AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of August 12, 2004
("Agreement"), between ESB Financial Corporation ("ESB"), a Pennsylvania
corporation headquartered in Ellwood City, Pennsylvania, and PHSB Financial
Corporation ("PHSB"), a Pennsylvania corporation headquartered in Beaver Falls,
Pennsylvania.
WITNESSETH:
WHEREAS, the Boards of Directors of ESB and PHSB have determined that it is
in the best interests of their respective companies and their stockholders to
consummate the business combination transactions provided for herein, including
the merger of PHSB with and into ESB subject to the terms and conditions set
forth herein; and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby; and
WHEREAS, as a material inducement to ESB to enter into this Agreement, and
simultaneously with the execution of this Agreement, each director of PHSB is
entering into an agreement, in the form of Exhibit A hereto, pursuant to which
such persons have agreed, among other things, to vote their shares of PHSB
Common Stock (as defined herein) in favor of this Agreement and, as a material
inducement to PHSB to enter into this Agreement, and simultaneously with the
execution of this Agreement, each director of ESB is entering into an agreement,
in the form of Exhibit B hereto, pursuant to which such persons have agreed,
among other things, to vote their shares of ESB Common Stock (as defined herein)
in favor of this Agreement (collectively, the "Stockholder Agreements").
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.01. THE MERGER. Subject to the terms and conditions of this Agreement and
the Agreement of Merger, dated as of the date hereof, between ESB and PHSB, a
copy of which is attached hereto as Exhibit C, at the Effective Time (as defined
in Section 1.02 hereof), PHSB shall be merged with and into ESB in accordance
with Chapter 19, Subchapter C of the Pennsylvania Business Corporation Law
("PBCL") (the "Merger"), with ESB as the surviving corporation
(hereinafter sometimes called the "Surviving Corporation"). Each share of common
stock, par value $.10 per share, of PHSB ("PHSB Common Stock") outstanding
immediately prior to the Effective Time (other than shares held other than in a
fiduciary capacity by PHSB (including treasury shares) or ESB or any of their
respective wholly-owned subsidiaries) shall, by virtue of the Merger and without
any further action by the holder thereof, be converted into and represent the
right to receive shares of common stock, par value $.01 per share, of ESB ("ESB
Common Stock") or $27.00 in cash ("Merger Consideration"), as provided in
Section 1.03 hereof and subject to the terms, conditions, limitations and
procedures set forth in this Agreement and the Agreement of Merger.
1.02. EFFECTIVE TIME. The Merger shall become effective on the date and at
the time that Articles of Merger are filed with the Secretary of State of the
Commonwealth of Pennsylvania pursuant to Section 1927 of the PBCL, unless a
later date and time is specified as the effective time in such Articles of
Merger ("Effective Time"). A closing (the "Closing") shall take place
immediately prior to the Effective Time at 10:00 a.m., on the fifth business day
following the receipt of all necessary regulatory or governmental approvals and
consents and the expiration of all statutory waiting periods in respect thereof
and the satisfaction or waiver, to the extent permitted hereunder, of the
conditions to the consummation of the Merger specified in Article V of this
Agreement (other than the delivery of certificates, opinions and other
instruments and documents to be delivered at the Closing), at the offices of
ESB, 600 Lawrence Avenue, Ellwood City, Pennsylvania, or at such other place, at
such other time, or on such other date as the parties may mutually agree upon.
At the Closing, there shall be delivered to ESB and PHSB the opinions,
certificates and other documents required to be delivered under Article V
hereof.
1.03 CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of a holder of shares of PHSB Common Stock:
(a) Each share of ESB Common Stock that is issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding and
shall be unchanged by the Merger.
(b) All shares of PHSB Common Stock owned by PHSB (including treasury
shares) or ESB or any of their respective wholly-owned subsidiaries, in each
case other than in a fiduciary capacity, shall be canceled and retired and shall
not represent capital stock of the Surviving Corporation and shall not be
exchanged for shares of ESB Common Stock, cash or other consideration.
(c) (1) Subject to Sections 1.04 and 1.05, each share of PHSB Common Stock
issued and outstanding at the Effective Time (other than shares to be canceled
in accordance with Section 1.03(b)) shall be converted into, and shall be
canceled in exchange for, the right to receive, at the election of the holder
thereof:
(i) the number of shares of ESB Common Stock which is equal to the
quotient (the "Exchange Ratio") determined by dividing (x) $27.00 by (y)
the Average Share Price of the ESB Common Stock (the "Per Share Stock
Consideration"), or
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(ii) a cash amount equal to $27.00 per share of PHSB Common Stock (the
"Per Share Cash Consideration").
(2) For purposes of this Agreement:
(i) the "Aggregate Cash Consideration" shall amount to the product of
the number of shares of PHSB Common Stock (other than PHSB Common Stock
owned by PHSB (including treasury shares) or ESB other than in a fiduciary
capacity) outstanding at the Effective Time multiplied by .50 multiplied by
$27.00; and
(ii) the "Average Share Price" of the ESB Common Stock shall mean the
average of the closing sales price of a share of ESB Common Stock, as
reported on the Nasdaq Stock Market's National Market (as reported by an
authoritative source), for the 20 trading-day period ending with the close
of business on the business day which is three days preceding the Effective
Time; provided, however, that if a Triggering Event (as defined in Section
1.03(c)(2)(iii)) has occurred, then the Average Share Price of the ESB
Common Stock shall mean the average of the closing sales price of a share
of ESB Common Stock, as reported on the Nasdaq Stock Market's National
Market (as reported by an authoritative source), for the 20 trading-day
period ending with the close of business on the fifth business day prior to
the date of this Agreement. The closing sales prices during the 20-day
trading period shall be subject to appropriate adjustments in the event
that, during such 20-day trading period, the outstanding shares of ESB
Common Stock shall have been increased, decreased, changed into or
exchanged for a different number or kind of shares or securities through
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other like changes in ESB's capitalization.
(iii) "Triggering Event" shall mean any one or more of the following
events:
(a) ESB shall have authorized, recommended, publicly proposed or
publicly announced an intention to authorize, recommend or propose, or
entered into an agreement with any person to effect any merger in which the
shareholders of ESB immediately prior to such merger would not own more
than 50% of the outstanding capital stock of the surviving corporation
after such merger, or the sale by ESB of more than 25% of its consolidated
assets or liabilities not in the ordinary course of business (an "ESB
Acquisition Transaction"); or
(b) Any person shall have become the beneficial owner of more
than 25% of the issued and outstanding shares of ESB Common Stock or if ESB
shall have publicly announced its recommendation in support of, or
non-objection to, another party acquiring more than 25% of the issued and
outstanding shares of ESB Common Stock.
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1.04 ELECTION AND EXCHANGE PROCEDURES
(a) The parties shall designate an exchange agent to act as agent (the
"Exchange Agent") for purposes of conducting the election procedure and the
exchange procedure as described in Sections 1.04 and 1.05. No later than five
(5) business days following the Effective Time, ESB shall cause the Exchange
Agent to mail or make available to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented issued
and outstanding shares of PHSB Common Stock (i) a notice and letter of
transmittal (which shall specify that delivery shall be effected and risk of
loss and title to the certificates theretofore representing shares of PHSB
Common Stock shall pass only upon proper delivery of such certificates to the
Exchange Agent) advising such holder of the effectiveness of the Merger and the
procedure for surrendering to the Exchange Agent such certificate or
certificates which immediately prior to the Effective Time represented issued
and outstanding shares of PHSB Common Stock in exchange for the consideration
set forth in Section 1.03(c) hereof deliverable in respect thereof pursuant to
this Agreement and (ii) an election form in such form as ESB and PHSB shall
mutually agree ("Election Form"). Each Election Form shall permit the holder (or
in the case of nominee record holders, the beneficial owner through proper
instructions and documentation) (i) to elect to receive ESB Common Stock with
respect to the designated number of such holder's PHSB Common Stock as
hereinabove provided (the "Stock Election Shares"), (ii) to elect to receive
cash with respect to the designated number of such holder's PHSB Common Stock as
hereinabove provided (the "Cash Election Shares"), or (iii) to indicate that
such holder makes no such election with respect to such holder's shares of PHSB
Common Stock (the "No-Election Shares"). Nominee record holders who hold PHSB
Common Stock on behalf of multiple beneficial owners shall indicate how many of
the shares held by them are Stock Election Shares, Cash Election Shares and
No-Election Shares. Any shares of PHSB Common Stock with respect to which the
holder thereof shall not, as of the Election Deadline, have made such an
election by submission to the Exchange Agent of an effective, properly completed
Election Form shall be deemed to be No-Election Shares.
(b) The term "Election Deadline" shall mean 5:00 p.m., Eastern Time, on the
20th business day following but not including the date of mailing of the
Election Form or such other date as ESB and PHSB shall mutually agree upon.
(c) Any election to receive ESB Common Stock or cash shall have been
properly made only if the Exchange Agent shall have actually received a properly
completed Election Form by the Election Deadline. An Election Form will be
properly completed only if accompanied by certificates representing all shares
of PHSB Common Stock covered thereby, subject to the provisions of subsection
(h) below of this Section 1.04. Any Election Form may be revoked or changed by
the person submitting such Election Form to the Exchange Agent by written notice
to the Exchange Agent only if such notice is actually received by the Exchange
Agent at or prior to the Election Deadline. The certificate or certificates
representing PHSB Common Stock relating to any revoked Election Form shall be
promptly returned without charge to the person submitting the Election Form to
the Exchange Agent. The Exchange Agent shall have reasonable discretion to
determine when any election, modification or revocation is received and whether
any such election, modification or revocation has been properly made.
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(d) Within ten business days after the Election Deadline, the Exchange
Agent shall effect the allocation among holders of PHSB Common Stock of rights
to receive ESB Common Stock or cash in the Merger in accordance with the
Election Forms as follows:
(i) If the number of Cash Election Shares times the Per Share Cash
Consideration is less than the Aggregate Cash Consideration, then:
(1) all Cash Election Shares shall be converted into the right to
receive cash,
(2) No-Election Shares shall then be deemed to be Cash Election
Shares to the extent necessary to have the total number of Cash
Election Shares times the Per Share Cash Consideration equal the
Aggregate Cash Consideration. If less than all of the No-Election
Shares need to be treated as Cash Election Shares, then the Exchange
Agent shall select which No-Election Shares shall be treated as Cash
Election Shares in such manner as the Exchange Agent shall determine,
and all remaining No-Election Shares shall thereafter be treated as
Stock Election Shares,
(3) If all of the No-Election Shares are treated as Cash Election
Shares under the preceding subsection and the total number of Cash
Election Shares times the Per Share Cash Consideration is less than
the Aggregate Cash Consideration, then the Exchange Agent shall
convert on a pro rata basis as described below a sufficient number of
Stock Election Shares into Cash Election Shares ("Reallocated Cash
Shares") such that the sum of the number of Cash Election Shares plus
the number of Reallocated Cash Shares times the Per Share Cash
Consideration equals the Aggregate Cash Consideration, and all
Reallocated Cash Shares will be converted into the right to receive
cash, and
(4) the Stock Election Shares which are not Reallocated Cash
Shares shall be converted into the right to receive ESB Common Stock.
(ii) If the number of Cash Election Shares times the Per Share Cash
Consideration is greater than the Aggregate Cash Consideration, then:
(1) all Stock Election Shares and all No-Election Shares shall be
converted into the right to receive ESB Common Stock,
(2) the Exchange Agent shall convert on a pro rata basis as
described below a sufficient number of Cash Election Shares
("Reallocated Stock Shares") such that the number of remaining Cash
Election Shares times the Per Share Cash Consideration equals the
Aggregate Cash Consideration, and all Reallocated Stock Shares shall
be converted into the right to receive ESB Common Stock, and
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(3) the Cash Election Shares which are not Reallocated Stock
Shares shall be converted into the right to receive cash.
(iii) If the number of Cash Election Shares times the Per Share Cash
Consideration is equal to the Aggregate Cash Consideration, then
subparagraphs (d)(i) and (ii) above shall not apply and all No-Election
Shares and all Stock Election Shares will be converted into the right to
receive ESB Common Stock.
(e) In the event that the Exchange Agent is required pursuant to Section
1.04(d)(i)(3) to convert some Stock Election Shares into Reallocated Cash
Shares, each holder of Stock Election Shares shall be allocated a pro rata
portion of the total Reallocated Cash Shares. In the event the Exchange Agent is
required pursuant to Section 1.04(d)(ii)(2) to convert some Cash Election Shares
into Reallocated Stock Shares, each holder of Cash Election Shares shall be
allocated a pro rata portion of the total Reallocated Stock Shares.
(f) At the Effective Time, ESB shall deliver to the Exchange Agent the
number of shares of ESB Common Stock issuable and the amount of cash payable in
the Merger (which shall be held by the Exchange Agent in trust for the holders
of PHSB Common Stock and invested only in deposit accounts of an FDIC-insured
institution, direct obligations of the U.S. Government or obligations issued or
guaranteed by an agency thereof which carry the full faith and credit of the
United States). No later than ten business days after the Election Deadline, the
Exchange Agent shall distribute ESB Common Stock and cash as provided herein.
The Exchange Agent shall not be entitled to vote or exercise any rights of
ownership with respect to the shares of ESB Common Stock held by it from time to
time hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such shares for the account of
the persons entitled thereto.
(g) After the completion of the foregoing allocation, each holder of an
outstanding certificate or certificates which prior thereto represented shares
of PHSB Common Stock who surrenders such certificate or certificates to the
Exchange Agent will, upon acceptance thereof by the Exchange Agent, be entitled
to a certificate or certificates representing the number of full shares of ESB
Common Stock and/or the amount of cash into which the aggregate number of shares
of PHSB Common Stock previously represented by such certificate or certificates
surrendered shall have been converted pursuant to this Agreement and, if such
holder's shares of PHSB Common Stock have been converted into ESB Common Stock,
any other distribution theretofore paid with respect to ESB Common Stock
issuable in the Merger, in each case without interest. The Exchange Agent shall
accept such certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. Each outstanding
certificate which prior to the Effective Time represented PHSB Common Stock and
which is not surrendered to the Exchange Agent in accordance with the procedures
provided for herein shall, except as otherwise herein provided, until duly
surrendered to the Exchange Agent be deemed to evidence ownership of the number
of shares of ESB Common Stock or the right to receive the amount of cash into
which such PHSB Common Stock shall have been converted. After the Effective
Time, there shall be no further transfer on the records of PHSB of certificates
representing shares of PHSB Common Stock and if such certificates are presented
to
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PHSB for transfer, they shall be cancelled against delivery of certificates for
ESB Common Stock or cash as hereinabove provided. No dividends which have been
declared will be remitted to any person entitled to receive shares of ESB Common
Stock under this Section 1.04 until such person surrenders the certificate or
certificates representing PHSB Common Stock, at which time such dividends shall
be remitted to such person, without interest.
(h) ESB shall not be obligated to deliver cash and/or a certificate or
certificates representing shares of ESB Common Stock to which a holder of PHSB
Common Stock would otherwise be entitled as a result of the Merger until such
holder surrenders the certificate or certificates representing the shares of
PHSB Common Stock for exchange as provided in this Section 1.04, or, in default
thereof, an appropriate affidavit of loss and indemnity agreement and/or a bond
as may be required by ESB. If any certificates evidencing shares of ESB Common
Stock are to be issued in a name other than that in which the certificate
evidencing PHSB Common Stock surrendered in exchange therefor is registered, it
shall be a condition of the issuance thereof that the certificate so surrendered
shall be properly endorsed or accompanied by an executed form of assignment
separate from the certificate and otherwise in proper form for transfer and that
the person requesting such exchange pay to the Exchange Agent any transfer or
other tax required by reason of the issuance of a certificate for shares of ESB
Common Stock in any name other than that of the registered holder of the
certificate surrendered or otherwise establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(i) Any portion of the shares of ESB Common Stock and cash delivered to the
Exchange Agent by ESB pursuant to Section 1.04(f) that remains unclaimed by the
stockholders of PHSB for six months after the Effective Time (as well as any
proceeds from any investment thereof), at the request of ESB, shall be delivered
by the Exchange Agent to ESB. After delivery to ESB, any stockholders of PHSB
who have not theretofore complied with Section 1.04(g) shall thereafter look
only to ESB for the consideration deliverable in respect of each share of PHSB
Common Stock such stockholder holds as determined pursuant to this Agreement
without any interest thereon. If outstanding certificates for shares of PHSB
Common Stock are not surrendered or the payment for them is not claimed prior to
the date on which such shares of ESB Common Stock or cash would otherwise
escheat to or become the property of any governmental unit or agency, the
unclaimed items shall, to the extent permitted by abandoned property and any
other applicable law, become the property of ESB (and to the extent not in its
possession shall be delivered to it), free and clear of all claims or interest
of any person previously entitled to such property. Neither the Exchange Agent
nor any party to this Agreement shall be liable to any holder of stock
represented by any certificate for any consideration paid to a public official
pursuant to applicable abandoned property, escheat or similar laws. ESB and the
Exchange Agent shall be entitled to rely upon the stock transfer books of PHSB
to establish the identity of those persons entitled to receive consideration
specified in this Agreement, which books shall be conclusive with respect
thereto. In the event of a dispute with respect to ownership of stock
represented by any certificate, ESB and the Exchange Agent shall be entitled to
deposit any consideration represented thereby in escrow with an independent
third party and thereafter be relieved with respect to any claims thereto.
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1.05 NO FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of ESB Common
Stock shall be issued in the Merger. Each holder who otherwise would have been
entitled to a fraction of a share of ESB Common Stock shall receive in lieu
thereof cash (without interest) in an amount determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the Average Share Price. No such holder shall be entitled to dividends, voting
rights or any other rights in respect of any fractional share.
1.06 STOCK OPTIONS AND RESTRICTED STOCK AWARDS. Each option to purchase
PHSB Common Stock (a "PHSB Stock Option") that has been issued pursuant to
PHSB's 1998 Stock Option Plan or PHSB's 2002 Stock Option Plan (together, the
"PHSB Option Plans") that is outstanding and exercisable at the Effective Time
shall be canceled and converted into the right to receive by the option holder,
cash in an amount equal to the difference between the Per Share Cash
Consideration and the per share exercise price of such PHSB Stock Option for
each share of PHSB Common Stock subject to such PHSB Stock Option (the "Option
Consideration"). The payment of the Option Consideration, subject to withholding
taxes if any, to such holder of PHSB Stock Options shall be subject to the
execution by such holder of such instruments of cancellation and release as PHSB
and ESB may reasonably require. Plan shares which have been awarded under PHSB's
1998 Restricted Stock Plan and PHSB's 2002 Restricted Stock Plan (together, the
"PHSB Restricted Stock Plans") as of the date of this Agreement and which remain
outstanding immediately prior to the Effective Time shall become fully earned as
of the Effective Time, and the holders of such PHSB Restricted Stock Plan shares
shall be entitled to receive, in lieu of distribution of PHSB Common Stock
payment, subject to any applicable tax withholding, from PHSB or Peoples Home
Savings Bank of the Per Share Cash Consideration for each share of PHSB Common
Stock represented by each PHSB Restricted Stock Plan award in exchange for a
release executed by such holder of a PHSB Restricted Stock Plan award.
1.07 WITHHOLDING RIGHTS. ESB (through the Exchange Agent, if applicable)
shall be entitled to deduct and withhold from any amounts otherwise payable
pursuant to this Agreement to any holder of shares of PHSB Common Stock such
amounts as ESB is required under the Internal Revenue Code of 1986, as amended
("Code"), or any provision of state, local or foreign tax law to deduct and
withhold with respect to the making of such payment. Any amounts so withheld
shall be treated for all purposes of this Agreement as having been paid to the
holder of PHSB Common Stock in respect of which such deduction and withholding
was made by ESB.
1.08 ADDITIONAL ACTIONS. If at any time after the Effective Time the
Surviving Corporation shall consider that any further assignments or assurances
in law or any other acts are necessary or desirable to (i) vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation its rights, title
or interest in, to or under any of the rights, properties or assets of PHSB
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger, or (ii) otherwise carry out the purposes of this
Agreement, PHSB and its proper officers and directors shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to execute
and deliver all such proper deeds, assignments and assurances in law and to do
all acts necessary or proper to vest, perfect or confirm title to and possession
of such rights, properties or
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assets in the Surviving Corporation and otherwise to carry out the purposes of
this Agreement; and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of PHSB or otherwise to take any
and all such action.
1.09 MODIFICATION OF STRUCTURE. Notwithstanding any provision to this
Agreement to the contrary, ESB, with the prior written consent of PHSB, which
consent shall not be unreasonably withheld, may elect, subject to the filing of
all necessary applications and the receipt of all required regulatory approvals,
to modify the structure of the transactions contemplated hereby so long as (i)
there are no adverse federal income tax consequences to the stockholders of PHSB
as a result of the modification, (ii) the consideration to be paid to the
holders of PHSB Common Stock under this Agreement is not thereby changed in kind
or reduced in amount solely because of such modification and (iii) such
modification will not be likely to materially delay or jeopardize receipt of any
required regulatory approvals or impair or prevent the satisfaction of any
conditions of the Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PHSB
References to "PHSB Disclosure Schedules" shall mean all of the disclosure
schedules required by this Article II, which have been delivered by PHSB to ESB.
PHSB hereby represents and warrants to ESB as follows as of the date hereof:
2.01. CORPORATE ORGANIZATION.
(a) PHSB is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. PHSB has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted and is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a Material Adverse Effect (as defined below).
PHSB is registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended ("BHCA"). PHSB Disclosure Schedule 2.01(a) sets forth true
and complete copies of the Articles of Incorporation or other governing
instrument and Bylaws of PHSB and the PHSB Subsidiaries as in effect on the date
hereof.
For purposes of this Agreement, the term "Material Adverse Effect", when
applied to a party, shall mean any event, change or occurrence which, together
with any other event, change or occurrence, has a material adverse impact on (i)
the financial position, business or results of operation, financial performance
of such party and their respective subsidiaries, taken as a whole, or (ii) the
ability of such party to perform its obligations under this Agreement or to
consummate the Merger and the other transactions contemplated by this Agreement
in a timely fashion; provided, however, that a "Material Adverse Effect" shall
not be deemed to include the impact of (a) actions or omissions of a party taken
with the prior written consent of the other in contemplation of the
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transactions contemplated by this Agreement, (b) changes in banking and similar
laws of general applicability or interpretations thereof by courts or
governmental authorities, (c) changes in generally accepted accounting
principles or regulatory accounting requirements applicable to banks and bank or
thrift holding companies generally, (d) changes attributable to or resulting
from changes in general economic conditions, including changes in the prevailing
level of interest rates, or (e) the Merger and related expenses associated with
the transactions contemplated by this Agreement.
(b) The only direct or indirect subsidiaries of PHSB are Peoples Home
Savings Bank and Homeco Service Corporation (together, the "PHSB Subsidiaries").
Each of the PHSB Subsidiaries (i) is duly organized and validly existing or in
good standing under the laws of its respective jurisdiction of incorporation,
(ii) has the corporate power and authority to own or lease all of its properties
and assets and to conduct its business as it is now being conducted, and (iii)
is duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse
Effect. Each of PHSB and Peoples Homes Savings Bank has satisfied in all
material respects all commitments, financial or otherwise, as may have been
agreed upon with their appropriate bank regulatory agencies. Other than the PHSB
Subsidiaries, PHSB does not own or control, directly or indirectly, greater than
a 5% equity interest in any corporation, company, association, partnership,
joint venture or other entity.
2.02. CAPITALIZATION. The authorized capital stock of PHSB consists of
80,000,000 shares of PHSB Common Stock, of which 2,903,353 are issued and
outstanding (including 33,440 Plan Shares under PHSB's Restricted Stock Plans,
all of which have been allocated under the plans) and 616,358 shares are held in
treasury as of the date hereof, and 20,000,000 shares of preferred stock, no par
value, of which no shares are issued and outstanding as of the date hereof. All
issued and outstanding shares of capital stock of PHSB, and all issued and
outstanding shares of capital stock of each of the PHSB Subsidiaries, have been
duly authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights. All of the outstanding shares of capital stock of each of the
PHSB Subsidiaries are owned by PHSB free and clear of any liens, encumbrances,
charges, restrictions or rights of third parties of any kind whatsoever, and,
except for options to purchase 290,527 shares of PHSB Common Stock which have
been granted pursuant to PHSB's Stock Option Plans, and which are outstanding,
none of PHSB or any of the PHSB Subsidiaries has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the transfer, purchase or issuance of any shares of
capital stock of PHSB or any of the PHSB Subsidiaries or any securities
representing the right to purchase or otherwise receive any shares of such
capital stock or any securities convertible into or representing the right to
purchase or subscribe for any such stock.
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2.03. AUTHORITY; NO VIOLATION.
(a) Subject to the approval of this Agreement and the Agreement of Merger
and the transactions contemplated hereby and thereby by the stockholders of
PHSB, PHSB has full corporate power and authority to execute and deliver this
Agreement and the Agreement of Merger and to consummate the transactions
contemplated hereby and thereby in accordance with the terms hereof and thereof.
The execution and delivery of this Agreement and the Agreement of Merger and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly approved by the Board of Directors of PHSB. Except for the approval
by PHSB's stockholders of this Agreement and the Agreement of Merger, no other
corporate proceedings on the part of PHSB are necessary to consummate the
transactions so contemplated. This Agreement and the Agreement of Merger have
been duly and validly executed and delivered by PHSB and constitute valid and
binding obligations of PHSB, enforceable against it in accordance with and
subject to their terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, and except that the availability of equitable remedies (including,
without limitation, specific performance) is within the discretion of the
appropriate court.
(b) None of the execution and delivery of this Agreement and the Agreement
of Merger by PHSB, nor the consummation by PHSB of the transactions contemplated
hereby and thereby in accordance with the terms hereof and thereof, or
compliance by PHSB with any of the terms or provisions hereof or thereof, will
(i) violate any provision of the Articles of Incorporation or other governing
instrument or Bylaws of PHSB or any of the PHSB Subsidiaries, (ii) assuming that
the consents and approvals set forth below are duly obtained, violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to PHSB or any of the PHSB Subsidiaries or any of their
respective properties or assets, or (iii) except as disclosed in PHSB Disclosure
Schedule 2.03(b), violate, conflict with, result in a breach of any provisions
of, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the respective
properties or assets of PHSB or any of the PHSB Subsidiaries under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which PHSB
or any of the PHSB Subsidiaries is a party, or by which any of their respective
properties or assets may be bound or affected, except, with respect to (ii) and
(iii) above, such as individually or in the aggregate will not have a Material
Adverse Effect. Except as set forth in PHSB Disclosure Schedule 2.03(b) and for
consents and approvals of or filings or registrations with or notices to the
Securities and Exchange Commission ("Commission"), the Secretary of State of the
Commonwealth of Pennsylvania, the Pennsylvania Department of Banking (the
"Department"), the Federal Deposit Insurance Corporation (the "FDIC"), the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"), the
Office of Thrift Supervision (the "OTS"), if required, and the stockholders of
PHSB, no consents or approvals of or filings or registrations with or notices to
any federal, state, municipal or other governmental or regulatory commission,
board, agency, or non-governmental third party are required on behalf of PHSB in
connection with (a) the execution and delivery of this Agreement and the
Agreement of Merger by PHSB and (b) the consummation by
11
PHSB of the Merger and the other transactions contemplated hereby and by the
Agreement of Merger.
2.04. FINANCIAL STATEMENTS.
(a) PHSB has previously delivered to ESB copies of the consolidated balance
sheets of PHSB as of December 31, 2003 and 2002 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
years ended December 31, 2003, 2002 and 2001, in each case accompanied by the
audit reports of S.R. Snodgrass, A.C., independent public accountants, as well
as the unaudited consolidated balance sheet of PHSB as of March 31, 2004 and the
related unaudited consolidated statements of income, changes in stockholders'
equity and cash flows for the three months ended March 31, 2004 and 2003. The
consolidated balance sheets of PHSB referred to herein (including the related
notes, where applicable), as well as the consolidated financial statements
contained in the reports of PHSB to be delivered by PHSB pursuant to Section
4.05 hereof, fairly present or will fairly present, as the case may be, the
consolidated financial condition of PHSB as of the respective dates set forth
therein, and the related consolidated statements of income, changes in
stockholders' equity and cash flows (including the related notes, where
applicable) fairly present or will fairly present, as the case may be, the
results of the consolidated operations, changes in stockholders' equity and cash
flows of PHSB for the respective periods or as of the respective dates set forth
therein (it being understood that PHSB's interim financial statements are not
audited and are not prepared with related notes but reflect all adjustments
which are, in the opinion of PHSB, necessary for a fair presentation of such
financial statements).
(b) Each of the financial statements referred to in this Section 2.04
(including the related notes, where applicable) has been or will be, as the case
may be, prepared in accordance with generally accepted accounting principles
consistently applied during the periods involved. The books and records of PHSB
and the PHSB Subsidiaries are being maintained in material compliance with
applicable legal and accounting requirements and reflect only actual
transactions.
(c) Except to the extent reflected, disclosed or reserved against in the
consolidated financial statements referred to in the first sentence of Section
2.04(a) or the notes thereto or liabilities incurred since March 31, 2004 in the
ordinary course of business and consistent with past practice, none of PHSB or
any of the PHSB Subsidiaries has any obligation or liability, whether absolute,
accrued, contingent or otherwise, material to the business, operations, assets
or financial condition of PHSB and the PHSB Subsidiaries taken as a whole.
2.05. ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as set forth in PHSB Disclosure Schedule 2.05(a), there has
not been any material adverse change in the business, results of operations,
assets or financial condition of PHSB and the PHSB Subsidiaries taken as a whole
since March 31, 2004, other than: (i) any such effect attributable to or
resulting from any change in banking or similar laws, rules or regulations of
general applicability to banks, savings banks or their holding companies or
interpretations thereof by courts or governmental authorities; (ii) changes in
generally accepted accounting principles that are
12
generally applicable to the banking or savings industries; (iii) expenses
incurred in connection with the transactions contemplated hereby; (iv) actions
or omissions of a party (or any of its subsidiaries) taken with the prior
informed written consent of the other party; or (v) changes attributable to or
resulting from changes in general economic conditions, including changes in the
prevailing level of interest rates. To the best knowledge of PHSB, no fact or
condition exists which PHSB believes will cause such a material adverse change
in the future.
(b) Neither PHSB nor any of the PHSB Subsidiaries has taken or permitted
any of the actions set forth in Section 4.02 hereof between March 31, 2004 and
the date hereof.
2.06. LEGAL PROCEEDINGS. Neither PHSB nor any of the PHSB Subsidiaries is a
party to any, and there are no pending or, to the best knowledge of PHSB,
threatened legal, administrative, arbitration or other proceedings, claims,
actions or governmental investigations of any nature against PHSB or any of the
PHSB Subsidiaries, except such proceedings, claims, actions or governmental
investigations which in the good faith judgment of PHSB are not reasonably
expected to have a Material Adverse Effect. Neither PHSB nor any of the PHSB
Subsidiaries is a party to any order, judgment or decree which has had or is
reasonably expected to have a Material Adverse Effect.
2.07. TAXES AND TAX RETURNS.
(a) Each of PHSB and the PHSB Subsidiaries has duly filed (and until the
Effective Time will so timely file) all returns, declarations, reports,
information returns and statements ("Returns") required to be filed or sent by
or with respect to them in respect of any Taxes (as hereinafter defined), and
has duly paid (and until the Effective Time will so pay) all Taxes due and
payable other than Taxes or other charges which (i) are being contested in good
faith (and disclosed in writing to ESB) and (ii) have not finally been
determined. PHSB and each of the PHSB Subsidiaries have established (and until
the Effective Time will establish) on their books and records reserves or
accruals that are adequate for the payment of all Taxes not yet due and payable,
whether or not disputed, accrued or applicable. Except as set forth in PHSB
Disclosure Schedule 2.07(a), (i) the federal income tax returns of PHSB and each
of the PHSB Subsidiaries have been examined by the Internal Revenue Service
("IRS") (or are closed to examination due to the expiration of the applicable
statute of limitations), and (ii) the Pennsylvania income tax returns of PHSB
and each of the PHSB Subsidiaries have been examined by applicable authorities
(or are closed to examination due to the expiration of the statute of
limitations), and in the case of both (i) and (ii) no deficiencies were asserted
as a result of such examinations which have not been resolved and paid in full.
There are no audits or other administrative or court proceedings presently
pending nor any other disputes pending, or claims asserted for, Taxes or
assessments upon PHSB or any of the PHSB Subsidiaries, nor has PHSB or any of
the PHSB Subsidiaries given any currently outstanding waivers or comparable
consents regarding the application of the statute of limitations with respect to
any Taxes or Returns.
(b) Except as set forth in PHSB Disclosure Schedule 2.07(b), none of PHSB
or any of the PHSB Subsidiaries (i) has requested any extension of time within
which to file any Return which Return has not since been filed, (ii) is a party
to any agreement providing for the allocation or sharing
13
of Taxes or (iii) is required to include in income any adjustment pursuant to
Section 481(a) of the Code, by reason of a voluntary change in accounting method
initiated by PHSB or the PHSB Subsidiaries (nor does PHSB have any knowledge
that the IRS has proposed any such adjustment or change of accounting method).
(c) For purposes of this Agreement, "Taxes" shall mean all taxes, charges,
fees, levies or other assessments, including, without limitation, all net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment (including
withholding, payroll and employment taxes required to be withheld with respect
to income paid to employees), excise, estimated, severance, stamp, occupation,
property or other taxes, customs 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 (domestic or foreign) upon
PHSB or any of its Affiliates.
2.08. EMPLOYEE BENEFIT PLANS.
(a) Each employee benefit plan or arrangement of PHSB or any of the PHSB
Subsidiaries which is an "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), is listed in PHSB Disclosure Schedule 2.08(a) ("PHSB Plans"). PHSB
has previously furnished to ESB true and complete copies of each of the PHSB
Plans together with (i) the most recent actuarial and financial reports prepared
with respect to any qualified PHSB Plans, (ii) the most recent annual reports
filed with any government agency, and (iii) all rulings and determination
letters and any open requests for rulings or letters that pertain to any
qualified PHSB Plans.
(b) Each of the PHSB Plans has been operated in compliance in all material
respects with the applicable provisions of ERISA, the Code, all regulations,
rulings and announcements promulgated or issued thereunder, and all other
applicable governmental laws and regulations.
(c) Neither PHSB nor any of the PHSB Subsidiaries participates in or has
incurred any liability under Section 4201 of ERISA for a complete or partial
withdrawal from a multiemployer plan (as such term is defined in ERISA).
(d) Except as set forth in PHSB Disclosure Schedule 2.08(d), the present
value of all accrued liabilities under each of the PHSB Plans subject to Title
IV of ERISA did not, as of the latest valuation date of each such PHSB Plan,
exceed the fair market value of the assets of such PHSB Plans allocable to such
accrued liabilities, based upon the actuarial and accounting assumptions
currently utilized for such PHSB Plans (as of the latest valuation date).
(e) Neither PHSB nor any of the PHSB Subsidiaries, nor, to the best
knowledge of PHSB, any trustee, fiduciary or administrator of a PHSB Plan or any
trust created thereunder, has engaged in a "prohibited transaction," as such
term is defined in Section 4975 of the Code, which could subject PHSB or any of
the PHSB Subsidiaries, or, to the best knowledge of PHSB, any
14
trustee, fiduciary or administrator thereof, to the tax or penalty on prohibited
transactions imposed by Section 4975.
(f) No PHSB Plan or any trust created thereunder has been terminated, nor
have there been any "reportable events" with respect to any PHSB Plan subject to
Title IV of ERISA, as that term is defined in Section 4043(b) of ERISA.
(g) No PHSB Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA.
(h) Each of the PHSB Plans which is intended to be a qualified plan under
Section 401(a) of the Code received a favorable determination letter issued by
the IRS to the effect that such plan is qualified under Section 401(k) of the
Code, and PHSB is not aware of any fact or circumstance which would adversely
affect the qualified status of any such plan.
2.09. SECURITIES DOCUMENTS AND REGULATORY REPORTS.
(a) PHSB has previously delivered or made available to ESB a complete copy
of each final registration statement, prospectus, annual, quarterly or current
report and definitive proxy statement or other communication (other than general
advertising materials) filed pursuant to the Securities Act of 1933, as amended
("1933 Act"), or the Securities Exchange Act of 1934, as amended ("1934 Act"),
or mailed by PHSB to its stockholders as a class since January 1, 2001, and each
such final registration statement, prospectus, annual, quarterly or current
report and definitive proxy statement or other communication, as of its date,
complied in all material respects with all applicable statutes, rules and
regulations and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading; provided that information as of a later date
shall be deemed to modify information as of an earlier date.
(b) PHSB and each of the PHSB Subsidiaries has duly filed with the Federal
Reserve Board, the Department and the FDIC in correct form the monthly,
quarterly and annual reports required to be filed under applicable laws and
regulations, and PHSB has delivered or made available to ESB accurate and
complete copies of such reports. PHSB Disclosure Schedule 2.09(b) lists all
examinations of PHSB or of the PHSB Subsidiaries conducted by the applicable
bank regulatory authorities since January 1, 2001 and the dates of any responses
thereto submitted by PHSB. In connection with the most recent examinations of
PHSB or the PHSB Subsidiaries by the applicable bank regulatory authorities,
neither PHSB nor any of the PHSB Subsidiaries was required to correct or change
any action, procedure or proceeding which PHSB or such PHSB Subsidiaries
believes has not been now corrected or changed as required.
2.10. PHSB INFORMATION. None of the information relating to PHSB and the
PHSB Subsidiaries to be provided by PHSB or the PHSB Subsidiaries for use in (i)
the Registration Statement on Form S-4 to be filed by ESB in connection with the
issuance of shares of ESB
15
Common Stock pursuant to the Merger, as amended or supplemented (or on any
successor or other appropriate form) ("Form S-4"), will, at the time the Form
S-4 becomes effective, contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (ii) the joint
proxy statement/prospectus contained in the Form S-4, as amended or
supplemented, and to be delivered to stockholders of ESB and PHSB in connection
with the solicitation of their approval of this Agreement, the Agreement of
Merger and the transactions contemplated hereby and thereby ("Proxy
Statement/Prospectus"), as of the date(s) such Proxy Statement/Prospectus is
mailed to stockholders of ESB and PHSB and up to and including the date(s) of
the meetings of stockholders to which such Proxy Statement/Prospectus relates,
will contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided that information as of a
later date shall be deemed to modify information as of an earlier date.
2.11. COMPLIANCE WITH APPLICABLE LAW.
(a) PHSB and each of the PHSB Subsidiaries has all permits, licenses,
certificates of authority, orders and approvals of, and has made all filings,
applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit it to
carry on its business as it is presently being conducted and the absence of
which could reasonably be expected to have a Material Adverse Effect; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect; and to the best knowledge of PHSB and the PHSB Subsidiaries,
no suspension or cancellation of any of the same is threatened.
(b) Neither PHSB nor any of the PHSB Subsidiaries is in violation of its
respective Articles of Incorporation or other governing instrument or Bylaws, or
of any applicable federal, state or local law or ordinance or any order, rule or
regulation of any federal, state, local or other governmental agency or body
(including, without limitation, all banking, securities, municipal securities,
safety, health, zoning, anti-discrimination, antitrust, and wage and hour laws,
ordinances, orders, rules and regulations), or in default with respect to any
order, writ, injunction or decree of any court, or in default under any order,
license, regulation or demand of any governmental agency, any of which
violations or defaults could reasonably be expected to have a Material Adverse
Effect; and neither PHSB nor any of the PHSB Subsidiaries has received any
notice or communication from any federal, state or local governmental authority
asserting that PHSB or any PHSB Subsidiary is in violation of any of the
foregoing which could reasonably be expected to have a Material Adverse Effect.
Neither PHSB nor any PHSB Subsidiary is subject to any regulatory or supervisory
cease and desist order, agreement, written directive, memorandum of
understanding or written commitment (other than those of general applicability
to all savings associations issued by governmental authorities), and none of
them has received any written communication requesting that they enter into any
of the foregoing.
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2.12. DEPOSIT INSURANCE AND OTHER REGULATORY MATTERS.
(a) The deposit accounts of Peoples Home Savings Bank are insured by the
Savings Association Insurance Fund administered by the FDIC to the maximum
extent permitted by the Federal Deposit Insurance Act, as amended ("FDIA"), and
Peoples Home Savings Bank has paid all premiums and assessments required by the
FDIA and the regulations thereunder.
(b) Peoples Home Savings Bank is a member in good standing of the Federal
Home Loan Bank ("FHLB") of Pittsburgh and owns the requisite amount of stock in
the FHLB of Pittsburgh.
(c) As of the date hereof, neither PHSB nor Peoples Home Savings Bank is
aware of any reasons relating to PHSB or Peoples Home Savings Bank why all
consents and approvals shall not be received from all regulatory agencies having
jurisdiction over the transactions contemplated by this Agreement as shall be
necessary for consummation of the transactions contemplated hereby. Furthermore,
Peoples Home Savings Bank's most recent Community Reinvestment Act rating is not
less than satisfactory.
2.13. CERTAIN CONTRACTS.
(a) Except as disclosed in PHSB Disclosure Schedule 2.13(a), neither PHSB
nor any of the PHSB Subsidiaries is a party to, is bound or affected by,
receives, or is obligated to pay benefits under, (i) any agreement, arrangement
or commitment, including without limitation, any agreement, indenture or other
instrument relating to the borrowing of money by PHSB or any of the PHSB
Subsidiaries or the guarantee by PHSB or any of the PHSB Subsidiaries of any
obligation, (ii) any agreement, arrangement or commitment relating to the
employment of a consultant or the employment, election or retention in office of
any present or former director or officer of PHSB or any of the PHSB
Subsidiaries, (iii) any contract, agreement or understanding with a labor union,
(iv) any agreement, arrangement or understanding pursuant to which any payment
(whether of severance pay or otherwise) became or may become due to any
director, officer or employee of PHSB or any of the PHSB Subsidiaries upon
execution of this Agreement or upon or following consummation of the
transactions contemplated by this Agreement (either alone or in connection with
the occurrence of any additional acts or events), (v) any agreement, arrangement
or understanding to which PHSB or any of the PHSB Subsidiaries is a party or by
which any of the same is bound which limits the freedom of PHSB or any of the
PHSB Subsidiaries to compete in any line of business or with any person, (vi)
any assistance agreement, supervisory agreement, memorandum of understanding,
consent order, cease and desist order or condition of any regulatory order or
decree with or by the Federal Reserve Board, the Department, the FDIC or any
other regulatory agency, (vii) any other agreement, arrangement or understanding
which would be required to be filed as an exhibit to PHSB's annual, quarterly or
current reports under the 1934 Act and which has not been so filed, or (viii)
any other agreement, arrangement or understanding to which PHSB or any of the
PHSB Subsidiaries is a party and which is material to the business, results of
operations, assets or financial condition of PHSB and the PHSB Subsidiaries
taken as a whole (excluding loan agreements or agreements relating to deposit
accounts), in each of the foregoing cases whether written or oral.
17
(b) Neither PHSB nor any of the PHSB Subsidiaries is in default or in
non-compliance, which default or non-compliance would have a Material Adverse
Effect, under any contract, agreement, commitment, arrangement, lease, insurance
policy or other instrument to which it is a party or by which its assets,
business or operations may be bound or affected, whether entered into in the
ordinary course of business or otherwise and whether written or oral, which
default or non-compliance would have a Material Adverse Effect, 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 or non-compliance.
2.14. PROPERTIES AND INSURANCE.
(a) All real and personal property owned by PHSB or any of the PHSB
Subsidiaries or presently used by any of them in their respective business is in
an adequate condition (ordinary wear and tear excepted) and is sufficient to
carry on the business of PHSB and the PHSB Subsidiaries in the ordinary course
of business consistent with their past practices. PHSB and the PHSB Subsidiaries
have good and, as to owned real property, marketable title to all material
assets and properties, whether real or personal, tangible or intangible,
reflected in PHSB's consolidated balance sheet as of March 31, 2004, or owned
and acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the ordinary course of
business since March 31, 2004), subject to no encumbrances, liens, mortgages,
security interests or pledges, except (i) those items that secure liabilities
that are reflected in said consolidated balance sheet or the notes thereto or
have been incurred in the ordinary course of business after the date of such
consolidated balance sheet, (ii) statutory liens for amounts not yet delinquent
or which are being contested in good faith, (iii) such encumbrances, liens,
mortgages, security interests, pledges and title imperfections that are not in
the aggregate material to the business, results of operations, assets or
financial condition of PHSB and the PHSB Subsidiaries taken as a whole, and (iv)
with respect to owned real property, title imperfections noted in title reports
prior to the date hereof. PHSB and the PHSB Subsidiaries as lessees have the
right under valid and subsisting leases to occupy, use, possess and control all
property leased by them in all material respects as presently occupied, used,
possessed and controlled by PHSB and the PHSB Subsidiaries and the consummation
of the transactions contemplated hereby and by the Agreement of Merger will not
affect any such right in a manner that would have a Material Adverse Effect.
PHSB Disclosure Schedule 2.14(a) sets forth an accurate listing of each lease
pursuant to which PHSB or any of the PHSB Subsidiaries acts as lessor or lessee,
including the expiration date and the terms of any renewal options which relate
to the same.
(b) The business operations and all insurable properties and assets of PHSB
and the PHSB Subsidiaries are insured for their benefit against all risks which,
in the reasonable judgment of the management of PHSB, should be insured against,
in each case under valid, binding and enforceable policies or bonds issued by
insurers of recognized responsibility, in such amounts with such deductibles and
against such risks and losses as are in the opinion of the management of PHSB
adequate for the business engaged in by PHSB and the PHSB Subsidiaries. As of
the date hereof, neither PHSB nor any of the PHSB Subsidiaries has received any
notice of cancellation or notice of a material amendment of any such insurance
policy or bond or is in default under such policy or bond, no coverage
thereunder is being disputed and all material claims thereunder have been filed
in a timely fashion.
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2.15. ENVIRONMENTAL MATTERS. For purposes of this Agreement, the following
terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to (1) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The term
Environmental Law includes without limitation (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
`9601, et seq; the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
`6901, et seq; the Clean Air Act, as amended, 42 U.S.C. `7401, et seq; the
Federal Water Pollution Control Act, as amended, 33 U.S.C. `1251, et seq; the
Toxic Substances Control Act, as amended, 15 U.S.C. `9601, et seq; the Emergency
Planning and Community Right to Know Act, 42 U.S.C. `11001, et seq; the Safe
Drinking Water Act, 42 U.S.C. `300f, et seq; and all comparable state and local
laws, and (2) any common law (including without limitation common law that may
impose strict liability) that may impose liability or obligations for injuries
or damages due to, or threatened as a result of, the presence of or exposure to
any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any regulated material containing any such substance as a
component. Hazardous Substances include without limitation petroleum (including
crude oil or any fraction thereof), asbestos, radioactive material, and
polychlorinated biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned, leased or operated by PHSB or any of the PHSB Subsidiaries or
those properties which serve as collateral for loans owned by PHSB or any of the
PHSB Subsidiaries.
(a) To the best knowledge of PHSB and the PHSB Subsidiaries, neither PHSB
nor any of the PHSB Subsidiaries has been or is in violation of or liable under
any Environmental Law, except any such violations or liabilities which would not
singly or in the aggregate have a Material Adverse Effect.
(b) To the best knowledge of PHSB and the PHSB Subsidiaries, none of the
Loan Portfolio Properties and Other Properties Owned by PHSB or any of the PHSB
Subsidiaries has been or is in violation of or liable under any Environmental
Law, except any such violations or liabilities which singly or in the aggregate
would not have a Material Adverse Effect.
19
(c) To the best knowledge of PHSB and the PHSB Subsidiaries, there are no
actions, suits, demands, notices, claims, investigations or proceedings pending
or threatened relating to the liability of the Loan Portfolio Properties and
Other Properties Owned by PHSB or any of the PHSB Subsidiaries under any
Environmental Law, including without limitation any notices, demand letters or
requests for information from any federal or state environmental agency relating
to any such liabilities under or violations of Environmental Law, except such
which would not have or result in a Material Adverse Effect.
2.16. ALLOWANCE FOR LOAN LOSSES AND REAL ESTATE OWNED. The allowance for
loan losses reflected on PHSB's consolidated balance sheets included in the
consolidated financial statements referred to in Section 2.04 hereof is, or will
be in the case of subsequently delivered financial statements, as the case may
be, in the opinion of PHSB's management adequate in all material respects as of
their respective dates under the requirements of generally accepted accounting
principles to provide for reasonably anticipated losses on outstanding loans net
of recoveries. The real estate owned reflected on the consolidated balance
sheets included in the consolidated financial statements referred to in Section
2.04 hereof is, or will be in the case of subsequently delivered financial
statements, as the case may be, carried at the lower of cost or fair value, or
the lower of cost or net realizable value, as required by generally accepted
accounting principles.
2.17. MINUTE BOOKS. Since January 1, 2001, the minute books, including any
attachments thereto, of PHSB and the PHSB Subsidiaries contain complete and
accurate records in all material respects of all meetings and other corporate
action held or taken by their respective Boards of Directors (including
committees of their respective Boards of Directors) and stockholders.
2.18. AFFILIATE TRANSACTIONS.
(a) All "covered transactions" between Peoples Home Savings Bank and an
"affiliated person" or "affiliate" within the meaning of Sections 23A and 23B of
the Federal Reserve Act have been in compliance with such provisions and the
regulations of the Federal Reserve Board thereunder.
(b) PHSB Disclosure Schedule 2.18(b) sets forth the name and number of
shares of PHSB Common Stock owned as of the date hereof beneficially or of
record by any persons PHSB considers to be affiliates of PHSB ("PHSB
Affiliates") as that term is defined for purposes of Rule 145 under the 1933
Act.
2.19. BROKER FEES. Except as set forth in PHSB Disclosure Schedule 2.19,
none of PHSB, the PHSB Subsidiaries or any of the respective directors or
officers of such companies has employed any consultant, broker or finder or
incurred any liability for any consultant's, broker's or finder's fees or
commissions in connection with any of the transactions contemplated by this
Agreement.
2.20. OPINION OF FINANCIAL ADVISOR. PHSB has received the opinion of
Sandler O'Neill & Partners, L.P., dated as of the date of this Agreement, to the
effect that, as of such date, the Merger
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Consideration to be paid to the stockholders of PHSB in the Merger is fair from
a financial point of view to such holders of PHSB Common Stock.
2.21. DISCLOSURES. No representation or warranty contained in Article II of
this Agreement, and no statement contained in the PHSB Disclosure Schedules,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ESB
References to "ESB Disclosure Schedules" shall mean all of the disclosure
schedules required by this Article III, which have been delivered by ESB to
PHSB. ESB hereby represents and warrants to PHSB as follows as of the date
hereof:
3.01. CORPORATE ORGANIZATION.
(a) ESB is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. ESB has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted and is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a Material Adverse Effect (as defined in
Section 2.01). ESB is registered as a thrift holding company under the HOLA. ESB
Disclosure Schedule 3.01(a) sets forth true and complete copies of the Articles
of Incorporation or other governing instrument and Bylaws of ESB and the ESB
Subsidiaries as in effect on the date hereof.
(b) The only direct or indirect subsidiaries of ESB are ESB Bank, AMSCO,
Inc., ESB Financial Services, Inc., PennFirst Financial Services, Inc., THF,
Inc., ESB Capital Trust II, ESB Statutory Trust III, ESB Bank Building
Associates, a limited partnership, McCormick Farms, LLC, Madison Woods, a
limited partnership, The Links at Deer Run, LLC, and Brandwine Village, LLC
(together the "ESB Subsidiaries"). Each of the ESB Subsidiaries (i) is duly
organized and validly existing or in good standing under the laws of its
respective jurisdiction of incorporation, (ii) has the corporate power and
authority to own or lease all of its properties and assets and to conduct its
business as it is now being conducted, and (iii) is duly licensed or qualified
to do business and is in good standing in each jurisdiction in which the nature
of the business conducted by it or the character or location of the properties
and assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed, qualified or in good
standing would not have a Material Adverse Effect. Each of ESB and ESB Bank has
satisfied in all material respects all commitments, financial or otherwise, as
may have been agreed upon with their appropriate thrift regulatory agencies.
Other than the ESB Subsidiaries, ESB does not own or control, directly or
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indirectly, greater than a 5% equity interest in any corporation, company,
association, partnership, joint venture or other entity.
3.02. CAPITALIZATION. The authorized capital stock of ESB consists of
30,000,000 shares of ESB Common Stock, of which 10,707,221 are issued and
outstanding and 223,077 shares which are held in treasury as of the date hereof,
and 5,000,000 shares of preferred stock, par value $.01 per share, of which no
shares are issued and outstanding as of the date hereof. All issued and
outstanding shares of capital stock of ESB, and all issued and outstanding
shares of capital stock of each of the ESB Subsidiaries, have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights. All of the outstanding shares of capital stock of each of the
ESB Subsidiaries are owned by ESB free and clear of any liens, encumbrances,
charges, restrictions or rights of third parties of any kind whatsoever, and,
except for options to purchase 901,350 shares of ESB Common Stock which have
been granted or assumed pursuant to ESB's 2001 Stock Option Plan, the PennFirst
Bancorp, Inc. 1997 Stock Option Plan, the PennFirst Bancorp, Inc. 1992 Stock
Incentive Plan, the Ellwood Federal Savings Bank 1990 Stock Option Plan, the
Troy Hill Bancorp, Inc. 1994 Stock Option Plan and the SHS Bancorp, Inc. 1998
Stock Option Plan (or options granted by ESB pursuant thereto after the date
hereof) none of ESB or any of the ESB Subsidiaries has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the transfer, purchase or issuance of any shares of
capital stock of ESB or any of the ESB Subsidiaries or any securities
representing the right to purchase or otherwise receive any shares of such
capital stock or any securities convertible into or representing the right to
purchase or subscribe for any such stock.
3.03. AUTHORITY; NO VIOLATION.
(a) Subject to approval of this Agreement and the Agreement of Merger and
the transactions contemplated hereby and thereby by the Stockholders of ESB, ESB
has full corporate power and authority to execute and deliver this Agreement and
the Agreement of Merger and to consummate the transactions contemplated hereby
and thereby in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement and the Agreement of Merger and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
approved by the Board of Directors of ESB. Except for the approval of ESB's
stockholders of this Agreement and the Agreement of Merger, no other corporate
proceedings on the part of ESB are necessary to consummate the transactions so
contemplated. This Agreement and the Agreement of Merger have been duly and
validly executed and delivered by ESB and constitute valid and binding
obligations of ESB, enforceable against it in accordance with and subject to
their terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, and except that the availability of equitable remedies (including,
without limitation, specific performance) is within the discretion of the
appropriate court.
(b) None of the execution and delivery of this Agreement and the Agreement
of Merger by ESB, nor the consummation by ESB of the transactions contemplated
hereby and thereby in accordance with the terms hereof and thereof, or
compliance by ESB with any of the terms or provisions hereof or thereof, will
(i) violate any provision of the Articles of Incorporation or other
22
governing instrument or Bylaws of ESB or any of the ESB Subsidiaries, (ii)
assuming that the consents and approvals set forth below are duly obtained,
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to ESB or any of the ESB Subsidiaries or any of
their respective properties or assets, or (iii) violate, conflict with, result
in a breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any of
the respective properties or assets of ESB or any of the ESB Subsidiaries under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which ESB or any of the ESB Subsidiaries is a party, or by which
any of their respective properties or assets may be bound or affected, except,
with respect to (ii) and (iii) above, such as individually or in the aggregate
will not have a Material Adverse Effect. Except for consents and approvals of or
filings or registrations with or notices to the Commission, the Secretary of
State of the Commonwealth of Pennsylvania, the Department, the FDIC, the Federal
Reserve Board, the OTS, if required, and the stockholders of ESB, no consents or
approvals of or filings or registrations with or notices to any federal, state,
municipal or other governmental or regulatory commission, board, agency or
non-governmental third party are required on behalf of ESB in connection with
(a) the execution and delivery of this Agreement and the Agreement of Merger by
ESB and (b) the consummation by ESB of the transactions contemplated hereby and
by the Agreement of Merger.
3.04. FINANCIAL STATEMENTS.
(a) ESB has previously delivered to PHSB copies of the consolidated
statements of financial condition of ESB as of December 31, 2003 and 2002, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the years ended December 31, 2003, 2002 and 2001 in each case
accompanied by the audit reports of Ernst & Young LLP, independent public
accountants, as well as the unaudited consolidated statement of financial
condition of ESB as of March 31, 2004 and the related unaudited consolidated
statements of income, changes in stockholders' equity and cash flows for the
three months ended March 31, 2004 and 2003. The consolidated statements of
financial condition of ESB referred to herein (including the related notes,
where applicable), as well as the consolidated financial statements contained in
the reports of ESB to be delivered by ESB pursuant to Section 4.04 hereof,
fairly present or will fairly present, as the case may be, the consolidated
financial condition of ESB as of the respective dates set forth therein, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows (including the related notes, where applicable) fairly present or
will fairly present, as the case may be, the results of the consolidated
operations, changes in stockholders' equity and cash flows of ESB for the
respective periods or as of the respective dates set forth therein (it being
understood that ESB's interim financial statements are not audited and are not
prepared with related notes but reflect all adjustments which are, in the
opinion of ESB, necessary for a fair presentation of such financial statements).
(b) Each of the financial statements referred to in this Section 3.04
(including the related notes, where applicable) has been or will be, as the case
may be, prepared in accordance with
23
generally accepted accounting principles consistently applied during the periods
involved. The books and records of ESB and the ESB Subsidiaries are being
maintained in material compliance with applicable legal and accounting
requirements and reflect only actual transactions.
(c) Except to the extent reflected, disclosed or reserved against in the
consolidated financial statements referred to in the first sentence of Section
3.04(a) or the notes thereto or liabilities incurred since March 31, 2004 in the
ordinary course of business and consistent with past practice, none of ESB or
any of the ESB Subsidiaries has any obligation or liability, whether absolute,
accrued, contingent or otherwise, material to the business, operations, assets
or financial condition of ESB and the ESB Subsidiaries taken as a whole.
3.05. ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) There has not been any material adverse change in the business,
operations, assets or financial condition of ESB and the ESB Subsidiaries taken
as a whole since March 31, 2004, other than: (i) any such effect attributable to
or resulting from any change in banking or similar laws, rules or regulations of
general applicability to banks, savings banks or their holding companies or
interpretations thereof by courts or governmental authorities; (ii) changes in
generally accepted accounting principles that are generally applicable to the
banking or savings industries; (iii) expenses incurred in connection with the
transactions contemplated hereby; (iv) actions or omissions of a party (or any
of its subsidiaries) taken with the prior informed written consent of the other
party or parties in contemplation of the transactions contemplated hereby; or
(v) changes attributable to or resulting from changes in general economic
conditions, including changes in the prevailing level of interest rates. To the
best knowledge of ESB, no fact or condition exists which ESB believes will cause
such a material adverse change in the future.
(b) ESB has not taken or permitted any of the actions set forth in Section
4.04 hereof between March 31, 2004 and the date hereof.
3.06. LEGAL PROCEEDINGS. None of ESB or any of the ESB Subsidiaries is a
party to any, and there are no pending or, to the best knowledge of ESB,
threatened legal, administrative, arbitration or other proceedings, claims,
actions or governmental investigations of any nature against ESB or any of the
ESB Subsidiaries, except such proceedings, claims, actions or governmental
investigations which in the good faith judgment of ESB are not reasonably
expected to have a Material Adverse Effect. None of ESB or any of the ESB
Subsidiaries is a party to any order, judgment or decree which has had or is
reasonably expected to have a Material Adverse Effect.
3.07. TAXES AND TAX RETURNS.
(a) Each of ESB and the ESB Subsidiaries has duly filed (and until the
Effective Time will so timely file) all returns, declarations, reports,
information returns and statements ("Returns") required to be filed or sent by
or with respect to them in respect of any Taxes, and has duly paid (and until
the Effective Time will so pay) all Taxes due and payable other than Taxes or
other charges which (i) are being contested in good faith (and disclosed in
writing to PHSB) and (ii) have not
24
finally been determined. ESB and each of the ESB Subsidiaries have established
(and until the Effective Time will establish) on their books and records
reserves or accruals that are adequate for the payment of all Taxes not yet due
and payable, whether or not disputed. Except as set forth in ESB Disclosure
Schedule 3.07(a), (i) the federal income tax returns of ESB and each of the ESB
Subsidiaries have been examined by the IRS (or are closed to examination due to
the expiration of the applicable statute of limitations), and (ii) the
Pennsylvania income tax returns of ESB and each of the ESB Subsidiaries have
been examined by applicable authorities (or are closed to examination due to the
expiration of the statute of limitations), and in the case of both (i) and (ii)
no deficiencies were asserted as a result of such examinations which have not
been resolved and paid in full. There are no audits or other administrative or
court proceedings presently pending nor any other disputes pending, or claims
asserted for, Taxes or assessments upon ESB or any of the ESB Subsidiaries, nor
has ESB or any of the ESB Subsidiaries given any currently outstanding waivers
or comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Returns.
(b) Except as set forth in ESB Disclosure Schedule 3.07(b), none of ESB
or any of the ESB Subsidiaries (i) has requested any extension of time within
which to file any Return which Return has not since been filed, (ii) is a party
to any agreement providing for the allocation or sharing of Taxes or (iii) is
required to include in income any adjustment pursuant to Section 481(a) of the
Code, by reason of a voluntary change in accounting method initiated by ESB or
the ESB Subsidiaries (nor does ESB have any knowledge that the IRS has proposed
any such adjustment or change of accounting method).
3.08. EMPLOYEE BENEFIT PLANS.
(a) Each employee benefit plan or arrangement of ESB or any of the ESB
Subsidiaries which is an "employee benefit plan" within the meaning of Section
3(3) of the ERISA, is listed in ESB Disclosure Schedule 3.08(a) ("ESB Plans").
ESB has previously furnished or made available to PHSB true and complete copies
of each of the ESB Plans together with (i) the most recent actuarial and
financial reports prepared with respect to any qualified ESB Plans, (ii) the
most recent annual reports filed with any government agency, and (iii) all
rulings and determination letters and any open requests for rulings or letters
that pertain to any qualified ESB Plans.
(b) Each of the ESB Plans has been operated in compliance in all material
respects with the applicable provisions of ERISA, the Code, all regulations,
rulings and announcements promulgated or issued thereunder, and all other
applicable governmental laws and regulations.
(c) Neither ESB nor any of the ESB Subsidiaries participates in or has
incurred any liability under Section 4201 of ERISA for a complete or partial
withdrawal from a multiemployer plan (as such term is defined in ERISA).
(d) The present value of all accrued liabilities under each of the ESB
Plans subject to Title IV of ERISA did not, as of the latest valuation date of
each such ESB Plan, exceed the fair market value of the assets of such ESB Plans
allocable to such accrued benefits, based upon the actuarial and accounting
assumptions utilized for such ESB Plans (as of the latest valuation date).
25
(e) Neither ESB nor any of the ESB Subsidiaries, nor, to the best knowledge
of ESB, any trustee, fiduciary or administrator of an ESB Plan or any trust
created thereunder, has engaged in a "prohibited transaction," as such term is
defined in Section 4975 of the Code, which could subject ESB or any of the ESB
Subsidiaries, or, to the best knowledge of ESB, any trustee, fiduciary or
administrator thereof, to the tax or penalty on prohibited transactions imposed
by Section 4975.
(f) No ESB Plan or any trust created thereunder has been terminated, nor
have there been any "reportable events" with respect to any ESB Plan subject to
Title IV of ERISA, as that term is defined in Section 4043(b) of ERISA.
(g) No ESB Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA.
(h) Each of the ESB Plans which is intended to be a qualified plan under
Section 401(a) of the Code has received a favorable determination letter issued
by the IRS to the effect that such plan is qualified under Section 401(k) of the
Code, and ESB is not aware of any fact or circumstance which would adversely
affect the qualified status of any such plan.
3.09. SECURITIES DOCUMENTS AND REGULATORY REPORTS.
(a) ESB has previously delivered or made available to PHSB a complete copy
of each final registration statement, prospectus, annual, quarterly or current
report and definitive proxy statement or other communication (other than general
advertising materials) filed pursuant to the 1933 Act or the 1934 Act or mailed
by ESB to its stockholders as a class since January 1, 2001, and each such final
registration statement, prospectus, annual, quarterly or current report and
definitive proxy statement or other communication, as of its date, complied in
all material respects with all applicable statutes, rules and regulations and
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading; provided that information as of a later date shall be
deemed to modify information as of an earlier date.
(b) ESB and each of the ESB Subsidiaries has duly filed with the OTS, the
Department and the FDIC in correct form the monthly, quarterly and annual
reports required to be filed under applicable laws and regulations, and ESB has
delivered or made available to PHSB accurate and complete copies of such
reports. ESB Disclosure Schedule 3.09(b) lists all examinations of ESB or of the
ESB Subsidiaries conducted by the applicable bank or thrift regulatory
authorities since January 1, 2001 and the dates of any responses thereto
submitted by ESB. In connection with the most recent examinations of ESB or the
ESB Subsidiaries by the applicable bank or thrift regulatory authorities,
neither ESB nor any ESB Subsidiary was required to correct or change any action,
procedure or proceeding which ESB or such ESB Subsidiary believes has not been
now corrected or changed as required.
26
3.10. ESB INFORMATION. None of the information relating to ESB and the ESB
Subsidiaries to be contained in (i) the Form S-4 will, at the time the Form S-4
becomes effective, contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (ii) the Proxy
Statement/Prospectus, as of the date(s) such Proxy Statement/Prospectus is
mailed to stockholders of ESB and PHSB and up to and including the date(s) of
the meetings of stockholders to which such Proxy Statement/Prospectus relates,
will contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided that information as of a
later date shall be deemed to modify information as of an earlier date.
3.11. COMPLIANCE WITH APPLICABLE LAW.
(a) ESB and each of the ESB Subsidiaries has all permits, licenses,
certificates of authority, orders and approvals of, and has made all filings,
applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit it to
carry on its business as it is presently being conducted and the absence of
which could have a Material Adverse Effect; all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect;
and to the best knowledge of ESB and the ESB Subsidiaries, no suspension or
cancellation of any of the same is threatened.
(b) Neither ESB nor any of the ESB Subsidiaries is in violation of its
respective Articles of Incorporation or other governing instrument or Bylaws, or
of any applicable federal, state or local law or ordinance or any order, rule or
regulation of any federal, state, local or other governmental agency or body
(including, without limitation, all banking, securities, municipal securities,
safety, health, zoning, anti-discrimination, antitrust, and wage and hour laws,
ordinances, orders, rules and regulations), or in default with respect to any
order, writ, injunction or decree of any court, or in default under any order,
license, regulation or demand of any governmental agency, any of which
violations or defaults could have a Material Adverse Effect; and neither ESB nor
any of the ESB Subsidiaries has received any notice or communication from any
federal, state or local governmental authority asserting that ESB or any ESB
Subsidiary is in violation of any of the foregoing which could have a Material
Adverse Effect. Neither ESB nor any ESB Subsidiary is subject to any regulatory
or supervisory cease and desist order, agreement, written directive, memorandum
of understanding or written commitment (other than those of general
applicability to all savings associations issued by governmental authorities),
and none of them has received any written communication requesting that they
enter into any of the foregoing.
3.12. DEPOSIT INSURANCE AND OTHER REGULATORY MATTERS.
(a) The deposit accounts of ESB Bank are insured by the Savings Association
Insurance Fund administered by the FDIC to the maximum extent permitted by the
FDIA, and ESB Bank has paid all premiums and assessments required by the FDIA
and the regulations thereunder.
27
(b) ESB Bank is a member in good standing of the FHLB of Pittsburgh and
owns the requisite amount of stock in the FHLB of Pittsburgh.
(c) ESB Bank is a "qualified thrift lender," as such term is defined in the
HOLA and the regulations thereunder.
(d) As of the date hereof, neither ESB nor ESB Bank is aware of any reasons
relating to ESB or ESB Bank why all consents and approvals shall not be received
from all regulatory agencies having jurisdiction over the transactions
contemplated by this Agreement as shall be necessary for consummation of the
transactions contemplated hereby. Furthermore, ESB Bank's most recent Community
Reinvestment Act rating is not less than satisfactory.
3.13. PROPERTIES AND INSURANCE.
(a) All real and personal property owned by ESB or any of the ESB
Subsidiaries or presently used by any of them in their respective business is in
an adequate condition (ordinary wear and tear excepted) and is sufficient to
carry on the business of ESB and the ESB Subsidiaries in the ordinary course of
business consistent with their past practices. ESB and the ESB Subsidiaries have
good and, as to owned real property, marketable title to all material assets and
properties, whether real or personal, tangible or intangible, reflected in ESB's
consolidated statement of financial condition as of March 31, 2004, or owned and
acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the ordinary course of
business since March 31, 2004), subject to no encumbrances, liens, mortgages,
security interests or pledges, except (i) those items that secure liabilities
that are reflected in said consolidated statement of financial condition or the
notes thereto or have been incurred in the ordinary course of business after the
date of such consolidated statement of financial condition, (ii) statutory liens
for amounts not yet delinquent or which are being contested in good faith, (iii)
such encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the business,
operations, assets or financial condition of ESB and the ESB Subsidiaries taken
as a whole, and (iv) with respect to owned real property, title imperfections
noted in title reports prior to the date hereof. ESB and the ESB Subsidiaries as
lessees have the right under valid and subsisting leases to occupy, use, possess
and control all property leased by them in all material respects as presently
occupied, used, possessed and controlled by ESB and the ESB Subsidiaries and the
consummation of the transactions contemplated hereby and by the Agreement of
Merger will not affect any such right.
(b) The business operations and all insurable properties and assets of ESB
and the ESB Subsidiaries are insured for their benefit against all risks which,
in the reasonable judgment of the management of ESB, should be insured against,
in each case under valid, binding and enforceable policies or bonds issued by
insurers of recognized responsibility, in such amounts with such deductibles and
against such risks and losses as are in the opinion of the management of ESB
adequate for the business engaged in by ESB and the ESB Subsidiaries. As of the
date hereof, neither ESB nor either of the ESB Subsidiaries has received any
notice of cancellation or notice of a material amendment of any such insurance
policy or bond or is in default under such policy or bond,
28
no coverage thereunder is being disputed and all material claims thereunder have
been filed in a timely fashion.
3.14. ENVIRONMENTAL MATTERS.
(a) To the best knowledge of ESB and the ESB Subsidiaries, neither ESB nor
any of the ESB Subsidiaries has been or is in violation of or liable under any
Environmental Law, except any such violations or liabilities which would not
singly or in the aggregate have a Material Adverse Effect.
(b) To the best knowledge of ESB and the ESB Subsidiaries, none of the Loan
Portfolio Properties and Other Properties Owned by ESB or any of the ESB
Subsidiaries has been or is in violation of or liable under any Environmental
Law, except any such violations or liabilities which singly or in the aggregate
would not have a Material Adverse Effect.
(c) To the best knowledge of ESB and the ESB Subsidiaries, there are no
actions, suits, demands, notices, claims, investigations or proceedings pending
or threatened relating to the liability of the Loan Portfolio Properties and
Other Properties Owned by ESB or any of the ESB Subsidiaries under any
Environmental Law, including without limitation any notices, demand letters or
requests for information from any federal or state environmental agency relating
to any such liabilities under or violations of Environmental Law, except such
which would not have or result in a Material Adverse Effect.
3.15. ALLOWANCE FOR LOAN LOSSES AND REAL ESTATE OWNED. The allowance for
loan losses reflected on ESB's consolidated statements of financial condition
included in the consolidated financial statements referred to in Section 3.04
hereof is, or will be in the case of subsequently delivered financial
statements, as the case may be, in the opinion of ESB's management adequate in
all material respects as of their respective dates under the requirements of
generally accepted accounting principles to provide for reasonably anticipated
losses on outstanding loans net of recoveries. The real estate owned reflected
on the consolidated statements of financial condition included in the
consolidated financial statements referred to in Section 3.04 hereof is, or will
be in the case of subsequently delivered financial statements, as the case may
be, carried at the lower of cost or fair value, or the lower of cost or net
realizable value, as required by generally accepted accounting principles.
3.16. MINUTE BOOKS. Since January 1, 2001, the minute books, including any
attachments thereto, of ESB and the ESB Subsidiaries contain complete and
accurate records in all material respects of all meetings and other corporate
action held or taken by their respective Boards of Directors (including
committees of their respective Boards of Directors) and stockholders.
3.17. BROKER FEES. Except as set forth in ESB Disclosure Schedule 3.17,
neither ESB nor any of its directors or officers has employed any consultant,
broker or finder or incurred any liability for any consultant's, broker's or
finder's fees or commissions in connection with any of the transactions
contemplated by this Agreement.
29
3.18 CERTAIN INFORMATION. None of the information relating to ESB or ESB
Bank to be provided by ESB or the ESB Subsidiaries for use in the Proxy
Statement/Prospectus as of the date(s) such Proxy Statement/Prospectus is mailed
to stockholders of ESB and PHSB and up to and including the date(s) of the
meetings of the stockholders to which such Proxy Statement/Prospectus relates,
will contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided that information as of a
later date shall be deemed to modify information as of an earlier date.
3.19. DISCLOSURES. No representation or warranty contained in Article III
of this Agreement, and no statement contained in the ESB Disclosure Schedules,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements herein or therein not misleading.
ARTICLE IV
COVENANTS OF THE PARTIES
4.01. CONDUCT OF THE BUSINESS OF PHSB. During the period from the date
hereof to the Effective Time, PHSB shall, and shall cause Peoples Home Savings
Bank to, conduct its businesses and engage in transactions permitted hereunder
or only in the ordinary course and consistent with past practice, except with
the prior written consent of ESB, which consent shall not be unreasonably
withheld. PHSB shall use its best efforts to (i) preserve its business
organization and that of Peoples Home Savings Bank intact, (ii) keep available
to itself and ESB the present services of the employees of PHSB and Peoples Home
Savings Bank, and (iii) preserve for itself and ESB the goodwill of the
customers of itself and Peoples Home Savings Bank and others with whom business
relationships exist.
4.02. NEGATIVE COVENANTS OF PHSB. PHSB agrees that from the date hereof to
the Effective Time, except as otherwise approved by ESB in writing or as
permitted or required by this Agreement, PHSB will not, nor will PHSB permit
Peoples Home Savings Bank to:
(i) change any provision of the Articles of Incorporation or other
governing instrument or Bylaws of PHSB or Peoples Home Savings Bank;
(ii) except for the issuance of PHSB Common Stock pursuant to the present
terms of stock options which are outstanding as of the date hereof (and
identified on PHSB Disclosure Schedule 4.02), change the number of shares of its
authorized or issued capital stock or issue or grant any option, warrant, call,
commitment, subscription, award, right to purchase or agreement of any character
relating to the authorized or issued capital stock of PHSB or Peoples Home
Savings Bank, or any securities convertible into shares of such capital stock,
or split, combine or reclassify any shares of its capital stock, or redeem or
otherwise acquire any shares of such capital stock;
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(iii) declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of the capital
stock of PHSB or Peoples Home Savings Bank, provided, however, that PHSB shall
be permitted to continue to declare and pay its regular quarterly cash dividends
of $0.20 per share for each full calendar quarter prior to the Effective Time
but no dividends shall be declared or paid for any partial quarterly period;
(iv) grant any severance or termination pay (other than pursuant to binding
contracts of PHSB in effect on the date hereof and disclosed to ESB on PHSB
Disclosure Schedule 2.13(a)), to, or enter into or amend any employment,
consulting or compensation agreement with, any of its directors, officers or
employees; or award any increase in compensation or benefits to its directors,
officers or employees, except, in the case of employees, such as may be granted
in the ordinary course of business and consistent with past practices and
policies not to exceed 3% of the current salary of each respective employee;
(v) enter into or modify any pension, retirement, stock option, stock
purchase, stock grant, stock appreciation right, savings, profit sharing,
deferred compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any trust
agreement related thereto, in respect of any of its directors, officers or
employees; or make any contributions to the employee stock ownership plan of
PHSB ("PHSB ESOP") or any other defined contribution plan or any defined benefit
pension or retirement plan other than in the ordinary course of business
consistent with past practice;
(vi) sell or dispose of any significant assets or incur any significant
liabilities other than in the ordinary course of business consistent with past
practices and policies, or acquire in any manner whatsoever (other than to
realize upon collateral for a defaulted loan) any business or entity;
(vii) make any capital expenditures in excess of $50,000 in the aggregate,
other than pursuant to binding commitments existing on the date hereof, other
than expenditures necessary to maintain existing assets in good repair and other
than as set forth in PHSB Disclosure Schedule 4.02(vii);
(viii) file any applications or make any contract with respect to branching
or site location or relocation;
(ix) make any material change in its accounting methods or practices, other
than changes required by generally accepted accounting principles, or change any
of its methods of reporting income and deductions for federal income tax
purposes, except as required by changes in laws or regulations;
(x) change its lending, investment, deposit or asset and liability
management or other banking policies in any material respect except as may be
required by applicable law;
(xi) engage in any transaction with an "affiliated person" or "affiliate,"
in each case as defined in Section 2.18(a) hereof;
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(xii) enter into any futures contract, option or other agreement or take
any other action for purposes of hedging the exposure of its interest-earning
assets and interest-bearing liabilities to changes in market rates of interest;
(xiii) take any action that would result in any of its representations and
warranties contained in Article II of this Agreement not being true and correct
in any material respect at the Effective Time; or
(xiv) agree to do any of the foregoing.
4.03. NO SOLICITATION. Neither PHSB nor Peoples Home Savings Bank shall,
nor shall PHSB or Peoples Home Savings Bank authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative of PHSB or Peoples Home Savings
Bank to, directly or indirectly, encourage or solicit or hold discussions or
negotiations with, or provide any information to, any person, entity or group
(other than ESB) concerning any merger, sale of substantial assets or
liabilities not in the ordinary course of business, sale of shares of capital
stock or similar transactions involving PHSB or Peoples Home Savings Bank (an
"Acquisition Transaction"); provided, however, that PHSB may provide information
in connection with an unsolicited possible Acquisition Transaction if the Board
of Directors of PHSB, after receiving advice of counsel, determines in good
faith that the failure to do so would or could reasonably be expected to
constitute a breach of its fiduciary duties under applicable law. PHSB and
Peoples Home Savings Bank agree that they will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any Acquisition Transaction. PHSB will
promptly communicate to ESB the terms of any proposal which it may receive in
respect of any such Acquisition Transaction.
4.04. NEGATIVE COVENANTS OF ESB. ESB agrees that from the date hereof to
the Effective Time, except as otherwise approved by PHSB in writing or as
permitted or required by this Agreement, ESB will not:
(i) take any action which can reasonably be expected to adversely affect or
delay the ability of ESB or PHSB to perform its covenants and agreements on a
reasonably timely basis under this Agreement or to consummate the transactions
contemplated under this Agreement;
(ii) declare or pay any special cash distributions in respect of any of its
capital stock, provided, however, that ESB shall be permitted to continue to
declare and pay its regular quarterly cash dividends; or
(iii) agree to do any of the foregoing.
4.05. CURRENT INFORMATION. During the period from the date hereof to the
Effective Time, each party will cause one or more of its designated
representatives to confer on a monthly or more frequent basis with
representatives of the other party regarding its business, operations,
prospects,
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assets and financial condition and matters relating to the completion of the
transactions contemplated hereby. As soon as reasonably available, but in no
event more than 45 days after the end of each calendar quarter (other than the
last quarter of the party's fiscal year) ending after the date of this
Agreement, each party will deliver to the other party its quarterly report on
Form 10-Q under the 1934 Act, and, as soon as reasonably available, but in no
event more than 90 days after the end of each fiscal year, each party will
deliver to the other party its Annual Report on Form 10-K. Within 25 calendar
days after the end of each quarter, each party shall provide the other party
with a copy of its Call Report filed with the FDIC.
4.06. ACCESS TO PROPERTIES AND RECORDS; CONFIDENTIALITY.
(a) PHSB shall permit ESB and its representatives reasonable access to its
properties and those of Peoples Home Savings Bank, and shall disclose and make
available to ESB all books, papers and records relating to the assets,
properties, operations, obligations and liabilities of PHSB and Peoples Home
Savings Bank, including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and stockholders'
meetings (excluding minutes related to the transactions contemplated by this
Agreement or other Acquisition Transactions), organizational documents, bylaws,
material contracts and agreements, filings with any regulatory authority,
accountants' work papers, litigation files (except as necessary to preserve
attorney-client privilege), plans affecting employees, and any other business
activities or prospects in which ESB may have a reasonable interest. Neither
PHSB nor Peoples Home Savings Bank shall be required to provide access to or to
disclose information where such access or disclosure would violate or prejudice
the rights of any customer or would contravene any law, rule, regulation, order
or judgment. PHSB will use its best efforts to obtain waivers of any such
restriction and in any event make appropriate substitute disclosure arrangements
under circumstances in which the restrictions of the preceding sentence apply.
PHSB and Peoples Home Savings Bank shall make their respective directors,
officers, employees and agents and authorized representatives (including counsel
and independent public accountants) available to confer with ESB and its
representatives, provided that such access shall be reasonably related to the
transactions contemplated hereby and not unduly interfere with normal
operations. Similar access shall be provided by ESB to PHSB and its
representatives to the extent necessary to enable PHSB to satisfy its due
diligence obligations with respect to ESB.
(b) All information furnished previously in connection with the
transactions contemplated by this Agreement or pursuant hereto shall be treated
as the sole property of the party furnishing the information until consummation
of the Merger and, if such Merger shall not occur, the party receiving the
information shall, at the request of the party which furnished such information,
either return to the party which furnished such information or destroy all
documents or other materials containing, reflecting or referring to such
information; shall use its best efforts to keep confidential all such
information; shall use such information only for the purpose of consummating the
transactions contemplated by this Agreement; and shall not directly or
indirectly use such information for any competitive or commercial purposes. The
obligation to keep such information confidential shall continue for three years
from the date the proposed Merger is abandoned but shall not apply to (i) any
information which (A) the party receiving the information can establish by
33
convincing evidence was already in its possession prior to the disclosure
thereof to it by the party furnishing the information; (B) was then generally
known to the public; (C) became known to the public through no fault of the
party receiving the information; or (D) was disclosed to the party receiving the
information by a third party not bound by an obligation of confidentiality; or
(ii) disclosures pursuant to a legal requirement or in accordance with an order
of a court of competent jurisdiction.
4.07. REGULATORY MATTERS.
(a) The parties hereto will cooperate with each other and use their best
efforts to prepare all necessary documentation (including without limitation the
Form S-4 and the Proxy Statement/Prospectus), to effect all necessary filings
and to obtain all necessary permits, consents, approvals and authorizations of
all third parties and governmental bodies necessary to consummate the
transactions contemplated by this Agreement as soon as practicable. The parties
shall each have the right to review and approve in advance all information
relating to the other, as the case may be, and any of their respective
subsidiaries, which appears in any filing made with, or written material
submitted to, any third party or governmental body in connection with the
transactions contemplated by this Agreement.
(b) Each of the parties will furnish each other with all information
concerning themselves, their subsidiaries, directors, officers and stockholders
and such other matters as may be necessary or advisable in connection with any
statement or application made by or on behalf of them, or any of their
respective subsidiaries to any governmental body in connection with the Merger
and the other transactions, applications or filings contemplated by this
Agreement.
(c) Each of the parties will promptly furnish each other with copies of
written communications received by them or any of their respective subsidiaries
from, or delivered by any of the foregoing to, any governmental body in
connection with the Merger and the other transactions, applications or filings
contemplated by this Agreement.
4.08. APPROVAL OF STOCKHOLDERS.
(a) ESB will (a) take all steps (including, without limitation, the
preparation of the Form S-4 and Proxy Statement/Prospectus in accordance with
all applicable requirements) necessary to duly call, give notice of, convene and
hold a meeting of its stockholders as soon as reasonably practicable, for the
purposes of securing the approval of such stockholders of this Agreement and the
Agreement of Merger, (b) recommend to its stockholders the approval of this
Agreement and the Agreement of Merger and the transactions contemplated hereby
and thereby, and use its best efforts to obtain, as promptly as practicable,
such approval, and (c) cooperate and consult with PHSB with respect to the
foregoing matters.
(b) PHSB will (a) take all steps (including, without limitation, assisting
ESB in the preparation of the Form S-4 and Proxy Statement/Prospectus in
accordance with all applicable requirements) necessary to duly call, give notice
of, convene and hold a meeting of its stockholders
34
as soon as reasonably practicable, for the purposes of securing the approval of
such stockholders of this Agreement and the Agreement of Merger, (b) recommend
to its stockholders the approval of this Agreement and the Agreement of Merger
and the transactions contemplated hereby and thereby, and use its best efforts
to obtain, as promptly as practicable, such approval, provided however, that the
Board of Directors of PHSB may fail to make such recommendation, or withdraw,
modify or change any such recommendation, if such Board of Directors, after
having consulted with and considered the advice of outside counsel experienced
in such matters, has determined in good faith that the making of such
recommendation or the failure to withdraw, modify or change such recommendation,
would or could reasonably be expected to constitute a breach of the fiduciary
duties of such directors under applicable law, and (c) cooperate and consult
with ESB with respect to the foregoing matters. Notwithstanding anything to the
contrary herein, this Agreement shall be submitted to the PHSB stockholders at a
duly called meeting of stockholders for the purpose of adopting this Agreement
and nothing herein shall be deemed to relieve PHSB of such obligation.
(c) ESB and PHSB will each use their reasonable best efforts to cause the
meetings of their respective stockholders to be held on the same date.
4.09. FURTHER ASSURANCES. (a) Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all reasonable action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
satisfy the conditions to closing contained herein and to consummate and make
effective the transactions contemplated by this Agreement and the Agreement of
Merger. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall take all such
necessary action. Nothing in this section shall be construed to require any
party to participate in any threatened or actual legal, administrative or other
proceedings (other than proceedings, actions or investigations to which it is a
party or subject or threatened to be made a party or subject) in connection with
consummation of the transactions contemplated by this Agreement unless such
party shall consent in advance and in writing to such participation and the
other party agrees to reimburse and indemnify such party for and against any and
all costs and damages related thereto.
(b) Upon the request of ESB, ESB Bank and PHSB shall use their reasonable
best efforts to cause, including the entering into of a merger agreement, their
respective banking subsidiaries, ESB Bank and Peoples Home Savings Bank, to
merge (the "Bank Merger") immediately after consummation of the Merger, with ESB
Bank being the surviving bank (the "Surviving Bank") thereof pursuant to the
provisions of applicable law. At the effective time of the Bank Merger, the
Articles of Incorporation and Bylaws of the Surviving Bank shall be the Articles
of Incorporation and Bylaws of ESB Bank in effect immediately prior to the
effective time of the Bank Merger. At the effective time of the Bank Merger, the
directors and officers of the Surviving Bank shall be the directors and officers
of ESB Bank immediately prior to the effective time of the Bank Merger.
4.10. DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective
Time, each party will promptly supplement or amend its respective Disclosure
Schedules delivered pursuant hereto
35
with respect to any matter hereafter arising which, if existing, occurring or
known as of the date hereof, would have been required to be set forth or
described in such Schedules or which is necessary to correct any information in
such Schedules which has been rendered inaccurate thereby. No supplement or
amendment to such Schedules shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Article V or the compliance by PHSB
with the covenants set forth in Section 4.01 hereof.
4.11. PUBLIC ANNOUNCEMENTS. The parties hereto shall approve in advance the
substance of and cooperate with each other in the development and distribution
of all news releases and other public disclosures with respect to this Agreement
or any of the transactions contemplated hereby, except as may be otherwise
required by law or regulation and as to which the parties releasing such
information have used their best efforts to discuss with the other parties in
advance.
4.12. FAILURE TO FULFILL CONDITIONS. In the event that either of the
parties hereto determines that a condition to its respective obligations to
consummate the transactions contemplated hereby cannot be fulfilled on or prior
to July 31, 2005 and that it will not waive that condition, it will promptly
notify the other party. ESB and PHSB will promptly inform the other of any facts
applicable to them, or their respective directors or officers, that would be
likely to prevent or materially delay approval of the Merger by any governmental
authority or which would otherwise prevent or materially delay completion of the
Merger.
4.13. CERTAIN POST-MERGER AGREEMENTS.
The parties hereto agree to the following arrangements following the
Effective Time:
(a) Operations of Peoples Home Savings Bank. Following the Merger, ESB may,
in its sole discretion, determine to merge or consolidate Peoples Home Savings
Bank with ESB Bank.
(b) Employee Benefit Plans.
(1) Subject to the provisions of this Section 4.13, all employees of PHSB
or Peoples Home Savings Bank immediately prior to the Effective Time who are
employed by ESB, ESB Bank or Peoples Home Savings Bank (the "Employers")
immediately following the Effective Time ("Transferred Employees") will be
covered by the respective Employer's employee benefit plans on substantially the
same basis as any employee of the Employers in a comparable position.
Notwithstanding the foregoing, ESB may determine to continue any of the PHSB
benefit plans for Transferred Employees in lieu of offering participation in the
Employers' benefit plans providing similar benefits (e.g., medical and
hospitalization benefits), to terminate or suspend any of PHSB's benefit plans,
or to merge any such benefit plans with the Employers' benefit plans, provided
the result is the provision of benefits to Transferred Employees that are
substantially similar to the benefits provided to the Employers' employees
generally. Except as specifically provided in this Section 4.13 and as otherwise
prohibited by law, Transferred Employees' service with PHSB or Peoples Home
Savings Bank shall be recognized as service with the Employers for purposes of
eligibility to participate and vesting, if applicable (but not for purposes of
benefit accrual) under the
36
Employers' benefit plans, subject to applicable break-in-service rules. However,
notwithstanding anything to the contrary herein, for purposes of determining
eligibility to participate in and the vesting of benefits under ESB's employee
stock ownership plan, ESB shall not recognize years of service with PHSB or
Peoples Home Savings Bank and Transferred Employees will be treated as "new
employees" of ESB and ESB Bank for purposes of determining eligibility and
vesting under such plan. ESB agrees that (i) any pre-existing condition,
limitation or exclusion in its medical, long-term disability and life insurance
plans shall not apply to Transferred Employees or their covered dependents who
are covered under a medical or hospitalization indemnity plan maintained by PHSB
or Peoples Home Savings Bank on the Effective Time and who then change coverage
to ESB's medical or hospitalization indemnity health plan at the time such
Transferred Employees are first given the option to enroll and (ii) honor under
such plans any deductibles and annual out-of-pocket contributions incurred by
the Transferred Employees during the plan year prior to the Effective Time.
Notwithstanding anything herein to the contrary, after the Effective Time, (x)
any amendment to, or grant of additional benefits under, any PHSB or Peoples
Home Savings Bank benefit plan, including stock based plans, which continues to
exist subsequent to the Effective Time, shall require the prior consent of ESB,
and (y) ESB may cause any of the PHSB or Peoples Home Savings Bank benefit plans
which continue to exist, including stock based plans, to be amended in order to
provide that employees of ESB or ESB Bank may be participants in such plans.
(2) PHSB shall take all necessary action to cause the PHSB ESOP to be
terminated as of the Effective Time. The Merger Consideration received by the
PHSB ESOP trustee in connection with the Merger with respect to the unallocated
shares of PHSB Common Stock shall be first applied by the PHSB ESOP trustee to
the full repayment of the PHSB ESOP loan. PHSB shall use its best efforts to
cause the PHSB ESOP trustee to elect a sufficient amount of cash to repay the
PHSB ESOP loan. The balance of the Merger Consideration (if any) received by the
PHSB ESOP trustee with respect to the unallocated shares of PHSB Common Stock
shall be allocated as earnings to the accounts of all participants in the PHSB
ESOP who have accounts remaining under the PHSB ESOP (whether or not such
participants are then actively employed) and beneficiaries in proportion to the
account balances of such participants and beneficiaries, in accordance with the
PHSB ESOP's terms and conditions in effect as of the date of this Agreement, to
the maximum extent permitted under the Code and applicable law, except as set
forth in PHSB Disclosure Schedule 4.13(b)(2). The accounts of all participants
and beneficiaries in the PHSB ESOP immediately prior to the Effective Time shall
become fully vested as of the Effective Time. As soon as practicable after the
date hereof, but in no event later than 60 days after the date of this
Agreement, PHSB shall file or cause to be filed all necessary documents with the
IRS for a determination letter for termination of the PHSB ESOP as of the
Effective Time, with a copy to be provided to ESB and its counsel. As soon as
practicable after the later of the Effective Time or the receipt of a favorable
determination letter for termination from the IRS, the account balances in the
PHSB ESOP shall be distributed to participants and beneficiaries or transferred
to an eligible individual retirement account as a participant or beneficiary may
direct. Prior to the Effective Time, no prepayments shall be made on the PHSB
ESOP loan and contributions to the PHSB ESOP and payments on the PHSB ESOP loan
shall be made consistent with past practices on the regularly scheduled payment
dates.
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(c) Existing Employment Agreements and SERP. In satisfaction of the
obligations of Peoples Home Savings Bank under its employment agreements with
Messrs. Wetzel and Canonge, and its Supplemental Retirement Plan for Mr. Wetzel,
concurrently with the execution of this Agreement (i) ESB, PHSB and Peoples
Homes Savings Bank shall enter into a Termination and Release Agreement with
James P. Wetzel, Jr. as set forth in Exhibit D hereto, and (ii) ESB, PHSB and
Peoples Home Savings Bank shall enter into a Termination and Release Agreement
with Richard E. Canonge as set forth in Exhibit E hereto. As of and immediately
prior to the Effective Time, Peoples Home Savings Bank shall terminate the
Supplemental Retirement Plan for Mr. Wetzel and make a lump sum payment of Mr.
Weitzel's accrued benefits thereunder discounted to present value in accordance
with Exhibit D in full satisfaction of Mr. Wetzel's benefits under such plan.
(d) Consulting and Noncompetition Agreement. Concurrently with the
execution of this Agreement, ESB shall enter into a Consulting and
Noncompetition Agreement with James P. Wetzel, Jr. as set forth in Exhibit F
hereto.
(e) Change in Control Agreements. ESB shall honor all existing change in
control agreements of Peoples Home Savings Bank, in effect as of the date of
this Agreement, each of which is disclosed on PHSB Disclosure Schedule 4.13(e),
which schedule describes and quantifies in reasonable detail the maximum amount
of payments and benefits which could become due and payable to each such person
(assuming the Merger is consummated on or after January 1, 2005) under the
change in control agreements (as well as the employment agreements, the
Supplemental Retirement Plan for Mr. Wetzel and the Trustees Consultation and
Retirement Plan) as a result of a termination of employment and/or a change in
control of PHSB or Peoples Home Savings Bank. The total cash severance and other
parachute amounts to be paid to the two officers with change in control
agreements at the Effective Time shall not exceed the respective officer's
Section 280G limit under the Code.
(f) Employee Severance. Any person who is currently serving as an employee
of either PHSB or Peoples Home Savings Bank and continues as such immediately
prior to the Effective Time (other than those employees covered by a written
employment or change in control agreement set forth in PHSB Disclosure Schedule
2.13(a)) whose employment is discontinued by ESB or any of the ESB Subsidiaries
within one year after the Effective Time (unless termination of such employment
is for Cause (as defined below)) shall be entitled to a severance payment from
ESB Bank in an amount equal to one week's salary for each year of service at
PHSB or Peoples Home Savings Bank, with a minimum benefit of four weeks of
salary and a maximum benefit of 12 weeks of salary. For purposes of this Section
4.13(f), "Cause" shall mean termination because of the employee's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties or willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses). PHSB and Peoples Home Savings Bank agree to terminate their
Change in Control Severance Pay Plan. In addition, ESB or ESB Bank shall pay up
to $1,500 for outplacement services for each employee of PHSB or Peoples Home
Savings Bank whose employment is terminated within one year after the Effective
Time for other than Cause. With respect to accrued but unused sick leave and
vacation pay as of December 31, 2004, PHSB employees will receive the benefit of
such leave in accordance with current PHSB policies. In
38
periods subsequent to December 31, 2004, PHSB employees will receive accruals
and payouts for unused sick leave and vacation pay based upon the policies of
ESB Bank.
(g) Retention Bonuses. ESB agrees to create a retention bonus pool equal to
$50,000 in order to help retain key employees. Employees of PHSB or Peoples Home
Savings Bank, other than those covered by employment or change in control
agreements, will be eligible to participate in the retention bonus pool. The
amount to be awarded to an eligible employee, if any, shall be determined by the
President of PHSB, subject to consultation with the President of ESB. Retention
bonuses shall be paid only if the employee continues to be employed as of the
Effective Time, or if requested by ESB, the date of the bank data processing
conversion.
(h) Trustees Consultation and Retirement Plan. Prior to the Effective Time
of the Merger, the Board of Directors of Peoples Home Saving Bank shall
terminate the Trustees Consultation and Retirement Plan (the "Trustees Plan")
and authorize the lump sum payments based upon the present value of the benefits
payable under Section 2.4 of the Trustees Plan, with the present value lump sum
payments to be equal to the amounts set forth in PHSB Disclosure Schedule
4.13(e). The lump sum amounts shall be paid by Peoples Home Savings Bank as of
the Effective Time of the Merger, with each of the non-employee directors to
execute a release in a form satisfactory to PHSB and ESB and a consulting
agreement in a form similar to Schedule B to the Trustees Plan.
(i) Indemnification. ESB shall indemnify and hold harmless each present and
former director, officer and employee of PHSB and Peoples Home Savings Bank
determined as of the Effective Time, including their respective heirs and
assigns (the "Indemnified Parties") against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time (collectively, "Claims"), to the fullest extent to
which such Indemnified Parties were entitled under Pennsylvania law or under the
Articles of Incorporation and Bylaws of PHSB or Peoples Home Savings Bank as in
effect on the date hereof, for a period of six years following the Effective
Time ; provided, however, that all rights to indemnification in respect to any
claim asserted or made within such period shall continue until the final
disposition of such claim. Indemnified Parties shall be third-party
beneficiaries to this Section 4.13(i).
Any Indemnified Party wishing to claim indemnification under this Section
4.13(h), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify ESB, but the failure to so notify shall not
relieve ESB of any liability it may have to such Indemnified Party if such
failure does not materially prejudice ESB. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) ESB shall have the right to assume the defense thereof and
ESB shall not be liable to such Indemnified Parties for any legal expenses of
other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if ESB elects not to
assume such defense or if counsel for the Indemnified Parties advises that there
are issues which raise conflicts of interest between ESB and the Indemnified
Parties, the Indemnified Parties may retain counsel which is
39
reasonably satisfactory to ESB, and ESB shall pay, promptly as statements
therefor are received, the reasonable fees and expenses of such counsel for the
Indemnified Parties (which may not exceed one firm in any jurisdiction unless
the use of one counsel for such Indemnified Parties would present such counsel
with a conflict of interest), (ii) the Indemnified Parties will cooperate in the
defense of any such matter, and (iii) ESB shall not be liable for any settlement
effected without its prior written consent, which consent shall not be withheld
unreasonably.
In the event that ESB or any of its respective successors or assigns (i)
consolidates with or merges into any other entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
entity, then, and in each such case, the successors and assigns of such entity
shall assume the obligations set forth in this Section 4.13(i), which
obligations are expressly intended to be for the irrevocable benefit of, and
shall be enforceable by, each of the Indemnified Parties.
(j) Insurance. ESB and ESB Bank shall maintain a directors' and officers'
liability insurance policy covering the Indemnified Parties in connection with
any Claims for a period of three (3) years after the Effective Time, provided
that the total premium cost of such coverage shall not exceed 175% of the
current premium paid by PHSB (the "Insurance Amount"). If the cost of the
coverage exceeds the Insurance Amount, then ESB and ESB Bank shall use their
reasonable best efforts to obtain as much comparable insurance as is available
for the Insurance Amount.
(k) Payout of Options and PHSB Restricted Stock Plans. In accordance with
Section 1.06 of the Agreement, PHSB or Peoples Home Savings Bank will pay out,
as of the Effective Time, the amounts necessary to settle the awards under the
PHSB Option Plans and PHSB Restricted Stock Plans, with the holders of such
awards to execute releases in a form satisfactory to ESB.
(l) Defined Benefit Pension Plan. ESB and Peoples Home Savings Bank shall
cooperate with each other in obtaining an updated actuarial report as to the
funding status of the defined benefit pension plan of Peoples Home Savings Bank
("Peoples Pension Plan") on a plan termination basis and on a plan suspension
basis. Within 30 days following its receipt of such updated report, ESB will
request Peoples Home Savings Bank to either terminate or suspend the Peoples
Pension Plan as of December 31, 2004. ESB currently anticipates that it will
request the Peoples Pension Plan to be terminated if the costs of doing so are
not deemed to be material in ESB's sole discretion. In the event ESB requests
the Peoples Pension Plan to be terminated, then (i) PHSB prior to the Effective
Time, and ESB on and after the Effective Time, shall file a determination letter
request for a ruling on the tax-qualified status of the Peoples Pension Plan
under Section 401(a) of the Code on termination and will make all applicable
filings with the Pension Benefit Guaranty Corporation, and (ii) Peoples Home
Savings Bank will make contributions to the Peoples Pension Plan prior to the
Effective Time as may be necessary to eliminate any underfunding liability of
the plan on a termination basis.
4.14. BOARDS OF DIRECTORS OF ESB AND ESB BANK. ESB and ESB Bank agree to
take all action necessary to appoint or elect, effective as of the Effective
Time, James P. Wetzel to the Board of Directors of each of ESB and ESB Bank,
with an initial term that expires at the ESB 2006 annual
40
meeting of stockholders, which is anticipated to be held in April 2006. Upon
expiration of his initial term, ESB and ESB Bank agree to nominate Mr.Wetzel for
election as a director for a three year term on each Board of Directors, subject
to Mr. Wetzel's compliance with ESB's applicable director qualification
requirements and the fiduciary duties of the ESB board. In addition, ESB and ESB
Bank agree to take all action necessary to appoint or elect one additional
director of PHSB to the Board of Directors of ESB Bank on the same terms and
conditions as Mr. Wetzel. The identity of the additional director shall be
agreed to by ESB and PHSB prior to the Effective Time.
ARTICLE V
CLOSING CONDITIONS
5.01. CONDITIONS TO THE PARTIES' OBLIGATIONS UNDER THIS AGREEMENT. The
respective obligations of the parties under this Agreement shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) All necessary regulatory or governmental approvals, waivers,
clearances, authorizations and consents (including without limitation the
requisite approval and/or non-objection, if any, of the Department and the FDIC
required to consummate the transactions contemplated hereby) shall have been
obtained without any non-standard term or condition which would materially
impair the value of PHSB and Peoples Home Savings Bank taken as a whole to ESB;
all conditions required to be satisfied prior to the Effective Time by the terms
of such approvals and consents shall have been satisfied; and all waiting
periods in respect thereof shall have expired.
(b) All corporate action necessary to authorize the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby and
by the Agreement of Merger shall have been duly and validly taken by ESB and
PHSB, including approval by the requisite vote of the stockholders of PHSB and
ESB of this Agreement and the Agreement of Merger.
(c) No order, judgment or decree shall be outstanding against a party
hereto or a third party that would have the effect of preventing completion of
the Merger; no suit, action or other proceeding shall be pending or threatened
by any governmental body in which it is sought to restrain or prohibit the
Merger; and no suit, action or other proceeding shall be pending before any
court or governmental agency in which it is sought to restrain or prohibit the
Merger or obtain other substantial monetary or other relief against one or more
of the parties hereto in connection with this Agreement and which ESB or PHSB
determines in good faith, based upon the advice of their respective counsel,
makes it inadvisable to proceed with the Merger because any such suit, action or
proceeding has a significant potential to be resolved in such a way as to
deprive the party electing not to proceed of any of the material benefits to it
of the Merger.
41
(d) The Form S-4 shall have become effective under the 1933 Act, and ESB
shall have received all state securities laws or "blue sky" permits and other
authorizations or there shall be exemptions from registration requirements
necessary to issue the ESB Common Stock in connection with the Merger, and
neither the Form S-4 nor any such permit, authorization or exemption shall be
subject to a stop order or threatened stop order by the Commission or any state
securities authority.
(e) The parties shall have received, in form and substance reasonably
satisfactory to them, an opinion of Elias, Matz, Tiernan & Herrick L.L.P. to the
effect that, for federal income tax purposes, (i) the Merger will qualify as a
"reorganization" under Section 368(a) of the Code; (ii) no taxable gain will be
recognized by ESB or PHSB; (iii) no gain or loss will be recognized by the
stockholders of PHSB who receive solely ESB Common Stock in exchange for their
PHSB Common Stock in the Merger; (iv) with respect to ESB Common Stock to be
issued in the Merger solely in exchange for PHSB Common Stock, the holders tax
basis on such ESB Common Stock will be the same as the tax basis of the PHSB
Common Stock surrendered in exchange therefor; and (v) the holding period of the
shares of ESB Common Stock received in the Merger will include the holding
period of the shares of PHSB Common Stock surrendered therefor, provided that
such PHSB Common Stock was held as a capital asset by such stockholder,
provided, however, that in the event such counsel believes that the Merger will
not qualify as a reorganization under Section 368(a) of the Code, ESB shall have
the right but not the obligation to increase the aggregate stock consideration
as necessary to cause the transaction to qualify for such tax treatment. Each of
ESB and PHSB shall provide a letter setting forth the facts, assumptions and
representations upon which such counsel may rely in rendering its opinion.
5.02. CONDITIONS TO THE OBLIGATIONS OF ESB UNDER THIS AGREEMENT. The
obligations of ESB under this Agreement shall be further subject to the
satisfaction, at or prior to the Effective Time, of the following conditions,
any one or more of which may be waived by ESB to the extent permitted by law:
(a) Each of the obligations of PHSB required to be performed by it at or
prior to the Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all material respects and the
representations and warranties of PHSB contained in this Agreement shall have
been true and correct as of the date hereof and as of the Effective Time as
though made at and as of the Effective Time, except (i) as to any representation
or warranty which specifically relates to an earlier date or (ii) where the
facts which caused the failure of any representation or warranty to be so true
and correct would not, either individually or in the aggregate, constitute a
Material Adverse Effect, and ESB shall have received a certificate to that
effect signed by the President and Chief Executive Officer of PHSB.
(b) All permits, consents, waivers, clearances, approvals and
authorizations of all regulatory or governmental authorities or third parties
which are necessary in connection with the consummation of the Merger shall have
been obtained, and none of such permits, consents, waivers, clearances,
approvals and authorizations shall contain any non-standard term or condition
which would materially impair the value of PHSB and Peoples Home Savings Bank to
ESB.
42
(c) Each stockholder of PHSB who is a PHSB Affiliate shall have executed
and delivered a commitment and undertaking to the effect that (i) such
stockholder will dispose of the shares of ESB Common Stock received by him in
connection with the Merger only in accordance with the provisions of paragraph
(d) of Rule 145 under the 1933 Act; (ii) such stockholder will not dispose of
any of such shares until ESB has received an opinion of counsel acceptable to it
that such proposed disposition is in compliance with the provisions of paragraph
(d) of Rule 145 under the 1933 Act, which opinion shall be rendered promptly
following counsel's receipt of such stockholder's written notice of its
intention to sell shares of ESB Common Stock; and (iii) the certificates
representing said shares may bear a legend referring to the foregoing
restrictions.
(d) PHSB shall have furnished ESB with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 5.02 as ESB may reasonably request.
5.03. CONDITIONS TO THE OBLIGATIONS OF PHSB UNDER THIS AGREEMENT. The
obligations of PHSB under this Agreement shall be further subject to the
satisfaction, at or prior to the Effective Time, of the following conditions,
any one or more of which may be waived by PHSB to the extent permitted by law:
(a) Each of the obligations of ESB required to be performed by it at or
prior to the Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all material respects and the
representations and warranties of ESB contained in this Agreement shall have
been true and correct as of the date hereof and as of the Effective Time as
though made at and as of the Effective Time, except (i) as to any representation
or warranty which specifically relates to an earlier date or (ii) where the
facts which caused the failure of any representation or warranty to be so true
and correct would not, either individually or in the aggregate, constitute a
Material Adverse Effect, and PHSB shall have received a certificate to that
effect signed by the President and Chief Executive Officer of ESB.
(b) ESB shall have furnished PHSB with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 5.03 as PHSB may reasonably request.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER, ETC.
6.01. TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time (whether before or after approval of this Agreement and
the Agreement of Merger by the stockholders of PHSB):
(a) by mutual written consent of the parties hereto;
43
(b) by ESB or PHSB (i) if the Effective Time shall not have occurred on
or prior to July 31, 2005 or (ii) if a vote of the stockholders of either ESB or
PHSB is taken and such stockholders fail to approve this Agreement and the
Agreement of Merger at the applicable meeting of stockholders (or any
adjournment thereof) contemplated by Section 4.08 hereof; unless the failure of
such occurrence shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe its agreements set forth herein to be
performed or observed by such party at or before the Effective Time;
(c) by ESB or PHSB upon written notice to the other 30 or more days
after the date upon which any application for a regulatory or governmental
approval necessary to consummate the Merger and the other transactions
contemplated hereby shall have been denied or withdrawn at the request or
recommendation of the applicable regulatory agency or governmental authority,
unless within such 30-day period a petition for rehearing or an amended
application is filed or noticed, or 30 or more days after any petition for
rehearing or amended application is denied;
(d) by ESB in writing if PHSB has, or by PHSB in writing if ESB has,
breached (i) any covenant or undertaking contained herein or in the Agreement of
Merger, or (ii) any representation or warranty contained herein, which breach
would have a Material Adverse Effect, in any case if such breach has not been
cured by the earlier of 30 days after the date on which written notice of such
breach is given to the party committing such breach or the Effective Time;
provided that it is understood and agreed that either party may terminate this
Agreement on the basis of such breach, notwithstanding any qualification therein
relating to the knowledge of the other party;
(e) by ESB or PHSB in writing if any of the applications for prior
approval referred to in Section 4.07 hereof are denied or by ESB in writing if
any of such applications are approved contingent upon the satisfaction of any
non-standard condition or requirement which, in the reasonable opinion of the
Board of Directors of ESB, would materially impair the value of PHSB and the
PHSB Subsidiaries taken as a whole to ESB, and in each case the time period for
appeals and requests for reconsideration has run; or
(f) By ESB in the event of a Termination Event (as defined in Section
7.01(c) hereof).
6.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either ESB or PHSB as provided above, this Agreement shall
forthwith become void (other than Sections 4.06(b) and 7.01 hereof, which shall
remain in full force and effect) and there shall be no further liability on the
part of the parties or their respective officers or directors except for the
liability of the parties under Sections 4.06(b) and 7.01 hereof and except for
liability for any breach of this Agreement.
6.03. AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law, at
any time prior to the consummation of the Merger, whether before or after
approval thereof by the stockholders of ESB and PHSB, the parties may (a) amend
this Agreement and the Agreement of Merger, (b) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(c) waive any inaccuracies in the representations and warranties contained
herein or in any document
44
delivered pursuant hereto, or (d) waive compliance with any of the agreements or
conditions contained herein; provided, however, that after any approval of the
Merger by the stockholders of PHSB, there may not be, without further approval
of such stockholders, any amendment or waiver of this Agreement or the Agreement
of Merger which modifies either the amount or the form of the Merger
Consideration to be delivered to stockholders of PHSB. This Agreement and the
Agreement of Merger may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto. Any agreement on the part of a party
hereto to any extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party, but such waiver or failure
to insist on strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
ARTICLE VII
MISCELLANEOUS
7.01. EXPENSES; TERMINATION FEE.
(a) Subject to the provisions of Section 7.01(b) hereof, each party hereto
shall bear and pay all costs and expenses incurred by it in connection with the
transactions contemplated by this Agreement, including fees and expenses of its
own financial consultants, accountants and counsel, provided, however, that in
the event of a willful breach of any representation, warranty, covenant or
agreement contained in this Agreement, the non-breaching party may pursue any
remedy available at law or in equity to enforce its rights and shall be paid by
the breaching party for all damages, costs and expenses, including without
limitation legal, accounting, investment banking and printing expenses, incurred
or suffered by the non-breaching party in connection herewith or in the
enforcement of its rights hereunder.
(b) Notwithstanding any provision in this Agreement to the contrary, in
order to induce ESB to enter into this Agreement and as a means of compensating
ESB for the substantial direct and indirect monetary and other damages and costs
incurred and to be incurred in connection with this Agreement in the event the
transactions contemplated hereby do not occur as a result of a Termination Event
(as defined herein), PHSB agrees to pay ESB, and ESB shall be entitled to
payment of, a fee (the "Fee") of $3.5 million upon the occurrence of a
Termination Event so long as the Termination Event occurs prior to a Fee
Termination Event (as defined herein). The parties hereto acknowledge that the
actual amount of such damages and costs would be impracticable or extremely
difficult to determine, and that the sum of $3.5 million constitutes a
reasonable estimate by the parties under the circumstance existing as of the
date of this Agreement of such damages and costs. Such payment shall be made to
ESB in immediately available funds within five business days after the
occurrence of a Termination Event. A Fee Termination Event shall be the first to
occur of the following: (i) the Effective Time, (ii) 12 months after termination
of this Agreement in accordance with its terms following the first occurrence of
a Preliminary Termination Event (as defined herein), (iii) termination of this
Agreement in accordance with the terms hereof prior to the occurrence of a
Termination Event or a Preliminary Termination Event (other than a termination
of this Agreement by ESB pursuant to Section 6.01(d) hereof as a result of a
willful breach of any
45
representation, warranty, covenant or agreement of PHSB) or (iv) 12 months after
the termination of this Agreement by ESB pursuant to Section 6.01(d) hereof as a
result of a willful breach of any representation, warranty, covenant or
agreement of PHSB.
(c) For purposes of this Agreement, a "Termination Event" shall mean any of
the following events:
(i) PHSB, without having received ESB's prior written consent, shall have
entered into an agreement to engage in an Acquisition Transaction with any
person (the term "person" for purposes of this Agreement having the meaning
assigned thereto in Sections 3(a)(9) and 13(d)(3) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and the rules and
regulations thereunder), other than ESB or any subsidiary of ESB or the
Board of Directors of PHSB shall have recommended that the stockholders of
PHSB approve or accept any Acquisition Transaction with any person other
than ESB or any subsidiary of ESB; or
(ii) any person, other than ESB, shall have acquired beneficial ownership
(as such term is defined in Rule 13d-3 promulgated under the Exchange Act)
of or the right to acquire beneficial ownership, or any "group" (as such
term is defined in Section 13(d)(3) of the Exchange Act) shall have been
formed which beneficially owns or has the right to acquire beneficial
ownership of, 25% or more of the aggregate voting power represented by the
outstanding PHSB Common Stock.
(d) For purposes of this Agreement, a "Preliminary Termination Event" shall
mean any of the following events:
(i) any person (other than ESB) shall have commenced (as such term is
defined in Rule 14d-2 under the Exchange Act), or shall have filed a
registration statement under the Securities Act of 1933, as amended
("Securities Act") with respect to, a tender offer or exchange offer to
purchase any shares of PHSB Common Stock such that, upon consummation of
such offer, such person would own or control 10% or more of PHSB Common
Stock outstanding (such an offer being referred to herein as a "Tender
Offer" and an "Exchange Offer," respectively, regardless of whether the
provisions of Regulations 14D or 14E under the Exchange Act apply to such
Tender Offer or Exchange Offer);
(ii) (A) the holders of PHSB Common Stock shall not have approved this
Agreement at the meeting of such stockholders held for the purpose of
voting on this Agreement, (B) such meeting shall not have been held or
shall have been canceled prior to termination of the Agreement or (C)
PHSB's Board of Directors shall have withdrawn or modified in a manner
adverse to ESB the recommendation of PHSB's Board of Directors with respect
to the Agreement, in each case after any person (other than ESB) shall have
(x) made, or disclosed an intention to make, a bona fide proposal to PHSB
or its stockholders to engage in an Acquisition Transaction (and, in the
case of clause (A) hereof, which bona fide proposal has been made public by
announcement or written communication that is or becomes the subject of
public disclosure), (y) commenced a Tender Offer or filed a registration
statement under
46
the Securities Act with respect to an Exchange Offer or (z) filed an
application or given notice, whether in draft or final form, with the
appropriate regulatory authorities for approval to engage in an Acquisition
Transaction; or
(iii) PHSB shall have breached any representation, warranty, covenant or
obligation contained in this Agreement and such breach would entitle ESB to
terminate this Agreement under Section 6.01(d) hereof (without regard to
the cure period provided for therein unless such cure is promptly effected
without jeopardizing consummation of the Merger pursuant to the terms of
this Agreement) after any person (other than ESB) shall have (x) made, or
disclosed an intention to make, a bona fide proposal to PHSB or its
stockholders to engage in an Acquisition Transaction, (y) commenced a
Tender Offer or filed a registration statement under the Securities Act
with respect to an Exchange Offer or (z) filed an application or given
notice, whether in draft or final form, with the appropriate regulatory
authorities for approval to engage in an Acquisition Transaction.
(e) PHSB shall promptly notify ESB in writing of the occurrence of any
Preliminary Termination Event or Termination Event.
7.02. SURVIVAL. The respective representations, warranties and covenants of
the parties to this Agreement shall not survive the Effective Time but shall
terminate as of the Effective Time, except for the provisions of Sections
4.06(b), 4.13, 4.14 and 7.01 hereof.
7.03. NOTICES. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent by overnight
express or mailed by prepaid registered or certified mail (return receipt
requested) or by cable, telegram or telex addressed as follows:
(a) If to ESB, to:
ESB Financial Corporation
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
Attn: Charlotte A. Zuschlag, President
Copy to:
Elias, Matz, Tiernan and Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
Attn: Raymond A. Tiernan, Esq.
Kenneth B. Tabach, Esq.
47
(b) If to PHSB, to:
PHSB Financial Corporation
744 Shenango Road
Beaver Falls, Pennsylvania 15010
Attn: James P. Wetzel, Jr., President
Copy to:
Malizia Spidi & Fisch, PC
1100 New York Avenue, NW
Suite 340 West
Washington, D.C. 2005
Attn: Richard Fisch, Esq.
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
7.04. PARTIES IN INTEREST. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other party and, except expressly provided in
Section 4.13(i) and (j) or as otherwise expressly provided herein, that nothing
in this Agreement is intended to confer, expressly or by implication, upon any
other person any rights or remedies under or by reason of this Agreement.
7.05. COMPLETE AGREEMENT. This Agreement and the Agreement of Merger,
including the documents and other writings referred to herein or therein or
delivered pursuant hereto or thereto, contain the entire agreement and
understanding of the parties with respect to their subject matter and shall
supersede all prior agreements and understandings between the parties, both
written and oral, with respect to such subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings between the parties other than those expressly set forth herein or
therein.
7.06. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
7.07. GOVERNING LAW. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania, without giving effect to the principles of
conflicts of laws thereof.
7.08. HEADINGS. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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IN WITNESS WHEREOF, ESB and PHSB have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
ESB FINANCIAL CORPORATION
Attest:
/s/ Frank D. Martz By: /s/ Charlotte A. Zuschlag
- ------------------------------- -------------------------------------
Frank D. Martz Charlotte A. Zuschlag
Group Senior Vice President President and Chief Executive Officer
of Operations and Secretary
PHSB FINANCIAL CORPORATION
Attest:
/s/ John M. Rowse By: /s/ James P. Wetzel, Jr.
- ------------------------------- -------------------------------------
John M. Rowse James P. Wetzel, Jr.
Secretary President and Chief Executive Officer