RLG/315129.1/040197
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report - March 31, 1997
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Date of earliest event reported - March 18, 1997
FULTON FINANCIAL CORPORATION
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(Exact Name of Registrant as specified in its charter)
Pennsylvania 0-10587 23-2195389
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
One Penn Square, P.O. Box 4887, Lancaster, PA 17604
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 291-2411
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Item 5. Other Events
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(a) On March 18, 1997, Fulton Financial Corporation ("FFC") and The Peoples
Bank of Elkton ("PBE") entered into an Affiliation and Merger Agreement (the
"Agreement"), under the terms of which: (i) FFC will organize a Maryland bank
("PBE Interim Bank") as a wholly-owned subsidiary of FFC and cause PBE Interim
Bank to become a party to the Agreement, (ii) PBE will be merged with and into
PBE Interim Bank (the "Merger"), (iii) PBE Interim Bank will survive the Merger
and operate as a wholly-owned subsidiary of FFC under the name "The Peoples Bank
of Elkton", and (iv) all of the outstanding shares of the common stock of PBE,
par value $10.00 per share ("PBE Common Stock"), will be converted into shares
of the common stock of FFC, par value $2.50 per share ("FFC Common Stock"). FFC
has total assets of approximately $4.0 billion, and PBE has total assets of
approximately $92 million. Assuming that the Merger is consummated, PBE, a
Maryland bank, will become a wholly-owned subsidiary of FFC. The acquisition
will be FFC's second in Maryland and its fifth outside of Pennsylvania.
Under the terms of the Agreement, shares of PBE Common Stock will be
exchanged for shares of FFC Common Stock on the effective date of the Merger
based on a conversion ratio of 3.78 shares of FFC Common Stock for each share of
PBE Common Stock outstanding. There are 230,596 shares of PBE Common Stock
outstanding. By separate Warrant Agreement, FFC will have the right to acquire
45,888 shares of PBE Common Stock under certain conditions.
Prior to the announcement of the Merger, PBE Common Stock had been
infrequently traded in the local over-the-counter market. The closing bid price
for FFC Common Stock on the NASDAQ over-the-counter market was $24.00 on
March 17, 1997 (the day prior to the public announcement of the Merger).
Consummation of the Agreement is subject to various conditions, including,
among others, (i) the approval of the Merger by the Federal Reserve Board, the
Federal Deposit Insurance Corporation, and the Maryland State Bank Commissioner,
(ii) the approval of the Merger by the shareholders of PBE, and (iii) the
absence of any material adverse change in the financial condition or operating
results of PBE.
Assuming that all conditions are satisfied without unexpected delay, it is
anticipated that the effective date of the Merger will occur during the third or
fourth quarter of 1997. It is also anticipated that the transaction will be
accounted for as a pooling-of- interests for financial reporting purposes.
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Pursuant to General Instruction F to Form 8-K, the Press Release dated
March 18, 1997 announcing execution of the Agreement attached to this Current
Report as Exhibit 1 is hereby incorporated herein by reference.
(b) On March 18, 1997, FFC's Board of Directors authorized a program under
which FFC may, subject to market conditions, repurchase up to 80,000 shares of
its outstanding common stock in open market transactions from time to time
during the next year. Due to the small number of shares involved (less than 10%
of the FFC Common Stock expected to be issued in connection with the Merger),
repurchases under the program, if any, will not have an impact on the ability of
FFC to account for the Merger as a pooling-of-interests.
Item 7. Financial Statement and Exhibits.
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The following exhibits are attached to this Current Report.
1. Press Release dated March 18, 1997.
2. Affiliation and Merger Agreement between Fulton Financial Corporation
and The Peoples Bank of Elkton dated as of March 18, 1997.
3. Warrant Agreement between Fulton Financial Corporation and The Peoples
Bank of Elkton dated as of March 19, 1997.
4. Warrant dated as of March 19, 1997.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, Fulton
Financial Corporation has caused this Report to be signed on its behalf by the
undersigned hereunto fully authorized.
FULTON FINANCIAL CORPORATION
By: /s/ Rufus A. Fulton, Jr.
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Rufus A. Fulton, Jr.,
President and Chief Executive
Officer
Date: March 31, 1997
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WARRANT AGREEMENT
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THIS WARRANT AGREEMENT is made March 19, 1997 by and between Fulton
Financial Corporation, a Pennsylvania business corporation ("FFC") and The
Peoples Bank of Elkton, a Maryland bank ("PBE").
W I T N E S S E T H:
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WHEREAS, FFC and PBE have entered into an Affiliation and Merger Agreement
dated March 18, 1997 (the "Merger Agreement"); and
WHEREAS, as a condition to FFC's entry into the Merger Agreement and in
consideration of such entry, PBE has agreed to issue to FFC, on the terms and
conditions set forth herein, a warrant entitling FFC to purchase up to an
aggregate of 45,888 shares of PBE's common stock, par value $10.00 per share
(the "Common Stock");
NOW, THEREFORE, in consideration of the execution of the Merger Agreement
and the premises herein contained, and intending to be legally bound, FFC and
PBE agree as follows:
1. Issuance of Warrant. Concurrently with the execution of the Merger
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Agreement and this Agreement, PBE shall issue to FFC a warrant in the form
attached as Exhibit A hereto (the "Warrant", which term as used herein shall
include any warrant or warrants issued upon transfer or exchange of the original
Warrant) to purchase up to 45,888 shares of Common Stock, subject to adjustment
as provided in this Agreement and in the Warrant. The Warrant shall be
exercisable at a purchase price of $80.00 per share, subject to adjustment as
provided in the Warrant (the "Exercise Price"). So long as the Warrant is
outstanding and unexercised, PBE shall at all times maintain and reserve, free
from preemptive rights, such number of authorized but unissued shares of Common
Stock as may be necessary so that the Warrant may be exercised, without any
additional authorization of Common Stock, after giving effect to all other
options, warrants, convertible securities and other rights to acquire shares of
Common Stock. PBE represents and warrants that it has duly authorized the
execution and delivery of the Warrant and this Agreement and the issuance of
Common Stock upon exercise of the Warrant. PBE covenants that the shares of
Common Stock issuable upon exercise of the Warrant shall be, when so issued,
duly authorized, validly issued, fully paid and nonassessable and subject to no
preemptive rights. The Warrant and the shares of Common Stock to be issued upon
exercise of the Warrant are hereinafter collectively referred to, from time to
time, as the "Securities." So long as the Warrant is owned by FFC, the Warrant
will in no event be exercised for more than that number of shares of Common
Stock
equal to 45,888 (subject to adjustment as provided in this Agreement and in the
Warrant) less the number of shares of Common Stock at the time owned by FFC.
2. Assignment, Transfer, or Exercise of Warrant. FFC will not sell,
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assign, transfer or exercise the Warrant, in whole or in part, without the prior
written consent of PBE except (A) if (I) FFC is not in material breach of the
agreement or covenants contained in this Agreement or the Merger Agreement and
(II) no preliminary or permanent injunction or other order against the delivery
of shares covered by the Warrant issued by any court of competent jurisdiction
in the United States shall be in effect and (B) upon or after the occurrence of
any of the following: (i) a knowing and intentional breach of any
representation, warranty, or covenant set forth in the Merger Agreement by PBE
which would permit a termination of the Merger Agreement by FFC pursuant to
Section 8.1(b)(i) thereof which is not cured and which occurs following a
proposal from any person (other than FFC) to engage in an Acquisition
Transaction; (ii) the failure of PBE's shareholders to approve the Merger
Agreement at a meeting called for such purpose if at the time of such meeting
there has been a public announcement (including a public regulatory filing) by
any Person (other than FFC) of an offer or proposal to effect an Acquisition
Transaction and, within twelve (12) months from the date of such shareholder's
meeting, PBE engages in, or enters into a written agreement with respect to, an
Acquisition Transaction; (iii) the acquisition by any Person of Beneficial
Ownership of 25% or more of the Common Stock (before giving effect to any
exercise of the Warrant); (iv) PBE shall have entered into an agreement, letter
of intent, or other written understanding with any Person (other than FFC)
providing for such Person (A) to engage in an Acquisition Transaction or (B) to
negotiate with PBE with respect to an Acquisition Transaction; or (v)
termination, or attempted termination, of the Merger Agreement by PBE under
Section 5.7 of the Merger Agreement following receipt of a written proposal to
engage in an Acquisition Transaction from a third party. As used in this
Paragraph 2, the terms "Beneficial Ownership" and "Person" shall have the
respective meanings set forth in Paragraph 7(g) herein. For purposes of this
Agreement, "Acquisition Transaction" shall mean (x) a merger or consolidation of
statutory share exchange or any similar transaction involving PBE, (y) a
purchase, lease or other acquisition of all or substantially all of the assets
of PBE or (z) a purchase or other acquisition of beneficial ownership of
securities representing 25% or more of the voting power of PBE.
3. Governmental Filing, Etc.. If, at any time after the Warrant may be
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exercised or sold, PBE shall receive a written request therefor from FFC, PBE
shall prepare, file and keep effective and current any required application or
filing to register such shares or to obtain required regulatory or other
approval for their issuance, and provide or file such documentation as may be
required by, all applicable governmental entities or agencies (any such
governmental filing(s)
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hereinafter collectively referred to as the "Governmental Filing"), covering, or
in connection with, the Warrant and/or the Common Stock issued or issuable upon
exercise of the Warrant. PBE shall use its best efforts to cause the
Governmental Filing to become effective and remain current. Without the prior
written consent of FFC, neither PBE nor any other holder of securities of PBE
may include any other securities in the Governmental Filing. Notwithstanding
anything herein to the contrary, FFC shall have right to request the
Governmental Filing described in this Section 3 on one occasion only.
4. Duties of PBE upon Governmental Filing. If and whenever PBE is
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required by the provisions of Paragraph 3 of this Agreement to make any
Governmental Filing or to take any other action, PBE shall:
(a) prepare and file with the all applicable governmental entities or
agencies such amendments to the Governmental Filing and supplements thereto
as may be necessary to keep the Governmental Filing effective, current, and
accurate;
(b) furnish to FFC and to any underwriters of the Securities being
registered such reasonable number of copies of the Governmental Filing, any
documents contained therein, and such other documents as FFC or such
underwriters may reasonably request in order to facilitate the public
offering of the Securities;
(c) use its best efforts to register or qualify the Securities
covered by the Governmental Filing under the state securities or blue sky
laws of such jurisdictions as FFC or such underwriters may reasonably
request;
(d) notify FFC, promptly after PBE shall receive notice thereof, of
the time when the Governmental Filing has become effective or any
supplement or amendment to any document forming a part of the Governmental
Filing has been filed;
(e) notify FFC promptly of any request by any governmental entities
or agencies for the amending or supplementing of the Governmental Filing or
any document contained therein, or for additional information;
(f) prepare and file with all applicable governmental entities or
agencies promptly upon the request of FFC, any amendments or supplements to
the Governmental Filing or any document contained therein which, in the
opinion of counsel for FFC, are required under any law or regulation;
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(g) prepare and promptly file with all governmental entities or
agencies such amendments of or supplements to (i) the Governmental Filing
or the document contained therein; or (ii) the Governmental Filing as may
be necessary to correct any statements or omissions if, at the time when a
Governmental Filing relating to such Securities is required to be delivered
under law or regulation, any event shall have occurred as the result of
which such Governmental Filing as then in effect would include an untrue
statement of a material fact or would omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(h) advise FFC, promptly after PBE shall receive notice or obtain
knowledge of the issuance of any stop order by any governmental entity or
agency suspending the effectiveness of the Governmental Filing or of any
action by any governmental entity or agency preventing the exercise of any
right or obligation hereunder or that may be exercised in connection
herewith, or the initiation or threatening of any proceeding for such
purpose, and promptly use its best efforts to prevent such action or to
obtain its withdrawal if such action should be taken; and
(i) at the request of FFC, furnish on the date or dates provided for
in any underwriting agreement: (i) an opinion or opinions of counsel for
PBE for the purposes of such Governmental Filing, addressed to the
underwriters and to FFC, covering such matters as such underwriters and FFC
may reasonably request and as are customarily covered by issuer's counsel
at that time; and (ii) a letter or letters from the independent certified
public accountants for PBE, addressed to the underwriters and to FFC,
covering such matters as such underwriters or FFC may reasonably request,
in which letters such accountants shall state (without limiting the
generality of the foregoing) that they are independent certified public
accountants within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"), and that, in the opinion of such accountants, the
financial statements and other financial data of PBE included in the
Governmental Filing or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements of the
Securities Act or such other law or regulation as may be at issue.
5. Expenses of Registration. With respect to the Governmental Filing
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requested pursuant to Paragraph 3 of this Agreement, (a) PBE shall bear all
registration, filing and NASD fees, printing and engraving expenses, fees and
disbursements of its counsel and accountants and all legal fees and
disbursements and other expenses of PBE to comply with state securities or blue
sky laws of any jurisdictions in which the Securities to be offered are to be
registered or qualified; and
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(b) FFC shall bear all fees and disbursements of its counsel and accountants,
underwriting discounts and commissions, transfer taxes for FFC and any other
expenses incurred by FFC.
6. Indemnification. In connection with any Registration Statement or
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Governmental Filing or any amendment or supplement thereto:
(a) PBE shall indemnify and hold harmless FFC, any underwriter for
FFC, and each person, if any, who controls FFC or such underwriter from and
against any and all loss, damage, liability, cost or expense to which FFC
or any such underwriter or controlling person may become subject under any
applicable law,, insofar as such loss, damage, liability, cost or expense
arises out of or is caused by any untrue statement or alleged untrue
statement of any material fact contained in the Governmental Filing, any
document contained therein or any amendment or supplement to the foregoing,
or arises out of or is based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that PBE will not be
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liable in any such case to the extent that any such loss, damage,
liability, cost or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by FFC, such underwriter or
such controlling person in writing specifically for use in the preparation
thereof.
(b) FFC shall indemnify and hold harmless PBE, any underwriter and
each person, if any, who controls PBE or such underwriter from and against
any and all loss, damage, liability, cost or expense to which PBE or any
such underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such loss, damage, liability, cost
or expense arises out of or is caused by any untrue or alleged untrue
statement of any material fact contained in the Governmental Filing, any
document contained therein or any amendment or supplement to the foregoing,
or arises out of or is based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that FFC will not
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be liable in any such case to the extent that any such loss, damage,
liability, cost or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by PBE, such underwriter,
such underwriter or such controlling person in writing specifically for use
in the preparation thereof.
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(c) Promptly after receipt by any party which is entitled to be
indemnified, pursuant to the provisions of subparagraph (a) or (b) of this
Paragraph 6, of any claim in writing or of notice of the commencement of
any action involving the subject matter of the foregoing indemnity
provisions, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party pursuant to the provisions of
subparagraph (a) or (b) of this Paragraph 6, promptly notify the
indemnifying party of the receipt of such claim or notice of the
commencement of such action, but the omission to so notify the indemnifying
party will not relieve it from any liability which it may otherwise have to
any indemnified party hereunder. In case any such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to
participate in and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, that if
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the defendants in any action include both the indemnified party or parties
and the indemnifying party and there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing any
indemnified party, such indemnified party shall have the right to select
separate counsel to participate in the defense of such indemnified party.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party, pursuant to the provisions of
subparagraph (a) or (b) of this Paragraph 6, for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof, other than reasonable costs of investigation, unless
(i) such indemnified party shall have employed separate counsel in
accordance with the provisions of the preceding sentence, (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after the notice of the commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
(d) If recovery is not available under the foregoing indemnification
provisions, for any reason other than as specified therein, any party
entitled to indemnification by the terms thereof shall be entitled to
obtain contribution with respect to its liabilities and expenses, except to
the extent that contribution is not permitted under Section 11(f) of the
Securities Act or such other law or regulation as may be applicable. In
determining the amount of contribution to which the respective parties are
entitled there shall be considered the parties' relative knowledge and
access to information concerning the matter with respect to which the claim
was asserted, the opportunity to correct and/or
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prevent any statement or omission, and any other equitable considerations
appropriate under the circumstances. FFC and PBE agree that it would not
be equitable if the amount of such contribution were determined by pro rata
or per capita allocation even if the underwriters and FFC as a group were
considered a single entity for such purpose.
7. Redemption and Repurchase Rights.
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(a) From and after the date on which any event described in Paragraph
2 of this Agreement occurs, the Holder as defined in the Warrant (which
shall include a former Holder), who has exercised the Warrant in whole or
in part shall have the right to require PBE to redeem some or all of the
shares of Common Stock for which the Warrant was exercised at a redemption
price per share (the "Redemption Price") equal to the highest of: (i) the
Exercise Price, (ii) the highest price paid or agreed to be paid for any
share of Common Stock by an Acquiring Person (as defined below) during the
one year period immediately preceding the date of redemption, and (iii) in
the event of a sale of all or substantially all of PBE's assets: (x) the
sum of the price paid in such sale for such assets and the current market
value of the remaining assets of PBE as determined by a recognized
investment banking firm selected by such Holder, divided by (y) the number
of shares of Common Stock then outstanding. If the price paid consists in
whole or in part of securities or assets other than cash, the value of such
securities or assets shall be their then current market value as determined
by a recognized investment banking firm selected by the Holder.
(b) From and after the date on which any event described in Paragraph
2 of this Agreement occurs, the Holder as defined in the Warrant (which
shall include a former Holder), shall have the right to require PBE to
repurchase all or any portion of the Warrant at a price (the "Warrant
Repurchase Price") equal to the product obtained by multiplying: (i) the
number of shares of Common Stock represented by the portion of the Warrant
that the Holder is requiring PBE to repurchase, times (ii) the excess of
the Redemption Price over the Exercise Price.
(c) The Holder's right, pursuant to this Paragraph 7, to require PBE
to repurchase a portion or all of the Warrant, and/or to require PBE to
redeem some or all of the shares of Common Stock for which the Warrant was
exercised, shall expire on the close of business on the 60th day following
the occurrence of any event described in Paragraph 2.
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(d) The Holder may exercise its right, pursuant to this Paragraph 7,
to require PBE to repurchase all or a portion of the Warrant, and/or to
require PBE to redeem some or all of the shares of Common Stock for which
the Warrant was exercised, by surrendering for such purpose to PBE, at its
principal office within the time period specified in the preceding
subparagraph, the Warrant and/or a certificate or certificates representing
the number of shares to be redeemed accompanied by a written notice stating
that it elects to require PBE to repurchase the Warrant or a portion
thereof and/or to redeem all or a specified number of such shares in
accordance with the provisions of this Paragraph 7. As promptly as
practicable, and in any event within five business days after the surrender
of the Warrant and/or such certificates and the receipt of such notice
relating thereto, PBE shall deliver or cause to be delivered to the Holder:
(i) the applicable Redemption Price (in immediately available funds) for
the shares of Common Stock which it is not then prohibited under applicable
law or regulation from redeeming, and/or (ii) the applicable Warrant
Repurchase Price, and/or (iii) if the Holder has given PBE notice that less
than the whole Warrant is to be repurchased and/or less than the full
number of shares of Common Stock evidenced by the surrendered certificate
or certificates are to be redeemed, a new certificate or certificates, of
like tenor, for the number of shares of Common Stock evidenced by such
surrendered certificate or certificates less the number shares of Common
Stock redeemed and/or a new Warrant reflecting the fact that only a portion
of the Warrant was repurchased.
(e) To the extent that PBE is prohibited under applicable law or
regulation, or as a result of administrative or judicial action, from
repurchasing the Warrant and/or redeeming the Common Stock as to which the
Holder has given notice of repurchase and/or redemption, PBE shall
immediately so notify the Holder and thereafter deliver or cause to be
delivered, from time to time to the Holder, the portion of the Warrant
Repurchase Price and/or the Redemption Price which it is no longer
prohibited from delivering, within five business days after the date on
which PBE is no longer so prohibited; provided, however, that to the extent
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that PBE is at the time and after the expiration of 25 months, so
prohibited from delivering the Warrant Repurchase Price and/or the
Redemption Price, in full (and PBE hereby undertakes to use its best
efforts to obtain all required regulatory and legal approvals as promptly
as practicable), PBE shall deliver to the Holder a new Warrant (expiring
one year after delivery) evidencing the right of the Holder to purchase
that number of shares of Common Stock representing the portion of the
Warrant which PBE is then so prohibited from repurchasing, and/or PBE shall
deliver to the Holder a certificate for the shares of Common Stock which
PBE is then so prohibited from redeeming, and PBE shall have no further
obligation to repurchase such
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new Warrant or redeem such Common Stock; and provided further, that upon
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receipt of such notice and until five days thereafter the Holder may revoke
its notice of repurchase of the Warrant and/or redemption of Common Stock
by written notice to PBE at its principal office stating that the Holder
elects to revoke its election to exercise its right to require PBE to
repurchase the Warrant and/or redeem the Common Stock, whereupon PBE will
promptly redeliver to the Holder the Warrant and/or the certificates
representing shares of Common Stock surrendered to PBE for purposes of such
repurchase and/or redemption, and PBE shall have no further obligation to
repurchase such Warrant and/or redeem such Common Stock.
(f) Notwithstanding anything to the contrary herein, PBE shall be
obligated to pay any sums due FFC or any other Holders under this Paragraph
7 only upon consummation of an Acquisition Transaction referenced in
Paragraph 2 herein; provided, however, PBE's obligation to make such a
payment due to the exercise event described in clause (iii) or the
definition of Acquisition Transaction described in clause (z) of Paragraph
2 shall become binding only upon an acquisition of Beneficial Ownership of
50% or more of the PBE Common Stock or securities representing 50% or more
of the voting power of PBE.
(g) As used in this Agreement the following terms have the meanings
indicated:
(1) "Acquiring Person" shall mean any "Person" (hereinafter
defined) who or which is the "Beneficial Owner" (hereinafter defined)
of 25% or more of the Common Stock;
(2) A "Person" shall mean any individual, firm, corporation or
other entity and shall also include any syndicate or group deemed to
be a "Person" by operation of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended;
(3) A Person shall be a "Beneficial Owner", and shall have
"Beneficial Ownership", of all securities:
(i) which such Person or any of its Affiliates (as
hereinafter defined) beneficially owns, directly or indirectly;
and
(ii) which such Person or any of its Affiliates or
Associates has (1) the right to acquire (whether such right is
exercisable immediately or only after the passage of time or
otherwise)
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pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (2) the right to vote pursuant to any
proxy, power of attorney, voting trust, agreement, arrangement or
understanding; and
(4) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the regulations
promulgated by the SEC under the Securities and Exchange Act of 1934,
as amended.
8. Remedies. Without limiting the foregoing or any remedies available to
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FFC, it is specifically acknowledged that FFC would not have an adequate remedy
at law for any breach of this Warrant Agreement and shall be entitled to
specific performance of PBE's obligations under, and injunctive relief against
any actual or threatened violation of the obligations of any Person subject to,
this Agreement.
9. Miscellaneous.
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(a) The representations, warranties, and covenants of PBE set forth
in the Merger Agreement are hereby incorporated by reference in and made a
part of this Agreement, as if set forth in full herein.
(b) This Agreement, the Warrant and the Merger Agreement set forth
the entire understanding and agreement of the parties hereto and supersede
any and all prior agreements, arrangements and understandings, whether
written or oral, relating to the subject matter hereof and thereof. No
amendment, supplement, modification, waiver, or termination of this
Agreement shall be valid and binding unless executed in writing by both
parties.
(c) This Agreement shall be deemed to have been made in, and shall be
governed by and interpreted in accordance with the substantive laws of, the
Commonwealth of Pennsylvania.
10. Termination. This Agreement, and all of PBE's obligations hereunder,
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shall automatically terminate, without further action of the parties, at the
time the Warrant terminates.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers as of the day and year first above
written.
FULTON FINANCIAL CORPORATION
By:
---------------------------------
Rufus A. Fulton, Jr., President
and Chief Executive Officer
Attest:
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William R. Colmery, Secretary
THE PEOPLES BANK OF ELKTON
By:
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David K. Williams, Sr., Chairman
of the Board
Attest:
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Cathy C. Dunn, Secretary
WARRANT
to Purchase up to 45,888 Shares of the
Common Stock, Par Value $10.00 Per Share,
of
THE PEOPLES BANK OF ELKTON
This is to certify that, for value received, Fulton Financial Corporation
("FFC") or any permitted transferee (FFC or such transferee being hereinafter
called the "Holder") is entitled to purchase, subject to the provisions of this
Warrant, from The Peoples Bank of Elkton, a Maryland trust company ("PBE"), at
any time on or after the date hereof, an aggregate of up to 45,888 fully paid
and non-assessable shares of common stock, par value $10.00 per share, of PBE
(the "Common Stock") at a price per share equal to $80.00, subject to adjustment
as herein provided (the "Exercise Price"). This Warrant is transferable only in
accordance with the terms and provisions of the Warrant Agreement (as defined
below) the terms of which are deemed incorporated herein.
1. Exercise of Warrant. Subject to the provisions hereof and the
-------------------
limitations set forth in Paragraph 2 of a Warrant Agreement of even date
herewith by and between FFC and PBE (the "Warrant Agreement"), which Warrant
Agreement was entered into in connection with an Affiliation and Merger
Agreement dated March 18, 1997 between FFC and PBE (the "Merger Agreement"),
this Warrant may be exercised in whole or in part or sold, assigned or
transferred at any time or from time to time on or after the date hereof. This
Warrant shall be exercised by presentation and surrender hereof to PBE at the
principal office of PBE, accompanied by (i) a written notice of exercise, (ii)
payment to PBE, for the account of PBE and in the form of a certified or bank
check, of the Exercise Price for the number of shares of Common Stock specified
in such notice, and (iii) a certificate of the Holder specifying the event or
events which have occurred and entitle the Holder to exercise this Warrant. The
Exercise Price for the number of shares of Common Stock specified in the notice
shall be payable in immediately available funds.
Upon such presentation and surrender, PBE shall issue promptly (and within
one business day if requested by the Holder) to the Holder or its assignee,
transferee or designee the number of shares of Common Stock to which the Holder
is entitled hereunder. PBE covenants and warrants that such shares of Common
Stock, when so issued, will be duly authorized, validly issued, fully paid and
non-assessable, and free and clear of all liens and encumbrances.
If this Warrant should be exercised in part only, PBE shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the rights of the Holder thereof to purchase the balance of the shares of Common
Stock issuable hereunder. Upon receipt by PBE of this Warrant, in proper form
for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of PBE may then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder. PBE
shall pay all expenses, and any and all United States federal, state and local
taxes and other charges, that may be payable in connection with the preparation,
issue and delivery of stock certificates pursuant to this Paragraph 1 in the
name of the Holder or its assignee, transferee or designee.
2. Reservation of Shares; Preservation of Rights of Holder.
-------------------------------------------------------
PBE shall at all times, while this Warrant is outstanding and unexercised,
maintain and reserve, free from preemptive rights, such number of authorized but
unissued shares of Common Stock as may be necessary so that this Warrant may be
exercised without any additional authorization of Common Stock after giving
effect to all other options, warrants, convertible securities and other rights
to acquire shares of Common Stock at the time outstanding. PBE further agrees
that (i) it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act or omission, avoid or seek to avoid the observance or performance of any of
the covenants, stipulations or conditions to be observed or performed hereunder
or under the Warrant Agreement by PBE, (ii) it will promptly take all action
(including (A) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. (S)18a and the regulations
promulgated thereunder and (B) in the event that, under Section 3 of the Bank
Holding Company Act of 1956, as amended (12 U.S.C. (S)1842(a)(3)), the Change in
Bank Control Act of 1978, as amended (12 U.S.C. (S)1817(j)), or the Financial
Institutions Article, Annotated Code of Maryland (Fl (S)5-901 et. seq.) prior
approval of the Board of Governors of the Federal Reserve System (the "Board"),
the Federal Deposit Insurance Corporation (the "FDIC"), or the Maryland State
Bank Commissioner (the "Commissioner") is necessary before this Warrant may be
exercised, cooperating fully with the Holder in preparing any and all such
applications and providing such information as the Board, the FDIC or the
Commissioner may require) in order to permit the Holder to exercise this Warrant
and PBE duly and effectively to issue shares of its Common Stock hereunder, and
(iii) it will promptly take all action necessary to protect the rights of the
Holder against dilution as provided herein.
3. Fractional Shares. PBE shall not be required to issue fractional
-----------------
shares of Common Stock upon exercise of this Warrant but shall pay for any
fractional shares in cash or by certified or official bank check at the Exercise
Price.
4. Exchange or Loss of Warrant. This Warrant is exchangeable, without
---------------------------
expense, at the option of the Holder, upon presentation and surrender hereof at
the
-2-
principal office of PBE for other warrants of different denominations entitling
the Holder to purchase in the aggregate the same number of shares of Common
Stock issuable hereunder. The term "Warrant" as used herein includes any
warrants for which this Warrant may be exchanged. Upon receipt by PBE of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Warrant, if mutilated, PBE will execute and deliver a new Warrant of like
tenor and date.
5. Repurchase. The Holder shall have the right to require PBE to
----------
repurchase all or any portion of this Warrant under the terms and conditions of
Paragraph 7 of the Warrant Agreement.
6. Adjustment. The number of shares of Common Stock issuable upon the
----------
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time as provided in this Paragraph 6.
(A) Stock Dividends, etc.
---------------------
(1) Stock Dividends. In case PBE shall pay or make a dividend or
---------------
other distribution on any class of capital stock of PBE in Common Stock, the
number of shares of Common Stock issuable upon exercise of this Warrant shall be
increased by multiplying such number of shares by a fraction of which the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the day immediately preceding the date of such distribution
and the numerator shall be the sum of such number of shares and the total number
of shares of Common Stock constituting such dividend or other distribution, such
increase to become effective immediately after the opening of business on the
day following such distribution.
(2) Subdivisions. In case outstanding shares of Common Stock shall
------------
be subdivided into a greater number of shares of Common Stock, the number of
shares of Common Stock issuable upon exercise of this Warrant at the opening of
business on the day following the day upon which such subdivision becomes
effective shall be proportionately increased, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the number of shares of Common Stock issuable upon
exercise of this Warrant at the opening of business on the day following the day
upon which such combination becomes effective shall be proportionately
decreased, such increase or decrease, as the case may be, to become effective
immediately after the opening of business on the day following the date upon
which such subdivision or combination becomes effective.
-3-
(3) Reclassifications. The reclassification of Common Stock into
-----------------
securities (other than Common Stock) and/or cash and/or other consideration
shall be deemed to involve a subdivision or combination, as the case may be, of
the number of shares of Common Stock outstanding immediately prior to such
reclassification into the number or amount of securities and/or cash and/or
other consideration outstanding immediately thereafter and the effective date of
such reclassification shall be deemed to be "the day upon which such subdivision
becomes effective," or "the day upon which such combination becomes effective,"
as the case may be, within the meaning of clause (2) above.
(4) Optional Adjustments. PBE may make such increases in the
--------------------
number of shares of Common Stock issuable upon exercise of this Warrant, in
addition to those required by this subparagraph (A), as shall be determined by
its Board of Directors to be advisable in order to avoid taxation so far as
practicable of any dividend of stock or stock rights or any event treated as
such for federal income tax purposes to the recipients.
(5) Adjustment to Exercise Price. Whenever the number of shares of
----------------------------
Common Stock issuable upon exercise of this Warrant is adjusted as provided in
this Paragraph 6(A), the Exercise Price shall be adjusted by a fraction in which
the numerator is equal to the number of shares of Common Stock issuable prior to
the adjustment and the denominator is equal to the number of shares of Common
Stock issuable after the adjustment.
(B) Certain Sales of Common Stock.
-----------------------------
(1) Adjustment to Shares Issuable. If and whenever PBE sells or
-----------------------------
otherwise issues (other than under circumstances in which Paragraph 6(A)
applies) any shares of Common Stock, the number of shares of Common Stock
issuable upon exercise of this Warrant shall be increased by multiplying such
number of shares by a fraction, the denominator of which shall be the number of
shares of Common Stock outstanding at the close of business on the day
immediately preceding the date of such sale or issuance and the numerator of
which shall be the sum of such number of shares and the total number of shares
constituting such sale or other issuance, such increase to become effective
immediately after the opening of business on the day following such sale or
issuance.
(2) Adjustment to Exercise Price. If and whenever PBE sells or
----------------------------
otherwise issues any shares of Common Stock (excluding any stock dividend or
other issuance not for consideration to which Paragraph 6(A) applies) for a
consideration per share which is less than the Exercise Price at the time of
such sale or other issuance, then in each such case the Exercise Price shall be
forthwith changed (but only if a reduction would result) to the price
(calculated to the nearest
-4-
cent) determined by dividing: (i) an amount equal to the sum of (aa) the number
of shares of Common Stock outstanding immediately prior to such issue or sale,
multiplied by the then effective Exercise Price, plus (bb) the total
consideration, if any, received and deemed received by PBE upon such issue or
sale, by (ii) the total number of shares of Common Stock outstanding immediately
after such issue or sale.
(C) Definition. For purposes of this Paragraph 6, the term "Common
----------
Stock" shall include (1) any shares of PBE of any class or series which has no
preference or priority in the payment of dividends or in the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of PBE and which is not subject to redemption by PBE, and (2) any rights or
options to subscribe for or to purchase shares of Common Stock or any stock or
securities convertible into or exchangeable for shares of Common Stock (such
convertible or exchangeable stock or securities being hereinafter called
"Convertible Securities"), whether or not such rights or options or the right to
convert or exchange any such Convertible Securities are immediately exercisable.
For purposes of any adjustments made under Paragraph 6(A) or 6(B) as a result of
the distribution, sale or other issuance of rights or options or Convertible
Securities, the number of Shares of Common Stock outstanding after or as a
result of the occurrence of events described in Paragraph 6(A)(1) or 6(B)(1)
shall be calculated by assuming that all such rights, options or Convertible
Securities have been exercised for the maximum number of shares issuable
thereunder.
7. Notice. (A) Whenever the number of shares of Common Stock for which
------
this Warrant is exercisable is adjusted as provided in Paragraph 6, PBE shall
promptly compute such adjustment and mail to the Holder a certificate, signed by
the principal financial officer of PBE, setting forth the number of shares of
Common Stock for which this Warrant is exercisable as a result of such
adjustment having become effective.
(B) Upon the occurrence of any event which results in the Holder having
the right to require PBE to repurchase this Warrant, as provided in Paragraph 7
of the Warrant Agreement, PBE shall promptly notify the Holder of such event;
and PBE shall promptly compute the Warrant Repurchase Price and furnish to the
Holder a certificate, signed by the principal financial officer of PBE, setting
forth the Warrant Repurchase Price and the basis and computation thereof.
8. Rights of the Holder. (A) Without limiting the foregoing or any
--------------------
remedies available to the Holder, it is specifically acknowledged that the
Holder would not have an adequate remedy at law for any breach of the provisions
of this Warrant and shall be entitled to specific performance of PBE's
obligations under, and injunctive relief against any actual or threatened
violation of the obligations of any Person (as defined in Paragraph 7 of the
Warrant Agreement) subject to, this Warrant.
-5-
(B) The Holder shall not, by virtue of its status as Holder, be
entitled to any rights of a shareholder in PBE.
9. Termination. This Warrant and the rights conferred hereby shall
-----------
terminate (i) upon the Effective Date of the merger provided for in the Merger
Agreement, (ii) upon a valid termination of the Merger Agreement prior to the
occurrence of an event described in Paragraph 2 of the Warrant Agreement, or
(iii) to the extent this Warrant has not previously been exercised, 60 days
after the occurrence of an event described in Paragraph 2 of the Warrant
Agreement.
10. Governing Law. This Warrant shall be deemed to have been delivered
-------------
in, and shall be governed by and interpreted in accordance with the substantive
laws of, the Commonwealth of Pennsylvania.
Dated: March 19, 1997
THE PEOPLES BANK OF ELKTON
By
----------------------------------
David K. Williams, Sr., Chairman
of the Board
Attest:
-----------------------------
Cathy C. Dunn, Secretary
-6-
AFFILIATION AND MERGER AGREEMENT
BY AND BETWEEN
THE PEOPLES BANK OF ELKTON
AND
FULTON FINANCIAL CORPORATION
TABLE OF CONTENTS
Page
----
ARTICLE I - PLAN OF MERGER .................................................. 2
--------------
Section 1.1 Plan of Merger .......................... 2
--------------
ARTICLE II - CONVERSION OF SHARES AND EXCHANGE OF STOCK
------------------------------------------
CERTIFICATES .............................................. 2
------------
Section 2.1 Conversion of Shares .................... 2
(a) General ................................. 2
-------
(b) Antidilution Provision .................. 2
----------------------
(c) No Fractional Shares .................... 2
--------------------
(d) Closing Market Price .................... 3
--------------------
Section 2.2 Exchange of Stock Certificates .......... 3
------------------------------
(a) Exchange Agent .......................... 3
--------------
(b) Surrender of Certificates ............... 3
-------------------------
(c) Dividend Withholding .................... 4
--------------------
(d) Failure to Surrender Certificates ....... 4
---------------------------------
(e) Expenses ................................ 4
--------
Section 2.3 Reservation of Shares ................... 4
---------------------
Section 2.4 Taking Necessary Action ................. 4
-----------------------
Section 2.5 Press Releases .......................... 5
--------------
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PBE ......................... 5
-------------------------------------
Section 3.1 Authority ............................... 5
---------
Section 3.2 Subsidiaries ............................ 5
------------
Section 3.3 Organization and Standing ............... 5
-------------------------
Section 3.4 Capitalization .......................... 6
--------------
Section 3.5 Articles of Incorporation, Bylaws and
-------------------------------------
Minute Books .......................... 6
------------
Section 3.6 Financial Statements .................... 6
--------------------
Section 3.7 Absence of Undisclosed Liabilities ...... 6
----------------------------------
Section 3.8 Absence of Changes ...................... 6
------------------
Section 3.9 Dividends, Distributions and Stock
----------------------------------
Purchases ............................. 7
---------
Section 3.10 Taxes ................................... 7
-----
Section 3.11 Title to and Condition of Assets ........ 7
--------------------------------
Section 3.12 Contracts ............................... 8
---------
Section 3.13 Litigation and Governmental Directives... 8
--------------------------------------
Section 3.14 Compliance with Laws; Governmental
----------------------------------
Authorizations ........................ 9
--------------
Section 3.15 Insurance ............................... 9
---------
Section 3.16 Financial Institutions Bonds ............ 9
----------------------------
Section 3.17 Labor Relations and Employment
------------------------------
Agreements ............................ 9
----------
Section 3.18 Employee Benefit Plans .................. 10
----------------------
Section 3.19 Related Party Transactions .............. 10
--------------------------
Section 3.20 No Finder ............................... 11
---------
Section 3.21 Complete and Accurate Disclosure ........ 11
--------------------------------
Section 3.22 Environmental Matters ................... 11
---------------------
Section 3.23 Proxy Statement/Prospectus .............. 12
--------------------------
Section 3.24 Securities Matters ...................... 12
------------------
Section 3.25 Reports ................................. 12
-------
Section 3.26 Loan Portfolio of PBE ................... 13
---------------------
Section 3.27 Investment Portfolio .................... 13
--------------------
Section 3.28 Regulatory Examinations ................. 13
-----------------------
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF FFC .......................... 13
Section 4.1 Authority ............................... 13
---------
Section 4.2 Organization and Standing ............... 14
-------------------------
Section 4.3 Capitalization .......................... 14
--------------
Section 4.4 Articles of Incorporation and Bylaws .... 14
------------------------------------
Section 4.5 Subsidiaries ............................ 14
------------
Section 4.6 Financial Statements .................... 15
--------------------
Section 4.7 Absence of Undisclosed Liabilities ...... 15
----------------------------------
Section 4.8 Absence of Changes ...................... 15
------------------
Section 4.9 Litigation and Governmental Directives .. 15
--------------------------------------
Section 4.10 Compliance with Laws; Governmental
----------------------------------
Authorizations ........................ 16
--------------
Section 4.11 Complete and Accurate Disclosure ........ 16
--------------------------------
Section 4.12 Labor Relations ......................... 17
---------------
Section 4.13 Employee Benefits Plans ................. 17
-----------------------
Section 4.14 Environmental Matters ................... 17
---------------------
Section 4.15 SEC Filings ............................. 17
-----------
Section 4.16 Proxy Statement/Prospectus .............. 17
--------------------------
Section 4.17 Accounting Treatment .................... 18
--------------------
Section 4.18 Regulatory Approvals .................... 18
--------------------
ARTICLE V - COVENANTS OF PBE ................................................ 18
----------------
Section 5.1 Conduct of Business ..................... 18
-------------------
Section 5.2 Best Efforts ............................ 20
------------
Section 5.3 Access to Properties and Records ........ 20
--------------------------------
Section 5.4 Subsequent Financial Statements ......... 20
-------------------------------
Section 5.5 Update Schedules ........................ 21
----------------
Section 5.6 Notice .................................. 21
------
-ii-
Section 5.7 Other Proposals ......................... 21
---------------
Section 5.8 Affiliate Letters ....................... 21
-----------------
Section 5.9 No Purchases or Sales of FFC Common Stock
-----------------------------------------
During Price Determination Period ..... 22
---------------------------------
Section 5.10 Accounting Treatment .................... 22
--------------------
Section 5.11 Dividends ............................... 22
---------
Section 5.12 Employment Obligations .................. 23
----------------------
ARTICLE VI -COVENANTS OF FFC ................................................ 23
----------------
Section 6.1 Best Efforts ............................ 23
------------
(a) Applications for Regulatory Approval .... 23
------------------------------------
(b) Registration Statement .................. 23
----------------------
(c) State Securities Laws ................... 24
---------------------
(d) Stock Listing ........................... 24
-------------
(e) PBE Interim Bank ........................ 24
----------------
(f) Accounting Treatment .................... 24
--------------------
Section 6.2 Access to Properties and Records ........ 24
--------------------------------
Section 6.3 Subsequent Financial Statements ......... 24
-------------------------------
Section 6.4 Update Schedules ........................ 25
----------------
Section 6.5 Notice .................................. 25
------
Section 6.6 Employment Arrangements ................. 25
-----------------------
Section 6.7 No Purchase or Sales of FFC Common Stock
----------------------------------------
During Price Determination Period ..... 25
---------------------------------
Section 6.8 Continuation of PBE's Structure, Name and
-----------------------------------------
Directors ............................. 26
---------
Section 6.9 Indemnification ......................... 26
---------------
ARTICLE VII - CONDITIONS PRECEDENT .......................................... 28
--------------------
Section 7.1 Common Conditions ....................... 28
-----------------
(a) Stockholder Approval .................... 28
--------------------
(b) Regulatory Approvals .................... 28
--------------------
(c) Stock Listing ........................... 28
-------------
(d) Tax Opinion ............................. 28
-----------
(e) Registration Statement .................. 29
----------------------
(f) No Suits ................................ 30
--------
Section 7.2 Conditions Precedent to Obligations
-----------------------------------
of FFC ................................ 30
------
(a) Accuracy of Representations and Warranties
------------------------------------------
......................................... 30
(b) Covenants Performed ..................... 30
-------------------
(c) Opinion of Counsel for PBE .............. 30
--------------------------
(d) Affiliate Agreements .................... 30
--------------------
-iii-
(e) Financial Confirmation .................. 31
----------------------
(f) Accountants' Letter ..................... 31
-------------------
(g) Accounting Treatment .................... 32
--------------------
(h) Federal and State Securities and
--------------------------------
Antitrust Laws ......................... 32
--------------
(i) Dissenting Stockholders ................. 32
-----------------------
(j) Environmental Matters ................... 32
---------------------
(k) Crossroads Branch Lease ................. 33
-----------------------
(k) Required Notices, Consents and
------------------------------
Approvals .............................. 33
---------
(l) Closing Documents ....................... 33
-----------------
Section 7.3 Conditions Precedent to the Obligations
---------------------------------------
of PBE ................................. 33
------
(a) Accuracy of Representations and
-------------------------------
Warranties ............................. 33
----------
(b) Covenants Performed ..................... 33
-------------------
(c) Opinion of Counsel for FFC .............. 33
--------------------------
(d) Fairness Opinion ........................ 34
----------------
(e) Financial Confirmation .................. 34
----------------------
(f) Closing Documents ....................... 34
-----------------
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER ................. 35
---------------------------------
Section 8.1 Termination ............................. 35
-----------
(a) Mutual Consent .......................... 35
--------------
(b) Unilateral Action by FFC ................ 35
------------------------
(c) Unilateral Action By PBE ................ 35
------------------------
(d) By FFC .................................. 35
------
Section 8.2 Effect of Termination ................... 36
---------------------
(a) Effect .................................. 36
------
(b) Limited Liability ....................... 36
-----------------
(c) Confidentiality ......................... 36
---------------
Section 8.3 Amendment ............................... 36
---------
Section 8.4 Waiver .................................. 36
------
ARTICLE IX - RIGHTS OF DISSENTING STOCKHOLDERS OF PBE ............ 37
----------------------------------------
Section 9.1 Rights of Dissenting Stockholders
---------------------------------
of PBE ................................. 37
------
ARTICLE X - CLOSING AND EFFECTIVE DATE ........................... 37
--------------------------
Section 10.1 Closing ................................. 37
-------
Section 10.2 Effective Date .......................... 37
--------------
-iv-
ARTICLE XI NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES .................... 37
---------------------------------------------
Section 11.1 No Survival .......................................... 37
-----------
ARTICLE XII - GENERAL PROVISIONS ............................................ 38
------------------
Section 12.1 Expenses ............................................. 38
--------
Section 12.2 Other Mergers and Acquisitions ....................... 38
------------------------------
Section 12.3 Notices .............................................. 38
-------
Section 12.4 Counterparts ......................................... 39
------------
Section 12.5 Governing Law ........................................ 39
-------------
Section 12.6 Parties in Interest .................................. 39
-------------------
Section 12.7 Entire Agreement ..................................... 39
----------------
-v-
AFFILIATION AND MERGER AGREEMENT
--------------------------------
Affiliation and Merger Agreement made as of the 18th day of March, 1997
(the "Agreement") by and between FULTON FINANCIAL CORPORATION, a Pennsylvania
business corporation having its administrative headquarters at One Penn Square,
P. O. Box 4887, Lancaster, Pennsylvania 17604 ("FFC"), and THE PEOPLES BANK OF
ELKTON, a Maryland bank having its administrative headquarters at 130 North
Street, Elkton, Maryland 21921 ("PBE")
BACKGROUND:
-----------
FFC is a Pennsylvania bank holding company. PBE is a Maryland bank. FFC
wishes to acquire PBE, and PBE wishes to be acquired by FFC. Subject to the
terms and conditions of this Agreement, the foregoing transaction will be
accomplished by means of a merger (the "Merger") in which (i) FFC will organize
a Maryland bank ("PBE Interim Bank") as a wholly-owned subsidiary of FFC and
cause PBE Interim Bank to become a party to this Agreement, (ii) PBE will be
merged with and into PBE Interim Bank, (iii) PBE Interim Bank will survive the
Merger and operate as a wholly-owned subsidiary of FFC under the name "The
Peoples Bank of Elkton", and (iv) all of the outstanding shares of the common
stock of PBE, par value $10.00 per share ("PBE Common Stock"), will be converted
into shares of the common stock of FFC, par value $2.50 per share ("FFC Common
Stock"). Any reference to PBE after the merger of PBE with and into PBE Interim
Bank shall mean the surviving entity of said merger. In connection with the
execution of this Agreement, the parties are to enter into a Warrant Agreement
in the form of Exhibit A attached hereto (the "Warrant Agreement"), which
---------
provides for the delivery by PBE of a warrant in the form of Exhibit B attached
---------
hereto (the "Warrant") entitling FFC to purchase shares of the PBE Common Stock
in certain circumstances.
WITNESSETH:
-----------
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and intending to be legally bound, the parties hereby agree as follows:
ARTICLE I
PLAN OF MERGER
--------------
Section 1.1 Plan of Merger. Subject to the terms and conditions of this
--------------
Agreement, PBE shall merge with and into PBE Interim Bank in accordance with the
Plan of Merger substantially in the form of Exhibit C attached hereto.
---------
ARTICLE II
CONVERSION OF SHARES AND EXCHANGE OF STOCK CERTIFICATES
-------------------------------------------------------
Section 2.1 Conversion of Shares. On the Effective Date (as defined in
--------------------
Section 10.2 herein) the shares of PBE Common Stock then outstanding shall be
converted into shares of FFC Common Stock, as follows:
(a) General: Subject to the provisions of Sections 2.1(b) and
-------
2.1(c) herein, each share of PBE Common Stock issued and outstanding immediately
before the Effective Date shall, on the Effective Date, be converted into and
become, without any action on the part of the holder thereof, 3.78 (such number,
as it may be adjusted under Section 2.1(b) herein, the "Conversion Ratio")
shares of FFC Common Stock and the corresponding number of rights associated
with the Rights Agreement, dated June 20, 1989, between FFC and Fulton Bank.
(b) Antidilution Provision: In the event that FFC shall at any
----------------------
time before the Effective Date increase or decrease the number of outstanding
shares of FFC Common Stock as a result of a: (i) stock split; (ii) stock
dividend; (iii) reverse stock split; (iv) reclassification; (v)
recapitalization; (vi) exchange of shares; or (vii) similar change in its
capital account, then the Conversion Ratio shall be proportionately adjusted
(calculated to three decimal places), so that each PBE stockholder shall receive
on the Effective Date, in exchange for his shares of PBE Common Stock, the
number of shares of FFC Common Stock as would then have been owned by him if the
Effective Date had occurred before the record date of such event (for example,
if FFC were to declare a ten percent (10%) stock dividend after the date of this
Agreement and if the record date for that stock dividend were to occur before
the Effective Date, the Conversion Ratio would be adjusted from 3.78 shares to
4.158 shares).
(c) No Fractional Shares: No fractional shares of FFC Common
--------------------
Stock shall be issued in connection with the Merger. In lieu of the issuance of
any fractional share to which he would otherwise be entitled, each former
stockholder of PBE shall receive in cash an amount equal to the fair market
value of his fractional interest, which fair market value shall be determined by
multiplying such fraction by the Closing Market Price (as defined in Section
2.1(d) herein).
2
(d) Closing Market Price: For purposes of this Agreement, the
--------------------
Closing Market Price shall be the average of the average of the per share
closing bid prices for FFC Common Stock, rounded up to the nearest $.125, for
the ten (10) trading days immediately preceding the date which is two (2)
business days before the Effective Date, as reported on the National Market
System of the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), the foregoing period of ten (10) trading days being
hereinafter sometimes referred to as the "Price Determination Period." (For
example, if September 30, 1997 were to be the Effective Date, then the Price
Determination Period would be September 15, 16, 17, 18, 19, 22, 23, 24, 25 and
26, 1997.) In the event that NASDAQ shall fail to report a closing bid price for
FFC Common Stock for any trading day during the Price Determination Period, the
closing bid price for that day shall be equal to the average of the closing bid
prices and the average of the closing asked prices as quoted: (i) by F. J.
Morrissey & Company, Inc. and by Ryan, Beck & Co.; or, (ii) in the event that
either or both of these firms are not then making a market in FFC Common Stock,
by two brokerage firms then making a market in FFC Common Stock to be selected
by FFC and approved by PBE.
Section 2.2 Exchange of Stock Certificates. PBE Common Stock certificates
------------------------------
shall be exchanged for FFC Common Stock certificates in accordance with the
following procedures:
(a) Exchange Agent: The transfer agent of FFC, Fulton Bank,
--------------
shall act as exchange agent (the "Exchange Agent") to receive PBE Common Stock
certificates from the holders thereof and to exchange such stock certificates
for FFC Common Stock certificates and (if applicable) to pay cash for fractional
shares of PBE Common Stock pursuant to Section 2.1(c) herein. The Exchange Agent
shall, as soon as practicable but in no event later than five (5) business days,
after the Effective Date, mail to each former stockholder of PBE a notice
specifying the procedures to be followed in surrendering such stockholder's PBE
Common Stock certificates.
(b) Surrender of Certificates: As promptly as possible after
-------------------------
receipt of the Exchange Agent's notice, each former stockholder of PBE shall
surrender his PBE Common Stock certificates to the Exchange Agent; provided,
--------
that if any former stockholder of PBE shall be unable to surrender his PBE
Common Stock certificates due to loss or mutilation thereof, he may make a
constructive surrender by following procedures comparable to those customarily
used by FFC for issuing replacement certificates to FFC stockholders whose FFC
Common Stock certificates have been lost or mutilated. As soon as practicable,
but in no event later than ten (10) business days, following the receipt of a
proper actual or constructive surrender of PBE Common Stock certificates from a
former PBE stockholder, the Exchange Agent shall issue to such stockholder, in
exchange therefor, an FFC Common Stock certificate representing the whole number
of shares of FFC Common Stock into which such stockholder's shares of PBE Common
Stock have been converted in accordance with this Article II, together with
3
a check in the amount of any cash to which such stockholder is entitled,
pursuant to Section 2.1(c) herein, in lieu of the issuance of a fractional
share.
(c) Dividend Withholding: Dividends, if any, payable by FFC
--------------------
after the Effective Date to any former stockholder of PBE who has not prior to
the payment date surrendered his PBE Common Stock certificates may, at the
option of FFC, be withheld. Any dividends so withheld shall be paid, without
interest, to such former stockholder of PBE upon proper surrender of his PBE
Common Stock certificates.
(d) Failure to Surrender Certificates: All PBE Common Stock
---------------------------------
certificates must be surrendered to the Exchange Agent within two (2) years
after the Effective Date. In the event that any former stockholder of PBE shall
not have properly surrendered his PBE Common Stock certificates within two (2)
years after the Effective Date, the shares of FFC Common Stock that would
otherwise have been issued to him may, at the option of FFC, be sold and the net
proceeds of such sale, together with the cash (if any) to which he is entitled
in lieu of the issuance of a fractional share and any previously accrued
dividends, shall be held by the Exchange Agent in a noninterest bearing account
for his benefit. From and after any such sale, the sole right of such former
stockholder of PBE shall be the right to collect such net proceeds, cash and
accumulated dividends. Subject to all applicable laws of escheat, such net
proceeds, cash and accumulated dividends shall be paid to such former
stockholder of PBE, without interest, upon proper surrender of his PBE Common
Stock certificates.
(e) Expenses: All costs and expenses associated with the
--------
foregoing surrender and exchange procedure shall be borne by FFC.
Section 2.3 Reservation of Shares. FFC agrees that (i) prior to the
---------------------
Effective Date it will take appropriate action to reserve a sufficient number of
authorized but unissued shares of FFC Common Stock to be issued in accordance
with this Agreement, and (ii) on the Effective Date, FFC will deposit with the
Exchange Agent, for the benefit of the holders of shares of PBE Common Stock,
for exchange in accordance with this Agreement, certificates representing shares
of FFC Common Stock issuable pursuant to Section 2.1(a) herein and cash for
fractional shares pursuant to Section 2.1(c) herein.
Section 2.4 Taking Necessary Action. FFC and PBE shall take all such
-----------------------
actions as may be reasonably necessary or appropriate in order to effectuate the
transactions contemplated hereby including, without limitation, providing
information necessary for preparation of any filings needed to obtain the
regulatory approvals required to consummate the Merger. In case at any time
after the Effective Date any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest FFC with full title to all
properties, assets, rights, approvals, immunities and franchises of
4
PBE, the officers and directors of PBE, at the expense of FFC, shall take all
such necessary action.
Section 2.5 Press Releases. FFC and PBE agree that all press releases or
--------------
other public communications relating to this Agreement or the transactions
contemplated hereby will require consultation among FFC and PBE, unless counsel
has advised any such party that such release or other public communication must
immediately be issued and the issuing party has not been able, despite its good
faith efforts, to effect such consultation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PBE
-------------------------------------
PBE represents and warrants to FFC, as of the date of this Agreement as
follows:
Section 3.1 Authority. The execution and delivery of this Agreement, the
---------
Warrant Agreement and the Warrant and the performance of the transactions
contemplated herein and therein have been authorized by the Board of Directors
of PBE and, except for the approval of this Agreement by its stockholders, PBE
has taken all corporate action necessary on its part to authorize this
Agreement, the Warrant Agreement and the Warrant and the performance of the
transactions contemplated herein and therein. This Agreement, the Warrant
Agreement and the Warrant have been duly executed and delivered by PBE and,
assuming due authorization, execution and delivery by FFC, constitute valid and
binding obligations of PBE. The execution, delivery and performance of this
Agreement, the Warrant Agreement and the Warrant will not constitute a violation
or breach of or default under (i) the Articles of Incorporation or Bylaws of
PBE, (ii) any statute, rule, regulation, order, decree or directive of any
governmental authority or court applicable to PBE, subject to the receipt of all
required governmental approvals or (iii) any Material. Contract (as such term
is defined in Section 3.12 herein) to which PBE is a party or by which PBE or
any of its properties are bound, subject to PBE obtaining or making any required
notice, consent or approval as set forth on Schedule 3.1..
------------
Section 3.2 Subsidiaries. PBE owns no subsidiaries, directly or
------------
indirectly.
Section 3.3 Organization and Standing. As set forth on Schedule 3.3, PBE
------------------------- ------------
is a bank that is duly organized, validly existing and in good standing under
the laws of the State of Maryland. PBE is an insured bank under the provisions
of the Federal Deposit Insurance Act, as amended (the "FDI Act"), and is not a
member of the Federal Reserve System. PBE has full power and lawful authority to
own and hold its properties and to carry on its business as presently conducted.
5
Section 3.4 Capitalization. The authorized capital of PBE consists
--------------
exclusively of 500,000 shares of PBE Common Stock, of which 230,596 shares are
validly issued, outstanding, fully paid and non-assessable, and no shares are
held as treasury shares. In addition, 45,888 (or approximately 19.9% of the
outstanding) shares of PBE Common Stock will be reserved for issuance upon
exercise of the Warrant. Except for the Warrant, there are and will be no
outstanding obligations, options or rights of any kind entitling other persons
to acquire shares of PBE Common Stock and there are no outstanding securities or
other instruments of any kind that are convertible into shares of PBE Common
Stock.
Section 3.5 Articles of Incorporation, Bylaws and Minute Books. The copies
--------------------------------------------------
of the Articles of Incorporation and Bylaws of PBE that have been delivered to
FFC are true, correct and complete. Except as previously disclosed to FFC in
writing, the minute books of PBE that have been made available to FFC for
inspection are true, correct and complete in all respects and accurately record
the actions taken by the Boards of Directors and stockholders of PBE at the
meetings documented in such minutes.
Section 3.6 Financial Statements. PBE has delivered to FFC the following
--------------------
financial statements: Balance Sheets for PBE at December 31, 1996 and 1995 and
Statements of Income, Statements of Changes in Stockholders' Equity, and
Statements of Cash Flows of PBE for the years ended December 31, 1996 and 1995
certified by Stegman & Company (the aforementioned Balance Sheet as of December
31, 1996 being hereinafter referred to as the "PBE Balance Sheet"). Each of the
foregoing financial statements fairly presents the financial condition, assets
and liabilities, and results of operations of PBE at its respective date and for
the respective periods then ended and has been prepared in accordance with
generally accepted accounting principles consistently applied, except as
otherwise noted in a footnote thereto.
Section 3.7 Absence of Undisclosed Liabilities. Except as disclosed in
----------------------------------
Schedule 3.7, or as reflected, noted or adequately reserved against in the PBE
- ------------
Balance Sheet or disclosed in the Notes thereto, at December 31, 1996, PBE had
no liabilities (whether accrued, absolute, contingent or otherwise) which were
required to be reflected, noted or reserved against in the PBE Balance Sheet
under generally accepted accounting principles or which were in any case or in
the aggregate material. Except as disclosed in Schedule 3.7, PBE has not
------------
incurred, since December 31, 1996, any such liability, other than liabilities of
the same nature as those set forth in the PBE Balance Sheet, all of which have
been reasonably incurred in the Ordinary Course of Business. For purposes of
this Agreement, the term "Ordinary Course of Business" shall mean the ordinary
course of business consistent with PBE's customary business practices.
Section 3.8 Absence of Changes. Since December 31, 1996 to the date
hereof, PBE has conducted its business in the Ordinary Course of Business and,
except as disclosed in Schedule 3.8, PBE has not undergone any changes in its
------------
condition (financial
6
or otherwise), assets, liabilities, business or operations, other than changes
in the Ordinary Course of Business, which have not been, in the aggregate,
materially adverse as to PBE.
Section 3.9 Dividends, Distributions and Stock Purchases. Except as
--------------------------------------------
disclosed in Schedule 3.9, since January 1, 1997 to the date hereof, PBE has not
------------
declared, set aside, made or paid any dividend or other distribution in respect
of the PBE Common Stock, or purchased, issued or sold any shares of PBE Common
Stock.
Section 3.10 Taxes. PBE has filed all federal, state, county, municipal and
-----
foreign tax returns, reports and declarations which are required to be filed by
it as of December 31, 1996. Except as disclosed in Schedule 3.10: (i) PBE has
-------------
paid all taxes, penalties and interest which have become due pursuant thereto or
which became due pursuant to federal, state, county, municipal or foreign tax
laws applicable to the periods covered by the foregoing tax returns, (ii) PBE
has received no notice of deficiency or assessment of additional taxes, and no
tax audits are in process; and (iii) the Internal Revenue Service (the "IRS")
has not commenced or given notice of an intention to commence any examination or
audit of the federal income tax returns of PBE for any year through and
including the year ended December 31, 1995. Except as disclosed in Schedule
--------
3.10, PBE has not granted any waiver of any statute of limitations or otherwise
- ----
agreed to any extension of a period for the assessment of any federal, state,
county, municipal or foreign income tax. Except as disclosed in Schedule 3.10,
-------------
the accruals and reserves reflected in the PBE Balance Sheet are adequate to
cover all taxes (including interest and penalties, if any, thereon) that are
payable or accrued as a result of PBE's operations for all periods prior to the
date of such Balance Sheet.
Section 3.11 Title to and Condition of Assets. Except as disclosed in
--------------------------------
Schedule 3.11, PBE has good and marketable title to all material real and
- -------------
personal properties and assets reflected in the PBE Balance Sheet or acquired
subsequent to December 31, 1996 (other than property and assets disposed of in
the Ordinary Course of Business), free and clear of all liens or encumbrances of
any kind whatsoever; provided, however, that the representations and warranties
-------- -------
contained in this sentence do not cover liens or encumbrances that: (i) are
reflected in the PBE Balance Sheet or in Schedule 3.11; (ii) represent liens of
-------------
current taxes and special assessments not yet due or which, if due, may be paid
without penalty, or which are being contested in good faith by appropriate
proceedings; and (iii) represent such imperfections of title, liens,
encumbrances, zoning requirements and easements, if any, as are not substantial
in character, amount or extent and do not materially detract from the value, or
interfere with the present use, of the properties and assets subject thereto.
The material structures and other improvements to real estate, furniture,
fixtures and equipment reflected in the PBE Balance Sheet or acquired subsequent
to December 31, 1996: (A) are in good operating condition and repair (ordinary
wear and tear excepted), and (B) comply in all material respects with all
applicable laws, ordinances and regulations, including without limitation
7
all building codes, zoning ordinances and other similar laws, except where any
noncompliance would not materially detract from the value, or interfere with the
present use, of such structures, improvements, furniture, fixtures and
equipment. PBE owns or has the right to use all real and personal properties
and assets that are material to the conduct of its business as presently
conducted.
Section 3.12 Contracts. Each written or oral contract entered into by PBE
---------
(other than contracts with customers reasonably entered into by PBE in the
Ordinary Course of Business) which involves aggregate payments or receipts in
excess of $50,000 per year, including without limitation every employment
contract, employee benefit plan, agreement, lease, license, indenture, mortgage
and other commitment (other than commitments to make loans) to which PBE is a
party or by which PBE or any of its properties may be bound (collectively
referred to herein as "Material Contracts") is identified in Schedule 3.12.
-------------
Except as disclosed in Schedule 3.12, all Material Contracts are valid and in
-------------
full force and effect, and all parties thereto (to PBE's knowledge in the case
of third parties to such Material Contracts) have in all material respects
performed all obligations required to be performed by them to date and are not
in default in any material respect. Schedule 3.12 identifies all Material
-------------
Contracts which require the consent or approval of third parties to the
execution and delivery of this Agreement or to the consummation of the
transactions contemplated herein.
Section 3.13 Litigation and Governmental Directives. Except as disclosed in
--------------------------------------
Schedule 3.13, (i) there is no litigation, investigation or proceeding pending,
- -------------
or to the knowledge of PBE threatened, that involves PBE, or any of its
properties and that, if determined adversely, would materially and adversely
affect the condition (financial or otherwise), assets, liabilities, business,
operations or future prospects of PBE; (ii) there are no outstanding orders,
writs, injunctions, judgments, decrees, regulations, directives, consent
agreements or memoranda of understanding issued by any federal, state or local
court or governmental authority or arbitration tribunal issued against or with
the consent of PBE that materially and adversely affect the condition (financial
or otherwise), assets, liabilities, business, operations or future prospects of
PBE, or that in any manner restrict the right of PBE to carry on its business as
presently conducted taken as a whole; and (iii) the executive officers of PBE
are not aware of any fact or condition presently existing that might give rise
to any litigation, investigation or proceeding which, if determined adversely to
PBE, would materially and adversely affect the condition (financial or
otherwise), assets, liabilities, business, operations or future prospects of PBE
or would restrict in any manner the right of PBE to carry on its business as
presently conducted. All litigation (except for bankruptcy proceedings in which
PBE has filed proofs of claim) in which PBE is involved as a plaintiff (other
than routine collection and foreclosure suits initiated in the Ordinary Course
of Business in which the amount sought to be recovered is less than $25,000) is
identified in Schedule 3.13. For the purposes of this Agreement, references to
-------------
the future prospects of a party shall be
8
deemed to refer to the prospects of such party assuming its business is carried
out in the future in a manner consistent with past practices.
Section 3.14 Compliance with Laws; Governmental Authorizations. Except as
-------------------------------------------------
disclosed in Schedule 3.14 or where noncompliance would not have a material and
-------------
adverse effect upon the condition (financial or otherwise), assets, liabilities,
business, operations or future prospects of PBE: (i) to the knowledge of PBE,
PBE is in compliance with all statutes, laws, ordinances, rules, regulations,
judgments, orders, decrees, directives, consent agreements, memoranda of
understanding, permits, concessions, grants, franchises, licenses, and other
governmental authorizations or approvals applicable to PBE or to any of its
properties; and (ii) all permits, concessions, grants, franchises, licenses and
other governmental authorizations and approvals necessary for the conduct of the
business of PBE as presently conducted have been duly obtained and are in full
force and effect, and there are no proceedings pending or, to the knowledge of
PBE, threatened which may result in the revocation, cancellation, suspension or
materially adverse modification of any thereof.
Section 3.15 Insurance. As of the date hereof, all policies of insurance
---------
relating to PBE's operations (except for title insurance policies), including
without limitation all financial institutions bonds, held by or on behalf of PBE
is listed in Schedule 3.15. All such policies of insurance are in full force
-------------
and effect, and, as of the date hereof, no notices of cancellation have been
received in connection therewith.
Section 3.16 Financial Institutions Bonds. Since January, 1990, PBE has
----------------------------
continuously maintained in full force and effect one or more financial
institutions bonds listed in Schedule 3.16 insuring PBE against acts of
-------------
dishonesty by each of its employees. As of the date hereof, no claim has been
made under any such bond and PBE is not aware of any fact or condition presently
existing which might form the basis of a claim under any such bond. PBE has no
reason to believe that its present financial institutions bond or bonds will not
be renewed by its carrier on substantially the same terms as those now in
effect.
Section 3.17 Labor Relations and Employment Agreements. PBE is not a party
-----------------------------------------
to or bound by any collective bargaining agreement. PBE enjoys a good working
relationship with its employees, and there are no labor disputes pending, or to
the knowledge of PBE threatened, that might materially and adversely affect the
condition (financial or otherwise), assets, liabilities, business or operations
of PBE. Except as disclosed in Schedule 3.17, PBE has no employment contract,
-------------
severance agreement, deferred compensation agreement, consulting agreement or
similar obligation (an "Employment Obligation") with any director, officer,
employee, agent or consultant, and all such persons are serving at the will and
pleasure of PBE. Except as disclosed in Schedule 3.17, as of the Effective Date
-------------
(as defined in Section 10.2 herein), PBE will not
9
have any liability for employee termination rights arising out of any Employment
Obligation.
Section 3.18 Employee Benefit Plans. All employee benefit plans, contracts
----------------------
or arrangements to which PBE is a party or by which PBE is bound, including
without limitation all pension, retirement, deferred compensation, incentive,
bonus, profit sharing, stock purchase, stock option, life insurance, death or
survivor's benefit, health insurance, sickness, disability, medical, surgical,
hospital, severance, layoff or vacation plans, contracts or arrangements, are
identified in Schedule 3.18. PBE's retirement savings plan, a contributory
-------------
defined contribution plan (the "PBE 401(k) Plan"), is exempt from tax under
Sections 401 and 501 of the Internal Revenue Code of 1986, as amended (the
"Code"), and has been maintained and operated in material compliance with all
applicable provisions of the Code and the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Except as disclosed in Schedule 3.18, no
-------------
"prohibited transaction" (as such term is defined in the Code or in ERISA) has
occurred in respect of the PBE 401(k) Plan or any other employee benefit plan,
including, without limitation, PBE's nonqualified deferred compensation plan,
nonqualified salary continuation agreement and severance pay plan (all "employee
benefit pension plans" and all "employee welfare benefit plans", as those terms
are defined in ERISA, of PBE being collectively referred to herein as "PBE
Benefit Plans" and individually as a "PBE Benefit Plan"), to which PBE is a
party or by which PBE is bound. There have been no material breaches of
fiduciary duty by any fiduciary under or with respect to the PBE 401(k) Plan or
any other PBE Benefit Plan, and no claim is pending or, to the knowledge of PBE,
threatened with respect to any PBE Benefit Plan other than claims for benefits
made in the Ordinary Course of Business. PBE has not incurred any material
liability for any tax imposed by Section 4975 of the Code or for any penalty
imposed by the Code or by ERISA with respect to the PBE 401(k) Plan or any other
PBE Benefit Plan. There has not been any audit of any PBE Benefit Plan by the
Department of Labor, the IRS or the PBGC since January 1, 1990.
Section 3.19 Related Party Transactions. Except as disclosed in Schedule
-------------------------- --------
3.19, PBE has no contract, extension of credit, business arrangement or other
- ----
relationship of any kind with any of the following persons: (i) any executive
officer or director (including any person who has served in such capacity since
January 1, 1995) of PBE; (ii) any stockholder owning five percent (5%) or more
of the outstanding PBE Common Stock; and (iii) any "associate" (as defined in
Rule 405 of the SEC) of the foregoing persons or any business in which any of
the foregoing persons is an officer, director, employee or five percent (5%) or
greater equity owner. Each such contract or extension of credit disclosed in
Schedule 3.19, except as otherwise specifically described therein, has been made
- -------------
in the Ordinary Course of Business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
arms' length transactions with other persons that do not involve more than a
normal risk of collectability or present other unfavorable features.
10
Section 3.20 No Finder. Except as disclosed in Schedule 3.20, PBE has not
--------- -------------
paid or become obligated to pay any fee or commission of any kind whatsoever to
any broker, finder, advisor or other intermediary for, on account of or in
connection with the transactions contemplated in this Agreement.
Section 3.21 Complete and Accurate Disclosure. Neither this Agreement
--------------------------------
(insofar as it relates to PBE, PBE Common Stock and the involvement of PBE in
the transactions contemplated hereby) nor any financial statement, schedule
(including without limitation its Schedules to this Agreement), certificate, or
other statement or document delivered by PBE to FFC in connection herewith
contains any statement which, at the time and in light of the circumstances
under which it is made, is false or misleading with respect to any material fact
or omits to state any material fact necessary to make the statements contained
herein or therein not false or misleading. In particular, without limiting the
generality of the foregoing sentence, the information provided and the
representations made by PBE to FFC in connection with the Registration Statement
(as defined in Section 6.1(b) herein), both at the time such information and
representations are provided and made and at the time of the effectiveness of
the Registration Statement, will be true and accurate in all material respects
and will not contain any false or misleading statement with respect to any
material fact or omit to state any material fact required to be stated therein
or necessary in order (i) to make the statements made therein not false or
misleading, or (ii) to correct any statement contained in an earlier
communication with respect to such information or representations which has
become false or misleading.
Section 3.22 Environmental Matters. Except as disclosed in Schedule 3.22,
--------------------- -------------
PBE has no knowledge that any environmental contaminant, pollutant, toxic or
hazardous waste or other similar substance has been generated, used, stored,
processed, disposed of or discharged onto any of the real estate now or
previously owned or acquired (including without limitation any real estate
acquired by means of foreclosure or exercise of any other creditor's right) or
leased by PBE. In particular, without limiting the generality of the foregoing
sentence, except as disclosed in Schedule 3.22, PBE has no knowledge that: (i)
-------------
any materials containing asbestos have been used or incorporated in any building
or other structure or improvement located on any of the real estate now or
previously owned or acquired (including without limitation any real estate
acquired by means of foreclosure or exercise of any other creditor's right) or
leased by PBE; (ii) any electrical transformers, fluorescent light fixtures with
ballasts or other equipment containing PCB's are or have been located on any of
the real estate now or previously owned or acquired (including without
limitation any real estate acquired by means of foreclosure or exercise of any
other creditor's right) or leased by PBE; or (iii) any underground storage tanks
for the storage of gasoline, petroleum products or other toxic or hazardous
wastes or similar substances are or have ever been located on any of the real
estate now or previously owned or acquired (including without limitation any
real
11
estate acquired by means of foreclosure or exercise of any other creditor's
right) or leased by PBE.
Section 3.23 Proxy Statement/Prospectus. At the time the Proxy Statement/
--------------------------
Prospectus (as defined in Section 6.1(b) herein) is mailed to the stockholders
of PBE and at all times subsequent to such mailing, up to and including the
Effective Date, the Proxy Statement/Prospectus (including any pre- and post-
effective amendments and supplements thereto), with respect to all information
relating to PBE, PBE Common Stock and all actions taken and statements made by
PBE in connection with the transactions contemplated herein (except for
information provided by FFC to PBE) will: (i) comply in all material respects
with applicable provisions of the Securities Act of 1933, as amended (the "1933
Act"), and the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
the applicable rules and regulations of the Securities and Exchange Commission
(the "SEC"); and (ii) not contain any statement which, at the time and in light
of the circumstances under which it is made, is false or misleading with respect
to any material fact, or omits to state any material fact that is required to be
stated therein or necessary in order (A) to make the statements therein not
false or misleading, or (B) to correct any statement in an earlier communication
with respect to the Proxy Statement/Prospectus which has become false or
misleading.
Section 3.24 Securities Matters. The PBE Common Stock is traded in the
------------------
over-the-counter market and is not registered with the FDIC under the 1934 Act.
On the date of effectiveness (in the case of any offering circular) or on the
date of mailing (in the case of any proxy statement), no offering circular or
proxy statement contained any untrue statement of a material fact or omitted 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.
Section 3.25 Reports. PBE has filed all material reports, registrations
-------
and statements that are required to be filed with the FDIC, the Maryland State
Bank Commissioner and any other applicable federal, state or local governmental
or regulatory authorities and such reports, registrations and statements
referred to in this Section 3.25 were, as of their respective dates, in
compliance in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the governmental or regulatory authority
with which they were filed; provided, however, that the failure to file any such
report, registration, or statement or the failure of any report, registration or
statement to comply with the applicable regulatory standard shall not be deemed
to be a breach of the foregoing representation unless such failure has or may
have a material adverse impact on PBE. PBE has furnished FFC with, or made
available to FFC, copies of all such filings made in the last three fiscal years
and in the period from January 1, 1996 through the date of this Agreement.
12
Section 3.26 Loan Portfolio of PBE. Attached hereto as Schedule 3.26
--------------------- -------------
is a list of (w) all outstanding commercial relationships, i.e. commercial
loans, commercial loan commitments and commercial letters of credit, of PBE with
an aggregate principal amount in excess of $250,000, (x) all loans of PBE
classified by PBE or any regulatory authority as "Substandard," "Doubtful" or
"Loss," (y) all commercial and mortgage loans of PBE classified as "non-
accrual," and (z) all commercial loans of PBE classified as "in substance
foreclosed."
Section 3.27 Investment Portfolio. Attached hereto as Schedule 3.27 is a
-------------------- -------------
list of all securities held by PBE for investment, showing the principal amount,
book value and market value of each security as of a recent date, and of all
short-term investments held by it as of December 31, 1996. These securities are
free and clear of all liens, pledges and encumbrances, except as shown on
Schedule 3.27.
- -------------
Section 3.28 Regulatory Examinations.
-----------------------
(a) Except as shown on Schedule 3.28, within the past five
-------------
years, except for normal examinations conducted by a regulatory agency in the
regular course of the business of PBE, no regulatory agency has initiated any
proceeding or investigation into the business or operations of PBE. PBE has
received no objection from any regulatory agency to PBE's response to any
violation, criticism or exception with respect to any report or statement
relating to any examinations of PBE which would have a materially adverse effect
on PBE.
(b) PBE will not be required to divest any assets currently
held by it or discontinue any activity currently conducted as a result of the
Federal Deposit Insurance Corporation Improvement Act of 1991, any regulations
promulgated thereunder, or otherwise which would have a materially adverse
effect on PBE.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FFC
-------------------------------------
FFC represents and warrants to PBE, as of the date of this Agreement, as
follows:
Section 4.1 Authority. The execution and delivery of this Agreement and
---------
the consummation of the transactions contemplated herein have been authorized by
the Board of Directors of FFC, and no other corporate action on the part of FFC
is necessary to authorize this Agreement or the consummation by FFC of the
transactions contemplated herein. This Agreement has been duly executed and
delivered by FFC and, assuming due authorization, execution and delivery by PBE,
constitutes a valid and binding obligation of FFC. The execution, delivery and
consummation of this Agreement will not constitute a violation or breach of or
default under (i) the Articles of Incorporation
13
or Bylaws of FFC, (ii) any statute, rule, regulation, order, decree or directive
of any governmental authority or court applicable to FFC, subject to the receipt
of all required government approvals, or (iii) any agreement, contract,
memorandum of understanding, indenture or other instrument to which FFC is a
party or by which FFC or any of its properties are bound.
Section 4.2 Organization and Standing. FFC is a business corporation
-------------------------
that is duly organized, validly existing and in good standing under the laws of
the Commonwealth of Pennsylvania. FFC is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and has full
power and lawful authority to own and hold its properties and to carry on its
present business.
Section 4.3 Capitalization. The authorized capital of FFC consists
--------------
exclusively of 100,000,000 shares of FFC Common Stock and 10,000,000 shares of
preferred stock without par value (the "FFC Preferred Stock"). As of March 13,
1997, there were validly issued, outstanding, fully paid and non-assessable
35,973,617 shares of FFC Common Stock as of the date of this Agreement, and no
shares were held as treasury shares. No shares of FFC Preferred Stock have been
issued as of the date of this Agreement, and FFC has no present intention to
issue any shares of FFC Preferred Stock. As of March 13, 1997, there were no
outstanding obligations, options or rights of any kind entitling other persons
to acquire shares of FFC Common Stock or shares of FFC Preferred Stock and there
were no outstanding securities or other instruments of any kind convertible into
shares of FFC Common Stock or into shares of FFC Preferred Stock, except as
follows: (i) 748,806 shares of FFC Common Stock were issuable upon the exercise
of outstanding stock options granted under the FFC Incentive Stock Option Plan
and the FFC Employee Stock Purchase Plan and (ii) there are outstanding
35,973,617 Rights representing the right under certain circumstances to purchase
shares of FFC Common Stock pursuant to the terms of a Shareholder Rights
Agreement, dated June 20, 1989, entered into between FFC and Fulton Bank and
(iii) shares of FFC Common Stock reserved from time to time for issuance
pursuant to FFC's Employee Stock Purchase and Dividend Reinvestment Plans.
Section 4.4 Articles of Incorporation and Bylaws. The copies of the
------------------------------------
Articles of Incorporation, as amended, and of the Bylaws, as amended, of FFC
that have been delivered to PBE are true, correct and complete.
Section 4.5 Subsidiaries. Schedule 4.5 contains a list of all
------------ ------------
subsidiaries ("Subsidiaries") which FFC owns, directly or indirectly. Except as
otherwise disclosed on Schedule 4.5: (i) FFC owns, directly or indirectly, all
------------
of the outstanding shares of capital stock of each Subsidiary, and (ii) as of
the date of this Agreement: (A) there are no outstanding obligations, options or
rights of any kind entitling persons (other than FFC or any Subsidiary) to
acquire shares of capital stock of any Subsidiary, and (B) there are no
outstanding securities or other instruments of any kind held by persons (other
than
14
FFC or any Subsidiary) that are convertible into shares of capital stock of any
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction pursuant to which it is
incorporated. Each Subsidiary has full power and lawful authority to own and
hold its properties and to carry on its business as presently conducted. Each
Subsidiary which is a banking institution is an insured bank under the
provisions of the FDI Act.
Section 4.6 Financial Statements. FFC has delivered to PBE the following
--------------------
financial statements: Balance Sheets, Statements of Income, Statements of
Stockholders' Equity, and Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994, certified by Arthur Andersen LLP and set forth in the
Annual Report to the stockholders of FFC for the year ended December 31, 1996
(the Balance Sheet as of December 31, 1996 being hereinafter referred to as the
"FFC Balance Sheet"). Each of the foregoing financial statements fairly
presents the consolidated financial position, assets, liabilities and results of
operations of FFC at its respective date and for the respective periods then
ended and has been prepared in accordance with generally accepted accounting
principles consistently applied, except as otherwise noted in a footnote
thereto.
Section 4.7 Absence of Undisclosed Liabilities. Except as disclosed in
----------------------------------
Schedule 4.7 or as reflected, noted or adequately reserved against in the FFC
- ------------
Balance Sheet and disclosed in the Notes thereto, at December 31, 1996 FFC had
no material liabilities (whether accrued, absolute, contingent or otherwise)
which are required to be reflected, noted or reserved against therein under
generally accepted accounting principles or which are in any case or in the
aggregate material. Except as described in Schedule 4.7, since December 31,
------------
1996 FFC has not incurred any such liability other than liabilities of the same
nature as those set forth in the FFC Balance Sheet, all of which have been
reasonably incurred in the ordinary course of business.
Section 4.8 Absence of Changes. Since December 31, 1996, other than the
------------------
acquisition of The Woodstown National Bank & Trust Company effected on February
28, 1997, FFC has conducted its business in the Ordinary Course of Business and
has not undergone any changes in its condition (financial or otherwise), assets,
liabilities, business or operations, other than changes in the Ordinary Course
of Business, which have not been, in the aggregate, materially adverse as to
FFC.
Section 4.9 Litigation and Governmental Directives. Except as disclosed
--------------------------------------
in Schedule 4.9: (i) there is no litigation, investigation or proceeding
------------
pending, or to the knowledge of FFC threatened, that involves FFC or its
properties and that, if determined adversely to FFC, would materially and
adversely affect the condition (financial or otherwise), assets, liabilities,
business, operations or future prospects of FFC; (ii) there are no outstanding
orders, writs, injunctions, judgments, decrees, regulations, directives, consent
agreements or memoranda of understanding issued by any federal, state or
15
local court or governmental authority or of any arbitration tribunal against FFC
which materially and adversely affect the condition (financial or otherwise),
assets, liabilities, business, operations or future prospects of FFC or restrict
in any manner the right of FFC to carry on its business as presently conducted;
and (iii) the executive officers of FFC are not aware of any fact or condition
presently existing that might give rise to any litigation, investigation or
proceeding which, if determined adversely to FFC, would materially and adversely
affect the condition (financial or otherwise), assets, liabilities, business,
operations or future prospects of FFC or restrict in any manner the right of FFC
to carry on its business as presently conducted.
Section 4.10 Compliance with Laws; Governmental Authorizations. Except as
-------------------------------------------------
disclosed in Schedule 4.10 or where noncompliance would not have a material and
-------------
adverse effect upon the condition (financial or otherwise), assets, liabilities,
business, operations or future prospects of FFC: (i) FFC and each of its
Subsidiaries are in compliance with all statutes, laws, ordinances, rules,
regulations, judgments, orders, decrees, directives, consent agreements,
memoranda of understanding, permits, concessions, grants, franchises, licenses,
and other governmental authorizations or approvals applicable to their
respective operations and properties; and (ii) all permits, concessions, grants,
franchises, licenses and other governmental authorizations and approvals
necessary for the conduct of the respective businesses of FFC and each of its
Subsidiaries as presently conducted have been duly obtained and are in full
force and effect, and there are not proceedings pending or, to the knowledge of
FFC, threatened which may result in the revocation, cancellation, suspension or
materially adverse modification of any thereof.
Section 4.11 Complete and Accurate Disclosure. Neither this Agreement
--------------------------------
(insofar as it relates to FFC, FFC Common Stock, and the involvement of FFC in
the transactions contemplated hereby) nor any financial statement, schedule
(including, without limitation, its Schedules to this Agreement), certificate or
other statement or document delivered by FFC to PBE in connection herewith
contains any statement which, at the time and under the circumstances under
which it is made, is false or misleading with respect to any material fact or
omits to state any material fact necessary to make the statements contained
herein or therein not false or misleading. In particular, without limiting the
generality of the foregoing sentence, the information provided and the
representations made by FFC to PBE in connection with the Registration Statement
(as defined in Section 6.1(b)), both at the time such information and
representations are provided and made and at the time of the Closing, will be
true and accurate in all material respects and will not contain any false or
misleading statement with respect to any material fact or omit to state any
material fact required to be stated therein or necessary in order (i) to make
the statements made not false or misleading, or (ii) to correct any statement
contained in an earlier communication with respect to such information or
representations which has become false or misleading.
16
Section 4.12 Labor Relations. Neither FFC nor any of its Subsidiaries is
---------------
a party to or bound by any collective bargaining agreement. FFC and each of its
Subsidiaries enjoy good working relationships with their employees, and there
are no labor disputes pending, or to the knowledge of FFC or any Subsidiary
threatened, that might materially and adversely affect the condition (financial
or otherwise), assets, liabilities, business or operations of FFC.
Section 4.13 Employee Benefits Plans. FFC's contributory profit-sharing
-----------------------
plan, defined benefits pension plan and 401(k) plan (hereinafter collectively
referred to as the "FFC Pension Plans") are exempt from tax under Sections 401
and 501 of the Code, have been maintained and operated in compliance with all
applicable provisions of the Code and ERISA, are not subject to any accumulated
funding deficiency within the meaning of ERISA and the regulations promulgated
thereunder, and do not have any outstanding liability to the PBGC. No
"prohibited transaction" or "reportable event" (as such terms are defined in the
Code or ERISA) has occurred with respect to the FFC Pension Plans or any other
FFC employee benefit plan (each hereinafter called an "FFC Benefit Plan").
There have been no breaches of fiduciary duty by any fiduciary under or with
respect to the FFC Pension Plans or any other FFC Benefit Plan. FFC has not
incurred any liability for any tax imposed by Section 4975 of the Code or for
any penalty imposed by the Code or by ERISA with respect to the FFC Pension
Plans or any other FFC Benefit Plan.
Section 4.14 Environmental Matters. Except as disclosed in Schedule 4.14
--------------------- -------------
or as reflected, noted or adequately reserved against in the FFC Balance Sheet,
FFC has no knowledge of any material liability relating to any environmental
contaminant, pollutant, toxic or hazardous waste or other similar substance that
has been used, generated, stored, processed, disposed of or discharged onto any
of the real estate now or previously owned or acquired (including without
limitation real estate acquired by means of foreclosure or other exercise of any
creditor's right) or leased by FFC and which is required to be reflected, noted
or adequately reserved against in FFC's consolidated financial statements under
generally accepted accounting principles.
Section 4.15 SEC Filings. No registration statement, offering circular,
-----------
proxy statement, schedule or report filed and not withdrawn, since December 31,
1991, by FFC with the SEC under the 1933 Act or the 1934 Act, on the date of
effectiveness (in the case of any registration statement or offering circular)
or on the date of filing (in the case of any report or schedule) or on the date
of mailing (in the case of any proxy statement), contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.16 Proxy Statement/Prospectus. At the time the Proxy Statement/
--------------------------
Prospectus (as defined in Section 6.1(b)) is mailed to the stockholders of PBE
and at all
17
times subsequent to such mailing, up to and including the Effective Date, the
Proxy Statement/Prospectus (including any pre- and post-effective amendments and
supplements thereto), with respect to all information relating to FFC, the FFC
Common Stock, and actions taken and statements made by FFC in connection with
the transactions contemplated herein (other than information provided by PBE to
FFC), will: (i) comply in all material respects with applicable provisions of
the 1933 Act and 1934 Act and the applicable rules and regulations of the SEC
thereunder; and (ii) not contain any statement which, at the time and in light
of the circumstances under which it is made, is false or misleading with respect
to any material fact, or omits to state any material fact that is required to be
stated therein or necessary in order (A) to make the statements therein not
false or misleading, or (B) to correct any statement in an earlier communication
with respect to the Proxy Statement/Prospectus which has become false or
misleading.
Section 4.17 Accounting Treatment. To the best of FFC's knowledge after
--------------------
reasonable investigation and consultation with its advisors, and subject to any
factors beyond FFC's control, the Merger will qualify for pooling-of-interests
accounting treatment.
Section 4.18 Regulatory Approvals. FFC is not aware of any reason why
--------------------
any of the required regulatory approvals to be obtained in connection with the
Merger should not be granted by such regulatory authorities or why such
regulatory approvals should be conditioned on any requirement which would be a
significant impediment to FFC's ability to carry on its business.
ARTICLE V
COVENANTS OF PBE
----------------
From the date of this Agreement until the Effective Date, PBE covenants and
agrees to do the following:
Section 5.1 Conduct of Business. Except as otherwise consented to by FFC
-------------------
in writing, which consent will not be unreasonably withheld, PBE shall: (i) use
all reasonable efforts to carry on its business in, and only in, the Ordinary
Course of Business; (ii) to the extent consistent with prudent business
judgment, use all reasonable efforts to preserve its present business
organization, to retain the services of its present officers and employees, and
to maintain its relationships with customers, suppliers and others having
business dealings with PBE; (iii) maintain all of its structures, equipment and
other real property and tangible personal property in good repair, order and
condition, except for ordinary wear and tear and damage by unavoidable casualty;
(iv) use all reasonable efforts to preserve or collect all material claims and
causes of action belonging to PBE; (v) keep in full force and effect all
insurance policies now carried by
18
PBE; (vi) perform in all material respects each of its obligations under all
Material Contracts (as defined in Section 3.12 herein) to which PBE is a party
or by which PBE may be bound or which relate to or affect its properties, assets
and business; (vii) maintain its books of account and other records in the
Ordinary Course of Business; (viii) comply in all material respects with all
statutes, laws, ordinances, rules and regulations, decrees, orders, consent
agreements, memoranda of understanding and other federal, state, and local
governmental directives applicable to PBE and to the conduct of its business;
(ix) not amend PBE's Articles of Incorporation or Bylaws; (x) not enter into or
assume any Material Contract, incur any material liability or obligation, or
make any material commitment, except in the Ordinary Course of Business; (xi)
not make any material acquisition or disposition of any properties or assets or
subject any of its properties or assets to any material lien, claim, charge, or
encumbrance of any kind whatsoever; (xii) not knowingly take or permit to be
taken any action which would cause any representation or warranty to be
materially inaccurate as of the date of such action or constitute a material
breach of any covenant set forth in this Agreement; (xiii) except as permitted
in Section 5.11 herein, not declare, set aside or pay any dividend or make any
other distribution in respect of PBE Common Stock; (xiv) not authorize,
purchase, redeem, issue or sell (or grant options or rights to purchase or sell)
any shares of PBE Common Stock or any other equity or debt securities of PBE
other than the Warrant; (xv) not increase the rate of compensation of, pay a
bonus or severance compensation to, establish or amend any PBE Benefit Plan
except as required by law (as defined in Section 3.18 herein) for, or enter into
or amend any Employment Obligation (as defined in Section 3.17 herein) with, any
officer, director, employee or consultant of PBE, except that PBE may grant
reasonable salary increases and bonuses to its officers and employees in the
Ordinary Course of Business to the extent consistent with its past practice;
(xvi) not enter into any related party transaction of the kind contemplated in
Section 3.19 herein except in the Ordinary Course of Business consistent with
past practice (as disclosed on Schedule 3.19); (xvii) in determining the
additions to loan loss reserves and the loan write-offs, writedowns and other
adjustments that reasonably should be made by PBE during the fiscal year ending
December 31, 1997, PBE shall consult with FFC and shall act in accordance with
generally accepted accounting principles and PBE's customary business practices;
(xviii) file with appropriate federal, state, local and other governmental
agencies all tax returns and other material reports required to be filed, pay in
full or make adequate provisions for the payment of all taxes, interest,
penalties, assessments or deficiencies shown to be due on tax returns or by any
taxing authorities and report all information on such returns truthfully,
accurately and completely; (xix) not renew any existing contract for services,
goods, equipment or the like or enter into, amend in any material respect or
terminate any contract or agreement (including without limitation any settlement
agreement with respect to litigation) that is or may reasonably be expected to
have a material adverse effect on PBE except in the Ordinary Course of Business
consistent with past practice (provided that FFC shall not unreasonably withhold
its consent to such transactions); (xx) not make any capital expenditures other
than in the Ordinary Course of Business or as necessary to maintain
19
existing assets in good repair; (xxi) not make application for the opening or
closing of any, or open or close any, branches or automated banking
facility,except with respect to the establishment of an automated banking
facility at Union Hospital; (xxii) not make any equity investment or commitment
to make such an investment in real estate or in any real estate development
project, other than in connection with foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructuring in the Ordinary Course of
Business consistent with customary banking practice; (xxiii) not make purchases
of securities for its investment portfolio without prior consultation with FFC;
(xxiv) not extend or amend PBE's lease relating to its "Crossroads Shopping
Center" branch office (the "Crossroads Branch Lease") without FFC's prior
written consent; or (xxv) not take any other action similar to the foregoing
which would have the effect of frustrating the purposes of this Agreement or the
Merger or cause the Merger not to qualify for pooling-of-interests accounting
treatment or as a tax-free reorganization under Section 368 of the Code.
Section 5.2 Best Efforts. PBE shall cooperate with FFC and shall use its
------------
best efforts to do or cause to be done all things necessary or appropriate on
its part in order to fulfill the conditions precedent set forth in Article VII
of this Agreement and to consummate this Agreement. In particular, without
limiting the generality of the foregoing sentence, PBE shall: (i) cooperate
with FFC in the preparation of all required applications for regulatory approval
of the transactions contemplated by this Agreement and in the preparation of the
Registration Statement (as defined in Section 6.1(b)); (ii) call a meeting of
its stockholders and take, in good faith, all actions which are necessary or
appropriate on its part in order to secure the approval of this Agreement by its
stockholders at that meeting; and (iii) cooperate with FFC in making PBE's
employees reasonably available for training by FFC at PBE's facilities prior to
the Effective Date, to the extent that such training is deemed reasonably
necessary by FFC to ensure that PBE's facilities will be properly operated in
accordance with FFC's policies after the Merger.
Section 5.3 Access to Properties and Records. PBE shall give to FFC and
--------------------------------
its authorized employees and representatives (including without limitation its
counsel, accountants, economic and environmental consultants and other
designated representatives) such access during normal business hours to all
properties, books, contracts, documents and records of PBE as FFC may reasonably
request (other than information with respect to the deliberations of PBE
concerning this Agreement, the Merger and the transactions contemplated hereby),
subject to the obligation of FFC and its authorized employees and
representatives to maintain the confidentiality of all nonpublic information
concerning PBE obtained by reason of such access and subject to applicable law.
Section 5.4 Subsequent Financial Statements. Between the date of signing
-------------------------------
of this Agreement and the Effective Date, PBE shall promptly prepare and deliver
to FFC
20
as soon as practicable all internal monthly and quarterly financial statements,
all quarterly and annual reports to stockholders and all reports to regulatory
authorities prepared by or for PBE (which additional financial statements and
reports are hereinafter collectively referred to as the "Additional PBE
Financial Statements"). The representations and warranties set forth in
Sections 3.6, 3.7 and 3.8 shall apply to the Additional PBE Financial
Statements.
Section 5.5 Update Schedules. PBE shall promptly disclose to FFC in
----------------
writing any change, addition, deletion or other modification to the information
set forth in its Schedules hereto; provided, however, that any such updates to
-------- -------
the Schedules shall only be required on a monthly basis except with respect to
matters which represent material changes to the Schedules.
Section 5.6 Notice. PBE shall promptly notify FFC in writing of any
------
material actions, claims, investigations, proceedings or other developments
which, if pending or in existence on the date of this Agreement, would have been
required to be disclosed to FFC in order to ensure the accuracy of the
representations and warranties set forth in this Agreement or which otherwise
could materially and adversely affect the condition (financial or otherwise),
assets, liabilities business operations or future prospects of PBE or restrict
in any manner its ability to carry on its business as presently conducted.
Section 5.7 Other Proposals. PBE shall not, nor shall it permit any of
---------------
its officers, directors, employees, agents, consultants or other representatives
to: (i) solicit, initiate or encourage any proposal for a merger or other
acquisition of PBE, or any material portion of its properties or assets, with or
by any person other than FFC, or (ii) cooperate with, or furnish any nonpublic
information concerning PBE to, any person in connection with such a proposal (an
"Acquisition Proposal"); provided, however, that the obligations of PBE and its
directors and other representatives under this Section 5.7 are subject to the
limitation that the Board of Directors shall be free to take such action as the
Board of Directors determines, in good faith and after consultation with outside
counsel, that is not legally inconsistent with its fiduciary duty. PBE will
notify FFC immediately if any discussions or negotiations are sought to be
initiated, any inquiry or proposal is made, or any such information is
requested, with respect to an Acquisition Proposal or potential Acquisition
Proposal or if any Acquisition Proposal is received or indicated to be
forthcoming.
Section 5.8 Affiliate Letters. PBE shall deliver or cause to be
-----------------
delivered to FFC, at or before the Closing, a letter from each of the executive
officers and directors of PBE (and shall use its best efforts to obtain and
deliver such a letter from each stockholder of PBE) who may be deemed to be an
"affiliate" (as that term is defined for purposes of Rules 145 and 405
promulgated by the SEC under the 1933 Act) of PBE, in form and substance
satisfactory to FFC, under the terms of which each such officer, director or
stockholder acknowledges and agrees to abide by all limitations imposed by the
1933
21
Act and by all rules, regulations and releases promulgated thereunder by the SEC
with respect to the sale or other disposition of the shares of FFC Common Stock
to be received by such person pursuant to this Agreement.
Section 5.9 No Purchases or Sales of FFC Common Stock During Price
------------------------------------------------------
Determination Period. PBE shall not, and shall use its best efforts to ensure
- --------------------
that its executive officers and directors do not, and shall use its best efforts
to ensure that each stockholder of PBE who may be deemed an "affiliate" (as
defined in SEC Rules 145 and 405) of PBE does not, purchase or sell on NASDAQ,
or submit a bid to purchase or an offer to sell on NASDAQ, directly or
indirectly, any shares of FFC Common Stock or any options, rights or other
securities convertible into shares of FFC Common Stock during the Price
Determination Period.
Section 5.10 Accounting Treatment. PBE acknowledges that FFC presently
--------------------
intends to treat the business combination contemplated by this Agreement as a
"pooling-of-interests" for financial reporting purposes. PBE shall not take
(and shall use sits best efforts not to permit any of the directors, officers,
employees, stockholders, agents, consultants or other representatives of PBE to
take) any action that would preclude FFC from treating such business combination
as a "pooling-of-interests" for financial reporting purposes.
Section 5.11 Dividends. PBE shall not declare or pay a cash dividend on
---------
the PBE Common Stock; provided, however, that PBE may declare and pay a dividend
of up to $.90 per share of PBE Common Stock on each of (i) June 15, 1997; (ii)
September 15, 1997, provided that the Effective Date does not occur (or is not
expected to occur) on or before the record date for the dividend on the FFC
Common Stock scheduled to be paid on October 15, 1997; and (iii) December 15,
1997, provided that the Effective Date does not occur (or is not expected to
occur) on or before the record date for the dividend on the FFC Common Stock
scheduled to be paid on January 15, 1998, provided further if the customary
payment date for the next regular cash dividend payable after the Effective Date
on the FFC Common Stock which is eligible to be received by the former holders
of PBE is more than ninety (90) days after the payment date of the last regular
cash dividend paid or to be paid on the PBE Common Stock prior to the Effective
Date (such number of days over ninety (90) days being the "Dividend Lag
Period"), then PBE may declare and set aside immediately prior to the Effective
Date, and may pay at a date it may select in its discretion, a special pro-rata
dividend (the "Special Pro-Rata Dividend") pursuant hereto (any such Special
Pro-Rata Dividend shall be payable in cash, and shall not exceed an amount per
share which is the product of (i) the amount of the dividend permitted to be
paid by PBE pursuant to this paragraph, times (ii) a fraction, the numerator of
which the Dividend Lag Period and the denominator of which is ninety (90) days).
Thus, for example, if the Merger is to consummated on August 1, 1997 and the
dividend payment dates of PBE and FFC are October 15, 1997 and November 15,
1997, respectively, the Dividend Lag Period would be 31 days and thus
22
PBE would be entitled to declare and pay, immediately prior to the Effective
Date, a Special Pro-Rata Dividend of $.31 per share (its regular quarterly
dividend ($.90) multiplied by .344 (31 days/90 days)).
Section 5.12 Employment Obligations. Prior to the Effective Date, without
----------------------
the prior written consent of FFC, PBE shall not modify the terms of the
Employment Obligations (as defined in Section 3.17) and PBE shall not create any
new Employment Obligation.
ARTICLE VI
COVENANTS OF FFC
----------------
From the date of this Agreement until the Effective Date, or until such later
date as may be expressly stipulated in any Section of this Article VI, FFC
covenants and agrees to do the following:
Section 6.1 Best Efforts. FFC shall cooperate with PBE and shall use its
------------
best efforts to do or cause to be done all things necessary or appropriate on
its part in order to fulfill the conditions precedent set forth in Article VII
of this Agreement and to consummate this Agreement. In particular, without
limiting the generality of the foregoing sentence, FFC agrees to do the
following:
(a) Applications for Regulatory Approval: FFC shall promptly prepare
------------------------------------
and file within forty-five (45) days of the date hereof (subject to the timely
cooperation by PBE and its counsel in connection with such applications), with
the cooperation and assistance of (and after review by) PBE and its counsel and
accountants, all required applications for regulatory approval of the
transactions contemplated by this Agreement, including without limitation an
application for approval under the BHC Act, the FDI Act and the Maryland
Financial Institutions Code, as required;
(b) Registration Statement: FFC shall promptly prepare, with the
----------------------
cooperation and assistance of (and after review by) PBE and its counsel and
accountants, and file with the SEC a registration statement (the "Registration
Statement") and a proxy statement and prospectus which is prepared as a part
thereof (the "Proxy Statement/Prospectus") for the purpose of registering the
shares of FFC Common Stock to be issued to stockholders of PBE, and the
soliciting of the proxies of PBE's stockholders in favor of the Merger, under
the provisions of this Agreement. FFC may rely upon all information provided to
it by PBE in this connection and FFC shall not be liable for any untrue
statement of a material fact or any omission to state a material fact in the
Registration Statement, or in the Proxy Statement/Prospectus, if such statement
is made by FFC in reliance upon any information provided to FFC by PBE or by any
of
23
its officers, agents or representatives. PBE shall not be liable for any untrue
statement of material fact or any omission to state a material fact in the
Registration Statement or the Proxy Statement/Prospectus if such statement is
made by PBE in reliance upon any information provided to PBE by FFC or by any of
its officers, agents or representatives;
(c) State Securities Laws: FFC, with the cooperation and
---------------------
assistance of PBE and its counsel and accountants, shall promptly take all such
actions as may be necessary or appropriate in order to comply with all
applicable securities laws of any state having jurisdiction over the
transactions contemplated by this Agreement;
(d) Stock Listing: FFC shall promptly take all such actions
-------------
as may be necessary or appropriate in order to list the shares of FFC Common
Stock to be issued in the Merger on NASDAQ;
(e) PBE Interim Bank. FFC shall organize PBE Interim Bank,
----------------
cause PBE Interim Bank to be a party to this Agreement and approve this
Agreement as Interim's Shareholder; and
(f) Accounting Treatment. FFC shall take no action which would
--------------------
have the effect of causing the Merger not to qualify for pooling-of-interests
accounting treatment or as a tax-free reorganization under Section 368 of the
Code.
Section 6.2 Access to Properties and Records. FFC shall give to PBE and to
--------------------------------
its authorized employees and representatives (including without limitation PBE's
counsel, accountants, economic and environmental consultants and other
designated representatives) such access during normal business hours to all
properties, books, contracts, documents and records of FFC as PBE may reasonably
request (other than information with respect to the deliberations of FFC
concerning this Agreement, the Merger and the transactions contemplated hereby
or any matter referenced by subparagraph (i) of Section 12.2 herein), subject to
the obligation of PBE and its authorized employees and representatives to
maintain the confidentiality of all nonpublic information concerning FFC
obtained by reason of such access.
Section 6.3 Subsequent Financial Statements. Between the date of signing of
-------------------------------
this Agreement and the Effective Date, FFC shall promptly prepare and deliver to
PBE as soon as practicable each Quarterly Report to FFC's stockholders and any
Annual Report to FFC's stockholders normally prepared by FFC. The
representations and warranties set forth in Sections 4.5, 4.6 and 4.7 herein
shall apply to the financial statements (hereinafter collectively referred to as
the "Additional FFC Financial Statements") set forth in the foregoing Quarterly
Reports and any Annual Report to FFC's stockholders.
24
Section 6.4 Update Schedules. FFC shall promptly disclose to PBE in writing
----------------
any change, addition, deletion or other modification to the information set
forth in its Schedules to this Agreement; provided, however, that any such
-------- -------
updates to the Schedules shall only be required on a monthly basis except with
respect to matters which represent material changes to the Schedules.
Section 6.5 Notice. FFC shall promptly notify PBE in writing of any actions,
------
claims, investigations or other developments which, if pending or in existence
on the date of this Agreement, would have been required to be disclosed to PBE
in order to ensure the accuracy of the representations and warranties set forth
in this Agreement or which otherwise could materially and adversely affect the
condition (financial or otherwise), assets, liabilities, business, operations or
future prospects of FFC or restrict in any manner the right of FFC to carry on
its business as presently conducted.
Section 6.6 Employment Arrangements.
-----------------------
(a) From and after the Effective Date, FFC shall cause PBE: (i) to
honor each of the Employment Obligations (as defined in Section 3.17 herein),
and (ii) to honor PBE's obligations under the PBE Benefit Plans.
(b) On and after the Effective Date for a period of at least three
(3) years, FFC shall cause PBE to (i) pay compensation to each person who was
employed by PBE as of the Effective Date and who continues to be employed by PBE
on or after the Effective Date, that is at least equal to the aggregate
compensation that such person was receiving from PBE prior to the Effective Date
(unless there is a material change in the duties and responsibilities of such
employee), (ii) provide employee benefits, including under the PBE Benefit
Plans, to each such person who is a full-time employee, on and after the
Effective Date, that are substantially equivalent in the aggregate to the
employee benefits that such person was receiving as a full-time employee from
PBE prior to the Effective Date, and (iii) provide employee benefits to each
such person who is a part-time employee, on or after the Effective Date, that
are the same as the employee benefits that are being received at the applicable
time by part-time employees of other banking Subsidiaries owned by FFC.
Section 6.7 No Purchase or Sales of FFC Common Stock During Price
-----------------------------------------------------
Determination Period. Neither FFC nor any Subsidiary of FFC, nor any executive
- --------------------
officer or director of FFC or any Subsidiary of FFC, nor any shareholder of FFC
who may be deemed to be an "affiliate" (as that term is defined for purposes of
Rules 145 and 405 promulgated by the SEC under the 1933 Act) of FFC, shall
purchase or sell on NASDAQ, or submit a bid to purchase or an offer to sell on
NASDAQ, directly or indirectly, any shares of FFC Common Stock or any options,
rights or other securities convertible into shares of FFC Common Stock during
the Price Determination Period; provided, however, that FFC may purchase shares
-------- -------
of FFC Common Stock in the
25
ordinary course of business during the Price Determination Period pursuant to
FFC's Benefit Plans or FFC's Dividend Reinvestment Plan.
Section 6.8 Continuation of PBE's Structure, Name and Directors.
---------------------------------------------------
(a) For a period of five (5) years after the Effective Date, FFC
shall (subject to the right of FFC and the PBE Continuing Directors to terminate
such obligations under this Section 6.8(a) under subsections (b) and (c) below)
(i) preserve the business structure of PBE as a Maryland bank; (ii) preserve the
present name of PBE; and (iii) continue in office the present directors of PBE
who indicate their desire to serve (the "PBE Continuing Directors"), provided,
--------
that (A) each non-employee PBE Continuing Director shall continue to receive
director's fees from PBE on the same basis as prior to the Merger, i.e. a
quarterly stipend of $1,250 and meeting fees of $100 per Board of Directors
meeting and $50 per committee meeting (provided that FFC may direct PBE to
reduce the frequency of such meetings) and shall continue to receive such other
incidental benefits as he was receiving from PBE prior to the Effective Date
(such benefits being previously disclosed to FFC) and (B) each PBE Continuing
Director shall be subject to FFC's mandatory retirement rules for directors.
(b) FFC shall have the right to terminate its obligations under
subsection (a) of this Section 6.8 as a result of (i) regulatory considerations,
(ii) safe and sound banking practices, (iii) the exercise of their fiduciary
duties by FFC's directors; (iv) the failure of PBE to achieve budget goals
established for FFC's banking subsidiaries in any fiscal year in which FFC
achieves such goals on a consolidated basis (provided that PBE shall be deemed
to have achieved its budget goals if its actual results are within ten percent
(10%) of its budget goals); or (v) FFC's acquisition of a financial institution
located in Maryland.
(c) Notwithstanding anything herein to the contrary, the PBE
Continuing Directors, in their exercise of their fiduciary duty as to the best
interests of PBE and FFC, may, by a majority vote of such directors, modify or
waive any or all of the foregoing provisions in subsection (a) of this Section
6.8.
Section 6.9 Indemnification.
---------------
(a) From and after the Effective Date of the Merger, PBE and any
successor of PBE shall, and FFC shall cause PBE and any successor to, indemnify,
defend and hold harmless each person who is now, or has been at any time prior
to the date hereof, or who becomes prior to the Effective Date of the Merger, an
officer, employee or director of PBE (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses (including reasonable attorneys' fees),
liabilities or judgments or amounts that are paid in settlement (which
settlement shall require the prior written consent of FFC and PBE, which consent
shall not be unreasonably withheld) or in
26
connection with any claim, action, suit, proceeding or investigation (a "Claim")
in which an Indemnified Party is, or is threatened to be made, a party or a
witness based in whole or in part out of the fact that such person is or was a
director, officer or employee of PBE if such Claim pertains to any matter of
fact arising, existing or occurring prior to the Effective Date (including,
without limitation, the Merger and other transactions contemplated by this
Agreement) regardless of whether such Claim is asserted or claimed prior to, at,
or after the Effective Date (the "Indemnified Liabilities") to the full extent
permitted under applicable law as to the date hereof or amended prior to the
Effective Date and under the Articles of Incorporation or Bylaws of PBE as in
effect as of the date hereof (and PBE shall pay expenses in advance of the full
disposition of any such action or proceeding to each of the Indemnified Parties
to the full extent permitted by applicable law and PBE's Articles of
Incorporation and Bylaws). Any Indemnified Party wishing to claim
indemnification under this provision, upon learning of any claim, shall notify
PBE and FFC (but the failure to so notify PBE and FFC shall not relieve PBE from
any liability which PBE may have under this section except to the extent PBE is
materially prejudiced thereby). In the defense of any action covered by this
Section 6.9, FFC and PBE shall have the right to direct the defense of such
action and retain counsel of its choice; provided, however, that,
notwithstanding the foregoing, the Indemnified Parties as a group may retain a
single law firm to represent them with respect to each matter under this section
if there is, under applicable standards of professional conduct, a conflict on
any significant issue between the positions of PBE and the Indemnified Parties
(the Indemnified Parties may also retain more than one law firm if there is,
under applicable standards of professional conduct, a conflict of any
significant issues between the positions of two or more Indemnified Parties).
Under no circumstances shall FFC have an obligation to advance funds to satisfy
an obligation of PBE or any successor to PBE under this Section 6.9.
(b) FFC shall use its reasonable efforts (and PBE shall cooperate in
these efforts) to obtain "tail" coverage relating to PBE's existing directors
and officers liability insurance policy (provided that FFC may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions which are substantially no less advantageous) with respect to claims
arising from facts or circumstances which occur prior to the Effective Date and
covering persons who are covered by such insurance immediately prior to the
Effective Date.
(c) From and after the Effective Date, the directors, officers and
employees of PBE who become directors, officers or employees of FFC or any of
its subsidiaries, (i) except for the indemnification rights set forth in
subparagraph (a) above, shall have indemnification rights with prospective
application only and (ii) shall be covered on a prospective basis by FFC's
directors and officers liability insurance policy on a basis at least equal to
the coverage provided to persons in similar positions at FFC. The prospective
indemnification rights shall consist of such rights to which directors, officers
or employees of FFC are entitled under the provisions of the Articles of
27
Incorporation of FFC, as in effect from time to time after the Effective Date,
as applicable and provisions of applicable law as in effect from time to time
after the Effective Date.
(d) The obligations of FFC provided under this Section 6.9 are intended
to benefit, and be enforceable against, FFC directly by the Indemnified Parties,
and shall be binding on all respective successors of FFC.
ARTICLE VII
CONDITIONS PRECEDENT
--------------------
Section 7.1 Common Conditions. The obligations of the parties to consummate
-----------------
this Agreement shall be subject to the satisfaction of each of the following
common conditions prior to or as of the Closing, except to the extent that any
such condition shall have been waived in accordance with the provisions of
Section 8.4 herein:
(a) Stockholder Approval: This Agreement shall have been duly
--------------------
authorized, approved and adopted by the stockholders of PBE.
(b) Regulatory Approvals: The approval of each federal and state
--------------------
regulatory authority having jurisdiction over the transactions contemplated by
this Agreement, including without limitation, the Federal Reserve Board, the
FDIC, and the Maryland State Bank Commissioner, shall have been obtained and all
applicable waiting and notice periods shall have expired, subject to no terms or
conditions which would (i) require or could reasonably be expected to require
(A) any divestiture by FFC of a portion of the business of FFC, or any
subsidiary of FFC or (B) any divestiture by PBE of a portion of its business
which FFC in its good faith judgment believes will have a significant adverse
impact on the business or prospects of PBE or (ii) impose any condition upon
FFC, or any of its subsidiaries, which in FFC's good faith judgment (x) would be
materially burdensome to FFC and its subsidiaries taken as a whole or (y) would
significantly increase the costs incurred or that will be incurred by FFC as a
result of consummating the Merger.
(c) Stock Listing. The shares of FFC Common Stock to be issued
-------------
in the Merger shall have been authorized for listing on NASDAQ.
(d) Tax Opinion. Each of FFC and PBE shall have received an
-----------
opinion of FFC's counsel, Barley, Snyder, Senft & Cohen, LLP, reasonably
acceptable to FFC and PBE, addressed to FFC and PBE, with respect to federal tax
laws or regulations, to the effect that:
(1) The Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) and (a)(2)(D) of the Code;
28
(2) No gain or loss will be recognized by FFC, PBE Interim
Bank or PBE by reason of the Merger;
(3) The bases of the assets of PBE immediately after the Merger
will be the same as the bases of such assets immediately prior to the Merger;
(4) The holding period of the assets of PBE immediately after the
Merger will include the period during which such assets were held by PBE prior
to the Merger;
(5) A holder of PBE Common Stock who receives shares of FFC Common
Stock in exchange for his PBE Common Stock pursuant to the reorganization
(including fractional shares of FFC Common Stock deemed issued as described
below) will not recognize any gain or loss upon the exchange;
(6) A holder of PBE Common Stock who receives cash in lieu of a
fractional share of FFC Common Stock will be treated as if he received a
fractional share of FFC Common Stock pursuant to the reorganization and FFC then
redeemed such fractional share for the cash. The holder of PBE Common Stock
will recognize capital gain or loss on the constructive redemption of the
fractional share in an amount equal to the difference between the cash received
and the adjusted basis of the fractional share;
(7) The tax basis of the FFC Common Stock to be received by the
stockholders of PBE pursuant to the terms of this Agreement will be equal to the
tax basis of the PBE Common Stock surrendered in exchange therefor, decreased by
the amount of cash received and increased by the amount of any gain (and by the
amount of any dividend income) recognized on the exchange; and
(8) The holding period of the shares of FFC Common Stock to be
received by the stockholders of PBE will include the period during which they
held the shares of PBE Common Stock surrendered, provided the shares of PBE
Common Stock are held as a capital asset on the date of the exchange.
(e) Registration Statement: The Registration Statement (as defined in
----------------------
Section 6.1(b), including any amendments thereto) shall have been declared
effective by the SEC; regulatory clearance for the offering contemplated by the
Registration Statement (the "Offering") shall have been received from each state
regulatory authority having jurisdiction over the Offering; and no stop order
shall have been issued and no proceedings shall have been instituted or
threatened by any federal or state regulatory authority to suspend or terminate
the effectiveness of the Registration Statement or the Offering.
29
(f) No Suits: No action, suit or proceeding shall be pending or
--------
threatened before any federal, state or local court or governmental authority or
before any arbitration tribunal which seeks to modify, enjoin or prohibit or
otherwise adversely and materially affect the transactions contemplated by this
Agreement.
Section 7.2 Conditions Precedent to Obligations of FFC. The obligations of
------------------------------------------
FFC to consummate this Agreement shall be subject to the satisfaction of each of
the following conditions prior to or as of the Closing, except to the extent
that any such condition shall have been waived by FFC in accordance with the
provisions of Section 8.4 herein:
(a) Accuracy of Representations and Warranties: All of the
------------------------------------------
representations and warranties of PBE as set forth in this Agreement, all of the
information contained in the Schedules hereto and all PBE Closing Documents (as
defined in Section 7.2(l)) shall be true and correct in all material respects as
of the Closing as if made on such date (or on the date to which it relates in
the case of any representation or warranty which expressly relates to an earlier
date); provided, that, without limiting the generality of the foregoing clause,
--------
a "material" deviation from the accuracy of PBE's representations and warranties
shall be deemed to exist for purposes of this Section 7.2(a) if, as of the
Closing, FFC shall have discovered information not previously disclosed in PBE's
Schedules or in the PBE Balance Sheet indicating that PBE has incurred or will
incur costs, expenses, losses and/or liabilities which would have a material
adverse impact on PBE's financial condition or operating results.
(b) Covenants Performed: PBE shall have performed or complied in all
-------------------
material respects with each of the covenants required by this Agreement to be
performed or complied with by it.
(c) Opinion of Counsel for PBE: FFC shall have received an opinion,
--------------------------
dated the Effective Date, from Housley Kantarian & Bronstein, P.C., counsel to
PBE, in substantially the form of Exhibit D hereto. In rendering any such
---------
opinion, such counsel may require and, to the extent they deem necessary or
appropriate may rely upon, opinions of other counsel and upon representations
made in certificates of officers of PBE, FFC, affiliates of the foregoing, and
others.
(d) Affiliate Agreements. Stockholders of PBE who are or will be
--------------------
affiliates of PBE or FFC for the purposes of Accounting Series Release No. 135
and the 1933 Act shall have entered into agreements with FFC, in form and
substance satisfactory to FFC, reasonably necessary to assure (i) the ability
of FFC to use pooling-of-interests accounting for the Merger; and (ii)
compliance with Rule 145 under the 1933 Act.
30
(e) Financial Confirmation: FFC (together with its accountants, if
----------------------
the advice of such accountants is deemed necessary or desirable by FFC) shall
have established to its reasonable satisfaction that, since December 31, 1996,
there shall not have been any material and adverse change in the condition
(financial or otherwise), assets, liabilities, business or operations or future
prospects of PBE. In particular, without limiting the generality of the
foregoing sentence, the Additional PBE Financial Statements (as defined in
Section 5.4) shall indicate that the consolidated financial condition, assets,
liabilities and results of operations of PBE as of the respective dates reported
therein do not vary adversely in any material respect from the consolidated
financial condition, assets, liabilities and results of operations presented in
the PBE Balance Sheet. For purposes of this Section 7.2(e), a material and
adverse change shall mean an event, change, or occurrence which, individually or
together with any other event, change, or occurrence, has a material adverse
impact on (i) the financial position, business, results of operations or future
prospects of PBE or (ii) the ability of PBE to perform its obligations under
this Agreement, provided that "material and adverse change" shall not be deemed
to include the impact of (a) changes in banking and similar laws of general
applicability or interpretations thereof by court of governmental authorities,
(b) changes in GAAP or regulatory accounting principles generally applicable to
banks and their holding companies, (c) actions or omissions of PBE taken with
the prior written consent of FFC in contemplation of the transactions
contemplated hereby, (d) changes in economic conditions generally affecting
financial institutions including changes in the general level of interest rates,
and (e) the direct effects of compliance with this Agreement on the operating
performance of PBE, including expenses incurred by PBE in consummating the
transactions contemplated by the Agreement (subject to disclosure herein or
FFC's prior written approval, such approval not to be unreasonably withheld, of
such expenses).
(f) Accountants' Letter. At its option, FFC shall have received a
-------------------
"comfort" letter from the independent certified public accountants for PBE,
dated (i) the effective date of the Registration Statement and (ii) the
Effective Date, in each case substantially to the effect that:
(1) it is a firm of independent public accounts with respect to
PBE and its subsidiaries within the meaning of the 1933 Act and the rules and
regulations of the SEC thereunder;
(2) in its opinion the audited financial statements of PBE
examined by it and included in the Registration Statement comply as to form in
all material respects with the applicable requirements of the 1933 Act and the
applicable published rules and regulations of the SEC thereunder with respect to
registration statements on the form employed; and
31
(3) on the basis of specified procedures (which do not constitute
an examination in accordance with generally accepted audit standards),
consisting of a reading of the unaudited financial statements, if any, of PBE
included in such Registration Statement and of the latest available unaudited
financial statements of PBE, inquiries of officers responsible for financial and
accounting matters of PBE and a reading of the minutes of meetings of
stockholders and the Board of Directors of PBE, nothing has come to its
attention which causes it to believe: (i) that the financial statements, if any,
of PBE included in such Registration Statement do not comply in all material
respects with the applicable accounting requirements of the 1933 Act and the
published rules and regulations thereunder; and (ii) that any such unaudited
financial statements of PBE from which unaudited quarterly financial information
set forth in such Registration Statement has been derived, are not fairly
presented in conformity with generally accepted accounting principles applied on
a basis consistent with that of the audited financial statements.
(g) Accounting Treatment: FFC and its accountants shall have
--------------------
established to their satisfaction that, as of the Closing, the transactions
contemplated by this Agreement can be accounted for as a "pooling-of-interests"
for financial reporting purposes.
(h) Federal and State Securities and Antitrust Laws: FFC and its
-----------------------------------------------
counsel shall have determined to their satisfaction that, as of the Closing, all
applicable securities and antitrust laws of the federal government and of any
state government having jurisdiction over the transactions contemplated by this
Agreement shall have been complied with.
(i) Dissenting Stockholders: Dissenters' rights shall have been
-----------------------
exercised with respect to less than 10% of the outstanding shares of PBE Common
Stock.
(j) Environmental Matters: No environmental problem of the kind
---------------------
contemplated in Section 3.22 and not disclosed in Schedule 3.22 shall have been
-------------
discovered which would, or which potentially could, materially and adversely
affect the condition (financial or otherwise), assets, liabilities, business,
operations or future prospects of PBE, provided, that for purposes of
--------
determining the materiality of an undisclosed environmental problem or problems,
the definition of "material" shall be governed by the proviso to Section 7.2(a)
of this Agreement.
(k) Crossroads Branch Lease: PBE shall have amended the Crossroads
-----------------------
Branch Lease to the reasonable satisfaction of FFC.
32
(l) Required Notices, Consents and Approvals: PBE shall have received
----------------------------------------
any material required notice, consent or approval as contemplated by Section 3.1
herein.
(m) Closing Documents: PBE shall have delivered to FFC: (i) a
-----------------
certificate signed by PBE's President and Secretary (or other officers
reasonably acceptable to FFC) verifying that, to the best of their knowledge
after reasonable investigation, all of the representations and warranties of PBE
set forth in this Agreement are true and correct in all material respects as of
the Closing and that PBE has performed in all material respects each of the
covenants required to be performed by it under this Agreement; (ii) all consents
and authorizations of landlords and other persons that are necessary to permit
this Agreement to be consummated without violation of any lease or other
agreement to which PBE is a party or by which it or any of its properties are
bound; and (iii) such other certificates and documents as FFC and its counsel
may reasonably request (all of the foregoing certificates and other documents
being herein referred to as the "PBE Closing Documents").
Section 7.3 Conditions Precedent to the Obligations of PBE. The obligation
----------------------------------------------
of PBE to consummate this Agreement shall be subject to the satisfaction of each
of the following conditions prior to or as of the Closing, except to the extent
that any such condition shall have been waived by PBE in accordance with the
provisions of Section 8.4 herein:
(a) Accuracy of Representations and Warranties: All of the
------------------------------------------
representations and warranties of FFC as set forth in this Agreement, all of the
information contained in its Schedules and all FFC Closing Documents (as defined
in Section 7.3(f) of this Agreement) shall be true and correct in all material
respects as of the Closing as if made on such date (or on the date to which it
relates in the case of any representation or warranty which expressly relates to
an earlier date).
(b) Covenants Performed: FFC shall have performed or complied in all
-------------------
material respects with each of the covenants required by this Agreement to be
performed or complied with by FFC.
(c) Opinion of Counsel for FFC: PBE shall have received an opinion
--------------------------
from Barley, Snyder, Senft & Cohen, LLP, counsel to FFC, dated the Effective
Date, in substantially the form of Exhibit E hereto. In rendering any such
---------
opinion, such counsel may require and, to the extent they deem necessary or
appropriate may rely upon, opinions of other counsel and upon representations
made in certificates of officers of FFC, PBE, affiliates of the foregoing, and
others.
(d) Fairness Opinion: PBE shall have obtained from Berwind Financial
----------------
Group, L.P., or from another independent financial advisor selected by the
33
Board of Directors of PBE, an opinion dated within five (5) days of the Proxy
Statement/Prospectus to be furnished to the stockholders of PBE stating that the
terms of the acquisition contemplated by this Agreement are fair to the
stockholders of PBE from a financial point of view.
(e) Financial Confirmation: PBE (together with its accountants, if
----------------------
the advice of such accountants is deemed necessary or desirable by PBE) shall
have established to its reasonable satisfaction that, since December 31, 1996,
there has not been any material and adverse change in the condition (financial
or otherwise), assets, liabilities, business, operations or future prospects of
FFC. In particular, without limiting the generality of the foregoing sentence,
the Additional FFC Financial Statements shall indicate that the financial
condition, assets, liabilities and results of operations of FFC as of the
respective dates reported therein do not vary adversely in any material respect
from the financial condition, assets, liabilities and results of operations
presented in the FFC Balance Sheet. For purposes of this Section 7.3(e), a
material and adverse change shall mean an event, change, or occurrence which,
individually or together with any other event, change, or occurrence, has a
material adverse impact on (i) the consolidated financial position, business,
results of operations or future prospects of FFC or (ii) the ability of FFC to
perform its obligations under this Agreement, provided that "material and
adverse change" shall not be deemed to include the impact of (a) changes in
banking and similar laws of general applicability or interpretations thereof by
court of governmental authorities, (b) changes in GAAP or regulatory accounting
principles generally applicable to banks and their holding companies or (c)
changes in economic conditions generally affecting financial institutions
including changes in the general level of interest rates.
(f) Closing Documents: FFC shall have delivered to PBE: (i) a
-----------------
certificate signed by FFC's President and Secretary (or other officers
reasonably acceptable to PBE) verifying that, to the best of their knowledge
after reasonable investigation, all of the representations and warranties of FFC
set forth in this Agreement are true and correct in all material respects as of
the Closing and that FFC has performed in all material respects each of the
covenants required to be performed by FFC; and (ii) such other certificates and
documents as PBE and its counsel may reasonably request (all of the foregoing
certificates and documents being herein referred to as the "FFC Closing
Documents").
(g) The Exchange Agent shall have certified to PBE that it is in
receipt of (i) certificates representing a whole number of shares of FFC Common
Stock to be issued to the stockholders of PBE pursuant to this Agreement and
(ii) sufficient cash to be paid to the PBE stockholders for fractional shares.
34
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
Section 8.1 Termination. This Agreement may be terminated at any time before
-----------
the Effective Date (whether before or after the authorization, approval and
adoption of this Agreement by the stockholders of PBE) as follows:
(a) Mutual Consent: This Agreement may be terminated by mutual
--------------
consent of the parties upon the affirmative vote of a majority of each of the
Boards of Directors of PBE and FFC, followed by written notices given to the
other party.
(b) Unilateral Action by FFC: This Agreement may be terminated
------------------------
unilaterally by the affirmative vote of the Board of Directors of FFC, followed
by written notice given to PBE, if: (i) there has been a material breach by PBE
of any representation, warranty or material failure to comply with any covenant
set forth in this Agreement which breach results in a material and adverse
change as to PBE (as such standard is set forth in Sections 7.2(a) and (e)
herein) and such breach has not been cured within thirty (30) days after written
notice of such breach has been given by FFC to PBE, provided that FFC is not
then in material breach of any representation, warranty or covenant contained in
the Agreement; or (ii) any condition precedent to FFC's obligations as set forth
in Article VII of this Agreement remains unsatisfied, through no fault of FFC,
on January 31, 1998.
(c) Unilateral Action By PBE: This Agreement may be terminated
------------------------
unilaterally by the affirmative vote of a majority of the Board of Directors of
PBE, followed by written notice given to FFC, if: (i) there has been a material
breach by FFC of any representation, warranty or material failure to comply with
any covenant set forth in this Agreement which breach results in a material and
adverse change as to FFC (as such standard is set forth in Sections 7.3(a) and
(e) herein) and such breach has not been cured within thirty (30) days after
written notice of such breach has been given by PBE to FFC, provided that PBE is
not then in material breach of any representation, warranty or covenant
contained in this Agreement; or (ii) any condition precedent to PBE's
obligations as set forth in Article VII of this Agreement remains unsatisfied,
through no fault of PBE, on January 31, 1998.
(d) By FFC: By FFC if, prior to 9:30 a.m. on March 19, 1997, PBE
------
does not execute and deliver to FFC the Warrant Agreement.
Section 8.2 Effect of Termination.
---------------------
(a) Effect. In the event of a permitted termination of this Agreement
------
under Section 8.1 herein, this Agreement shall become null and void and the
transactions contemplated herein shall thereupon be abandoned, except that the
35
provisions relating to limited liability and confidentiality set forth in
Sections 8.2(b) and 8.2(c) herein shall survive such termination.
(b) Limited Liability. The termination of this Agreement in
-----------------
accordance with the terms of Section 8.1 herein shall create no liability on the
part of either party, or on the part of either party's directors, officers,
stockholders, agents or representatives, except that if this Agreement is
terminated by FFC by reason of a material breach by PBE, or if this Agreement is
terminated by PBE by reason of a material breach by FFC, and such breach
involves an intentional, willful or grossly negligent misrepresentation or
breach of covenant, the breaching party shall be liable to the nonbreaching
party for all costs and expenses reasonably incurred by the nonbreaching party
in connection with the preparation, execution and attempted consummation of this
Agreement, including the fees of its counsel, accountants, consultants and other
advisors and representatives.
(c) Confidentiality. In the event of a termination of this Agreement,
---------------
neither FFC nor PBE shall use or disclose to any other person any confidential
information obtained by it during the course of its investigation of the other
party or parties, except as may be necessary in order to establish the liability
of the other party or parties for breach as contemplated under Section 8.2(b)
herein and each party shall promptly return to the party all non-public
proprietary and business information received from such party.
Section 8.3 Amendment. To the extent permitted by law, this Agreement may be
---------
amended at any time before the Effective Date (whether before or after the
authorization, approval and adoption of this Agreement by the stockholders of
PBE), but only by a written instrument duly authorized, executed and delivered
by FFC and by PBE; provided, however, that (i) any amendment to the provisions
-------- -------
of Section 2.1 herein relating to the consideration to be received by the former
stockholders of PBE in exchange for their shares of PBE Common Stock shall not
take effect until such amendment has been approved, adopted or ratified by the
stockholders of PBE in accordance with applicable law and (ii) PBE Interim Bank
shall be permitted to join as a party to this Agreement upon its formation
without execution of such joinder by FFC or PBE.
Section 8.4 Waiver. Any term or condition of this Agreement may be waived,
------
to the extent permitted by applicable federal and state law, by the party or
parties entitled to the benefit thereof at any time before the Effective Date
(whether before or after the authorization, approval and adoption of this
Agreement by the stockholders of PBE) by a written instrument duly authorized,
executed and delivered by such party or parties.
36
ARTICLE IX
RIGHTS OF DISSENTING STOCKHOLDERS OF PBE
----------------------------------------
Section 9.1 Rights of Dissenting Stockholders of PBE. The stockholders of
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PBE shall be entitled to and may exercise dissenters' rights if and to the
extent they are entitled to do so under the provisions of FI (S)(S) 3-718
through 3-721 of the Financial Institutions Article, Annotated Code of Maryland.
ARTICLE X
CLOSING AND EFFECTIVE DATE
--------------------------
Section 10.1 Closing. Provided that all conditions precedent set forth in
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Article VII of this Agreement shall have been satisfied or shall have been
waived in accordance with Section 8.4 of this Agreement, the parties shall hold
a closing (the "Closing") at the offices of FFC at One Penn Square, Lancaster,
Pennsylvania, within thirty (30) days after the receipt of all required
regulatory approvals and after the expiration of all applicable waiting periods
on a date to be agreed upon by the parties, at which time the parties shall
deliver the PBE Closing Documents, the FFC Closing Documents, the opinions of
counsel required by Sections 7.1(d), 7.2(c) and 7.3(c) herein, and such other
documents and instruments as may be necessary or appropriate to effectuate the
purposes of this Agreement.
Section 10.2 Effective Date. The Merger shall become effective on the date
--------------
of issuance of the Certificate of Merger issued by the Maryland State Bank
Commissioner pursuant to FI (S)3-709 of the Financial Institutions Article,
Annotated Code of Maryland or on such other later date specified in the
Certificate of Merger.
ARTICLE XI
NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
---------------------------------------------
Section 11.1 No Survival. The representations and warranties of PBE and of
-----------
FFC set forth in this Agreement shall expire and be terminated on the Effective
Date by consummation of this Agreement, and no such representation or warranty
shall thereafter survive.
ARTICLE XII
GENERAL PROVISIONS
------------------
Section 12.1 Expenses. Except as provided in Section 8.2(b) herein, each
--------
party shall pay its own expenses incurred in connection with this Agreement and
the
37
consummation of the transactions contemplated herein. For purposes of this
Section 12.1 herein, the cost of printing the Proxy Statement/Prospectus shall
be deemed to be an expense of FFC.
Section 12.2 Other Mergers and Acquisitions. Subject to the right of PBE to
------------------------------
refuse to consummate this Agreement pursuant to Section 8.1(c) herein by reason
of a material breach by FFC of the warranty and representation set forth in
Section 4.7 herein, nothing set forth in this Agreement shall be construed: (i)
to preclude FFC from acquiring, or to limit in any way the right of FFC to
acquire, prior to or following the Effective Date, the stock or assets of any
other financial services institution or other corporation or entity, whether by
issuance or exchange of FFC Common Stock or otherwise; (ii) to preclude FFC from
issuing, or to limit in any way the right of FFC to issue, prior to or following
the Effective Date, FFC Common Stock, FFC Preferred Stock or any other equity or
debt securities; or (iii) to preclude FFC from taking, or to limit in any way
the right of FFC to take, any other action not expressly and specifically
prohibited by the terms of this Agreement.
Section 12.3 Notices. All notices, claims, requests, demands and other
-------
communications which are required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly delivered if delivered
in person, transmitted by telegraph or facsimile machine (but only if receipt is
acknowledged in writing), or mailed by registered or certified mail, return
receipt requested, as follows:
(a) If to FFC, to:
Rufus A. Fulton, Jr., President
and Chief Executive Officer
Fulton Financial Corporation
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604
With a copy to:
Paul G. Mattaini, Esq.
Barley, Snyder, Senft & Cohen, LLP
126 East King Street
Lancaster, PA 17602
38
(b) If to PBE, to:
Robert E. Noll, President and Chief Executive Officer
The Peoples Bank of Elkton
130 North Street
Elkton, Maryland 21921
With a copy to:
Leonard S. Volin, Esq.
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W.; Suite 700
Washington, D.C. 20036
Section 12.4 Counterparts. This Agreement may be executed simultaneously in
------------
several counterparts, each of which shall be deemed an original, but all such
counterparts together shall be deemed to be one and the same instrument.
Section 12.5 Governing Law. This Agreement shall be deemed to have been made
-------------
in, and shall be governed by and construed in accordance with the substantive
laws of, the Commonwealth of Pennsylvania.
Section 12.6 Parties in Interest. This Agreement shall be binding upon and
-------------------
inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that neither party may
-------- -------
assign its rights or delegate its duties under this Agreement without the prior
written consent of the other party.
Section 12.7 Entire Agreement. This Agreement, together with the Warrant
----------------
Agreement and the Warrant being executed by the parties on the date hereof, sets
forth the entire understanding and agreement of the parties hereto and
supersedes any and all prior agreements, arrangements and understandings,
whether oral or written, relating to the subject matter hereof and thereof.
39
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers all as of the day and year first above written.
FULTON FINANCIAL CORPORATION
By:
----------------------------------
Rufus A. Fulton, Jr., President
and Chief Executive Officer
Attest:
----------------------------------
William R. Colmery, Secretary
THE PEOPLES BANK OF ELKTON
By:
----------------------------------
David K. Williams,
Chairman of the Board
Attest:
----------------------------------
Cathy C. Dunn, Secretary
INDEX OF SCHEDULES
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Schedule 3.1 Required Notices, Consents and Approvals
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Schedule 3.3 Organization and Standing
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Schedule 3.7 Undisclosed Liabilities
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Schedule 3.8 Changes
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Schedule 3.9 Dividends, Distributions and Stock Purchases
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Schedule 3.10 Taxes
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Schedule 3.11 Title to and Condition of Assets
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Schedule 3.12 Contracts
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Schedule 3.13 Litigations and Governmental Directives
- -------------
Schedule 3.14 Compliance with Laws; Governmental Authorizations
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Schedule 3.15 Insurance
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Schedule 3.16 Financial Institution Bonds
- -------------
Schedule 3.17 Labor Relations and Employment Agreements
- -------------
Schedule 3.18 Employee Benefit Plans
- -------------
Schedule 3.19 Related Party Transactions
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Schedule 3.20 Finders
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Schedule 3.22 Environmental Matters
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Schedule 3.26 Loan Portfolio
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Schedule 3.27 Investment Portfolio
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Schedule 4.5 Subsidiaries
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Schedule 4.7 Undisclosed Liabilities
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Schedule 4.9 Litigation and Governmental Directives
- ------------
Schedule 4.10 Compliance with Laws; Governmental Authorizations
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Schedule 4.14 Environmental Matters
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INDEX OF EXHIBITS
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Exhibit A Form of Warrant Agreement
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Exhibit B Form of Warrant
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Exhibit C Form of Plan of Merger
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Exhibit D Form of Opinion of PBE's Counsel
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Exhibit E Form of Opinion of FFC's Counsel
- ---------