Exhibit 99.1
AGREEMENT AND PLAN OF MERGER
dated as of July 16, 1999
by and between
SOUTH BRANCH VALLEY BANCORP, INC.
and
POTOMAC VALLEY BANK
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER.................................................1
ARTICLE I
Certain Definitions ......................................1
1.01 Certain Definitions..............................................1
ARTICLE II
The Merger ......................................4
2.01 The Merger.......................................................4
2.02 Effective Date and Effective Time................................5
2.03 Closing..........................................................5
ARTICLE III
Consideration; Exchange Procedures ......................................5
3.01 Merger Consideration.............................................5
3.02 Rights as Stockholders; Stock Transfers..........................5
3.03 Fractional Shares................................................5
3.04 Exchange Procedures..............................................6
3.05 Provisions Relating to Stock Splits, Stock Dividends, Etc........6
3.06 Provisions Relating to the Granting of Additional Options........6
ARTICLE IV
Actions Pending Merger ......................................7
4.01 Forebearances of Potomac.........................................7
4.02 Forebearances of South Branch....................................8
ARTICLE V
Representations and Warranties ......................................9
5.01 Disclosure Schedules.............................................9
5.02 Standard........................................................10
5.03 Representations and Warranties of Potomac.......................10
5.04 Representations and Warranties of South Branch..................16
ARTICLE VI
Covenants .....................................23
6.01 Reasonable Best Efforts.........................................23
6.02 Stockholder Approvals...........................................23
6.03 Registration Statement..........................................23
6.04 Press Releases..................................................24
6.05 Access; Information.............................................24
6.06 Acquisition Proposals...........................................25
6.07 Affiliate Agreements............................................25
6.08 Regulatory Applications.........................................25
6.09 Benefit Plans and Arrangements..................................26
6.10 Notification of Certain Matters.................................26
6.11 Dividend Coordination...........................................26
6.12 Change of Name of South Branch..................................26
6.13 Directorship of Summit; Formation of Executive Committee........26
6.14 Officers of Board and Summit....................................27
6.15 Members of the Board of Directors of Potomac and
South Branch, Other Matters...............................27
6.16 Location of Summit Offices......................................27
6.17 Changes to Organizational Documents.............................27
6.18 Divestment of Branch............................................27
6.19 Directors'and Officers'Protection...............................27
6.20 Other Transactions..............................................28
ARTICLE VII
Conditions to Consummation of the Merger....................................28
7.01 Conditions to Each Party's Obligation to Effect the Merger......28
7.02 Conditions to Obligation of Potomac.............................29
7.03 Conditions to Obligation of South Branch........................30
ARTICLE VIII
Termination .....................................32
8.01 Termination.....................................................32
8.02 Effect of Termination and Abandonment...........................33
ARTICLE IX
Miscellaneous .....................................33
9.01 Survival........................................................33
9.02 Waiver; Amendment...............................................33
9.03 Counterparts....................................................33
9.04 Governing Law...................................................33
9.05 Expenses........................................................33
9.06 Notices.........................................................34
9.07 Entire Understanding; No Third Party Beneficiaries..............34
9.08 Interpretation; Effect; Assignment; Successors..................34
EXHIBIT A
EXHIBIT B
AGREEMENT AND PLAN OF MERGER, dated as of July 16, 1999 (this
"Agreement"), by and between South Branch Valley Bancorp, Inc. ("South Branch")
and Potomac Valley Bank ("Potomac").
RECITALS
A. South Branch. South Branch is a West Virginia corporation, having
its principal place of business in Moorefield, West Virginia, which will change
its name pursuant to Section 6.12 hereof.
B. Potomac. Potomac is a West Virginia banking corporation, having
its principal place of business in Petersburg, West Virginia.
C. Intentions of the Parties. It is the intention of the parties to
this Agreement that the business combination contemplated hereby be considered a
merger of equals and be accounted for under the "pooling-of-interests"
accounting method and treated as a "reorganization" under Section 368 of the
Internal Revenue Code of 1986 (the "Code").
D. Board Action. The respective Boards of Directors of each of South
Branch and Potomac have determined that it is in the best interests of their
respective companies and their stockholders to consummate the strategic business
combination transaction provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
ARTICLE I
Certain Definitions
1.01 Certain Definitions1.01 Certain Definitions. The following
terms are used in this Agreement with the meanings set forth below:
"Acquisition Proposal" means any tender or exchange offer, proposal
for a merger, consolidation or other business combination involving Potomac or
any proposal or offer to acquire in any manner a substantial equity interest in,
or a substantial portion of the assets or deposits of Potomac other than the
transactions contemplated by this Agreement.
"Agreement" means this Agreement, as amended or modified from time
to time in accordance with Section 9.02.
"Closing" has the meaning set forth in Section 2.03.
"Code" means the Internal Revenue Code of 1986, as amended.
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"Effective Date" means the date on which the Effective Time
occurs.
"Effective Time" means the effective time of the Merger, as
provided for in Section 2.02.
"Environmental Laws" means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Clean Water Act,
1
the Federal Clean Air Act, and the Occupational Safety and Health Act, each as
amended, regulations promulgated thereunder, and state counterparts.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(l).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.04.
"Exchange Ratio" has the meaning set forth in Section 3.01.
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"IRS" means the Internal Revenue Service.
"Lien" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Material Adverse Effect" means, with respect to South Branch or
Potomac, any effect that (i) is material and adverse to the financial position,
results of operations or business of South Branch and its Subsidiaries taken as
a whole or Potomac respectively, or (ii) would materially impair the ability of
either South Branch or Potomac to perform its obligations under this Agreement
or otherwise materially threaten or materially impede the consummation of the
Merger and the other transactions contemplated by this Agreement; provided,
however, that Material Adverse Effect shall not be deemed to include the impact
of (a) changes in banking and similar laws of general applicability or
interpretations thereof by courts or Governmental Authorities, (b) changes in
generally accepted accounting principles or regulatory accounting requirements
applicable to banks or savings associations and their holding companies
generally, (c) actions or omissions of South Branch or Potomac taken with the
prior written consent of Potomac and South Branch, respectively, in
contemplation of the transaction contemplated hereby, (d) circumstances
affecting banks or savings associations or their holding companies generally and
(e) the effects of the Merger and compliance by either party with the provisions
of this Agreement on the financial position, results of operations or business
of such party and its Subsidiaries, or the other party and its Subsidiaries, as
the case may be.
"Merger" has the meaning set forth in Section 2.01.
"Merger Consideration" has the meaning set forth in Section 3.01.
"Merger Sub" means one or more corporations to be organized by South
Branch prior to the Effective Time to facilitate the Merger.
"Multiemployer Plan" has the meaning set forth in Section 5.03(l).
"New Certificate" has the meaning set forth in Section 3.04.
"Old Certificate" has the meaning set forth in Section 3.04.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" has the meaning set forth in Section 5.03(l).
2
"Person" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust, limited liability company or
unincorporated organization.
"Plans" has the meaning set forth in Section 5.03(l).
"Potomac" has the meaning set forth in the preamble to this
Agreement.
"Potomac Affiliate" has the meaning set forth in Section 6.07(a).
"Potomac Articles" means the Certificate of Incorporation of
Potomac.
"Potomac Bank" means Potomac Valley Bank.
"Potomac Board" means the Board of Directors of Potomac.
"Potomac Bylaws" means the Bylaws of Potomac.
"Potomac Common Stock" means the common stock, par value $10.00 per
share, of Potomac.
"Potomac Compensation and Benefit Plans" has the meaning set
forth in Section 5.03(l).
"Potomac Meeting" has the meaning set forth in Section 6.02.
"Previously Disclosed" by a party shall mean information set
forth in its Disclosure Schedule.
"Proxy Statement" has the meaning set forth in Section 6.03.
"Registration Statement" has the meaning set forth in Section
6.03.
"Regulatory Authority" has the meaning set forth in Section
5.03(h).
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any Person, securities or
obligations convertible into or exercisable or exchangeable for, or giving any
person any right to subscribe for or acquire, or any options, calls or
commitments relating to, or any stock appreciation right or other instrument the
value of which is determined in whole or in part by reference to the market
price or value of, shares of capital stock of such person.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" shall mean South Branch's Annual Reports on Form
10-K for the fiscal years ended December 31, 1996, 1997, and 1998 and all other
reports, registration statements, definitive proxy statements or information
statements filed or to be filed by South Branch subsequent to December 31, 1996
under the Securities Act, or under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"South Branch" has the meaning set forth in the preamble to this
Agreement. In addition, where the context so requires, "South Branch" shall
include "Summit" as defined in Section 6.12, and "Summit" shall include "South
Branch".
3
"South Branch Affiliates" has the meaning set forth in Section
6.07(a).
"South Branch Articles" means the Articles of Incorporation of
South Branch.
"South Branch Board" means the Board of Directors of South Branch.
"South Branch Common Stock" means the common stock, par value $2.50
per share, of South Branch.
"South Branch Compensation and Benefit Plans" has the meaning set
forth in Section 5.04(l).
"South Branch Meeting" has the meaning set forth in Section 6.02.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed
to them in Rule 1-02 of Regulation S-X of the SEC.
"Surviving Corporation" has the meaning set forth in Section 2.01.
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts, sales,
use, ad valorem, goods and services, capital, production, transfer, franchise,
windfall profits, license, withholding, payroll, employment, disability,
employer health, excise, estimated, severance, stamp, occupation, property,
environmental, unemployment or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority whether
arising before, on or after the Effective Date.
"Tax Returns" means any return, amended return or other report
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with respect to any Tax.
"Treasury Stock" shall mean shares of Potomac Common Stock held by
Potomac or by South Branch or any of its Subsidiaries, in each case other than
in a fiduciary capacity or as a result of debts previously contracted in good
faith.
"WVCA" means the West Virginia Corporation Act.
"West Virginia Secretary" means the Office of the Secretary of State
of the State of West Virginia.
ARTICLE II
The Merger
2.01 The Merger. (a) Prior to the Effective Time, South Branch shall take
any and all action necessary (i) to cause the Merger Sub to become a party to
this Agreement, to be evidenced by the execution by the Merger Sub of a
supplement to this Agreement in substantially the form of Annex A, and delivery
thereof to Potomac; and (ii) to cause the Merge Sub to take all actions
necessary or proper to comply with the obligations of South Branch and the
Merger Sub to consummate the transactions contemplated hereby.
4
(b) At the Effective Time, the Merger Sub shall merge with and into
Potomac (the "Merger"), the separate corporate existence of the Merger Sub shall
cease and Potomac shall survive and continue to be governed by the laws of its
state of incorporation (Potomac, as the surviving corporation in the Merger,
sometimes being referred to herein as the "Surviving Corporation").
(c) Subject to the satisfaction or waiver of the conditions set
forth in Article VII, the Merger shall become effective upon the occurrence of
the filing in the office of the West Virginia Secretary of articles of merger in
accordance with the WVCA. The Merger shall have the effects prescribed in the
WVCA.
2.02 Effective Date and Effective Time. Subject to the satisfaction or
waiver of the conditions set forth in Article VII (other than the delivery of
certificates, opinions and other instruments and documents to be delivered at
the Closing), the parties shall cause the effective date of the Merger (the
"Effective Date") to occur on (i) on the last business day of the month in which
the conditions set forth in Article VII shall have been satisfied or waived or
(ii) such other date to which the parties may agree in writing. The time on the
Effective Date when the Merger shall become effective is referred to as the
"Effective Time."
2.03 Closing. A closing of the Merger (the "Closing") shall take place at
such place, at such time and on such date as is determined by the parties
pursuant to Section 2.02 hereof. At the Closing, there shall be delivered to
South Branch and Potomac the opinions, certificates and other documents required
to be delivered under Sections 7.02 and 7.03 hereof.
ARTICLE III
Consideration; Exchange Procedures
3.01 Merger Consideration. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger and without any action
on the part of any Person:
(a) Outstanding Potomac Common Stock. Each share, excluding Treasury
Stock, of Potomac Common Stock issued and outstanding immediately prior to the
Effective Time shall become and be converted into the number of shares of Summit
resulting from a book-for-book exchange in which the book value of Potomac stock
is divided by the book value of South Branch stock with each book value
calculated in accordance with Generally Accepted Accounting Principles (subject
to adjustment as set forth herein, the "Exchange Ratio"). The Exchange Ratio
shall be subject to adjustment as set forth in Sections 3.05 and 3.06.
(b) Outstanding South Branch Stock. Each share of South Branch
Common Stock issued and outstanding immediately prior to the Effective Time
shall remain issued and outstanding, provided, however, that commencing on the
date which is one year after the Effective Time, Summit shall begin to send or
cause to be sent to each record holder of South Branch Common Stock new
certificates representing their Summit shares.
3.02 Rights as Stockholders; Stock Transfers. At the Effective Time,
holders of Potomac Stock shall cease to be, and shall have no rights as,
stockholders of Potomac, other than to receive any dividend or other
distribution with respect to such Potomac Stock with a record date occurring
prior to the Effective Time and the consideration provided under this Article
III. After the Effective Time, there shall be no transfers on the stock transfer
books of Potomac or the Surviving Corporation of shares of Potomac Stock.
3.03 Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of Summit Common Stock and no certificates or scrip therefor,
or other evidence of ownership thereof, will be issued in the Merger; instead,
Summit shall pay to each holder of Potomac Common Stock who would otherwise be
5
entitled to a fractional share of Summit Common Stock (after taking into account
all Old Certificates delivered by such holder) an amount in cash (without
interest) determined by multiplying such fraction by the average of the last
sale prices of Summit Common Stock reported on the last five (5) business days
prior to the Effective Date on which Summit Common Stock is traded as reported
on the NASDAQ Over the Counter Bulletin Board.
3.04 Exchange Procedures. (a) Except for any shares of Potomac as to which
dissenters' rights are exercised pursuant to the WVCA 31-1-122, each holder of
Potomac Common Stock ("Old Certificates") will, upon the surrender to Summit
which shall act as exchange agent ("Exchange Agent"), of the Old Certificates in
proper form, be entitled to receive a certificate or certificates representing
the number of whole shares of Summit Common Stock ("New Certificates") into
which the surrendered Old Certificates shall have been converted by reason of
the Merger.
(b) As promptly as practicable after the Effective Date, Summit
shall send or cause to be sent to each former holder of record of shares of
Potomac Common Stock immediately prior to the Effective Time transmittal
materials for use in exchanging such stockholder's Old Certificates for the
consideration set forth in this Article III. Summit shall cause the New
Certificates into which shares of a stockholder's Potomac Common Stock are
converted on the Effective Date and/or any check in respect of any fractional
share interests or dividends or distributions which such person shall be
entitled to receive to be delivered to such stockholder upon delivery to the
Exchange Agent of Old Certificates representing such shares of Potomac Common
Stock (or indemnity reasonably satisfactory to Summit and the Exchange Agent, if
any of such certificates are lost, stolen or destroyed) owned by such
stockholder. No interest will be paid on any such cash to be paid in lieu of
fractional share interests or in respect of dividends or distributions which any
such person shall be entitled to receive pursuant to this Article III upon such
delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor
any party hereto shall be liable to any former holder of Potomac Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) No dividends or other distributions with respect to Summit
Common Stock with a record date occurring after the Effective Time shall be paid
to the holder of any unsurrendered Old Certificate representing shares of
Potomac Common Stock converted in the Merger into the right to receive shares of
such Summit Common Stock until the holder thereof shall be entitled to receive
New Certificates in exchange therefor in accordance with the procedures set
forth in this Section 3.04. After becoming so entitled in accordance with this
Section 3.04, the record holder thereof also shall be entitled to receive any
such dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of Summit Common Stock
such holder had the right to receive upon surrender of the Old Certificates.
3.05 Provisions Relating to Stock Splits, Stock Dividends, Etc. In the
event Summit changes (or a record date for any such change occurs prior to the
Effective Date) the number of, or provides for the exchange of, shares of Summit
Common Stock issued and outstanding prior to the Effective Date as a result of a
stock split, stock dividend, recapitalization or similar transaction with
respect to the outstanding Summit Common Stock and the record date therefor
shall be prior to the Effective Date, the Exchange Ratio shall be
proportionately adjusted.
3.06 Provisions Relating to the Granting of Additional Options. South
Branch and Potomac acknowledge and agree that South Branch has granted stock
options as set forth on disclosure Schedule A. In the event any new options
("New Options") are granted by South Branch following the date of this Agreement
and prior to the Effective Time, then for purposes of calculating South Branch's
book value as required under Section 3.01(a), the number of shares issued and
outstanding of South Branch shall equal the total of (i) issued and outstanding
shares of South Branch Common Stock as of the Effective Time and, (ii) with
respect to the New Options only, the incremental dilutive shares deemed issued
6
and outstanding for purposes of calculating diluted earnings per share in
accordance with Generally Accepted Accounting Principles.
ARTICLE IV
Actions Pending Merger
4.01 Forebearances of Potomac. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of South Branch, Potomac will not:
(a) Ordinary Course. Conduct the business of Potomac other than in
the ordinary and usual course or fail to use reasonable efforts to preserve
intact its business organizations and assets and maintain their rights,
franchises and existing relations with customers, suppliers, employees and
business associates, or take any action reasonably likely to have an adverse
affect upon Potomac's ability to perform any of its material obligations under
this Agreement.
(b) Capital Stock. Other than pursuant to rights disclosed and
outstanding on the date hereof, (i) issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional shares of Potomac
Stock or any Rights, (ii) enter into any agreement with respect to the
foregoing, or (iii) permit any additional shares of Potomac Stock to become
subject to new grants of employee or director stock options, other Rights or
similar stock-based employee rights.
(c) Dividends, Etc. (a) Make, declare, pay or set aside for payment
any dividend, other than semi-annual cash dividends on Potomac Stock in an
amount not to exceed $1.50 per share with record and payment dates consistent
with section 6.11 hereof, or declare or make any distribution on any shares of
Potomac Stock or (b) directly or indirectly adjust, split, combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital stock.
(d) Compensation; Employment Agreements; Etc. Enter into or amend or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of Potomac, or grant any
salary or wage increase or increase any employee benefit, (including incentive
or bonus payments) except (i) for normal individual increases in compensation to
employees in the ordinary course of business consistent with past practice, (ii)
for other changes that are required by applicable law, (iii) to satisfy
previously disclosed contractual obligations existing as of the date hereof, or
(iv) for grants of awards to newly hired employees consistent with past
practice. South Branch agrees that it will not unreasonably withhold its consent
with respect to requests made hereunder.
(e) Benefit Plans. Enter into, establish, adopt or amend (except as
may be required by applicable law) any pension, retirement, stock option, stock
purchase, savings, profit sharing, deferred compensation, consulting, bonus,
group insurance or other employee benefit, incentive or welfare contract, plan
or arrangement, or any trust agreement (or similar arrangement) related thereto,
in respect of any director, officer or employee of Potomac, or take any action
to accelerate the vesting or exercisability of stock options, restricted stock
or other compensation or benefits payable thereunder. South Branch agrees that
it will not unreasonably withhold its consent with respect to requests made
under this subparagraph (e).
(f) Dispositions. Except as previously disclosed, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its assets,
deposits, business or properties except in the ordinary course of business and
in a transaction that is not material to it.
(g) Acquisitions. Except as previously disclosed, acquire (other
than by way of foreclosures or acquisitions of control in a bona fide fiduciary
7
capacity or in satisfaction of debts previously contracted in good faith, in
each case in the ordinary and usual course of business consistent with past
practice) all or any portion of, the assets, business, deposits or properties of
any other entity.
(h) Governing Documents. Amend the Potomac Articles and
Potomac Bylaws.
(i) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by
generally accepted accounting principles.
(j) Contracts. Except in the ordinary course of business consistent
with past practice, enter into or terminate any material contract (as defined in
Section 5.03(j)) or amend or modify in any material respect any of its existing
material contracts.
(k) Claims. Except in the ordinary course of business consistent
with past practice, settle any claim, action or proceeding, except for any
claim, action or proceeding which does not involve precedent for other material
claims, actions or proceedings and which involve solely money damages in an
amount, individually or in the aggregate for all such settlements, that is not
material to Potomac.
(l) Adverse Actions. (a) Take any action while knowing that such
action would, or is reasonably likely to, prevent or impede the Merger from
qualifying (i) for "pooling-of- interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; or (b) knowingly
take any action that is intended or is reasonably likely to result in (i) any of
its representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective Time,
(ii) any of the conditions to the Merger set forth in Article VII not being
satisfied or (iii) a material violation of any provision of this Agreement
except, in each case, as may be required by applicable law or regulation.
(m) Risk Management. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest rate and
other risk management policies, procedures or practices which would materially
increase its aggregate exposure to interest rate risk; (ii) fail to follow its
existing policies or practices with respect to managing its exposure to interest
rate and other risk; or (iii) fail to use commercially reasonable means to avoid
any material increase in its aggregate exposure to interest rate risk.
(n) Indebtedness. Incur any indebtedness for borrowed money other
than in the ordinary course of business.
(o) Commitments. Agree or commit to do any of the foregoing.
4.02 Forebearances of South Branch. From the date hereof until the
Effective Time, except as expressly contemplated by this Agreement, South Branch
will not:
(a) Ordinary Course. Conduct the business of South Branch and its
Subsidiaries other than in the ordinary and usual course or fail to use
reasonable efforts to preserve intact their business organizations and assets
and maintain their rights, franchises and existing relations with customers,
suppliers, employees and business associates, or take any action reasonably
likely to have an adverse affect upon South Branch's ability to perform any of
its material obligations under this Agreement.
(b) Capital Stock. Other than pursuant to rights disclosed and
outstanding on the date hereof, (i) issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional shares of South Branch
Stock or any Rights, (ii) enter into any agreement with respect to the
foregoing, or (iii) permit any additional shares of South Branch Stock to become
subject to new grants of employee or director stock options, other Rights or
similar stock-based employee rights.
8
(c) Dividends, Etc. (a) Make, declare, pay or set aside for payment
any dividend, other than semi-annual cash dividends on South Branch Stock in an
amount not to exceed $.50 per share with record and payment dates consistent
with past practice on or in respect of, or declare or make any distribution on
any shares of South Branch Stock or (b) directly or indirectly adjust, split,
combine, redeem, reclassify, purchase or otherwise acquire, any shares of its
capital stock.
(d) Dispositions. Except as previously disclosed, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its assets,
deposits, business or properties except in the ordinary course of business and
in a transaction that is not material to it.
(e) Governing Documents. Amend the South Branch Articles and
South Branch Bylaws.
(f) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by
generally accepted accounting principles.
(g) Contracts. Except in the ordinary course of business consistent
with past practice, enter into or terminate any material contract (as defined in
Section 5.04(j)) or amend or modify in any material respect any of its existing
material contracts.
(h) Claims. Except in the ordinary course of business consistent
with past practice, settle any claim, action or proceeding, except for any
claim, action or proceeding which does not involve precedent for other material
claims, actions or proceedings and which involve solely money damages in an
amount, individually or in the aggregate for all such settlements, that is not
material to South Branch.
(i) Adverse Actions. (a) Take any action while knowing that such
action would, or is reasonably likely to, prevent or impede the Merger from
qualifying (i) for "pooling-of- interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; or (b) knowingly
take any action that is intended or is reasonably likely to result in (i) any of
its representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective Time,
(ii) any of the conditions to the Merger set forth in Article VII not being
satisfied or (iii) a material violation of any provision of this Agreement
except, in each case, as may be required by applicable law or regulation.
(j) Risk Management. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest rate and
other risk management policies, procedures or practices which would materially
increase its aggregate exposure to interest rate risk; (ii) fail to follow its
existing policies or practices with respect to managing its exposure to interest
rate and other risk; or (iii) fail to use commercially reasonable means to avoid
any material increase in its aggregate exposure to interest rate risk.
(k) Indebtedness. Incur any indebtedness for borrowed money other
than in the ordinary course of business.
(l) Commitments. Agree or commit to do any of the foregoing.
ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules. On or prior to the date hereof, South Branch
has delivered to Potomac a schedule and Potomac has delivered to South Branch a
schedule (respectively, its "Disclosure Schedule") setting forth, among other
things, items the disclosure of which is necessary or appropriate in relation to
9
any or all of its representations and warranties contained in Section 5.03 or
5.04 or to one or more of its covenants contained in Article IV; provided, that
(a) no such item is required to be set forth in a Disclosure Schedule as an
exception to a representation or warranty if its absence would not be reasonably
likely to result in the related representation or warranty being deemed untrue
or incorrect under the standard established by Section 5.02, and (b) the mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or fact, event or circumstance or that such
item is reasonably likely to result in a Material Adverse Effect on the party
making the representation. A party's representations, warranties and covenants
contained in this Agreement shall not be deemed to be untrue or breached as a
result of effects arising solely from actions taken in compliance with a written
request of the other party.
5.02 Standard. No representation or warranty of Potomac or South Branch
contained in Section 5.03 or 5.04 shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, event or circumstance unless such
fact, circumstance or event, individually or taken together with all other
facts, events or circumstances inconsistent with any representation or warranty
contained in Section 5.03 or 5.04 has had or is reasonably likely to have a
Material Adverse Effect. For purposes of this Agreement, "knowledge" shall mean,
with respect to a party hereto, actual knowledge of any officer of that party
with the title, if any, ranking not less than vice president and that party's
in-house counsel, if any.
5.03 Representations and Warranties of Potomac. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, Potomac hereby
represents and warrants to South Branch:
(a) Organization, Standing and Authority. Potomac is a corporation
duly organized, validly existing and in good standing under the laws of the
State of West Virginia. Potomac is duly qualified to do business and is in good
standing in the State of West Virginia and any jurisdictions where its ownership
or leasing of property or assets or the conduct of its business requires it to
be so qualified.
(b) Potomac Stock. As of the date hereof, the authorized capital
stock of Potomac consists solely of 90,000 shares of Potomac Common Stock, of
which 90,000 shares were outstanding as of the date hereof. The outstanding
shares of Potomac Stock have been duly authorized and are validly issued and
outstanding, fully paid and nonassessable, and subject to no preemptive rights
(and were not issued in violation of any preemptive rights). As of the date
hereof, except as Previously Disclosed in its Disclosure Schedule, there are no
shares of Potomac Stock authorized and reserved for issuance, Potomac does not
have any Rights issued or outstanding with respect to Potomac Stock, and Potomac
does not have any commitment to authorize, issue or sell any Potomac Stock or
Rights, except pursuant to this Agreement. Potomac has Previously Disclosed all
issuances of Potomac Stock in the prior two years.
(c) Corporate Power. Potomac has the corporate power and authority
to carry on its business as it is now being conducted and to own all its
properties and assets; and Potomac has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby and thereby.
(d) Corporate Authority. Subject in the case of this Agreement to
receipt of the requisite approval and adoption of this Agreement (including the
agreement of merger set forth herein) by the holders of more than a majority of
the outstanding shares of Potomac Common Stock entitled to vote thereon pursuant
to the WVCA (which is the only Potomac shareholder vote required thereon), this
Agreement and the transactions contemplated hereby and thereby have been
authorized by all necessary corporate action of Potomac and the Potomac Board
prior to the date hereof. This Agreement is a valid and legally binding
obligation of Potomac, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
10
applicability relating to or affecting creditors' rights or by general equity
principles).
(e) Regulatory Filings; No Defaults. (i) No consents or approvals
of, or filings or registrations with, any Governmental Authority or with any
third party are required to be made or obtained by Potomac in connection with
the execution, delivery or performance by Potomac of this Agreement or to
consummate the Merger except for (A) filings of applications or notices with
federal and state banking authorities, (B) filings with the SEC and state
securities authorities, (C) filings of applications or notices with the U.S.
Department of Justice, (D) the filing of the articles of merger with the West
Virginia Secretary pursuant to the WVCA, and (E) the adoption and approval of
this Agreement by the stockholders of Potomac, Merger Sub and the issuance of
shares by Summit. As of the date hereof, Potomac is not aware of any reason why
the approvals set forth in Section 7.01(b) will not be received without the
imposition of a condition, restriction or requirement of the type described in
Section 7.01(b).
(ii)..Subject to the satisfaction of the requirements referred
to in the preceding paragraph, and expiration of related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby and thereby do not and will not (A) constitute
a breach or violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of Potomac or of any of or to which Potomac
or properties is subject or bound, (B) constitute a breach or violation of, or a
default under, the Potomac Articles or the Potomac Bylaws or (C) require any
consent or approval under any such law, rule, regulation, judgment, decree,
order, governmental permit or license, agreement, indenture or instrument.
(f) Financial Reports; Material Adverse Effect. (i) Each of the
balance sheets of Potomac for the years ended December 31, 1996, 1997 and 1998
(including the related notes and schedules thereto) fairly presents, or will
fairly present, the financial position of Potomac as of its date, and each of
the statements of income and changes in stockholders' equity and cash flows or
equivalent statements (including any related notes and schedules thereto) fairly
presents, or will fairly present, the results of operations, changes in
stockholders' equity and cash flows, as the case may be, of Potomac for the
periods to which they relate, in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
in each case as may be noted therein.
(ii).Since March 31, 1999, Potomac has not incurred any
liability other than in the ordinary course of business consistent with past
practice (excluding expenses incurred in connection with this Agreement and the
transactions contemplated hereby).
(iii).Since March 31, 1999, (A) Potomac has conducted its
business in the ordinary and usual course consistent with past practice
(excluding matters related to this Agreement and the transactions contemplated
hereby) and (B) no event has occurred nor circumstance arisen that, individually
or taken together with all other facts, circumstances and events (described in
any paragraph of Section 5.03 or otherwise), is reasonably likely to have a
Material Adverse Effect with respect to Potomac.
(g) Litigation. No litigation, claim or other proceeding before any
Governmental Authority is pending against Potomac and, to the best of Potomac's
knowledge, no such litigation, claim or other proceeding has been threatened.
(h) Regulatory Matters. (i) Neither Potomac nor any of its
properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, or extraordinary supervisory letter from, any federal
or state governmental agency or authority charged with the supervision or
regulation of financial institutions (or their holding companies) or issuers of
securities or engaged in the insurance of deposits (including, without
limitation, the Office of the Comptroller of the Currency, the Board of
11
Governors of the Federal Reserve System and the Federal Deposit Insurance
Corporation) or the supervision or regulation of it (collectively, the
"Regulatory Authorities").
(ii).Potomac has not been advised by any Regulatory Authority
that such Regulatory Authority is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter, supervisory
letter or similar submission.
(i) Compliance with Laws. Potomac:
(i) is in compliance with all applicable federal, state,
local and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity Act, the
Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure
Act and all other applicable fair lending laws and other laws relating to
discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own or
lease their properties and to conduct their businesses as presently conducted;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect and, to Potomac's knowledge, no suspension or
cancellation of any of them is threatened; and
(iii) has received, since December 31, 1996, no notification
or communication from any Governmental Authority (A) asserting that Potomac is
not in material compliance with any of the statutes, regulations, or ordinances
which such Governmental Authority enforces, (B) threatening to revoke any
license, franchise, permit, or governmental authorization (nor, to Potomac's
knowledge, do any grounds for any of the foregoing exist) or (C) as of the date
hereof, failing to approve any proposed acquisition, or stating its intention
not to approve acquisitions proposed to be effected by it within a certain time
period or indefinitely.
(j) Material Contracts; Defaults. Except for this Agreement and
those agreements set forth in its Disclosure Schedule, Potomac is not a party
to, bound by or subject to any agreement, contract, arrangement, commitment or
understanding (whether written or oral) (i) that is a "material contract" within
the meaning of Item 601(b)(10) of the SEC's Regulation S-K or (ii) that
restricts or limits in any way the conduct of business by it(including without
limitation a non-compete or similar provision). Potomac is not in default under
any contract, agreement, commitment, arrangement, lease, insurance policy or
other instrument to which it is a party, by which its respective assets,
business, or operations may be bound or affected, or under which it or its
respective assets, business, or operations receive benefits, and there has not
occurred any event that, with the lapse of time or the giving of notice or both,
would constitute such a default.
(k) No Brokers. No action has been taken by Potomac that would give
rise to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions contemplated
by this Agreement.
(l) Employee Benefit Plans. (i) Potomac's Disclosure Schedule
contains a complete and accurate list of all existing bonus, incentive, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock, stock option,
severance, welfare and fringe benefit plans, employment or severance agreements
and all similar practices, policies and arrangements in which any employee or
former employee (the "Employees"), consultant or former consultant (the
"Consultants") or director or former director (the "Directors") of Potomac
participates or to which any such Employees, Consultants or Directors are a
party with Potomac (the "Potomac Compensation and Benefit Plans"). Except as set
forth in the Disclosure Statement, Potomac does not have any material commitment
to create any additional Compensation and Benefit Plan or to modify or change
materially any existing Compensation and Benefit Plan.
12
(ii) Each Potomac Compensation and Benefit Plan has been
operated and administered in all material respects in accordance with its terms
and with applicable law, including, but not limited to, ERISA, the Code, the
Securities Act, the Exchange Act, the Age Discrimination in Employment Act, or
any regulations or rules promulgated thereunder, and all filings, disclosures
and notices required by ERISA, the Code, the Securities Act, the Exchange Act,
the Age Discrimination in Employment Act and any other applicable law have been
timely made. Each Potomac Compensation and Benefit Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA (a "Pension
Plan") and which is intended to be qualified under Section 401(a) of the Code
has received a favorable determination letter (including a determination that
the related trust under such Potomac Compensation and Benefit Plan is exempt
from tax under Section 501(a) of the Code) from the IRS, and Potomac is not
aware of any circumstances likely to result in revocation of any such favorable
determination letter. There is no material pending or, to the knowledge of
Potomac, threatened legal action, suit or claim relating to the Potomac
Compensation and Benefit Plans. Potomac has not engaged in a transaction, or
omitted to take any action, with respect to any Potomac Compensation and Benefit
Plan that would reasonably be expected to subject Potomac to a tax or penalty
imposed by either Section 4975 of the Code or Section 502 of ERISA, assuming for
purposes of Section 4975 of the Code that the taxable period of any such
transaction expired as of the date hereof.
(iii) No liability (other than for payment of premiums to the
PBGC which have been made or will be made on a timely basis) under Title IV of
ERISA has been or is expected to be incurred by Potomac or with respect to any
ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them,
or any single-employer plan of any entity (an "ERISA Affiliate") which is
considered one employer with Potomac under Section 4001(a)(14) of ERISA or
Section 414(b) or (c) of the Code (an "ERISA Affiliate Plan"). Potomac has not
been obligated to contribute, to a multiemployer plan under Subtitle E of Title
IV of ERISA at any time since September 26, 1980. No notice of a "reportable
event", within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed for any
Potomac Compensation and Benefit Plan or by any ERISA Affiliate Plan within the
12-month period ending on the date hereof, and no such notice will be required
to be filed as a result of the transactions contemplated by this Agreement. The
PBGC has not instituted proceedings to terminate any Pension Plan or ERISA
Affiliate Plan and, to Potomac's knowledge, no condition exists that presents a
material risk that such proceedings will be instituted. To the knowledge of
Potomac, there is no pending investigation or enforcement action by the PBGC,
the U.S. Department of Labor (the "DOL") or IRS or any other governmental agency
with respect to any Potomac Compensation and Benefit Plan.
(iv) All contributions required to be made under the terms of
any Potomac Compensation and Benefit Plan or ERISA Affiliate Plan or any
employee benefit arrangements under any collective bargaining agreement to which
Potomac is a party have been timely made or have been reflected on Potomac's
financial statements. Neither any Pension Plan nor any ERISA Affiliate Plan has
an "accumulated funding deficiency" (whether or not waived) within the meaning
of Section 412 of the Code or Section 302 of ERISA and all required payments to
the PBGC with respect to each Pension Plan or ERISA Affiliate Plan have been
made on or before their due dates. Potomac has not provided, or would reasonably
be expected to be required to provide, security to any Pension Plan or to any
ERISA Affiliate Plan pursuant to Section 401(a)(29) of the Code, and (y) has
taken any action, or omitted to take any action, that has resulted, or would
reasonably be expected to result, in the imposition of a lien under Section
412(n) of the Code or pursuant to ERISA.
(v) Except as set forth in the Potomac disclosure schedule,
Potomac has no obligations to provide retiree health and life insurance or other
retiree death benefits under any Potomac Compensation and Benefit Plan, other
than benefits mandated by Section 4980B of the Code, and each such Potomac
Compensation and Benefit Plan authorizes Potomac to amend or terminate such plan
according to its terms. There has been no communication to Employees by Potomac
that would reasonably be expected to promise or guarantee such Employees retiree
health or life insurance or other retiree death benefits on a permanent basis.
13
(vi) Potomac does not maintain any Potomac Compensation and
Benefit Plans covering foreign Employees.
(vii) With respect to each Potomac Compensation and Benefit
Plan, if applicable, Potomac has provided or made available to South Branch,
true and complete copies of existing: (A) Potomac Compensation and Benefit Plan
documents and amendments thereto; (B) trust instruments and insurance contracts;
(C) two most recent Forms 5500 filed with the IRS; (D) most recent actuarial
report and financial statement; (E) the most recent summary plan description;
(F) forms filed with the PBGC (other than for premium payments); (G) most recent
determination letter issued by the IRS; (H) any Form 5310 or Form 5330 filed
with the IRS; and (i) most recent nondiscrimination tests performed under ERISA
and the Code (including 401(k) and 401(m) tests).
(viii) The consummation of the transactions contemplated by
this Agreement would not, directly or indirectly (including, without limitation,
as a result of any termination of employment prior to or following the Effective
Time) reasonably be expected to (A) entitle any Employee, Consultant or Director
to any payment (including severance pay or similar compensation) or any increase
in compensation, (B) result in the vesting or acceleration of any benefits under
any Potomac Compensation and Benefit Plan or (C) result in any material increase
in benefits payable under any Potomac Compensation and Benefit Plan.
(ix) Potomac does not maintain any compensation plan,
programs or arrangements the payments under which would not reasonably be
expected to be deductible as a result of the limitations under Section 162(m) of
the Code and the regulations issued thereunder.
(x) As a result, directly or indirectly, of the transactions
contemplated by this Agreement (including, without limitation, as a result of
any termination of employment prior to or following the Effective Time), none of
South Branch, Potomac or the Surviving Corporation, or any of their respective
Subsidiaries will be obligated to make a payment that would be characterized as
an "excess parachute payment" to an individual who is a "disqualified
individual" (as such terms are defined in Section 280G of the Code), without
regard to whether such payment is reasonable compensation for personal services
performed or to be performed in the future.
(m) Labor Matters. Potomac is not a party to nor bound by any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is Potomac the subject of a
proceeding asserting that it has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel Potomac to
bargain with any labor organization as to wages or conditions of employment, nor
is there any strike or other labor dispute involving it pending or, to Potomac's
knowledge, threatened, nor is Potomac aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in other
organizational activity.
(n) Environmental Matters. To Potomac's knowledge, neither the
conduct nor operation of Potomac nor any condition of any property presently or
previously owned, leased or operated by Potomac (including, without limitation,
in a fiduciary or agency capacity), or on which Potomac holds a Lien, violates
or violated Environmental Laws and to Potomac's knowledge, no condition has
existed or event has occurred with respect to Potomac or any such property that,
with notice or the passage of time, or both, is reasonably likely to result in
liability under Environmental Laws. To Potomac's knowledge, Potomac has not
received any notice from any person or entity that Potomac or the operation or
condition of any property ever owned, leased, operated, or held as collateral or
in a fiduciary capacity by Potomac is or was in violation of or otherwise are
alleged to have liability under any Environmental Law, including, but not
limited to, responsibility (or potential responsibility) for the cleanup or
other remediation of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on, beneath, or originating from any such property.
14
(o) Tax Matters. (i) Potomac 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 has adequately reserved or recognized for
all current and deferred Taxes;
(ii) Neither the IRS nor any other taxing authority
is now asserting against Potomac, or, to its knowledge, threatening to assert
against Potomac, 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 Potomac 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 6501(a), no tax
year of Potomac 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 taxes, except for tax
liabilities not yet due and payable.
(v) Potomac has made available to South Branch true
and correct copies of the United States federal income Tax Returns filed by
Potomac for each of the three most recent fiscal years ended on or before
December 31, 1998. Potomac has no liability with respect to income, franchise or
similar Taxes that accrued on or before the end of the most recent period
covered by Potomac's Financial Reports described in Section 5.02(f) hereof in
excess of the amounts accrued with respect thereto that are reflected in the
financial statements included in Potomac's Financial Reports.
(vi) As of the date hereof, Potomac has no reason to
believe that any conditions exist that might prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(p) Risk Management Instruments. All interest rate swaps, caps,
floors, option agreements, futures and forward contracts and other similar risk
management arrangements, whether entered into for Potomac's own account or the
account of its customers (all of which are listed on Potomac's Disclosure
Schedule), were entered into in accordance with applicable laws, rules,
regulations and regulatory policies and with counter parties believed to be
financially responsible at the time; and each of them constitutes the valid and
legally binding obligation of Potomac, enforceable in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles), and is in full force and effect. Potomac is not, nor to Potomac's
knowledge any other party thereto, in breach of any of its obligations under any
such agreement or arrangement.
(q) Books and Records. The books and records of Potomac have been
fully, properly and accurately maintained in all material respects, and there
are no material inaccuracies or discrepancies of any kind contained or reflected
therein and they fairly reflect the substance of events and transactions
included therein.
(r) Insurance. Potomac's Disclosure Schedule sets forth all of the
insurance policies, binders, or bonds maintained by Potomac. Potomac is insured
with reputable insurers against such risks and in such amounts as the management
of Potomac reasonably has determined to be prudent in accordance with industry
practices. All such insurance policies are in full force and effect; Potomac is
not in material default thereunder; and all claims thereunder have been filed in
due and timely fashion.
15
(s) Accounting Treatment. As of the date hereof, Potomac is aware of
no reason why the Merger will fail to qualify for "pooling-of-interests"
accounting treatment, assuming compliance by Potomac and South Branch with the
requirements of Section 6.17 hereof.
(t) Real Property. Potomac owns the real property set forth in the
Disclosure Schedule. Except as disclosed in the Disclosure Schedule, all real
property owned by Potomac is free and clear of liens and encumbrances except for
liens of record, liens which do not materially affect the use of the property or
liens for ad valorem taxes not yet due and payable.
(u) Year 2000 Compliance. Potomac is engaged in a company-wide Year
2000 project to bring Potomac's computerized information systems to Year 2000
compliance so as to ensure better the ability of such systems to accurately
process information that is date sensitive. To the extent reasonably necessary,
Potomac has confirmed Potomac's vendor's and suppliers' progress toward Year
2000 compliance. Potomac knows of no reason that its computerized information
systems will fail to comply in any material respect with Year 2000 compliance
requirements.
(v) Disclosure. The representations and warranties contained in this
Section 5.03 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 5.03 not misleading.
5.04 Representations and Warranties of South Branch. Subject to Sections
5.01 and 5.02 and except as Previously Disclosed in a paragraph of its
Disclosure Schedule corresponding to the relevant paragraph below, South Branch
hereby represents and warrants to Potomac as follows:
(a) Organization, Standing and Authority. South Branch is a
corporation duly organized, validly existing and in good standing under the laws
of the State of West Virginia. South Branch is duly qualified to do business and
is in good standing in the State of West Virginia and foreign jurisdictions
where its ownership or leasing of property or assets or the conduct of its
business requires it to be so qualified.
(b) South Branch Stock. (i) As of the date hereof, the authorized
capital stock of South Branch consists solely of 2,000,000 shares of South
Branch Common Stock, of which no more than 591,292 shares were outstanding as of
the date hereof. As of the date hereof, except as set forth in its Disclosure
Schedule, South Branch does not have any Rights issued or outstanding with
respect to South Branch Stock and South Branch does not have any commitment to
authorize, issue or sell any South Branch Stock or Rights, except pursuant to
this Agreement. The outstanding shares of South Branch Common Stock have been
duly authorized and are validly issued and outstanding, fully paid and
nonassessable, and subject to no preemptive rights (and were not issued in
violation of any preemptive rights). South Branch has previously disclosed all
issuances of South Branch Common Stock in the prior two years.
(ii) The shares of Summit Common Stock to be issued in
exchange for shares of Potomac Common Stock in the Merger, when issued in
accordance with the terms of this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable and subject to no preemptive rights.
(c) Subsidiaries. Each of South Branch's Subsidiaries has been duly
organized and is validly existing in good standing under the laws of the
jurisdiction of its organization, and is duly qualified to do business and is in
good standing in the jurisdictions where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and it owns, directly
or indirectly, all the issued and outstanding equity securities of each of its
Significant Subsidiaries.
(d) Corporate Power. Each of South Branch and its Subsidiaries has
the corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and South Branch has the
16
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby and
thereby.
(e) Corporate Authority. Subject in the case of this Agreement to
receipt of the requisite approval by the holders of a majority of the
outstanding shares of South Branch Common Stock and Merger Sub common stock
entitled to vote thereon of the Merger, this Agreement and the transactions
contemplated hereby and thereby have been authorized by all necessary corporate
action of South Branch and the South Branch Board prior to the date hereof. This
Agreement is a valid and legally binding agreement of South Branch, enforceable
in accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles).
(f) Regulatory Filings; No Defaults. (i) No consents or approvals
of, or filings or registrations with, any Governmental Authority or with any
third party are required to be made or obtained by South Branch or any of its
Subsidiaries in connection with the execution, delivery or performance by South
Branch of this Agreement or to consummate the Merger except for (A) the filing
of applications and notices, as applicable, with the federal and state banking
and thrift authorities; (B) the adoption and approval of (i) the issuance of
shares in connection with this Agreement by the shareholders of South Branch and
(ii) an amendment to the Articles of Incorporation to change the name of South
Branch to Summit; (C) the filing and declaration of effectiveness of the
Registration Statement; (D) the filing of applications or notices with the U.S.
Department of Justice; (E) the filing of articles of merger with the West
Virginia Secretary; (F) such filings as are required to be made or approvals as
are required to be obtained under the securities or "Blue Sky" laws of various
states in connection with the issuance of Summit Stock in the Merger; and (G)
receipt of the approvals set forth in Section 7.01(b). As of the date hereof,
South Branch is not aware of any reason why the approvals set forth in Section
7.01(b) will not be received without the imposition of a condition, restriction
or requirement of the type described in Section 7.01(b).
(ii)..Subject to the satisfaction of the requirements referred
to in the preceding paragraph and expiration of the related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (A) constitute a breach or
violation of, or a default under, or give rise to any Lien, any acceleration of
remedies or any right of termination under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of South Branch or of any of its Subsidiaries or to which South
Branch or any of its Subsidiaries or properties is subject or bound, (B)
constitute a breach or violation of, or a default under, the certificate of
incorporation or by-laws (or similar governing documents) of South Branch or any
of its Subsidiaries, or (C) require any consent or approval under any such law,
rule, regulation, judgment, decree, order, governmental permit or license,
agreement, indenture or instrument.
(g) Financial Reports and SEC Documents; Material Adverse Effect.
(i) South Branch's SEC Documents, as of the date filed, (A) complied or will
comply in all material respects with the applicable requirements under the
Securities Act or the Exchange Act, as the case may be, and (B) did not and will
not contain any untrue statement of a material fact or omit to state a 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; and
each of the balance sheets contained in or incorporated by reference into any
such SEC Document (including the related notes and schedules thereto) fairly
presents, or will fairly present, the financial position of South Branch and its
Subsidiaries as of its date, and each of the statements of income or results of
operations and changes in stockholders' equity and cash flows or equivalent
statements in such SEC Documents (including any related notes and schedules
thereto) fairly presents, or will fairly present, the results of operations,
changes in stockholders' equity and cash flows, as the case may be, of South
Branch and its Subsidiaries for the periods to which they relate, in each case
in accordance with generally accepted accounting principles consistently applied
during the periods involved, except in each case as may be noted therein.
17
(ii) Since March 31, 1999, South Branch has not incurred any
liability other than in the ordinary course of business consistent with past
practice (excluding expenses incurred in connection with this Agreement and the
transactions contemplated hereby.)
(iii) Since March 31, 1999, (A) South Branch has conducted its
business in the ordinary and usual course consistent with past practice
(excluding matters related to this Agreement and the transactions contemplated
hereby) and (B) no event has occurred nor circumstance arisen that, individually
or taken together with all other facts, circumstances and events (described in
any paragraph of Section 5.04 or otherwise), is reasonably likely to have a
Material Adverse Effect with respect to South Branch.
(h) Litigation; Regulatory Action. (i) No litigation, claim or other
proceeding before any Governmental Authority is pending against South Branch or
any of its Subsidiaries and, to the best of South Branch's knowledge, no such
litigation, claim or other proceeding has been threatened.
(ii) Neither South Branch nor any of its Subsidiaries or
properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, or extraordinary supervisory letter from a Regulatory
Authority, nor has South Branch or any of its Subsidiaries been advised by a
Regulatory Authority that such agency is contemplating issuing or requesting (or
is considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter, supervisory
letter or similar submission.
(i) Compliance with Laws. Each of South Branch and its Subsidiaries:
(i) is in compliance with all applicable federal, state,
local and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity Act, the
Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure
Act and all other applicable fair lending laws and other laws relating to
discriminatory business practices; and
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to conduct
their businesses substantially as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect and, to the best of its knowledge, no suspension or cancellation of any
of them is threatened; and
(iii) has received, since December 31, 1996, no
notification or communication from any Governmental Authority (A) asserting that
South Branch or any of its Subsidiaries is not in material compliance with any
of the statutes, regulations, or ordinances which such Governmental Authority
enforces, (B) threatening to revoke any license, franchise, permit, or
governmental authorization (nor, to South Branch's knowledge, do any grounds for
any of the foregoing exist) or (C) as of the date hereof, failing to approve any
proposed acquisition, or stating its intention not to approve acquisitions
proposed to be effected by it within a certain time period or indefinitely.
(j) Material Contracts; Defaults. Except for this Agreement and
those agreements set forth in its Disclosure Schedule, South Branch is not a
party to, bound by or subject to any agreement, contract, arrangement,
commitment or understanding (whether written or oral) (i) that is a "material
contract" within the meaning of Item 601(b)(10) of the SEC's Regulation S-K or
(ii) that restricts or limits in any way the conduct of business by it
(including without limitation a non-compete or similar provision). Neither South
Branch nor any of its Subsidiaries is in default under any contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to which it
is a party, by which its respective assets, business, or operations may be bound
or affected, or under which it or its respective assets, business, or operations
receive benefits, and there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
18
(k) No Brokers. No action has been taken by South Branch that would
give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the transactions
contemplated by this Agreement.
(l) Employee Benefit Plans. (i) South Branch' Disclosure Schedule
contains a complete and accurate list of all existing bonus, incentive, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock, stock option,
severance, welfare and fringe benefit plans, employment or severance agreements
and all similar practices, policies and arrangements in which any employee or
former employee (the "Employees"), consultant or former consultant (the
"Consultants") or director or former director (the "Directors") of South Branch
or any of its Subsidiaries participates or to which any such Employees,
Consultants or Directors are a party with South Branch (the "South Branch
Compensation and Benefit Plans"). Except as listed on the Disclosure Schedule,
neither South Branch nor any of its Subsidiaries has any commitment to create
any additional material Compensation and Benefit Plan or to modify or change
materially any existing Compensation and Benefit Plan.
(ii) Each South Branch Compensation and Benefit Plan has been
operated and administered in all material respects in accordance with its terms
and with applicable law, including, but not limited to, ERISA, the Code, the
Securities Act, the Exchange Act, the Age Discrimination in Employment Act, or
any regulations or rules promulgated thereunder, and all filings, disclosures
and notices required by ERISA, the Code, the Securities Act, the Exchange Act,
the Age Discrimination in Employment Act and any other applicable law have been
timely made. Each South Branch Compensation and Benefit Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA (a
"Pension Plan") and which is intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter (including a
determination that the related trust under such South Branch Compensation and
Benefit Plan is exempt from tax under Section 501(a) of the Code) from the IRS,
and South Branch is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. There is no material
pending or, to the knowledge of South Branch, threatened legal action, suit or
claim relating to the South Branch Compensation and Benefit Plans. Neither South
Branch nor any of its Subsidiaries has engaged in a transaction, or omitted to
take any action, with respect to any South Branch Compensation and Benefit Plan
that would reasonably be expected to subject South Branch or any of its
Subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or
Section 502 of ERISA, assuming for purposes of Section 4975 of the Code that the
taxable period of any such transaction expired as of the date hereof.
(iii) No liability (other than for payment of premiums to the
PBGC which have been made or will be made on a timely basis) under Title IV of
ERISA has been or is expected to be incurred by South Branch or any of its
Subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or any single-employer plan of any entity (an "ERISA
Affiliate") which is considered one employer with South Branch under Section
4001(a)(14) of ERISA or Section 414(b) or (c) of the Code (an "ERISA Affiliate
Plan"). None of South Branch, any of its Subsidiaries or any ERISA Affiliate has
contributed, or has been obligated to contribute, to a multiemployer plan under
Subtitle E of Title IV of ERISA at any time since September 26, 1980. No notice
of a "reportable event", within the meaning of Section 4043 of ERISA for which
the 30-day reporting requirement has not been waived, has been required to be
filed for any South Branch Compensation and Benefit Plan or by any ERISA
Affiliate Plan within the 12-month period ending on the date hereof, and no such
notice will be required to be filed as a result of the transactions contemplated
by this Agreement. The PBGC has not instituted proceedings to terminate any
Pension Plan or ERISA Affiliate Plan and, to South Branch' knowledge, no
condition exists that presents a material risk that such proceedings will be
instituted. To the knowledge of South Branch, there is no pending investigation
or enforcement action by the PBGC, the U.S. Department of Labor (the "DOL") or
IRS or any other governmental agency with respect to any South Branch
Compensation and Benefit Plan.
19
(iv) All contributions required to be made under the terms of
any South Branch Compensation and Benefit Plan or ERISA Affiliate Plan or any
employee benefit arrangements under any collective bargaining agreement to which
South Branch or any of its Subsidiaries is a party have been timely made or have
been reflected on South Branch's financial statements. Neither any Pension Plan
nor any ERISA Affiliate Plan has an "accumulated funding deficiency" (whether or
not waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA and all required payments to the PBGC with respect to each Pension Plan or
ERISA Affiliate Plan have been made on or before their due dates. None of South
Branch, any of its Subsidiaries or any ERISA Affiliate (x) has provided, or
would reasonably be expected to be required to provide, security to any Pension
Plan or to any ERISA Affiliate Plan pursuant to Section 401(a)(29) of the Code,
and (y) has taken any action, or omitted to take any action, that has resulted,
or would reasonably be expected to result, in the imposition of a lien under
Section 412(n) of the Code or pursuant to ERISA.
(v) Except as set forth by South Branch on the Disclosure
Schedule, neither South Branch nor any of its Subsidiaries has any obligations
to provide retiree health and life insurance or other retiree death benefits
under any South Branch Compensation and Benefit Plan, other than benefits
mandated by Section 4980B of the Code, and each such South Branch Compensation
and Benefit Plan authorizes South Branch to amend or terminate such Plan
according to its terms. There has been no communication to Employees by South
Branch or any of its Subsidiaries that would reasonably be expected to promise
or guarantee such Employees retiree health or life insurance or other retiree
death benefits on a permanent basis.
(vi) South Branch and its Subsidiaries do not maintain any
South Branch Compensation and Benefit Plans covering foreign Employees.
(vii) With respect to each South Branch Compensation and
Benefit Plan, if applicable, South Branch has provided or made available to
Potomac, true and complete copies of existing: (A) South Branch Compensation and
Benefit Plan documents and amendments thereto; (B) trust instruments and
insurance contracts; (C) two most recent Forms 5500 filed with the IRS; (D) most
recent actuarial report and financial statement; (E) the most recent summary
plan description; (F) forms filed with the PBGC (other than for premium
payments); (G) most recent determination letter issued by the IRS; (H) any Form
5310 or Form 5330 filed with the IRS; and (i) most recent nondiscrimination
tests performed under ERISA and the Code (including 401(k) and 401(m) tests).
(viii) The consummation of the transactions contemplated by
this Agreement would not, directly or indirectly (including, without limitation,
as a result of any termination of employment prior to or following the Effective
Time) reasonably be expected to (A) entitle any Employee, Consultant or Director
to any payment (including severance pay or similar compensation) or any increase
in compensation, (B) result in the vesting or acceleration of any benefits under
any South Branch Compensation and Benefit Plan or (C) result in any material
increase in benefits payable under any South Branch Compensation and Benefit
Plan.
(ix) South Branch does not maintain any compensation plan,
programs or arrangements, the payments under which would not reasonably be
expected to be deductible as a result of the limitations under Section 162(m) of
the Code and the regulations issued thereunder.
(x) As a result, directly or indirectly, of the transactions
contemplated by this Agreement (including, without limitation, as a result of
any termination of employment prior to or following the Effective Time), none of
South Branch, Potomac or the Surviving Corporation, or any of their respective
Subsidiaries will be obligated to make a payment that would be characterized as
an "excess parachute payment" to an individual who is a "disqualified
individual" (as such terms are defined in Section 280G of the Code), without
regard to whether such payment is reasonable compensation for personal services
performed or to be performed in the future.
20
(m) Labor Matters. South Branch is not a party to nor bound by any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is South Branch the subject of a
proceeding asserting that it has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel South Branch
to bargain with any labor organization as to wages or conditions of employment,
nor is there any strike or other labor dispute involving it pending or, to South
Branch's knowledge, threatened, nor is South Branch aware of any activity
involving its employees seeking to certify a collective bargaining unit or
engaging in other organizational activity.
(n) Environmental Matters. To South Branch's knowledge, neither the
conduct nor operation of South Branch or its Subsidiaries nor any condition of
any property presently or previously owned, leased or operated by any of them
(including, without limitation, in a fiduciary or agency capacity), or on which
any of them holds a Lien, violates or violated Environmental Laws and to South
Branch's knowledge no condition has existed or event has occurred with respect
to any of them or any such property that, with notice or the passage of time, or
both, is reasonably likely to result in liability under Environmental Laws. To
South Branch's knowledge, neither South Branch nor any of its Subsidiaries has
received any notice from any person or entity that South Branch or its
Subsidiaries or the operation or condition of any property ever owned, leased,
operated, or held as collateral or in a fiduciary capacity by any of them are or
were in violation of or otherwise are alleged to have liability under any
Environmental Law, including, but not limited to, responsibility (or potential
responsibility) for the cleanup or other remediation of any pollutants,
contaminants, or hazardous or toxic wastes, substances or materials at, on,
beneath, or originating from any such property.
(o) Tax Matters. (i) South Branch 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 chief financial officer, has adequately
reserved or recognized for all current and deferred Taxes;
(ii) Neither the IRS nor any other taxing authority is now
asserting against South Branch or its Subsidiaries, 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 South Branch 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 6501(a), no tax
year of South Branch remains open to the assessment and collection of additional
federal income taxes; and
(iv) There is not pending or threatened examination or
outstanding liability for any West Virginia state taxes, except for tax
liabilities not yet due and payable.
(v) Neither South Branch nor any of its Subsidiaries has any
liability with respect to income, franchise or similar Taxes that accrued on or
before the end of the most recent period covered by South Branch's SEC Documents
filed prior to the date hereof in excess of the amounts accrued with respect
thereto that are reflected in the financial statements included in South
Branch's SEC Documents filed on or prior to the date hereof. South Branch has
made available to Potomac true and correct copies of the United States federal
income Tax Returns filed by South Branch and its Subsidiaries for each of the
three most recent fiscal years ended on or before December 31, 1998.
(vi) As of the date hereof, neither South Branch nor any of
its Subsidiaries has any reason to believe that any conditions exist that might
prevent or impede the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(p) Risk Management Instructions. All interest rate swaps, caps,
floors, option agreements, futures and forward contracts and other similar risk
21
management arrangements, whether entered into for South Branch's own account or
the account of its customers (all of which are listed on South Branch's
Disclosure Schedule), were entered into in accordance with applicable laws,
rules, regulations and regulatory policies and with counter parties believed to
be financially responsible at the time; and each of them constitutes the valid
and legally binding obligation of South Branch, enforceable in accordance with
its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors' rights or by general
equity principles), and is in full force and effect. South Branch is not, nor to
South Branch's knowledge any other party thereto, in breach of any of its
obligations under any such agreement or arrangement.
(q) Books and Records. The books and records of South Branch and its
Subsidiaries have been fully, properly and accurately maintained in all material
respects, and there are no material inaccuracies or discrepancies of any kind
contained or reflected therein, and they fairly present the substance of events
and transactions included therein.
(r) Insurance. South Branch's Disclosure Schedule sets forth all of
the insurance policies, binders or bonds maintained by South Branch. South
Branch and its Subsidiaries are insured with reputable insurers against such
risks and in such amounts as the management of South Branch reasonably has
determined to be prudent in accordance with industry practices. All such
insurance policies are in full force and effect; South Branch and its
Subsidiaries are not in material default thereunder; and all claims thereunder
have been filed in due and timely fashion.
(s) Accounting Treatment. As of the date hereof, South Branch is
aware of no reason why the Merger will fail to qualify for
"pooling-of-interests" accounting treatment assuming compliance by Potomac and
South Branch with the requirements of Section 6.17 hereof.
(t) Real Property. South Branch and its Subsidiaries each own the
real property set forth in the Disclosure Schedule. Except as disclosed in the
Disclosure Schedule, all real property owned by South Branch and its
Subsidiaries is free and clear of liens and encumbrances except for liens of
record, liens which do not materially affect the use of the property or liens
for ad valorem taxes not yet due and payable.
(u) Year 2000 Compliance. South Branch is engaged in a company-wide
Year 2000 project to bring South Branch's computerized information systems to
Year 2000 compliance so as to ensure better the ability of such systems to
accurately process information that is date sensitive. To the extent reasonably
necessary, South Branch has confirmed South Branch's vendors and suppliers
progress toward Year 2000 compliance. South Branch knows of no reason that its
computerized information systems will fail to comply in any material respect
with Year 2000 compliance requirements.
(v) Disclosure. The representations and warranties contained in this
Section 5.04 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 5.04 not misleading.
(w) Representations and Warranties of South Branch with Respect to
Merger Subs. South Branch represents and warrants to Potomac with respect to any
Merger Sub that executes the supplement attached to this Agreement as Annex A
that, at the time of such execution and as of the Effective Date:
(i) Organization, Standing and Authority. Each Merger Sub
has been duly organized and is validly existing in good standing under the laws
of the State of its organization, and is duly qualified to do business and in
good standing in the jurisdictions where its ownership or leasing of property or
the conduct of its business requires it to be so qualified.
22
(ii) Power. Each Merger Sub has the power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby.
(iii) Authority. This Agreement and the transactions
contemplated hereby have been authorized by all requisite action on the part of
each Merger Sub and its respective shareholders or members. This Agreement is a
valid and legally binding agreement of each Merger Sub enforceable in accordance
with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles).
ARTICLE VI
Covenants
6.01 Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each of Potomac and South Branch agrees to use its reasonable best
efforts in good faith to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of the Merger as promptly as
practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end.
6.02 Stockholder Approvals. South Branch and Potomac agree to take, in
accordance with applicable law and its articles of incorporation and bylaws, all
action necessary to convene an appropriate meeting of its stockholders (which in
the case of South Branch or Potomac may be its regular annual meeting or a
special meeting) to consider and vote upon, in the case of South Branch,
approval of (i) the issuance of its stock as contemplated hereby and (ii) the
amendment to South Branch's Articles of Incorporation to change South Branch's
name (including any adjournment or postponement, the "South Branch Meeting")
and, in the case of Potomac, the approval and adoption of this Agreement
(including any adjournment or postponement, the "Potomac Meeting"), in each case
as promptly as practicable after the Registration Statement is declared
effective. South Branch agrees to vote all of the shares of capital stock issued
by Merger Sub in favor of the Merger. The South Branch Board will recommend that
the South Branch shareholders approve and adopt the Articles Amendment and the
issuance of stock contemplated hereby, provided that the South Branch Board may
fail to make such recommendation, or withdraw, modify or change any such
recommendation, if the South Branch Board, after having consulted with and
considered the advice of outside counsel, has determined that the making of such
recommendation, or the failure to withdraw, modify or change such
recommendation, would constitute a breach of the fiduciary duties of the members
of the South Branch Board under applicable law. The Potomac Board will recommend
that the Potomac stockholders approve and adopt the Agreement and the
transactions contemplated hereby, provided that the Potomac Board may fail to
make such recommendation, or withdraw, modify or change any such recommendation,
if the Potomac Board, after having consulted with and considered the advice of
outside counsel, has determined that the making of such recommendation, or the
failure to withdraw, modify or change such recommendation, would constitute a
breach of the fiduciary duties of the members of the Potomac Board under
applicable law.
6.03 Registration Statement. (a) Each of South Branch and Potomac agrees
to cooperate in the preparation of a registration statement on Form S-4 (the
"Registration Statement") to be filed by South Branch with the SEC in connection
with the issuance of Summit Common Stock in the Merger (including the joint
proxy statement and prospectus and other proxy solicitation materials of South
Branch and Potomac constituting a part thereof (the "Proxy Statement") and all
related documents). Provided that Potomac has cooperated as required above,
South Branch agrees to file the Proxy Statement in preliminary form with the SEC
as promptly as reasonably practicable, and to file the Registration Statement
with the SEC as soon as reasonably practicable after any SEC comments with
respect to the preliminary Proxy Statement are resolved. Each of Potomac and
23
South Branch agrees to use all reasonable efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
reasonably practicable after filing thereof. South Branch also agrees to use all
reasonable efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this Agreement.
Potomac agrees to furnish to South Branch all information concerning Potomac,
officers, directors and stockholders as may be reasonably requested in
connection with the foregoing.
(b) Each of Potomac and South Branch agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in the Registration Statement will, at
the time the Registration Statement and each amendment or supplement thereto, if
any, becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and the Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to stockholders and at the time of the South Branch Meeting or the Potomac
Meeting, as the case may be, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or any statement which, in the light
of the circumstances under which such statement is made, will be false or
misleading with respect to any material fact, or which will omit to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier statement in the
Proxy Statement or any amendment or supplement thereto. Each of Potomac and
South Branch further agrees that if it shall become aware prior to the Effective
Date of any information furnished by it that would cause any of the statements
in the Proxy Statement to be false or misleading with respect to any material
fact, or to omit to state any material fact necessary to make the statements
therein not false or misleading, to promptly inform the other party thereof and
to take the necessary steps to correct the Proxy Statement.
(c) South Branch agrees to advise Potomac, promptly after South
Branch receives notice thereof, of the time when the Registration Statement has
become effective or any supplement or amendment has been filed, of the issuance
of any stop order or the suspension of the qualification of South Branch Stock
for offering or sale in any jurisdiction, of the initiation or threat of any
proceeding for any such purpose, or of any request by the SEC for the amendment
or supplement of the Registration Statement or for additional information.
(d) South Branch and Potomac, each in consultation with the other,
may employ professional proxy solicitors to assist it in contacting stockholders
in connection with soliciting votes on the Agreement.
6.04 Press Releases. Each of Potomac and South Branch agrees that it will
not, without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation.
6.05 Access; Information. (a) Each of Potomac and South Branch agrees that
upon reasonable notice and subject to applicable laws relating to the exchange
of information, it shall afford the other party and the other party's officers,
employees, counsel, accountants and other authorized representatives, such
access during normal business hours throughout the period prior to the Effective
Time to the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and to such other
information as any party may reasonably request and, during such period, it
shall furnish promptly to such other party (i) a copy of each material report,
schedule and other document filed by it pursuant to the requirements of federal
or state securities or banking laws, and (ii) all other information concerning
the business, properties and personnel of it as the other may reasonably
request.
(b) Each agrees that it will not, and will cause its representatives
not to, use any information obtained pursuant to this Section 6.05 (as well as
any other information obtained prior to the date hereof in connection with the
24
entering into of this Agreement) for any purpose unrelated to the consummation
of the transactions contemplated by this Agreement. Subject to the requirements
of law, each party will keep confidential, and will cause its representatives to
keep confidential, all information and documents obtained pursuant to this
Section 6.05 (as well as any other information obtained prior to the date hereof
in connection with the entering into of this Agreement) unless such information
(i) was already known to such party, (ii) becomes available to such party from
other sources not known by such party to be bound by a confidentiality
obligation, (iii) is disclosed with the prior written approval of the party to
which such information pertains or (iv) is or becomes readily ascertainable from
published information or trade sources. In the event that this Agreement is
terminated or the transactions contemplated by this Agreement shall otherwise
fail to be consummated, each party shall promptly cause all copies of documents
or extracts thereof containing information and data as to another party hereto
to be returned to the party which furnished the same. No investigation by either
party of the business and affairs of the other shall affect or be deemed to
modify or waive any representation, warranty, covenant or agreement in this
Agreement, or the conditions to either party's obligation to consummate the
transactions contemplated by this Agreement.
(c) During the period from the date of this Agreement to the
Effective Time, each party shall promptly furnish the other with copies of all
monthly and other interim financial statements produced in the ordinary course
of business as the same shall become available.
6.06 Acquisition Proposals. Potomac agrees that it shall not solicit or
encourage inquiries or proposals with respect to, or engage in any negotiations
concerning, or provide any confidential information to, or have any discussions
with, any person relating to, any Acquisition Proposal. It shall immediately
cease and cause to be terminated any activities, discussions or negotiations
conducted prior to the date of this Agreement with any parties other than South
Branch with respect to any of the foregoing and shall use its reasonable best
efforts to enforce any confidentiality or similar agreement relating to an
Acquisition Proposal. Potomac shall promptly (within 24 hours) advise South
Branch following the receipt by Potomac of any Acquisition Proposal and the
substance thereof (including the identity of the person making such Acquisition
Proposal), and advise South Branch of any developments with respect to such
Acquisition Proposal immediately upon the occurrence thereof. Notwithstanding
the foregoing, the directors of Potomac shall not be required to take any action
hereunder that, upon consultation with and the advice of outside counsel, the
Potomac Board has determined would constitute a breach of fiduciary duties of
the members of the Potomac Board under applicable law.
6.07 Affiliate Agreements. (a) Not later than the 15th day prior to the
mailing of the Proxy Statement, (i) South Branch shall deliver to Potomac a
schedule of each person that, to the best of its knowledge, is or is reasonably
likely to be, as of the date of the South Branch Meeting, deemed to be an
"affiliate" of South Branch (each, a "South Branch Affiliate") as that term is
used in SEC Accounting Series Releases 130 and 135; and (ii) Potomac shall
deliver to South Branch a schedule of each person that, to the best of its
knowledge, is or is reasonably likely to be, as of the date of the Potomac
Meeting, deemed to be an "affiliate" of Potomac (each, a "Potomac Affiliate") as
that term is used in Rule 145 under the Securities Act or SEC Accounting Series
Releases 130 and 135.
(b) Each of Potomac and South Branch shall use its respective
reasonable best efforts to cause each person who may be deemed to be a Potomac
Affiliate or a South Branch Affiliate, as the case may be, to execute and
deliver to Potomac and South Branch on or before the date of mailing of the
Proxy Statement an agreement in the form attached hereto as Exhibit A or Exhibit
B, respectively.
6.08 Regulatory Applications. (a) South Branch, and its subsidiaries, and
Potomac shall cooperate and use their respective reasonable best efforts to
prepare all documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and Governmental
Authorities necessary to consummate the transactions contemplated by this
Agreement, and to comply with the terms and conditions of such permits,
consents, approvals and authorizations. Each of South Branch and Potomac shall
have the right to review in advance, and to the extent practicable each will
25
consult with the other, in each case subject to applicable laws relating to the
exchange of information, with respect to, all material written information
submitted to any third party or any Governmental Authority in connection with
the transactions contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and as promptly as
practicable. Each party hereto agrees that it will consult with the other party
hereto with respect to the obtaining of all material permits, consents,
approvals and authorizations of all third parties and Governmental Authorities
necessary or advisable to consummate the transactions contemplated by this
Agreement and each party will keep the other party apprised of the status of
material matters relating to completion of the transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with
all information concerning itself, its Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Governmental
Authority.
6.09 Benefit Plans and Arrangements. (a) Summit agrees that within a
reasonable period of time following the Effective Time (i) it will provide
employees of the Surviving Corporation with employee benefit plans substantially
similar in the aggregate to those provided to similarly situated employees of
South Branch, (ii) any such employees will receive credit for years of service
with Potomac prior to the Effective Time for the purpose of eligibility and
vesting, and (iii) Summit shall cause any and all pre-existing condition
limitations (to the extent such limitations did not apply to a pre-existing
condition under the Compensation and Benefit Plans) and eligibility waiting
periods under group health plans to be waived with respect to such participants
and their eligible dependents; provided, however, that with respect to Potomac's
group health plans, Potomac shall have a period of two (2) years in which to
conform the premium contributions of employees paid with respect to its health
plans with those maintained by Summit. During that two-year period, Potomac
agrees to make periodic incremental increases to the health insurance premiums
paid by its employees such that at the end of such period, the health insurance
premium contributions paid by Potomac employees conform to the level determined
by Summit management. This section shall apply only to employee benefit plans
available generally to employees and shall specifically not include plans
designed to compensate executive personnel of Summit and its Affiliates.
6.10 Notification of Certain Matters. Each of Potomac and South Branch
shall give prompt notice to the other of any fact, event or circumstance known
to it that (i) is reasonably likely, individually or taken together with all
other facts, events and circumstances known to it, to result in any Material
Adverse Effect with respect to it or (ii) would cause or constitute a material
breach of any of its representations, warranties, covenants or agreements
contained herein.
6.11 Dividend Coordination. The Potomac Board shall cause its regular
semi-annual dividend record dates and payment dates for Potomac Common Stock to
be the same as South Branch's regular semi-annual dividend record dates and
payment dates for South Branch Common Stock (e.g., Potomac shall move its next
dividend record and payment dates to the next dividend record and payment date
for South Branch Common Stock), and Potomac shall not thereafter change its
regular dividend payment dates and record dates (it being the intention of the
parties that the stockholders of Potomac shall not receive two dividends, or
fail to receive one dividend, for any single semi-annual period with respect to
their shares of Potomac Common Stock or the Summit Common Stock exchanged
therefor in the Merger). Notwithstanding the foregoing, nothing contained in
this Section 6.11 shall require either of the parties to take any action that
would materially impair their ability to satisfy the conditions set forth in
Sections 7.02(d) and 7.03(d) hereof.
6.12 Change of Name of South Branch. South Branch agrees that it will take
all steps necessary to change its name to Summit Financial Group, Inc.
("Summit") prior to the Effective Time.
6.13 Directorship of Summit; Formation of Executive Committee. (a) Summit
will initially have a Board of Directors consisting of eighteen (18) members,
26
and Summit agrees to cause six (6) current members of the Board of Directors of
Potomac designated by Potomac (i) to be appointed to the Board of Directors of
Summit as of the Effective Time, and (ii) to be nominated and recommended for
election at the next Annual Meeting of Summit shareholders after the Effective
Time if such director is a member of a class whose terms are expiring at such
Annual Meeting. If the number of directors of Summit is different from eighteen
(18) at the Effective Time, the number of directors shall be divisible by three
(3), and Potomac will be entitled to designate 1/3 of the directors. Directors
designated by Potomac for the initial Board of Directors of Summit shall be
spread evenly among the classes of directors of Summit. Upon the expiration of
their initial terms, Summit's directors designated by Potomac shall be eligible
to be nominated to serve for such additional terms as Summit shall determine
consistent with prudent banking practices and such director's fulfillment, to
Summit's satisfaction, of his or her fiduciary duty to Summit.
(b) Summit agrees to form an executive committee or other governing
body consisting of not more than nine (9) members, of which five (5) individuals
shall be designated by South Branch and four (4) individuals designated by
Potomac.
(c) The provisions of any resolution, bylaw or of the articles of
incorporation of Summit which state or set forth a mandatory retirement age
shall not apply to any person initially designated by Potomac to serve on the
Board of Directors of Summit pursuant to Section 6.13 hereof, who, as of the
Closing Date, is a director of Potomac and has attained the age of 60 years
("Exempt Person"). Such Exempt Person shall be permitted to serve until he or
she reaches the age of 80, provided such Exempt Person's service as a director
is consistent with prudent banking practices and such Exempt Person fulfills, to
Summit's satisfaction, his or her fiduciary duty to Summit.
6.14 Officers of Board and Summit. Oscar M. Bean shall be retained as
Chairman of the Board of Summit. G. R. Ours, Jr. shall be appointed as Vice
Chairman of the Board of Summit. H. Charles Maddy, III shall be retained as
President of Summit.
6.15 Members of the Board of Directors of Potomac and South Branch, Other
Matters. (a) Two individuals of South Branch shall be appointed to serve on the
Board of Directors of Potomac. Two individuals of Potomac shall be appointed by
Potomac to serve on the Board of Directors of South Branch Valley National Bank.
(b) The current members of the Board of Directors of Potomac shall continue to
serve as such after the Merger, and for a period of five (5) years after the
Merger, provided that such person continues to fulfill his or her fiduciary
duties to Potomac and Summit. Vacancies and new board seats shall be filled by
affirmative vote of the current members of the Board of Directors of Potomac and
their successors. During the five-year period, the maximum size of the Potomac
Board of Directors shall not exceed twelve (12) persons. The requirements of
this provision may be modified during the five-year period only upon the
affirmative vote of three-fourths (3/4) of Summit's Board of Directors.
6.16 Location of Summit Offices. Summit's corporate offices shall be
located in Moorefield, West Virginia.
6.17 Changes to Organizational Documents. Summit's bylaws shall include
provisions ensuring that the following actions by Summit's Board of Directors
shall require an affirmative vote of at least three-fourths (3/4) of the board:
(i) mergers and closures of banks and branches; (ii) any amendment to Summit's
Articles of Incorporation or Bylaws; (iii) the adoption of any agreement or plan
to merge, consolidate, liquidate, dissolve or sell shares of stock or the sale,
lease or exchange of all or substantially all the assets of Summit; and (iv) any
change of Potomac's name.
6.18 Divestment of Branch. South Branch shall take all action reasonable
necessary to divest its branch located in Petersburg, West Virginia, provided
that (i) such divestment is required for regulatory approval, and (ii) South
Branch is not required to reflect a financial loss based on Generally Accepted
Accounting Principles. South Branch will use its best efforts to accomplish such
divestiture if divestiture is required for regulatory approval.
6.19 Directors' and Officers' Protection. Summit shall provide and keep in
force, for a period of three years after the Effective Time, directors' and
officers' liability insurance providing coverage to directors and officers of
27
Potomac for acts or omissions occurring prior to the Effective Time. Such
insurance shall provide at least the substantially equivalent coverage and
substantially equivalent amounts as contained in any Summit policy of insurance
on the date hereof; provided, that in no event shall the annual premium on such
policy exceed 150% of the annual premium payments on Potomac's policy in effect
as of the date hereof (the "Maximum Amount"). If the amount of the premiums
necessary to maintain or procure such insurance coverage exceeds the maximum
amount, Summit shall use its reasonable efforts to maintain the most
advantageous policies of directors' and officers' liability insurance obtainable
for a premium equal to the Maximum Amount. Notwithstanding the foregoing, Summit
further agrees to indemnify all individuals who are or have been officers,
directors or employees of Potomac prior to the Effective Time from any acts or
omissions in such capacities prior to the Effective Time, to the extent that
such indemnification is provided pursuant to the Articles of Incorporation and
Bylaws of Potomac on the date hereof as permitted under the WVCA.
6.20 Other Transactions. South Branch agrees that it shall not solicit or
encourage inquiries or proposals with respect to, or engage in any negotiations
concerning, or provide any confidential information to or have any discussions
with, any person relating to any proposal pursuant to which South Branch would
be acquired by or merged with an entity without South Branch surviving
("Acquisition Transaction"). South Branch shall promptly (within 24 hours)
advise Potomac following the receipt by South Branch of a proposal relating to
such Acquisition Transaction, and the substance thereof (including the identity
of the person making the proposal), and advise Potomac of any developments with
respect to such proposal immediately upon the occurrence thereof.
Notwithstanding the foregoing, the directors of South Branch shall not be
required to take any action hereunder that, upon consultation with and the
advice of outside counsel, the South Branch Board has determined would
constitute a breach of fiduciary duties of the members of the South Branch Board
under applicable law. 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 prior to the Effective Time pursuant to which it or
its subsidiaries may merge, consolidate or affiliate with any other entity, or
acquire or establish other branches or subsidiaries ("Other Transactions").
South Branch agrees to advise Potomac of such Other Transactions as and when
appropriate, but in any event prior to the submission of a transaction or
agreement to South Branch's Board of Directors for approval. If South Branch
notifies Potomac of an Other Transaction (as defined herein) in which South
Branch is not the surviving entity, then Potomac may terminate this Agreement on
notice to South Branch prior to the earlier of: (1) thirty days after receipt of
notice of the Other Transaction or (2) the Effective Time.
ARTICLE VII
Conditions to Consummation of the Merger
7.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of South Branch and Potomac to consummate the
Merger is subject to the fulfillment or written waiver by South Branch and
Potomac prior to the Effective Time of each of the following conditions:
(a) Stockholder Approvals. This Agreement shall have been duly
approved and adopted by the requisite vote of the stockholders of Potomac and
Merger Sub, and the issuance of shares in connection with this Agreement shall
have been approved by the requisite vote of the stockholders of South Branch,
and all corporate and shareholder action necessary to authorize the Merger shall
have been duly taken by South Branch and Potomac.
(b) Regulatory Approvals. All regulatory approvals required to
consummate the transactions contemplated hereby, shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired and no such approvals shall contain (i) any
conditions, restrictions or requirements which either party reasonably
determines would either before or after the Effective Time have a Material
Adverse Effect on the Surviving Corporation and its Subsidiaries taken as a
whole or (ii) any conditions, restrictions or requirements that are not
customary and usual for approvals of such type and which either party's Board
28
reasonably determines would either before or after the Effective Date be unduly
burdensome.
(c) No Injunction. No Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits, restricts
or makes illegal consummation of the transactions contemplated by this
Agreement.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(e) Blue Sky Approvals. All permits and other authorizations under
state securities laws necessary to consummate the transactions contemplated
hereby and to issue the shares of Summit Common Stock to be issued in the Merger
shall have been received and be in full force and effect.
7.02 Conditions to Obligation of Potomac. The obligation of Potomac to
consummate the Merger is also subject to the fulfillment or written waiver by
Potomac prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of South Branch set forth in this Agreement shall be true and
correct, subject to Section 5.02, as of the date of this Agreement and as of the
Effective Date as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak as of the date of this
Agreement or some other date shall be true and correct as of such date), and
Potomac shall have received a certificate, dated the Effective Date, signed on
behalf of South Branch by the Chief Executive Officer of South Branch to such
effect.
(b) Performance of Obligations of South Branch. South Branch shall
have performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Effective Time, and Potomac
shall have received a certificate, dated the Effective Date, signed on behalf of
South Branch by the Chief Executive Officer of South Branch to such effect.
(c) Opinion of Tax Counsel. Potomac shall have received an opinion
of Jackson & Kelly, LLP, special counsel to Potomac, dated the Effective Date,
to the effect that, on the basis of facts, representations and assumptions set
forth in such opinion, (i) the Merger constitutes a "reorganization" within the
meaning of Section 368 of the Code and (ii) no gain or loss will be recognized
by stockholders of Potomac who receive shares of Summit Common Stock in exchange
for shares of Potomac Common Stock, except that gain or loss may be recognized
as to cash received in lieu of fractional share interests.
(d) Accounting Treatment. Potomac shall have received from Arnett &
Foster Accounts & Consultants, P.L.L.C., Potomac's independent auditors, a
letter, dated the Effective Date, stating its opinion that the Merger shall
qualify for "pooling-of-interests" accounting treatment.
(e) Counsel Opinion. Potomac shall have received an opinion of
counsel for South Branch date as of the Effective Date, to the effect that:
(i) South Branch is a bank holding company 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 South Branch 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
South Branch. As of such date, except as previously disclosed by South Branch,
29
to the best of counsel's knowledge, there are no options, warrants, convertible
securities or similar items outstanding on behalf of South Branch.
(iii) South Branch 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 South Branch and
constitutes the legal, valid and binding obligation of South Branch, 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 South Branch, 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 South Branch and the consummation of the
transaction contemplated herein.
(v) Counsel has reviewed the proxy statement contemplated
hereby and, with respect to all information relating to South Branch 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 transaction contemplated herein
will not violate or result in a breach of, or constitute a default under, the
articles of incorporation or bylaws of South Branch, 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 South
Branch, and to which it is a party or by which it or any of its property is
bound.
(f) Due Diligence. Potomac 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
forty-fifth (45th) business day following the date of this Agreement, Potomac,
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 Potomac 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 Potomac 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 Potomac or Potomac 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 Potomac of any item required by or condition of this Agreement.
(g) Potomac Satisfaction with Loan Loss Reserve, Provision of
Charge-Offs, Funding of Benefits, Other Reserve Accounts, Etc. As of the
Effective Time, Potomac, in its reasonable discretion, must be satisfied with
the adequacy of the then existing level of South Branch'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, South Branch must reserve
for all contingencies in a manner consistent with the requirements of the
regulators and prudent banking practices.
7.03 Conditions to Obligation of South Branch. The obligation of South
Branch to consummate the Merger is also subject to the fulfillment or written
waiver by South Branch prior to the Effective Time of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Potomac set forth in this Agreement shall be true and correct,
subject to Section 5.02, as of the date of this Agreement and as of the
30
Effective Date as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak as of the date of this
Agreement or some other date shall be true and correct as of such date) and
South Branch shall have received a certificate, dated the Effective Date, signed
on behalf of Potomac by the Chief Executive Officer of Potomac to such effect.
(b) Performance of Obligations of Potomac. Potomac shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time, and South Branch
shall have received a certificate, dated the Effective Date, signed on behalf of
Potomac by the Chief Executive Officer of Potomac to such effect.
(c) Opinion of South Branch Counsel. South Branch shall have
received an opinion of Bowles Rice McDavid Graff & Love, PLLC, counsel to South
Branch, dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, the Merger
constitutes a reorganization under Section 368 of the Code. In rendering its
opinion, Bowles Rice McDavid Graff & Love, PLLC, may require and rely upon
representations contained in letters from South Branch, Potomac and others.
(d) Accounting Treatment. South Branch shall have received from
Arnett & Foster, PLLC, South Branch's independent auditors, a letter, dated the
Effective Date, stating its opinion that the Merger shall qualify for
"pooling-of-interests" accounting treatment.
(e) Counsel's Opinion. South Branch shall have received an opinion
of counsel for Potomac dated as of the Effective Date, to the effect that:
(i) Potomac is a state banking corporation 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 Potomac 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 Potomac.
As of such date, except as Previously Disclosed by Potomac, to the best of
counsel's knowledge, there are no options, warrants, convertible securities or
similar items outstanding on behalf of Potomac.
(iii) Potomac 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 Potomac and
constitutes the legal, valid and binding obligation of Potomac, 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 Potomac, 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 Potomac and the consummation of the transaction
contemplated herein.
(v) Counsel has reviewed the proxy statement contemplated
hereby and, with respect to all information relating to Potomac 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 transaction contemplated herein
will not violate or result in a breach of, or constitute a default under, the
articles of incorporation or bylaws of Potomac, or constitute a breach or
termination of, or default under, any agreement or instrument of which counsel
31
is aware and which would have a material adverse effect on the business of
Potomac, and to which it is a party or by which it or any of its property is
bound.
(f) Due Diligence. South Branch must have the opportunity to conduct
a due diligence investigation into various aspects of Potomac's operations.
Based on its investigation, which must be concluded by the end of the
forty-fifth (45th) 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 Potomac of any objections or
requirements resulting therefrom. If South Branch elects not to pursue
consummation of the proposed transactions and properly notifies Potomac 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 Potomac of the same, Potomac
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.
(g) South Branch Satisfaction with Loan Loss Reserve, Provision of
Charge-Offs, Funding of Benefits, Other Reserve Accounts, Etc. As of the
Effective Time, South Branch, in its reasonable discretion, must be satisfied
with the adequacy of the then existing level of Potomac'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, Potomac must reserve for
all contingencies in a manner consistent with the requirements of the regulators
and prudent banking practices.
ARTICLE VIII
Termination
8.01 Termination. This Agreement may be terminated, and the Merger may be
abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of South Branch and Potomac, if the Board of Directors of each so
determines by vote of a majority of the members of its entire Board.
(b) Breach. At any time prior to the Effective Time, by South Branch
or Potomac, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event of either: (i) a breach by the other
party of any representation or warranty contained herein (subject to the
standard set forth in Section 5.02), which breach cannot be or has not been
cured within 30 days after the giving of written notice to the breaching party
of such breach; or (ii) a breach by the other party of any of the covenants or
agreements contained herein, which breach cannot be or has not been cured within
30 days after the giving of written notice to the breaching party of such
breach, provided that such breach (whether under (i) or (ii)) would be
reasonably likely, individually or in the aggregate with other breaches, to
result in a Material Adverse Effect.
(c) Delay. At any time prior to the Effective Time, by South Branch
or Potomac, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event that the Merger is not consummated by
January 31, 2000, except to the extent that the failure of the Merger then to be
consummated arises out of or results from the willful failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein.
(d) No Approval. By South Branch or Potomac, if its Board of
Directors so determines by a vote of a majority of the members of its entire
Board, in the event (i) the approval of any Governmental Authority required for
32
consummation of the Merger and the other transactions contemplated by this
Agreement shall have been denied by final nonappealable action of such
Governmental Authority or (ii) any stockholder approval required by Section
7.01(a) herein is not obtained at the South Branch Meeting or the Potomac
Meeting, except in the case of clause (i) or clause (ii) that the failure of an
action specified therein arises out of or results from the willful failure of
the party seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth herein.
(e) Failure to Recommend, Etc. At any time prior to the South Branch
Meeting, by South Branch if the South Branch Board shall have failed to make its
recommendation referred to in Section 6.02, withdrawn such recommendation or
modified or changed such recommendation in a manner adverse in any respect to
the interests of South Branch; or at any time prior to the Potomac Meeting, by
Potomac, if the Potomac Board shall have failed to make its recommendation
referred to in Section 6.02, withdrawn such recommendation or modified or
changed such recommendation in a manner adverse in any respect to the interests
of Potomac.
8.02 Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article VIII,
no party to this Agreement shall have any liability or further obligation to any
other party hereunder except (i) as set forth in Section 9.01 and (ii) that
termination will not relieve a breaching party from liability for any willful
breach of this Agreement giving rise to such termination.
ARTICLE IX
Miscellaneous
9.01 Survival. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 3.04, 6.09, 6.12, 6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19 and this
Article IX which shall survive the Effective Time) or the termination of this
Agreement if this Agreement is terminated prior to the Effective Time (other
than Sections 6.03(b), 6.04, 6.05(b), 8.02 and this Article IX which shall
survive such termination).
9.02 Waiver; Amendment. Prior to the Effective Time, any provision of this
Agreement may be (i) waived by the party benefitted by the provision, to the
extent permitted by applicable law, or (ii) amended or modified at any time, by
an agreement in writing between the parties hereto executed in the same manner
as this Agreement, except that (A) after the Potomac Meeting, this Agreement may
not be amended if it would violate the WVCA and (B) after the South Branch
Meeting, this Agreement may not be amended if it would violate the WVCA.
9.03 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04 Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of West Virginia applicable to
contracts made and to be performed entirely within such State.
9.05 Expenses. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby, except
that expenses incurred in connection with the printing of the Registration
Statement and joint proxy statement and SEC fees shall be shared, in proportion
to the respective book values of each as of June 30, 1999, between South Branch
and Potomac. Notwithstanding the foregoing, if Potomac accepts an offer by
another person other than South Branch within the sixty (60) days after
execution of this Agreement, by and between South Branch and Potomac, Potomac
shall pay all of South Branch's expenses. If South Branch accepts an offer by
another person other than Potomac within sixty (60) days after execution of this
33
Agreement, South Branch shall pay all of Potomac's expenses provided that
Potomac elects to terminate as provided in Section 6.20 hereof. For purposes of
this provision, "person" shall mean any individual, corporation, partnership of
other entity.
9.06 Notices. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed given if personally delivered,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to such party at its address set forth below or such other
address as such party may specify by notice to the parties hereto.
If to South Branch, to:
H. Charles Maddy, III
South Branch Valley Bancorp, Inc.
310 North Main Street
P. O. Box 680
Moorefield, West Virginia 26836
With a copy to:
Bowles Rice McDavid Graff & Love, PLLC
Attention: Sandra M. Murphy, Esq.
600 Quarrier Street
P. O. Box 1386
Charleston, West Virginia 25325-1386
If to Potomac, to:
Patrick N. Frye
Potomac Valley Bank
4 North Main Street
P. O. Box 1079
Petersburg, West Virginia 26847-1079
With a copy to:
Charles D. Dunbar, Esq.
Jackson & Kelley
1600 Laidley Tower
P. O. Box 553
Charleston, West Virginia 25322
9.07 Entire Understanding; No Third Party Beneficiaries. This Agreement
represents the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and thereby and this Agreement supersedes any
and all other oral or written agreements heretofore made. Except for Sections
6.09, 6.11, 6.13, 6.14 and 6.15, nothing in this Agreement expressed or implied,
is intended to confer upon any person, other than the parties hereto or their
respective successors, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
9.08 Interpretation; Effect; Assignment; Successors. (a) When a reference
is made in this Agreement to Sections, Exhibits or Schedules, such reference
shall be to a Section of, or Exhibit or Schedule to, this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and are not part of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." No provision of this Agreement shall be construed to require South
34
Branch, Potomac or any of their respective Subsidiaries, affiliates or directors
to take any action which would violate applicable law (whether statutory or
common law), rule or regulation.
(b) A party hereto may not assign any of its rights or obligations
under this Agreement to any other person without the prior written consent of
the other party. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
SOUTH BRANCH VALLEY BANCORP, INC.
By: /s/ H. Charles Maddy, III_
Name: H. Charles Maddy, III
Title: President
POTOMAC VALLEY BANK
By: /s/ Patrick N. Frye_____
Name: Patrick N. Frye
Title: President
35
EXHIBIT A
FORM OF POTOMAC AFFILIATE LETTER
____________, 1999
Potomac Valley Bank
4 North Main Street
P. O. Box 1079
Petersburg, West Virginia 26847
Attention: Patrick N. Frye
Summit Financial Group, Inc.
310 North Main Street
P. O. Box 680
Moorefield, West Virginia 26836
Attention: H. Charles Maddy, III
Ladies and Gentlemen:
I have been advised that I may be deemed to be, but do not admit
that I am, an "affiliate" of Potomac Valley Bank, a West Virginia corporation
("Potomac"), as that term is defined in Rule 145 promulgated by the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Securities Act"), and/or SEC Accounting Series Releases 130 and 135. I
understand that pursuant to the terms of the Agreement and Plan of Merger, dated
as of _____________, 1999 (the "Merger Agreement"), by and between South Branch
Valley Bancorp, Inc., a West Virginia corporation ("South Branch"), and Potomac,
a wholly owned subsidiary of South Branch will merge with and into Potomac (the
"Merger") and that the Merger is intended to be accounted for under the
"pooling-of-interests" accounting method.
I further understand that as a result of the Merger, I may receive
shares of common stock, par value $_______ per share, of Summit Financial Group,
Inc. ("Summit") in exchange for shares of common stock, par value $______ per
share, of Potomac ("Potomac").
I have carefully read this letter and reviewed the Merger Agreement
and discussed their requirements and other applicable limitations upon my
ability to sell, transfer, or otherwise dispose of South Branch and Potomac
Stock, to the extent I felt necessary, with my counsel or counsel for Potomac.
I represent, warrant and covenant with and to Summit that in the
event I receive any Summit Stock as a result of the Merger:
1. I shall not make any sale, transfer, or other disposition
of such Summit Financial Group, Inc. Stock unless (i) such
sale, transfer or other disposition has been registered
under the Securities Act, (ii) such sale, transfer or other
disposition is made in conformity with the provisions of
Rule 145 under the Securities Act (as such rule may be
amended from time to time), or (iii) in the opinion of
counsel in form and substance reasonably satisfactory to
Summit, or under a "no-action" letter obtained by me from
the staff of the SEC, such sale, transfer or other
disposition will not violate or is otherwise exempt from
registration under the Securities Act.
2. I understand that Summit is under no obligation to register
the sale, transfer or other disposition of shares of Summit
Stock by me or on my behalf under the Securities Act or to
take any other action necessary in order to make compliance
with an exemption from such registration available.
Potomac Valley Bank
Summit Financial Group, Inc.
________________, 1999
Page 2
3. I understand that stop transfer instructions will be given to
Summit's transfer agent with respect to shares of Summit Stock
issued to me as a result of the Merger and that there will be
placed on the certificates for such shares, or any
substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities
Act of 1933 applies. The shares represented by this
certificate may be transferred only in accordance with the
terms of a letter agreement, dated __, 199_, between the
registered holder hereof and Summit, a copy of which agreement
is on file at the principal offices of Summit. This legend
shall become null and void on and after ______ _________, [two
years after the Effective Time.]"
4. I understand that, unless transfer by me of the Summit Stock
issued to me as a result of the Merger has been registered
under the Securities Act or such transfer is made in
conformity with the provisions of Rule 145(d) under the
Securities Act, Summit reserves the right, in its sole
discretion, to place the following legend on the certificates
issued to my transferee:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired
from a person who received such shares in a transaction to
which Rule 145 under the Securities Act of 1933 applies. The
shares have been acquired by the holder not with a view to, or
for resale in connection with, any distribution thereof within
the meaning of the Securities Act of 1933 and may not be
offered, sold, pledged or otherwise transferred except in
accordance with an exemption from the registration
requirements of the Securities Act of 1933. This legend shall
become null and void on and after _____________ [two years
after the effective time]."
It is understood and agreed that the legends set forth in paragraphs
(3) and (4) above shall be removed by delivery of substitute certificates
without such legends if I shall have delivered to Summit (i) a copy of a "no
action" letter from the staff of the SEC, or an opinion of counsel in form and
substance reasonably satisfactory to Summit, to the effect that such legend is
not required for purposes of the Act, or (ii) evidence or representations
satisfactory to Summit that the Summit Stock represented by such certificates is
being or has been sold in conformity with the provisions of Rule 145(d).
I further represent, warrant and covenant with and to Summit that I
will not sell, transfer or otherwise dispose of, or reduce my risk relative to,
any shares of Potomac Stock or South Branch Stock (whether or not acquired by me
in the Merger) during the period commencing 30 days prior to effective date of
the Merger and ending at such time as Summit notifies me that results covering
at least 30 days of combined operations of Potomac and Summit after the Merger
have been published by Summit. I understand that Summit is not obligated to
publish such combined financial results except in accordance with its normal
financial reporting practice.
I further understand and agree that this letter agreement shall
apply to all shares of Potomac Stock and Summit Stock that I am deemed to
beneficially own pursuant to applicable federal securities law.
Potomac Valley Bank
Summit Financial Group, Inc.
________________, 1999
Page 3
I also understand that the Merger is intended to be treated as a
"pooling of Interests" for accounting purposes, and I agree that if Potomac or
Summit advises me in writing that additional restrictions apply to my ability to
sell, transfer, or otherwise dispose of Potomac Stock or Summit Stock in order
for Summit to be entitled to use the pooling of interests accounting method, I
will abide by such restrictions.
Very truly yours,
By__________________________
Name:
Accepted this ____ day of _______________, 1999.
Potomac Valley Bank
By________________________
Name:
Title:
Summit Financial Group, Inc.
By________________________
Name:
Title:
GBB.GBB.0051269
EXHIBIT B
FORM OF SUMMIT FINANCIAL GROUP, INC.
____________, 1999
Summit Financial Group, Inc.
310 North Main Street
P. O. Box 680
Moorefield, West Virginia 26836
Attention: H. Charles Maddy, III
Ladies and Gentlemen:
I have been advised that I may be deemed to be, but do not admit
that I am, an "affiliate" of South Branch Valley Bancorp, Inc., a West Virginia
corporation ("South Branch"), as that term is defined in the Securities and
Exchange Commission's Accounting Series Releases 130 and 135. I understand that
pursuant to the terms of the Agreement and Plan of Merger, dated as of ________
__, 1999 (the "Merger Agreement"), by and between South Branch and Potomac
Valley Bank, a West Virginia corporation ("Potomac"), wholly-owned subsidiary of
South Branch (the "Merger"), will merge with and into Potomac, and that the
Merger is intended to be accounted for under the "pooling-of-interests"
accounting method.
I have carefully read this letter and reviewed the Merger Agreement
and discussed their requirements and other applicable limitations upon my
ability to sell, transfer, or otherwise dispose of common stock of South Branch
and Potomac, to the extent I felt necessary, with my counsel or counsel for
Summit.
I hereby represent, warrant and covenant with and to Summit that:
1. I will not sell, transfer or otherwise dispose of, or
reduce my risk relative to, any shares of common stock of
Potomac or Summit (whether or not acquired by me in the
Merger) during the period commencing 30 days prior to the
effective date of the Merger and ending at such time as
Summit notifies me that results covering at least 30 days
of combined operations of Potomac and Summit after the
Merger have been published by Summit. I understand that
Summit is not obligated to publish such combined financial
results except in accordance with its normal financial
reporting practice.
2. I further understand and agree that this letter agreement
shall apply to all shares of common stock of Potomac and
Summit that I am deemed to beneficially own pursuant to
applicable federal securities laws.
Summit Financial Group, Inc.
________________, 1999
Page 2
3. If Summit advises me in writing that additional restrictions
apply to my ability to sell, transfer, or otherwise dispose of
common stock of Potomac or Summit in order for Summit to be
entitled to use the "pooling-of-interests" accounting method,
I will abide by such restrictions.
Very truly yours,
By__________________________
Name:
Accepted this ____ day of _______________, 1999.
Summit Financial Group, Inc.
By________________________
Name:
Title:
ANNEX A
FORM OF SUPPLEMENT FOR MERGER SUB ACCESSION
TO MERGER AGREEMENT
SUPPLEMENT, dated as of the _______ day of ___________, 1999 (this
"Supplement"), to the Agreement and Plan of Merger, dated as of
________________, 1999 (as amended from time to time in accordance with the
terms thereof, the "Merger Agreement"), by and between South Branch Valley
Bancorp, Inc. ("South Branch") and Potomac Valley Bank ("Potomac") .
WHEREAS, terms used but not otherwise defined herein have the
meanings specified in the Merger Agreement; and
WHEREAS, pursuant to Section 2.01 of the Merger Agreement, South
Branch has determined to consummate the Merger in part through the merger of
Merger Sub with and into Potomac.
NOW, THEREFORE, by its execution of this Supplement, as of the date
hereof, the undersigned (i) adopts and becomes a party to the Merger Agreement,
as required by Section 2.01 thereof and (ii) agrees to perform all its
obligations and agreements set forth therein.
IN WITNESS WHEREOF, this Supplement has been duly executed and
delivered by the undersigned, duly authorized thereunto as of the date first
hereinabove written.
[INSERT NAME OF MERGER SUB]
By:________________________________
Name:
Title: