SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported)................August 8, 1997
SOUTH BRANCH VALLEY BANCORP, INC.
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(Exact name of registrant as specified in its charter)
West Virginia 0-16587 55-0672148
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(State of other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.) of incorporation)
310 North Main Street, Moorefield, West Virginia 26836
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (304) 538-2353
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ITEM 5. OTHER EVENTS
On August 8, 1997, South Branch Valley Bancorp, Inc. ("South Branch")
signed a definitive agreement (the "Agreement") with Capital State Bank, Inc.
("Capital State Bank"), a state banking corporation located at 2402 Mountaineer
Boulevard, South Charleston, West Virginia 25309. Under the terms of the
agreement, South Branch will exchange one share of South Branch stock for 3.95
shares of Capital State Bank stock. South Branch anticipates a merger
transaction whereby Capital State Bank will become a free standing subsidiary of
South Branch. The offer to exchange stock of South Branch for all of the issued
and outstanding shares of Capital State is subject to approval by the respective
shareholders of each institution and is also subject to regulatory approval.
The offer is subject to customary conditions including the following: (i)
compliance with all applicable federal and state banking and securities laws and
regulations and receipt of all required approval from federal and state
regulatory authority, (ii) the completion by both South Branch and Capital State
of full due diligence reviews to their individual satisfaction; (iii) receipt of
a fairness opinion in a form reasonably required by Capital State to the effect
that the proposed transaction is fair from a financial point of view to Capital
State and its shareholders; (iv) the merger must qualify for a tax-free exchange
of shares by the Capital State shareholders; (v) approval of the transaction by
the shareholders of both South Branch and Capital State; (vi) there shall have
been no material adverse change in the business or financial condition of
Capital State or South Branch from that shown on their March 31, 1997 unaudited
financial information (vii) approval of the proposal by South Branch's
shareholders to increase the authorized shares to accomplish the proposed
transaction; (viii) the designation by Capital State of three individuals
acceptable to South Branch to serve on the Board of Directors of South Branch,
one in each of the three classes of South Branch's staggered board; and (ix)
other customary terms and conditions.
The Agreement is attached to and hereby made a part of this filing.
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 hereto duly authorized.
SOUTH BRANCH VALLEY BANCORP, INC.
August 8, 1997 /s/ H. Charles Maddy, III
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Date By: H. Charles Maddy, III
Its: President
The original statement shall be signed by each person on whose behalf the
statement is filed on his authorized representative. If the statement is signed
on behalf of a person by his authorized representative (other than an executive
officer or general partner of this filing person), evidence of the
representative's authority to sign on behalf of such person shall be filed with
the statement, provided, however, that a power of attorney for this purpose
which is already on file with the Commission may be incorporated by reference.
The name and any title of each person who signs the statement shall be typed or
printed beneath his signature.
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PURSUANT TO RULE 601/EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
August 6, 1997
Among
CAPITAL STATE BANK, INC.
SOUTH BRANCH VALLEY BANCORP, INC.
and
CAPITAL INTERIM BANK
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TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER.................................................1
ARTICLE I....................................................................2
PLAN OF MERGER.........................................................2
1.1 Parties to Merger and Surviving Bank.............................2
1.2 Terms of Merger..................................................2
1.3 Effect of Merger.................................................3
1.4 Consideration....................................................3
1.5 Exchange of Shares...............................................4
1.6 Articles of Incorporation and Bylaws of Surviving Bank...........5
1.7 Additional Requirements..........................................5
ARTICLE II...................................................................5
REPRESENTATIONS AND WARRANTIES.........................................5
2.1 Representations and Warranties of South Branch and Capital
Interim Bank.....................................................5
Organization.....................................................5
Authority........................................................6
Financial Statements.............................................6
Applications.....................................................6
Authority to Exchange Shares.....................................7
Registered Bank Holding Company..................................7
Absence of Certain Changes.......................................7
Litigation.......................................................8
Absence of Undisclosed or Contingent Liabilities.................8
No Adverse Event.................................................8
SEC Reports......................................................9
Capitalization...................................................9
Registration.....................................................9
Title to Properties..............................................9
Taxes ..........................................................10
Subsidiary of South Branch......................................10
ERISA ..........................................................10
Absence of Defaults and Violation...............................11
Other Transactions..............................................11
Environmental Concerns..........................................12
Matters Relevant to Tax Treatment...............................13
2.2. Representation and Warranties of Capital State..................15
Organization....................................................15
Authority of Capital State......................................15
Capital Stock of Capital State..................................16
Absence of Certain Changes......................................16
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Taxes ..........................................................18
Litigation, Etc.................................................19
Absence of Defaults and Violations..............................19
Absence of Undisclosed Assets and of Undisclosed Contingent
Liabilities...............................................19
Financial Statements............................................20
Real Property...................................................20
No Adverse Event................................................20
Material Contracts..............................................20
ERISA ..........................................................21
Regulatory Reports..............................................21
Environmental Concerns..........................................21
ARTICLE III.................................................................23
ADDITIONAL AGREEMENTS.................................................23
3.1 Approval of Capital State Shareholders..........................23
3.2 Approval of South Branch Shareholders and
Sole Shareholder of Capital Interim Bank..................23
3.3 Rights of Dissenting Stockholders...............................23
3.4 Regulatory Approval.............................................23
3.5 Conduct of Business by Capital State Until Closing..............24
3.6 Conduct of Business by South Branch Until Closing...............27
3.7 Proxy Statement.................................................28
3.8 Board of Directors and Executive Committee......................29
3.9 Employment Agreement of Capital State President................29
ARTICLE IV..................................................................30
CONDITIONS............................................................30
4.1 Conditions to Obligations of All Parties........................30
Shareholder Approval of Transaction.............................30
Capital Interim Bank............................................30
Absence of Restraint............................................30
Governmental Approvals..........................................30
Compliance with Representations, Warranties and Additional
Agreements................................................31
Securities Law Compliance.......................................31
Confidentiality.................................................31
4.2 Additional Conditions to Obligations of South Branch............32
Counsel's Opinion...............................................32
Affiliates Agreements...........................................33
Due Diligence...................................................33
South Branch Satisfaction with Loan Loss Reserve, Provision
of Charge-Offs, Funding of Benefits Other Reserve Accounts,
etc.......................................................34
Increase in Number of Shares....................................34
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4.3 Additional Conditions to Obligations of Capital State...........34
Tax Opinion.....................................................35
Due Diligence...................................................36
Fairness Opinion................................................36
ARTICLE V...................................................................37
CLOSING...............................................................37
5.1 Closing.........................................................37
ARTICLE VI..................................................................37
MISCELLANEOUS.........................................................37
6.1 Termination.....................................................37
6.2 Expenses........................................................38
6.3 Survival of Provisions..........................................38
6.4 Individual Directors of Capital State...........................39
6.5 Amendment.......................................................39
6.6 Assignability...................................................40
6.7 Notices.........................................................40
6.8 Entire Agreement...............................................40
6.9 Counterparts...................................................41
6.10 Governing Law..................................................41
6.11 Invalid Provisions..............................................41
6.12 Headings and Subheadings.......................................41
6.13 Third-Party Beneficiaries.......................................41
EXHIBIT LIST................................................................43
EXHIBIT A
SOUTH BRANCH VALLEY BANCORP, INC.
REQUIRED DISCLOSURES
EXHIBIT B
ADOPTION AGREEMENT
EXHIBIT C
CAPITAL STATE BANK, INC. REQUIRED DISCLOSURES
EXHIBIT D
AFFILIATE'S AGREEMENT
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and
entered into as of this 6th day of August, 1997, among CAPITAL STATE BANK, INC.,
a West Virginia banking corporation ("Capital State"); SOUTH BRANCH VALLEY
BANCORP, INC., a West Virginia bank holding company, ("South Branch") and
CAPITAL INTERIM BANK, a West Virginia banking corporation to be formed as a
wholly-owned subsidiary of South Branch.
WHEREAS, Capital State is a West Virginia state banking institution
organized and existing under the laws of the State of West Virginia with its
principal office in South Charleston, West Virginia;
WHEREAS, Capital Interim Bank will be organized as a West Virginia
banking institution with its principal office located in Charleston, West
Virginia;
WHEREAS, South Branch is a West Virginia corporation with its
principal office located in Moorefield, West Virginia, and is a registered bank
holding company under the Bank Holding Company Act of 1956, as amended;
WHEREAS, the parties hereto desire to accomplish the merger of
Capital State into Capital Interim Bank with Capital Interim Bank surviving and
operating under the name "Capital
State Bank, Inc." (the "Merger");
WHEREAS, shareholders of Capital State will receive one (1) share of
South Branch common stock ("South Branch stock") for each 3.95 shares of Capital
State common stock ("Capital State stock") they own as consideration for the
Merger; provided, however that no fractional shares of South Branch stock will
be issued and in lieu thereof Capital State shareholders will receive cash
consideration as provided herein;
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WHEREAS, Capital State has authorized capital of $1,200,000, divided
into 1,200,000 shares of common stock of $1.00 par value, of which 1,200,000 are
issued and outstanding, resulting in a capital account of $11,168,517, with
surplus of $10,398,528 and undivided profits of ($355,652), and net unrealized
gain or loss on securities of ($96,968) as of March 31, 1997;
WHEREAS, for federal income tax purposes, the transactions are
intended to be treated as a tax free reorganization under Internal Revenue Code
ss.368(a)(2)(D).
NOW, THEREFORE, for and in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, South
Branch and Capital State do represent, warrant, covenant and agree (and Capital
Interim Bank will represent, warrant,
covenant and agree) as follows:
ARTICLE I
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PLAN OF MERGER
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1.1 Parties to Merger and Surviving Bank. The parties to the Plan of
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Merger are Capital State Bank, Inc. and Capital Interim Bank. Capital State
shall merge with and into Capital Interim Bank under the charter of the latter,
pursuant to the laws of West Virginia and the United States. At the time of the
Merger, Capital State will cease to exist and Capital Interim Bank will be the
Surviving Bank. The name of the Surviving Bank shall be "Capital State Bank,
Inc." and its principal office will be in South Charleston, West Virginia.
1.2 Terms of Merger. The terms and conditions of the Merger are set
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forth in this Agreement. Upon satisfaction of all of the terms and conditions
set forth herein, the Merger shall be effective upon the date (the "Merger
Effective Date") so indicated by the West Virginia Secretary of State
("Secretary of State").
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1.3 Effect of Merger. Upon consummation, the Merger shall have the
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following effects:
(a) The Surviving Bank will, upon the time of the Merger and
thereafter, possess all of the rights, privileges, immunities and franchises, of
Capital Interim Bank and Capital
State Bank, Inc.
(b) All property, real, personal and mixed, and all debts due
in whatever amount, and all other choses in action, and all other interests
belonging to or due to Capital Interim Bank and Capital State will be taken and
deemed to be transferred to and vested in Capital Interim Bank as the Surviving
Bank and all property, real, personal and mixed, and all debts due in whatever
amount, and all other choses in action, and all other interests belonging to or
due to Capital Interim Bank and Capital State shall remain in the Surviving Bank
without further act, and the title to any real estate, or any interest therein,
vested in Capital State shall not revert or be in any way impaired by reason of
the Merger.
(c) The Surviving Bank will be responsible and liable for all
of the liabilities and obligations of Capital Interim Bank and Capital State,
respectively, and neither the rights of creditors nor liens upon the property of
Capital State shall be impaired by the Merger, including, but not limited to,
any liability of Capital State arising under its bylaws or the applicable laws
of West Virginia in connection with the indemnification of directors and
officers of Capital State arising at any time prior to the Merger Effective
Date.
(d) The Surviving Bank will have a capital stock account equal
to $1,200,000, divided into 1,200,000 shares of common stock of $1.00 par value,
all of which will be issued, with a surplus of $10,398,528 and undivided profits
of ($355,652) and net unrealized gain or loss of securities on ($96,968), such
capital account to be adjusted to account for earnings between March 31, 1997
and the Merger Effective Date.
1.4 Consideration. As consideration for the Merger, shareholders of
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Capital State, who do not dissent to this transaction will be entitled to
receive one (1) share of South Branch stock for each 3.95 shares of Capital
State stock they own (the "Merger
Consideration.")
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No fractional shares of South Branch stock will be issued and in
lieu thereof, Capital State shareholders will be entitled to receive cash based
upon the $43.50 per share for South Branch stock, without interest. If, on or
after the date hereof, and prior to the Merger, the outstanding shares of South
Branch stock are changed into a different number or class by virtue of any
reclassification, split, stock dividend or similar event, then the exchange
ratio provided herein will be adjusted proportionately. The issuance of South
Branch stock for other corporate purposes, as contemplated in Section 2.1(l),
will not result in an adjustment to the exchange ratio. From and after the date
of the Merger, the holders of certificates representing Capital State shares
shall cease to have any rights with respect to such shares (except dissenters'
rights) and such shares will thereafter be deemed canceled and void. The sole
rights of such shareholders (excluding dissenters' rights) will be to receive
the Merger Consideration.
1.5 Exchange of Shares. Except for any shares of Capital State as to
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which dissenters' rights are exercised pursuant to the West Virginia Corporation
Act, ss. 31-1-122 (the "West Virginia Appraisal Statute"), each holder of
certificates representing shares of the stock of Capital State will, upon the
surrender to South Branch, or its agent, of such certificates in proper form, be
entitled to receive a certificate or certificates representing the number of
whole shares of the common stock of South Branch into which the surrendered
certificates shall have been converted by reason of the Merger. Until
surrendered for exchange, each outstanding certificate of Capital State
submitted for exchange for South Branch stock shall be deemed for all corporate
purposes to evidence the ownership of the full shares of stock of South Branch
into which such shares have been converted by reason of the Merger. Until a
Capital State shareholder's outstanding certificates have been surrendered,
South Branch may, at its sole discretion, withhold, with respect to such Capital
State shareholder, as applicable (i) the certificates representing the shares of
its stock into which such Capital State shares are converted by reason of the
Merger; and (ii) the distribution of any and all dividends and payment for
fractional shares with respect to the stock of South Branch to which the Capital
State shareholder is entitled. Upon the delivery to South Branch of the
outstanding Capital State certificates by a Capital State shareholder, there
will be delivered to the record holder thereof (i) the certificate representing
the shares of the stock of South Branch to which the exchanging Capital State
holder is entitled, (ii) any dividends and (iii) any payment for fractional
shares, all without interest.
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1.6 Articles of Incorporation and Bylaws of Surviving Bank. Upon the
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Merger being consummated, the Articles of Incorporation of Capital Interim Bank
will be the Articles of Incorporation of the Surviving Bank and the Bylaws of
Capital Interim Bank shall be the Bylaws of the Surviving Bank until altered,
amended or repealed in accordance with their provisions and applicable law. The
Surviving Bank will be a state chartered banking corporation.
1.7 Additional Requirements. If at any time, the Surviving Bank
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shall consider or be advised that any further assignments, conveyances or
assurances are necessary or desirable to vest, perfect or conform in the
Surviving Bank the title to any property or rights of Capital State or are
otherwise necessary to carry out the provisions of the Plan of Merger and this
Agreement, the proper officers and directors of Capital State as of the Merger
Effective Date, and thereafter, the officers of the Surviving Bank, will execute
and deliver any and all property assignments, conveyances, assurances, and other
instruments to vest, perfect or confirm title to any such property or rights in
the Surviving Bank and otherwise carry out the provisions of this Agreement.
ARTICLE II
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REPRESENTATIONS AND WARRANTIES
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2.1 Representations and Warranties of South Branch and Capital
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Interim Bank. Unless disclosed in Exhibit A hereto or previously disclosed in
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writing to Capital State, as of the date of this Agreement, and as of the date
of the consummation of the transactions contemplated herein, South Branch
represents and warrants, as of the date hereof, and Capital Interim Bank will
represent and warrant as of the date it executes the Adoption Agreement
contained in Exhibit B hereto, and as of the date of consummation of the
transactions contemplated herein, the following to Capital State:
(a) Organization. South Branch is a West Virginia corporation
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duly organized, validly existing and in good standing under the laws of the
State of West Virginia. South Branch has the requisite corporate power and
authority to own and lease its properties and to conduct its business as
currently conducted and as currently contemplated to be conducted. South Branch
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shall cause Capital Interim Bank to be to be formed, and as of the date of its
execution of the Adoption Agreement, it will be a duly organized, validly
existing West Virginia banking corporation in good standing under the laws of
the State of West Virginia.
(b) Authority. South Branch has and Capital Interim Bank will
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have, the power to enter into this Agreement and to consummate the transactions
contemplated herein. The execution and delivery of this Agreement and the
consummation of the transactions contemplated herein have been duly authorized
by the Board of Directors of South Branch and will be so authorized by the Board
of Directors of Capital Interim Bank. South Branch, as sole shareholder of
Capital Interim Bank, will vote all shares of Capital Interim Bank in favor of
the Merger and the transactions contemplated herein. Upon its execution and
delivery, this Agreement constitutes the valid and legally binding obligation of
South Branch and will constitute the valid and legally binding obligation of
Capital Interim Bank upon execution of the Adoption Agreement. Subject to
obtaining the permits, approvals, consents and authorizations set forth in
Article IV hereto, the execution and delivery of this Agreement does not and
will not, and the consummation contemplated herein will not, violate (i) any
provisions of the Articles of Incorporation or Bylaws of South Branch or Capital
Interim Bank, (ii) any laws of the State of West Virginia, or (ii) any material
restriction to which any of them is subject.
(c) Financial Statements. South Branch has delivered to
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Capital State copies of its audited consolidated financial statements for the
fiscal year ended December 31, 1996, and its unaudited consolidated financial
statements for the period ended March 31, 1997. South Branch represents and
warrants that the financial statements which have been or will be delivered
pursuant to any provision of this Agreement fairly present its financial
position of as of the date thereof and the results of its operations and its
cash flows for each of the respective periods specified therein in conformity
with generally accepted accounting principles applied on a consistent basis.
(d) Applications. South Branch and Capital Interim Bank, with
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the cooperation of Capital State, will cause to be filed all necessary
regulatory applications with the appropriate bank regulators to accomplish the
transactions contemplated herein. South Branch will
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pay all expenses associated with the filing of such regulatory applications,
excluding legal, accounting or other expenses incurred by Capital State in
connection therewith.
(e) Authority to Exchange Shares. The shares of South Branch
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to be issued pursuant to this Agreement are or will be duly authorized. When
issued upon the terms and conditions specified in this Agreement, the shares
will be validly issued, fully paid and non-assessable. There are no preemptive
or similar rights with regard to the shares of South Branch to be issued in
connection with the transactions contemplated herein. The shares of South Branch
stock to be issued pursuant to this Agreement to Capital State shareholders will
be, when issued, registered with the SEC pursuant to an effective registration
on Form S-4.
(f) Registered Bank Holding Company. South Branch is a duly
---------------------------------
registered bank holding company under the Bank Holding Company Act of 1956, as
amended.
(g) Absence of Certain Changes. Except as may be
-------------------------------
disclosed in Exhibit A hereto and made a part hereof, since March 31, 1997:
(i) There has been no material change in the
operations, financial condition, or results of operation of South Branch or any
subsidiary of South Branch which could have a material adverse effect on the
consolidated assets, financial condition, or operations of South Branch
nor has any event or condition occurred which is known to its officers
which may result in such a change;
(ii) There has not been any damage, destruction, or
loss by reason of fire, flood, accident or other casualty (whether insured
or not insured) materially and adversely affecting the consolidated assets,
financial condition or operations of South Branch;
(iii) Neither South Branch nor any subsidiary of
South Branch has disposed of or agreed to dispose of any properties or assets
material to South Branch, nor has it leased to others, or agreed to so lease,
any of such material properties or assets; and
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(iv) Except for the issuance of shares to certain
directors consummated on June 18, 1997, and previously disclosed to Capital
State, South Branch has not granted any warrant, option or right to acquire,
or agreed to repurchase, redeem or otherwise acquire, any shares of its capital
stock or any other of its securities whatsoever, except as set forth in 2.1(l)
hereof.
(v) There has not been any other event , condition
or development of any kind which materially and adversely affects the
assets, financial condition or operations of South Branch, and it has no
knowledge of any such event, condition or development which may materially and
adversely affect the assets, financial condition or operations of South Branch.
(h) Litigation. Except as disclosed in Exhibit A, neither
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South Branch nor any subsidiary of South Branch is a party to or, to the
knowledge of its executive officers, threatened with any litigation, action,
governmental or other proceeding, investigation, strike or other labor dispute
which might affect the validity of this Agreement or which, individually or in
the aggregate, might have a materially adverse effect on South Branch's
consolidated assets, financial condition, operations or material contractual
rights; and there is no outstanding order, writ, injunction or decree of any
court or governmental agency against or materially affecting South Branch or a
material portion of any of its consolidated businesses or assets.
(i) Absence of Undisclosed or Contingent Liabilities. Except
-------------------------------------------------
to the extent reflected on the March 31, 1997 consolidated financial statements
of South Branch and its subsidiaries delivered to Capital State, there exists no
claim, liability, obligation, or any known asserted claim, secured or unsecured
(whether accrued, absolute, contingent or otherwise), that would have a material
adverse effect on the consolidated operations, financial condition or results of
operations of South Branch.
(j) No Adverse Event. Since March 31, 1997, there has been no
----------------
change or changes, which, individually or in the aggregate, has or have
materially and adversely affected the business of South Branch.
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(k) SEC Reports. The Form 10-K Annual Report to the Securities
-----------
and Exchange Commission by South Branch for the year ended December 31, 1996,
its quarterly filings made during 1997 on Form 10-Q, and its current reports
made on Form 8-K made during 1997, if any, do not contain, as of the date hereof
or as of their respective dates, any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading.
(l) Capitalization. As of June 30, 1997, the authorized
--------------
capital stock of South Branch is 600,000 shares of common stock, par value of
$7.50 per share. 412,827 are issued and outstanding as of the date hereof and
are fully paid and nonassessable. 4,115 shares are held in treasury by South
Branch. South Branch may issue additional shares or options or similar rights
pursuant to its Director Deferred Compensation Plan, Employee Stock Ownership
Plan, in connection with other acquisitions, in connection with the sale or
transfer of authorized but unissued shares at a price equal to or greater than
book value, and for other corporate purposes.
(m) Registration. As soon as practicable after the date
------------
hereof, South Branch will cause a Registration Statement (or, in the case of
State "blue sky" filings, other appropriate form) to be filed with and declared
effective by the Securities and Exchange Commission, appropriate agencies
regulating securities, and other governmental agencies having jurisdiction, with
respect to the South Branch stock to be issued pursuant to this Agreement. The
Registration Statement (and other appropriate forms) will comply as to form with
applicable requirements of law and, except as to the information about Capital
State furnished by it in writing for use in the Registration Statement (or other
appropriate form), or written information about Capital State contained therein
and reviewed by it, will contain no untrue statement of any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Registration Statement and "blue sky" filings contemplated by this Agreement
will be sufficient to ensure that the South Branch stock held by non-affiliates
of Capital State may be freely resold without further registration.
(n) Title to Properties. South Branch and its subsidiaries
--------------------
have good and marketable title to all of their property and assets set forth on
the consolidated balance sheet of South
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Branch as of March 31, 1997 subject to no liens, mortgages, pledges,
encumbrances or charges of any kind except liens reflected on said balance
sheet, liens of record, liens which do not materially affect the current use of
the property or liens for ad valorem taxes not yet due and payable, and all of
their leases are in full force and effect, and neither South Branch nor any of
its subsidiaries is aware of any default thereunder.
(o) Taxes. Except as disclosed in Exhibit A hereto, (i) South
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Branch and its subsidiaries have filed all federal income tax returns and all
other federal, state, municipal and other tax returns which they are required to
file, have paid all taxes shown to be due on such returns and, in the opinion of
their respective chief executive and financial officers, have adequately
reserved for all current taxes; (ii) neither the Internal Revenue Service
("IRS") nor any other taxing authority is now asserting against South Branch or
its subsidiaries, or, to their knowledge, threatening to assert against them, or
any of them, any deficiency or claim for additional taxes, interest or
penalties; and (iii) there is no pending or threatened examination of the
federal income tax returns of South Branch or its subsidiaries and, except for
tax years still subject to the assessment and collection of additional federal
income taxes under the three-year period of limitations described in IRC ss.
6501(a), no tax year of South Branch or its subsidiaries remains open to the
assessment and collection of additional federal income taxes.
(p) Subsidiary of South Branch. The subsidiary of South Branch
--------------------------
consists of a national banking association which is duly organized, validly
existing and in good standing under applicable laws. Such has the corporate
power, and all necessary Federal, state, and local banking and other
authorizations, to own its property and conduct its business as currently
conducted and as currently contemplated to be conducted. South Branch owns, free
and clear of liens and encumbrances of any nature, 100% of the issued and
outstanding stock of its subsidiary.
(q) ERISA. Unless disclosed in Exhibit A, (i) each plan
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subject to Title IV or ERISA and established or maintained for persons,
including employees or former employees of South Branch or any of its
subsidiaries ("Plan") has been maintained and funded in accordance with its
terms and with all provisions of ERISA applicable thereto; (ii) no event
reportable under Section 4043 of ERISA has occurred and is continuing with
respect to any Plan;
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(iii) no liability to the Pension Benefit Guaranty Corporation has been incurred
with respect to any Plan, other than for premiums due and payable; (iv) no Plan
has been terminated, no proceedings have been made to terminate any Plan, and no
decision has been made to terminate or institute proceedings to terminate any
Plan; (v) no Plan is a multi-employer Plan; and (vi) there has been no cessation
of, and no decision has been made to cease, operations at a facility or
facilities where such cessation could reasonably be expected to result in a
separation from employment of more than 20% of the total number of employees who
are participants under any Plan.
(r) Absence of Defaults and Violation. Except as disclosed in
---------------------------------
Exhibit A attached hereto and made a part hereof, neither South Branch nor its
subsidiary (i) are in default under any term or provision of any mortgage, deed
of trust, note, bond, indenture, commitment, contract, agreement, franchise,
permit, license, lease or instrument to which they are a party or by which any
of them or any of their properties is bound and which is material to the
consolidated financial condition, businesses or operations of South Branch, (ii)
are subject to any decree, order, writ or injunction of any court or authority
which materially restricts their operations or requires any material actions,
(ii) are in violation of any law, rule or regulation known and applicable to
them which could materially affect the consolidated financial, assets businesses
or operations of South Branch; or (iv) has received notification from any agency
or department of federal, state or local government or regulatory authority or
the staff thereof asserting that any of them is not in compliance with any of
the statutes, regulations, rules or ordinances which such governmental authority
or regulatory authority enforces, or any threat to revoke any license,
franchise, permit or governmental authorization which could materially affect
the consolidated financial condition, assets, business, or operations of South
Branch or its subsidiary.
(s) Other Transactions. Nothing herein shall be construed to
-------------------
limit at any time the ability of South Branch or any of its subsidiaries from
entering into other agreements or transactions pursuant to which it or its
subsidiaries may merge, consolidate or affiliate with any other entity, or
acquire or establish other branches or subsidiaries.
11
<PAGE>
(t) Environmental Concerns. Unless otherwise indicated in
-----------------------
Exhibit A, to the knowledge of their respective chief executive and chief
financial officers, neither South Branch nor its subsidiary bank own any
property where:
1. Material amounts of Hazardous Substances have been
generated, treated, stored, disposed of, incinerated or
recycled at or on the property;
2. Aboveground or underground storage tanks are or have
been located;
3. Spills, discharges, releases, deposits of material
amounts of any Hazardous Substances have occurred;
4. Hazardous Substances have been released on adjacent
properties which could migrate onto the property;
5. An investigation or administrative proceeding by a
governmental agency or a lawsuit by a governmental agency or
private third party occurred involving Applicable
Environmental Law and where the property contains conditions
which would give rise to such an event; or
6. Solid waste as defined in the West Virginia Solid
Waste Management Act, West Virginia Code ss. 20-5F-1 et seq.
------
has been disposed of.
To the knowledge of their respective chief executive and chief
financial officers, neither South Branch nor its subsidiary bank has a loan
secured by property which is owned
12
<PAGE>
or operated by an entity or person in violation of Applicable Environmental Law
or has a condition which could lead to a violation of Applicable Environmental
Law.
For purposes of this Agreement, (i) The term "Applicable
Environmental Law" shall include but shall not be limited to the laws and
implementing regulations of the United States Government, the State of West
Virginia and local governments, whether currently in existence or hereafter
enacted, that govern: (a) the existence, cleanup and/or remedy of hazardous
substance contamination on property; (b) the protection of the environment from
released, spilled, deposited or otherwise emplaced hazardous substance
contamination; (c) the control of hazardous substances and hazardous substance
waste; and (d ) the reporting, use, generation, transport, treatment and removal
of hazardous substances and (ii) The term "Hazardous Substance" shall mean any
substance which at any time is toxic, ignitable, reactive or corrosive and that
is regulated by any Applicable Environmental Law or which has been or shall be
determined at any time by any agency or court to be a toxic, ignitable, reactive
or corrosive substance regulated under Applicable Environmental Law or
detrimental to the environment or health of living organisms. "Hazardous
Substance" includes any and all materials or substances that are defined as
"hazardous wastes", "extremely hazardous wastes" or a "hazardous substances"
pursuant to any Applicable Environmental Law. "Hazardous Substance" includes,
but is not restricted to asbestos, polychlorinated biphenyls ("PCBs"), radon,
nuclear materials and petroleum.
(u) Matters Relevant to Tax Treatment.
---------------------------------
(i) South Branch has no plan or intention to liquidate Capital
Interim Bank; to merge Capital Interim Bank with or into another corporation; to
sell or otherwise dispose of the stock of Capital Interim Bank; or to cause
Capital Interim Bank to sell or otherwise dispose of any of the assets of
Capital State acquired in the Merger, including South Branch stock acquired by
Capital State pursuant to the Merger, except for dispositions made in the
ordinary course of business or transfers described in I.R.C. Section
368(a)(2)(C).
13
<PAGE>
(ii) Following the Merger, Capital Interim Bank will continue
the historic business of Capital State or use a significant portion of Capital
State's business assets in a business.
(iii) South Branch has no plan or intention to reacquire any
of its stock issued in the Merger.
(iv) Neither South Branch nor Capital Interim Bank has any
plan or intention to sell or otherwise dispose of any of the assets of Capital
State acquired in the Merger, except for dispositions made in the ordinary
course of business, dispositions in arm's length transactions made to avoid
duplicative facilities or to comply with regulatory requirements, or transfers
described in I.R.C. Section 368(a)(2)(C) of the Code.
(v) Prior to the Merger, South Branch will be in control of
Capital Interim
Bank within the meaning of I.R.C. Section 368(c).
(vi) Following the Merger, Capital Interim Bank will not issue
additional shares of its stock that would result in South Branch losing control
of Capital Interim Bank within
the meaning of Section 368(c).
(vii) Neither South Branch nor Capital Interim Bank are
investment companies, as defined in I.R.C. Section 368(a)(2)(F)(iii) and (iv).
(viii)The payment of cash to Capital State shareholders in
lieu of fractional shares of South Branch stock is not separately bargained for
consideration and is solely for the purpose of saving South Branch the expense
and inconvenience of issuing fractional shares. The total cash consideration
that will be paid in the Merger to the Capital State shareholders instead of
issuing fractional shares of South Branch stock will not exceed 1% of the total
consideration to be issued in the transaction to Capital State shareholders in
exchange for their shares of Capital State common stock. The fractional share
interests of each Capital State shareholder will be aggregated
14
<PAGE>
and no Capital State shareholder will receive cash for fractional shares in an
amount equal to or greater than the value of one full share of South Branch
stock.
(ix) None of the compensation received by any
shareholder-employees of Capital State will be separate consideration for, or
allocable to, any of their shares of Capital State stock; none of the shares of
South Branch stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's-length for similar services.
2.2. Representation and Warranties of Capital State. Unless
---------------------------------------------------
disclosed in Exhibit C hereto or previously disclosed in writing to South
Branch, as of the date of this Agreement and as of the date of the consummation
of the transactions contemplated herein, Capital State represents and warrants
the following to South Branch and Capital Interim Bank:
(a) Organization. Capital State is a West Virginia banking
------------
institution duly organized, validly existing and in good standing under the laws
of the State of West Virginia. It has all of the requisite corporate power and
authority to own and lease its properties and to conduct its business as it is
now being conducted and as currently contemplated to be conducted.
(b) Authority of Capital State. Subject to all applicable
----------------------------
state and federal regulatory approval and the requisite shareholder approval,
Capital State has the power to enter into this Agreement and to cause the
transactions contemplated herein to be carried out. The execution and delivery
of this Agreement and the consummation of the transactions contemplated herein
have been duly authorized by the Board of Directors of Capital State. Except for
the ratification, confirmation and approval of this Agreement by Capital State's
stockholders, no other acts or proceedings on its part are necessary to
authorize the transactions contemplated by this Agreement. Upon its execution
and delivery, subject only to shareholder ratification, confirmation and
approval, this Agreement constitutes the valid and legally binding obligation of
Capital State. Subject to
15
<PAGE>
obtaining the permits, approvals, consents and authorizations set forth in
Article IV hereto, the execution and delivery of this Agreement does not, and
the consummation of the transaction contemplated herein will not, violate (i)
any provision of the Articles of Incorporation, or the Bylaws of Capital State,
(ii) any laws of the State of West Virginia or of the United States of America
or (iii) any other material restriction of any kind or character to which
Capital State is subject. No acceleration of payment, default, breach or
termination will occur in any material respect by virtue of the consummation of
the transaction contemplated in this Agreement under any material contract,
agreement, deed of trust, note, instrument, order, judgment or decree.
(c) Capital Stock of Capital State. Capital State has one
---------------------------------
class of capital stock consisting of 1,200,000 shares of authorized common stock
having a par value of $1.00 per share, 1,200,000 of which are issued and
outstanding. The outstanding shares of Capital State stock have been duly and
validly authorized and issued and have not been issued in violation of any
preemptive rights of any of its shareholders. Capital State holds no shares of
its stock as treasury stock and has not redeemed any shares within the last two
(2) years.
(d) Absence of Certain Changes. Since March 31, 1997:
--------------------------
(i) There has been no change in the assets,
consolidated financial condition or results of operations of Capital State,
taken as a whole, which has had, or changes which in the aggregate have had a
materially adverse effect on Capital State's consolidated assets, financial
condition or operations, nor has any event or condition occurred which is known
to the officers of Capital State which may result in such a change or changes;
(ii) There has not been any damage, destruction, or
loss by reason of fire, flood, accident or other casualty (whether insured or
not insured) materially and adversely affecting the assets, financial condition
or operations of Capital State;
16
<PAGE>
(iii) Capital State has not disposed of or agreed to
dispose of any of its material properties or assets, nor has either leased to
others, or agreed to so lease, any of such material properties or assets;
(iv) There has not been any change in the
authorized, issued or outstanding capital stock of Capital State or any material
change in the outstanding debt of Capital State, other than changes due to
payments in accordance with the terms of such debt and other than the acceptance
of deposits by Capital State in the ordinary course of business;
There has not been, nor will there be, any
declaration, setting aside or payment of any dividend or distribution in respect
of any shares of the common stock of Capital State. Capital State shall not pay
such a dividend for any quarter for which Capital State shareholders will be
entitled to receive a dividend as South Branch shareholders;
(v) Capital State has not granted at any time any
warrant, option or right to acquire, or agreed to repurchase, redeem or
otherwise acquire, any shares of its capital stock or any other of its
securities whatsoever except as granted or agreed in this Agreement;
(vi) Other than the directors fees permitted by Section
3.5(i) herein, no change has occurred in the personnel who are key personnel
with respect to the operations of Capital State; nor has there been any increase
in the compensation or fees payable by Capital State to its directors, officers,
employees or former employees, nor has there been any increase in any loans,
bonus, insurance, pension or other employee benefit plan, payment or arrangement
for or with any of such directors, officers, employees or former employees;
(vii) Capital State has not made any loan or advance,
other than in the ordinary course of business;
17
<PAGE>
(viii)Capital State has not made any expenditure or
commitment for the purchase, acquisition, construction or improvement of any
material capital asset or of capital assets which in the aggregate would be
material;
(ix) Except transactions contemplated herein,
Capital State has not entered into any other material transaction, contract or
lease, or incurred any other material obligation or liability; and
(x) There has not been any other event, condition
or development of any kind which materially and adversely affects the assets,
financial condition or operations of Capital State, and it has no knowledge of
any such event, condition or development which may materially and adversely
affect the assets, financial condition or operations of Capital State.
(e) Taxes. As to taxes:
-----
(i) Capital State has filed all federal income tax
returns and all other federal, state, municipal and other tax returns which it
is required to file, has paid all taxes shown to be due on such returns and, in
the opinion of its chief executive and financial officers, has adequately
reserved or recognized for all current and deferred taxes;
(ii) Neither the IRS nor any other taxing authority
is now asserting against Capital State, or, to its knowledge, threatening to
assert against either of them, any material deficiency or material claim for
additional taxes, interest or penalties;
(iii) There is no pending or threatened examination
of the federal income tax returns of Capital State and, except for tax years
still subject to the assessment and collection of additional federal income
taxes under the three year period of limitations prescribed in IC ss. 6501(a),
no tax year of Capital State remains open to the assessment and collection of
additional federal income taxes; and
18
<PAGE>
(iv) There is no pending or threatened examination
or outstanding liability for any West Virginia state, local or city taxes,
except for tax liabilities not yet due and payable.
(f) Litigation, Etc. Capital State is not a party to or, to
----------------
the knowledge of its executive officers, threatened with any litigation, action,
governmental or other proceeding, investigation, strike or other labor dispute
which might affect the validity of this Agreement or which, individually or in
the aggregate, might have a materially adverse affect on its assets, financial
condition or operations or on any of its material contractual rights; and there
is no outstanding material order, writ, injunction or decree of any court or
governmental agency against or affecting Capital State or a material portion its
business or assets.
(g) Absence of Defaults and Violations. Capital State is not
-----------------------------------
(i) in default under any term or provision of any mortgage, deed of trust, note,
bond, indenture, commitment, contract, agreement, franchise, permit, license,
lease or instrument to which it is a party or by which it or its properties are
bound and which is material to its financial condition, businesses or
operations, (ii) subject to any judgment, decree or order of any court or order,
agreement, or similar arrangement with a regulatory authority which materially
restricts it operations or requires any material action, (iii) in violation of
any law, rule or regulation known and applicable to it which violation could
materially affect their financial condition, assets, businesses or operations,
or (iv) in receipt of notification from any agency or department of federal,
state or local government or regulatory authority or the staff thereof asserting
that it is not in compliance with any of the statutes, regulations, rules or
ordinances which such governmental authority or regulatory authority enforces
and which lack of compliance could materially affect the financial condition,
assets, business or operations of Capital State, or any threat to revoke any
license, franchise, permit or governmental authorization which could materially
affect its financial condition, assets, business or operations.
(h) Absence of Undisclosed Assets and of Undisclosed
---------------------------------------------------------
Contingent Liabilities. Except to the extent reflected on the latest financial
- -----------------------
statements of Capital State delivered
19
<PAGE>
to South Branch, Capital State has no undisclosed assets, or any material claim,
liability, obligation, or any known asserted claim, secured or unsecured, any of
which is material (whether accrued, absolute, contingent or otherwise), against
it or its assets.
(i) Financial Statements. Capital State has delivered to South
--------------------
Branch copies of the audited financial statements of Capital State for the year
ended December 31, 1996, and unaudited statements for the period ended March 31,
1997, consisting of Balance Sheets, Statements of Income, and Statements of
Changes in Stockholders' Equity and Statements of Cash Flows and notes thereto.
Capital State represents and warrants that its financial statements which have
been or will be delivered pursuant to any provision of this Agreement fairly
present the financial position of Capital State as of the date thereof and the
results of its operations for each period specified therein.
(j) Real Property. Capital State owns or leases the real
--------------
property as shown on Exhibit C. It is the owner of good and marketable title in
fee simple of the real property reflected on its books and records as being
owned or leased by it. Capital State is entitled to possession of any leased
property and all such leases are valid and in full force and effect. All real
property owned by Capital State is free and clear of liens and encumbrances
except for liens of record, liens which do not materially affect the current use
of the property or liens for ad valorem taxes not yet due and payable.
(k) No Adverse Event. Since March 31, 1997, there has been no
----------------
change, other than changes in the ordinary course of business, which,
individually or in the aggregate, has or have materially and adversely affected
the financial condition, results of operations or the businesses of Capital
State.
(l) Material Contracts. Capital State is not a party to, or
-------------------
bound or affected by, nor receives benefits under (i) any material agreement,
arrangement or commitment not cancelable by it without penalty, other than
agreements, arrangements or commitments entered into
20
<PAGE>
in the ordinary course of business consistent with its past practice and
negotiated on an arm's length basis, or (ii) any material agreement, arrangement
or commitment relating to the employment, election or retention in office of any
director or officer.
(m) ERISA. As to ERISA, (i) each plan subject to Title IV of
-----
ERISA and established or maintained for persons including employees or former
employees of Capital State ("Plan") has been maintained and funded in accordance
with its terms and with all provisions of ERISA applicable thereto; (ii) no
event reportable under Section 4043 of ERISA has occurred and is continuing with
respect to any Plan; (iii) no liability to Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan, other than for premiums due and
payable; (iv) no Plan has been terminated, no proceedings have been instituted
to terminate any Plan, and no decision has been made to terminate or institute
proceedings to terminate any Plan; and (v) there has been no cessation of, and
no decision has been made to cease, operations at a facility or facilities where
such cessation could reasonably be expected to result in a separation from
employment of more than 20% of the total number of employees who are
participants under any Plan.
(n) Regulatory Reports. Capital State has filed all material
--------------------
reports required to be filed by it with all applicable banking regulators, and
with any other regulatory authority to which it must report, and such reports
have been completed in accord with applicable regulations and requirements. Any
annual or quarterly filings or current reports required to be filed by Capital
State with the Federal Deposit Insurance Corporation do not contain, as of the
date hereof, or as of their respective dates any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading.
(o) Environmental Concerns. To the knowledge of its chief
-----------------------
executive and chief financial officers, Capital State owns or leases no property
where:
21
<PAGE>
(i) Material amounts of Hazardous Substances have
been generated, treated, stored, disposed of, incinerated or recycled at or on
the property;
(ii) Aboveground or underground storage tanks are or
have been located;
(iii) Spills, discharges, releases, deposits of
material amounts of any Hazardous Substances have occurred;
(iv) Hazardous Substances have been released on
adjacent properties which could migrate onto the property;
(v) An investigation or administrative proceeding
by a governmental agency or a lawsuit by a governmental agency or private third
party occurred involving Applicable Environmental Law and where the property
contains conditions which would give rise to such an event; or
(vi) Solid waste as defined in the West Virginia
Solid Waste Management Act , West Virginia Code section. 20F-1 et seq.
To the knowledge of its chief executive and chief financial
officers, Capital State has no loan secured by property which is owned or
operated by an entity or person in violation of Applicable Environmental Law or
has a condition which could lead to a violation of Applicable Environmental Law.
22
<PAGE>
ARTICLE III
-----------
ADDITIONAL AGREEMENTS
---------------------
3.1 Approval of Capital State Shareholders. Capital State will
------------------------------------------
submit to its shareholders, as part of the proxy materials prepared for its
shareholders' consideration, this Agreement and the transactions contemplated
herein for approval, ratification and confirmation by the holders of at least a
majority of the issued and outstanding shares in accordance with law.
3.2 Approval of South Branch Shareholders and Sole Shareholder of
----------------------------------------------------------------
Capital Interim Bank. South Branch will submit to its shareholders, as part of
- --------------------
the proxy materials prepared for its shareholders consideration, this Agreement
and the transaction contemplated herein for approval, ratification and
confirmation by the holders of at least a majority of the issued and outstanding
shares, in accordance with law. South Branch will vote all its shares in Capital
Interim Bank in favor of the Merger of Capital State into Capital Interim Bank.
3.3 Rights of Dissenting Stockholders. Any shareholder of Capital
----------------------------------
State who properly perfects his or her right to dissent under the West Virginia
Appraisal Statute, shall be entitled to the fair value of such shares. The
appraisal procedures to be followed will be those set forth in the West Virginia
Appraisal Statute.
3.4 Regulatory Approval. South Branch and Capital Interim Bank with
-------------------
Capital State, will prepare and file with the Board of Governors of the Federal
Reserve System ("FRB"), the West Virginia Board of Banking and Financial
Institutions, the Federal Deposit Insurance Corporation, and any other
applicable regulator all applications required to seek approval of the Merger.
The parties hereto agree, to expeditiously, continuously and aggressively pursue
regulatory approval of the transactions contemplated herein. South Branch shall
provide Capital State with copies of all correspondence, applications, and other
documents submitted in the regulatory approval proceedings.
23
<PAGE>
3.5 Conduct of Business by Capital State Until Closing. Capital
-----------------------------------------------------
State acknowledges and agrees that the obligations contained in this Section 3.5
are an integral part of the consideration for this Agreement and that South
Branch's commitments herein are conditioned upon performance of these
operational covenants. Unless the prior written consent of South Branch is
obtained, or unless otherwise provided for herein, Capital State, between the
date of this Agreement and the Merger Effective Date will:
(a) Take no action, and not permit any action to be taken,
which will have a material adverse effect upon Capital State, or its properties,
financial condition, businesses or operations, including, without limitation,
the commencement of any new branch banking operation.
(b) Take no action or do anything (i) which will cause Capital
State to be, as of the Merger Effective Date, in violation of any of their
representations, warranties, covenants and agreements contained in this
Agreement or (ii) which will materially and adversely affect the consummation of
the transactions contemplated in this Agreement.
(c) Take no action to reclassify or alter Capital State's
authorized stock, to issue shares of capital stock, debt instruments, or other
securities or to amend the Articles of Incorporation or Bylaw.
(d) Not pay or declare any dividend or make any other
distribution in respect of Capital State's shares of common stock or acquire for
value any of such shares or pay any dividend, except as permitted herein.
(e) Take no action, and not permit any action to be taken, to
mortgage, pledge or subject to any lien or any other encumbrance on any of
Capital State's material assets, to dispose of any material assets, or to incur
or cancel any material debt or claim, except in the ordinary course of business
as heretofore conducted.
24
<PAGE>
(f) Afford to the officers, attorneys, accountants, and other
authorized representatives of South Branch full access to the respective
properties, books, tax returns and records of Capital State, during normal
business hours and upon reasonable request, in order that they may make such
investigations of the affairs of Capital State as South Branch deems necessary
or advisable. The parties hereto and their respective affiliates shall use all
information that each obtains from the other pursuant to this Agreement solely
for the transactions contemplated by this Agreement or for purposes consistent
with the intent of this Agreement, and shall not use any of such information for
any other purpose, including, without limitation, the competitive detriment of
any party. Each of the parties hereto and their respective affiliates shall
maintain as strictly confidential all information it learns from another of the
parties hereto pursuant to this Agreement and shall, at any time, upon request,
return promptly all documentation provided or made available to third parties
including all copies thereof. Each of the parties may disclose such information
to its respective affiliates, counsel, accountants, tax advisers, and
consultants. The confidentiality agreement contained in this section shall
remain operative and in full force, and shall survive the termination of this
Agreement.
The parties hereto shall mutually agree in advance
upon the form and substance of all public disclosures concerning this Agreement
and the transactions contemplated hereby.
(g) Promptly advise South Branch of any material adverse
change in the financial condition, assets, businesses or operations of Capital
State and any material breach of any representation, warranty, covenant or
agreement made by Capital State in this Agreement.
(h) Maintain in full force and effect adequate fire, casualty,
public liability, employee fidelity and other insurance coverage in accordance
with prudent practices to protect Capital State against losses for which
insurance protection can be obtained at reasonable cost.
25
<PAGE>
(i) Take no action, and take such reasonable steps as are
practicable to avoid any action to be taken, to change the senior management of
Capital State, to increase any compensation, benefits, or fees payable by
Capital State to their respective directors and officers, employees, or former
employees, or to increase any loans, insurance, pension or other employee
benefit plan, payment or arrangement for such officers, directors, employees,
except as provided herein. Notwithstanding the foregoing, upon the prior
approval of South Branch, Capital State may pay to its directors reasonable
directors fees.
(j) Take no action (i) to acquire, or to be acquired by, to
merge or merge with any company or business, to sell substantially all of
Capital State's assets, or similar transaction other than pursuant to the
provisions of this Agreement, or (ii) to acquire any branch, or, except in the
ordinary course of business, any material assets of any other company or
business.
(k) Take no material action, and not permit any material
action to be taken, whatsoever with respect to its properties, assets,
businesses or operations, other than in the ordinary course of its business.
(l) Continue to fund the loan loss reserve consistent with
current practice so that as of the Merger Effective Date it is not less than
$230,000, less any amounts recovered from previously charged-off loans; and in
addition Capital State agrees that it will (i) properly and timely charge-off
any loan losses, as required by any applicable regulatory agency and prudent
banking practices, and (ii) at the time of any such charge-off, Capital State
will make a provision to the loan loss reserve equal to the amount of the loss,
less the specific amount allocated in the reserve, if any, relating to the
charged-off loan (such specific amounts having been previously identified in
writing by loan and amount). The requirements of this subparagraph (l) are
qualified in that Capital State is not obligated to take the actions set forth
if such action will cause Capital State to report a loss in any quarter; in such
case Capital State shall fulfill the foregoing requirements to the extent
possible without producing a loss. The requirements of this subparagraph shall
not be construed to preclude the payment of bonuses otherwise expressly
authorized herein.
26
<PAGE>
(m) Make no loans including but not limited to any extension,
renewal, modification or refinancing of an existing loan, in excess of $150,000
without South Branch's prior written consent, which will not be unreasonably
withheld.
(n) Not sell, trade or purchase any securities in its
investment portfolio without prior consent of South Branch's Treasurer, which
will not be unreasonably withheld.
3.6 Conduct of Business by South Branch Until Closing. South Branch,
-------------------------------------------------
as a bank holding company, in the normal conduct of its business, may acquire
other banks or bank holding companies or engage in certain nonbanking activities
which are closely related to banking, all as permitted under federal and state
law. Accordingly, South Branch may continue to seek and consider such
opportunities and will not be restrained from doing so by the terms of this
Agreement. In the event that South Branch should reach an understanding with
another entity regarding a merger, purchase or consolidation, South Branch may
proceed with a merger, purchase or consolidation concurrently with the
acquisition by merger contemplated by this Agreement.
Notwithstanding the prior paragraph of this Section 3.6 to the
contrary, unless the prior written consent of Capital State is obtained, South
Branch between the date hereof and the Effective Time of the Merger, shall:
(a) Take no action, and not permit any action to be
taken, by it or its subsidiary, which will have a material adverse effect upon
its properties, financial condition, businesses or operations.
(b) Take no action or do anything (i) which will
cause it to be in violation of its representations, warranties, covenants and
agreements contained in this Agreement or (ii) which will materially and
adversely affect the consummation of the transaction contemplated in this
Agreement.
27
<PAGE>
(c) Promptly advise Capital State of any material
adverse change in the financial condition, assets, businesses or operations of
South Branch and any breach of any representation, warranty, covenant or
agreement made by South Branch in this Agreement.
(d) Maintain in full force and effect adequate
fire, casualty, public liability, employee fidelity and other insurance coverage
in accordance with prudent practices to protect fully South Branch and its
subsidiaries against losses for which insurance protection can reasonably be
obtained.
(e) Afford to the officers, attorneys, accountants,
and other authorized representatives of Capital State full access to the
respective properties, books and records of South Branch, during normal business
hours and upon reasonable request, in order that they may make such
investigations of the affairs of South Branch as it deems necessary or
advisable. The parties hereto and their respective affiliates shall use all
information that each obtains from the other pursuant to this Agreement solely
for the effectuation of the transactions contemplated by this Agreement or for
purposes consistent with the intent of this Agreement, and shall not use any of
such information for any other purpose, including, without limitation, the
competitive detriment of any party. Each of the parties hereto and their
respective affiliates shall maintain as strictly confidential all information it
learns from another of the parties hereto pursuant to this Agreement and shall,
at any time, upon request, return promptly all documentation provided or made
available to third parties. Each of the parties may disclose such information to
its respective affiliates, counsel, accountants, tax advisers, and consultants.
The confidentiality agreement contained in this section shall remain operative
and in full force, and shall survive the termination of this Agreement.
3.7 Proxy Statement. It is understood that as an integral part of
-----------------
the transaction contemplated by this Agreement, proxy materials must be prepared
and sent to Capital State shareholders presenting certain disclosures about
South Branch, Capital State and about the transactions contemplated herein.
Capital State agrees to assist in the due diligence related thereto, and to
cooperate fully in the preparation of the proxy materials to be sent to the
shareholders of
28
<PAGE>
Capital State. The proxy materials sent to shareholders of Capital State shall
be subject to prior review and approval of the management of Capital State.
3.8 Board of Directors and Executive Committee. The Board of
Directors of South Branch, as of the Merger Effective Date shall include three
(3) representatives from Capital State, to be selected by Capital State and
approved by South Branch. Capital State shall be entitled to one (1) director in
each class of directors of South Branch's staggered board. Such directors shall
be either (i) placed in nomination for approval by South Branch's shareholders
at South Branch's Annual Meeting, provided that at that meeting the shareholders
are also considering the proposed transaction or (ii) appointed to fill
vacancies created by the Board of Directors of South Branch until their terms
expire. Nothing herein shall be construed to impose on South Branch any duty to
renominate these individuals beyond the initial terms agreed to herein.
In the event South Branch forms an executive committee or
other governing body of the Board of Directors of South Branch during the
initial terms of the directors appointed or elected as provided in paragraph (i)
above, at least one Capital State director shall be selected by South Branch's
Chairman of the Board to serve as a member of such executive committee or other
governing body. Nothing herein shall be construed to impose on South Branch or
the Chairman of its Board of Directors any duty to select a Capital State
director so to serve after the initial term of each of the three original
Capital State directors on the South Branch Board as provided in paragraph (i)
has expired.
3.9 Employment Agreement of Capital State President. Capital
--------------------------------------------------
Sate is aware that Michael H. Hudnall, President of Capital State, may elect to
terminate his employment agreement with Capital State as of the Closing. Capital
State agrees to make any payment negotiated by South Branch, Michael H. Hudnall
and Capital State in connection with such employment agreement, subject to
consummation of the Merger.
29
<PAGE>
ARTICLE IV
----------
CONDITIONS
----------
4.1 Conditions to Obligations of All Parties. Subject to the
---------------------------------------------
respective right of each party to waive any condition required to be met by the
other party hereto by this Section 4.1, the parties are not obligated to
consummate, or to cause to be consummated, the transactions contemplated by this
Agreement unless:
(a) Shareholder Approval of Transaction. Before the Closings,
-----------------------------------
Capital State and South Branch shall each have obtained the approval,
ratification and confirmation of this Agreement and the transactions
contemplated herein by the requisite vote of its shareholders, as required by
law and by any applicable provision of its articles of incorporation and bylaws.
(b) Capital Interim Bank. South Branch shall have caused the
---------------------
organization and chartering of Capital Interim Bank and Capital Interim Bank
shall have executed the Adoption Agreement.
(c) Absence of Restraint. No order to restrain, enjoin or
---------------------
otherwise prevent the consummation of the transactions contemplated in this
Agreement shall have been entered by any court or administrative body which
remains in effect on the Merger Effective Date.
(d) Governmental Approvals. There shall have been obtained by
----------------------
the Merger Effective Date any and all permits, approvals and consents of every
governmental body or agency which are necessary or appropriate so that
consummation of the transactions contemplated in this Agreement shall be in
compliance with all applicable laws, including, without limitation, those with
respect the FRB, the Board of Banking and Financial Institutions and any other
regulator with jurisdiction over the transactions.
30
<PAGE>
(e) Compliance with Representations, Warranties and Additional
----------------------------------------------------------
Agreements. All of the representations and warranties of the parties contained
- ----------
in this Agreement shall be true in all material respects at and as of the Merger
Effective Date with the same force and effect as if they had been made at and as
of such dates (except for changes contemplated and permitted by this Agreement
or otherwise consented to in writing by the appropriate party to this Agreement)
and each party shall have complied with and performed, in all material respects,
all of the agreements contained in this Agreement to be performed by it at or
before the Merger Effective Date. At the Closing of each merger transaction,
each party shall have received from the other party to this Agreement, a
certificate, in affidavit form, dated as of the date of the Closing, signed by
such party's chief executive officer and chief financial officer, certifying
that the foregoing statements made in this Section 4.1(e) are true and correct
to the best of their knowledge and belief.
(f) Securities Law Compliance. The Registration Statement to
-------------------------
be filed by South Branch with the Securities and Exchange Commission pursuant to
Section 2.1(m) hereof, shall be declared effective on or before the date of the
Closing. No order suspending the effectivenesds thereof shall have been issued
which remains in effect on the date of the Closing, and no proceedings for that
purpose shall, before the Closing, have been initiated or, to the best knowledge
of South Branch, threatened. All state securities and "blue sky" permits or
approvals required to carry out the transactions contemplated in this Agreement
shall have been received to permit free trading of the South Branch stock issued
to the non-affiliate Capital State shareholders.
(g) Confidentiality. South Branch and Capital State shall each
---------------
execute mutually agreed upon confidentiality agreements.
(h) All criteria to assure the tax-free exchange of Capital
State stock for South Branch stock must be met.
31
<PAGE>
4.2 Additional Conditions to Obligations of South Branch.
-----------------------------------------------------
(a) Counsel's Opinion. South Branch shall have received an
-------------------
opinion of counsel for Capital State dated as of the Merger Effective Date, to
the effect that:
(i) Capital State is a state chartered bank duly
organized, validly existing and in good standing under the laws of the State of
West Virginia;
(ii) The authorized capital stock and the number of
shares issued and outstanding of Capital State are as stated in the opinion. The
issued and outstanding shares are validly issued, fully paid and non-assessable,
and were not issued in violation of any preemptive rights of the shareholders of
Capital State. As of such date, to the best of counsel's knowledge, there are no
options, warrants, convertible securities or similar items outstanding on behalf
of Capital State.
(iii) Capital State has the corporate power and
authority to execute, deliver and perform its obligations under this Agreement.
This Agreement has been duly authorized, executed and delivered by Capital State
and constitutes the legal, valid and binding obligation of Capital State,
enforceable in accordance with its terms except as enforceability may be limited
by general equitable principles, bankruptcy, insolvency, reorganization,
moratorium, or other laws affecting creditors' rights generally.
(iv) All necessary corporate proceedings have been
duly and validly taken by Capital State, to the extent required by law, its
respective articles of incorporation and bylaws, or otherwise, to authorize the
execution and delivery of this Agreement by Capital State and the consummation
of the transactions contemplated herein.
(v) Counsel has reviewed the proxy statement
contemplated hereby and, with respect to all information relating to Capital
State contained therein, counsel does not
32
<PAGE>
know of any misleading statement of any material fact or failure to state a
material fact which was necessary to be stated to prevent the statements made
from being false or misleading in any material respect, except as to financial
data, as to which counsel expresses no opinion.
(vi) The consummation of the transactions
contemplated herein will not violate or result in a breach of, or constitute a
default under the articles of incorporation or bylaws of Capital State or
constitute a breach or termination of, or default under, any agreement or
instrument of which counsel is aware and which would have a material adverse
effect on the business of Capital State, and to which either is a party or by
which it or any of its property is bound.
(b) Affiliates Agreements. South Branch shall have received an
---------------------
agreement, in the form of Exhibit D hereto, executed and delivered by each
shareholder of Capital State who, in the reasonable opinion of South Branch, may
be deemed an affiliate of Capital State as that term is defined in Rule 145
promulgated by the Securities and Exchange Commission.
(c) Due Diligence. South Branch must have the opportunity to
-------------
conduct a due diligence investigation into various aspects of Capital State's
operations. Based on its investigation, which must be concluded by the end of
the twentieth (20th) business day following the date of this Agreement, South
Branch, in its discretion, may within five (5) calendar days after the close of
the above due diligence period (i) elect not to pursue consummation of the
proposed transactions or (ii) may notify Capital State of any objections or
requirements resulting therefrom. If South Branch elects not to pursue
consummation of the proposed transactions and properly notifies Capital State of
the same, this Agreement shall expire and parties hereto shall have no further
obligations or liabilities hereunder. If South Branch raises any objections as a
result of its due diligence and properly notifies Capital State of the same,
Capital State must cure or address the concerns to the satisfaction of South
Branch or South Branch is not obligated to continue to pursue consummation of
the transactions contemplated herein. Failure to provide notice under this
paragraph shall not be construed as a waiver by South Branch of any item
required by or condition of this Agreement.
33
<PAGE>
(d) South Branch Satisfaction with Loan Loss Reserve,
---------------------------------------------------------
Provision of Charge-Offs, Funding of Benefits Other Reserve Accounts, etc. As of
- -------------------------------------------------------------------------
the Merger Effective Date, South Branch, in its sole discretion, must be
satisfied with the adequacy of the then existing level of Capital State's loan
loss reserve and with the sufficiency of the write-downs and charge-offs in the
loan portfolio, such level and sufficiency to be consistent with the
requirements of any regulators and prudent banking practices. In addition,
Capital State must reserve for all contingencies in a manner consistent with the
requirements of the regulators and prudent banking practices.
(e) Increase in Number of Shares. The Shareholders of South
----------------------------
Branch shall have approved an increase in the authorized but unissued shares of
South Branch sufficient to permit South Branch to issue the shares contemplated
to be issued herein as
Merger Consideration.
4.3 Additional Conditions to Obligations of Capital State.
------------------------------------------------------
(a) Capital State shall have received the opinion of
counsel to South Branch to the effect that:
(i) South Branch is a West Virginia corporation,
validly existing and in good standing under the laws of West Virginia and is
duly authorized to own its properties and to conduct its business as presently
conducted. Capital Interim Bank is validly existing and in good standing under
the laws of the State of West Virginia is duly authorized to own its properties
and to conduct its business as presently conducted.
(ii) All necessary corporate proceedings have been
duly taken by South Branch to the extent required by law, their articles of
incorporation, articles of association, bylaws or otherwise, to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein. This Agreement constitutes the legal, valid
and binding obligation of South Branch and Capital Interim Bank (once it
executes the Adoption Agreement) and is enforceable against them in accordance
with its terms except as enforceability
34
<PAGE>
may be limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium, or other laws affecting creditors rights generally.
(iii) To the best of counsel's knowledge, all
regulatory approvals of federal or state banking regulators necessary to
consummate the transactions contemplated herein have been obtained.
(iv) Counsel has reviewed the proxy statement
described herein and with respect to all information relating to the Merger and
to South Branch and Capital Interim Bank contained therein, and knows of no
respect in which the proxy statement contained any false or misleading statement
of any material fact or of any failure to state a material fact which was
necessary to be stated to prevent the statements made from being false or
misleading in any material respect, except as to the financial statements and
other financial data as to which counsel expresses no opinion.
(b) Tax Opinion.On or before the Closing, Capital State shall
-----------
have received an opinion from Bowles Rice McDavid Graff & Love, P.L.L.C.,
Charleston, West Virginia in a form reasonably satisfactory to Capital State's
counsel to the effect that:
(i) The statutory merger of Capital State with and
into Capital Interim Bank will constitute a tax-free reorganization within the
meaning of IC Section 368(a)(i)(A) and IRS Section 368(a)(2)(D);
(ii) The gain, if any, realized by a Capital State
shareholder upon receipt of cash, for fractional shares will be recognized, but
not in any amount in excess of all cash received as part of the merger
transaction. The provisions of IC Section 302 will govern whether the character
of the gain will be ordinary income or capital gain. Each shareholder should
consult his or her own tax advisor with respect to the determination of whether
the exchange has the effect of a redemption or the distribution of a dividend;
35
<PAGE>
(iii) The holding period of the South Branch stock
received by each holder of Capital State's common stock will include the period
during which the stock of Capital State surrendered in exchange therefor was
held, provided such stock was a capital asset in the hands of the shareholder at
the time of the Closing; and
(iv) A Capital State shareholder who dissents from
the transaction and receives solely cash in exchange for his stock in Capital
State will be treated as having received such cash in redemption of his or her
Capital State stock subject to the provisions of I.R.C. ss.ss. 302 and 318.
(c) Due Diligence. Capital State must have the opportunity to
-------------
conduct a due diligence investigation into various aspects of South Branch's
operations. Based on its investigation, which must be concluded by the end of
the twentieth (20th) business day following the date of this Agreement, Capital
State, in its discretion, may within five (5) calendar days after the close of
the above due diligence period (i) elect not to pursue consummation of the
proposed transactions or (ii) may notify South Branch of any objections or
requirements resulting therefrom. If Capital State elects not to pursue
consummation of the proposed transactions and properly notifies South Branch of
the same, this Agreement shall expire and parties hereto shall have no further
obligations or liabilities hereunder. If Capital State raises any objections as
a result of its due diligence and properly notifies South Branch of the same,
South Branch must cure or address the concerns to the satisfaction of Capital
State or Capital State is not obligated to continue to pursue consummation of
the transactions contemplated herein. Failure to provide notice under this
paragraph shall not be construed as a waiver by Capital State of any item
required by or condition of this Agreement.
(d) Fairness Opinion. The board and shareholders of Capital
-----------------
State shall have received the opinion of Berwind Financial, Inc. that the
transaction is fair, from a financial perspective, to the shareholders of
Capital State.
36
<PAGE>
ARTICLE V
---------
CLOSING
-------
5.1 Closing. The closing (the "Closing") of each merger transaction
-------
shall take place at the principal office of South Branch, or such other place as
may be agreeable to the parties hereto, shall consist of the exchange of items
required hereby and the filing of the Articles of Merger. The parties will use
their best efforts to close on or about December 31, 1997. The payment of the
Merger Consideration will commence as soon as possible after the Merger
Effective Date.
ARTICLE VI
----------
MISCELLANEOUS
-------------
6.1 Termination. This Agreement may be terminated and canceled, and
-----------
the transaction contemplated herein may be abandoned, notwithstanding
shareholder authorization, at any time before the Merger Effective Date as
follows:
(a) By mutual consent of the Board of Directors of South
Branch and Capital State as evidenced by a majority vote of each of their
respective Boards of Directors; or
(b) By South Branch if any of the conditions required to be
satisfied by Capital State specified in Sections 4.1 and 4.2 hereof shall not
have been satisfied within the time contemplated by this Agreement for
consummation of this transaction; or
(c) By Capital State if any of the conditions required to be
satisfied by South Branch specified in Section 4.1 and 4.3 hereof shall not have
been satisfied within the time contemplated by this Agreement for consummation
of the transactions; or
37
<PAGE>
(d) By any party if the Merger will violate any nonappealable
final order, decree or judgment of any court of governmental body which binds
any party.
In any event, the obligations of the parties under this Agreement
shall terminate January 31, 1998, if the Closing have not occurred before that
date, unless the parties hereto mutually agree in writing to an extension of the
time within which to close.
In the event of the termination of this Agreement for any reason,
each party shall forthwith deliver to the other parties hereto all documents,
work papers and other material obtained from it or any of its subsidiaries
relating to the transaction contemplated herein, whether obtained before or
after the execution hereof, and will continue to treat as confidential all such
information in the same manner as it treats similar confidential information of
its own and shall cause its and its subsidiaries' employees, agents and
representatives, to keep all such information confidential except for such
disclosures that are required by law or regulation or by rule, order or decree
or any court or government agency.
6.2 Expenses. Each of the parties to this Agreement agrees to pay,
--------
without a right to reimbursement from the other party hereto and whether or not
the transaction contemplated in this Agreement shall be consummated, all of the
costs incurred by it incident to the performance of its obligations under this
Agreement and to the consummation of the transactions contemplated herein.
6.3 Survival of Provisions. The representations, warranties,
------------------------
obligations and other agreements contained in all sections of Article I and
Article II, Sections 3.5(f), 6.1, 6.2 and 6.4 of this Agreement shall survive
the consummation of the transactions contemplated herein and shall be and remain
strictly enforceable thereafter in accordance with the terms thereof for the
period of one (1) year after the date each merger transaction is consummated.
Except as aforesaid, and except as may be otherwise explicitly provided in this
Agreement, the respective representations, warranties, obligations and other
agreements of the parties hereto shall not survive the Closings.
38
<PAGE>
6.4 Individual Directors of Capital State. The Directors of Capital
--------------------------------------
State, excluding Messrs. Maddy, Cookman and Michael (the "Capital State
Directors"), have executed this Agreement to evidence their assent hereto and
for the express purpose of binding them, to the extent consistent with and not
in violation of their fiduciary duty, to the fulfillment of each of the terms
and conditions hereof by the respective parties and the diligent, expeditious
and good faith pursuit, and timely consummation of the transactions contemplated
herein. The Capital State Directors further agree, to cooperate fully with the
parties, their employees, representatives and agents in consummating the
transactions as proposed and each agrees to vote his or her shares in favor of
the Merger. The Capital State Directors agree to take no action inconsistent
with this Agreement or the consummation of the merger transactions; provided
that each Capital State Director shall act at all times in a manner consistent
with his or her fiduciary responsibilities. Any shares acquired by a Capital
State Director or any member of the Capital State Directors' families or
affiliates will, without further action, be subject to the agreements contained
in this paragraph 6.4.
Each Capital State Director further acknowledges and agrees
(i) that South Branch has relied on his or her representations and agreements as
set forth herein and (ii) that his or her agreement to vote his or her shares in
favor of the Merger is necessary to fulfill certain conditions precedent to
consummation of the Merger.
6.5 Amendment. This Agreement may be amended by mutual consent of
---------
the Board of Directors of South Branch and Capital State, evidenced by a
majority vote of each of their respective Boards of Directors, at any time
before or after approval thereof by the shareholders; but, after any such
shareholder approval, no amendment shall be made to this Agreement which
substantially and adversely changes the terms of the particular agreement
without obtaining the further approval of the respective shareholders of that
party. This Agreement may not be amended except by an instrument in writing duly
executed by the appropriate officers on behalf of each of the parties hereto.
39
<PAGE>
6.6 Assignability. This Agreement shall inure to the benefit of and
-------------
be binding upon the parties hereto and their respective successors and assigns,
provided that this Agreement may not be assigned by any party without the prior
written consent of the
other parties hereto.
6.7 Notices. Any notice or other communication required or permitted
-------
under this Agreement shall be made in writing and shall be deemed to have been
duly given or received if delivered in person or if sent by certified mail, with
postage prepaid, addressed as follows:
TO SOUTH BRANCH: TO CAPITAL STATE:
H. Charles Maddy, III Michael H. Hudnall
President President
South Branch Valley Bancorp, Inc. Capital State Bank, Inc.
310 North Main Street 2402 Mountaineer Boulevard
Moorefield, West Virginia 26836 Charleston, West Virginia 25309
COPY TO: COPY TO:
Sandra M. Murphy, Esq. William W. Booker, Esq.
BOWLES RICE MCDAVID GRAFF KAY CASTO CHANEY LOVE
& LOVE, P.L.L.C. & WISE
600 Quarrier Street 1600 Bank One Plaza
P. O. Box 1386 P. O. Box 203
Charleston, WV 25325-1386 Charleston, West Virginia 25327
6.8 Entire Agreement. This Agreement, together with all exhibits
-----------------
attached hereto, constitutes the entire agreement among the parties and shall
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of the transaction contemplated
herein and may not be changed except by amendment pursuant to the provisions of
Section 6.5 of this Agreement.
40
<PAGE>
6.9 Counterparts. This Agreement may be executed in several
-------------
counterparts, each of which shall be deemed an original; but all of which shall
constitute one and the same instrument.
6.10 Governing Law. Subject to the applicable law of the United
--------------
States of America, this Agreement shall be governed and construed in all
respects, including, but not limited to, validity, interpretation and effect,
pursuant to the laws of the State of West Virginia.
6.11 Invalid Provisions. The invalidity or unenforceability of any
-------------------
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision
were omitted.
6.12 Headings and Subheadings. The headings and subheadings used in
------------------------
this Agreement are included for convenience of reference only and shall have no
effect on the construction or meaning of this Agreement.
6.13 Third-Party Beneficiaries. Nothing in this Agreement shall be
construed as and this Agreement shall not be deemed to be for the benefit of any
third party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their corporate officers thereunto duly authorized.
Attest: SOUTH BRANCH VALLEY BANCORP, INC.
By /s/ Scott C. Jennings By /s/ C. Maddy
- ------------------------------ -----------------------------------------
Its Vice President Its President
- ------------------------------ -----------------------------------------
Attest: CAPITAL STATE BANK, INC.
By /s/ M. H. Hudnall By /s/ Charles S. Piccirillo
- ------------------------------ -----------------------------------------
Its President Its Chairman of the Board
- ------------------------------ -----------------------------------------
41
<PAGE>
DIRECTORS OF CAPITAL STATE BANK, INC.*
/s/ Frank A. Baer /s/ Brooks F. McCabe
- ------------------------------- -----------------------------------------
Frank A. Baer, III Brooks F. McCabe
/s/ Robert N. Duty /s/ Charles S. Piccirillo
- ------------------------------- ----------------------------------------
Robert N. Duty Charles S. Piccirillo
/s/ Georgette George /s/ Stephen D. Wehrle
- ------------------------------- ----------------------------------------
Georgette George Stephen D. Wehrle
/s/ Larry Haddad /s/ Louis Weisberg
- ------------------------------- ----------------------------------------
Larry Haddad Louis Weisberg
/s/ Richard Heffelfinger /s/ Mary Williams
- ------------------------------- ----------------------------------------
Richard Heffelfinger Mary Williams
/s/ Joseph B. Holland, Jr. /s/ M. H. Hudnall
- ------------------------------- ----------------------------------------
Joseph B. Holland, Jr. Michael H. Hudnall
/s/ Richard L. Howard /s/ Emma L. Byrnside
- -------------------------------- ----------------------------------------
Richard L. Howard Emma L. Byrnside
/s/ Kim Lewis
- --------------------------------
Kim Lewis
CHS108053
*Signing for the sole purpose of agreeing to perform, comply with, and be bound
by, the terms of Section 6.4 of the foregoing Agreement and Plan of Merger.
42
<PAGE>
EXHIBIT LIST
Exhibit A - South Branch Disclosures
Exhibit B - Adoption Agreement
Exhibit C - Capital State Disclosures
Exhibit D - Form of Affiliates Agreement
43
<PAGE>
EXHIBIT A
SOUTH BRANCH VALLEY BANCORP, INC. REQUIRED DISCLOSURES
44
<PAGE>
1. Pursuant to paragraph 2.1(t):
-----------------------------
In August, 1995, South Branch acquired a branch located in
Petersburg, West Virginia. Seven (7) underground storage tanks existed on the
branch premises. The property has been remediated under state supervision.
Pursuant to its Assets Purchase Agreement with the Blue Ridge Bank, Blue Ridge
Bank has agreed to indemnify and hold South Branch harmless from any and all
claims, damages, fines, judgments, penalties, costs, liabilities, or losses
(including, without limitation, any and all sums paid for settlement of claims,
attorneys' fees, consultant and expert fees) arising from a breach of Blue
Ridge's warranties and representations in this Agreement, or from or in
connection with the presence of Hazardous Substances (as defined in the Asset
Purchase Agreement) in or on the Premises unless the Hazardous Substances (as
defined in the Asset Purchase Agreement) are present solely as a result of the
negligence, willful misconduct, or other acts of South Branch, South Branch's
agents, employees, contractors, or invitees. This indemnification shall
specifically include any and all costs due to Hazardous Substances (as defined
in the Asset Purchase Agreement) that flow diffuse, migrate, or percolate into,
onto, or under the Premises.
South Branch is also currently the owner of property containing an
underground heating oil tank located in Moorefield, West Virginia. South Branch
has been advised that this tank is exempt from regulation by the State Division
of Environmental Protection under ss. 33 CSR 32-3. South Branch has currently
entered into an Agreement to sell the property.
1
<PAGE>
EXHIBIT B
ADOPTION AGREEMENT
This Adoption Agreement is made and entered into as of
, 1997,among Capital Interim Bank (the "Interim Bank"),
- ------------------- Capital State Bank, Inc. ("Capital State") and South Branch
Valley Bancorp, Inc. ("South Branch").
WHEREAS, South Branch and Capital State have entered into that
certain Agreement and Plan of Merger dated July ____, 1997 (the "Merger
Agreement"). The provisions of which are incorporated herein by reference and
made a part of this Adoption Agreement;
WHEREAS, it is provided in Section 2.1 of the Merger Agreement that
as soon as possible after the chartering of the Interim Bank, South Branch shall
cause the Interim Bank to execute and enter into this Adoption Agreement to
cause the Interim Bank to be bound by the applicable terms and conditions of the
Merger Agreement;
WHEREAS, the charter of the Interim Bank has now been issued;
NOW THEREFORE, for and in consideration of the premises and mutual
agreements of the parties, Interim Bank, Capital State and South Branch do
hereby agree as follows:
1. Interim Bank hereby joins in and agrees to be bound by the terms,
representations, warranties, covenants, conditions and other agreements of the
Merger Agreement applicable to it, to the same extent an original party thereto.
2. Interim Bank agrees that it shall use its best efforts and good
faith to make or cause to be taken as soon as practicable all actions on its
part required to be taken to permit the consummation of the Merger Agreement and
the Merger, as defined therein, and it shall cooperate fully with Capital State
and South Branch to that end.
3. Interim Bank also represents and warrants that:
(a) Interim Bank is a corporation, duly organized,
validly existing and in good standing under the laws of the State of West
Virginia.
(b) Interim Bank has the corporate power to execute
and deliver this Adoption Agreement and has taken all action required by law,
its charter, its Bylaws or otherwise, to authorize the execution and delivery of
this Adoption Agreement, the consummation of the Merger and all transaction
contemplated in the Merger Agreement.
(c) The Merger Agreement is the valid and binding
obligation of the Interim Bank.
1
<PAGE>
IN WITNESS WHEREOF, Capital Interim Bank, Capital State Bank,
Inc. and South Branch Valley Bancorp, Inc. have caused this Adoption Agreement
to be duly executed as of the date first written above.
CAPITAL INTERIM BANK
By:
------------------------------
Its:
------------------------------
CAPITAL STATE BANK, INC.
By:
------------------------------
Its:
-----------------------------
SOUTH BRANCH VALLEY BANCORP, INC.
By:
------------------------------
Its:
------------------------------
CHS108053
2
<PAGE>
EXHIBIT C
CAPITAL STATE BANK, INC. REQUIRED DISCLOSURES
1
<PAGE>
EXHIBIT C
CAPITAL STATE BANK, INC.
REQUIRED DISCLOSURES
Pursuant to paragraph 2.2(h): Certain restrictions exist upon the assignment of
- ----------------------------
the lease covering the parcel upon which the Bank's office is located. Under
certain circumstances, the consent of the owner of the real estate and of the
developer may be required as a condition of any assignment. There is a specific
provision of the lease which permits an assignment by "a bank, the stock in
which is held by twenty or more people." While the Bank is of the opinion that
the assignment which will occur incident to the merger is permitted, the Bank
would propose that the consent of the landowner and the developer be obtained.
CHS111160
2
<PAGE>
EXHIBIT D
AFFILIATE'S AGREEMENT
-----------------------
Date
Gentlemen:
Reference is made to the Agreement and Plan of Merger (the "Plan")
dated the ___day of _____ , 1997 between South Branch Valley Bancorp, Inc.
("South Branch") and Capital State Bank, Inc. ("Capital State"), and providing
for the merger of Capital State into a wholly-owned subsidiary of South Branch,
Capital Interim Bank. As a result of the merger, South Branch will acquire all
of the issued and outstanding common stock of Capital State in exchange for
shares of the common stock of South Branch. Capital State will merge into
Capital Interim Bank, a wholly-owned subsidiary chartered to facilitate the
merger. Capital Interim Bank will survive the merger. The undersigned
stockholder has been identified as one who may be an "affiliate" of Capital
State for the purposes of Rule 145 of the Securities Act of 1933, as amended
(the "Act"). As a result of the transactions contemplated by the Plan, the
affiliate will receive shares of South Branch stock. In consideration for the
receipt of such shares, the affiliate represents, warrants and covenants as
follows:
(1) Until the expiration of the limitation on the transfer of
the affiliate shares as provided in Rule 145, the affiliate will not sell,
assign or transfer any of the affiliate shares except (a) within the limits and
in accordance with the applicable provisions of Rule 145 or (b) upon receipt by
South Branch of an opinion of counsel, in form and substance satisfactory to
South Branch and its counsel, to the effect that such disposition complies with
the Act.
(2) Until the expiration of the limitation on the transfer of
the affiliate shares as provided in Rule 145(d), each certificate for the
affiliate may bear a restrictive legend in substantially the following form:
The shares represented by this certificate have been issued to
the registered holder as a result of a transaction to which Rule 145
under the Securities Act of 1933, as amended (the "Act") applies.
The shares represented by this certificate may not be sold,
transferred or assigned, and the issuer shall not be required to
give effect to any attempted sale, transfer or assignment, except
pursuant to (i) the Registration Statement then in effect under the
Act, (ii) a transaction permitted by Rule 145 as to which the issuer
has received evidence of compliance with the provisions of Rule 145
reasonably satisfactory
1
<PAGE>
to it, or (iii) a transaction which, in the opinion of counsel or as
described in a "no action" or interpretive letter from the staff of
the Securities and Exchange Commission, in each case satisfactory in
form and substance to the issuer, is exempt from the registration
requirements of the Act.
Very truly yours,
----------------------------------
Accepted this ____ day of _______________, 1997, by:
SOUTH BRANCH VALLEY BANCORP, INC.
By:
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Its:
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CHS108053
2
