SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: January 24, 1997
SIERRAWEST BANCORP
(Exact Name of Registrant as Specified in its Charter)
California
(State of Incorporation)
File No. 0-15450
(Commission File No.)
68-0091859
(IRS Employer
Identification No.)
10181 Truckee-Tahoe Airport Road, Truckee, CA 96160-9010
(Address of Principal Executive Offices)
Registrant's Telephone Number: (916) 582-3000
<PAGE>
Item 5. Other Events
On January 24, 1997, SierraWest Bancorp issued a press release announcing that
it has signed a definitive agreement to acquire Sacramento-based Mercantile Bank
("Mercantile"). Mercantile, which currently has total assets of $45 million,
will be merged into SierraWest Bancorp's wholly-owned subsidiary, SierraWest
Bank. The acquisition, which is scheduled to close in June, 1997, is subject to
the approval of Mercantile's shareholders and federal and state regulators.
<PAGE>
Item 7. Financial Statements and Exhibits
(c) Exhibits
2. Plan of Acquisition and Merger by and between SierraWest
Bancorp, SierraWest Bank and Mercantile Bank.
99. Press release dated January 24, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SierraWest Bancorp
(Registrant)
Dated: January 31, 1997 By:/s/ David C. Broadley
Truckee, California David C. Broadley
EVP/Chief Financial Officer
<PAGE>
EXHIBIT 2
PLAN OF ACQUISITION AND MERGER
BY AND BETWEEN
SIERRAWEST BANCORP
SIERRAWEST BANK
AND
MERCANTILE BANK
<PAGE>
TABLE OF CONTENTS
page
Section 1. THE MERGER. .. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effect of the Merger.. . . . . . . . . . . . . . . . . . . . . . 1
Section 2. CONVERSION AND CANCELLATION OF SHARES. . . . .... . . . . . . . . 2
2.1Exchange Amount; Conversion of Shares of Mercantile Common Stock. . 2
2.2Cash/Stock Election. . . . . . . . . . . . .. . . . . . . . . . . . 4
2.3Fractional Share. . . . . . . . . . . . . . . . . . . . . . . .. . 5
2.4Surrender of Mercantile Shares. . . . . . . . . . . . . . . . .. . 5
2.5No Further Transfers of Mercantile Shares. .. . . . . . . . . . . .6
2.6Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.7Personnel Matters. . . . . . . . . . . . . . . . . . . . . . . . .6
Section 3.COVENANTS OF THE PARTIES. . . . . . . . . . . . . . . . . . . . . .7
3.1Mutual Covenants. . . . . . . . .. . . . . . . . . . . . . . . . . .7
(a)Government Approvals. . . . . . . . . . . . . . . . . . . . .. . 7
(b)Notification of Breach of Representations, Warranties and
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c)Financial Statements. . . . . . . . . . . . . . . . . . . . . . 8
(d)Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e)Access to Properties, Books and Records; Confidentiality. . . .. 9
(f)Additional Agreements. . . . . . . . . . . . . . . . . . . . . . 9
(g)Advice of Changes. . . . . . . . . . . . . . . . . . . . . . . . 10
(h)Legal Conditions to Merger. . . . . . . . . . . . . . . . . . . 10
3.2Covenants of Mercantile. . . . . . . . . . . . . . . . . . .. . . .10
(a)Approval by Shareholders. . . . . . . . . . . . . . . . . . . . 10
(b)Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . .10
(c)Conduct of Business in the Ordinary Course. . . . . . . . . . . .11
(d)No Merger or Solicitation. . . . . . . . . . . . . . . . .. . . .13
(e)Changes in Capital Stock; Dividends. . . . . . . . . . . .. . . .14
(f)Employee Welfare Benefit Plans. . . . . . . . . . . . . . . . . .14
(g)Shareholder Lists and Other Information. . . . . . . . . . . . . 14
(h)Capital Commitments and Expenditures. . . . . . . . . . . . . . .14
<PAGE>
TABLE OF CONTENTS
(continued)
(i)Asset Review. . . . . . . . . . . . . . . . . . . . . . . .. . . 14
3.3Covenants of Sierra. . .. . . . . . . . . . . . . . . . . . . . .. 15
(a)Conduct of Business in the Ordinary Course. . . . . . . . . . . .15
(b) Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . .16
(c)Indemnification; Insurance . . . . . . . . . . . . . . . . . . . 16
Section 4.REPRESENTATIONS AND WARRANTIES OF MERCANTILE. . . . . . .. . . . . 18
4.1Corporate Status and Power to Enter Into Agreements. . . . . . . . 18
4.2Articles, Bylaws, Books and Records. . . . . . . . . . . . . . . .18
4.3Compliance With Laws, Regulations and Decrees. . . . . . . . . . . 18
4.4Capitalization. . . . . . . . . . . . . . . . . . . . . . . .. . . 19
4.5Equity Interest in Any Entity. . . . . . . . . . . . . . . . . . . 19
4.6Financial Statements, Regulatory Reports. . . . . . . . . . .. . . 19
4.7Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.8Material Adverse Change. . . . . . . . . . . . . . . . . . . . . 20
4.9No Undisclosed Liabilities.. . . . . . . . . . . . . . . . . . . . 21
4.10Properties and Leases. . . . . . . . . . . . . . . . . . . .. . . 21
4.11Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . 22
4.12Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 22
4.13Restrictions on Investments. . . . . . . . . . . . . . . . .. . . 22
4.14Employment Contracts and Benefits. . . . . . . . . . . . . .. . . 23
4.15Collective Bargaining and Employment Agreements. . . . . . .. . . 23
4.16Compensation of Officers and Employees. . . . . . . . . . . . . . 23
4.17Legal Actions and Proceedings. . . . . . . . . . . . . . . . . . 24
4.18Execution and Delivery of the Agreement. . . . . . . . . . .. . . 24
4.19Retention of Broker or Consultant. . . . . . . . . . . . . . . . .25
4.20Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
4.21Loan Loss Reserves. . . . . . . . . . . . . . . . . . . . . . . .25
4.22Transactions With Affiliates. . . . . . . . . . . . . . . . . . . 25
4.23Information in Sierra Registration Statement.. . . . . . . . . . 25
4.24Accuracy of Representations and Warranties. . . . . . . . . . . . 26
Section 5.REPRESENTATIONS AND WARRANTIES OF SIERRA. . . . . . . . . . . . . .26
<PAGE>
TABLE OF CONTENTS
(continued)
5.1Corporate Status and Power to Enter Into Agreements. . . . . . . .26
5.2Articles, Bylaws, Books and Records. . . . . . . . . . . . . . . . 26
5.3Compliance With Laws, Regulations and Decrees. . . . . . . . . . 26
5.4Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . .27
5.55Financial Statements, Regulatory Reports. . . . . . . . . . . . . 27
5.6Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.7Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . 28
5.8Legal Actions and Proceedings. . . . . . . . . . . . . . . . . . . 28
5.9Execution and Delivery of the Agreement. . . . . . . . . . . . . .29
5.10No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . 29
5.11No Material Environmental Liabilities. . . . . . . . . . . . . . 29
5.12No Material Liabilities Under ERISA. . . . . . . . . . . . . . . .30
5.13Retention of Broker or Consultant. . . . . . . . . . . . . . . . 30
5.14Loan Loss Reserves. . . . . . . . . . . . . . . . . . . . . . . . 30
5.15Information in Sierra Registration Statement. . . . . . . . . . 30
5.16Accuracy of Representations and Warranties. . . . . . . . . . . . 30
Section 6. SECURITIES ACT OF 1933; SECURITIES EXCHANGE ACT OF 1934. . . . . .31
6.1Preparation and Filing of Registration Statement. . . . . .. . . . 31
6.2Effectiveness of Registration Statement and Listing of Shares. . . 31
6.3Sales and Resales of Common Stock. . . . . . . . . . . . . . . . . 31
6.4 Rule 145 and Related Matters. . . . . . . . . . . . . . . . . . . 31
Section 7.CONDITIONS TO THE OBLIGATIONS OF SIERRA. . . . . . . . . . . . . . 32
7.1Representations and Warranties. . . . . . . . . . . . . . . . . . .32
7.2Compliance and Performance Under Agreement. . . . . . . . . . . . .32
7.3Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . 32
7.4Approval of Agreement. . . . . . . . . . . . . . . . . . . . . . . 32
7.5Officer's Certificate. . . . . . . . . . . . . . . . . . . . . . . 32
7.6Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . .. . 32
7.7Absence of Legal Impediment. . . . . . . . . . . . . . . . . . . .32
7.8Effectiveness of Registration Statement. . . . . . . . . . . . . . 33
7.9Government Approvals. . . . . . . . . . . . . . . . . . . . . . . 33
<PAGE>
TABLE OF CONTENTS
(continued)
7.10Tax Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.11Unaudited Financials. . . . . . . . . . . . . . . . . . . .. . . .34
7.12Rule 145 Undertaking. . . . . . . . . . . . . . . . . . . . . . . 34
7.13Closing Documents. . . . . . . . . . . . . . . . . . . . .. . . .34
7.14Consents. . . . . . . . . .. . . . . . . . . . . . . . . . . . . .34
7.15Shareholder Agreements. . . . . . . . . . . . . . . . . . .. . . .34
7.16Financial Conditions to Clong. . . . . . . . . . . . . . . . . . .34
(a)Other Real Estate and Non-Performing Loans. . . . . . . . 34
(b)Loan Loss Reserves. . . . . . . . . . . . . . . . .. . . .34
Section 8.CONDITIONS TO THE OBLIGATIONS OF MERCANTILE.. . . . . . . . . . . 35
8.1Representations and Warranties. . . . . . . . . . . . . . . . . . 35
8.2Compliance and Performance Under Agreement. . . . . . . . . . . . .35
8.3Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . 35
8.4Approval of Agreement. . . . . . . . . . . . . . . . . . . . . . . 35
8.5Officer's Certificate. . . . . . . . . . . . . . . . . . . . . . . 35
8.6Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . 35
8.7Absence of Legal Impediment. . . . . . . . . . . . . .. . . . . . .35
8.8Effectiveness of Registration Statement. . . . . . . . . . . . . . 36
8.9Government Approvals. . . . . . . . . . . . . . . . . . . . . . . 36
8.10Tax Opinion or Ruling. . . . . . . . . . . . . . . . . . . . . . .36
8.11Unaudited Financials. . . . . . . . . . . . . . . . .. . . . . . .36
8.12Closing Documents. . . . . . . . . . . . . . . . . . . . . . . . .36
8.13Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9CLOSING.. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .36
9.1Closing Date. . .. . . . . . . . . . . . . . . . . . . . . . . . . 36
9.2Delivery of Documents. . .. . . . . . . . . . . . . . . . . . . . .36
9.3Filings. . . . . . . . . .. . . . . . . . . . . . . . . . . . . . .36
Section 10.EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.1Merger Related Expenses. . . . . . . . . . . . . . . . . . . . . .37
10.2Miscellaneous Mercantile Expenses. . . . . . . . . . . . . . . . .37
Section 11.AMENDMENT; TERMINATION. . . . . . . . . . . . . . . . . . . . . . 37
<PAGE>
TABLE OF CONTENTS
(continued)
11.1Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.2Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.3Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.4Breach of Obligations. . . . . . . .. . . . . . . . . . . . . . .38
11.5Termination and Expenses. .. . . . . . . . . . . . . . . . . . . .39
Section 12.MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.1Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.2Binding Agreement. . . . . . . . . . . . . . . . . . . . . . . . 39
12.3Survival of Representations and Warranties. . . . . . . . . . . . 40
12.4Governing Law. . . . . . . . . . . . . . . . .. . . . . . . . . . 40
12.5Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . .40
12.6Entire Agreement; Severability. . . . . . . ... . . . . . . . . . 40
12.7Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
<PAGE>
Plan of Acquisition and Merger
THIS PLAN OF ACQUISITION AND MERGER, dated as of January 23, 1997
("Agreement"), is made by and between SierraWest Bancorp, a California
corporation and a registered bank holding company under the Federal Bank Holding
Company Act of 1956 as amended ("BHC"), SierraWest Bank, a California banking
corporation (collectively "Sierra") and Mercantile, a California state banking
corporation ("Mercantile").
WITNESSETH:
A. The Boards of Directors of Sierra and Mercantile deem it advisable
and in the best interests of Sierra, Mercantile and their shareholders that
Sierra and Mercantile enter into a business combination whereby Sierra's wholly
owned subsidiary, SierraWest Bank a California state banking corporation
("Subsidiary") will be merged with Mercantile ("Merger"), with Subsidiary being
the surviving corporation.
B. The Merger Agreement attached as Exhibit A is intended to be filed
with the California Secretary of State ("Merger Agreement") when it has been
approved by the Superintendent of Banks of the State of California.
C. The Merger is intended to qualify as a tax free reorganization
within the meaning of the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended (the "IRC").
D. Pursuant to the Merger, each Mercantile shareholder will receive, in
exchange for each share of Mercantile common stock and cash, the number of
shares of Sierra common stock determined in accordance with the Exchange Ratio
as more fully set forth in this Agreement ("Exchange Ratio").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto agree as follows:
Section 1. THE MERGER.
1.1 Effective Date. Subject to the terms and conditions of this
Agreement, the Merger shall become effective at the date on which an executed
copy of the Merger Agreement has been certified by the California Secretary of
State and filed with the Superintendent of Banks of the State of California
("Superintendent") pursuant to Section 2072 of the California Financial Code, in
each case on the Closing Date as defined in Section 9.1 hereof ("Effective
Date").
1.2 Effect of the Merger. Subject to the terms and conditions of this
Agreement, on the
Page 1
<PAGE>
Effective Date, Mercantile shall be merged with and into Subsidiary and the
Subsidiary shall be the surviving corporation ("Surviving Corporation") in the
merger. All assets, rights, privileges, immunities, power, franchises and
interests of Mercantile in and to every type of property (real, personal and
mixed) and choses in action, as they exist as of the Effective Date, including
appointments, designations and nominations and all other rights and interests as
trustee, executor, administrator, registrar of stocks and bonds, guardian of
estate, assignee, receiver and in every other fiduciary capacity, shall pass and
be transferred to and vest in the Subsidiary as the Surviving Corporation by
virtue of the Merger on the Effective Date without any deed, conveyance or other
transfer; the separate existence of Mercantile shall cease and the corporate
existence of Subsidiary as the Surviving Corporation shall continue unaffected
and unimpaired by the merger; and the Surviving Corporation shall be deemed to
be the same entity as each of Mercantile and Subsidiary and shall be subject to
all of their duties and liabilities of every kind and description. The Surviving
Corporation shall be responsible and liable for all the liabilities and
obligations of each of Subsidiary and Mercantile; and any claim existing or
action or proceeding pending by or against Subsidiary or Mercantile may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of Sierra, Subsidiary or Mercantile shall be impaired by
reason of the Merger. The articles of incorporation of Subsidiary shall be the
articles of incorporation of the Surviving Corporation and the bylaws of
Subsidiary shall be the bylaws of the Surviving Corporation. On the Effective
Date, Subsidiary shall assume the operations of, as successor to, Mercantile. On
the Effective Date the board of directors of Subsidiary will continue to serve
until successors are duly elected and qualified. Subsidiary shall remain a
wholly-owned subsidiary of Sierra.
Section 2. CONVERSION AND CANCELLATION OF SHARES.
2.1 Exchange Amount; Conversion of Shares of Mercantile Common Stock.
(a) For purposes of this Agreement, capitalized terms have the
following meanings:
Mercantile Shares Issued and outstanding shares of
Mercantile no par value common stock
("Mercantile Shares") as of the Effective
Date.
Exchange Amount The Exchange Amount, consisting of a Cash
Component and a Stock Component, shall be
$6,601,000 in the aggregate as adjusted
pursuant to Section 2.1(c) below. The
Cash Component shall be reduced by the am-
ount of cash allocated to holders of Merc-
antile Shares who exercise dissenters'
rights pursuant to California Corporations
Code Section 1300 et. seq.
Cash Component Cash portion of the Exchange Amount
equal to $3,300,500, less one-half
of the amount of any adjustment to the
Exchange Amount pursuant to Section 2.1(c)
below.
Page 2
<PAGE>
Stock Component Newly issued shares of Sierra no par value
common stock ("Sierra Shares") with an ag-
gregate Market Value equal to the
$3,300,500, less one-half of the amount of
any adjustment to the Exchange Amount pur-
suant to Section 2.1(c) below; provided
however, the total number of newly issued
shares of Sierra common stock shall not
exceed 250,000.
Per Share Cash Component The aggregate Cash Component divided by
the number of outstanding Mercantile
Shares on the Effective Date.
Per Share Stock Component The aggregate Stock Component divided by
the number of outstanding Mercantile
Shares on the Effective Date.
Exchange Ratio The Per Share Stock Component divided by
the Market Value
Market Value The average of the closing prices of
the Sierra Shares as reported in the
western edition of the Wall Street Journal
for the 20 trading days preceding the
Determination Date. For purpose of
determining the average, the divisor shall
be only those days on which a trade
occurs.
Determination Date The fifth business day preceding the Effective Date.
Adjustment Date The last day of the month preceding the Determination Date.
(b) On the Effective Date, by virtue of the Merger and without any
action on the part of the holders of Mercantile Shares, the outstanding
Mercantile Shares (other than any shares as to which dissenters' rights have
been perfected) shall be converted into the right to receive a combination of
cash and shares of the common stock, no par value, of Sierra ("Sierra common
stock" or "Sierra Shares") with an aggregate value equal to the Exchange Amount.
The Cash Component shall be one-half of the Exchange Amount. The Stock Component
will comprise the balance of the Exchange Amount, provided that the total number
of Sierra Share to be issued shall not exceed 250,000. In the event that the
Stock Component of the Exchange Amount reaches the maximum number of Sierra
Shares, the Cash Component shall not be adjusted.
(c) The $6,601,000 Exchange Amount shall be adjusted as follows:
(i) By subtracting an amount derived by multiplying .0744 by the
amount by which Mercantile's Core Deposits as of the Adjustment Date are less
than $22.7 million. Core Deposits shall be defined as total Mercantile deposits
("Total Deposits") less (i) all certificates of deposit; (ii) all brokered
deposits, wholesale deposits or deposits of other depository institutions; (iii)
deposits maintained by the officers, directors or shareholders of Mercantile or
their related
Page 3
<PAGE>
interests to the extent that such deposits exceed $1 million in the aggregate;
and (iv) deposits opened or renewed after the date of the Definitive Agreement
where the rate exceeds the rates established by Sierra for similar deposit
products. Total Deposits for purposes of this calculation shall be determined by
averaging the Total Deposits reflected on the books of Mercantile for the 20
business days preceding the Adjustment Date.
(ii) By subtracting the amount by which the Mercantile's total
shareholder equity as adjusted ("Adjusted Shareholder Equity") is less than
$4,912,000 or by adding the amount by which Adjusted Shareholder Equity exceeds
$4,912,000. Adjusted Shareholder Equity shall be computed in accordance with
Generally Accepted Accounting Principles ("GAAP") but shall reflect the
following adjustments which may not be in accordance with GAAP:
(A) An amount necessary to cause the reserves and/or accruals
allocated to each asset identified in Schedule 2.1(c) (including OREO) equal the
amount shown in column H+I of Schedule 2.1(c). A related tax adjustment shall be
made. In the event that any asset shown on Schedule 2.1(c) is liquidated or
repaid in whole or in part, then such asset, including the related reserves
and/or accruals, shall be deleted in whole or in part from Schedule 2.1(c) and
the Adjusted Shareholder Equity as of the Adjustment Date.
(B) An amount necessary to cause Mercantile's general loan
loss reserves on the Adjustment Date for all assets not listed on Schedule
2.1(c) equal the level of reserves required by using the Mercantile's
calculation methodology in effect as of December 31, 1996. A related tax
adjustment shall be made.
(C) An amount of additional reserves reflecting any adverse
change in Mercantile's assets as of the Adjustment Date and as determined in
accordance with Section 3.2(i). A related tax adjustment shall be made.
(D) The amount necessary to increase the Valuation Reserve
reflected on Mercantile's books to offset the effect of any additional
carry-forward tax losses resulting from additions to Mercantile's loan loss
reserves or operating losses occurring after December 31, 1996.
2.2 Cash/Stock Election.
The Exchange Amount will be allocated to the Stock Component and the
Cash Component in accordance the following election and procedures (the
"Cash/Stock Election").
Each Mercantile shareholder may elect to receive his or her portion of
the Exchange Amount in either all Sierra shares or all cash. If no election is
made, the shareholder will receive a Cash Component equal to 50% of such
shareholder's pro rata portion of the Exchange Amount and a Stock Component of
50% of such shareholders pro rata portion of the Exchange Amount.
The Cash/Stock Election is subject to the limitation that the aggregate
Cash Component for all Mercantile shareholders may not be more than $3,300,500.
If the aggregate Cash Component is undersubscribed, the unsubscribed portion of
this minimum aggregate Cash Component will be allocated pro rata (by number of
shares) among all Mercantile shareholders; if the aggregate Cash Component is
oversubscribed, the Cash Component of each Mercantile shareholder electing to
receive cash will be reduced pro rata (by number of shares electing to receive
cash) so that the aggregate Cash Component of all Mercantile shareholders will
equal
Page 4
<PAGE>
$3,300,500, as adjusted. The total of the Cash Component and the Stock Component
will always equal the Exchange Amount as adjusted and subject to the limitation
on the total number of Sierra Shares to be issued as part of the Exchange
Amount.
A Mercantile shareholder need not, and may not, make a Cash/Stock
Election until after the Effective Date. Immediately following the Effective
Date, Sierra shall send to each Mercantile shareholder a letter of transmittal
describing the Cash/Stock Election in more detail and providing forms for making
the Cash/Stock Election, as desired.
The Cash/Stock Election, if made, must be made for all shares held in
the name of the Mercantile shareholder. A Mercantile shareholder who holds
shares in two or more capacities or in different names may make a separate
Cash/Stock Election for each name or capacity in which shares are held. However,
shares represented by a single certificate may make only one Cash/Stock
Election.
Mercantile shareholders who make a Cash/Stock Election have no
assurance that they will receive all cash or all stock or any specific
proportion thereof.
2.3 Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of Sierra common stock shall be issued to holders of
Mercantile Shares. In lieu thereof, each such holder entitled to a fraction of a
share of Sierra common stock shall receive, at the time of surrender of the
certificate or certificates representing such holder's Mercantile Shares, an
amount in cash equal to the Market Value per share of the common stock of
Sierra, multiplied by the fraction of a share of Sierra common stock to which
such holder otherwise would be entitled. No such holder shall be entitled to
dividends, voting rights, interest on the value of, or any other rights in
respect of a fractional share.
2.4 Surrender of Mercantile Shares.
(a) Prior to the Effective Date, Sierra shall appoint any bank or trust
company (having capital of at least $50 million) mutually acceptable to
Mercantile and Sierra, as exchange agent (the "Exchange Agent") for the purpose
of exchanging certificates representing the Mercantile Shares at and after the
Effective Date, Sierra shall issue and deliver to the Exchange Agent
certificates representing the Sierra Shares, as shall be required to be
delivered to holders of Mercantile Shares. As soon as practicable after the
Effective Date, each holder of Mercantile Shares converted pursuant to Section
2.1, upon surrender to the Exchange Agent of one or more certificates for such
Mercantile Shares for cancellation, will be entitled to receive a certificate
representing the number of Sierra Shares determined in accordance with Section
2.1 and a payment in cash with respect to the Cash Component and fractional
shares, if any, determined in accordance with Section 2.3.
(b) No dividends or other distributions of any kind which are declared
payable to stockholders of record of the Sierra Shares after the Effective Date
will be paid to persons entitled to receive such certificates for Sierra Shares
until such persons surrender their certificates representing Mercantile Shares.
Upon surrender of such certificate representing Mercantile Shares, the holder
thereof shall be paid, without interest, any dividends or other distributions
with respect to the Sierra Shares as to which the record date and payment date
occurred on or after the Effective Date and on or before the date of surrender.
(c) If any certificate for Sierra Shares is to be issued in a name
other than that in which the certificate for Mercantile Shares surrendered in
exchange therefor is registered, it shall be a
Page 4
<PAGE>
condition of such exchange that the person requesting such exchange shall pay to
the Exchange Agent any transfer costs, taxes or other expenses required by
reason of the issuance of certificates for such Sierra Shares in a name other
than the registered holder of the certificate surrendered, or such persons shall
establish to the satisfaction of Sierra and the Exchange Agent that such costs,
taxes or other expenses have been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid pursuant to
the Cash Component or Section 2.3 in lieu of fractional shares, if held by the
Exchange Agent for payment or delivery to the holders of unsurrendered
certificates representing Mercantile Shares and unclaimed at the end of one year
from the Effective Date, shall (together with any interest earned thereon) at
such time be paid or redelivered by the Exchange Agent to Sierra, and after such
time any holder of a certificate representing Mercantile Shares who has not
surrendered such certificate to the Exchange Agent shall, subject to applicable
law, look as a general creditor only to Sierra for payment or delivery of such
dividends or distributions or cash, as the case may be.
2.5 No Further Transfers of Mercantile Shares. At the Effective Date,
the stock transfer books of Mercantile shall be closed and no transfer of
Mercantile Shares theretofore outstanding shall thereafter be made.
2.6 Adjustments. If, between the date of this Agreement and the
Effective Date, the outstanding Sierra common stock shall have been changed into
a different number of shares or a different class by reason of any
reclassification, recapitalization, split up, combination, exchange of shares or
readjustment, or a stock dividend thereon shall be declared with a record date
within such period, the number of Sierra Shares to be issued and delivered in
the Merger in exchange for each outstanding Mercantile Share shall be
correspondingly adjusted. For purposes of this Section 2.6, conversion of Sierra
convertible debentures shall not be considered an adjustment to Sierra Shares.
2.7 Personnel Matters.
(a) Employment At Effective Date. Not later than 30 days prior to the
Determination Date, Sierra shall notify Mercantile in writing of those employees
who shall be eligible for employment by Sierra or Subsidiary following the
Effective Date. Any Mercantile employee who is not identified by Sierra as being
eligible for employment shall be terminated by Mercantile immediately prior to
the Effective Date. Mercantile shall make severance payments to those employees
who are not eligible for employment by Sierra in the amount for each such
employee of not less than two weeks salary plus one additional week of salary
for each year served. Mercantile may, in its sole discretion, make additional
special bonus payments to retain employees who are deemed necessary to complete
the Merger. All such payments shall have been included in the calculation of
Adjusted Shareholder Equity and shall be paid or accrued on or before the
Adjustment Date. Such payments shall be conditioned upon the receipt of
enforceable releases from such employees. In terminating such employees,
Mercantile shall abide by all internal policies and all legal requirements for
termination of employment. From the date of this agreement through the Effective
Date, Mercantile shall consult with the human resources representative of
Sierra, who shall be designated in writing to Mercantile by Sierra, and keep
that representative advised as to all matters related to employment. From the
day of the Effective Date or any time thereafter, former employees of Mercantile
who are employed by Sierra following the Effective Date may be terminated by
Sierra, with or without cause, for any reason not prohibited by law.
Notwithstanding anything to the contrary described in this paragraph above,
Mercantile employee
Page 5
<PAGE>
Denis Long shall be eligible for employment by Sierra provided that he and
Sierra shall have agreed to the terms of employment on or before the
Determination Date; provided, in the event that he has not reached agreement
with Sierra by such date, Mercantile shall have no obligation to terminate Denis
Long prior to the Effective Date.
(b) Retirement Benefits. Employees of Subsidiary formerly employed by
Mercantile on the Effective Date shall be eligible for participation in the
Sierra 401(k) plan and employee stock option plan at the earliest normal entry
date following the Effective Date as allowed by applicable law and the
provisions of Sierra's benefit plans, so long as such employees then meet the
eligibility requirements for participation in the Sierra plan. The former
employees of Mercantile who are employed by Subsidiary will be credited for
years of prior service with Mercantile for vesting (non-forfeitability) of
accrued benefits in the Sierra plans to the fullest extent such credit for such
prior service is permitted by Sierra's plans and by the laws, rules and
regulations of the Internal Revenue Service and the Employee Income Security Act
of 1974, as amended.
(c) Other Benefit Plans.
(i) After the Effective Date, any or all Mercantile welfare
benefit plans shall be terminated by Sierra. Subsidiary employees formerly
employed by Mercantile immediately prior to the Effective Date shall be eligible
for participation in any existing Sierra plan, so long as such employee would
otherwise be eligible to participate in such plan.
(ii)Employees of Subsidiary formerly employed by Mercantile on
the Effective Date will receive credit for length of service with Mercantile for
determination of eligibility or participation in the Sierra (A) health service
plans, or (B) long-term disability, voluntary accident and life insurance plans.
(d) Other Benefits.
(i) Employees of Subsidiary formerly employed by Mercantile on
the Effective Date will retain vacation benefits accrued with Mercantile prior
to the Effective Date, subject to Sierra's maximum accrual and carryover
limitations for such benefits; and will also retain the amount of sick leave
benefit eligibility on Mercantile's records prior to the Effective Date, to be
available subject to Sierra's policy for sick leave benefits; provided, however,
Mercantile shall have accrued the cost of such benefits on the books of
Mercantile on or before the Adjustment Date. Following the Effective Date, all
employees shall be subject to the standard policies of Sierra for accrual of
such benefits.
(ii)Employees of Subsidiary formerly employed by Mercantile on
the Effective Date will be subject to the severance policies in effect for all
Sierra employees.
Section 3. COVENANTS OF THE PARTIES.
3.1 Mutual Covenants.
(a) Government Approvals. Each party will use its reasonable best
efforts in good faith to take or cause to be taken as promptly as practicable
all such steps within their reasonable control to obtain (i) the waiver of an
application or prior approval of the Merger by the Board of Governors of the
Federal Reserve System ("FRB") under the BHC, (ii) the prior approval of the
Superintendent to the Merger; (iii) the prior approval of the Federal Deposit
Insurance Corporations ("FDIC") under the Bank Merger
Page 6
<PAGE>
Act, and (iv) all other consents and approvals of government agencies as are
required by law or otherwise, and shall do any and all acts and things necessary
or appropriate in order to cause the Merger to be consummated on the terms
provided in the Merger Agreement and this Agreement as promptly as practicable.
The approvals referred to in clauses (i)-(iv) of this Section 3.1(a) are
hereinafter referred to as the "Government Approvals." Each party shall respond
to a written request for information sought by the other for the purpose of
obtaining the Government Approvals promptly and in all cases within 10 days
after receipt of such request.
(b) Notification of Breach of Representations, Warranties and
Covenants. Each party shall promptly give written notice to the other party upon
becoming aware of the occurrence or impending or threatened occurrence of any
event which would cause or constitute a material breach of any of the
representations, warranties or covenants of that party contained or referred to
in the Merger Agreement or this Agreement and shall use its reasonable best
efforts to prevent the same or remedy the same promptly.
(c) Financial Statements.
(i) Each party has delivered or shall deliver to the other
party promptly after they become available true and correct copies of audited
financial statements as of such date and covering such period as may be
necessary to satisfy the minimum requirements of the Securities and Exchange
Commission ("Commission") and other governmental authorities having approval
authority over the Merger. The financial statements for such year ends have been
or shall be audited by their respective independent certified public accounting
firms which have been engaged in the past and include or shall include an
unqualified opinion of each such accounting firm, to the effect that such
financial statements have been prepared in accordance with GAAP consistently
applied and present fairly, in all material respects, the consolidated financial
position, results of operations and cash flows of the respective parties at the
dates indicated and for the periods then ending.
(ii) Each party shall provide to the other party promptly
after they become available copies of all financial statements and proxy
statements issued or to be issued to either party's shareholders and/or
directors after December 31, 1996, and at or prior to the Effective Date.
(iii) Each party has delivered or shall deliver, to the other
party true and complete copies of its Annual Report to Shareholders for the
years ended December 31, 1995, 1994 and 1993, all periodic reports (including
interim quarterly financial statements) since December 31, 1993, all proxy
statements and other written material furnished to its shareholders since
December 31, 1993, and all other material reports, including year-end call
reports, relating to Sierra and Mercantile filed by Sierra and Mercantile with
the FRB , the Superintendent or the FDIC during 1993 through 1996 and in 1997
prior to the Effective Date. As of its date, each of the documents described in
the preceding sentence complied or shall comply in all material respects with
all legal and regulatory requirements applicable thereto.
(d) Press Releases. Neither party shall issue any press release or
written statement for general circulation relating to this Agreement unless
previously provided to the other party for review and approval (which approval
will not be unreasonably withheld or delayed) and shall cooperate with the other
party in the development and distribution of all news releases and other public
information disclosures with respect to the Merger, this Agreement or the Merger
Agreement; provided that either party may, without the consent of the other
party, make any disclosure with regard to this Agreement that it determines,
upon advice of counsel, is required under any applicable law or regulation.
(e) Access to Properties, Books and Records; Confidentiality. Prior
to the Effective Date, each
Page 7
<PAGE>
party shall (except as may be prohibited by applicable law) give the other party
and its officers, employees, agents and representatives full access, during
normal business hours and upon reasonable notice, to all of its properties,
books, contracts, records and facilities including, but not limited to, the
corporate, financial and operational records, papers, reports, instructions,
procedures, tax returns and filings, tax settlement letters, material contracts
or commitments, regulatory examinations and correspondences. Each party shall
also use its reasonable best efforts to cause its independent accounting firm to
make available to the other party, its accountants, counsel and other agents, to
the extent reasonably requested in connection with such review, such firm's work
papers and documentation relating to its work papers and its audits of the books
and records of each party. Each party shall make available to the other
originals or copies, at the responding party's election, of such documents and
records as the other may reasonably request. The availability or actual delivery
of such information about either party shall not affect the covenants,
representations and warranties of either party contained in this Agreement and
in the Merger Agreement. Each party shall respond to any written request for
information promptly and in all cases within 10 days after receipt of such
request. Each party shall use its reasonable best efforts to cause its officers,
directors, employees, auditors and attorneys to cooperate with the other in its
reasonable requests for information except that no information which is
reasonably determined to be the subject of the attorney client privilege shall
be required to be disclosed. Each party shall treat as confidential all such
information in the same manner as each party treats similar confidential
information of its own, and if this Agreement is terminated, each party shall
continue to treat all such information as confidential and to cause its
employees to keep all such information confidential and shall return such
documents therefore delivered by the other party as the other party shall
request, and shall use such information, or cause it to be used, solely for the
purposes of evaluating and completing the transactions contemplated hereby;
provided that each party may disclose any such information to the extent
required by federal or state securities laws or otherwise required by any
governmental agency or authority, or by generally accepted accounting
principles. The foregoing confidentiality obligations shall not apply in respect
of any information publicly available or to any information previously known to
the party in question, the use of which is not otherwise restricted.
(f) Additional Agreements. In case at any time after the Effective Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of any of the
parties to the Merger, the proper officers and directors of each party to this
Agreement shall take all such necessary action as may be reasonably requested
by, and at the sole expense of, Sierra. Pending the Effective Date, Sierra and
Mercantile shall consult with one another and cooperate as reasonably requested
by Sierra to facilitate the integration of their respective operations as
promptly as practicable after the Effective Date. Such cooperation shall
include, if requested, communicating with employees, consultation regarding
material contracts, renewals, and capital commitments to be entered into by
Mercantile, coordination regarding third-party service agreements with a view to
providing common products and services as expeditiously as practicable following
the Effective Date, making arrangements for employee training prior to the
Effective Date and taking action to facilitate an orderly conversion of data
processing operations to occur promptly following the Effective Date, provided
that the cooperation required under this Section 3.1(f) shall not be deemed to
require actions that would materially delay or impede the Merger.
(g) Advice of Changes. Sierra and Mercantile shall promptly advise the
other party of any change or event having, or that would be reasonably likely to
have, a material adverse effect on it or which it believes would or would be
reasonably likely to cause or constitute a material breach of any of its
representations, warranties or covenants contained herein.
Page 8
<PAGE>
(h) Legal Conditions to Merger. Each of Sierra and Mercantile shall 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 with respect to the Merger and, subject to
the respective conditions set forth in Sections 7 and 8 hereof, to consummate
the transactions contemplated by this Agreement and (b) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order or
approval of, or any exemption by, any governmental entity and any other third
party which is required to be obtained by Mercantile or Sierra in connection
with the Merger and the other transactions contemplated by this Agreement.
3.2 Covenants of Mercantile.
(a) Approval by Shareholders. Mercantile shall cause the Merger, this
Agreement and the Merger Agreement to be submitted promptly for the approval of
its shareholders in the most expeditious manner available, either by consent
solicitation of sufficient shareholders to cause approval of the Merger or at a
meeting to be called and held in accordance with applicable laws. If such
approval is to be taken by meeting Mercantile shall cause appropriate proxy
materials ("Proxy Materials") to be prepared and, if necessary, approved by
appropriate regulatory authorities as promptly as practicable and, when approved
or otherwise deemed effective, with any amendments thereto that may in the
judgment of its counsel be necessary or desirable, to be mailed to shareholders
of Mercantile. Subject to the fiduciary duty of the Board of Directors of
Mercantile, the Proxy Materials shall include therein a recommendation that
Mercantile shareholders vote to approve the proposed Merger. The Proxy Materials
shall be subject to prior approval by Sierra. In the event that such is required
by applicable securities laws, Sierra shall prepare for inclusion in the Proxy
Materials an appropriate registration statement/prospectus which Mercantile
shall assist with by providing such information and documents as may be required
in an expeditious and timely manner. Unless approval is provided by consent
solicitation, Mercantile shall hold its shareholder meeting as soon as possible
but no later than June 15, 1997, unless prevented from doing so by the
regulatory authorities or by delays in obtaining or conditions imposed by the
Government Approvals. Subject to its continuing fiduciary duty to the
shareholders of Mercantile, the members of the Board of Directors of Mercantile
shall at all times prior to and during such meeting of its shareholders
recommend that the transactions contemplated hereby be adopted and approved and,
subject to such duty, use its reasonable best efforts to cause such adoption and
approval.
(b) Compensation. Except for standard annual review of employees and
the normal wage increases incident thereto and subject to the provision of
Section 2.7(a) hereof, Mercantile shall not make or approve any increase in the
compensation payable or to become payable by it to any of its directors,
officers, employees or agents (including but not limited to compensation through
any profit sharing, pension, retirement, severance, incentive or other employee
benefit program or arrangement); nor shall any bonus payment or any agreement or
commitment to make a bonus payment be made other than the obligations to make
distributions reflecting 1996 profits under Mercantile's profit sharing plan,
nor shall any stock option, warrant or other right to acquire capital stock be
granted; nor shall any existing employment agreement be extended or renewed or
modified on terms more favorable to the employee than those that are currently
contained in such contract; nor shall any employment agreement (other than any
such employment agreement that may arise by operation of law upon the hiring of
any new employee) or consulting agreement be entered into by Mercantile with any
such directors, officers, employees or agents unless Sierra has given its prior
written consent. Without prior notification to Sierra, Mercantile shall not hire
any new employee at an annual rate in excess of current customary practice or,
in any event, in excess of $40,000 per year.
(c) Conduct of Business in the Ordinary Course. Prior to the Effect-
ive Date:
Page 9
<PAGE>
(i) Except as expressly contemplated or permitted in this
Agreement, Mercantile shall conduct its businesses in the Ordinary Course as
heretofore conducted. For purposes of this Agreement, the "Ordinary Course" of
Mercantile shall consist of banking and related businesses as presently
conducted or consistent with good banking practices or by it and permitted under
applicable laws. Unless Sierra has given its previous written consent to any act
or omission to the contrary (which Sierra shall not unreasonably withhold),
Mercantile shall, until the Effective Date, cause its officers to use their
reasonable best efforts to:
(A) preserve its business and business organization
intact;
(B) preserve the good will of customers and others
having business relations with it and take no action that would impair the bene-
fit to the other party of the goodwill of it or the other benefits of the Mer-
ger;
(C) consult with Sierra as to the making of any de-
cisions or the taking of any actions in matters other than in the Ordinary
Course and cooperate with all reasonable requests of Sierra that, in the
reasonable judgment of Sierra, are necessary to successfully complete the
transactions contemplated by this Agreement, including permitting a desig-
nated representative or representativesof Sierra to attend and participate
(but not vote) in all loan committee meetings and board of directors meet-
ings, provided such Sierra representative may be excluded from any portion of
a board of directors meeting which relates to the Merger or any examination
report or response thereto, or is reasonably determined to be the subject of
the attorney client privilege;
(D) maintain its properties in customary repair,
working order and condition (reasonable wear and tear excepted);
(E) comply in all material respects with all laws,
regulations and decrees applicable to the conduct of its business;
(F) keep in force at not less than its present limits all
policies of insurance, including deposit insurance of the FDIC, to the extent
reasonably practicable in light of the prevailing market conditions in the in-
surance industry;
(G) except as provided in Section 2.7(a) keep avail-
able to the other party the services of its present officers and employees (it
being understood that both parties shall have the right to terminate the em-
ployment of any of its officers or employees in accordance with its established
employment procedures);
(H) comply in all material respects with all orders,
agreements and memoranda of understanding with respect to it made by or with
any regulatory authority of competent jurisdiction, and promptly forward
to the other party all communications received from any such authority that
are not prohibited by such authority from being so disclosed and inform the
other party of any material restrictions imposed by any governmental authority
on its business;
(I) file in a timely manner (taking into account any ex-
tensions duly obtained) all reports, tax returns and other documents required to
be filed with federal, state, local and other authorities;
(J) conduct an environmental audit prior to foreclosure
on any property concerning which it has knowledge, or should have knowledge,
that asbestos or asbestos-containing material, PCB's
Page 10
<PAGE>
or PCB-contaminated materials, any petroleum product, or hazardous substance or
waste (as defined under any applicable environmental laws) was or is present,
manufactured, recycled, reclaimed, released, stored, treated, or disposed of,
and provide the results of such audit to and consult with the other party
regarding the significance of the audit prior to the foreclosure on any such
property;
(K) not sell, lease, pledge, assign, encumber or
otherwise dispose of any of its assets except other real estate owned or other
property in the Ordinary Course, in each case for adequate value, without re-
course and consistent with its customary practice;
(L) not make, renegotiate, renew, increase, extend or
purchase any loans, advances or loan commitments, in each case to any of its
officers, directors or any affiliated or related persons of such directors
or officers except in the Ordinary Course consistent with its establish-
ed loan procedures and in compliance with FRB Regulation O;
(M) not take any action to create, relocate or terminate
the operations of any banking office or branch, or to form any new subsidiary or
affiliated entity;
(N) not settle or otherwise take any action to release or
reduce any of its rights with respect to any litigation involving a claim of
more than $50,000 in which it is a party without the consent of Sierra which
consent shall not be unreasonably withheld; and
(O) maintain an allowance for loan losses which, in
addition to meeting the requirements of Section 2.1(c), shall be in substan-
tial compliance with the comments of the FDIC in its most recent Report of
Examination.
(ii)Mercantile shall not, without first having obtained the
written consent of Sierra which consent shall not be unreasonably withheld,
cause its officers to:
(A) commit itself to any loan or renewal or restruct-
ure of an existing loan with a principal amount in excess of $40,000 if unsecur-
ed, or in excess of $80,000 and with a loan-to-value ratio above 75% if secured
by real property, provided that Sierra's consent shall be deemed given unless
it objects and states the basis of its objection in writing, or verbally with
prompt written confirmation, within one business day after receipt of written
notice directed to the Chief Credit Officer of Sierra, together with suffici-
ent supporting information to allow Sierra to make an informed judgment, and
Sierra shall not unreasonably withhold its consent; provided, further, that
any consent given by Sierra shall be inding only if given by such person or
persons who are identified in writing by Sierra; provided, further, no loan
with an interest rate below the rate for loans comparable to rates for sim-
ilar loans by Sierra shall be granted or approved by Mercantile. Notwith-
standing any of the provisions of this paragraph, Mercantile may proceed with
making any loan not consented to by Sierra and such loan shall be added to
Schedule 2.1(c), a reserve shall be established for such loan in accordance
with Sierra methodology and such loan shall be reviewed by the independent
loan reviewer as set forth in Section 2.1(c)(ii)(C);
(B) purchase or sell any investment security with a
maturity in excess of three years;
(C) issue any certificate of deposit with a rate of
interest in excess of 50 basis points above the rate sheets provided weekly to
Mercantile by Sierra; or
(D) enter into or renew any contract having a dur-
ation extending beyond 9 months
Page 11
<PAGE>
from the date of this Agreement, whether or not in the Ordinary Course.
(iii) It is understood and agreed by the parties hereto that
any consent sought of Sierra or required by Mercantile pursuant to Section
2.4(c) or any other provision of this Agreement shall be deemed to be given
following five (5) business days advanced notice by Mercantile to Sierra, which
notice shall include such information as Sierra shall reasonably request or
unless the comments of Sierra have been addressed by Mercantile.
(d) No Merger or Solicitation.
(i) Prior to the Effective Date, Mercantile and its Board of
Directors and officers shall not initiate negotiations toward, or otherwise
effect or agree to effect, any Business Combination involving Mercantile,
acquire or agree to acquire any of its own capital stock or the capital stock
(except in a fiduciary capacity) or assets (except in the Ordinary Course) of
any other entity, or commence any proceedings for winding up and dissolution
affecting it. "Business Combination" shall mean any Merger, sale or purchase of
a subsidiary, sale or purchase of a substantial portion of any entity's assets,
or tender offer or other means of acquisition of substantially all the
outstanding capital stock of any entity.
(ii)Prior to the Effective Date, neither Mercantile nor any
officer, director or affiliate of Mercantile, nor any investment banker,
attorney, accountant or other agent, advisor or representative retained by
Mercantile shall (A) solicit or initiate, directly or indirectly, any inquiries,
discussions or proposals for, continue, propose or enter into discussions or
negotiations looking toward, or enter into any agreement or understanding
providing for, any Business Combination with Mercantile; or (B) disclose,
directly or indirectly, any nonpublic information to any corporation,
partnership, person or other entity or group concerning Mercantile's business
and properties or afford any such other party access to Mercantile's properties,
books or records or otherwise assist or encourage any such other party in
connection with the foregoing except in satisfaction of the Board of Directors'
fiduciary duties as determined on the advice of counsel; or (C) furnish or cause
to be furnished any information concerning the business, financial condition,
operations, properties or prospects of Mercantile to another person, having any
actual or prospective role with respect to any such transaction, provided,
however, that the Mercantile shall not be prohibited from reviewing or
responding in any way to unsolicited proposals involving such transactions.
(iii) Mercantile shall notify Sierra immediately of the
details of any indication of interest of any person, corporation, firm,
association or group to acquire by any means a controlling interest in it or
engage in any Business Combination with it.
(e) Changes in Capital Stock; Dividends. At or after the date hereof
and at or prior to the Effective Date, except with the prior written consent of
Sierra or as otherwise provided in this Agreement:
(i) Mercantile shall not amend its Articles of Incorporation
or Bylaws; make any change in its authorized, issued or outstanding capital
stock or any other equity security; issue, sell, pledge, assign or otherwise
encumber or dispose of, or purchase, redeem or otherwise acquire, any of its
shares of capital stock or other equity securities or enter into any agreement,
call or commitment of any character to do so; grant or issue any stock option
relating to, right to acquire, or security convertible into, shares of its
capital stock or other equity security; purchase, redeem, retire or otherwise
acquire (other than in a fiduciary capacity) any shares of, or any security
convertible into, capital stock or other equity security of its companies, or
agree to do any of the foregoing, except as expressly provided herein;
Page 12
<PAGE>
and
(ii)Mercantile shall not declare, set aside or pay any cash or
stock dividend or other distribution in respect of its common stock.
(f) Employee Welfare Benefit Plans. Mercantile agrees that its employee
welfare benefit plans, as defined in Section 3(1) of ERISA, may be terminated,
frozen, modified or merged into Sierra's employee welfare benefit plans as of or
after the Effective Date, as determined by Sierra, in each case consistent with
Section 4980B of the Internal Revenue Code ("IRC"). On the Effective Date,
Mercantile employees will commence participation in Sierra's welfare benefit
plans on the same terms as Sierra employees.
(g) Shareholder Lists and Other Information. After execution hereof,
Mercantile shall from time to time make available to Sierra, upon request, a
list of its shareholders and their addresses, a list showing all transfers of
the its common stock and such other information as Sierra shall reasonably
request regarding both the ownership and prior transfers of Mercantile's common
stock.
(h) Capital Commitments and Expenditures. After the execution of this
Agreement, no new capital commitments shall be entered into and no capital
expenditures shall be made by Mercantile, including but not limited to creation
of any new branches and acquisitions or leases of real property, except
commitments or expenditures within existing operating and capital budgets
furnished to and approved by Sierra and commitments and expenditures not
exceeding $15,000 in the aggregate.
(i) Asset Review. Mercantile shall continue to engage its internal
asset review examiners to identify potential losses with respect to loans and
other assets on its books and who shall have reviewed all NPAs, as defined in
Section 7.16(a) hereof, and other classified or criticized assets as of a date
within the end of the month preceding the Adjustment Date. Mercantile shall
promptly provide a copy of such reports to Sierra. Between the date of this
Agreement and the end of the month preceding the Adjustment Date, all assets of
Mercantile, including classified or criticized and NPAs, may be reviewed by
Sierra and Sierra provide, not later than the last day of the month preceding
the Adjustment Date, a report thereon to Mercantile setting forth Sierra's
grading or other assessment thereof (including accounting treatment and loss
recognition) utilizing Mercantile's regular loan/OREO review criteria consistent
with GAAP and RAP. Mercantile may either accept and implement Sierra's grading
or other assessments (including accounting treatment and loss recognition)
concerning loans or OREO, or, if it does not agree with Sierra's conclusions as
set forth in the report, refer the matter for resolution by the independent loan
and appraisal experts agreed to in writing by the parties (the "Independent Loan
Reviewer" or "Independent Appraiser") who shall immediately review and/or
appraise said loan(s) or OREO utilizing Mercantile's regular loan/OREO review
criteria consistent with GAAP and RAP. The parties agree that if the Independent
Loan Reviewer believes it necessary to retain an Independent Appraiser (or if
such an Appraiser is required by the penultimate sentence below), the selection
and supervision thereof of said Appraiser shall be at the discretion and under
the control of the Independent Loan Reviewer. Mercantile agrees to recognize on
its books and records all loan losses and record all OREO at their net
realizable value (and record related OREO expenses) based on the
review/appraisal by the Independent Loan Reviewer or Independent Appraiser no
later than the Adjustment Date. Sierra and Mercantile agree to accept the
determinations of the Independent Loan Reviewer and Independent Appraiser. With
respect to any OREO, based on all known information available from time to time,
if it appears that the then current independent appraisals may not be accurate
or upon request of and at the expense of Sierra, Mercantile shall immediately
obtain updated independent appraisals by an Independent Appraiser (utilizing
Mercantile's regular criteria consistent with GAAP and RAP) and
Page 13
<PAGE>
provide copies of all such appraisals to Sierra. Any new or additional
writedowns or OREO expenses shall be recorded immediately upon receiving any
updated independent appraisal. The costs of the neutral loan reviewer shall be
shared equally by the parties. Notwithstanding the foregoing, nothing herein
shall require a reduction of the reserves as set forth on Schedule 2.1(c) except
as provided in Section 2.1(c)(ii)(A).
3.3 Covenants of Sierra.
(a) Conduct of Business in the Ordinary Course. Prior to the Effect-
ive Date:
(i) In the event that Sierra undertakes any transaction or
series of transactions outside the ordinary course of business prior to the
Effective Date, as soon as is practicable following the determination to proceed
with such a transaction or transactions, Sierra shall advise the board of
directors of Mercantile of such determination. For purposes of this Agreement,
the "Ordinary Course" of Sierra shall consist of banking and related businesses
as permitted under applicable banking laws. Unless Mercantile has given its
previous written consent to any act or omission to the contrary, Sierra shall,
until the Effective Date, cause its officers to use their reasonable best
efforts to:
(A) preserve its business and business organizations
intact;
(B) preserve the good will of customers and others having
business relations with it and take no action that would materially impair the
benefit to the other party of the goodwill of it or the other benefits of the
Merger;
(C) maintain its properties in customary repair, working
order and condition (reasonable wear and tear excepted);
(D) comply with all laws, regulations and decrees applic-
able to the conduct of its business;
(E) use its reasonable best efforts to keep in force at
not less than its present limits all policies of insurance, including deposit
insurance of the FDIC, to the extent reasonably practicable in light of the
prevailing market conditions in the insurance industry;
(F) comply with all orders, agreements and memoranda of
understanding with respect to it made by or with any regulatory authority of
competent jurisdiction;
(G) file in a timely manner (taking into account any ex-
tensions duly obtained) all reports, tax returns and other documents required to
be filed with federal, state, local and other authorities;
(H) not sell, lease, pledge, assign, encumber or other-
wise dispose of any of its assets except for adequate value, without recourse
and consistent with its customary practice; and
(I) not make, renegotiate, renew, increase, extend or
purchase any loans, advances or loan commitments, in each case to any of its
officers, directors or any affiliated or related persons of such directors
or officers except in the Ordinary Course consistent with its established
loan procedures and in compliance with FRB Regulation O.
(ii)It is understood and agreed by the parties hereto that any
consent sought of
Page 14
<PAGE>
Mercantile or required by Sierra pursuant to Section 2.4(c) or any other
provision of this Agreement shall be deemed to be given following five (5)
business days advanced notice by Sierra to Mercantile, which notice shall
include such information as Mercantile shall reasonably request or unless the
comments of Mercantile have been addressed by Sierra.
(b) Dividends. At or after the date hereof and at or prior to the
Effective Date, except with the prior written consent of Mercantile or as
otherwise provided in this Agreement, Sierra shall not declare, set aside or pay
any cash dividend or other distribution in respect of its common stock other
than, in the discretion of the board of directors of Sierra, regular cash
dividends not to exceed $0.50 per share on an annual basis.
(c) Indemnification; Insurance.
(i) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date of this Agreement, or who becomes prior to the Effective Time, a
director or officer of Mercantile ("Indemnified Parties") is, or is threatened
to be, made a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to (i) the fact that he is or was a director or officer of
Mercantile or any predecessor or (ii) this Agreement or any of the transactions
contemplated hereby, whether in any case asserted or arising before or after the
Effective Date, the parties hereto agree to cooperate and use their best efforts
to defend against and respond thereto. It is understood and agreed that after
the Effective Date, Sierra shall indemnify and hold harmless, as and to the
fullest extent permitted by law, each such Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including reasonable attorney's
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law upon receipt of any undertaking required by applicable law),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation and in the
event of any such threatened or actual claim, action, suit, proceeding, or
investigation (whether asserted or arising before or after the Effective Date),
the Indemnified Parties may retain counsel reasonably satisfactory to then after
consultation with Sierra; provided, however, that (1) Sierra shall have the
right to assume the defense thereof and upon such assumption Sierra shall not be
liable to any Indemnified Party for any legal expenses of other counsel or any
other expenses subsequently incurred by any Indemnified Party in connection with
the defense thereof, except that if Sierra elects not to assume such defense or
counsel for the Indemnified Parties reasonably advises the Indemnified Parties
that there are issues which raise conflicts of interest between Sierra and the
Indemnified Parties, the Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with Sierra, and Sierra shall pay the
reasonable fees and expenses of such counsel for the Indemnified Parties, (2)
Sierra shall be obligated pursuant to this paragraph to pay for only one firm of
counsel for all Indemnified Parties, unless an Indemnified Party shall have
reasonably concluded; based on the advice of counsel, that in order to be
adequately represented, separate counsel is necessary for such Indemnified
Party, in which case, Sierra shall be obligated to pay for such separate
counsel, (3) Sierra shall not be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld), and
(4) Sierra shall have no obligation hereunder to any Indemnified Party when and
if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that indemnification of
such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law. Any Indemnified Party wishing to claim Indemnification under
this
Page 15
<PAGE>
Section 3.3(c), upon learning of any such claim, action, suit, proceeding or
investigation, shall notify Sierra thereof, provided that the failure to so
notify shall not affect the obligations of Sierra under this Section 3.3(c)
except to the extent such failure to notify materially prejudices Sierra.
Sierra's obligations under this Section 3.3(c) continue in full force and effect
for a period of four (4) years from the Effective Date; provided, however, that
all rights to indemnification in respect of any claim ("Claim") asserted or made
within such period shall continue until the final disposition of such Claim and
provided further that Sierra shall have the right of setoff against any payments
required to be made by Sierra to an Indemnified Party pursuant to this Section
3.3(c) to the extent that such Indemnified Party shall have received the
indemnification to which such Indemnified Party is entitled from an insurer
under a directors' and officers' liability insurance policy maintained by
Mercantile or Sierra. As of the Effective Date, Sierra may in its discretion
request that its insurance carrier, or Mercantile's insurance carrier, for
directors' and officers' liability insurance provide extended coverage for the
liability to the directors and officers of Mercantile for such period as Sierra
deems appropriate.
(ii)In the event Sierra or any of its successors or assigns (A)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (B) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Sierra
assume the obligations set forth in this section. The provisions of this Section
3.3(c) are intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party and his or her heirs and representatives.
Section 4. REPRESENTATIONS AND WARRANTIES OF MERCANTILE.
Mercantile represents and warrants to Sierra that, except as set forth
on a Schedule attached to this Agreement and corresponding in number with the
applicable section:
4.1 Corporate Status and Power to Enter Into Agreements. (i) Mercantile
is a banking corporation duly incorporated, validly existing and in good
standing under California law, (ii) subject to the Government Approvals and to
the approval of this Agreement and the transactions contemplated hereby by the
shareholders of Mercantile, Mercantile has all necessary corporate power to
enter into this Agreement and the Merger Agreement and to carry out all of the
terms and provisions hereof and thereof to be carried out by it, (iii)
Mercantile holds a currently valid license issued by the Superintendent to
engage in the business of commercial banking in California at its principal
office in Sacramento, California and (iv) Mercantile is not subject to any order
of the FDIC, the Superintendent or any other regulatory authority having
jurisdiction over its business or any of its assets or properties. Neither the
scope of the business of Mercantile nor the location of its properties requires
it to be licensed to do business in any jurisdiction other than the State of
California. Mercantile's deposits are insured by the FDIC to the maximum extent
permitted by applicable law and regulation.
4.2 Articles, Bylaws, Books and Records. The copies of the Articles of
Incorporation and Bylaws of Mercantile heretofore delivered to Sierra are
complete and accurate copies thereof as in effect on the date hereof. The minute
books of Mercantile made available to Sierra contain a complete and accurate
record of all meetings of Mercantile's Board of Directors (and committees
thereof) and shareholders. The corporate books and records (including financial
statements) of Mercantile fairly reflect the material transactions to which
Mercantile is a party or by which its properties are subject or bound, and such
books and records have been properly kept and maintained.
4.3 Compliance With Laws, Regulations and Decrees. Mercantile (i) has
the corporate power
Page 16
<PAGE>
to own or lease its properties and to conduct its business as currently
conducted, (ii) has complied with, and is not in default of any laws,
regulations, ordinances, orders or decrees applicable to the conduct of its
business and the ownership of its properties, including but not limited to all
federal and state laws (including but not limited to the Bank Secrecy Act),
rules and regulations relating to the offer, sale or issuance of securities, and
the operation of a commercial bank other than where such noncompliance or
default is not likely to result in a material limitation on the conduct of its
business or is not likely to otherwise have a material adverse effect on
Mercantile taken as a whole, (iii) has not failed to file with the proper
federal, state, local or other authorities any material report or other document
required to be filed, and (iv) has all approvals, authorizations, consents,
licenses, clearances and orders of, and has currently effective all
registrations with, all governmental and regulatory authorities which are
necessary to the business and operations of Mercantile as now being conducted.
4.4 Capitalization. The authorized capital stock of Mercantile consists
of 1,000,000 shares of Mercantile common stock, no par value, of which 336,980
are duly authorized, validly issued, fully paid and nonassessable except as
provided in Section 662 of the California Financial Code, and currently
outstanding. Said stock has been issued in compliance with all applicable
securities laws. There are no outstanding (A) options, agreements, calls or
commitments of any character which would obligate Mercantile to issue, sell,
pledge, assign or otherwise encumber or dispose of, or to purchase, redeem or
otherwise acquire, any Mercantile common stock or any other equity security of
Mercantile, or (B) warrants or options relating to, rights to acquire, or debt
or equity securities convertible into, shares of Mercantile common stock or any
other equity security of Mercantile.
4.5 Equity Interest in Any Entity. Except as collateral for outstanding
loans held in its loan portfolio, Mercantile does not own, directly or
indirectly, any equity interest in any bank, corporation or other entity.
4.6 Financial Statements, Regulatory Reports. No financial statement or
other document to be provided to Sierra by Mercantile under this Agreement, as
of the date of such document, contained, or as to documents to be delivered
after the date hereof, will contain, any untrue statement of a material fact,
or, at the date thereof, omitted or will omit to state a material fact necessary
in order to make the statements contained therein, in light of the circumstances
under which such statements were or will be made, not misleading; provided,
however, that information as of a later date shall be deemed to modify
information as of any earlier date. Mercantile has filed all material documents
and reports required to be filed by it with the FDIC, the Superintendent and any
other governmental authority having jurisdiction over its business or any of its
assets or properties. All such reports conform in all material respects with the
requirements promulgated by such regulatory agencies. All compliance or
corrective action relating to Mercantile required by governmental authorities
and regulatory agencies having jurisdiction over Mercantile have been taken,
including compliance with any of the FDIC or the Superintendent in their most
recent Reports of Examination. Mercantile has not received any notification,
formally or informally, from any agency or department of any federal, state or
local government or any regulatory agency or the staff thereof (i) asserting
that it is not in compliance with any of the statutes, regulations or ordinances
which such government or regulatory authority enforces, where such
non-compliance or default is likely to result in a material limitation on the
conduct of its business or is not likely to otherwise have a material adverse
effect on Mercantile taken as a whole, or (ii) threatening to revoke any
license, franchise, permit or governmental authorization. Mercantile has paid
all assessments made or imposed by any governmental agency. Mercantile has
delivered to Sierra copies of all annual management letters and opinions, and
has made available to Sierra for inspection all reviews, correspondence and
other documents in the files of Mercantile prepared by its independent
accounting firm delivered to Mercantile since December 31, 1995. The financial
records of Mercantile
Page 17
<PAGE>
have been, and are being and shall be, maintained in all material respects in
accordance with all applicable legal and accounting requirements sufficient to
insure that all transactions reflected therein are, in all material respects,
executed in accordance with management's general or specific authorization and
recorded in conformity with generally accepted accounting principles at the time
in effect. The data processing equipment, data transmission equipment, related
peripheral equipment and software used by Mercantile in the operation of its
business to generate and retrieve its financial records are adequate for the
current needs of Mercantile.
4.7 Tax Returns.
(i) Mercantile has timely filed all federal, state, county,
local and foreign tax returns required to be filed by it, including, without
limitation, estimated tax, use tax, excise tax, real property and personal
property tax reports and returns, employer's withholding tax returns, other
withholding tax returns and Federal Unemployment Tax Returns, and all other
reports or other information required or requested to be filed by it, and each
such return, report or other information was, when filed, complete and accurate
in all material respects. Mercantile has paid all taxes, fees and other
governmental charges, including any interest and penalties thereon, when they
have become due, except those that are being contested in good faith, which
contested matters have been disclosed to Sierra and are disclosed on Schedule
4.7 hereto. Mercantile has not been requested to give or has given any currently
effective waivers extending the statutory period of limitation applicable to any
tax return required to be filed by it for any period. Other than as disclosed in
writing to Sierra, there are no claims pending against Mercantile for any
alleged deficiency in the payment of any taxes, and Mercantile does not know of
any pending or threatened audits, investigations or claims for unpaid taxes or
relating to any liability in respect of any taxes. As to such tax claims,
Mercantile has accrued on its books an amount that is believed to be sufficient
to pay all such taxes, including interest and penalties that may be due, and has
reduced tangible shareholders' equity by such amount. There has been no event,
including a change in ownership, that would result in a reappraisal and
establishment of a new base-year full value for purposes of Article XIII.A of
the California Constitution, of any real property owned in whole or in part by
Mercantile or to Mercantile's knowledge, of any real property leased by
Mercantile.
(ii)Mercantile has delivered to Sierra copies of all its tax
returns with respect to taxes payable to the United States of America and the
State of California for the fiscal years ended December 31, 1994 and 1995.
(iii) No consent has been filed relating to Mercantile pur-
suant to Section 341(f) of the IRC.
4.8 Material Adverse Change. Except as heretofore disclosed in writing
by Mercantile to Sierra, since September 30, 1996, there has been (i) no
material adverse change in the business, assets, licenses, permits, franchises,
results of operations or financial condition of Mercantile (whether or not in
the Ordinary Course), (ii) no change in any of the assets, licenses, permits or
franchises of Mercantile that has had or can reasonably be expected to have a
material adverse effect on any of the items listed in clause (i) above, (iii) no
damage, destruction, or other casualty loss (whether or not covered by
insurance) that has had or can reasonably be expected to have a material adverse
effect on any of the items listed in clause (i) above, (iv) no amendment,
modification, or termination of any existing, or entering into of any new,
contract, agreement, plan, lease, license, permit or franchise that is material
to the business, financial condition, assets, liabilities or operations of
Mercantile, except in the Ordinary Course; and (v) no disposition by Mercantile
of one or more assets that, individually or in the aggregate, are material to
Mercantile, except sales of assets in the Ordinary Course.
Page 18
<PAGE>
4.9 No Undisclosed Liabilities. Except for items for which reserves
have been established or accrued and recorded in the audited balance sheets of
Mercantile as of December 31, 1995, Mercantile has not incurred or discharged,
and is not legally obligated with respect to any indebtedness, liability
(including, without limitation, a liability arising out of an indemnification,
guarantee, hold harmless or similar arrangement) or obligation (accrued or
contingent, whether due or to become due, and whether or not subordinated to the
claims of its general creditors), other than as a result of operations in the
Ordinary Course after such date. No agreement pursuant to which any loans or
other assets have been or will be sold by Mercantile entitled the buyer of such
loans or other assets, unless there is material breach of a representation or
covenant by the seller, to cause Mercantile to repurchase such loan or other
asset or the buyer to pursue any other form of recourse against Mercantile.
Mercantile has not knowingly made and shall not make any representation or
covenant in any such agreement that contained or shall contain any untrue
statement of a material fact or omitted or shall omit to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which such representations and/or covenants were made or
shall be made, not misleading. No cash, stock or other dividend or any other
distribution with respect to the stock of Mercantile has been declared, set
aside or paid, nor have any shares of the stock of Mercantile been purchased,
redeemed or otherwise acquired, directly or indirectly, by Mercantile since
December 31, 1995.
4.10 Properties and Leases.
(a) Mercantile has good and marketable title, free and clear of all
liens and encumbrances and the right of possession, subject to existing
leaseholds, to all real properties and good title, free and clear of all liens
and encumbrances, to all other property and assets, tangible and intangible,
reflected in the Mercantile balance sheet as of December 31, 1995 (except
property held as lessee under leases disclosed in writing prior to the date
hereof and except personal property sold or otherwise disposed of since December
31, 1995, in the Ordinary Course), except (i) liens for taxes or assessments not
delinquent, (ii) such other liens and encumbrances and imperfections of title as
do not materially affect the value of such property as reflected in the
Mercantile balance sheet as of December 31, 1995, or as currently shown on the
books and records of Mercantile and which do not interfere with or impair its
present and continued use, (iii) exceptions disclosed in title reports and
preliminary title reports, copies of which have been provided to Sierra. All
tangible properties of Mercantile conform in all material respects with all
applicable ordinances, regulations and zoning laws. All tangible properties of
Mercantile are in a good state of maintenance and repair and are adequate for
the current business of Mercantile. No properties of Mercantile, and, to
Mercantile's knowledge, no properties in which it holds a collateral or
contingent interest or purchase option, are the subject of any pending or
threatened investigation, claim or proceeding relating to the use, storage or
disposal on such property of or contamination of such property by any toxic or
hazardous waste material or substance. To Mercantile's knowledge, Mercantile
does not own, possess or have a collateral or contingent interest or purchase
option in any properties or other assets which contain or have located within or
thereon any hazardous or toxic waste material or substance unless the location
of such hazardous or toxic waste material or other substance or its use thereon
conforms in all material respect with all federal, state and local laws, rules,
regulations or other provisions regulating the discharge of materials into the
environment. As to any asset not owned or leased by Mercantile, Mercantile has
not controlled, directed or participated in the operation or management of any
such asset or any facilities or enterprise conducted thereon, such that it has
become an owner or operator of such asset under applicable environmental laws.
(b) All properties held by Mercantile under leases are held by it under
valid, binding and enforceable leases, with such exceptions as are not material
and do not interfere with the conduct of the business of Mercantile, and
Mercantile enjoys quiet and peaceful possession of such leased property.
Page 19
<PAGE>
Mercantile is not in default in any respect under any material lease, agreement
or obligation regarding its properties to which it is a party or by which it is
bound.
(c) Except as disclosed to Sierra in writing, all of Mercantile's
rights and obligations under the leases referred to in Section (b) above do not
require the consent of any other party to the transactions contemplated by this
Agreement and the Merger Agreement. Where required, Mercantile shall obtain,
prior to the Effective Date, the consent of all parties to any such transaction.
4.11 Material Contracts. Except as previously disclosed to Sierra in
writing and excluding loans, lines of credit, loan commitments or letters of
credit to which Mercantile is a party, Mercantile is not a party to or bound by
any contract or other agreement made in the Ordinary Course which involves
aggregate future payments by or to Mercantile of more than $20,000 and which is
made for a fixed period expiring more than one year from the date hereof, and
Mercantile is not a party to or bound by any agreement not made in the Ordinary
Course which is to be performed at or after the date hereof. Each of the
contracts and agreements disclosed to Sierra pursuant to this Section is a legal
and binding obligation (subject to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general applicability), and no material breach or
default (and no condition which, with notice or passage of time, or both, could
become a material breach or default) exists with respect thereto.
4.12 Loans. Mercantile has disclosed to Sierra in writing prior to the
date hereof, and will promptly inform Sierra of the amounts of all loans,
leases, other extensions of credit or commitments, or other interest-bearing
assets of Mercantile, that have been classified as of the date hereof or
hereafter by any internal bank examiner or any bank regulatory agency or the
Superintendent as "Other Loans Specially Mentioned," "Special Mention,"
"Substandard," "Doubtful," "Loss," or words of similar import in the case of
loans (or that would have been so classified, in the case of other
interest-bearing assets, had they been loans). Mercantile has furnished and will
continue to furnish to Sierra true and accurate information concerning the loan
portfolio of Mercantile, and no material information with respect to the loan
portfolio has been or will be withheld from Sierra. All loans and investments of
Mercantile are legal, valid and binding obligations enforceable in accordance
with its terms and are not subject to any setoffs, counterclaims or disputes
(subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to equitable
principles of general applicability), except as disclosed to Sierra in writing
or reserved for in the balance sheet of Mercantile as of September 30, 1996, and
were duly authorized under and made in compliance with applicable federal and
state laws and regulations. Mercantile does not have any extensions of credit,
investments, guarantees, indemnification agreements or commitments for the same
(including without limitation commitments to issue letters of credit, to create
acceptances, or to repurchase securities, federal funds or other assets) other
than those documented on the books and records of Mercantile.
4.13 Restrictions on Investments. Except for pledges to secure public
and trust deposits and repurchase agreements in the Ordinary Course, none of the
investments reflected in the Mercantile unaudited balance sheet as of September
30, 1996, and none of the investments made by Mercantile since September 30,
1996, is subject to any restriction, whether contractual or statutory, which
materially impairs the ability of Mercantile to freely dispose of such
investment at any time except as restricted by any applicable banking,
securities or government regulations.
Page 20
<PAGE>
4.14 Employment Contracts and Benefits.
(a) Mercantile shall deliver to Sierra an accurate list setting forth
all bonus, incentive compensation, profit-sharing, pension, retirement, stock
purchase, stock option, deferred compensation, severance, hospitalization,
medical, dental, vision, group insurance, death benefits, disability and other
fringe benefit plans, trust agreements, arrangements and commitments of
Mercantile (including but not limited to such plans, agreements, arrangements
and commitments applicable to former employees or retired employees, or for
which such persons are eligible), if any, together with copies of all such
plans, agreements, arrangements and commitments that are documented, any and all
contracts of employment and has made available to Sierra any Board of Directors'
minutes (or committee minutes) authorizing, approving or guaranteeing such plans
and contracts.
(b) All contributions, premiums or other payments due from Mercantile
to (or under) any plan listed in subsection (a) have been fully paid or
adequately provided for through periodic accruals or otherwise on its unaudited
financial statements for the period ended September 30, 1996. All accruals
thereon (including, where appropriate, proportional accruals for partial
periods) have been made in accordance with generally accepted accounting
principles consistently applied on a reasonable basis.
(c) To Mercantile's knowledge, each plan listed in subsection (a)
complies with all material requirements of (i) the Age Discrimination in
Employment Act of 1967, as amended, and the regulations thereunder and (ii)
Title VII of the Civil Rights Act of 1964, as amended, and the regulations
thereunder.
(d) To Mercantile's knowledge, each plan listed in subsection (a)
complied with all material requirements of the health care continuation coverage
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 and the
regulations thereunder.
(f) Mercantile has heretofore disclosed in writing to Sierra the names
of each director, officer and employee of Mercantile.
4.15 Collective Bargaining and Employment Agreements. Except as
provided in this Agreement or as previously disclosed to Sierra in writing,
Mercantile does not have any union or collective bargaining or written
employment agreements, contracts or other agreements with any labor organization
or with any member of management, or any management or consultation agreement
not terminable at will by Mercantile without liability and no such contract or
agreement has been requested by, or is under discussion by management with, any
group of employees, any member of management or any other person. There are no
material controversies pending between Mercantile and any current or former
employees, and to Mercantile's knowledge, there are no efforts presently being
made by any labor union seeking to organize any of such employees.
4.16 Compensation of Officers and Employees. Except as previously
disclosed to Sierra in writing, (i) no officer or employee of Mercantile is
receiving aggregate direct remuneration at a rate exceeding $60,000 per annum,
and (ii) the consummation of the transactions contemplated by this Agreement and
the Merger Agreement will not (either alone or upon the occurrence of any
additional or further acts or events) result in any payment (whether of
severance pay or otherwise) becoming due from Mercantile or Sierra to any
employee of Mercantile.
4.17 Legal Actions and Proceedings. Except as previously disclosed to
Sierra in writing, Mercantile is not a party to, or so far as either of them is
aware, threatened with, and to Mercantile's knowledge, there is no reasonable
basis for, any legal action or other proceeding or investigation before any
court, any arbitrator of any kind or any government agency, and Mercantile is
not subject to any
Page 21
<PAGE>
potential adverse claim, the outcome of which could involve the payment or
receipt by Mercantile of any amount in excess of $50,000, unless an insurer of
Mercantile has agreed to defend against and pay the amount of any resulting
liability without reservation, or, if any such legal action, proceeding,
investigation or claim will not involve the payment by Mercantile of a monetary
amount, which could materially adversely affect Mercantile or its business or
property or the transactions contemplated hereby. Mercantile has no knowledge of
any pending or threatened claims or charges under the Community Reinvestment
Act, before the Equal Employment Opportunity Commission, the California
Department of Fair Housing & Economic Development, the California Unemployment
Appeals Board, or any human relations commission. There is no labor dispute,
strike, slow-down or stoppage pending or, to Mercantile's knowledge, threatened
against Mercantile.
4.18 Execution and Delivery of the Agreement.
(a) The execution and delivery of this Agreement have been duly
authorized by the Board of Directors of Mercantile and, when the Merger, this
Agreement and the Merger Agreement have been duly approved by the affirmative
vote of the holders of a majority of the outstanding shares of Mercantile common
stock at a meeting of shareholders duly called and held, the Merger, this
Agreement and the Merger Agreement will be duly and validly authorized by all
necessary corporate action on the part of Mercantile.
(b) This Agreement has been duly executed and delivered by Mercantile
and (assuming due execution and delivery by Sierra) constitutes, and the Merger
Agreement upon its execution and delivery by Mercantile (and assuming due
execution and delivery by Sierra) will constitute, legal and binding obligations
of Mercantile 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 creditor's
rights and remedies generally.
(c) The execution and delivery by Mercantile of this Agreement and the
Merger Agreement and the consummation of the transactions herein and therein
contemplated (i) do not violate any provision of the Articles of Incorporation
or Bylaws of Mercantile or, to Mercantile's knowledge, any provision of federal
or state law or any governmental rule or regulation (assuming (A) receipt of the
Government Approvals, (B) receipt of the requisite Mercantile shareholder
approval, (C) due registration of the Sierra Shares under the Securities Act of
1933, as amended ("1933 Act"), (D) receipt of appropriate permits or approvals
under state securities or "blue sky" laws, and (E) accuracy of the
representations of Sierra set forth herein), and (ii) to Mercantile's knowledge,
do not require any consent of any person except as contemplated herein, conflict
with or result in a breach of, or accelerate the performance required by any of
the terms of, any material debt instrument, lease, license, covenant, agreement
or understanding to which Mercantile is a party or by which it is bound or any
order, ruling, decree, judgment, arbitration award or stipulation to which
Mercantile is subject, or constitute a default thereunder or result in the
creation of any lien, claim, security interest, encumbrance, charge, restriction
or right of any third party of any kind whatsoever upon any of the properties or
assets of Mercantile.
4.19 Retention of Broker or Consultant. No broker, agent, finder,
consultant or other party (other than legal, compliance, loan auditors and
accounting advisors) has been retained by Mercantile or is entitled to be paid
based upon any agreements, arrangements or understandings made by Mercantile in
connection with any of the transactions contemplated by this Agreement or the
Merger Agreement, except that Mercantile has engaged Carpenter and Company to
render an opinion regarding the fairness of the Merger. Mercantile shall provide
Sierra with a true and accurate copy of its agreement(s) with such firm. All
costs related to such opinion shall be paid or accrued prior to the
Page 22
<PAGE>
Effective Date.
4.20 Insurance. Mercantile is and continuously since its inception has
been, insured with reputable insurers against all risks normally insured against
by California commercial banks, and all of the insurance policies and bonds
maintained by Mercantile are in full force and effect, Mercantile is not in
default thereunder and all material claims thereunder have been filed in due and
timely fashion. In the best judgment of the management of Mercantile, such
insurance coverage is adequate for Mercantile. Except as disclosed to Sierra in
writing, there has not been any damage to, destruction of, or loss of any assets
of Mercantile not covered by insurance that could materially and adversely
affect the business, financial condition, properties, assets or results of
operations of Mercantile.
4.21 Loan Loss Reserves. To the knowledge of Mercantile's management,
the allowance for loan losses as of the Effective Date will be adequate in all
material respects under the requirements of all applicable state and federal
laws and regulations to provide for possible loan losses on outstanding loans,
net of recoveries.
4.22 Transactions With Affiliates. Except as may arise in the Ordinary
Course, Mercantile has not extended credit, committed itself to extend credit,
or transferred any asset to or assumed or guaranteed any liability of the
employees or directors of Mercantile, or any spouse or child of any of them, or
to any of their "affiliates" or "associates" as such terms are defined in Rule
405 under the 1933 Act. Mercantile has not entered into any other transactions
with the employees or directors of Mercantile or any spouse or child of any of
them, or any of their affiliates or associates, except as disclosed in writing
to Sierra. Any such transactions have been on terms no less favorable to
Mercantile than those which would prevail in an arms-length transaction with an
independent third party.
4.23 Information in Sierra Registration Statement. The information
pertaining to Mercantile which has been or will be furnished to Sierra for or on
behalf of Mercantile for inclusion in the Sierra Registration Statement and the
Proxy Materials, or in the applications to be filed to obtain the Government
Approvals ("Applications"), does not and will not contain any untrue statement
of any material fact or omits or will omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading; provided, however,
that information of a later date shall be deemed to modify information as of an
earlier date. All financial statements of Mercantile included in the Proxy
Materials will present fairly the financial condition and results of operations
of Mercantile at the dates and for the periods covered by such statements in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered by such statements. Mercantile shall promptly
advise Sierra in writing if prior to the Effective Date Mercantile shall obtain
knowledge of any facts that would make it necessary to amend or supplement the
Sierra Registration Statement, the Proxy Materials or the Applications, in order
to make the statements therein not misleading or to comply with applicable law.
4.24 Accuracy of Representations and Warranties. No representation or
warranty by Mercantile, and no statement by Mercantile in any certificate,
agreement, schedule or other document furnished in connection with the
transactions contemplated by this Agreement or the Merger Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make such representation, warranty or
statement not misleading to Sierra; provided, however, that information as of a
later date shall be deemed to modify information as of an earlier date.
Section 5. REPRESENTATIONS AND WARRANTIES OF SIERRA.
Sierra represents and warrants to Mercantile that, except as set forth
on a Schedule attached to
Page 23
<PAGE>
this Agreement and corresponding in number to the appropriate section:
5.1 Corporate Status and Power to Enter Into Agreements. (i) Sierra is
a corporation duly incorporated, validly existing and in good standing under
California law, and is a registered bank holding company under the Bank holding
Company Act of 1956, as amended, (ii) subject to the approval of this Agreement
and the transactions contemplated hereby by the Superintendent, the FDIC and,
unless waived, the FRB, Sierra has all necessary corporate power to enter into
this Agreement and the Merger Agreement and to carry out all of the terms and
provisions hereof and thereof to be carried out by it, (iii) Sierra's bank
subsidiary is duly licensed to engage in the commercial banking business as now
conducted by it, and (iv) neither Sierra nor any of its subsidiaries is subject
to any order of the FRB, the FDIC, the Superintendent or any other regulatory
authority having jurisdiction over its business or any of its assets or
properties. Neither the scope of the business of Sierra nor the location of its
properties requires it to be licensed to do business in any jurisdictions other
than states of California and Nevada.
5.2 Articles, Bylaws, Books and Records. The copies of the Articles of
Incorporation and Bylaws of Sierra made available to Mercantile are complete and
accurate copies thereof as in effect on the date hereof. The minute books of
Sierra contain a complete and accurate summary of all meetings of Sierra's Board
of Directors (and committees thereof) and shareholders. The corporate books and
records (including financial statements) of Sierra fairly reflect the material
transactions to which Sierra is a party or by which its properties are subject
or bound, and such books and records have been properly kept and maintained.
5.3 Compliance With Laws, Regulations and Decrees. Sierra (i) has the
corporate power to own or lease its properties and to conduct its business as
currently conducted, (ii) has complied with, and is not in default of any laws,
regulations, ordinances, orders or decrees applicable to the conduct of its
business and the ownership of its properties, including but not limited to all
federal and state laws (including but not limited to the Bank Secrecy Act),
rules and regulations relating to the offer, sale or issuance of securities, and
the operation of a commercial bank, other than where such noncompliance or
default is not likely to result in a material limitation on the conduct of the
business of Sierra or is not likely to otherwise have a material adverse effect
on Sierra taken as a whole, (iii) has not failed to file with the proper
federal, state, local or other authorities any material report or other document
required to be to filed, and (iv) has all approvals, authorizations, consents,
licenses, clearances and orders of, and has currently effective all
registrations with, all governmental and regulatory authorities which are
necessary to the business and operations of Sierra as now being conducted.
5.4 Capitalization. As of November 30, 1996, the authorized capital
stock of Sierra consists of 10,000,000 shares of Sierra common stock, no par
value, of which 2,754,569 are duly authorized, validly issued, fully paid and
nonassessable and currently outstanding, 9,800,000 shares of preferred stock
none of which is outstanding, 200,000 shares of series A preferred stock none of
which are issued or outstanding and $8,705,000 of Sierra debentures convertible
into 870,500 shares of Sierra common stock. Said stock has been issued in
compliance with all applicable securities laws. There are currently outstanding
options to purchase 384,080 shares of Sierra common stock, at a weighted average
exercise price of $9.47 per share, issued pursuant to its 1996 Stock Option
Plan. Said options were issued and, upon issuance in accordance with the terms
of the outstanding options said shares shall be issued, in compliance with all
applicable securities laws. Sierra has adopted a Board of Directors Deferred
Compensation and Stock Award Plan under which the members of Sierra's Board of
Directors can elect to defer earned director compensation and take such
compensation upon retirement from the Board either in the form of Sierra Shares
or in cash. Otherwise, there are no outstanding (i) options, agreements, calls
or commitments of any character which would obligate Sierra to issue, sell,
pledge,
Page 24
<PAGE>
assign or otherwise encumber or dispose of, or to purchase, redeem or otherwise
acquire, any Sierra common stock or any other equity security of Sierra, or (ii)
warrants or options relating to, rights to acquire, or debt or equity securities
convertible into, shares of Sierra common stock or any other equity security of
Sierra. The outstanding common stock of Sierra has been duly and validly
registered with the Commission pursuant to the 1934 Act, to the extent required
thereunder.
5.5 Financial Statements, Regulatory Reports. No financial statement or
other document to be provided to Mercantile by Sierra under this Agreement, as
of the date of such document, contained, or as to documents to be delivered
after the date hereof, will contain, any untrue statement of a material fact,
or, at the date thereof, omitted or will omit to state a material fact necessary
in order to make the statements contained therein, in light of the circumstances
under which such statements were or will be made, not misleading; provided,
however, that information as of a later date shall be deemed to modify
information as of any earlier date. Sierra has filed all material documents and
reports required to be filed by it with the FRB, the Commission and any other
governmental authority having jurisdiction over its business or any of its
assets or properties. All such reports conform in all material respects with the
requirements promulgated by such regulatory agencies. All compliance or
corrective action relating to Sierra required by governmental authorities and
regulatory agencies having jurisdiction over Sierra or any of its bank
subsidiaries have been taken. Sierra has not received any notification, formally
or informally, from any agency or department of any federal, state or local
government or any regulatory agency or the staff thereof (i) asserting that it
is not in compliance with any of the statutes, regulations or ordinances which
such government or regulatory authority enforces, or (ii) threatening to revoke
any license, franchise, permit or governmental authorization of Sierra. Sierra
has paid all assessments made or imposed by any governmental agency. Sierra has
delivered to Mercantile copies of all annual management letters and opinions,
and has made available to Mercantile for inspection all reviews, correspondence
and other documents in the files of Sierra prepared by Deloitte & Touche or any
other certified public accountant engaged by Sierra and delivered to Sierra
since December 31, 1995. The financial records of Sierra have been, are being
and shall be maintained in all material respects in accordance with all
applicable legal and accounting requirements sufficient to insure that all
transactions reflected therein are, in all material respects, executed in
accordance with management's general or specific authorization and recorded in
conformity with generally accepted accounting principles at the time in effect.
The data processing equipment, data transmission equipment, related peripheral
equipment and software used by Sierra in the operation of its business to
generate and retrieve its financial records are adequate for the current needs
of Sierra.
Page 25
<PAGE>
5.6 Tax Returns.
(a) Sierra has timely filed all federal, state, county, local and
foreign tax returns required to be filed by it, including, without limitation,
estimated tax, use tax, excise tax, real property and personal property tax
reports and returns, employer's withholding tax returns, other withholding tax
returns and Federal Unemployment Tax Returns, and all other reports or other
information required or requested to be filed by each of them, and each such
return, report or other information was, when filed, complete and accurate in
all material respects. Sierra has paid all taxes, fees and other governmental
charges, including any interest and penalties thereon, when they have become
due, except those that are being contested in good faith, which contested
matters have been disclosed to Mercantile. Except as set forth below, neither
Sierra nor any of its subsidiaries has been requested to give or has given any
currently effective waivers extending the statutory period of limitation
applicable to any tax return required to be filed by either of them for any
period. Except as set forth below, there are no claims pending against Sierra or
any of its subsidiaries for any alleged deficiency in the payment of any taxes,
and Sierra does not know of any pending or threatened audits, investigations or
claims for unpaid taxes or relating to any liability in respect of any taxes.
(b) No consent has been filed relating to Sierra pursuant to Section
341(f) of the IRC.
5.7 Material Adverse Change. Except as heretofore disclosed in writing
by Sierra to Mercantile, since September 30, 1996, there has been no material
adverse change in the business, assets, licenses, permits, franchises, results
of operations or financial condition of Sierra (whether or not in the Ordinary
Course).
5.8 Legal Actions and Proceedings. Except as previously disclosed to
Mercantile in writing, Sierra is not a party to, or so far as either of them is
aware, threatened with, and to Sierra's knowledge, there is no reasonable basis
for, any legal action or other proceeding or investigation before any court, any
arbitrator of any kind or any government agency, and Sierra is not subject to
any potential adverse claim, the outcome of which could involve the payment or
receipt by Sierra of any amount in excess of $200,000, unless an insurer of
Sierra has agreed to defend against and pay the amount of any resulting
liability without reservation, or, if any such legal action, proceeding,
investigation or claim will not involve the payment by Sierra of a monetary
amount, which could materially adversely affect Sierra or its business or
property or the transactions contemplated hereby. Sierra has no knowledge of any
pending or threatened claims or charges under the Community Reinvestment Act,
before the Equal Employment Opportunity Commission, the California Department of
Fair Housing & Economic Development, the California Unemployment Appeals Board,
or any human relations commission. There is no labor dispute, strike, slow-down
or stoppage pending or, to the knowledge of Sierra, threatened against Sierra.
5.9 Execution and Delivery of the Agreement.
(a) The Merger, this Agreement and the Merger Agreement have been duly
and validly authorized by all necessary corporate action on the part of Sierra.
(b) This Agreement has been duly executed and delivered by Sierra and
(assuming due execution and delivery by Mercantile) constitutes, and the Merger
Agreement, upon its execution and delivery by Sierra (and assuming due execution
and delivery by Mercantile) will constitute, legal and binding obligations of
Sierra in accordance with its terms.
(c) The execution and delivery by Sierra of this Agreement and the
Merger Agreement and the
Page 26
<PAGE>
consummation of the transactions herein and therein contemplated (i) do not
violate any provision of the Articles of Incorporation or Bylaws of Sierra or,
to Sierra's knowledge, any provision of federal or state law or any governmental
rule or regulation (assuming (A) receipt of the Government Approvals, (B) due
registration of the Sierra Shares under the 1933 Act, (C) receipt of appropriate
permits or approvals under state securities or "blue sky" laws, and (D) accuracy
of the representations of Mercantile set forth herein), and (ii) to Sierra's
knowledge, do not require any consent of any person under, conflict with or
result in a breach of, or accelerate the performance required by any of the
terms of, any material debt instrument, lease, license, covenant, agreement or
understanding to which Sierra is a party or by which it is bound or any order,
ruling, decree, judgment, arbitration award or stipulation to which Sierra is
subject, or constitute a default thereunder or result in the creation of any
lien, claim, security interest, encumbrance, charge, restriction or right of any
third party of any kind whatsoever upon any of the properties or assets of
Sierra.
5. 10 No Undisclosed Liabilities. Except for items for which reserves
have been established in the audited balance sheets of Sierra as of December 31,
1995, Sierra has not incurred or discharged, and is not legally obligated with
respect to any indebtedness, liability (including, without limitation, a
liability arising out of an indemnification, guarantee, hold harmless or similar
arrangement) or obligation (accrued or contingent, whether due or to become due,
and whether or not subordinated to the claims of its general creditors), which
would have a material effect on the capital or earnings of Sierra other than as
a result of operations in the Ordinary Course after such date. Other than a
possible cash dividend by Sierra payable to shareholders of record as of March,
1997, no cash, stock or other dividend or any other distribution with respect to
the stock of Sierra has been declared, set aside or paid, nor have any shares of
the stock of Sierra been purchased, redeemed or otherwise acquired, directly or
indirectly, by Sierra since December 31, 1995.
5. 11 No Material Environmental Liabilities. To Sierra's knowledge,
Sierra does not own, possess or have a collateral or contingent interest or
purchase option in any properties or other assets which contain or have located
within or thereon any hazardous or toxic waste material or substance unless the
location of such hazardous or toxic waste material or other substance or its use
thereon conforms in all material respect with all federal, state and local laws,
rules, regulations or other provisions regulating the discharge of materials
into the environment the liability of remediation for which would cause a
material adverse change in the capital or earnings of Sierra.
5.12 No Material Liabilities Under ERISA. No governmental agency or
claimant or representative of such claimant have alleged a material violation of
ERISA by Sierra the liability for which, if adversely determined, would result
in a material adverse change in the capital or earnings of Sierra.
5.13 Retention of Broker or Consultant. No broker, agent, finder,
consultant or other party (other than legal, compliance, loan auditors and
accounting advisors) has been retained by Sierra or is entitled to be paid based
upon any agreements, arrangements or understandings made by Sierra in connection
with any of the transactions contemplated by this Agreement or the Merger
Agreement.
5. 14 Loan Loss Reserves. To the knowledge of Sierra's management,
the allowance for loan losses in the Sierra balance sheet dated September 30,
1996, and as of the Effective Date are and will be adequate in all material
respects under the requirements of all applicable state and federal laws and
regulations to provide for possible loan losses on outstanding loans, net of
recoveries, including compliance with the comments of the FDIC in its most
recent Report of Examination.
Page 27
<PAGE>
5.15 Information in Sierra Registration Statement. The information
pertaining to Sierra which has been or will be furnished for or on behalf of
Sierra for inclusion in the Sierra Registration Statement or the Proxy
Materials, or in the Applications, does not and will not contain any untrue
statement of any material fact or omits or will omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading; provided,
however, that information of a later date shall be deemed to modify information
as of an earlier date. All financial statements of Sierra included in the Proxy
Materials will present fairly the financial condition and results of operations
of Sierra at the dates and for the periods covered by such statements in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered by such statements. Sierra shall promptly advise
Mercantile in writing if prior to the Effective Date Sierra shall obtain
knowledge of any facts that would make it necessary to amend the Sierra
Registration Statement, the Proxy Materials or any Application, or to supplement
the prospectus, in order to make the statements therein not misleading or to
comply with applicable law.
5.16 Accuracy of Representations and Warranties. No representation or
warranty by Sierra, and no statement by Sierra in any certificate, agreement,
schedule or other document furnished in connection with the transactions
contemplated by this Agreement or the Merger Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary to make such representation, warranty or statement not
misleading to Mercantile; provided, however, that information as of a later date
shall be deemed to modify information as of an earlier date.
Section 6. SECURITIES ACT OF 1933; SECURITIES AXCHANGE ACT OF 1934.
6.1 Preparation and Filing of Registration Statement. Unless exempted
from registration by Section 3(a)(10) of the 1933 Act, Sierra shall promptly
prepare and file with the Commission a registration statement on the appropriate
form ("Sierra Registration Statement") under and pursuant to the provisions of
the 1933 Act for the purpose of registering the Sierra Shares to be issued in
the Merger. Sierra and Mercantile shall promptly prepare Proxy Materials for the
purpose of submitting the Merger, this Agreement and the Merger Agreement to the
shareholders of Mercantile for approval. Sierra and Mercantile shall cooperate
in all reasonable respects with regard to the preparation of the Sierra
Registration Statement and the Proxy Materials. The Proxy Materials in
definitive form are expected to serve as the prospectus to be included in the
Sierra Registration Statement. Sierra and Mercantile shall each provide promptly
to the other such information concerning its business and financial condition
and affairs as may be required or appropriate for inclusion in the Sierra
Registration Statement or the Proxy Materials, and shall cause its counsel and
auditors to cooperate with the other's counsel and auditors in the preparation
of the Sierra Registration Statement and the Proxy Materials.
6.2 Effectiveness of Registration Statement and Listing of Shares.
Sierra and Mercantile shall use their commercially reasonable efforts to have
the Sierra Registration Statement and any amendments or supplements thereto
declared effective under the 1933 Act as soon as practicable, and thereafter
Mercantile shall distribute the Proxy Materials to holders of its common stock
in accordance with applicable laws. Sierra shall use commercially reasonable
efforts to cause the Sierra Shares issued to effect the Merger to be approved
for listing on the Nasdaq National Market System when such Sierra Shares are
issued to Mercantile's shareholders.
6.3 Sales and Resales of Common Stock. Sierra shall not be required
to maintain the effectiveness of the Sierra Registration Statement for the pur-
pose of sale or resale of the Sierra Shares by any person.
Page 28
<PAGE>
6.4 Rule 145 and Related Matters. At Sierra's option, securities
representing Sierra Shares issued to "affiliates", as that term is defined in
the 1933 Act, of Mercantile (as determined by counsel to Sierra and Mercantile)
under Rule 145 of the Rules and Regulations under the 1933 Act pursuant to the
Merger Agreement will be subject to stop transfer orders and will bear a
restrictive legend in substantially the following form:
"The Securities Represented by this Certificate Have been
Issued in a Transaction to Which Rule 145 Promulgated under
the Securities Act of 1933, as Amended, Applies and May Only
Be Sold or Otherwise Transferred in Compliance with the
Requirements of Rule 145 or Pursuant to an Effective
Registration Statement under Said Act or in a Transaction
Which, in the Opinion of Counsel Satisfactory to the Issuer,
satisfies an Exemption from Such Registration."
Should any opinion of counsel described in clause (ii) of the foregoing legend
indicate that the legend and any stop transfer order then in effect with respect
to the shares may be removed, Sierra will upon request substitute unlegended
securities and remove any stop transfer orders.
Section 7. CONDITIONS TO THE OBLIGATIONS OF SIERRA.
The obligations of Sierra under this Agreement are, at its option,
subject to fulfillment at or prior to the Effective Date of each of the
following conditions; provided, however, that any one or more of such conditions
may be waived by the Board of Directors of Sierra at any time at or prior to the
Effective Date:
7.1 Representations and Warranties. The representations and warranties
of Mercantile in Section 4 hereof shall be true and correct in all material
respects on and as of the Effective Date, with the same effect as though such
representations and warranties had been made on and as of such date except as to
any representation or warranty which specifically relates to an earlier date.
7.2 Compliance and Performance Under Agreement. Mercantile shall have
performed and complied in all material respects with all terms of this Agreement
and the Merger Agreement required to be performed or complied with by it at or
prior to the Effective Date.
7.3 Material Adverse Change. No materially adverse change shall have
occurred since September 30, 1996, in the business, financial condition or
results of operations of Mercantile and Mercantile shall not be a party to or,
so far as Mercantile is aware, threatened with, and to Mercantile's knowledge
there is no reasonable basis for, any legal action or other proceeding before
any court, any arbitrator of any kind or any Government agency if, in the
reasonable judgment of Sierra, such legal action or proceeding could materially
adversely affect Mercantile, or its business, financial condition or results of
operations.
7.4 Approval of Agreement. The Merger, this Agreement and the Merger
Agreement shall have been duly approved by the affirmative vote of the holders
of a majority of the outstanding shares of Mercantile common stock.
7.5 Officer's Certificate. Sierra shall have received a certificate,
dated the Effective Date, signed on behalf of Mercantile by its President to the
effect that the conditions in Sections 7.1-7.4 have been satisfied.
Page 29
<PAGE>
7.6 Opinion of Counsel. Mercantile shall have delivered to Sierra such
documents as may reasonably be requested by Sierra to evidence compliance by
Mercantile with the provisions of this Agreement and the Merger Agreement,
including an opinion of its counsel in a form substantially as set forth on
Exhibit 7.6.
7.7 Absence of Legal Impediment. On the Effective Date, the absence of:
(a) any suit, action or proceeding, or order against Mercantile or Sierra with
respect to any part of this Agreement, or the Merger, or challenging, enjoining,
or otherwise affecting the consummation of the Merger which, in the opinion of
counsel for Sierra, materially affects the Merger or the consummation of this
Agreement; or (b) any pending or threatened action or proceeding by the United
States Department of Justice or other federal governmental agency seeking to
enjoin, prohibit or otherwise impede the Merger; or (c) a banking moratorium or
other suspension of payment by banks in the United States or any general
limitation on extension of credit by lending banks in the United States.
7.8 Effectiveness of Registration Statement. The Sierra common stock to
be issued to Mercantile shareholders shall have been determined to be exempt
from registration or the Sierra Registration Statement and any amendments or
supplements thereto shall have become effective under the 1933 Act. No stop
order suspending the effectiveness of such Registration Statement shall be in
effect and no proceedings for such purpose shall have been initiated or
threatened by or before the Commission. All state securities and "blue sky"
permits or approvals required to consummate the transactions contemplated by
this Agreement and the Merger Agreement shall have been received.
7.9 Government Approvals. All Government Approvals shall be in effect,
and all conditions or requirements prescribed by law or by any such Governmental
Approval shall have been satisfied; provided, however, that no Government
Approval shall be deemed to have been received if it shall require the
divestiture or cessation of any of the present businesses or operations
conducted by either of the parties hereto or shall impose any other condition or
requirement, which Sierra in its reasonable judgment shall deem to be materially
burdensome (in which case Sierra shall promptly notify Mercantile). For purposes
of this Agreement no condition shall be deemed to be "materially burdensome" if
such condition does not materially differ from conditions regularly imposed by
the FRB, the Superintendent, or FDIC in orders approving transactions of the
type contemplated by this Agreement and compliance with such condition would
not:
(a) require the taking of any action inconsistent with the manner in
which Sierra or Mercantile has conducted its business previously;
(b) have a material adverse effect upon the business, financial con-
dition or results of operations of Sierra or Mercantile; or
(c) preclude satisfaction of any of the conditions to consummation of
the transactions contemplated by this Agreement.
7.10 Tax Opinion. Sierra and Mercantile shall have received an opinion
of counsel or accountants satisfactory to both parties, subject to assumptions
and exceptions normally included, in form and substance reasonably satisfactory
to both parties, substantially to the effect that under federal income tax law
and California income and franchise tax law:
(a) The Merger will comply with the requirements of Internal Revenue
Code Section 368;
(b) Except for the Cash Component of the Exchange Amount and any cash
received in lieu of any
Page 30
<PAGE>
fractional share, no gain or loss will be recognized by holders of Mercantile
Shares who receive Sierra Shares in exchange for the Mercantile Shares which
they hold;
(c) The holding period of Sierra Shares exchanged for Mercantile Shares
will include the holding period of the Mercantile Shares for which they are
exchanged, assuming the shares of Mercantile Shares are capital assets in the
hands of the holder thereof at the Effective Date; and
(d) The basis of the Sierra Shares received in the exchange will be the
same as the basis of the Mercantile Shares for which they are exchanged, less
any basis attributable to the Cash Component or to fractional shares for which
cash is received.
7.11 Unaudited Financials. Not later than the Determination Date,
Mercantile shall have furnished Sierra a copy of its most recently prepared
unaudited consolidated financial statements for the period beginning January 1,
1997 and ending the monthend immediately preceding the Determination Date,
including a balance sheet and statement of income of Mercantile for that period.
7.12 Rule 145 Undertaking. Each director, executive officer and other
person who is an "affiliate" (for purposes of Rule 145 under the Securities Act)
of such party shall have delivered to Sierra, as soon as practicable after the
date of this Agreement, and prior to the date of the shareholder meeting called
by Mercantile to approve this Agreement, a written agreement, in the form of
Exhibit 7.12 hereto, providing that such person will not sell, pledge, transfer
or otherwise dispose of any Sierra Shares to be received by such "affiliate" in
the Merger, except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder. Notwithstanding any
other provision of this Agreement, no certificate for Sierra Shares shall be
delivered in exchange for Mercantile Shares held by any such "affiliate" who
shall not have executed and delivered such an agreement.
7.13 Closing Documents. Sierra shall have received such certificates
and other closing documents as counsel for Sierra shall reasonably request.
7.14 Consents. Mercantile shall have received, or Sierra shall have
satisfied itself that Mercantile will receive, all consents of other parties to
and required by material mortgages, notes, leases, franchises, agreements,
licenses and permits applicable to Mercantile, in each case in form and
substance reasonably satisfactory to Sierra, and no such consent or license or
permit shall have been withdrawn or suspended.
7.15 Shareholder Agreements. All directors of Mercantile and the Brooks
Trust shall have entered into a shareholder's agreement in the form attached
hereto as Exhibit 7.15 contemporaneously with the execution of this Agreement by
which such shareholders agree to vote their shares and any shares over which
such shareholders have voting authority in favor of the Merger and further
agreeing, to the extent permitted by law and the bylaws of Mercantile, to vote
in favor of the Merger by consent solicitation.
7.16 Financial Conditions to Closing. The books of Mercantile as of
the Adjustment Date and as of Closing shall reflect compliance with the
following financial conditions:
(a) Other Real Estate and Non-Performing Loans. Mercantile's other real
estate owned ("OREO"), non-performing loans ("NPAs") (those loans not accruing
interest on Mercantile's books), loans 90 days or more past due, and other loans
under regulatory requirements classified as substandard or non-performing shall
not exceed $2.495 million and the ratio of OREO and NPAs to Shareholder Equity
plus Allowance for Loan Losses ("ALL") shall not exceed 42.5%.
Page 31
<PAGE>
(b) Loan Loss Reserves. Mercantile shall maintain an ALL of no less
than $962 thousand, less reserves deleted from Schedule 2.1(c) pursuant to the
terms of Section 2.1(c)(ii)(A), and 2.95% of total loans, whichever is greater,
and a ratio of ALL to NPAs of not less than 38.5% ("Coverage Ratio").
Section 8. CONDITIONS TO THE OBLIGATIONS OF MERCANTILE.
The obligations of Mercantile under this Agreement are, at its option,
subject to the fulfillment at or prior to the Effective Date of each of the
following conditions provided, however, that any one or more of such conditions
may be waived by the Board of Directors of Mercantile at any time at or prior to
the Effective Date:
8.1 Representations and Warranties. The representations and warranties
of Sierra in Section 5 hereof shall be true and correct in all material respects
on and as of the Effective Date with the same effect as though such
representations and warranties had been made on and as of such date except as to
any representation or warranty which specifically related to an earlier date.
8.2 Compliance and Performance Under Agreement. Sierra shall have
performed and complied in all material respects with all of the terms of this
Agreement and the Merger Agreement required to be performed or complied with by
them at or prior to the Effective Date.
8.3 Material Adverse Change. No materially adverse change shall have
occurred since September 30, 1996, in the business, financial condition, results
of operations or properties of Sierra and its subsidiaries taken as a whole, and
Sierra shall not be engaged in, or a party to or so far as Sierra is aware,
threatened with, and to Sierra's knowledge no grounds shall exist for, any legal
action or other proceeding before any court, any arbitrator of any kind or any
government agency if, in the reasonable judgment of Mercantile, such legal
action or proceeding could materially adversely affect Sierra or its business,
financial condition, results of operations or assets.
8.4 Approval of Agreement. The Merger, this Agreement and the Merger
Agreement shall have been duly approved by the affirmative vote of the holders
of a majority of the outstanding shares of Mercantile common stock.
8.5 Officer's Certificate. Mercantile shall have received a
certificate, dated the Effective Date, signed on behalf of Sierra by its
President and Chief Financial Officer, certifying to the fulfillment of the
conditions stated in Sections 8.1-8.4 hereof.
8.6 Opinion of Counsel. Sierra shall have delivered to Mercantile such
documents as may reasonably be requested by Mercantile to evidence compliance by
Sierra with the provisions of this Agreement and the Merger Agreement, including
an opinion of its counsel in a form substantially as set forth on Exhibit 8.6.
8.7 Absence of Legal Impediment. On the Effective Date, the absence of:
(a) any suit, action or proceeding, or order against Mercantile or Sierra with
respect to any part of this Agreement, or the Merger, or challenging, enjoining,
or otherwise affecting the consummation of the Merger which, in the opinion of
counsel for Mercantile, materially affects the Merger or the consummation of
this Agreement; or (b) any pending or threatened action or proceeding by the
United States Department of Justice or other federal governmental agency seeking
to enjoin, prohibit or otherwise impede the Merger; or (c) a banking moratorium
or other suspension of payment by banks in the United States or any general
limitation on extension of credit by lending banks in the United States.
Page 32
<PAGE>
8.8 Effectiveness of Registration Statement. The Sierra common stock to
be issued to Mercantile shareholders shall have been determined to be exempt
from registration or the Sierra Registration Statement and any amendments or
supplements thereto shall have become effective under the 1933 Act. No stop
order suspending the effectiveness of the Sierra Registration Statement shall be
in effect and no proceedings for such purpose shall have been initiated or
threatened by or before the Commission. All state securities and "blue sky"
permits or approvals required to consummate the transactions contemplated by
this Agreement and the Merger Agreement shall have been received.
8.9 Government Approvals. The Government Approvals shall have been
received and shall be in effect, and all conditions or requirements prescribed
by law or by any such approval shall have been satisfied; provided, however that
no Government Approval shall be deemed to have been received if it shall require
the divestiture or cessation of any of the present business or operations
conducted by either of the parties hereto or shall impose any other condition or
requirement, which Mercantile in its reasonable judgment shall deem to be
materially burdensome (in which case Mercantile shall promptly notify Sierra).
8.10 Tax Opinion or Ruling. Sierra and Mercantile shall have received
the opinion referred to in Section 7.10 hereof which opinion shall meet the
requirements of such section.
8.11 Uaudited Financials. Not later than the Determination Date, Sierra
shall have furnished Mercantile a copy of its most recently prepared unaudited
year-to-date consolidated financial statements, including a balance sheet and
year-to-date statement of income of Sierra.
8.12 Closing Documents. Mercantile shall have received such certifi-
cates and other closing documents as counsel for Mercantile shall reasonably
request.
8.13 Fairness Opinion. The Board of Directors of Mercantile shall have
received an opinion of its financial advisor to the effect that the terms of the
Merger are fair, from a financial point of view, to Mercantile and its
shareholders.
Section 9. CLOSING
9.1 Closing Date. The closing of the transactions contemplated by this
Agreement ("Closing") shall, unless another date, time or place is agreed to in
writing by Sierra and Mercantile, be held at the offices of McCutchen, Doyle,
Brown & Enersen, San Francisco, California on the Effective Date.
9.2 Delivery of Documents. At the Closing, the opinions, certificates
and other documents required to be delivered by this Agreement shall be
delivered.
9.3 Filings. At the Closing, Sierra and Mercantile shall instruct its
representatives to make or confirm such filings as shall be required in the
opinion of counsel to Sierra and Mercantile to give effect to the Merger.
Section 10. EXPENSES.
10.1 Merger Related Expenses. Each party hereto agrees to pay, without
right of reimbursement from the other party and whether or not the transactions
contemplated by this Agreement or the Merger Agreement shall be consummated, the
costs incurred by such party incident to the performance of its obligations
under this Agreement and the Merger Agreement, including without limitation,
costs incident to the preparation of the Merger Agreement, this Agreement, the
Sierra Registration Statement and the
Page 33
<PAGE>
Proxy Materials (including the audited financial statements of the parties
contained therein) and incident to the consummation of the Merger and of the
other transactions contemplated herein and in the Merger Agreement, including
the fees and disbursements of counsel, accountants, consultants and financial
advisers employed by such party in connection therewith. Mercantile shall pay or
accrue up to $10,000 toward the printing costs of the Sierra Registration
Statement and the Proxy Materials and the costs of distributing the Proxy
Materials and other information relating to these transactions to shareholders
of Mercantile. All fees payable pursuant to state "blue-sky" securities laws,
fees related to obtaining a tax opinion, the fee required to be paid to the
Commission to register the Sierra Shares shall be shared equally by the parties.
For purposes of determining Adjusted Book Value, all expenses of Mercantile in
connection with the Merger shall be treated as if they have been paid by accrued
on the books of Mercantile as of the Determination Date.
10.2 Miscellaneous Mercantile Expenses. For purposes of determining
Adjusted Book Value, as of the Adjustment Date Mercantile shall accrue on its
books all expenses or contractual obligations that are or will become due as of
the Effective Date that have been incurred by Mercantile or for which Mercantile
will be liable, regardless of whether Mercantile has received a billing or
invoice for such expenses or obligations.
Section 11. AMENDMENT; TERMINATION
11.1 Amendment. This Agreement and the Merger Agreement may be amended
by Sierra and Mercantile at any time prior to the Effective Date without the
approval of the shareholders of Mercantile with respect to any of their terms
except, after Mercantile shareholders have approved the Merger, the terms
relating to the form or amount of consideration to be delivered to Mercantile
shareholders in the Merger.
11.2 Termination. This Agreement and the Merger Agreement may be ter-
minated as follows:
(a) By the mutual consent of the Boards of Directors of both Sierra and
Mercantile at any time prior to the consummation of the Merger.
(b) By the Board of Directors of Sierra on or after June 30, 1997, if
(i) any of the conditions in Section 7 to which the obligations of Sierra are
subject have not been fulfilled, or (ii) such conditions have been fulfilled or
waived by Sierra and Mercantile shall have failed to complete the Merger.
(c) By the Board of Directors of Sierra if (i) it has become aware of
any facts or circumstances of which it was not aware on the date hereof and
which materially adversely affect Mercantile or its properties, operations or
financial condition, (ii) a materially adverse change shall have occurred since
September 30, 1996, in the business, financial condition, results of operations
or properties of Mercantile, or (iii) there has been material failure or
prospective material failure on the part of Mercantile to comply with its
obligations under this Agreement or the Merger Agreement, or any material
failure or prospective failure to comply with any of the conditions set forth in
Section 7 hereof.
(d) By the Board of Directors of Sierra in the event that Mercantile
enters into a transaction or series of transactions with a third person or group
providing for the acquisition of all or a substantial part of Mercantile,
whether by way of merger, exchange or purchase of stock, sale of assets or
otherwise.
(e) By the Board of Directors of Mercantile on or after June 30, 1997,
if (i) any of the conditions contained in Section 8 to which the obligations of
Mercantile are subject have not been fulfilled, or (ii) such conditions have
been fulfilled or waived but Sierra shall have failed to complete the Merger;
Page 34
<PAGE>
provided, however, that if Sierra is engaged at the time in litigation
(including an administrative appeal procedure) relating to an attempt to obtain
one or more of the Governmental Approvals or if Sierra shall be contesting in
good faith any litigation which seeks to prevent consummation of the
transactions contemplated hereby, such nonfulfillment shall not give Mercantile
the right to terminate this Agreement until the earlier of (A) June 30, 1997,
and (B) 60 days after the completion of such litigation and of any further
regulatory or judicial action pursuant thereto, including any further action by
a governmental agency as a result of any judicial remand, order or directive or
otherwise or any waiting period with respect thereto provided such date shall
not occur beyond December 31, 1997.
(f) By the Board of Directors of Mercantile if (i) it has become aware
of any facts or circumstances of which it was not aware on the date hereof and
which can or do materially adversely affect Sierra or its properties, operations
or financial condition, (ii) a materially adverse change shall have occurred
since September 30, 1996 in the business, financial condition, results of
operations or assets of Sierra, or (iii) there has been a material failure or
prospective material failure on the part of Sierra to comply with its
obligations under this Agreement or the Merger Agreement, or any material
failure or prospective material failure to comply with any condition set forth
in Section 8.
(g) By the Board of Directors of Mercantile in the event Sierra or its
affiliates enter into a Business Combination with any other entity which does
not expressly contemplate the performance by Sierra or its successor in interest
of Sierra's obligations under this Agreement and Sierra indicates it will not
consummate this Agreement.
11.3 Termination. The power of termination hereunder may be exercised
by Sierra or Mercantile, as the case may be, only by giving written notice,
signed on behalf of such party by its Chief Executive Officer or President, to
the other party.
11.4 Breach of Obligations. If there has been a material breach by
either party in the performance of any of the obligations herein which shall not
have been cured within ten business days after written notice thereof has been
given to the defaulting party, the nondefaulting party shall have the right to
terminate this Agreement upon written notice to the other party. In any event,
the nondefaulting party shall have no obligation to consummate any transaction
or take any further steps toward such consummation contemplated hereunder until
such breach is cured.
11.5 Termination and Expenses.
(a) If this Agreement is terminated for any reason, the Merger
Agreement shall automatically terminate. Termination of this Agreement shall not
terminate or affect the obligations of the parties to pay expenses as provided
in Section 10, to maintain the confidentiality of the other party's information
pursuant to Section 3.1(f), or the provisions of this Section 11.5 or of
Sections 12.1-12.7.
(b) If Sierra terminates this Agreement pursuant to Section 11.2(d) or
because of a willful breach of the Agreement by Mercantile, Mercantile shall pay
to Sierra, on demand, the sum of $350,000. If Mercantile terminates this
Agreement pursuant to Section 11.2(g) or because of a willful breach of the
Agreement by Sierra, Sierra shall pay to Mercantile, on demand, the sum of
$350,000. In each case, the amount indicated shall be deemed consideration or
liquidated damages for expenses incurred and the lost opportunity cost for time
devoted to the transactions contemplated by this Agreement, provided, however,
each party shall remain liable for expenses as set forth in Section 10.
Section 12. MISCELLANEOUS.
Page 35
<PAGE>
12.1 Notices. Any notice or other communication required or permitted
under this Agreement shall be effective only if it is in writing and delivered
personally, or by overnight courier, or by facsimile or sent by first class
United States mail, postage prepaid, registered or certified mail, addressed as
follows:
To Sierra: To Mercantile:
SierraWest Bancorp Mercantile
10181 Truckee-Tahoe Airport Road 455 Capitol Mall
Truckee, California 96160 Sacramento, California 95814
Attention: William T. Fike Attention: Michael Burkart
President & CEO President & CEO
With a copy to: With a copy to:
McCutchen, Doyle, Brown & Lillick & Charles
Enersen Two Embarcadero Center
Three Embarcadero Center San Francisco, CA 94111
San Francisco, CA 94111 Attention: Ronald W. Bachli
Attention: James M. Rockett
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
12.2 Binding Agreement. This Agreement is binding upon and is for the
benefit of Sierra and Mercantile and its successors and permitted assigns. This
Agreement is not made for the benefit of any person, firm, corporation or
association not a party hereto, and no other person, firm, corporation or
association shall acquire or have any right under or by virtue of this
Agreement. No party may assign this Agreement or any of its rights, privileges,
duties or obligations hereunder without the prior written consent of the other
party to this Agreement.
12.3 Survival of Representations and Warranties. No investigation by
Sierra or Mercantile made before or after the date of this Agreement shall
affect the representations and warranties which are contained in this Agreement
and such representations and warranties shall survive such investigation,
provided that representations, warranties, covenants and agreements of Sierra
and Mercantile contained in this Agreement shall not survive the Closing.
12.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
12.5 Attorneys' Fees. In any action at law or suit in equity in
relation to this Agreement, the prevailing party in such action or suit shall be
entitled to receive a reasonable sum for its attorneys' fees and all other
reasonable costs and expenses incurred in such action or suit.
12.6 Entire Agreement; Severability. This Agreement and the documents,
certificates, agreements, letters, schedules and exhibits attached or required
to be delivered pursuant hereto set forth the entire agreement and
understandings of the parties in respect of the transactions contemplated
hereby, and supersede all prior agreements, arrangements and understanding
relating to the subject matter hereof. Each provision of this Agreement shall be
interpreted in a manner to be effective and
Page 36
<PAGE>
valid under applicable law, but if any provision hereof shall be prohibited or
ruled invalid under applicable law, the validity, legality and enforceability of
the remaining provisions shall not, except as otherwise required by law, be
affected or impaired as a result of such prohibition or ruling.
12.7 Counterparts. This Agreement may be executed in
severalcounterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Sierra and Mercantile have each caused this
Agreement and Plan of Merger to be signed by its Chief Executive Officer or
Chairman as of the day and year first above written.
MERCANTILE BANK SIERRAWEST BANCORP
By /s/Michael Burkart By/s/ William T. Fike
Michael Burkart William T. Fike
President and President and
Chief Executive Officer Chief Executive Officer
SIERRAWEST BANK
By/s/ William T. Fike
William T. Fike
President and
Chief Executive Officer
Page 37
<PAGE>
EXHIBIT A
Merger Agreement
This merger agreement ("Merger Agreement") dated as of
___________, 1997 between SierraWest Bank, ("Subsidiary"), a California
banking corporation, and Mercantile Bank ("Mercantile"), a California
banking
corporation is entered into as follows:
Section 1. Outstanding Shares.
(a) Mercantile is a California banking corporation authorized by
the California State Banking Department. Mercantile has 1,000,000
authorized shares of no par value common stock of which 336,980 are
outstanding. Mercantile has no outstanding shares of preferred stock,
options or warrants.
(b) Subsidiary is a California banking corporation authorized by
the California State Banking Department. Subsidiary has ____________
authorized shares of common stock of which __________ are outstanding..
Subsidiary has no outstanding shares of preferred stock, options or
warrants.
Section 2. The Merger.
Mercantile shall be merged into Subsidiary ("Merger").
Section 3. Conversion of Shares.
Upon consummation of the Merger, (i) each outstanding share of
Mercantile, other than shares held by shareholders who perfect their
rights as dissenting shareholders under California law, shall be
converted into the right to receive the exchange amount of $_____ per
share ("Per Share Exchange Amount") comprised of a Cash Component of
50% and a Stock Component consisting of common stock of SierraWest
Bancorp valued at 50%, in accordance with an election described in
Section __ below; and (ii) the outstanding shares of Subsidiary shall
remain the outstanding shares of the Surviving Corporation and are not
affected by the Merger; and there will be no other outstanding shares,
options, warrants or other stock rights to acquire any shares of
Mercantile.
Section 4. Terms of Cash/Stock Election.
The Exchange Amount will be allocated to the Stock Component and
the Cash Component in accordance the following election and procedures
(the "Cash/Stock Election").
Mercantile shareholders may elect to receive the Exchange Amount in
either all SierraWest Bancorp shares or all cash. If no election is
made, the shareholder will receive cash equal to 50% and stock of a
value equal to 50%.
Page 38
<PAGE>
If the aggregate Cash Component is undersubscribed, the unsubscribed
portion of this minimum aggregate Cash Component will be allocated pro
rata (by number of shares) among all Mercantile shareholders; if the
aggregate Cash Component is oversubscribed, the Cash Component of each
Mercantile shareholder electing to receive cash will be reduced pro
rata (by number of shares electing to receive cash). The total of the
Cash Component and the Stock Component will always equal the Exchange
Amount.
Mercantile shareholders who make a Cash/Stock Election have no
assurance that they will in fact receive all cash or all stock. They
will receive cash in excess of the above amount per share only to the
extent excess cash is available under the limitation set forth above,
and they will receive all stock only if other Mercantile shareholders
elect at least an aggregate of 50% in cash.
Section 5. Articles of Incorporation and By-Laws.
(a) The Articles of Incorporation of Subsidiary shall, upon the
Effective Date, be the Articles of Incorporation of the Surviving
Corporation. It is the intention of the parties that the Merger will be
treated as a tax free reorganization pursuant to Section 368 of the
Internal Revenue Code.
(b) The By-Laws of Subsidiary, as they exist on the Effective
Date, shall be the By-Laws of the Surviving Corporation until the same
are amended.
Section 6. Exchange of Shares.
The conversion of shares as provided in the Merger Agreement shall
occur automatically upon the Effective Date without action by the
holders thereof. Each holder of Mercantile Shares shall on or after the
Effective Date surrender each certificate representing Mercantile
Shares to the Exchange Agent appointed by the parties and shall be
entitled to receive in exchange therefor the Per Share Exchange Amount.
Section 7. Effect of Merger And Effective Date.
The effect of the Merger and the Effective Date of the Merger are
as prescribed by law.
Section 8. Officers and Directors
The officers and directors of Subsidiary holding office on the
Effective Date shall be the officers and directors of the Surviving
Corporation until removed as provided by law or until the election of
their respective successors.
Section 9. Acts of Merging Corporation
Mercantile, as the merging corporation, shall from time to time,
as and when requested by the Surviving Corporation, execute and deliver
all such documents and instruments and take all such action necessary
or desirable to
Page 39
<PAGE>
evidence or carry out this Merger.
All capitalized term herein shall have the meanings ascribed to them in
this Merger Agreement; provided, however, if no meaning is separately
ascribed to such capitalized terms in this Merger Agreement, then such
terms will have the meanings ascribed to them in the Agreement and Plan
of Acquisition and Merger dated __________, 1997.
In witness whereof the parties have executed this Merger Agreement.
Mercantile Bank
By_____________________________________
Michael Burkart
President
By_____________________________________
Secretary
SierraWest Bank
By______________________________________
William T. Fike
President
By______________________________________
Secretary
Page 40
<PAGE>
Exhibit 7.6
_______________, 1997
SierraWest Bancorp
P.O. Box 61000
Truckee, CA 96161
SierraWest Bancorp- Mercantile Bank
Ladies and Gentlemen:
We have acted as counsel for Mercantile Bank ("Mercantile"), a California
banking corporation, with respect to the merger (the "Merger") of Mercantile and
SierraWest Bank, a California banking corporation, pursuant to the Plan of
Acquisition and Merger dated as of January __, 1997 (the "Agreement") between
Mercantile, SierraWest Bancorp and SierraWest Bank (collectively "Sierra"), a
California corporation, and Exhibit A thereto (the "Merger Agreement"). This
opinion is rendered to you pursuant to Section 7.6 of the Agreement. Unless
otherwise defined herein, all capitalized terms in this opinion shall have the
meanings assigned to them in the Agreement.
In rendering the opinions hereinafter expressed, we have examined and relied
upon such documents and instruments as we have deemed appropriate, including the
following:
A. The Agreement and the exhibits thereto;
B. Resolutions of the board of directors of Mercantile with respect to the
Merger;
C. Articles of Incorporation of Mercantile certified by the California
Secretary of State as of a recent date;
D. Bylaws, minute book and stock ledger of Mercantile;
E. Certificate of Status from the California Secretary of State indicating
that Mercantile is in good standing in California as of a recent date (the
"Status Certificate");
F. Registration Statement on Form S-4 of Sierra and the related Proxy
Statement of Mercantile with respect to the Merger (the "Proxy Materials");
G. Proceedings of the meeting of shareholders of Mercantile held on
_____________; and,
H. An officers' certificate of Mercantile as to certain factual matters.
We have obtained, and have assumed and relied upon the accuracy, genuineness and
completeness of, such certificates and assurances from public officials as we
have deemed necessary or appropriate to enable us to render our opinion.
In conducting our examination, we have assumed, without investigation, the
genuineness of all
Page 41
<PAGE>
signatures (other than that of Mercantile), the correctness of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies; the accuracy of the
representations as to factual matters made by Sierra and Mercantile in the
Agreement; the accuracy of representations and statements as to factual matters
made by officers and employees of Mercantile; that the Agreement is the valid
and binding obligation of Mercantile; that Mercantile will enforce the Agreement
in a commercially reasonable manner; and that the Agreeent contains the entire
agreement of the parties.
Our opinion in paragraph 3 below is subject to :
(i) the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium, and other similar laws now or hereafter in effect relating to or
affecting the rights of creditors generally;
(ii) limitations imposed by California law, federal law, or equitable principles
upon any of the remedies, covenants, or other provisions of the Agreement and
upon the availability of injunctive relief or other equitable remedies,
including, without limitation, the effect of California and federal court
decisions, invoking statutes or principles of equity, which have held that
certain covenants and provisions of agreements are unenforceable where: (A) the
breach of such covenants or provisions imposes restrictions or burdens upon one
party, and it cannot be demonstrated that the enforcement of such restrictions
or burdens is reasonably necessary for the protection of the other party, or (B)
a party's enforcement of such covenants or provisions under the circumstances
would violate such party's implied covenants of good faith and fair dealing, and
(iii) the power of federal and state courts to refuse to enforce (or to stay the
enforcement of) any provision of the Agreement which purports to waive the
rights of Mercantile to assert the claims or defenses available to Mercantile by
statute, common law, or equity.
Whenever a statement herein with respect to the existence or absence of facts is
qualified by the phrases "we are not aware" or "to our knowledge," it is
intended to indicate that, during the course of our representation of
Mercantile, no information that would give us current actual knowledge of the
inaccuracy of such statement has come to the attention of those attorneys in
this firm who have rendered legal services in connection with the representation
described in the introductory paragraph of this opinion letter and such
statement is based solely upon (i) an inquiry of attorneys within this firm who
have rendered such services; (ii) receipt of a certificate executed by an
officer of Mercantile covering such matters; and (iii) opinions of other counsel
engaged by Mercantile regarding any litigation matters with respect to which we
do not represent Mercantile. However, we have not undertaken any independent
investigation to determine the accuracy of such statement, and any limited
inquiry undertaken by us during the preparation of this opinion letter should
not be regarded as such an investigation; no inference as to our knowledge of
any matters bearing on the accuracy of any such statement should be drawn from
the fact of our representation of Mercantile.
Based upon and subject to the foregoing, we are of the opinion that:
1. Mercantile is a California banking corporation duly incorporated,
validly existing and in good standing under the laws of the State of California
and has the corporate power to own all of its property and assets and to carry
on its business as it is now being conducted. Mercantile is duly licensed as a
commercial bank by the California State Banking Department, and its deposits are
insured by the Federal Deposit Insurance Corporation in accordance with
applicable laws and regulations.
Page 42
<PAGE>
2. Mercantile has the corporate power and corporate authority to enter into
and perform its obligations under the Agreement and the Merger Agreement. The
execution and delivery by Mercantile of the Agreement and the Merger Agreement
did not, and the consummation by Mercantile of the transactions contemplated by
the Agreement and the Merger Agreement will not, violate any provision of
Mercantile's articles of incorporation or bylaws, any provision of federal or
California law applicable to Mercantile, or any governmental regulation
applicable to Mercantile, or constitute a material default under, or result in
the breach or acceleration of any obligation or the creation of any material
lien under any material agreement to which Mercantile is bound and of which we
have knowledge (except that we express no opinion relating to the effect of the
Agreement under any financial test or ratio contained in any mortgage, lease,
agreement, instrument, judgment, decree, order, arbitration award, writ, or
injunction applicable to Mercantile).
3. The Agreement and the Merger Agreement have been duly authorized,
executed and delivered by Mercantile, and each of them is a valid and binding
agreement of Mercantile.
4. All California state and federal regulatory approvals that are required
to be obtained by Mercantile in connection with the Merger have been obtained.
5. To our knowledge, Mercantile is not a party to, and is not threatened
with, any legal action or other proceeding or investigation before any court,
any arbitrator of any kind or any government agency that challenges or questions
the authority or ability of Mercantile to perform its obligations under the
Agreement or the Merger Agreement or to carry out the Merger, or where the
amount in controversy exceeds $50,000 and which has not been disclosed by
Mercantile to Sierra.
6. The authorized capital stock of Mercantile consists of 1,000,000 shares
of no par value common stock. To our knowledge and before giving effect to the
issuance of shares in connection with the Merger:
(a) 336,980 shares of common stock are duly authorized, validly issued
and outstanding, fully paid and, except as provided in California Financial Code
ss.662, nonassessable;
(b) there are no outstanding (i) options, agreements, calls or
commitments of any character that would obligate Mercantile to issue, sell,
pledge, assign or otherwise encumber or dispose of, or to purchase, redeem or
otherwise acquire, any Mercantile common stock or any other equity security of
Mercantile, or (ii) warrants or options relating to, rights to acquire or debt
or equity securities convertible into, shares of Mercantile common stock or any
other equity security of Mercantile; and.
(c) the outstanding common stock of Mercantile has not been registered
with the Securities and Exchange Commission or the FDIC pursuant to the 1934
Act.
In connection with the preparation of the Registration Statement, including the
related Proxy Materials, we have performed legal services for Mercantile and
participated in conferences with directors, officers and employees of Mercantile
and representatives of the independent accountants for Mercantile. At such
conferences, the contents of the Proxy Materials related to Mercantile and
related matters were discussed and, although we are not passing upon, and do not
assume any responsibility for, the accuracy, completeness or fairness of the
statements related to Mercantile and contained in the Proxy Materials, on the
basis of the foregoing, we are not aware of any facts that would lead us to
believe that the Proxy Materials as of the date thereof contained any statement
in
Page 43
<PAGE>
respect to Mercantile which, at the time and in light of the circumstances under
which it was made, was false or misleading with respect to any material fact or
omitted to state any material fact necessary in order to make the statements
therein not false or misleading. In making the foregoing statement, we express
no belief with respect to the financial statements and other financial and
statistical data included in the Proxy Materials or with respect to statements
in, or omissions from, the Proxy Materials made in reliance upon, or in
conformity with, information furnished by Mercantile for use in connection with
the Proxy Materials.
We are members of the bar of the State of California. Our opinions below are
limited to the effect of (i) the laws of the State of California and (ii) the
federal laws of the United States of America; we express no opinion with respect
to the laws of any other jurisdiction.
This opinion is rendered solely for the benefit of Sierra in connection with the
Merger and may not be relied upon by any other party or for any other purpose.
Neither the original nor any copies of this opinion may be furnished to any
other person without our prior written consent.
Very truly yours,
Lillick & Charles, LLP
Page 44
<PAGE>
EXHIBIT 7.12
Rule 145 Undertaking
January __, 1997
SierraWest Bancorp
10181 Truckee-Tahoe Airport Road
P.O. Box 61000
Truckee, CA 96160
Ladies and Gentlemen:
The undersigned is a director of Mercantile Bank ("Mercantile") and an owner of
common stock of Mercantile ("Mercantile Common Stock").
Mercantile and SierraWest Bancorp ("Sierra") have entered into a Plan of
Acquisition and Merger ("Agreement") dated today's date related to the Merger of
Mercantile into Sierra. In consideration of the premises and the
representations, warranties, agreements and conditions in this letter and in the
Agreement and in order to induce Sierra to execute the Agreement, the
undersigned agrees and undertakes, as follows:
The undersigned is currently determined to be an affiliate of Mercantile for
purposes of Rule 145 promulgated by the Securities and Exchange Commission. The
following undertaking is given pursuant to and in compliance with Section 7.12
of the Agreement. The Merger will result in the issuance of new common stock of
Sierra.
The undersigned understand that Sierra and Mercantile are relying on the
performance of the covenants contained herein to insure that any sales of shares
owned by the undersigned are not deemed to be acting as an underwriter in an
unregistered public offering in violation of federal securities laws.
The undersigned hereby further agrees not to sell, transfer or dispose of any
shares of Sierra acquired in the Merger, or to attempt to do so, whether or not
deemed to be an affiliate of Sierra, unless such sale, transfer or disposition
is made:
(i) pursuant to a then-current, effective registration statement under the
Securities Act of 1933, or
(ii)in a transaction which, in the opinion of counsel satisfactory to the
issuer, is not required to be registered under the Securities Act of 1933; or
(iii) in a transaction permitted by the Securities and Exchange Commis-
sion's Rule 145.
The undersigned acknowledges that the above agreements are supported by valid
consideration.
Page 45
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
first above written.
Very truly yours,
-----------------------------
Page 46
<PAGE>
EXHIBIT 7.15
Shareholder Agreement
January __, 1997
SierraWest Bancorp
10181 Truckee-Tahoe Airport Road
P.O. Box 61000
Truckee, CA 96160
Ladies and Gentlemen:
The undersigned is a director of Mercantile Bank ("Mercantile") and an owner of
common stock of Mercantile ("Mercantile Common Stock").
Mercantile and SierraWest Bancorp ("Sierra") have entered into a Plan of
Acquisition and Merger ("Agreement") dated today's date related to the Merger of
Mercantile into Sierra. This Shareholder Agreement is delivered in accordance
with Section 7.15 of the Agreement. In consideration of the premises and the
representations, warranties, agreements and conditions in this letter and in the
Agreement and in order to induce Sierra to execute the Agreement, the
undersigned agrees and undertakes, as follows:
The undersigned will vote, in person or by proxy, at any meeting of shareholders
of Mercantile (or any action by written consent in lieu of a meeting) to approve
the Agreement and the transactions contemplated thereby (the "Shareholders'
Meeting"), all of the shares of Mercantile stock as to which the undersigned has
sole or shared voting power (the "Shares") as of the record date established to
determine shareholders who have the right to vote at the Shareholders' Meeting.
The undersigned agrees that, from and after the date of this letter and through
the date of the Shareholders' Meeting (and any postponements or adjournments
thereof), the shareholder will not sell, assign, transfer or otherwise take any
action that will alter or affect in any way the right to vote the Shares, except
(i) with the prior written consent of Sierra (ii) to change such right from that
of a shared right of the shareholder to vote the Shares to a sole right of the
shareholder to vote the Shares.
The undersigned represents and warrants that the undersigned has sole or shared
voting power over ___________ Shares covered by the terms of this letter; and
there are no proxies, voting trusts or other agreements or understandings to
which the undersigned or the undersigned's spouse, if any, is a party or bound
or that requires that any of the Shares be voted in any specific manner other
than as provided in this letter.
Page 47
<PAGE>
This letter shall terminate automatically without further action at the earlier
of the Effective Date under the Agreement or the termination of the Agreement in
accordance with its terms.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original instruments, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
first above written.
Very truly yours,
------------------------
SPOUSAL CONSENT
I, ____________________, hereby confirm that I have read and understand
this letter and agree that it shall bind my interest in the Shares, if any.
-----------------------------
Accepted and agreed to as of the date first above written:
SIERRAWEST BANCORP
By____________________________
Page 48
<PAGE>
Exhibit 8.6
_____________, 1997
Mercantile Bank
455 Capitol Mall
Sacramento, CA 95814
SierraWest Bancorp - Mercantile Bank
Ladies and Gentlemen:
We have acted as counsel for SierraWest Bancorp ("Sierra"), a California
corporation, and SierraWest Bank ("Sierra Bank"), a California banking
corporation with respect to the acquisition and merger (the "Merger") of
Mercantile Bank ("Mercantile"), a California banking corporation, with and into
Sierra Bank, pursuant to the Plan of Acquisition and Merger dated as of January
__, 1997 (the "Agreement") and Exhibit A thereto (the "Merger Agreement"). This
opinion is rendered to you pursuant to Section 8.6 of the Agreement. Unless
otherwise defined herein, all capitalized terms in this opinion shall have the
meaning assigned to them in the Agreement.
In rendering the opinions hereinafter expressed, we have examined and relied
upon such documents and instruments as we have deemed appropriate, including the
following:
A. The Agreement and the exhibits thereto;
B. Resolutions of the board of directors of Sierra and Sierra Bank
with respect to the Merger;
C. Articles of Incorporation of Sierra certified by the California
Secretary of State as of a recent date;
D. Articles of Incorporation of Sierra Bank certified by the Cali-
fornia Secretary of State as of a recent date;
E. Bylaws, minute book and stock ledger of Sierra;
F. Bylaws and minute book of Sierra Bank;
Page 49
<PAGE>
G. Certificates of Status from the California Secretary of State in
dicating that Sierra and Sierra Bank are in good standing in California as of a
recent date (the "Status Certificate");
H. Registration Statement on Form S-4 of Sierra and the related
Proxy Statement of Mercantile with repect to the Merger (the "Proxy Materials");
and
I. Officers' certificates of Sierra and Sierra Bank as to certain
factual matters.
We have obtained, and have assumed and relied upon the accuracy, genuineness and
completeness of, such certificates and assurances from public officials as we
have deemed necessary or appropriate to enable us to render our opinion.
In conducting our examination, we have assumed, without investigation, the
genuineness of all signatures (other than that of Sierra and Sierra Bank to the
Agreement and to the Merger Agreement), the correctness of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies; the accuracy of the
representations as to factual matters made by Sierra, Sierra Bank and Mercantile
in the Agreement; the accuracy of representations and statements as to factual
matters made by officers and employees of Sierra and Sierra Bank; that the
Agreement is the valid and binding obligation of Mercantile; that Mercantile
will enforce the Agreement in a commercially reasonable manner; and that the
Agreement contains the entire agreement of the parties.
Our opinions in paragraphs 4 and 5 below are subject to :
(i) the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium, and other similar laws now or hereafter in effect
relating to or affecting the rights of creditors generally;
(ii) limitations imposed by California law, federal law, or
equitable principles upon any of the remedies, covenants, or other provisions of
the Agreement and upon the availability of injunctive relief or other equitable
remedies, including, without limitation, the effect of California and federal
court decisions, invoking statutes or principles of equity, which have held that
certain covenants and provisions of agreements are unenforceable where: (A) the
breach of such covenants or provisions imposes restrictions or burdens upon one
party, and it cannot be demonstrated that the enforcement of such restrictions
or burdens is reasonably necessary for the protection of the other party, or (B)
a party's enforcement of such covenants or provisions under the circumstances
would violate such party's implied covenants of good faith and fair dealing, and
(iii) the power of federal and state courts to refuse to enforce (or to
stay the enforcement of) any provision of the Agreement which purports to waive
the rights of Sierra and Sierra Bank to assert the claims or defenses available
to Sierra and Sierra Bank by statute, common law, or equity.
Whenever a statement herein with respect to the existence or
Page 50
<PAGE>
absence of facts is qualified by the phrases "we are not aware" or "to our
knowledge," it is intended to indicate that, during the course of our
representation of Sierra and Sierra Bank, no information that would give us
current actual knowledge of the inaccuracy of such statement has come to the
attention of those attorneys in this firm who have rendered legal services in
connection with the representation described in the introductory paragraph of
this opinion letter and such statement is based solely upon (i) an inquiry of
attorneys within this firm who have rendered such services; (ii) receipt of one
or more certificates executed by officers of Sierra or Sierra Bank covering such
matters; and (iii) opinions of other counsel engaged by Sierra or Sierra Bank
regarding any litigation matters with respect to which we do not represent
Sierra or Sierra Bank. However, we have not undertaken any independent
investigation to determine the accuracy of such statement, and any limited
inquiry undertaken by us during the preparation of this opinion letter should
not be regarded as such an investigation; no inference as to our knowledge of
any matters bearing on the accuracy of any such statement should be drawn from
the fact of our representation of Sierra or Sierra Bank.
Based upon and subject to the foregoing, we are of the opinion that:
1. Sierra is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of California and has the corporate
power to own all of its property and assets and to carry on its business as it
is now being conducted. Sierra is a registered bank holding company under the
Bank Holding Company Act of 1956.
2. Sierra Bank is a California banking corporation duly incorporated,
validly existing and in good standing under the laws of the State of California
and has the corporate power to own all of its property and assets and to carry
on its business as it is now being conducted. Sierra Bank is duly licensed as a
commercial bank by the California State Banking Department, and its deposits are
insured by the Federal Deposit Insurance Corporaiton in accordance with
applicable laws and regulations.
3. Sierra and Sierra Bank have the corporate power and corporate
authority to enter into and perform their respective obligations under the
Agreement and the Merger Agreement. The execution and delivery by Sierra and
Sierra Bank of the Agreement and the execution and delivery by Sierra Bank of
the Merger Agreement did not, and the consummation by Sierra and Sierra Bank of
the transactions contemplated by the Agreement and the Merger Agreement will
not, violate any provision of Sierra's or Sierra Bank's articles of
incorporation or bylaws, any provision of federal or California law, or any
governmental regulation applicable to Sierra or Sierra Bank, or constitute a
material default under, or result in the breach or acceleration of any
obligation or the creation of any material lien under any material agreement to
which either Sierra or Sierra Bank is bound and of which we have knowledge
(except that we express no opinion relating to the effect of the Agreement under
any financial test or ratio contained in any mortgage, lease, agreement,
instrument,
Page 51
<PAGE>
judgment, decree, order, arbitration award, writ, or injunction applicable to
Sierra or Sierra Bank).
4. The Agreement has been duly authorized, executed and delivered by
Sierra and Sierra Bank, and is a valid and binding agreement of Sierra and
Sierra Bank.
5. The Merger Agreement has been duly authorized, executed and
delivered by Sierra Bank, and is a valid and binding agreement of Sierra Bank.
6. All California state and federal regulatory approvals that are
required to be obtained by Sierra and Sierra Bank in connection with the Merger
have been obtained.
7. To our knowledge, neither Sierra nor Sierra Bank is a party to, nor
threatened with, any legal action or other proceeding or investigation before
any court, any arbitrator of any kind or any government agency that challenges
or questions the authority or ability of Sierra or Sierra Bank to perform its
obligations under the Agreement or the Merger Agreement or to carry out the
Merger, or where the amount in controversy exceeds $200,000 and which has not
been disclosed by Sierra to Mercantile.
8. As of ___________, 1997, the authorized capital stock of Sierra
consists of 9,800,000 shares of preferred stock, 200,000 shares of series A
preferred stock and 10,000,000 shares of common stock. To our knowledge and
before giving effect to the issuance of shares in connection with the Merger:
(a) 2,754,569 shares of Sierra common stock are duly authorized,
validly issued and outstanding, fully paid and nonassessable;
(b) there are currently outstanding options to purchase 384,080 shares
of common stock issued pursuant to the 1996 Stock Option Plan;
(c) there are $8,705,000 of Sierra deventures convertible into
870,500 shares of Sierra common stock;
(d) said outstanding stock, options and debentures were all issued
pursuant to and in conformance with one or more exemptions from registration
under the Securities Act of 1933, as amended, or were registered pursuant to
said Act;
(e) other than the options and debentures identified above, there are
no outstanding (i) options, agreements, calls or commitments of any character
that would obligate Sierra to issue, sell, pledge, assign or otherwise encumber
or dispose of, or to purchase, redeem or otherwise acquire, any Sierra common
stock or any other equity security of Sierra, or (ii) warrants or options
relating to, rights to acquire or debt or equity securities convertible into,
shares of Sierra common stock or any other equity security of Sierra; and.
Page 52
<PAGE>
(f) the outstanding common stock of Sierra has been registered with the
Securities and Exchange Commission pursuant to the 1934 Act.
9. All oustanding capital stock of Sierra Bank is held by Sierra.
10. The issuance of the Shares to be issued pursuant to the Merger has
been duly registered under the Securities Act of 1933. Such Shares, when issued
in accordance with the terms of the Agreement, will be duly authorized, validly
issued, fully paid and nonassessable.
In connection with the preparation of the Registration Statement we have
performed legal services for Sierra and participated in conferences with
directors, officers and employees of Sierra and representatives of the
independent accountants for Sierra. At such conferences, the contents of the
Proxy Materials and related matters were discussed and, although we are not
passing upon, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Proxy Materials, on
the basis of the foregoing, we are not aware of any facts that would lead us to
believe that the Proxy Materials as of the date thereof contained any statement
in respect to Sierra which, at the time and in light of the circumstances under
which it was made, was false or misleading with respect to any material fact or
omitted to state any material fact necessary in order to make the statements
therein not false or misleading. In making the foregoing statement, we express
no belief with respect to the financial statements and other financial and
statistical data included in the Proxy Materials or with respect to statements
in, or omissions from, the Proxy Materials made in reliance upon, or in
conformity with, information furnished by Mercantile for use in connection with
the Proxy Materials.
We are members of the bar of the State of California. Our opinions below are
limited to the effect of (i) the laws of the State of California and (ii) the
federal laws of the United States of America; we express no opinion with respect
to the laws of any other jurisdiction.
Page 53
<PAGE>
This opinion is rendered solely for the benefit of Mercantile in connection with
the Merger and may not be relied upon by any other party or for any other
purpose. Neither the original nor any copies of this opinion may be furnished to
any other person without our prior written consent.
Very truly yours,
McCutchen, Doyle, Brown & Enersen, LLP
By_________________________________
A member of the firm
Page 54
<PAGE>
EXHIBIT 99
News Release
FOR: SIERRAWEST BANCORP AND MERCANTILE BANK
APPROVED BY: William T. Fike Michael Burkart
SierraWest Bank Mercantile Bank
President & President &
Chief Executive Officer Chief Executive Officer
(916) 582-3000 (916) 442-6000
CONTACT: Morgen-Walke Associates, Inc.
Doug Sherk, David Gennarelli
(415) 296-7383
Emily Dupree, Joshua Passman
(212) 850-5600
Mercantile Bank For Immediate Release
Michael Burkart
(916) 442-6000
SIERRAWEST BANCORP AND MERCANTILE BANK
SIGN DEFINITIVE AGREEMENT
TRUCKEE, Calif. (January 24, 1997) -- SierraWest Bancorp (Nasdaq: SWBS)
announced today that it has signed a definitive agreement to acquire Mercantile
Bank. Based in Sacramento, California, Mercantile is a business bank primarily
servicing the commercial and real estate loan industry and has total assets of
$45 million. Mercantile will be merged into SierraWest Bancorp's wholly-owned
subsidiary SierraWest Bank. The acquisition, which is scheduled to close in
June, 1997, is subject to the approval of Mercantile's shareholders and federal
and state regulators. It is expected to have a positive effect on SierraWest's
1997 earnings.
Under the terms of the proposed transaction, shareholders of Mercantile
will receive total compensation of $6.6 million, subject to certain adjustments
primarily based upon the level of deposits and capital. The compensation will
consist of 50% cash and 50% stock.
"Our proposed acquisition of Mercantile Bank allows SierraWest to
expand its presence in the strategically important Sacramento market," stated
William T. Fike, president and chief executive officer. "The combination will
increase SierraWest's total assets to over $500 million and increase the
Company's deposit base in Sacramento to over $85 million."
Robert F. Gaines, chairman of Mercantile Bank, commented, "Mercantile
is pleased at the opportunity to join with SierraWest and we believe that the
combination will add significantly to the range of services available to
Mercantile customers."
SierraWest Bancorp is the holding company for SierraWest Bank,
headquartered in Truckee, California with branches in Sacramento, the Sierra
foothills region of California and northern Nevada.
# # #
Page 55
