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.................................................2
1.4 Consideration....................................................3
1.5 Exchange of Shares...............................................3
1.6 Articles of Incorporation and Bylaws of Surviving Bank...........4
1.7 Additional Requirements..........................................4
ARTICLE II...................................................................4
REPRESENTATIONS AND WARRANTIES.........................................4
2.1 Representations and Warranties of South Branch and Capital
Interim Bank.....................................................4
Organization.....................................................4
Authority........................................................4
Financial Statements.............................................5
Applications.....................................................5
Authority to Exchange Shares.....................................5
Registered Bank Holding Company..................................5
Absence of Certain Changes.......................................5
Litigation.......................................................6
Absence of Undisclosed or Contingent Liabilities.................6
No Adverse Event.................................................7
SEC Reports......................................................7
Capitalization...................................................7
Registration.....................................................7
Title to Properties..............................................7
Taxes ...........................................................8
Subsidiary of South Branch.......................................8
ERISA ...........................................................8
Absence of Defaults and Violation................................8
Other Transactions...............................................9
Environmental Concerns...........................................9
Matters Relevant to Tax Treatment...............................10
2.2. Representation and Warranties of Capital State..................11
Organization....................................................11
Authority of Capital State......................................12
Capital Stock of Capital State..................................12
Absence of Certain Changes......................................12
Taxes ..........................................................14
Litigation, Etc.................................................14
Absence of Defaults and Violations..............................14
Absence of Undisclosed Assets and of Undisclosed Contingent
Liabilities...............................................15
Financial Statements............................................15
Real Property...................................................15
No Adverse Event................................................15
Material Contracts..............................................15
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ERISA ..........................................................16
Regulatory Reports..............................................16
Environmental Concerns..........................................16
ARTICLE III.................................................................17
ADDITIONAL AGREEMENTS.................................................17
3.1 Approval of Capital State Shareholders..........................17
3.2 Approval of South Branch Shareholders and
Sole Shareholder of Capital Interim Bank..................17
3.3 Rights of Dissenting Stockholders...............................17
3.4 Regulatory Approval.............................................17
3.5 Conduct of Business by Capital State Until Closing..............18
3.6 Conduct of Business by South Branch Until Closing...............20
3.7 Proxy Statement.................................................21
3.8 Board of Directors and Executive Committee......................21
ARTICLE IV..................................................................22
CONDITIONS............................................................22
4.1 Conditions to Obligations of All Parties........................22
Shareholder Approval of Transaction.............................22
Capital Interim Bank............................................22
Absence of Restraint............................................22
Governmental Approvals..........................................23
Compliance with Representations, Warranties and Additional
Agreements................................................23
Securities Law Compliance.......................................23
Confidentiality.................................................23
4.2 Additional Conditions to Obligations of South Branch............23
Counsel's Opinion...............................................23
Affiliates Agreements...........................................24
Due Diligence...................................................25
South Branch Satisfaction with Loan Loss Reserve, Provision
of Charge-Offs, Funding of Benefits Other Reserve Accounts,
etc.......................................................25
Increase in Number of Shares....................................25
4.3 Additional Conditions to Obligations of Capital State...........25
Tax Opinion.....................................................26
Due Diligence...................................................27
Fairness Opinion................................................27
ARTICLE V...................................................................27
CLOSING...............................................................27
5.1 Closing.........................................................27
ARTICLE VI..................................................................28
MISCELLANEOUS.........................................................28
6.1 Termination.....................................................28
6.2 Expenses........................................................28
6.3 Survival of Provisions..........................................29
6.4 Individual Directors of Capital State...........................29
6.5 Amendment.......................................................29
6.6 Assignability...................................................30
6.7 Notices.........................................................30
6.8 Entire Agreement................................................30
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6.9 Counterparts...................................................30
6.10 Governing Law..................................................30
6.11 Invalid Provisions.............................................31
6.12 Headings and Subheadings.......................................31
6.13 Third-Party Beneficiaries......................................31
EXHIBIT LIST................................................................33
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;
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).
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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 Merger
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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 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").
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.
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(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 Capital
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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.")
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 which
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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 Merger
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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 shall
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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 Interim
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Bank. Unless disclosed in Exhibit A hereto or previously disclosed in writing to
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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 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 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 have, the
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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
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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 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 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 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 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:
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(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
(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 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,
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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.
(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 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
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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 Branch and
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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 subject to Title IV
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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; (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,
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(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.
(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.
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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 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.
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(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).
(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
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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 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
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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 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;
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(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 ss. 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;
(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
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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 IRC ss. 6501(a), no tax
year of Capital State remains open to the assessment and collection of
additional federal income taxes; and
(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
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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 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 in the ordinary course of business
consistent with
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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:
(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;
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(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 ss. 20-5F-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.
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
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State with copies of all correspondence, applications, and other documents
submitted in the regulatory approval proceedings.
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.
(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
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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.
(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
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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.
(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.
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(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 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
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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.
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.
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(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.
(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 effectiveness 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.
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:
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(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 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
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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.
(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.
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(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 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 IRC 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 IRC 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;
(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
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(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.
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.
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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
(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
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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.
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. The 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.
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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.
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.
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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
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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.