies has: (i) issued or sold any equity securi-
ties; (ii) mortgaged, pledged or subjected to any lien or lease
any of its assets, tangible or intangible, or permitted or suf-
fered any such asset to be subjected to any lien or lease, except
in the ordinary course of business; (iii) acquired or disposed of
any assets or properties, or entered into any contract for any
such acquisition or disposition, except acquisitions and disposi-
tions effected in the ordinary course of business; (iv) solely
with respect to the Bank and Security Co., and except for the
declaration and payment of dividends in an aggregate amount less
than or equal to the Permitted Dividend Amount, declared, paid,
or set apart any sum or property for any dividend or other
distribution or paid or transferred any funds or property to its
shareholders or, directly or indirectly, redeemed or otherwise
acquired any of its capital stock; (v) other than in the ordinary
course of business, increased the wages, salaries, compensation,
pension, or other fringe benefits or perquisites payable to any
executive officer, employee, or director from the amount in
effect as of December 31, 1993, granted any severance or termina-
tion pay, entered into any contract to make or grant any sever-
ance or termination pay, or paid any bonus; provided, however,
that on the Closing Date the Bank may credit and award 401(k)
employee match amounts pro-rated from the first day of the plan
year to the Closing Date and short term management bonuses as if
fully earned for 1994; (vi) forgiven or canceled any indebtedness
or contractual obligation other than non-material amounts can-
celed in the ordinary course of business; (vii) suffered any
strike, work stoppage, slow-down, or other labor disturbance;
(viii) entered into any lease of real or personal property,
except for leases involving amounts entered into in the ordinary
course of business; or (ix) entered into any other material
transaction other than in the ordinary course of business; and
(b) no event has occurred or has failed to occur which has had or
is reasonably expected to have, individually or in the aggregate
with any other event(s), a Material Adverse Effect.
3.8 LEGAL PROCEEDINGS. Except as set forth in Section
3.8 of the Seller Disclosure Schedule or with respect to any of
the Excluded Assets or Excluded Liabilities, neither the Bank nor
any of the Other Companies is a party to any, and there are no
pending or, to the best of Seller's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against
the Bank, any of the Other Companies or any of their respective
properties or assets or challenging the validity or propriety of
the transactions contemplated by this Agreement which, if ad-
versely determined, would, individually or in the aggregate, have
a Material Adverse Effect, and there is no injunction, order,
judgment, decree, or regulatory restriction imposed upon the
Bank, any of the Other Companies or the properties or assets of
the Bank or any of the Other Companies.
3.9 TAX MATTERS. Except as set forth in Section 3.9
of the Seller Disclosure Schedule:
(a) each of the Bank, the Other Companies and any
affiliated, consolidated, combined, unitary or other such group
of which the Bank or any of the Other Companies is or was a
member have timely filed (or have properly requested an extension
to file) all material Tax Returns required to be filed on or
before the date hereof (and will timely file all such Tax Returns
required to be filed on or before the Closing Date), all such Tax
Returns were (and, as to Tax Returns not filed as of the date
hereof, will be) true, complete and accurate in all material
respects.
(b) Seller or the Bank have timely paid in full,
or made adequate provision on the Financial Statements or the
Ancillary Companies' Financial Statements in accordance with GAAP
for the payment of, all Taxes that are due and payable with
respect to such Tax Returns. Since December 31, 1993, neither
the Bank nor any of the Other Companies has incurred any liabil-
ity for Taxes other than (i) Taxes incurred in the ordinary
course of business and (ii) Taxes that would not have a material
adverse effect on the business or financial condition of the Bank
or the Other Companies. There are no material differences
between the book basis and the tax basis of any assets of the
Bank or any of the Other Companies that are not accounted for by
an accrual on the Financial Statements or the Ancillary Compa-
nies' Financial Statements in accordance with GAAP. There are no
currently pending administrative (excluding audit examinations)
or judicial proceedings, deficiency or refund litigation of the
Seller, the Bank or any of the Other Companies with respect to
Taxes the adverse outcome of which would subject such entities to
Tax, in the aggregate, in excess of $5,000,000.
(c) Except with respect to any Excluded Asset,
none of Seller, the Bank, any of the Other Companies, or any
Affiliate or representative of any of them, has received any
written notice of deficiency or assessment (or other written
notice) from any Governmental Entity with respect to Taxes which
has not been fully paid or finally settled, which asserts, or
notifies the recipient of a claim for, Taxes of the Bank or any
of the Other Companies, or for Taxes of any other party the
payment of which would require the Bank or any of the Other
Companies to make any payment to such other party pursuant to a
tax sharing, payment or indemnification agreement or any other
similar written arrangement to which the Bank or any of the Other
Companies is a party. Any such disclosed notice of deficiency or
assessment is being, or will be, contested in good faith through
appropriate and timely proceedings, the status of which is de-
scribed in Section 3.9 of the Seller Disclosure Schedule. There
are no requests for rulings, outstanding subpoenas or requests
for information with respect to Taxes of, or proposed reassess-
ments of any property owned or leased by, the Bank or any of the
Other Companies.
(d) All federal and state income Tax Returns of
the Bank and any of the Other Companies, including any Tax
Returns of Seller (or any Affiliate of Seller) that include the
Bank or any of the Other Companies, have been audited by the
appropriate Governmental Entity or are closed by the applicable
statute of limitations for all taxable periods through December
31, 1990. There are no pending audit examinations for taxable
periods ending after December 31, 1990.
(e) None of Seller, the Bank, any of the Other
Companies, or any Affiliate or representative of any of them,
with respect to any Tax Return of the Bank or any of the Other
Companies, or with respect to any consolidated, combined, unitary
or similar Tax Return that includes the Bank or any of the Other
Companies, has executed any extension or waiver that is currently
in effect of any statute of limitations on the assessment or
collection of any Tax of the Bank or any of the Other Companies,
or for Taxes of any other party the payment of which would
require the Bank or any of the Other Companies to make any
payment to such other party pursuant to a tax sharing, payment or
indemnification agreement or any other similar written arrange-
ment to which the Bank or any of the Other Companies are a party.
No power of attorney that is currently in force has been granted
by or with respect to Seller, the Bank or any of the Other
Companies with respect to any matter relating to Taxes of the
Bank or any of the Other Companies, or for Taxes of any other
party the payment of which would require the Bank or any of the
Other Companies to make any payment to such other party pursuant
to a tax sharing, payment or indemnification agreement or any
other similar written arrangement to which the Bank or any of the
Other Companies are a party.
(f) All Taxes which the Bank or any of the Other
Companies is required by Law to withhold or to collect for
payment (including, without limitation, any amounts required to
be withheld or collected from employee wages, and any amounts
required to be withheld or collected under Sections 1441, 1442 or
3406 of the Code or under any withholding provisions of state or
local law) have been duly withheld and collected, and all such
Taxes that are required to be paid or remitted to any Govern-
mental Entity have been paid or remitted to the proper Govern-
mental Entity in a proper and timely manner.
(g) There are no liens with respect to Taxes upon
any of the assets of the Bank or any of the Other Companies other
than for Taxes not yet due and payable.
(h) No election or consent under Section 341(f)
of the Code has been made by or on behalf of the Bank or any of
the Other Companies.
(i) Neither the Bank nor any of the Other Compa-
nies will be required to include any amounts in income for
taxable years ending after the Closing Date pursuant to Section
481(a) of the Code or any similar provision of state or local law
by reason of a change in accounting method, and none of Seller,
the Bank or any of the Other Companies have any knowledge that
any taxing authority has proposed any such adjustment or ac-
counting change.
(j) Neither the Bank nor any of the Other Compa-
nies has made any payments, is obligated to make any payments, or
is a party to any contract that could obligate it to make any
payments that would not be deductible under Section 280G of the
Code.
(k) Neither the Bank nor any of the Other Com-
panies own any residual interest in a real estate mortgage
investment conduit as defined in Section 860D of the Code.
(l) None of the assets of the Bank or any of the
Other Companies constitutes a taxable mortgage pool as defined in
Section 7701(i) of the Code.
(m) Neither the Bank nor any of the Other Com-
panies is, or has been during the applicable period specified in
Section 897(c)(1)(ii) of the Code, a United States real property
holding company, as defined in Section 897(c)(2) of the Code.
(n) None of the Bank or any of the Other Com-
panies has participated in or cooperated with an international
boycott within the meaning of Section 999 of the Code. No
property of the Bank or any of the Other Companies is property
that is or will be required to be treated as owned by another
person pursuant to the provisions of Section 168(f)(8) of the
Code (as in effect prior to its amendment by the Tax Reform Act
of 1986) or is "tax-exempt use property" within the meaning of
Section 168 of the Code.
(o) Neither the Bank nor any of the Other Com-
panies owns, directly or indirectly (including, without limita-
tion, through partnerships, corporations or trusts), interests in
real property which would be subject to any transfer or gains tax
by reason of the transactions described herein (other than the
transfer of the Excluded Assets as described herein). For
purposes of this Section 3.9, interests in real property include,
without limitation, titles in fee, leasehold interests, benefi-
cial interests, encumbrances, development rights or other inter-
ests with the right to use or occupy real property or the right
to receive rents, profits or other income therefrom, or any
options or contracts to acquire real property.
(p) Neither the Bank nor any of the Other Compa-
nies is a United States shareholder, as defined in Section 951(b)
of the Code, of a controlled foreign corporation, as defined in
Section 957(a) of the Code.
(q) Any adjustment of Taxes made by any taxing
authority that is required to be reported to any other taxing
authority has been so reported and any additional Taxes with
respect thereto have been paid.
3.10 COMPLIANCE WITH APPLICABLE LAW. Except as
disclosed in Section 3.10 of the Seller Disclosure Schedule, to
the knowledge of Seller, the Bank and each of the Other Companies
hold all licenses, franchises, permits and authorizations (each a
"Licenses") necessary for the lawful conduct of their respective
businesses (except for such Licenses the failure of which to hold
would not, individually or in the aggregate with all other such
Licenses not so held, have a Material Adverse Effect) under and
pursuant to all, and have complied with and are not in default in
any material respect under any, applicable law, statute, order,
rule, regulation, policy and/or guideline of any Governmental
Entity relating to the Bank or any of the Other Companies, and
neither the Bank nor any of the Other Companies knows of, or has
received notice of, any material violations of any of the above.
The representation contained in this Section 3.10 shall be
breached, among other reasons, by any violation of the Americans
with Disabilities Act (42 U.S.C. Section 12101, et seq.), the
Equal Credit Opportunity Act (15 U.S.C. Section 1791, et seq.),
the Fair Housing Act (42 U.S.C. Section 3601 et seq.), the Bank
Secrecy Act (31 U.S.C. Section 5322 et seq.), and those provi-
sions of the United States Code providing criminal penalties for
the laundering of monetary instruments (18 U.S.C. Section 1956)
or engaging in monetary transactions in property derived from
specified unlawful activity (18 U.S.C. Section 1957) which,
individually or in the aggregate with any other such violations,
would have or would reasonably be expected to have a Material
Adverse Effect.
3.11 PROPERTY. Excluding with respect to the Excluded
Assets:
(a) Section 3.11(a) of the Seller Disclosure
Schedule contains a correct and complete schedule of all leases,
subleases, and other agreements of like kind, as amended to date
(collectively, the "Leases"), under which the Bank or any of the
Other Companies occupies or has the right to occupy any real
property in connection with the operation of the business of the
Bank and of the Other Companies (the land, buildings and other
improvements covered by the Leases being herein called the
"Leased Real Property"). A representative of Purchaser has had
an opportunity to review summaries of all Leases (including all
modifications, amendments and supplements entered into by the
Bank and its Subsidiaries). Each Lease is in full force and
effect, and all rent and other sums and charges payable by or to
the Bank or any of the Other Companies, as appropriate, as
tenant, sublessor or sublessee thereunder are current.
(b) Except as set forth in Section 3.11(b) of the
Seller Disclosure Schedule, no notice of material default or
termination under any Lease is outstanding, no termination event
or condition or uncured material default on the part of the Bank
or any of the Other Companies, as appropriate, or, to Seller's
knowledge, on the part of the landlord or sublessor, exists under
any Lease, and no event has occurred and no condition exists, and
the consummation of the transactions contemplated by this Agree-
ment and the Bank Merger Agreement (including without limitation
the use of any leased property as a commercial banking organiza-
tion) will not create or result in an event or condition, which,
with the giving of notice or the lapse of time or both, would
constitute such a material default or termination event or condi-
tion. Seller does not have any ownership interest in the land-
lord under any Lease.
(c) The Bank or one of the Other Companies is
owner of good and marketable title to certain real property used
in connection with the operation of the respective businesses of
the Bank and each of the Other Companies as set forth in Section
3.11(c) of the Seller Disclosure Schedule ("Real Property") and
the Real Property set forth on such Section 3.11(c) will consti-
tute the only real property owned by the Bank or the Other
Companies on the Closing Date other than any Removed Assets and
any Other Real Estate acquired subsequent to the date of this
Agreement. Except as set forth on Section 3.11(c) of the Seller
Disclosure Schedule, all Real Property and all Leases are held
free and clear of all mortgages, liens, security interests or
encumbrances of any nature whatsoever, except for (i) mechanics',
carriers', warehousemen's, workmen's, repairmen's or other like
liens arising or incurred in the ordinary course of business,
liens for Taxes, assessments and other governmental charges which
are not due and payable or which may thereafter be paid without
penalty or are being contested in good faith by appropriate
proceedings, financing liens on furniture, fixtures and equipment
and other imperfections of title or non-monetary encumbrances, if
any, which do not materially detract from the value of the
property subject thereto, (ii) easements, covenants, rights of
way and other encumbrances or restrictions, of record, (iii)
zoning and other similar restrictions, of record, (iv) unrecorded
easements, covenants, rights of way or other restrictions which
do not materially impair the use of the property to which they
relate or (v) Encumbrances which do not materially adversely
affect the use or value of such property.
(d) None of Seller, the Bank or any of the Other
Companies has received notice or has any knowledge of any pending
or threatened condemnation proceeding affecting any Real Property
or any real property held pursuant to a Lease which, if decided
contrary to the interests of the Bank or any of the Other Compa-
nies, would have a material adverse effect on the value or use of
such Real Property or leased real property as currently used or
reserved for use or of any sale or other disposition of the Real
Property in lieu of condemnation.
(e) Except as provided in the Leases, neither the Bank
nor any of the Other Companies owns or holds, or is obligated
under or a party to, any option, right of first refusal or any
other material contractual right to purchase, acquire, sell or
dispose of the Real Property or real property held pursuant to a
Lease or any portion thereof or interest therein.
3.12 EMPLOYEE BENEFIT PLANS. (a) Section 3.12 of
the Seller Disclosure Schedule sets forth a true and complete
list of each material Benefit Plan, arrangement or agreement
(whether written or oral) that is maintained as of the date of
this Agreement (the "Plans") by Seller, the Bank or any of the
Other Companies. Except as indicated in Section 3.12 of the
Seller Disclosure Schedule, Seller maintains such plans exclu-
sively for the benefit of Bank Employees.
(b) Seller has heretofore made available to Purchaser
true and complete copies of each of the Plans and all related
documents, including but not limited to (i) the actuarial report
for such Plan (if applicable) for each of the last two years,
(ii) the most recent determination letter from the Internal
Revenue Service (if applicable) with respect to each such Plan,
(iii) any related trust agreements, group annuity contracts,
insurance policies or other funding agreements or arrangements,
and (iv) the annual return/report on IRS form 5500 or 5500-C/R
for each Plan for the most recent plan year and the two previous
plan years (if applicable).
(c) Except as set forth in Section 3.12 of the Seller
Disclosure Schedule, (i) each of the Plans has been operated and
administered in all material respects in compliance with applica-
ble laws, including but not limited to ERISA and the Code, (ii)
each of the Plans intended to be "qualified" within the meaning
of Section 401(a) and 501(a) of the Code has received a favorable
determination letter from the Internal Revenue Service and, to
the knowledge of the Seller, nothing has occurred since the date
of such letter which would adversely affect such qualification,
(iii) no current or terminated Plan has ever been subject to
Title IV of ERISA, (iv) no Plan which is a welfare benefit plan
provides death or medical benefits (whether or not insured), with
respect to current or former employees of the Bank or the Other
Companies beyond their retirement or other termination of ser-
vice, other than (w) coverage mandated by applicable law, (x)
death benefits or retirement benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA, (y)
deferred compensation benefits accrued as liabilities on the
books of the Bank or the Other Companies or (z) benefits the full
cost of which is borne by the current or former employee (or his
beneficiary), (v) all contributions or other amounts payable by
the Bank or the Other Companies as of the Closing Date with
respect to each Plan, insurance policy, annuity contract or other
funding agreement, in respect of current or prior plan years have
been paid or accrued in accordance with generally accepted
accounting practices and Section 412 of the Code, (vi) none of
Seller, the Bank or the Other Companies has engaged in a transac-
tion in connection with which the Bank would be subject to either
a material civil penalty assessed pursuant to Section 409, 502(i)
or 502(l) of ERISA or a material tax imposed pursuant to Section
4975 or 4976 of the Code, (vii) no Plan is funded by a trust
described in Section 501(c)(9) of the Code, (viii) the Bank and
the Other Companies are in substantial compliance with all
reporting and disclosure obligations under ERISA and the Code
with respect to the Plans, including, without limitation, the
requirements under Section 162 or Section 4980B of the Code with
respect to employees covered under any Plan which is a "group
health plan" within the meaning of Section 162(i) of the Code,
and (ix) to the best knowledge of the Bank there are no pending,
threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Plans or any
trusts related thereto.
(d) Except as expressly described in Section 6.4
hereof, Seller and Purchaser acknowledge that nothing in this
Agreement shall be construed as (i) requiring Purchaser to hire
or to continue the employment of any or all of the Bank Employ-
ees; (ii) vesting in any Bank Employee any right to continued
employment; (iii) requiring Purchaser to continue or provide for
any Bank Employee any particular employee benefit plan or pro-
gram; or (iv) otherwise restricting the right of Purchaser to
exercise its business judgment in the operation of the business
of the Bank or the Other Companies following the Closing Date.
3.13 INSURANCE. Seller and/or the Bank maintain
with reputable insurers insurance and indemnity bonds providing
coverage for the Bank and the Other Companies against all risks
normally insured or bonded against by companies in similar lines
of business as the Bank and the Other Companies. All such
insurance policies and bonds are listed on Section 3.13 of the
Seller Disclosure Schedule, and are blanket policies or bonds
maintained by Seller and/or the Bank. As of the date hereof, to
the knowledge of Seller, each such insurance policy or bond is in
full force and effect, and, as of the date hereof, neither
Seller, the Bank, nor any of the Other Companies has received
notice or any other indication from any insurer or agent of any
intent to cancel any such insurance policy or bond. All claims
which the Bank or any of the Other Companies have under all such
insurance policies and bonds, and all circumstances which could
give rise to such a claim, have been submitted on a timely basis
to the appropriate party, except for civil actions which in
management's reasonable judgment would adversely impact worker's
compensation insurance.
3.14 CERTAIN CONTRACTS. (a) Except as set forth in
Section 3.14(a) of the Seller Disclosure Schedule, neither the
Bank nor any of the Other Companies is a party to or is bound by
any contract, arrangement, commitment or understanding (whether
written or oral): (i) with respect to the employment of any di-
rectors, officers, employees or consultants which provides for an
obligation to pay and/or accrue compensation of $25,000 or more
per annum, (ii) which, upon the consummation of the transactions
contemplated by this Agreement and/or the Bank Merger Agreement
will (either alone or upon the occurrence of any additional acts
or events) result in any payment (whether of severance pay or
otherwise) becoming due from the Bank or any of the Other Compa-
nies to any officer or employee thereof, (iii) which is an
agreement (including data processing, software programming and
licensing contracts) not terminable on 91 days or less notice
(without payment or condition) involving the payment of more than
$100,000 per annum, in the case of any such agreement with an
individual, or $500,000 per annum, in the case of any other such
agreement, (iv) which restricts the conduct of any line of
business by the Bank or any of the Other Companies, (v) with or
to a labor union or guild (including any collective bargaining
agreement), (vi) (including any stock option plan, stock appre-
ciation rights plan, restricted stock plan or stock purchase
plan) any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement and/or the Bank Merger Agreement, or the value of any
of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement and/or the
Bank Merger Agreement. Seller has previously made available to
Purchaser true and correct copies of all (I) employment, consult-
ing and deferred compensation agreements to which the Bank or any
of the Other Companies is a party between the Bank or one of the
Other Companies, on the one hand, and any Affiliate of Seller
(other than the Bank and the Other Companies), on the other hand
and (II) each Bank Contract (as defined below) in existence as of
the date of this Agreement. Each contract, arrangement, commit-
ment or understanding of the type described in this Section
3.14(a), whether or not set forth in Section 3.14(a) of the
Seller Disclosure Schedule, is referred to herein as a "Bank Con-
tract", and neither the Bank nor any of the Other Companies knows
of, or has received notice of, any material violation of any Bank
Contract.
(b) Except as set forth in Section 3.14(b) of the
Seller Disclosure Schedule, (i) each Bank Contract is valid and
binding and in full force and effect, (ii) the Bank and each of
the Other Companies has in all material respects performed all
obligations required to be performed by it to date under each
Bank Contract, and (iii) no event or condition exists which
constitutes or, after notice or lapse of time or both, would
constitute, a material default on the part of any party under any
such Bank Contract.
3.15 AGREEMENTS WITH REGULATORY AGENCIES. Except as
set forth in Section 3.15 of the Seller Disclosure Schedule, none
of Seller, the Bank or any of the Other Companies is subject to
any cease-and-desist or other order issued by, or is a party to
any written agreement, consent agreement or memorandum of under-
standing with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is
a recipient of any extraordinary supervisory letter from, or has
adopted any board resolutions at the request of (each, whether or
not set forth on Section 3.15 of the Seller Disclosure Schedule,
a "Regulatory Agreement"), any Governmental Entity that restricts
the conduct of its business or that in any manner relates to its
capital adequacy, its credit policies, its management or its
business, nor has Seller, the Bank or any of the Other Companies
been advised by any Governmental Entity that it is considering
issuing or requesting any Regulatory Agreement. To the knowledge
of Seller, none of Seller, the Bank, or any of the Other Compa-
nies is the subject of a referral to either the United States
Department of Justice or Department of Housing and Urban Develop-
ment for alleged violation of either the Equal Credit Opportunity
Act (15 U.S.C. Section 1791 et seq.) or the Fair Housing Act (42
U.S.C. Section 3601 et seq.), nor is it the target of an investi-
gation by either such department for violation of either such
statute.
3.16 INVESTMENT SECURITIES. Section 3.16 of the
Seller Disclosure Schedule sets forth the book and market value
as of April 30, 1994 of the securities held by the Bank and the
Other Companies (whether such securities have been designated as
available for sale or held to maturity). Section 3.16 of the
Seller Disclosure Schedule sets forth an investment securities
report with respect to such securities which includes security
descriptions, CUSIP numbers and book values, in each case as of
April 30, 1994.
3.17 ABSENCE OF CERTAIN BUSINESS PRACTICES. To the
knowledge of Seller, the Bank and the Other Companies maintain
and enforce policies and procedures which are reasonably believed
to be adequate in light of current industry practice relating to
illegal or improper gifts or similar benefits to customers,
suppliers, governmental employees or other Persons who are or may
be in a position to help or hinder the business of the Bank, any
of the Other Companies, or any director, officer, employee, or
lobbyist of any of them, or assist any of them in connection with
any actual or proposed transaction and no such policy or proce-
dure has been violated, which violation, individually or together
with all other such violations, would have a Material Adverse
Effect.
3.18 UNDISCLOSED LIABILITIES. Except (a) as set forth
in Section 3.18 of the Seller Disclosure Schedule, (b) for those
liabilities that are fully reflected or reserved against on the
Balance Sheet, (c) for liabilities incurred in the ordinary
course of business consistent with past practice since December
31, 1993 that, either alone or when combined with all similar
liabilities, would not have, or be reasonably be expected to
have, a Material Adverse Effect, and (d) the Excluded Liabili-
ties, to the knowledge of Seller, neither the Bank nor any of the
Other Companies has incurred any liability of any nature what-
soever (whether absolute, accrued, contingent or otherwise and
whether due or to become due).
3.19 BANK ACCOUNTS, POWERS. Schedule 3.19 lists each
bank, trust company, savings institution, brokerage firm, mutual
fund or other financial institution with which the Bank or any of
the Other Companies has an account or safe deposit box and the
names and identification of all Persons authorized to draw
thereon or, to the knowledge of Seller, to have access thereto.
3.20 ADMINISTRATION OF FIDUCIARY ACCOUNTS. Except as
set forth on Section 3.20 of the Seller Disclosure Schedule, each
of the Bank and the Other Companies has properly administered in
all material respects all accounts for which it acts as a fidu-
ciary, including but not limited to accounts for which it serves
as a trustee, agent, custodian, personal representative, guard-
ian, conservator or investment advisor, in accordance with the
terms of the governing documents and applicable state and federal
law and regulation and common law. Neither the Bank nor the
Other Companies nor any of their respective directors, officers
or employees has committed any material breach of trust with
respect to any such fiduciary account, 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.
3.21 ENVIRONMENTAL MATTERS. Except as set forth in
Section 3.21 of the Seller Disclosure Schedule or with respect to
any of the Excluded Assets:
(a) To the knowledge of Seller, each of the Bank and
the Other Companies (whether as owner, operator, trustee, credi-
tor or otherwise), the Participation Facilities and the Loan
Properties (each as hereinafter defined) are, and have been, in
compliance with all applicable laws, rules, regulations, stan-
dards and requirements of all federal, state, local and foreign
laws and regulations relating to pollution or the environment
(including without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of Hazard-
ous Material, or otherwise relating to the manufacture, process-
ing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Material), except where noncompliance
with any such law, rule, regulation, standard or requirement,
together with all other instances of such noncompliance, would
not have a Material Adverse Effect;
(b) To the knowledge of the Seller, there is no suit,
claim, action, proceeding, investigation or notice pending or
threatened (or past or present actions, activities, circumstanc-
es, conditions, events or incidents that could form the basis of
any such suit, claim, action, proceeding, investigation or
notice) before any Governmental Entity or other forum in which
the Bank, any of the Other Companies, any Participation Facility
or any Loan Property (or person or entity whose liability for any
such suit, claim, action, proceeding, investigation or notice the
Bank, any of the Other Companies or any Participation Facility
has retained or assumed either contractually or by operation of
law) has been or, with respect to threatened suits, claims,
actions, proceedings, investigations or notices may be, named as
a defendant (x) for alleged noncompliance with any environmental
law, rule or regulation or (y) relating to the release or threat-
ened release into the environment of any Hazardous Material (as
hereinafter defined) whether or not occurring at or on a site
owned, leased or operated by the Bank or any of the Other Compa-
nies ("Current Property"), any Participation Facility or any Loan
Property which individually or in the aggregate, would have a
Material Adverse Effect;
(c) To the knowledge of Seller, during the period in
which (x) the Bank or any of the Other Companies has owned,
leased or operated any Current Property, (y) the Bank or any of
the Other Companies has participated in the management of any
Participation Facility, or (z) the Bank or any of the Other
Companies has held a security interest in any Loan Property,
there has been no release of Hazardous Material in, on, under or
affecting any such property; and
(d) Section 3.21 of the Seller Disclosure Schedule
contains a list of all property owned, leased or operated by the
Bank or the Other Companies which, to Seller's knowledge, may
contain any asbestos-containing materials in greater than de
minimis amounts, and clearly identifies Seller's basis for
including any such property thereon.
(e) The following definitions apply for purposes of
this Section 3.21: (x) "Loan Property" means any property in
which the Bank or any of the Other Companies holds a security
interest but does not participate in the management of the
property and therefore is not the owner or operator of such
property; (y) "Participation Facility" means any facility in
which the Bank or any of the Other Companies holds a security
interest and actively participates in the management, where such
security interest and active participation constitutes ownership
or operation of such property by operation of law, or which the
Bank or one of the Other Companies holds in trust, or as to which
the Bank or one of the Other Companies acts as a trustee, or a
business, manufacturing operation or land which the Bank or one
of the Other Companies operates or in any way controls the
disposition of and (z) "Hazardous Material" means any pollutant,
contaminant, waste or hazardous or toxic substance or petroleum
or petroleum product.
3.22 DERIVATIVE TRANSACTIONS. Except as set forth in
Section 3.22 of the Seller Disclosure Schedule, since December
31, 1993, neither the Bank nor any of the Other Companies has
engaged in transactions in or involving forwards, futures,
options on futures, swaps or other derivative instruments in an
amount, individually or in the aggregate, greater than $100,000
notional. No contract or agreement relating thereto, were it to
be a loan held by the Bank or any of the Other Companies, would
be classified as "Special Mention", "Substandard", "Doubtful" or
"Loss", or words of similar import. The financial position of
the Bank and the Other Companies on a consolidated basis under or
with respect to each such instrument has been reflected in the
books and records of the Bank and the Other Companies in accor-
dance with GAAP consistently applied.
3.23 INTERCOMPANY TRANSACTIONS. Section 3.23 of the
Seller Disclosure Schedule sets forth all transactions subsequent
to December 31, 1993 between the Bank or any of the Other
Companies, on the one hand, and Seller or any of its Affiliates
(other than the Bank or one of the Other Companies), on the other
hand, which involve a payment or payments by either party thereto
of $100,000 or more (other than purchases and sales of Federal
Funds, allocations of corporate overhead, and employee salaries
and benefits expenses).
3.24 APPROVALS. As of the date of this Agreement,
neither Seller nor the Bank knows of any reason specifically
related to the business or operations of the Bank or any of the
Other Companies why all of the Requisite Regulatory Approvals
shall not be obtained without the imposition of a Burdensome
Condition.
3.25 [RESERVED].
3.26 EXCLUDED ASSETS SCHEDULE. (a) The Excluded
Assets Schedule, to the extent it relates to the REI Portfolio,
is true, correct and complete and sets forth all of the assets of
the Bank and the Other Companies as of the date of this Agreement
which, as of such date, should be included on such schedule as
part of the REI Portfolio.
(b) The Excluded Assets Schedule, to the extent
it relates to Excluded Assets other than the REI Portfolio, is a
true, correct, and complete listing of such assets as they appear
on the Bank's Criticized Asset Report, dated as of April 30,
1994, which was reviewed by the Bank's Asset Review Committee in
the ordinary course of business.
3.27 INTELLECTUAL PROPERTY. Except as set forth in
Section 3.27 of the Seller Disclosure Schedule, the Bank and each
of the Other Companies owns or possesses valid and binding
licenses and other rights to use without payment all material
patents, copyrights, trade secrets, trade names, service marks,
logos and trademarks used in their respective businesses, each of
which is listed on Section 3.27 of the Seller Disclosure Sched-
ule. Neither the Bank nor any of the Other Companies has re-
ceived any notice of conflict with respect thereto that asserts
the right of others.
3.28 [RESERVED]
3.29 DETAILED LISTING OF LOANS. Section 3.29 of the
Seller Disclosure Schedule contains a complete and accurate
listing, as of April 30, 1994, of trial balances of the Bank
reflecting all loans and notes receivable of the Bank (except for
credit card balances), including participations in loans, the
outstanding principal balance of each such loan and note receiv-
able and the past due status of each such loan or note receiv-
able.
3.30 EMPLOYEES AND INSIDER LOANS. Neither the Bank
nor any of the Other Companies is a party to any collective
bargaining agreement with any of its employees. The Bank and
each of the Other Companies considers its respective employee
relations to be satisfactory. Seller has previously provided
Purchaser with a listing, current as of March 31, 1994, of all
extensions of credit made to the Bank's executive officers and
directors and their related interests (all as defined under
Federal Reserve Board Regulation "O"), which listing is true,
correct and complete in all material respects.
3.31 DATA PROCESSING CONTRACTS. Section 3.31 of the
Seller Disclosure Schedule contains a list of all software
licenses, software leases, hardware maintenance agreements,
hardware leases, software development agreements, telecommuni-
cations agreements, consulting agreements, data processing
agreements and other agreements or instruments of a similar
nature to or by which the Bank or any of the Other Companies is a
party or is bound and which involves the payment of more than
$50,000 per annum or which has an unpaid balance in excess of
such amount. Each of such licenses, leases, agreements or other
instruments is referred to herein as a "Data Processing Con-
tract." Seller has previously made available to Purchaser true
and complete copies of all such Data Processing Contracts.
Except as set forth in Section 3.31 of the Seller Disclosure
Schedule, the Bank and each of the Other Companies has in all
material respects performed all obligations required to be
performed by it to date under each Data Processing Contract and
is unaware of any material violation of any Data Processing
Contract or any conflict with the rights of others with respect
to its use of the software or hardware which is the subject of
the Data Processing Contract.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
------------------------------
Purchaser hereby represents and warrants to Seller as
follows:
4.1 CORPORATE ORGANIZATION. Purchaser is a banking
corporation duly organized, validly existing and in good standing
under the laws of the State of California. Purchaser has the
corporate power and authority to own or lease all of its proper-
ties and assets and to carry on its business as it is now being
conducted.
4.2 AUTHORITY; NO VIOLATION. (a) Purchaser has full
corporate power and authority to execute and deliver this Agree-
ment and the Bank Merger Agreement and to consummate the transac-
tions contemplated hereby and thereby. The execution and deliv-
ery of this Agreement and the Bank Merger Agreement and the
consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized by the Board of Directors
of Purchaser, and no other corporate proceedings on the part of
Purchaser are necessary to consummate the transactions contem-
plated hereby and thereby. This Agreement and the Bank Merger
have been duly and validly executed and delivered by Purchaser
and (assuming the due authorization, execution and delivery of
this Agreement and the Bank Merger Agreement by Seller and the
Bank, respectively) constitute valid and binding obligations of
Purchaser, enforceable against Purchaser in accordance with their
terms, except as enforcement may be limited by general principles
of equity whether applied in a court of law or a court of equity
and by bankruptcy, insolvency and similar law affecting credit-
ors' rights and remedies generally.
(b) Except as set forth in Section 4.2(b) of the
Disclosure Schedule which is being delivered by Purchaser to
Seller concurrently herewith (the "Purchaser Disclosure Sched-
ule"), neither the execution and delivery of this Agreement or
the Bank Merger Agreement by Purchaser, nor the consummation by
Purchaser of the transactions contemplated hereby or thereby, nor
compliance by Purchaser with any of the terms or provisions
hereof or thereof, will (i) violate any provision of the Articles
of Incorporation or By-Laws of Purchaser, or (ii) assuming that
the consents and approvals referred to in Section 4.3 are duly
obtained, (x) violate in any material respect any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Purchaser or any of its properties or
assets, or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termi-
nation of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation
of any Encumbrance upon any of the properties or assets of
Purchaser under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which
Purchaser is a party, or by which it or any of its properties or
assets may be bound or affected.
4.3 CONSENTS AND APPROVALS. Except for (a) the filing
of applications and notices, as applicable, with the Federal
Reserve Board under the BHC Act, the Bank Merger Act and the FRA
and approval of such applications and notices, (b) the filing of
applications and notices, as applicable, with the Office of
Thrift Supervision and the approval of such applications and
notices, (c) the State Banking Approvals (as applicable) and (d)
such filings, authorizations or approvals as may be set forth in
Section 4.3 of the Purchaser Disclosure Schedule, no consents or
approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary in connection with
(i) the execution and delivery by Purchaser of this Agreement and
the Bank Merger Agreement or (ii) the consummation by Purchaser
of the transactions contemplated hereby or thereby.
4.4 BROKER'S FEES. Purchaser has not employed any
broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with any of the
transactions contemplated by this Agreement.
4.5 FINANCING. On or prior to the Closing Date,
Purchaser shall have sufficient funds to enable Purchaser to
consummate the transactions contemplated hereby and to pay the
fees and expenses required to be paid by Purchaser which are
related thereto.
4.6 ACQUISITION FOR INVESTMENT. Purchaser is acquir-
ing the Shares for investment only and not with a view to any
resale or other distribution thereof.
4.7 APPROVALS. As of the date of this Agreement,
Purchaser knows of no reason, specifically relating to its busi-
ness or operations, why all of the Requisite Regulatory Approvals
shall not be obtained without the imposition of a Burdensome
Condition.
ARTICLE V
COVENANTS
---------
5.1 COVENANTS OF SELLER. During the period from the
date of this Agreement and continuing until the Closing Date,
except as expressly permitted by this Agreement or with the prior
written consent of Purchaser, Seller shall use its best efforts
to cause the Bank and the Other Companies to carry on their
respective businesses in the ordinary course consistent with past
practice and consistent with prudent banking practice. Seller
shall use its best efforts to cause the Bank and each of the
Other Companies to use their best efforts to (x) preserve their
respective business organizations, (y) keep available to them-
selves and Purchaser the present services of their respective
employees and (z) preserve for themselves and Purchaser the
goodwill of their respective customers and others with whom
business relationships exist. Without limiting the generality of
the foregoing, and except as necessary for the safe and sound
operation of the Bank's business in the mutual judgment of the
Bank and Purchaser or as required by law or as otherwise express-
ly permitted by this Agreement or consented to in writing by Pur-
chaser, Seller shall use its best efforts to ensure that none of
the Bank or any of the Other Companies will:
(a) declare or pay any dividends on, or make
other distributions in respect of, any of its capital stock;
(b) (i) split, combine or reclassify any shares
of its capital stock or issue or authorize or propose the issu-
ance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (ii) repurchase,
redeem or otherwise acquire any shares of the capital stock of
the Bank or any of the Other Companies, or any securities con-
vertible into or exercisable for any shares of the capital stock
of the Bank or any of the Other Companies;
(c) issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of its
capital stock or any securities convertible into or exercisable
for, or any rights, warrants or options to acquire, any such
shares, or enter into any agreement with respect to any of the
foregoing;
(d) amend its Articles of Association, By-laws or
other similar governing documents;
(e) except with respect to any of the Excluded
Assets, enter into, terminate, amend or renew any material lease
or any contract which, if in existence on the date of this Agree-
ment, would be required to be set forth in Section 3.14(a) of the
Seller Disclosure Schedule (provided that for purposes of this
paragraph (e), the references in clause (iii) of Section 3.14(a)
to "$100,000" and "$500,000" shall be deemed to be references to
"$50,000");
(f) except with respect to any of the Excluded
Assets, make any capital expenditures other than in the ordinary
course of business and in an amount of no more than $50,000;
(g) acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity inter-
est 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 or otherwise
acquire any assets, which would be material, individually or in
the aggregate, to the Bank, other than (i) with respect to any of
the Excluded Assets or (ii) 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;
(h) take any action that results in any of its
representations and warranties set forth in this Agreement being
or becoming untrue in any material respect, or in any of the
conditions to the consummation of the transactions contemplated
by this Agreement set forth in Article VII not being satisfied,
or in a violation of any provision of this Agreement;
(i) change its methods of accounting in effect at
December 31, 1993, except as required by changes in GAAP or
regulatory accounting principles as concurred to by the Bank's
independent auditors;
(j) (i) except as required by applicable law or
to maintain qualification pursuant to the Code, adopt, amend, re-
new or terminate any Plan or any agreement, arrangement, plan or
policy between the Banks or any of the Other Companies and one or
more of its current or former directors, officers or employees or
(ii) except, with respect to the non-exempt employees, for normal
increases in the ordinary course of business consistent with past
practice in an amount with respect to any particular employee of
no more than 3-1/2% on an annual basis for employees receiving
$75,000 or more in annual salary or 5% on an annual basis for
employees receiving less than $75,000 in annual salary, increase
in any manner the compensation or fringe benefits of any direc-
tor, officer or employee or pay any benefit not required by any
plan or agreement as in effect as of the date hereof or (iii)
enter into, modify or renew any contract, agreement, commitment
or arrangement providing for the payment to any director, officer
or employee of such party of compensation or benefits contingent,
or the terms of which are materially altered, upon the occurrence
of any of the transactions contemplated by this Agreement;
(k) other than activities in the ordinary course
of business consistent with prior practice or with respect to any
of the Excluded Assets, sell, lease, encumber, assign or other-
wise dispose of or agree to sell, lease, encumber, assign or
otherwise dispose of, any of its material assets, properties or
other rights or agreements, or release or assign any indebtedness
of any other Person held by it involving an amount, individually
or in the aggregate, equal to or greater than $25,000;
(l) other than in the ordinary course of business
consistent with past practice or with respect to any of the
Excluded Assets, 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;
(m) file any application to relocate or terminate
the operations of any banking office, ATM or loan production
office;
(n) commit any act or omission which constitutes
a material breach or default by the Bank or any of the Other
Companies under any Regulatory Agreement or other than with
respect to any of the Excluded Assets or Excluded Liabilities
under any material contract or material license to which the Bank
or any of the Other Companies is a party or by which any of them
or their respective properties is bound;
(o) make any equity investment or commitment to
make such an investment in real estate or in any 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 or with respect to any of the Excluded
Assets;
(p) take any action, or fail to take any action,
which would cause the termination or cancellation by the FDIC of
insurance in respect of the Bank's deposits;
(q) [reserved];
(r) except with respect to any of the Excluded
Assets, settle any claim, action or proceeding involving any
liability of the Bank or any of the Other Companies for material
money damages (or containing other material obligations of the
Bank or any of the Other Companies);
(s) hire additional officers or employees (except
that employees may be hired to fill vacancies in existing posi-
tions after five business days' notice to Purchaser);
(t) except with respect to the Excluded Assets,
make, renew, purchase, extend the maturity of (except to extend
such maturity to a date on or before March 31, 1995 and in the
ordinary course consistent with past practice), acquire a partic-
ipation in, reacquire an interest in a participation sold, or
alter any of the material terms of, (A) any loan to any single
borrower and its related interests in excess of the principal
amount of $500,000, or (B) any loan in any amount that is not in
compliance with the Bank's normal credit underwriting standards,
policies and procedures as in effect on the date hereof;
(u) except with respect to the Excluded Assets,
sell any securities, loans or other assets for a gain;
(v) purchase any securities, other than U.S.
Treasury securities with maturities of two years or less or U.S.
Government direct agency securities with maturities of two years
or less;
(w) fail to use all reasonable efforts to contin-
ue to implement and enhance its existing compliance programs;
(x) unless required by applicable law, introduce
any material new service or product, institute any material new
promotional effort or advertising campaign, change the pricing of
products or services in any material way relative to the market
except in the ordinary course of business, open or apply to open
any new branch or other facility, or, in general, change its
products and services in any material way from those in effect at
the date of the Agreement;
(y) purchase from any Affiliates of Seller assets
in one or more transactions;
(z) accept or renew any deposit instrument for a
term greater than 365 days, except after prior consultation with
Purchaser as to the material terms thereof; or
(aa) agree to do any of the foregoing.
5.2 PERMITTED DIVIDENDS. Notwithstanding anything to
the contrary contained in Section 5.1 of this Agreement, prior to
the Closing Date, each of the Bank and Security Co. shall be
permitted to declare and pay one or more dividends to Seller, as
the sole holder of the Shares, in an aggregate amount equal to or
less than the Permitted Dividend Amount.
5.3 JOINT COVENANTS OF PURCHASER AND SELLER. (a)
After the Closing, Purchaser and Seller shall provide, and shall
cause each of their affiliates to provide, to the other party and
its affiliates such information (including access to books and
records) relating to each of the Bank and the Other Companies as
either Purchaser and Seller may reasonably request in order to
permit (i) the preparation of the Closing Adjustment Documents
and (ii) (x) the preparation of Seller's 1994 audited consolidat-
ed financial statements and any interim financial statements
covering each fiscal quarter of Seller subsequent to September
30, 1994 but prior to the Closing Date and, if the Closing occurs
after December 31, 1994, (y) the preparation of Purchaser's 1995
audited consolidated financial statements and any interim finan-
cial statements covering each fiscal quarter of Purchaser prior
to the Closing Date. Any information obtained pursuant to this
Section 5.3(a) from the other party shall be kept confidential
except as may otherwise be necessary in preparing and disclosing
the financial statements referred to in clause (ii) above.
(b) Purchaser and Seller agree to retain or cause
to be retained all books and records pertinent to the Bank and
the Other Companies for any period or portion thereof ending on
or prior to the Closing Date until the expiration of the applica-
ble statute of limitations (giving effect to any and all exten-
sions and waivers) and to abide by or cause compliance with all
record retention policies of any of the Bank and the Other Compa-
nies which have been made available to Purchaser prior to the
date of this Agreement.
5.4 D&O INDEMNIFICATION. Purchaser agrees that,
except with respect to the matters described in Section 10.1(g),
all rights to indemnification by the Bank existing as of the date
of this Agreement in favor of each present and former director
and officer of the Bank (each, an "Indemnified Party") as provid-
ed in its Articles of Incorporation or By-Laws (the "Indemnifica-
tion Provisions") shall be deemed to survive the sale and merger
of the Bank and shall continue in full force and effect for a
period of six years following the Closing Date; provided that any
determination required to be made with respect to whether an
officer's or directors' conduct complies with the standards set
forth under California law and the Bank's Articles of Incorpora-
tion and By-Laws shall be made by independent counsel mutually
acceptable to the Indemnified Party and Purchaser. After the
Closing Date, Purchaser shall not amend the Purchaser's Certifi-
cate of Incorporation or By-Laws or the Indemnity Agreements in
any manner which, with respect to conduct occurring prior to the
Closing Date, adversely affects the rights of any party entitled
to indemnification thereunder and hereunder, provided, however,
that nothing contained in this Section 5.4 shall require Pur-
chaser to amend its Certificate of Incorporation or By-Laws to
include the Indemnification Provisions therein. Notwithstanding
any provision contained herein, this Agreement shall not limit or
reduce any rights of any Indemnified Party pursuant to the Indem-
nity Agreements, which shall survive the sale and merger of the
Bank and shall continue in full force and effect for the periods
set forth therein. After the Closing Date, subject to Section
10.1(g), Purchaser shall perform the obligations of the Bank
under the Indemnity Agreements attached to Seller's Disclosure
Schedule (the "Indemnity Agreements") between the Bank and
directors, former directors and officers of the Bank.
5.5 MANAGEMENT AGREEMENTS. Seller has entered into
the Management Agreements with certain key Bank employees, copies
of which have previously been provided to Purchaser. Seller
shall be responsible for payment of the Management Agreement
Payments pursuant to such Management Agreements. Such Management
Agreements shall not serve to limit the employee benefits to
which such employees are otherwise entitled by law, the terms of
this Agreement, the terms of the Bank's benefit plans, or the
terms of benefit plans of the Purchaser to which they become
entitled upon consummation of the Bank Merger. Except for the
Management Agreement Payments under the Management Agreements for
which Seller shall be responsible, the Bank or Purchaser shall be
responsible for payment of all severance costs or expenses
related to the key employees referred to above.
ARTICLE
ADDITIONAL AGREEMENTS
6.1 REGULATORY MATTERS. (a) The parties hereto 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
which are necessary or advisable to consummate the transactions
contemplated by this Agreement and the Bank Merger Agreement.
Purchaser and Seller shall have the right to review in advance,
and to the extent practicable each will consult the other on, in
each case subject to applicable laws relating to the exchange of
information, all the information relating to Purchaser or Seller,
as the case may be, and any of their respective Affiliates, which
appear in any filing made with, or written materials submitted
to, any third party or any Governmental Entity in connection with
the transactions contemplated by this Agreement and the Bank
Merger Agreement; provided, however, that nothing contained
herein shall be deemed to provide either party with a right to
review any information provided to any Governmental Entity on a
confidential basis in connection with the transactions contem-
plated hereby. The parties hereto 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
transactions contemplated by this Agreement and each party will
keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein. In exercis-
ing the foregoing rights and obligations, each of the parties
hereto shall act reasonably and as promptly as practicable.
(b) Purchaser and Seller shall, upon request,
furnish each other with all information concerning themselves,
their Subsidiaries, directors, officers and stockholders and such
other matters as may be reasonably necessary or advisable in
connection with any statement, filing, notice or application made
by or on behalf of Purchaser, Seller or any of their respective
Subsidiaries to any Governmental Entity in connection with the
transactions contemplated by this Agreement.
(c) Purchaser and Seller shall promptly advise
each other upon receiving any communication from any Governmental
Entity whose consent or approval is required for consummation of
the transactions contemplated by this Agreement and the Bank
Merger Agreement which causes such party to believe that there is
a reasonable likelihood that any Requisite Regulatory Approval
will not be obtained or that the receipt of any such approval
will be materially delayed.
6.2 ACCESS TO INFORMATION AND PERSONNEL. (a) Upon
reasonable notice and subject to applicable laws relating to the
exchange of information, Seller shall cause the Bank and each of
the Other Companies to afford to the officers, employees, accoun-
tants, counsel and other representatives of Purchaser reasonable
access, during normal business hours during the period prior to
the Closing Date, to all its properties, books, contracts,
commitments, records, officers, employees, accountants, counsel
and other representatives and, during such period, Seller shall
cause the Bank and the Other Companies to make available to
Purchaser (i) a copy of each report, schedule, registration
statement and other document filed or received by it during such
period pursuant to the requirements of Federal or state banking
laws (other than reports or documents which the Bank is not
permitted to disclose under applicable law) and (ii) all other
information concerning the business, properties and personnel of
the Bank and the Other Companies as Purchaser may reasonably
request, including such information as Purchaser may reasonably
request in order for it to determine whether to designate any
Excluded Asset as a Removed Asset. Neither the Bank nor any of
the Other Companies shall be required to provide access to or to
disclose information where such access or disclosure would
contravene any law, rule, regulation, order, judgment, decree or
binding agreement entered into prior to the date of this Agree-
ment. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the re-
strictions of the preceding sentence apply. Purchaser will hold
all such information in confidence to the extent required by, and
in accordance with, the provisions of the existing confidenti-
ality agreement between Purchaser and Seller (the "Confidential-
ity Agreement").
(b) No investigation by Purchaser or its repre-
sentatives shall affect the representations, warranties or
indemnification obligations of Seller set forth herein.
6.3 LEGAL CONDITIONS TO TRANSACTION. Each of Purchas-
er and Seller shall, and shall use its best efforts to cause its
Subsidiaries to, use their reasonable best efforts (a) to take,
or cause to be taken, all actions necessary, proper or advisable
to comply promptly with all legal requirements which may be
imposed on such party or its Subsidiaries with respect to the
transactions contemplated by this Agreement and the Bank Merger
Agreement and, subject to the conditions set forth in Article VII
hereof, to consummate the transactions contemplated by this
Agreement and the Bank Merger Agreement and (b) to obtain (and to
cooperate with the other party to obtain) any consent, authoriza-
tion, order or approval of, or any exemption by, any Governmental
Entity and any other third party which is required to be obtained
by Purchaser or Seller or any of their respective Subsidiaries in
connection with the transactions contemplated by this Agreement
and the Bank Merger Agreement; provided, however, that no party
shall be required to take any action pursuant to the foregoing if
the taking of such action or such compliance or the obtaining of
such consent, authorization, order or approval or exemption is
likely, in the reasonable opinion of such party's Board of
Directors, to result in the imposition of a Burdensome Condition.
6.4 EMPLOYEE MATTERS. (a) Following the Closing,
except as otherwise set forth in Section 5.5 hereof, none of Pur-
chaser or Purchaser's Affiliates shall have and will assume any
liability or obligation whatsoever under the Management Agree-
ments.
(b) Unless otherwise determined, Benefit Plans in
effect at the date of this Agreement may remain in effect tempo-
rarily after the Closing Date with respect to Bank Employees cov-
ered by Benefit Plans on the Closing Date. Seller shall use its
best efforts to cause the full cooperation with Purchaser,
including the furnishing of all relevant information and docu-
mentation requested by Purchaser, to facilitate the transfer to a
plan established or maintained by Purchaser of the liabilities
and assets of the Bank's defined contribution plan. Seller shall
use its best efforts to cause to be amended to comply with all
applicable federal laws in effect as of the Closing Date any
defined contribution plan that will either be assumed by Purchas-
er or be transferred to or merged with a plan established or
maintained by Purchaser.
(c) Purchaser shall take all steps as are re-
quired so that Bank Employees who become or remain employees of
Purchaser, including those who have not received a notice of
termination of employment within 90 days of the Closing Date (the
"Continuing Employees"), shall become participants in Purchaser's
employee benefit plans pursuant to the terms and conditions of
such plans; provided, however, that Bank Employees who are not
Continuing Employees shall not participate in Purchaser's defined
benefit or defined contribution plans. Upon consummation of the
Bank Merger, Continuing Employees shall become regular employees,
rather than employees classified as "temporary" or "contract"
workers.
(d) Continuing Employees will have all of their
years of past service with the Bank and the Other Companies as
though they had been employees of Purchaser credited for (i)
eligibility for participation and vesting in Purchaser's defined
benefit plan; (ii) eligibility for participation and vesting in
Purchaser's defined contribution plan; and (iii) vacation bene-
fits and severance pay; provided, however, that (x) no Bank Em-
ployee shall be eligible for retiree medical or have past service
credited for purposes of calculating the accrued benefit under
Purchaser's defined benefit plan; and (y) no more than 1040 sick
hours for full-time or modified full-time employees and no more
than 40 hours of accrued vacation may be carried over to Purchas-
er in respect of those Bank Employees who have accumulated such
days on the records of the Bank or the Other Companies.
(e) To the extent that any Bank Employee has
satisfied, in whole or in part, any annual deductible under a
welfare benefit plan, or has paid any out-of-pocket expenses
pursuant to any welfare benefit plan co-insurance provision, such
amount shall be counted toward the satisfaction of any applicable
deductible or out-of-pocket expense maximum, respectively, under
the benefit plans and programs provided to Bank Employees by Pur-
chaser, and such plans and programs shall be applied without
regard to any limitations relating to pre-existing conditions or
required physical examinations that would not otherwise apply
under the respective welfare benefit plans of Purchaser, if such
Bank Employees had participated in the Bank's welfare benefit
plans for a period of six months immediately preceding the
Closing Date.
(f) Continuing Employees shall be eligible to
participate in stock plans, bonus plans and other such incentive
plans of Purchaser on the same basis as other similarly situated
employees of the Purchaser.
(g) Purchaser shall make available to Bank
Employees whose employment is terminated as a result of the
transactions contemplated hereby at least 30 days notice of
termination. Purchaser shall also provide to such employees the
information regularly made available to Purchaser's employees
concerning employment positions available with Purchaser to
enable such Bank Employees to apply for such positions. Purchas-
er shall consider such applications on the same basis as any
other employee of Purchaser having comparable seniority and shall
credit years of service with the Bank in determining such senior-
ity (if such seniority applies).
(h) On the Closing Date, Purchaser shall estab-
lish and maintain, for one year after the Closing Date, a sever-
ance plan for the benefit of Bank Employees (the "Acquisition
Severance Plan"), a copy of which is attached hereto as Schedule
6.4(h). Such severance plan will recognize service with the Bank
and/or the Other Companies prior to the Closing Date. No Bank
Employee who has received a cash lump sum severance benefit from
any severance arrangement of the Bank or the Other Companies or a
cash lump sum payment from any employment agreement in respect of
termination of employment shall receive a cash lump sum or salary
continuation severance benefit under Purchaser's Acquisition
Severance Plan. Thereafter, Bank Employees shall receive sever-
ance benefits under the same severance plan as Purchaser makes
available to its employees generally.
6.5 ADVICE OF CHANGES. Each of Purchaser and Seller
shall promptly advise the other party of any change or event
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 supplement or
amend the Disclosure Schedules delivered to the other party in
connection with the execution of this Agreement to reflect any
matter which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described
in such Disclosure Schedules or which is necessary to correct any
information in such Disclosure Schedules which has been rendered
inaccurate thereby. In any event, no later than five Business
Days prior to the Closing Date, each party shall supplement or
amend, as necessary, such Disclosure Schedules. No supplement or
amendment to such Disclosure Schedules shall have any effect for
the purpose of determining the satisfaction of the conditions set
forth in Section 7.2(a) or 7.3(a) hereof, as the case may be, the
accuracy of the representations or warranties of any party set
forth herein, the compliance by Seller or Purchaser, as the case
may be, with the respective covenants set forth herein or the
obligation of Seller or Purchaser to indemnify each other or any
other Person pursuant to Articles IX or X hereof.
6.6 CURRENT INFORMATION. During the period from the
date of this Agreement to the Closing Date, Seller will cause one
or more of its designated representatives to confer on a regular
and frequent basis (not less than monthly) with representatives
of Purchaser and to report the general status of the ongoing
operations of the Bank and the Other Companies. Seller will
promptly notify Purchaser of any material change in the normal
course of business or in the operation of the properties of the
Bank or any of the Other Companies and of any governmental com-
plaints, investigations or hearings (or communications indicating
that the same may be contemplated), or the institution or the
threat of significant litigation involving the Bank or any of the
Other Companies, and will keep Purchaser fully informed of such
events. Starting immediately after the date hereof, Seller shall
cause the Bank and the Other Companies to promptly provide
Purchaser monthly unaudited balance sheets and income statements,
loan delinquency reports, reports of all new or renewed loans
made, investment reports, production reports and such other
reports and materials as are normally prepared and provided to
the Board of Directors or senior management officials of the Bank
and the Other Companies, or as otherwise may be reasonably re-
quested by Purchaser, excluding, however, those documents which
are subject to confidentiality restrictions until appropriate
consents are obtained. Any such reports and materials shall be
provided to the Purchaser subject to the terms of the Confi-
dentiality Agreement.
6.7 CERTAIN REVALUATIONS, CHANGES AND ADJUSTMENTS. On
or not more than 5 days before the Closing Date, upon the request
of Purchaser, Seller shall, and shall cause the Bank to, consis-
tent with GAAP, make such accounting entries and adjustments as
Purchaser shall provide to Seller and the Bank; provided, howev-
er, that the Bank shall not be required to take such action
unless Purchaser agrees in writing that all conditions to Purcha-
ser's obligations to closing set forth in Article VII (other than
the conditions relating to the receipt of officer's certificates
and legal opinions) have been satisfied or waived; provided fur-
ther, that the Bank shall not be required to take such action
which would (i) require any notice to or approval by any Govern-
mental Entity, (ii) violate any Law, and the taking of such
action shall not constitute evidence of any breach of any repre-
sentation or warranty set forth in Article III or (iii) reduce
the income of the Bank included in the consolidated financial
statements of Seller or otherwise adversely affect Seller.
6.8 INTERCOMPANY ACCOUNTS SETTLEMENT. Prior to
Closing, (i) the Bank and the Other Companies shall pay and
discharge all amounts of intercompany indebtedness (including but
not limited to any such amounts in respect of, or attributable
to, Taxes) owed by the Bank or any of the Other Companies to
Seller or any Affiliate of Seller other than the Bank or any of
the Other Companies and (ii) Seller shall pay and discharge (or
cause to be paid and discharged) all amounts of intercompany
indebtedness (including but not limited to any such amounts in
respect of, or attributable to, Taxes) owed by Seller or any
Affiliate of Seller other than the Bank or any of the Other
Companies to the Bank or any of the Other Companies, in either
case, other than current indebtedness incurred in the ordinary
course of business between Seller or any of its Affiliates (other
than the Bank or any of the Other Companies), on the one hand,
and the Bank or any of the Other Companies, on the other hand,
consistent with past practices for services that will continue to
be provided in the ordinary course of business following the
Closing. The calculation of the amount of indebtedness of Seller
to the Bank shall include any deferred tax asset maintained on
the books of the Bank as of the Closing Date and attributable to
the Excluded Assets. The Excluded Assets Schedule sets forth any
deferred tax asset attributable to the Excluded Assets as of
April 30, 1994.
will, and will cause each of its Affiliates (other than the Bank
or any of the Other Companies) to, terminate, effective at or
prior to Closing, in accordance with their terms, any and all tax
sharing or allocation agreements and (except as expressly contem-
plated herein or set forth in Section 6.9 of the Seller Disclo-
sure Schedule) any other agreements then in effect (except with
respect to the agreements relating to the transfer of the Exclud-
ed Assets and the Excluded Liabilities) as between Seller, any
Affiliate of Seller (other than the Bank or any of the Other
Companies) or any predecessor thereof, on the one hand, and the
Bank or any of the Other Companies, on the other hand, and, at
such time, all rights under any such agreement shall terminate,
and all liabilities under any such agreement shall be paid and
discharged in accordance with the provisions of Section 6.8.
6.10 COVENANTS NOT TO COMPETE AND SOLICIT. From and
after the Closing Date and continuing until the fifth anniversary
thereof, Seller shall not, and shall not permit any of its
Subsidiaries to: (a) acquire any bank or thrift institution
chartered or having depository institutions located in the County
of Sacramento, California or any county contiguous thereto,
except in connection with Seller's or any of its Affiliates'
acquisition of or by, or merger with, any bank holding company or
thrift holding company for which both of the following applies:
(i) the bank holding company or thrift holding company is not
headquartered in California and (ii) the majority of the aggre-
gate assets held by the Subsidiaries of the bank holding company
or thrift holding company are held outside California; (b) except
as permitted under clause (a) of this Section 6.10, acquire or
establish in the County of Sacramento, California or any county
contiguous thereto any office which is engaged in the business of
accepting deposits within the meaning of 12 U.S.C. Section 36(f)
or originating mortgage loans (except with respect to the Ex-
cluded Assets). $10 million of the total Share Purchase Price
shall be allocated to, and shall be considered to have been paid
by Purchaser in consideration of, the agreements contained in
this Section 6.10.
6.11 ASSISTANCE IN CONVERSION OF DATA PROCESSING AND
CONSOLIDATION OF OPERATIONS. At Purchaser's expense and direc-
tion, from the date hereof through the Closing Date and consis-
tent with the performance of their day-to-day operations and the
continuous operation of the Bank in the ordinary course of
business, Seller shall, and shall cause the Bank and the Other
Companies to, use its reasonable best efforts to provide data
processing support, including support from its outside contrac-
tors, to assist Purchaser in performing all tasks reasonably re-
quired to result in a successful conversion of Seller's and the
Bank's data to Purchaser's production environment, when requested
by Purchaser and with a view towards causing a successful conver-
sion to occur within sixty (60) days after the Closing Date.
Among other things, Seller shall, and shall use its best efforts
to cause the Bank, to:
(a) Cooperate with Purchaser to establish a
mutually agreeable project plan to effectuate the conversion;
(b) Use reasonable best efforts to ensure that
Seller's and the Bank's outside contractors shall continue to
support both the conversion effort and Seller's and the Bank's
processing needs until the conversion can be accomplished, in all
cases consistent with Purchaser's schedule for implementing and
completing the conversion, and Purchaser shall use its best
efforts to complete the conversion as soon as possible after the
Closing;
(c) Use their reasonable best efforts to obtain,
at Purchaser's expense, all data files and layouts requested by
Purchaser for use in planning the conversion, as soon as possible
after the execution of this Agreement;
(d) Provide reasonable access to personnel at the
Bank's headquarters, all branches and at outside contractors to
use their best efforts to enable the conversion effort to be com-
pleted on schedule; and
(e) Cooperate with Purchaser in terminating as of
the conversion, obtaining consent to transfer to Purchaser as of
the Closing, obtaining consent to any joint processing in connec-
tion with Purchaser's testing of the software under, and/or
obtaining consent to disseminate confidential information to
Purchaser under, any and all of the Data Processing Contracts, in
each case as directed by Purchaser. Without limitation of the
foregoing, Seller will cause notice of termination to be served
with respect to the Agreement for Data Processing Services dated
January 16, 1985, as amended, between the Bank and Electronic
Data Systems Corporation (the "EDS Agreement") within thirty (30)
days following the execution of this Agreement; provided, howev-
er, that any such notice shall specify, among other things, that
(i) the effective date of termination of the EDS Agreement shall
occur no earlier than the Closing Date and (ii) in the event the
Closing does not occur and this Agreement is terminated in
accordance with its terms, Seller reserves the right to cause
such notice to be withdrawn; and provided, further, that Purchas-
er hereby agrees that it shall be liable for all costs, expenses,
payments or penalties of any kind incurred in connection with
termination of the EDS Agreement.
6.12 [RESERVED]
6.13 GENERAL NOTICES TO DEPOSITORS.
(a) Seller shall provide the Purchaser an inter-
mediate customer list of the deposit accounts of the Bank as of
the month-end prior to the giving of the notice referred to in
Section 6.13(b) of this Agreement.
(b) After receipt of all of the Requisite Regula-
tory Approvals (other than the expiration of all statutory
waiting periods relating thereto) and prior to the Closing,
Seller shall, if requested to do so by Purchaser (and provided
that Seller does not reasonably object to taking such action),
notify the holders of the deposits of the Bank that, subject to
satisfaction of the conditions to Closing contained herein,
Purchaser will assume the liability for such deposits as a result
of the consummation of the Bank Merger. Such notification(s), if
any, shall, at Purchaser's option, include notice that Purchaser
shall not continue services to depositors provided by the Bank
but not routinely offered by Purchaser and notice with respect to
the anticipated closing of any of the Bank's branch offices. The
notification(s) shall be based on the list referred to in Section
6.13(a) of this Agreement and a listing maintained at the branch
offices of the Bank of the new accounts opened since the date of
such list. Seller shall provide Purchaser with the documentation
of such listing up to the date of Seller's mailing. Prior to the
Closing, unless Seller shall reasonably object, Purchaser shall
send notification(s) to the appropriate holders setting out the
details of its administration of the assumed accounts. Each
party shall obtain the approval of the other of its notification
letter(s), which approval shall not be unreasonably withheld, and
Purchaser shall bear the cost of such mailings.
6.14 COMPLIANCE WITH LOAN AGREEMENTS.
Seller shall cause Sacramento Properties Holdings,
Inc. ("SPHI") to comply with the terms of the applicable loan
documentation relating to the approximately $8.9 million loan,
dated March 10, 1992, made by the Bank to SPHI, including without
limitation the obligation to pay such loan in full at its stated
contractual maturity.
6.15 DIRECTORS' AND OFFICERS INSURANCE. If requested
to do so by Purchaser, Seller shall use its best efforts to cause
to remain in effect, or obtain supplemental policies or endorse-
ments to continue, its current policies of directors' and office-
rs' liability insurance with respect to claims relating to facts
or events which occurred prior to the Closing Date, provided that
all costs incurred in connection therewith shall be paid by
Purchaser.
6.16 COLLAPSE OF SECURITY CO. Seller shall use its
best efforts to cause Security Co. to merge with and into the
Bank prior to the Closing Date (the "Security Co. Merger"),
provided that all reasonable costs incurred in connection there-
with and all transactions directly related thereto shall be paid
by Purchaser, including, without limitation, attorneys' fees.
6.17 SERP LIABILITY. Seller shall have accrued as a
liability on the Closing Date Balance Sheet the entire amount of
the then accrued retirement benefits under the Bank's Supplemen-
tal Executive Retirement Plan based on a report from Towers
Perrin dated no earlier than 30 days prior to the Closing Date
and no later than the date immediately prior to the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT
--------------------
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE CLOSING. The respective obligation of each party to effect
the Closing shall be subject to the satisfaction on or prior to
the Closing Date of the following conditions:
(a) REGULATORY APPROVALS. All regulatory approv-
als required to consummate the transactions contemplated hereby
(including, without limitation, the Bank Merger and the transfer
to Seller of the Excluded Assets and the Excluded Liabilities)
shall have been obtained and shall remain in full force and
effect and all statutory waiting periods in respect thereof shall
have expired (all such approvals and the expiration of all such
waiting periods being referred to herein as the "Requisite
Regulatory Approvals").
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No
order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by
this Agreement (including, without limitation, the Bank Merger
and the transfer to Seller of the Excluded Assets and Excluded
Liabilities) (an "Injunction") shall be in effect. No statute,
rule, regulation, order, injunction or decree shall have been
enacted, entered, promulgated or enforced by any Governmental
Entity which prohibits, restricts or makes illegal consummation
of the transactions contemplated by this Agreement (including,
without limitation, the Bank Merger and the transfer to Seller of
the Excluded Assets and Excluded Liabilities).
7.2 CONDITIONS TO OBLIGATIONS OF PURCHASER. The
obligation of Purchaser to effect the Closing is also subject to
the satisfaction or waiver by Purchaser on or prior to the
Closing of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The repre-
sentations and warranties of Seller set forth in this Agreement
shall be true and correct in all material respects as of the date
of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date. Purchaser
shall have received a certificate signed on behalf of Seller by
the Chief Executive Officer and the Chief Financial Officer of
Seller to the foregoing effect. The giving of said certificate
shall constitute a representation and warranty of Seller with
respect to the matters set forth therein.
(b) PERFORMANCE OF OBLIGATIONS OF SELLER. Seller
shall have performed (or shall have caused the Bank and the Other
Companies to perform, as appropriate) in all material respects
all obligations required to be performed by it under this Agree-
ment at or prior to the Closing Date, and Purchaser shall have
received a certificate signed on behalf of Seller by the Chief
Executive Officer and the Chief Financial Officer of Seller to
such effect. The giving of said certificate shall constitute a
representation and warranty of Seller with respect to the matters
set forth therein.
(c) CONSENTS UNDER AGREEMENTS. The consent, ap-
proval or waiver of each person (other than the Governmental
Entities referred to in Section 7.1(a)) whose consent or approval
shall be required in order to prevent a Violation of the type
described in Section 3.3(b) hereof shall have been obtained.
(d) NO PENDING GOVERNMENTAL ACTIONS. No proceed-
ing initiated by any Governmental Entity seeking an Injunction
shall be pending.
(e) LEGAL OPINION. Purchaser shall have received
the opinions of Donovan Leisure Newton & Irvine, counsel to
Seller, and of Manatt, Phelps & Phillips, counsel to the Bank,
each dated the Closing Date, substantially to the effect attached
hereto as Exhibit 7.2(e)(i) and Exhibit 7.2(e)(ii), respectively.
As to any matter in such opinion which involves matters of fact
or matters relating to laws other than Federal or California law,
such counsel may rely upon the certificates of officers and
directors of Seller and of public officials and opinions of local
counsel, reasonably acceptable to Purchaser, provided a copy of
such reliance opinion shall be attached as an exhibit to the
opinion of such counsel.
(f) NO BURDENSOME CONDITION. None of the Requi-
site Regulatory Approvals shall contain any condition or require-
ment (a "Burdensome Condition") relating to Purchaser, any of
Purchaser's Affiliates, the Bank or any of the Other Companies
which would or would reasonably be expected to so materially
adversely impact the economic or business benefits of the trans-
actions contemplated hereby (including, without limitation, the
Bank Merger) so as to render inadvisable, in the reasonable good
faith judgment of the Board of Directors of Purchaser, the
consummation of such transactions.
(g) RESERVES. Reserves from general valuation
allowance and allowance for loan loss, whether specific or gener-
al, reflected on the books and records of the Bank at Closing
(after giving effect to the Excluded Assets Closing but not
including any pre-closing adjustment made under Section 6.7) in
accordance with GAAP shall not be less than $22.265 million.
(h) PASS LAND LOANS. The aggregate net book
value reflected on the books and records of the Bank at Closing
in accordance with GAAP of the Pass Land Loan Portfolio, together
with the aggregate amount of unfunded commitments with respect to
loans which, if funded, would be included in the Pass Land Loan
Portfolio, shall not be more than $40.4 million.
(i) ABSENCE OF CERTAIN VIOLATIONS. No Govern-
mental Entity shall have asserted that the Bank or any of the
Other Companies has violated the Equal Credit Opportunity Act (15
U.S.C. Section 1791 et seq.), the Fair Housing Act (42 U.S.C.
Section 3601 et seq.), the Bank Secrecy Act (31 U.S.C. Section
5322 et seq.), or either of those provisions of the United States
Code providing criminal penalties for the laundering of monetary
instruments (18 U.S.C. Section 1956) or engaging in monetary
transactions in property derived from specified unlawful activity
(18 U.S.C. Section 1957), and no such violation shall have
occurred, which violation has not been substantially cured in all
material respects, and the Bank shall not be subject to any
prosecution, administrative censure or other action or proceeding
by reason thereof; provided, however, that the condition con-
tained in this Section 7.2(i) shall be deemed to be satisfied
unless (i) any such assertion, violation, action or proceeding,
individually or in the aggregate with other such assertions,
violations, actions or proceedings, would reasonably be expected
to have a material adverse effect on the ability of Purchaser or
any of Purchaser's Affiliates to obtain in due course any re-
quired regulatory approvals with respect to future mergers or
acquisitions or other activities without the imposition of any
condition which relates to Purchaser or any of its Affiliates
which would be unduly burdensome to any of them and (ii) Purchas-
er delivers to Seller a written notice specifying in reasonable
detail its grounds for claiming that the condition contained in
this Section 7.2(i) has not been satisfied.
(j) STOCKHOLDERS EQUITY. The sum of the (i)
consolidated stockholders equity of the Bank and its Subsidiary
and (ii) the stockholders equity of Security Co., each as of the
Closing Date and each as determined in accordance with GAAP,
applied on the same basis as would be applied in connection with
the preparation of the Closing Date Balance Sheets, plus the
amount of any after-tax unrealized losses on investment securi-
ties which decreased stockholder equity and less the amount of
any after-tax unrealized gains on investment securities which
increased stockholders equity and any portion of the Permitted
Dividend Amount which shall not have been previously paid or
accrued on such books and records, shall not be less than $201.6
million.
(k) RESIGNATIONS. Seller shall have delivered to
Purchaser duly signed resignations, effective immediately upon
consummation of the Closing, of all directors of the Bank and the
Other Companies.
7.3 CONDITIONS TO OBLIGATIONS OF SELLER. The obli-
gation of Seller to effect the Closing is also subject to the
satisfaction or waiver by Seller on or prior to the Closing Date
of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The repre-
sentations and warranties of Purchaser set forth in this Agree-
ment shall be true and correct in all material respects as of the
date of this Agreement and (except to the extent such represen-
tations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date.
Seller shall have received a certificate signed on behalf of
Purchaser by the Chief Executive Officer and the Chief Financial
Officer of Purchaser to the foregoing effect. The giving of said
certificate shall constitute a representation and warranty of
Purchaser with respect to the matters set forth therein.
(b) PERFORMANCE OF OBLIGATIONS OF PURCHASER.
Purchaser shall have performed in all material respects all
obligations required to be performed by it under this Agreement
at or prior to the Closing Date, and Seller shall have received a
certificate signed on behalf of Purchaser by the Chief Executive
Officer and the Chief Financial Officer of Purchaser to such
effect. The giving of said certificate shall constitute a
representation and warranty of Purchaser with respect to the
matters set forth therein.
(c) NO PENDING GOVERNMENTAL ACTIONS. No proceed-
ing initiated by any Governmental Entity seeking an Injunction
shall be pending.
(d) LEGAL OPINION. Seller shall have received
the opinion of Purchaser's general counsel, dated the Closing
Date, substantially to the effect attached hereto as Exhibit
7.3(d). As to any matter in such opinion which involves matters
of fact or matters relating to laws other than Federal or Cali-
fornia law, such counsel may rely upon the certificates of
officers and directors of Purchaser and of public officials and
opinions of local counsel, reasonably acceptable to Seller,
provided a copy of such reliance opinions shall be attached as an
exhibit to the opinion of such counsel.
(e) NO BURDENSOME CONDITION. None of the Requi-
site Regulatory Approvals shall contain any condition or require-
ment relating to Seller or any of Seller's Affiliates which would
or would reasonably be expected to so materially adversely impact
the economic or business benefits to Seller of the transactions
contemplated hereby so as to render inadvisable, in the reason-
able good faith judgment of the Board of Directors of Seller, the
consummation of such transactions.
ARTICLE VIII
TERMINATION AND AMENDMENT
-------------------------
8.1 TERMINATION. This Agreement may be terminated at
any time prior to the Closing Date:
(a) by mutual consent of Purchaser and Seller in
a written instrument, if the Board of Directors of each so deter-
mines by a vote of a majority of the members of its entire Board;
(b) by either Purchaser or Seller upon written
notice to the other party (i) 60 days after the date on which any
request or application for a Requisite Regulatory Approval shall
have been denied or withdrawn at the request or recommendation of
the Governmental Entity which must grant such Requisite Regulato-
ry Approval, unless within the 60-day period following such
denial or withdrawal a petition for rehearing or an amended
application has been filed with the applicable Governmental
Entity; provided, however, that no party shall have the right to
terminate this Agreement pursuant to this Section 8.1(b)(i) if
such denial or request or recommendation for withdrawal shall be
due to the failure of the party seeking to terminate this Agree-
ment to perform or observe the covenants and agreements of such
party set forth herein or (ii) if any Governmental Entity of
competent jurisdiction shall have issued a final nonappealable
order enjoining or otherwise prohibiting the consummation of any
of the transactions contemplated by this Agreement (including,
without limitation, the Bank Merger);
(c) by either Purchaser or Seller if the Closing
shall not have occurred on or before March 31, 1995;
(d) by either Purchaser or Seller (provided that
the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained
herein) if there shall have been a material breach of any of the
representations or warranties set forth in this Agreement on the
part of the other party, which breach is not cured within forty-
five (45) days following written notice to the party committing
such breach, or which breach, by its nature, cannot be cured
prior to the Closing; or
(e) by either Seller or Purchaser (provided that
the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained
herein) if there shall have been a material breach of any of the
covenants or agreements set forth in this Agreement on the part
of the other party, which breach shall not have been cured within
forty-five (45) days following receipt by the breaching party of
written notice of such breach from the other party hereto. For
purposes of this Section 8.1(e) of this Agreement, Seller shall
be deemed to have breached any covenant contained in this Agree-
ment if, notwithstanding Seller's best efforts, the Bank or any
of the Other Companies shall take or fail to take any of the
actions which Seller has agreed to use its best efforts to cause
the Bank and the Other Companies to take or refrain from taking.
8.2 EFFECT OF TERMINATION. (a) In the event of
termination of this Agreement by either Purchaser or Seller as
provided in Section 8.1, this Agreement shall forthwith become
void and have no effect except (i) the last sentence of Section
6.2(a), and Sections 8.2 and 11.1 shall survive any termination
of this Agreement, and (ii) notwithstanding anything to the
contrary contained in this Agreement, no party shall be relieved
or released from any liabilities or damages arising out of its
willful breach of any provision of this Agreement.
8.3 AMENDMENT. Subject to compliance with applicable
law, this Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Direc-
tors. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the
Closing Date, the parties hereto, by action taken or authorized
by their respective Boards of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any
of the obligations or other acts of the other parties hereto, (b)
waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance
with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subse-
quent or other failure.
ARTICLE IX
CERTAIN TAX MATTERS
-------------------
9.1 TAX RETURNS, PAYMENT OF TAXES, TRANSFER TAXES,
REFUNDS AND WITHHOLDING. (a) Seller shall prepare and file, or
shall cause to be prepared and filed on a timely basis, all Tax
Returns of, or which include, the Bank or any of the Other
Companies (including any amendment thereto), which are due to be
filed (giving effect to any extension of time to file) on or
prior to the Closing Date. Seller shall include the Bank and the
Other Companies for the taxable period ending on the Closing Date
in its consolidated federal income Tax Return for the calendar
year in which the Closing Date occurs, and Purchaser shall
prepare, or shall cause, the Bank and the Other Companies to
prepare, consistent with prior practice of the Bank, and deliver
to Seller no later than July 15th of the calendar year following
the calendar year in which the Closing Date occurs, all relevant
Tax schedules and forms relating to the Bank and the Other
Companies to permit their inclusion in such consolidated federal
income Tax Return. Seller shall use its best efforts to cause
the Bank and the Other Companies to conduct their affairs such
that any Tax Returns due after the Closing Date can be completed
and filed on a timely basis. Seller shall pay, or shall cause to
be paid, and shall indemnify and hold Purchaser and each of its
Affiliates harmless against any Losses relating to Taxes with
respect to the Bank or any of the Other Companies for all taxable
periods ending on or prior to the Closing Date, including the
taxable period ending as of the close of business on the Closing
Date (each, a "Pre-Closing Period") and including any liability
for Taxes arising as a result of Treasury Regulation Sec-
tion 1.1502-6 or any equivalent provision under state or local
tax law. Purchaser shall prepare and file, or shall cause to be
prepared and filed, all Tax Returns (other than the consolidated
return) relating to the Bank or any of the Other Companies that
are due after the Closing Date. Upon written request by the
Seller, Seller may reasonably consult with Purchaser concerning
the preparation of any California Franchise Tax Return for a Pre-
Closing Period. Purchaser shall pay, or cause to be paid, and
shall indemnify and hold Seller and any of its Affiliates harm-
less against any Losses relating to Taxes with respect to the
Bank and the Other Companies for all taxable periods which do not
constitute Pre-Closing Periods, except as otherwise provided in
Section 9.1(b) and for Tax consequences, if any, arising as a
result of the Bank Merger. Seller shall indemnify and hold Pur-
chaser and each of its Affiliates harmless against all out-of-
pocket costs and expenses incurred by Purchaser, the Bank or the
Other Companies after the Closing Date in connection with the
preparation (consistent with past practice) of Tax Returns, Tax
schedules or forms of, or which include, the Bank or the Other
Companies for any taxable period ending on or before the Closing
Date to the extent that such costs exceed the amounts reserved
therefor on the Closing Date Balance Sheets. Such costs and
expenses shall be reimbursed to Purchaser by Seller upon submis-
sion of invoices or other receipts therefor.
(b) Any taxable period of the Bank or any of the
Other Companies that begins before the Closing Date and ends
after the Closing Date shall constitute a "Straddle Period" for
purposes of this Agreement. In the case of a Straddle Period,
Seller shall be solely responsible for all Taxes attributable to
the portion of the period ending on, and which includes, the
Closing Date and the Purchaser shall be solely responsible for
all Taxes attributable to the portion of the period which begins
after the Closing Date. For purposes of this Agreement, the
portion of any Tax that is attributable to the portion of a
Straddle Period up to and including the Closing Date shall be (i)
in the case of a Tax that is not based on net income, gross
income, sales or gross receipts, the total amount of such Tax for
the period in question multiplied by a fraction, the numerator of
which is the number of days in the Straddle Period up to and
including the Closing Date, and the denominator of which is the
total number of days in such Straddle Period, and (ii) in the
case of a Tax that is based on any of net income, gross income,
sales or gross receipts, the Tax that would be due with respect
to the portion of the Straddle Period through and including the
Closing Date, if such portion of the Straddle Period were a
separate taxable Pre-Closing Period, except that exemptions,
allowances, deductions or credits that are calculated on an
annual basis (such as the deduction for depreciation or capital
allowances) shall be apportioned on a per diem basis, provided,
however, that notwithstanding any contrary provision of this
Section 9.1, real property taxes shall be allocated in the manner
set forth in Section 164(d) of the Code.
(c) Notwithstanding paragraphs (a) and (b) of
this Section 9.1, Seller shall have no obligation to pay, or
indemnify Purchaser or any of its Affiliates in respect of, any
Tax (other than federal income Tax) unless and to the extent that
such Tax, when added to any other Tax not paid or indemnified by
Seller by reason of this paragraph (c), exceeds the provision for
Taxes on the Closing Date Balance Sheets (with the exclusion of
any deferred Taxes).
(d) In the case of any Tax Return for any Strad-
dle Period, the Purchaser shall provide Seller with copies of the
completed Tax Return for such taxable period, together with such
related work papers and other documents as Seller shall reason-
ably request, no later than 30 days before the due date for the
filing of such Tax Return. Seller and its authorized repre-
sentatives shall have the right to review the Tax Returns re-
ceived from the Purchaser pursuant to the terms of this Section
9.1(d). If and to the extent that the portion of any Tax relat-
ing to a Straddle Period that is attributable to Seller pursuant
to Section 9.1(b) hereof exceeds the amount by which the Permit-
ted Dividend Amount was reduced in respect of such Tax, Seller
shall pay such excess to the Bank no less than 5 days before the
due date of the filing of the Tax Return in respect of such Tax.
If and to the extent that the excess by which the Permitted
Dividend Amount was reduced in respect of any Tax exceeded the
amount attributable to Seller pursuant to Section 9.1(b) hereof,
Purchaser shall pay such excess to Seller no later than 3 days
after the due date of the filing of the Tax Return in respect of
such Tax. Seller and the Purchaser agree to consult each other
and resolve in good faith any issues arising under the terms of
this Section 9.1(d) as a result of the review of any such Tax
Returns received from the Purchaser. If the parties are unable
to resolve any dispute within 60 business days after the receipt
of any such Tax Returns, the parties shall resort to the method
of dispute resolution provided in Section 9.4 hereof. If such
disputes have not been resolved prior to the due date for filing
of such Tax Return, the Tax Return in question, to the extent any
issues thereon remain unresolved, shall be filed in accordance
with the positions taken by the Purchaser, provided that the fact
that such Tax Return will have been filed in accordance with
Purchaser's position shall not be taken into account for purposes
of any dispute resolution under Section 9.4. If a determination
is made through the dispute resolution process after a Tax Return
is filed that the Purchaser's position was inappropriate, the
Purchaser shall promptly file an amended Tax Return (to the
extent permitted by applicable law) reflecting the final decision
of the Independent Accounting Firm.
(e) Seller and the Purchaser hereby agree that
for Tax purposes (i) any amount of Taxes paid by Seller to the
Purchaser, (ii) any amounts paid pursuant to Article IX or X
hereof and (iii) any amount paid pursuant to Section 2.5 hereof
shall constitute an adjustment to the Share Purchase Price.
(f) All transfer, gains, stamp, recording or
other similar Taxes incurred in connection with the transactions
contemplated by this Agreement will be borne by Seller. Seller
will, at its own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, gains,
stamp, recording or other similar Taxes, and, if required by
applicable law, the Purchaser, as appropriate, will join in the
execution of any such Tax Return or other documentation.
(g) Except as otherwise provided in this Agree-
ment: (i) any refund of Taxes with respect to the Bank or any of
the Other Companies that is received with respect to any Pre-
Closing Period, or to the portion of any Straddle Period Taxes
for which Seller is responsible pursuant to Section 9.1 shall be
for the account of Seller, and to the extent that the Purchaser,
the Bank or any Affiliate thereof receives any such refund after
the Closing Date with respect to any such Pre-Closing Period or
Straddle Period, the amount of such refund shall, for purposes of
Sections 9.1 and 9.5, be deemed to have been included in the
provision for Taxes on the Closing Balance Sheet (subject to
accrual for interest at the rate of which interest is paid with
respect to such refund of Tax).
If Seller receives any refund of Taxes with respect to
the Bank or any of the Other Companies attributable to any
taxable period that is not a Pre-Closing Period or to the portion
of any Straddle Period beginning after the Closing Date, then
Seller shall pay to the Bank the amount of such refund received
within 30 calendar days after the receipt thereof. Seller, the
Purchaser, and the Bank shall assist one another in preparing,
filing, obtaining and defending any refund payable pursuant to
this Section 9.1(g).
(h) Purchaser agrees that none of the Bank, any
of the Other Companies, or any affiliated group within the
meaning of Section 1504(a) of the Code which includes the Bank
and/or the Other Companies shall carry back any item of loss,
deduction or credit to any taxable year for which a consolidated
return was filed by the Seller.
(i) Seller and Purchaser agree that for all
income tax purposes the taxable period of the Bank and the Other
Companies which began on January 1 of the calendar year in which
the Closing Date occurs shall be terminated as of the close of
business on the Closing Date in accordance with proposed Treasury
Regulations Section 1.1502-76(b)(1), except that for income tax
purposes the Bank Merger shall be deemed to occur on the day
after the Closing Date. Seller and Purchaser further agree to
file all Tax Returns (including, without limitation, all State
income Tax returns), handle the contest of any audit and other-
wise act for all Tax purposes consistent with the provisions of
this paragraph (i).
9.2 CONTROL OF CONTEST AND CARRYBACKS. (a) Subject
to Section 9.2(b), each of Seller and the Purchaser shall have
the right, at its own expense, to control any audit or determina-
tion by any Governmental Entity, and to contest, resolve and
defend against any assessment, notice of deficiency, or other
adjustment or proposed adjustment of Taxes for any taxable period
for which it may be obligated to indemnify the other party under
this Agreement; provided, however, that no party shall have the
right to agree to any assessment, deficiency, settlement, or
other adjustment or proposed adjustment of Taxes that would
adversely affect another party without such other party's written
consent, which consent shall not be unreasonably withheld.
(b) If a proposed adjustment is asserted in
writing with respect to a Straddle Period, the party receiving
notice from any Governmental Entity ("Notice Party") of the pro-
posed assessment shall notify the other party of the proposed
assessment within 20 days after receipt thereof. The other party
may notify the Notice Party within 20 days thereafter that it is
assuming the right to participate with the Notice Party in the
contest of such proposed assessment. If such participation is
assumed, neither party shall compromise or settle such proposed
adjustment without the written consent of the other party, which
consent shall not be unreasonably withheld. If such partici-
pation is assumed, each party shall bear its own out-of-pocket
costs and expenses of the contest and all joint costs and expens-
es of the contest shall be borne by the Notice Party and the
other party in the same ratio as the applicable proposed Tax
would be allocated.
(c) Notwithstanding Section 9.1(a), Seller shall
promptly forward to the Purchaser, and the Purchaser shall
promptly forward to Seller, all written notifications and other
written communications received by Seller, the Purchaser or the
Bank, respectively, relating to any liability for Taxes for any
taxable period, including any Straddle Period, for which Seller
or the Purchaser, as the case may be, is charged with payment
responsibility under this Agreement. Seller and the Purchaser
shall each assist the other in taking any and all actions with
respect to any proceeding for any taxable period, including any
Straddle Period, for which the Seller or Purchaser is charged
with payment responsibility under this Agreement. The failure by
Seller or the Purchaser to provide any such notice or other
written communication to the other party in accordance with this
Section 9.2(c) within 20 business days of receipt shall relieve
the other party from its obligations with respect to the subject
matter of any notification not forwarded if and only to the
extent that such failure prejudices the other party in the
defense of such Tax liability claim.
9.3 ACCESS TO INFORMATION AND RECORDS. Each of Seller
and the Purchaser will provide the other (and the other's attor-
neys, accountants and agents) with, and the Purchaser, after the
Closing Date, shall cause the Bank and the Other Companies to
provide Seller (and Seller's attorneys, accountants and agents)
with, the right, at reasonable times and upon reasonable notice,
to have access to, and to copy and use, any records or informa-
tion and personnel which may be relevant for the taxable period
for which the requesting party is charged with payment responsi-
bility for Taxes under this Agreement in connection with the
preparation of any Tax Returns, the determination of amounts due
under Article IX hereof, any audit or other examination by any
Governmental Entity, the filing of any claim for a refund of Tax
or for the allowance of any Tax credit, or any judicial or
administrative proceedings relating to liability for Taxes. The
party requesting assistance hereunder shall reimburse the other
party for reasonable out-of-pocket expenses incurred in providing
such assistance. Any information obtained pursuant to this
Section 9.3(a) shall be held in strict confidence and shall be
used solely in connection with the reason for which it was
requested.
9.4 RESOLUTION OF DISAGREEMENTS AMONG PARTIES. If
Seller or the Purchaser disagree as to any matter governed by
this Article IX the parties shall promptly consult with each
other in an effort to resolve such dispute. Any amounts not in
dispute shall be paid promptly, and any amounts payable upon the
resolution of a dispute shall be made to a bank account designat-
ed by the payee no later than 10 business days after such resolu-
tion. If any such disagreement cannot be resolved within 30 days
after Seller or Purchaser asserts in writing that such dispute
cannot be resolved, Seller and the Purchaser shall jointly select
an Independent Accounting Firm to act as an arbitrator to resolve
the disagreement. The Independent Accounting Firm's determi-
nation shall be final and binding upon the parties, and any fees
and expenses relating to the engagement of the Independent Ac-
counting Firm shall be shared equally by Seller and the Purchas-
er. Upon the resolution of such dispute by the Independent
Accounting Firm, any amounts payable by Seller or the Purchaser,
as the case may be, shall be made to a bank account designated by
the payee no later than 10 business days after such resolution.
Simple interest will be paid with respect to any such amounts at
the Federal Funds Rate from the date of the assertion in writing
that the dispute cannot be resolved to the date of payment.
9.5 DISTRIBUTION OF TAX RESERVE. In the event that
the aggregate net amount of Taxes other than federal income Taxes
paid after the Closing Date by or with respect to the Bank and
the Other Companies for any Pre-Closing Period (including the
portion of any Straddle Period Taxes for which Seller is respon-
sible pursuant to Section 9.1 hereof) is less than the amount of
the reserve for such Taxes provided on the Closing Date Balance
Sheets (with the exclusion of any deferred Taxes), Purchaser
shall pay Seller upon the expiration of the statute of limitation
for all Taxes relating to Pre-Closing Periods and Straddle
Periods (including extensions thereof) the amount by which such
Tax reserve exceeds the aggregate net amount of Taxes paid by or
with respect to the Bank and the Other Companies with respect to
such periods, provided, however, that no amount shall be paid by
Purchaser to Seller under Section 9.5 to the extent any adjust-
ments to Pre-Closing Period Taxes occurring after the Closing
Date affect the deferred Taxes of the Bank or the Other Compa-
nies.
9.6 SUCCESSORS. For purposes of this Article IX, all
references to the Bank or the "Other Companies" shall include any
successor of such entity.
9.7 FEDERAL TAX PROVISION. In addition to any other
amounts payable to the Seller pursuant to this Agreement, there
shall be payable to the Seller on or before the date for the
filing of Seller's consolidated Federal income tax return for the
calendar year in which the Closing Date occurs, an amount equal
to the provision for current federal income taxes on the Closing
Date Balance Sheets to the extent that such provision has not
theretofore been paid to the Seller pursuant to any tax sharing
agreement between the Bank and the Seller (or the Seller's
predecessor) or otherwise.
9.8 INCOME TAX ADJUSTMENTS. If the taxable income of
the Bank and the Other Companies for any Pre-Closing Period shall
be adjusted by any Governmental Entity and as a result of such
adjustment either (a) an amount is deductible by Bank or any of
the Other Companies for any taxable period ending after the
Closing Date or (b) an amount is required to be included in the
gross income of the Bank or any of the Other Companies for any
Pre-Closing Period and there was recorded on the Closing Date
Balance Sheet a deferred tax liability for such amount, then the
Purchaser shall pay to the Seller the amount of the deferred tax
liability on the Closing Date Balance Sheets related to such
adjustment. This amount shall be paid by Purchaser to Seller
promptly upon the conclusion of the action of the Governmental
Entity giving rise to the adjustment and the furnishing to
Purchaser of an explanation of such adjustment and such other
documentation related thereto as Purchaser shall reasonably
request.
ARTICLE X
INDEMNIFICATION
---------------
10.1 SELLER TO INDEMNIFY. Notwithstanding any due
diligence investigation conducted by Purchaser or any of its
Affiliates or representatives at any time prior to the Closing
Date, Seller agrees, from and after the Closing Date, to indemni-
fy, hold harmless and defend the Purchaser and each of the
Purchaser's directors, officers, assigns and Affiliates (col-
lectively, the "Purchaser's Indemnified Parties") from and
against any and all claims, losses, liabilities, costs, penal-
ties, fines and expenses (including reasonable attorney's,
accountant's, consultant's and expert's fees and expenses),
damages, obligations to third parties, expenditures, proceedings,
judgments, awards and demands ("Losses") of any kind whatsoever
which may be suffered, sustained or incurred by, or imposed upon,
or asserted or awarded against, any of the Purchaser's Indemni-
fied Parties and which directly or indirectly arise out of, re-
sult from or are based upon: (a) the breach of any represen-
tation or warranty made by Seller in this Agreement, (b) any
breach of any covenant made by Seller in this Agreement, (c) any
Excluded Asset or any Excluded Liability (including, without
limitation, any costs or expenses associated therewith which are
incurred by the Bank or any of the Other Companies prior to the
Closing and are not paid in full prior to the Closing or ade-
quately reflected as liabilities on the Closing Date Balance
Sheet and all Losses which arise out of or result from the
failure of Seller, the Bank or any of the Other Companies to
obtain any third party consent required in order to effect the
transfer of the Excluded Assets and the Excluded Liabilities to
Seller); provided, however, that in no event shall Seller be
liable pursuant to this clause (c) for any non-monetary Losses or
damages indirectly incurred by any of Purchaser's Indemnified
Parties (including, without limitation, any alleged Losses
resulting from regulatory restrictions imposed on Purchaser or
any of its Affiliates) arising out of, resulting from or based
upon any Excluded Asset or any Excluded Liability, (d) except as
otherwise provided in Section 5.5 hereof, the Management Agree-
ments, (e) controlled group affiliation under section 4001 of
ERISA or 414 of the Code with another trade or business, (f)
those legal, arbitral and other actions and proceedings set forth
on Schedule 10.1(f)(i) hereof, or (g) other than in respect of
claims under Section 10.2 hereof or claims by or on behalf of the
Bank or Purchaser or claims relating to the ordinary course of
business of the Bank in which such person had no interest other
than as an officer or director of the Bank, any claim by any
person who is now, or has been at any time prior to the date of
this Agreement, or who becomes prior to the Closing Date, a
director or officer of the Bank or any of the Other Companies or
any of their respective predecessors and who also, at any such
time, was a director or officer of Seller for indemnification
(whether pursuant to a charter or by-law provision, indemnifi-
cation agreement, or otherwise) for any matter based on, or
arising out of, or pertaining to the fact that such person was
prior to the Closing Date a director or officer of the Bank or
any of the Other Companies or any of their respective prede-
cessors or was prior to the Closing Date serving at the request
of any such party as a director, officer, employee, fiduciary or
agent of another corporation, partnership, trust or other enter-
prise. Solely for purposes of establishing whether any matter is
indemnifiable pursuant to Section 10.1(a) hereof, in determining
the accuracy of the representations and warranties made by Seller
in Sections 3.1, 3.3, 3.7, 3.8, 3.10, 3.17, 3.18 and 3.21, a
Material Adverse Effect shall be deemed to have occurred in the
event that the matter or matters being considered in determining
the accuracy of such representation or warranty has resulted or
would result, in a Loss of $25,000 or more.
10.2 PURCHASER TO INDEMNIFY. The Purchaser agrees,
from and after the Closing Date, to indemnify, hold harmless and
defend Seller and Seller's directors, officers, assigns, and
Affiliates (collectively, the "Seller's Indemnified Parties")
from and against any and all Losses of any kind whatsoever which
may be suffered, sustained or incurred by, or imposed upon, or
asserted or awarded against, any of the Seller's Indemnified Par-
ties and which directly or indirectly: (a) arise out of, result
from or are based upon the breach of any representation or
warranty made by the Purchaser in this Agreement, (b) arise out
of, result from or are based upon any breach of any covenant made
by the Purchaser in this Agreement or (c) any amounts which a
Governmental Entity shall require Seller or any of its Affiliates
to pay, and which are actually so paid, to the Bank or Purchaser
as a result of such Governmental Entity determining that the
consideration paid by Seller or any of its Affiliates with
respect to any Excluded Asset was less than the amount required
to have been paid for such asset pursuant to applicable law (less
any liability for Taxes incurred by the Bank or Purchaser as a
result of the receipt of any such payment from Seller or any of
its Affiliates).
10.3 PROCEDURE FOR INDEMNIFICATION. Except as other-
wise set forth in Article IX hereof or in any REI Transfer
Agreement, the following procedures shall apply to any claim for
indemnification under this Agreement:
(a) If a party entitled to be indemnified under this
Agreement (an "Indemnitee") receives notice of the assertion by
an unaffiliated third party (a "Third Party") of any claim or of
the commencement by any Third Party of any action or proceeding
(a "Third Party Claim") with respect to which another party
hereto (an "Indemnifying Party") is obligated to provide indem-
nification pursuant to the terms of this Agreement, the Indem-
nitee shall give the Indemnifying Party prompt notice thereof
after receiving notice of such Third Party Claim. The notice to
the Indemnifying Party shall describe the Third Party Claim in
reasonable detail and shall indicate the amount (estimated if
necessary) of the Loss that has been or may be sustained by the
Indemnitee. Such notice shall be a condition precedent to any
liability of the Indemnifying Party for any Third Party Claim
under the provisions for indemnification contained in this Agree-
ment; provided, however, that the failure of the Indemnitee to
give prompt notice to the Indemnifying Party of such Third Party
Claim shall adversely affect the Indemnitee's rights to indem-
nification hereunder solely to the extent that such failure prej-
udices the Indemnifying Party in the defense of such Third Party
Claim. Except as otherwise provided herein, the Indemnifying
Party may elect to compromise or defend, at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel,
any Third Party Claim and the obligations of the Indemnifying
Party as to such Third Party Claim shall be limited to taking all
steps necessary in the defense or settlement of such Third Party
Claim or litigation resulting therefrom and to holding Indemnitee
harmless from and against any and all loss caused by, arising out
of or relating to any settlement approved by the Indemnifying
Party or any judgment in connection with such Third Party Claim
or litigation resulting therefrom. Prior to entering into a
final settlement or compromise or the entering of any judgment
with respect to such a settlement or compromise with respect to
such Third Party Claims, the Indemnifying Party shall obtain the
Indemnitee's consent (which consent shall not be unreasonably
withheld) to such settlement, compromise or entry of judgment if
such settlement, compromise or entry would result in a material
cost to the Indemnified Party which is not indemnifiable pursuant
to the terms of the Agreement, or would otherwise materially and
adversely affect (i) the business, financial condition or results
of operations of the Indemnified Party and its Subsidiaries taken
as a whole or (ii) the Indemnified Party's or any such Subsidiar-
y's method of doing business. If the Indemnifying Party elects
to compromise or defend such Third Party Claim, it shall, within
30 days after receiving notice of the Third Party Claim, notify
the Indemnitee of its intent to do so, and the Indemnitee shall
cooperate, at the expense of the Indemnifying Party, in the
compromise of, or defense against, such Third Party Claim. If
the Indemnifying Party elects not to compromise or defend against
the Third Party Claim, or fails to notify the Indemnitee of its
election as herein provided, or otherwise abandons the defense of
such Third Party Claim, (i) the Indemnitee may pay (without
prejudice of any of its rights as against the Indemnifying Par-
ty), compromise or defend such Third Party Claim and (ii) the
costs and expenses of the Indemnitee incurred in connection
therewith shall be indemnifiable by the Indemnifying Party
pursuant to the terms of this Agreement. In addition, in connec-
tion with any Third Party Claim in which the Indemnitee shall
reasonably conclude, based upon an opinion of its counsel, that
(i) there is a conflict of interest between the Indemnifying
Party and the Indemnitee in the conduct of the defense of such
Third Party Claim or (ii) there are specific defenses available
to the Indemnitee which are different from or additional to those
available to the Indemnifying Party and which could be materially
adverse to the Indemnifying Party, then the Indemnitee shall have
the right to retain separate counsel in connection with such
Third Party Claim. In such an event, the Indemnifying Party
shall pay the reasonable fees and disbursements of counsel to
each of the Indemnifying Party and the Indemnitee. In any event,
except as otherwise provided herein, the Indemnitee and the
Indemnifying Party may each participate, at its own expense, in
the defense of such Third Party Claim. If the Indemnifying Party
chooses to defend any claim, the Indemnitee shall make available
to the Indemnifying Party any personnel or any books, records or
other documents within its control that are reasonably necessary
or appropriate for such defense, subject to the receipt of appro-
priate confidentiality agreements, and the Indemnifying Party
shall reimburse the Indemnitee for all of its actual reasonable
out-of-pocket expenses in connection therewith.
(b) Notwithstanding anything to the contrary con-
tained in paragraph (a) of this Section 10.3, in the event prompt
action is required with respect to the defense of a Third Party
Claim, the Indemnitee shall, subject to the terms and conditions
of this Article X, have the right to assume the defense of such
Third Party Claim; provided, however, that in the event that the
Indemnifying Party subsequently elects to assume the defense of
such Third Party Claim, then the provisions set forth in such
paragraph (a) shall be applicable and the Indemnifying Party
shall, subject to the terms and conditions of this Article X,
reimburse the Indemnitee for any reasonable costs and expenses
incurred by the Indemnitee prior to the date the Indemnifying
Party assumes control of such Third Party Claim.
(c) Notwithstanding the foregoing, if an offer
of settlement or compromise is received by or communicated to
the Indemnifying Party with respect to a Third Party Claim and
the Indemnifying Party notifies the Indemnitee in writing of
the Indemnifying Party's willingness to settle or compromise
such Third Party Claim on the basis set forth in such notice
and the Indemnitee declines to accept such settlement or
compromise, the Indemnitee may continue to contest such Third
Party Claim, free of any participation by the Indemnifying
Party, at the Indemnitee's sole expense. The obligation of the
Indemnifying Party to the Indemnitee with respect to such Third
Party Claim shall be equal to the lesser of (i) the amount of
the offer of settlement or compromise which the Indemnitee
declined to accept plus the costs and expenses of the Indemni-
tee prior to the date the Indemnifying Party notifies the
Indemnitee of the Indemnifying Party's willingness to settle or
compromise such Third Party Claim or (ii) the amount the Indem-
nitee is obligated to pay as a result of the Indemnitee's con-
tinuing to contest such Third Party Claim including costs and
expenses with respect thereto; and the Indemnifying Party shall
be entitled to recover (by set off or otherwise) from the
Indemnitee any additional expenses incurred by the Indemnifying
Party as a result of the Indemnitee's decision to continue to
contest such Third Party Claim.
(d) Any claim on account of a Loss which does
not involve a Third Party Claim shall be asserted by written
notice given by the party claiming indemnity to the party from
which indemnity is claimed. The recipient of such notice shall
have a period for 30 days within which to respond thereto. If
such recipient does not respond within such 30-day period, such
recipient shall be deemed to have accepted responsibility to
make payment, subject to the provisions hereof, and shall have
no further right to contest the validity of such claim. If the
recipient does respond within such 30-day period and rejects
such claim in whole or in part, the party claiming indemnity
shall be free to pursue such remedies as may be available to
such party by applicable law.
(e) If the amount of any Loss shall, at any
time subsequent to payment of indemnification pursuant to this
Agreement, be reduced by receipt of insurance proceeds or other
property or the payment of any similar benefit in respect of
such Loss, the amount of such reduction less any expenses
incurred in connection therewith shall promptly be repaid by
the Indemnitee to the Indemnifying Party; provided, however,
that no benefit relating to Taxes shall be taken into account
for purposes of this Section 10.3(e).
(f) Notwithstanding anything to the contrary
contained in this Agreement, no claim shall be made against
Seller for indemnification under Section 10.1(a) with respect
to any Loss which any of Purchaser's Indemnified Parties may
suffer, incur or sustain unless (i) the aggregate of all such
Losses described in Section 10.1(a) shall exceed $3,000,000
(determined on a pre-tax basis without taking into account any
reduction pursuant to Section 10.3(g)), and Seller shall only
be required to pay or be liable for any such Losses described
in Section 10.1(a) to the extent that their aggregate amount
exceeds $3,000,000 (determined on a pre-tax basis without
taking into account any reduction pursuant to Section 10.3(g)),
and then only with respect to Losses incurred in excess of such
amount, provided, however, that the $3,000,000 limitation
(determined on a pre-tax basis without taking into account any
reduction pursuant to Section 10.3(g)) contained in this
Section 10.3(f) shall not apply to, and Purchaser's Indemnified
Parties shall be entitled to dollar-for-dollar recovery with
respect to, Losses suffered, incurred or sustained which arise
out of, result from or are attributable to breaches of the
representations contained in Sections 3.2, 3.9 and 3.26(a)
hereof, and provided, further, that any Losses suffered,
incurred or sustained which arise out of, result from or are
attributable to breaches of the representations contained in
Sections 3.2, 3.9 and 3.26(a) hereof shall not count towards
the satisfaction of such $3,000,000 limitation, and (ii) solely
with respect to the representations and warranties contained in
Sections 3.1, 3.3, 3.7, 3.8, 3.10, 3.17, 3.18 and 3.21, the
amount of the Loss exceeds $25,000, provided, however, that in
the case of any Loss exceeding $25,000, subject to the
$3,000,000 limitation (determined on a pre-tax basis without
taking into account any reduction pursuant to Section 10.3(g))
described above, the entire Loss, and not solely the portion of
such Loss in excess of $25,000, shall be indemnifiable by
Seller and provided further, however, that where a number of
Losses are each individually less than $25,000, but the aggre-
gate of such Losses exceeds $25,000, and all such Losses are
based upon, arise from or are attributable to the same or a
series of closely related matters, then subject to the
$3,000,000 limitation (determined on a pre-tax basis without
taking into account any reduction pursuant to Section 10.3(g)),
such Losses shall be indemnifiable by Seller pursuant to
Section 10(a). Any Loss indemnifiable pursuant to clause (ii)
of this Section 10.3(f) but for the $3,000,000 limitation
(determined on a pre-tax basis without taking into account any
reduction pursuant to Section 10.3(g)) described herein shall
count towards the satisfaction of such $3,000,000 limitation
(determined on a pre-tax basis without taking into account any
reduction pursuant to Section 10.3(g)).
(g) Payments for indemnification pursuant to
Article IX or X hereof shall be reduced by 35% (for a federal
income tax benefit) and 7.5% (for a state income or franchise
tax benefit) if and to the extent that the Indemnitee reason-
ably believes as of the time that such indemnification payment
is made that the expense to which the indemnification payment
relates may be deducted by the Indemnitee for federal income
and state income or franchise tax purposes for the period
during which such expense is paid or accrued, and that the
receipt of such indemnification payment will not give rise to
gross income for federal income or state income or franchise
tax purposes, provided however, that if, at such time as the
federal income or state income or franchise Tax Returns with
respect to such period are filed, the Indemnitee reasonably be-
lieves that a deduction will not be allowed with respect to
such expense for federal income or state income or franchise
tax purposes, the Indemnifying Party shall pay to the Indem-
nitee the amount by which the indemnification payment was
reduced pursuant to this Section 10.3(g), and provided further
that in the event of a Determination that (a) such expense is
not deductible for federal income or state income or franchise
tax purposes, the Indemnifying Party shall pay to the Indem-
nitee the sum of (i) the amount by which the indemnification
payment was reduced pursuant to this Section 10.3(g) and (ii)
any Losses incurred by the Indemnitee as a result of taking the
position on its Tax Return that such expenses were deductible;
or (b) such indemnification payment constituted gross income
for federal income or state income or franchise tax purposes,
the Indemnifying Party shall pay to the Indemnitee the sum of
(i) the amount of such indemnification payment, as reduced
pursuant to the first sentence of this Section 10.3(g), (ii)
the amount by which the indemnification payment was repaid to
the Indemnifying Party pursuant to the last sentence of this
Section 10.3(g), and (iii) any Losses incurred by the Indem-
nitee as a result of taking the position on its Tax Return that
such indemnification payment did not give rise to gross income.
For purposes of this Section 10.3(g), a "Determination" shall
mean a determination by the Appeals office of the Internal
Revenue Service, or by the state tax authority, as the case may
be, which Determination has been resisted by Purchaser in good
faith, consistent with its ongoing practices in handling Tax
matters. To the extent not otherwise taken into account
pursuant to the first sentence of this Section 10.3(g), Indem-
nitee shall pay on June 30 of each year to the Indemnifying
Party an amount equal to 35% (for a federal tax benefit) and
7.5% (for a state income or franchise tax benefit) for any
expense that is deducted by Indemnitee in such year which
relates to a payment for indemnification received by Indemnitee
in a prior year pursuant to Article IX or X that the Indemnify-
ing Party was not entitled to reduce pursuant to the first
sentence of this Section 10.3(g).
10.4 PRODUCTION OF WITNESSES. Following the Clos-
ing, each party shall use its best efforts to make available to
the other party, upon written request, its employees and agents
as witnesses to the extent that any such person may be reason-
ably required in connection with any legal, administrative or
other proceedings in which the requesting party may from time
to time be involved, and the requesting party shall reimburse
the other party for all out-of-pocket expenses reasonably
incurred in connection therewith.
10.5 SURVIVAL. No rights to indemnification with
respect to breaches of the representations and warranties of
the parties contained in this Agreement shall be asserted by
any party unless notice thereof is given on or before the date
such representation or warranty no longer survives as provided
in this Section 10.5. The representations and warranties of
Seller, on the one hand, and of the Purchasers, on the other
hand, contained in this Agreement or in any certificate or
instrument delivered pursuant to this Agreement shall survive
the Closing Date and shall expire on the first anniversary of
the Closing Date; provided, however, that the representations
and warranties contained in (i) Section 3.2, 3.9 and 3.26(a)
shall survive the Closing indefinitely and (ii) Sections 3.24
and 4.7 shall expire simultaneously with the consummation of
the Closing. Any covenant of any party contained herein
(including, without limitation, those relating to indemnifica-
tion) which by its terms must be performed in whole or in part
following the Closing Date shall survive the Closing indefi-
nitely.
10.6 INDEMNIFICATION FOR CERTAIN MATTERS. Notwith-
standing anything to the contrary contained in this Agreement:
(a) Seller shall indemnify and hold Purchaser's
Indemnified Parties harmless in respect of fifty percent (50%)
of the Losses attributable to those legal, arbitral and other
actions and proceedings set forth on Schedule 10.1(f)(ii)
hereof.
(b) Purchaser shall control the defense and prosecu-
tion of all matters referred to in this Section 10.6, provided
that Purchaser shall not settle any such matter without
Seller's written consent, which shall not be unreasonably
withheld.
(c) Purchaser and Seller shall fully cooperate with
each other and their respective counsel in connection with the
matters referred to in this Section 10.6, and shall make
available to each other documents and personnel as may be
reasonably requested by the other. Purchaser shall report to
Seller on the status of such matters from time to time as
reasonably requested by Seller.
(d) Seller shall promptly reimburse Purchaser from
time to time for any and all amounts paid for or incurred by
Purchaser and for which Seller is obligated pursuant to this
Section 10.6 upon submission by Purchaser of a detailed state-
ment reflecting the basis upon which such indemnification is
sought and the computation of such amounts.
ARTICLE XI
GENERAL PROVISIONS
------------------
11.1 EXPENSES. Except as otherwise specifically
provided in this Agreement, all costs and expenses incurred in
connection with this Agreement and the transactions contem-
plated hereby shall be paid by the party incurring such ex-
pense, provided, however, that all transfer, stamp, or similar
taxes, recording charges, title premiums and other similar
costs incurred by any party in connection with the transfer of
the Excluded Assets to, and assumption of the Excluded Liabili-
ties by, Seller shall be paid by Seller.
11.2 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if de-
livered personally, telecopied (with confirmation), mailed by
registered or certified mail (return receipt requested) or de-
livered by an express courier (with confirmation) to the par-
ties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) if to Purchaser, to:
First Interstate Bank of California
707 Wilshire Boulevard, 26th Floor
Los Angeles, CA 90017
Attn: Miles R. Adam
Fax: (213) 614-2638
and
First Interstate Bank of California
707 Wilshire Boulevard, 20th Floor
Los Angeles, CA 90017
Attn: Edward S. Garlock, Esq.
Fax: (213) 614-3416
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, N.Y. 10022
Attn: Fred B. White, III, Esq.
Fax: (212) 735-3645
and
(b) if to Seller, to:
Alleghany Corporation
Park Avenue Plaza
55 East 52nd Street
New York, NY 10055
Attn: Theodore E. Somerville, Esq.
Fax: (212) 759-8149
with a copy to:
Donovan Leisure Newton & Irvine
30 Rockefeller Plaza
New York, N.Y. 10112
Attn: Robert M. Hart, Esq.
Fax: (212) 632-3315
11.3 INTERPRETATION. When a reference is made in
this Agreement to Sections, Exhibits or Schedules, such refer-
ence shall be to a Section of or Exhibit or Schedule to this
Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference pur-
poses only and shall not affect in any way the meaning or in-
terpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limita-
tion".
11.4 COUNTERPARTS. This Agreement may be executed
in counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts
have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not
sign the same counterpart.
11.5 ENTIRE AGREEMENT. This Agreement (including
the documents and the instruments referred to herein) consti-
tutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties
with respect to the subject matter hereof, other than the Con-
fidentiality Agreement.
11.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOV-
ERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO ANY APPLICABLE CONFLICTS OF LAW.
11.7 ENFORCEMENT OF AGREEMENT. The parties hereto
agree that irreparable damage would occur in the event that the
provisions contained in the last sentence of Section 6.2(a) of
this Agreement were not performed in accordance with its
specific terms or was otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the last sentence of Section
6.2(a) of this Agreement and to enforce specifically the terms
and provisions thereof in any court of the United States or any
state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
11.8 SEVERABILITY. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction
shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of
the terms or provisions of this Agreement in any other juris-
diction. If any provision of this Agreement is so broad as to
be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
11.9 PUBLICITY. Except as otherwise required by law
or the rules of the NYSE or the National Association of Securi-
ties Dealers, so long as this Agreement is in effect, neither
Seller nor Purchaser shall, or shall permit any of its Subsid-
iaries to, issue or cause the publication of any press release
or other public announcement with respect to the transactions
contemplated by this Agreement without the consent of the other
party, which consent shall not be unreasonably withheld, and
each of Seller and Purchaser shall, to the extent practicable,
consult with each other prior to making any other public
statements with respect to such transactions.
11.10 ASSIGNMENT. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be as-
signed by any of the parties hereto (whether by operation of
law or otherwise) without the prior written consent of the
other parties, provided, however, that, unless the Security Co.
Merger shall have occurred, Purchaser may assign its right to
purchase the Security Co. Shares to any Affiliate of Purchaser
and provided, further, that Seller may assign its right to
purchase the Excluded Assets, and its obligations to assume the
Excluded Liabilities, to Alleghany Properties, Inc., a wholly
owned subsidiary of Seller, or to any other Affiliate of Seller
but no such assignment shall limit Seller's obligations to
Purchaser in respect of the Excluded Assets or the Excluded
Liabilities. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforce-
able by the parties and their respective successors and as-
signs.
11.11 NO THIRD PARTY BENEFICIARIES. Except as
expressly provided in Sections 5.4, 10.1 and 10.2, nothing con-
tained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto any rights
or remedies hereunder.
11.12 DISPUTE RESOLUTION. The parties shall attempt
in good faith to resolve any dispute arising out of or relating
to this Agreement promptly by negotiations, as follows. Either
party may give the other party written notice of any dispute
not resolved in the normal course of business. Executives of
both parties at comparable levels at least one step above the
personnel who have previously been involved in the dispute
shall meet at a mutually acceptable time and place within ten
(10) days after delivery of such notice, and thereafter as
often as they reasonably deem necessary, to exchange relevant
information and to attempt to resolve the dispute. If the
matter has not been resolved by these persons within thirty
(30) days of the disputing party's notice, or if the parties
fail to meet within ten (10) days, the dispute shall be re-
ferred to more senior executives of both parties who have
authority to settle the dispute and who shall likewise meet to
attempt to resolve the dispute. Thereafter, the parties may
pursue any remedies available under law, in equity or other-
wise. All negotiations under this Section are confidential and
shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence, state rules of
evidence, and common law. This Section shall not apply to any
dispute which is subject to the tax dispute resolution mecha-
nism set forth in Section 9.4 of this Agreement or the Closing
Adjustment Document dispute resolution mechanism set forth in
Section 2.4 of this Agreement.<PAGE>
<PAGE>
IN WITNESS WHEREOF, Purchaser and Seller have caused
this Agreement to be executed by their respective officers
thereunto duly authorized as of the date first above written.
FIRST INTERSTATE BANK OF
CALIFORNIA
By /s/ Miles R. Adam
------------------------------
Name: Miles R. Adam
Title: Executive Vice
President
By /s/ Kenneth J. Krown
------------------------------
Name: Kennneth J. Krown
Title: Assistant Secretary
ALLEGHANY CORPORATION
By /s/ John J. Burns, Jr.
------------------------------
Name: John J. Burns, Jr.
Title: President and Chief
Executive Officer
<PAGE>
Exhibit 10.1(b)
---------------
<TABLE>
<CAPTION>
LIST OF EXHIBITS
Exhibits
- - --------
<S> <S>
A Bank Merger Agreement
B Excluded Assets Schedule
C Assignment and Assumption Agreement
7.2 (e)(i) Opinion of Counsel to Seller
7.2 (e)(ii) Opinion of Counsel to the Bank
7.3 (d) Opinion of Counsel to Purchaser
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIST OF SCHEDULES
<C> <S>
1.1 Management Employees
3.2(a) Shares Encumbrances
3.2(b) Bank's Ownership of Subsidiaries
3.3(b) Violations
3.4 Consents and Approvals
3.7 Certain Changes and Events
3.7(a)(v) Management Agreements
3.8 Litigation
3.9 Tax Matters
3.10 Licenses/Compliance with Law
3.11(a) Schedule of Leases
3.11(b) Defaults/Terminations under Leases
3.11(c) Real Property
3.12 Benefit Plans
3.13 Insurance
3.14(a) Certain Contracts
3.14(b) Defaults under Contracts
3.15 Regulatory Agreements
3.16 Securities
3.18 Undisclosed Liabilities
3.19 Bank Accounts/Powers
3.20 Fiduciary Accounts
3.21 Environmental Matters
3.22 Derivatives
3.23 Affiliate Transactions
3.27 Intellectual Property
3.29 Loans
3.31 Data Processing Contracts
4.2(b) Violations
4.3 Consents and Approvals
5.4 Indemnity Agreements
6.4(h) Acquisition Severance Plan
6.9 Tax Sharing Agreement
10.1(f)(i) Indemnified Litigation
10.1(f)(ii) Certain Indemnified Litigation
</TABLE>
