-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TT7pEX1BeFcEjGStj7IvdQwQm1l8zBFJpe7+hiGqReIIQOLQkiEq2J4tEg6GxpYS l9pSQokg5WrZoH4rQfEWCg== 0001047469-99-016504.txt : 19990428 0001047469-99-016504.hdr.sgml : 19990428 ACCESSION NUMBER: 0001047469-99-016504 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990419 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MID-STATE BANCSHARES CENTRAL INDEX KEY: 0001027324 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 770442667 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-23925 FILM NUMBER: 99601660 BUSINESS ADDRESS: STREET 1: 1026 GRAND AVE CITY: ARROYO GRANDE STATE: CA ZIP: 93420 BUSINESS PHONE: 8054737700 MAIL ADDRESS: STREET 1: 1026 GRAND AVE CITY: ARROYO GRANDE STATE: CA ZIP: 93420 FORMER COMPANY: FORMER CONFORMED NAME: MID STATE BANCSHARES DATE OF NAME CHANGE: 19980820 FORMER COMPANY: FORMER CONFORMED NAME: BSM BANCORP DATE OF NAME CHANGE: 19961121 8-K 1 FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): April 19, 1999 MID-STATE BANCSHARES --------------------- (Name of Small Business Issuer in its Charter) CALIFORNIA 333-16951 77-0442667 - ---------------------------------------- ------------- -------------------- (State or Other Jurisdiction of (File Number) (I.R.S. Employer Incorporation or Organization Identification No.) 1026 GRAND AVE. ARROYO GRANDE, CA 93420 - ---------------------------------------- -------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including area code: (805) 473-7700 ---------------------- ------------------------------------------------------------- (Former Name or Former Address, if changed since last report) Page 1 of 81 Pages Exhibit Index Page 4 ITEM 5. OTHER EVENTS Mid-State Bancshares, Arroyo Grande, California, and its banking subsidiary, Mid-State Bank, entered into an Agreement to Merge and Plan of Reorganization (the "Agreement") as of April 19, 1999 with City Commerce Bank, Santa Barbara, California ("City Commerce") pursuant to which, among other things, (i) City Commerce will merge with and into Mid-State Bank, and (ii) the shareholders of City Commerce will become shareholders of Mid-State Bancshares in accordance with the exchange ratio set forth in the Agreement, all subject to the terms and conditions specified in the Agreement. Consummation of the Agreement and the transactions contempleted thereby is subject to receipt of regulatory approvals, to approval by City Commerce's shareholders as well as to the satisfaction of other conditions set forth in the Agreement. Additionally, in connection with the execution of the Agreement, Mid-State Bancshares received an option to purchase authorized and unissued shares of City Commerce equal to 19.9% of City Commerce's current outstanding shares (the "Stock Option"). The Stock Option is only exercisable under certain circumstances. A copy of the Agreement and the Stock Option are attached hereto as Exhibit A and B, respectively. A copy of the press release issued in connection with the execution of the Agreement is attached as Exhibit C. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS Exhibit 99A.........Agreement to Merge and Plan of Reorganization Exhibit 99B.........Stock Option Agreement Exhibit 99C.........Press Release Page 2 of 81 Pages Exhibit Index Page 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: April 21, 1999 MID-STATE BANCSHARES By: /s/ JAMES G. STATHOS ------------------------------------ James G. Stathos Executive Vice President Chief Financial Officer By: /s/ CARROL R. PRUETT ------------------------------------ Carrol R. Pruett President and Chief Executive Officer Page 3 of 81 Pages Exhibit Index Page 4 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. ----------- ----------- -------- 99A Agreement to Merge and Plan of 5 Reorganization 99B Stock Option Agreement 64 99C Press Release 80
Page 4 of 81 Pages Exhibit Index Page EX-99.A 2 EXHIBIT 99A EXHIBIT 99A AGREEMENT TO MERGE AND PLAN OF REORGANIZATION DATED AS OF APRIL 19, 1999 BY AND AMONG MID-STATE BANK MID-STATE BANCSHARES AND CITY COMMERCE BANK AGREEMENT TO MERGE AND PLAN OF REORGANIZATION THIS AGREEMENT TO MERGE AND PLAN OF REORGANIZATION ("AGREEMENT") is entered into as of April 19, 1999, among Mid-State Bank, a banking company organized under the laws of California ("BANK"), being located in Arroyo Grande, California, Mid-State Bancshares, a corporation and registered bank holding company organized under the laws of California ("ACQUIROR") located in Arroyo Grande, California, and City Commerce Bank, a banking company organized under the laws of California ("TARGET"), located in Santa Barbara, California. R E C I T A L S: A. Bank is a wholly owned subsidiary of Acquiror. B. Acquiror, Bank and Target believe that it would be in their respective best interests and in the best interests of their respective shareholders for Target to merge with and into Bank (the "Bank Merger"), and for the shareholders of Target to become shareholders of Acquiror, all in accordance with the terms set forth in this Agreement and applicable law. C. The respective Boards of Directors of Bank and Target have adopted by majority vote resolutions approving and authorizing the Bank Merger upon the terms and conditions set forth in this Agreement and the Board of Directors of Acquiror has adopted by majority vote resolutions approving the Bank Merger, this Agreement and the transactions contemplated herein. D. Acquiror, Bank and Target desire to make certain representations, warranties, covenants and agreements in connection with the transactions contemplated by this Agreement. E. Concurrently herewith, Acquiror and Target are entering into a stock option agreement (the "Stock Option Agreement"), to be dated the date hereof, whereby Target will grant to Acquiror the option to purchase up to 19.9% of the outstanding shares of Target's Common Stock upon the occurrence of certain events. F. It is the intention of the parties to this Agreement that the business combination contemplated hereby be accounted for under the "pooling of interests" accounting method and be treated as a "reorganization" under Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). 6 A G R E E M E N T IN CONSIDERATION of the premises and mutual covenants hereinafter contained, Bank, Acquiror and Target agree as follows: ARTICLE 1 DEFINITIONS AND DETERMINATIONS 1.1 DEFINITIONS. Capitalized terms used in this Agreement shall have the meanings set forth below: "Agreement of Merger" means the Agreement of Merger substantially in the form attached hereto as Exhibit A. "Affiliate" means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. "Acquiror" shall have the meaning given such term in the introductory clause. "Acquiror Benefit Arrangement" means the Benefit Arrangements maintained or otherwise contributed to by Acquiror or Bank. "Acquiror Corporate Governance Changes" shall have the meaning given such term in Section 2.1(d). "Acquiror Property" shall have the meaning given such term in Section 3.10. "Acquiror Stock" means the common stock, no par value, of Acquiror. "Acquiror Stock Option" means any option issued pursuant to the Acquiror Stock Option Plan. "Acquiror Stock Option Plan" means the Acquiror 1996 Stock Option Plan. "Average Closing Price" means the average of the daily closing price of a share of Acquiror's Stock reported over NASDAQ National Market during the twenty (20) consecutive trading days that Acquiror's Stock trades ending at the end of the fifth trading day immediately preceding the Effective Day. "Bank" shall have the meaning given such term in the introductory clause. 7 "Bank Corporate Governance Changes" shall have the meaning given such term in Section 2.1(b). "Bank Merger" shall have the meaning given such term in the Recitals. "Bank Stock" means the common stock, no par value, of Bank. "Benefit Arrangement" means any plan or arrangement maintained or contributed to by a Party, including an "employee benefit plan" within the meaning of ERISA, (but exclusive of base salary and base wages) which provides for any form of current or deferred compensation, bonus, stock option, profit sharing, benefit, retirement, incentive, group health or insurance, welfare or similar plan or arrangement for the benefit of any employee, officer or director or class of employee, officer or director, whether active or retired, of a Party. "BHC Act" means the Bank Holding Company Act of 1956, as amended. "Business Day" means any day other than a Saturday, Sunday or day on which commercial banks in California are authorized or required to be closed. "Certificates" shall have the meaning given such term in Section 2.5. "CFC" means the California Financial Code. "CGCL" means the California General Corporation Law. "Charter Documents" means, with respect to any business organization, any certificate or articles of incorporation or articles of association, and any bylaws, each as amended to date, that regulate the basic organization of the business organization and its internal relations. "Closing" means the consummation of the Bank Merger on the Effective Day at the main office of Bank or at such other place as may be agreed upon by the Parties. "Code" means the United States Internal Revenue Code of 1986, as amended, and all regulations thereunder. "Commissioner" means the Commissioner of Financial Institutions, State of California. "Competing Transaction" shall have the meaning given such term in Section 6.12. "Computer System" shall have the meaning given such term in Section 3.16. 8 "Confidential Information" means all information exchanged heretofore or hereafter between Target, its affiliates and agents, on the one hand, and Acquiror and Bank, their affiliates and agents, on the other hand, which is information related to the business, financial position or operations of the Person responsible for furnishing the information or an Affiliate of such Person (such information to include, by way of example only and not of limitation, client lists, company manuals, internal memoranda, strategic plans, budgets, forecasts/ projections, computer models, marketing plans, files relating to loans originated by such Person, loans and loan participation purchased by such Person from others, investments, deposits, leases, contracts, employment records, minutes of board of directors meetings (and committees thereof) and stockholder meetings, legal proceedings, reports of examination by any Governmental Entity, and such other records or documents such Person may supply to the other Party pursuant to the terms of this Agreement or as contemplated hereby). Notwithstanding the foregoing, "Confidential Information" shall not include any information that (i) at the time of disclosure or thereafter is generally available to and known by the public (other than as a result of a disclosure directly or indirectly by the recipients or any of their officers, directors, employees or other representatives or agents), (ii) was available to the recipients on a nonconfidential basis from a source other than Persons responsible for furnishing the information, PROVIDED that such source is not and was not bound by a confidentiality agreement with respect to the information, or (iii) has been independently acquired or developed by the recipients without violating any obligations under this Agreement. "Consents" means every required consent, approval, absence of disapproval, waiver or authorization from, or notice to, or registration or filing with, any Person. "Disclosure Letter" means a disclosure letter from the Party making the disclosure and delivered to the other Party. "DPC Property" means voting securities, other personal property and real property acquired by foreclosure or otherwise, in the ordinary course of collecting a debt previously contracted for in good faith, retained with the object of sale for any applicable statutory holding period, and recorded in the holder's business records as such. "Effective Day" means the day on which the Effective Time occurs. "Effective Time" shall have the meaning given such term in Section 2.2. "Encumbrances" means any option, pledge, security interest, lien, charge, encumbrance, mortgage, assessment, claim or restriction (whether on voting, disposition or otherwise), whether imposed by agreement, understanding, law or otherwise. "Environmental Laws" shall have the meaning given such term in Section 3.10. "Equity Securities" means capital stock or any options, rights, warrants or other rights to subscribe for or purchase capital stock, or any plans, contracts or commitments that are exercisable 9 in such capital stock or that provide for the issuance of, or grant the right to acquire, or are convertible into, or exchangeable for, such capital stock. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and all regulations thereunder. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Agent" means ChaseMellon Shareholder Services or such other financial institution appointed by Acquiror to reflect the exchange contemplated by section 2.5 hereof. "Exchange Fund" shall have the meaning given such term in Section 2.5. "Exchange Ratio" means the number of shares of Acquiror Stock into which a share of Target Stock shall be converted which shall be equal to the amount (to the nearest ten thousandth) as set forth hereinbelow: (i) If the Average Closing Price is not less than $26.60 and is not more than $30.91, the Exchange Ratio shall be .7791; (ii) If the Average Closing Price is more than $30.91, the Exchange Ratio shall be calculated by (A) dividing $30.91 by the Average Closing Price and (B) multiplying such product by .7791 ($30.91/Average Closing Price x .7791); and (iii) If the Average Closing Price is less than $26.60, then the Exchange Ratio shall be .7791 unless at Acquiror's option, which shall be provided in writing to Target in the manner set forth in Section 11.12 of the Agreement, the purchase price shall become fixed at $20.72 per share, and the Exchange Ratio shall then be calculated by dividing $20.72 by the Average Closing Price; provided, however, that if Acquiror does not so elect and the Average Closing Price is less than $26.60, Target shall have the right to terminate the Agreement as set forth in Section 10.1(h) subject to Acquiror's rights as set forth therein. "Expenses" shall have the meaning given such term in Section 11.1. "Executive Officer" means with respect to any company a natural Person who participates or has the authority to participate (other than solely in the capacity of a director) in major policy making functions of the company, whether or not such Person has a title or is serving with salary or compensation. "FDIC" means the Federal Deposit Insurance Corporation. "Financial Statements of Acquiror" means the audited consolidated financial statements and notes thereto of Acquiror and the related opinions thereon for the years ended December 31, 1996, 1997 and 1998. 10 "Financial Statements of Target" means the audited financial statements and notes thereto of Target and the related opinions thereon for the years ended December 31, 1996 and 1997, 1998. "FRB" shall mean the Board of Governors of the Federal Reserve System. "GAAP" means generally accepted accounting principles. "Governmental Entity" means any court or tribunal in any jurisdiction or any United States federal, state, district, domestic, or other administrative agency, department, commission, board, bureau or other governmental authority or instrumentality. "Hazardous Materials" shall have the meaning given such term in Section 3.10. "Immediate Family" shall mean a Person's spouse, parents, in-laws, children and siblings. "IRS" shall mean the Internal Revenue Service. "Investment Securities" means any equity security or debt security as defined in Statement of Financial Accounting Standard No. 115. "Operating Loss" shall have the meaning given such term in Section4.24. "Party" means any of Acquiror, Bank or Target. "Permit" means any United States federal, foreign, state, local or other license, permit, franchise, certificate of authority, order of approval necessary or appropriate under applicable Rules. "Person" means any natural person, corporation, trust, association, unincorporated body, partnership, joint venture, Governmental Entity, statutorily or regulatory sanctioned unit or any other person or organization. "Proxy Statement" means the proxy statement that is included as part of the S-4 and used to solicit proxies for the Target Shareholders' Meeting and to offer and sell the shares of Acquiror Stock to be issued in connection with the Bank Merger. "Related Group of Persons" means Affiliates, members of an Immediate Family or Persons the obligation of whom would be attributed to another Person pursuant to the regulations promulgated by the SEC. "Rule" means any statute or law or any judgment, decree, injunction, order, regulation or rule of any Governmental Entity. 11 "S-4" means the registration statement on Form S-4, and such amendments thereto, that is filed with the SEC to register the shares of Acquiror Stock to be issued in the Bank Merger under the Securities Act and includes the Proxy Statement which will be used to solicit proxies for the Target Shareholders' Meeting. "SEC" means the Securities and Exchange Commission. "SEC Reports" mean all reports filed by a Party hereto pursuant to the Exchange Act with the SEC or other Governmental Entity. "Securities Act" means the Securities Act of 1933, as amended. "Stock Option Agreement" shall have the meaning given the term in Recital E and in the certain Stock Option Agreement entered into by the parties concurrently with this Agreement. "Surviving Bank" means the Bank as the California state-chartered bank surviving the Bank Merger of Target with and into Bank. "Tank" shall have the meaning given such term in Section 3.10. "Third Party Consent" shall have the meaning given such term in subsection (b) of Section 5.7. "Target" Shall have the meaning given such term in the introductory clause. "Target Benefit Arrangement" shall have the meaning given such term in Section 4.18. "Target's Directors Agreement" shall mean an agreement, substantially in the form attached as Exhibit 2.6. "Target Dissenting Shares" means shares of Target Stock held by "dissenting shareholders" within the meaning of Chapter 13 of the CGCL. "Target Perfected Dissenting Shares" means Dissenting Shares which the holders thereof have not withdrawn or caused to lose their status as Target Dissenting Shares. "Target Property" shall have the meaning given such term in Section 4.25. "Target Scheduled Contracts" shall have the meaning given such term in Section 4.30. "Target Shareholders' Meeting" shall have the meaning given such term in Section 6.6. "Target Stock" means the common stock, no par value, of Target. 12 "Target Stock Options" shall have the meaning given such term in Section 4.2. "Target Stock Option Plan" means Target's 1989 Stock Option Plan. "To the knowledge" shall have the meaning given such term in Section 11.13. "Year 2000 Readiness" shall have the meaning given such term in Section 3.16. ARTICLE 2 CONSUMMATION OF THE BANK MERGER 2.1 THE MERGER; PLAN OF REORGANIZATION. (a) Subject to the terms and conditions of this Agreement and the Agreement of Merger, at the Effective Time, Target shall merge with and into Bank under the charter of Bank. (b) The Charter Documents of Bank as in effect immediately prior to the Effective Time shall continue in effect after the Bank Merger until thereafter amended in accordance with applicable law and the members of the Board of Directors and the Executive Officers of Bank immediately prior to the Bank Merger shall continue in their respective positions after the Bank Merger and be the Board of Directors and Executive Officers of the Surviving Bank ; except that Bank shall have taken prior to the Effective Time all necessary steps so that at the Effective Time (i) the number of authorized directors of Bank shall be expanded by one and (ii) one of the current directors of Target (who shall be mutually acceptable to Acquiror and Target) shall be added to the Board of Directors of Bank and shall serve until the earlier of his resignation or removal or until his successor is duly elected and qualified. [clause (i) and (ii) being hereinafter collectively referred to as the "Bank Corporate Governance Changes"]. (c) At the Effective Time, the corporate existence of Target shall be merged and continued in the Surviving Bank. All assets, rights, franchises, titles and interests of Bank and Target, in and to every type of property (real, personal and mixed) and chooses in action shall be transferred to and vested in the Surviving Bank by virtue of the Bank Merger without any deed or other transfer, and the Surviving Bank, without any order or action on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises and interests, including appointments, designations and nominations, and all other rights and interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee or receiver and in every other fiduciary capacity in the same manner and to the same extent that such rights, franchises and interests were held by Bank and Target at the Effective Time. At the Effective Time, the Surviving Bank shall be liable for all liabilities of Bank and Target and all deposits, debts, liabilities, obligations and contracts of Bank and Target, matured or unmatured, whether accrued, absolute, contingent or otherwise, and whether or not reflected or reserved against on balance sheets, books of accounts or records of Bank and Target, shall be those of the Surviving Bank; and all rights of creditors or other obligees and all liens on property of Bank and Target shall be preserved unimpaired. 13 (d) The Charter Document of Acquiror as in effect immediately prior to the Effective Time shall continue in effect after the Bank Merger until thereafter amended in accordance with applicable law, the members of the Board of Directors and the Executive Officers of Acquiror immediately prior to the Bank Merger shall continue in their respective positions after the Bank Merger and be the Board of Directors and Executive Officers of Acquiror and the operations of Acquiror shall continue in effect after the Bank Merger; except that Acquiror shall have taken prior to the Effective Time all necessary steps so that at the Effective Time (i) the number of authorized directors of Acquiror shall be expanded by one and (ii) one of the current directors of Target (who shall be mutually acceptable to Acquiror and Target) shall be added to the Board of Directors of Acquiror and shall serve until the earlier of his resignation or removal or until his respective successor is duly elected and qualified. [clauses (i) and (ii) being hereinafter collectively referred to as the "Acquiror Corporate Governance Changes"]. 2.2 EFFECTIVE TIME. The Closing shall take place as soon as practicable following the satisfaction or waiver of the conditions set forth in Sections 8.1, 8.2 and 8.3, and the Parties shall use best efforts to cause the Closing to occur as soon as possible after receipt of approval of the Bank Merger from the Commissioner and the FDIC and the expiration of all required waiting periods, or such later time and date as to which the Parties may agree. The Bank Merger shall be effective upon the filing by the Commissioner of the Agreement of Merger as specified in the CFC. Such time is referred to herein as the "Effective Time." 2.3 CONVERSION OF SHARES. At the Effective Time and pursuant to the Agreement of Merger: (a) Subject to the exceptions and limitations in Section 2.4, each outstanding share of Target Stock shall, without any further action on the part of Target or the holders of any of such shares, be converted into shares of Acquiror Stock in accordance with the Exchange Ratio. (b) Each outstanding share of Acquiror Stock shall remain outstanding and shall not be converted or otherwise affected by the Bank Merger. 2.4 CERTAIN EXCEPTIONS AND LIMITATIONS. (A) Any shares of Target Stock held by Acquiror or any subsidiary of Acquiror (other than shares held in a fiduciary capacity or as DPC Property) will be canceled at the Effective Time; (B) Target Perfected Dissenting Shares shall not be converted into shares of Acquiror Stock, but shall, after the Effective Time, be entitled only to such rights as are granted them by Chapter 13 of the CGCL (each dissenting shareholder who is entitled to payment for his shares of Target Stock shall receive such payment in an amount as determined pursuant to Chapter 13 of CGCL), and (C) no fractional shares of Acquiror Stock shall be issued in the Bank Merger and, in lieu thereof, each holder of Target Stock who would otherwise be entitled to receive a fractional share shall receive an amount in cash equal to the product (calculated to the nearest ten thousandth) obtained by multiplying such fractional share interest by the Average Closing Price. 2.5 EXCHANGE PROCEDURES. 14 (a) As of the Effective Time, Acquiror shall have deposited with the Exchange Agent for the benefit of the holders of shares of Target Stock, for exchange in accordance with this Section 2.5 through the Exchange Agent, certificates representing the shares of Acquiror Stock issuable pursuant to Section 2.3 in exchange for shares of Target Stock outstanding immediately prior to the Effective Time, and funds in an amount not less than the amount of cash payable in lieu of fractional shares of Acquiror Stock which would otherwise be payable in connection with Section 2.3 hereof, but for the operation of Section 2.4 of this Agreement (collectively, the "Exchange Fund"). (b) Acquiror shall direct the Exchange Agent to mail promptly after the Effective Time, to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Target Stock (the "Certificates") whose shares were converted into the right to receive shares of Acquiror Stock pursuant to Section 2.3 hereof: (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent, and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Acquiror Stock. Upon surrendering of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Target, together with such letters of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor that amount of cash and a certificate representing that number of whole shares of Acquiror Stock which such holder has the right to receive pursuant to the provisions of Sections 2.3 and 2.4 hereof, and the Certificate so surrendered shall forthwith be canceled. In the event a Certificate is surrendered representing Target Stock, the transfer of ownership which is not registered in the transfer records of Target, a certificate representing the proper number of shares of Acquiror Stock may be issued to a transferee if the Certificate representing such Target Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.5 and except as provided in subsection (g) hereof, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the certificate representing shares of Acquiror Stock and cash in lieu of any fractional shares of stock as contemplated by this Section 2.5. Notwithstanding anything to the contrary set forth herein, if any holder of shares of Target should be unable to surrender the Certificates for such shares, because they have ben lost or destroyed, such holder may deliver in lieu thereof, in the discretion of Acquiror, such bond in form and substance and with surety reasonably satisfactory to Acquiror and shall be entitled to receive the certificate representing the proper number of shares of Acquiror Stock and cash in lieu of fractional shares in accordance with Sections 2.3 and 2.4 hereof. (c) No dividends or other distributions declared or made after the Effective Time with respect to Acquiror Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Acquiror Stock represented thereby and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 2.4 until the holder of record of such Certificate shall surrender such Certificate. Subject to the effect 15 of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Acquiror Stock issued in exchange thereof, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of a fractional share of Acquiror Stock to which such holder is entitled pursuant to Section 2.4 and the amount of dividends or other distribution with a record date after the Effective Time theretofore paid with respect to such whole shares of Acquiror Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Acquiror Stock. (d) All shares of Acquiror Stock issued upon the surrender for exchange of Target Stock in accordance with the terms hereof (including any cash paid pursuant to Section 2.4) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Target Stock, and there shall be no further registration of transfers on the stock transfer books of the Surviving Bank of the shares of Target Stock which were outstanding immediately prior to the Effective Time. If after the Effective Time, Certificates are presented to Acquiror for any reason, they shall be canceled and exchanged as provided in this Agreement. (e) Any portion of the Exchange Fund which remains undistributed to the shareholders of Target following the passage of six months after the Effective Time shall be delivered to Acquiror, upon demand, and any shareholders of Target who have not theretofore complied with this Section 2.5 shall thereafter look only to Acquiror for payment of their claim for Acquiror Stock, any cash in lieu of fractional shares of Acquiror Stock and any dividends or distributions with respect Target Stock. (f) Neither Acquiror nor Target shall be liable to any holder of shares of Target Stock for such shares (or dividends or distributions with respect thereto) or cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (g) The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the shares of Acquiror Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect to such shares of Acquiror Stock for the account of the Persons entitled thereto. Former shareholders of record of Target shall be entitled to vote after the Effective Time at any meeting of Acquiror shareholders the number of whole shares of Acquiror Stock into which their respective shares of Target Stock are converted, regardless of whether such holders have exchanged their Certificates for certificates representing Acquiror Stock in accordance with the provisions of this Agreement. 2.6 DIRECTORS' AGREEMENTS. Concurrently with the execution of this Agreement, Target shall cause each of its respective directors to enter into a Target's Directors' Agreement. 16 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND BANK Acquiror and Bank represent and warrant to Target as follows: 3.1 INCORPORATION, STANDING AND POWER. Acquiror has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of California and is registered as a bank holding company under the BHC Act. Bank has been duly incorporated and is validly existing as a banking company under the laws of California and is authorized by the Commissioner to conduct a general banking business. Bank's deposits are insured by the FDIC in the manner and to the extent provided by law. Acquiror and Bank have all requisite corporate power and authority to own, lease and operate their respective properties and assets and to carry on their respective businesses as presently conducted. Neither the scope of the business of Acquiror or Bank nor the location of any of their respective properties requires that Acquiror or Bank be licensed to do business in any jurisdiction other than in California where the failure to be so licensed would, individually or in the aggregate, have a materially adverse effect on the financial condition, results of operation or business of Acquiror on a consolidated basis. 3.2 CAPITALIZATION. As of the date of this Agreement, the authorized capital stock of Acquiror consists of 50,000,000 shares of Acquiror Stock, of which 10,099,032 shares are outstanding and 25,000,000 shares of Preferred Stock, of which no shares are outstanding. As of the date of this Agreement, the authorized capital stock of Bank consists of 10,125,000 shares of Bank Stock, of which 100 shares are outstanding and are owned by Acquiror without Encumbrance. All the outstanding shares of Acquiror Stock and Bank Stock are duly authorized, validly issued, fully paid, nonassessable and without preemptive rights. Except for Acquiror Stock Options covering shares of Acquiror Stock granted pursuant to the Acquiror Stock Option Plan and except as set forth in Acquiror's Disclosure Letter, there are no outstanding options, warrants or other rights in or with respect to the unissued shares of Acquiror Stock or Bank Stock or any other securities convertible into such stock, and neither Acquiror nor Bank is obligated to issue any additional shares of its capital stock or any options, warrants or other rights in or with respect to the unissued shares of its capital stock or any other securities convertible into such stock. 3.3 SUBSIDIARIES. Except as set forth in Acquiror's Disclosure Letter, neither Acquiror nor Bank own, directly or indirectly, any outstanding stock, Equity Securities or other voting interest in any corporation, partnership, joint venture or other entity or Person, other than DPC Property. 3.4 FINANCIAL STATEMENTS. Acquiror has previously furnished to Target a copy of the Financial Statements of Acquiror. The Financial Statements of Acquiror: (a) present fairly the consolidated financial condition of Acquiror as of the respective dates indicated and its consolidated results of operations and cash flow for the respective periods indicated; and (b) have been prepared in accordance with GAAP. The audits of Acquiror have been conducted in accordance with generally accepted auditing standards. The books and records of Acquiror and Bank are being maintained in material compliance with applicable legal and accounting 17 requirements. Except to the extent (i) reflected in the Financial Statements of Acquiror and (ii) of liabilities incurred since December 31, 1998 in the ordinary course of business and consistent with past practice, neither Acquiror nor Bank has any liabilities, whether absolute, accrued, contingent or otherwise. 3.5 AUTHORITY OF ACQUIROR AND BANK. The execution and delivery by Acquiror and Bank of this Agreement and, subject to the requisite approval of Acquiror as the sole shareholder of Bank, the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Acquiror and Bank, and this Agreement is a valid and binding obligation of Acquiror and Bank enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, liquidation, receivership, conservatorship, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles and by Section 8(b)(6)(D) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(b)(6)(D). Except as set forth in Acquiror's Disclosure Letter, neither the execution and delivery by Acquiror and Bank of this Agreement, the consummation of the Bank Merger or the transactions contemplated herein, nor compliance by Acquiror and Bank with any of the provisions hereof, will: (a) violate any provision of their respective Charter Documents; (b) constitute a breach of or result in a default (or give rise to any rights of termination, cancellation or acceleration, or any right to acquire any securities or assets) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, franchise, license, permit, agreement, Encumbrances or other instrument or obligation to which Acquiror or Bank is a party, or by which Acquiror or Bank or any of their respective properties or assets is bound, if in any such circumstances, such event could have consequences materially adverse to Acquiror on a consolidated basis; or (c) violate any Rule applicable to Acquiror or Bank or any of their respective properties or assets. No Consent of any Governmental Entity having jurisdiction over any aspect of the business or assets of Acquiror or Bank, and no Consent of any Person, is required in connection with the execution and delivery by Acquiror and Bank of this Agreement or the consummation by Acquiror and Bank of the Bank Merger and the transactions contemplated hereby, except (i) the approval of this Agreement and the transactions contemplated hereby by Acquiror as the sole shareholder of Bank; (ii) such approvals or notices as may be required by the FRB, the Commissioner and the FDIC; (iii) the declaring effective of the S-4 by the SEC and the approvals of all necessary blue sky administrators; and (iv) as otherwise set forth in Acquiror's Disclosure Letter. 3.6 LITIGATION. To the knowledge of Acquiror and Bank, neither Acquiror nor Bank is a party to any pending or, to the knowledge of any of the officers, threatened legal, administrative or other claim, action, suit, investigation, arbitration or proceeding challenging the validity or propriety of any of the transactions contemplated by this Agreement. 3.7 COMPLIANCE WITH LAWS AND REGULATIONS. Except as set forth in Acquiror's Disclosure Letter, neither Acquiror nor Bank is in default under or in breach of any provision of its Charter Documents or any Rule promulgated by any Governmental Entity having authority over it, where such default or breach would have a material adverse effect on the business, financial condition or results of operations of Acquiror or Bank. 18 3.8 BROKERS AND FINDERS. Except as provided in Acquiror's Disclosure Letter with copies of any such agreements attached, neither Acquiror nor Bank is not a party to or obligated under any agreement with any broker or finder relating to the transactions contemplated hereby, and neither the execution of this Agreement nor the consummation of the transactions provided for herein or therein will result in any liability to any broker or finder. 3.9 ABSENCE OF MATERIAL CHANGE. Since December 31, 1998, the businesses of Acquiror and Bank have been conducted only in the ordinary course, in substantially the same manner as theretofore conducted, and, except as set forth in Acquiror's Disclosure Letter, there has not occurred since December 31, 1998 any event that has had or may reasonably be expected to have a material adverse effect on the business, financial condition or results of operation of Acquiror or Bank. 19 3.10 ENVIRONMENTAL MATTERS. Except as set forth in Acquiror's Disclosure Letter, to the knowledge of Acquiror and Bank, (i) each of Acquiror and Bank is in compliance with all Environmental Laws; (ii) there are no Tanks on or about Acquiror Property; (iii) there are no Hazardous Materials on, below or above the surface of, or migrating to or from Acquiror Property; (iv) neither Acquiror nor Bank has loans outstanding secured by real property that is not in compliance with Environmental Laws or which has a leaking Tank or upon which there are Hazardous Materials on or migrating to or from; and (v) without limiting the foregoing representations and warranties contained in clauses (i) through (iv), as of the date of this Agreement, there is no claim, action , suit, or proceeding or notice thereof before any Governmental Entity pending against Acquiror or Bank or concerning property securing Acquiror and Bank loans and there is no outstanding judgment, order, writ, injunction, decree, or award against or affecting Acquiror Property or property securing Acquiror or Bank loans, relating to the foregoing representations (i) -- (iv), in each case the noncompliance with which, or the presence of which would have a material adverse effect on the business, financial condition, results of operations or prospects of Acquiror or Bank. For purposes of this Agreement, the term "Environmental Laws" shall mean all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, concessions, franchises, and similar items of all Governmental Entities and all applicable judicial, administrative, and regulatory decrees, judgments, and orders relating to the protection of human health or the environment, including, without limitation: all requirements, including, but not limited to those pertaining to reporting, licensing, permitting, investigation, and remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials, chemical substances, pollutants, contaminants, or hazardous or toxic substances, materials or wastes whether solid, liquid, or gaseous in nature, into the air, surface water, groundwater, or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of chemical substances, pollutants, contaminates, or hazardous or toxic substances, materials, or wastes, whether solid, liquid, or gaseous in nature and all requirements pertaining to the protection of the health and safety of employees or the public. "Acquiror Property" shall mean real estate currently owned, leased, or otherwise used by Acquiror or Bank, or in which Acquiror or Bank has an investment or security interest by mortgage, deed of trust, sale and lease-back or otherwise, including without limitation, properties under foreclosure and properties held by Acquiror or Bank in its capacity as a trustee or otherwise. "Tank" shall mean treatment or storage tanks, sumps, or water, gas or oil wells and associated piping transportation devices. "Hazardous Materials" shall mean any substance the presence of which requires investigation or remediation under any federal, state, or local statute, regulation, ordinance, order, action, policy or common law, or which is or becomes defined as a hazardous waste, hazardous substance, hazardous material, used oil, pollutant or contaminant under any federal, state or local statute, regulation, rule or ordinance or amendments thereto including without limitation, the Comprehensive Environmental Response; Compensation and Liability Act (42 U.S.C. Section 9601, ET SEQ.); the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, ET SEQ.); the Clean Air Act, as amended (42 U.S.C. Section 7401, ET SEQ.); the Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1251, ET SEQ.); the Toxic Substances Control Act, as amended (15 U.S.C. Section 9601, et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. Section 65); the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. Section 11001, ET SEQ.); the Mine Safety and Health Act of 1977, as amended (30 U.S.C. Section 20 801, ET SEQ.); the Safe Drinking Water Act (42 U.S.C. Section 300f, ET SEQ.); and all comparable state and local laws, including without limitation, the Carpenter-Presley-Tanner Hazardous Substance Account Act (State Superfund), the Porter-Cologne Water Quality Control Action, Section 25140, 25501(j) and (k); 25501.1.25281 and 25250.1 of the California HEALTH AND SAFETY CODE and/or Article I of Title 22 of the California CODE OF REGULATIONS, Division 4, Chapter 30; laws of other jurisdictions or orders and regulations; or the presence of which causes or threatens to cause a nuisance, trespass or other common law tort upon real property or adjacent properties or poses or threatens to pose a hazard to the health or safety of persons or without limitation, which contains gasoline, diesel fuel or other petroleum hydrocarbons; polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde foam insulation. 3.11 COMMUNITY REINVESTMENT ACT. Bank received a rating of "satisfactory" or better in its most recent examination or interim review with respect to the Community Reinvestment Act. Neither Acquiror nor Bank has been advised of any concerns regarding compliance with the Community Reinvestment Act by any Governmental Entity or by any other Person. 3.12 POOLING OF INTERESTS. It is intended that the Bank merger be accounted for on a pooling of interests basis, and no event has occurred to the knowledge of Acquiror or Bank or is reasonably foreseeable (including any transaction contemplated by this Agreement) that could alter such treatment. 3.13 SEC REPORTS. As of the respective dates, since December 31, 1996, none of Acquiror's SEC Reports contained at the time of filing any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstance under which they were made, not misleading. 3.14 TRUST ADMINISTRATION. Acquiror and Bank do not presently exercise trust powers, including, but not limited to, trust administration, and have not exercised such trust powers for a period of at least 3 years prior to the date hereof. The term "trusts" as used in this Section 3.31 includes (i) any and all common law or other trusts between an individual, corporation or other entities and Acquiror or Bank, as trustee or co-trustee, including, without limitation, pension or other qualified or nonqualified employee benefit plans, compensation, testamentary, inter vivos, charitable trust indentures; (ii) any and all decedents' estates where Acquiror or Bank are serving or have served as a co-executor or sole executor, personal representative or administrator, administrator de bonis non, administrator de bonis non with will annexed, or in any similar fiduciary capacity; (iii) any and all guardianships, conservatorships or similar positions where Acquiror or Bank are serving or have served as a co-grantor or a sole grantor or a conservator or a co-conservator of the estate, or any similar fiduciary capacity; and (iv) any and all agency and/or custodial accounts and/or similar arrangements, including plan administrator for employee benefit accounts, under which Acquiror or Bank are serving or have served as an agent or custodian for the owner or other party establishing the account with or without investment authority. 3.15 REGULATORY APPROVALS. To the knowledge of Acquiror and Bank, except as described in Acquiror's Disclosure Letter, Acquiror and Bank have no reason to believe that they would not 21 receive all required approvals from any Governmental Entity of any application to consummate the transactions contemplated by this Agreement without the imposition of a materially burdensome condition in connection with the approval of any such application. 3.16 YEAR 2000 READINESS. Except as described in Acquiror's Disclosure Letter, Acquiror and Bank are taking all reasonable steps to correct their respective computer programs and applications so that they will not fail or will create erroneous results by or at the Year 2000 and neither Acquiror nor Bank has been advised of any concerns regarding readiness with Year 2000 issues by any Governmental Entity or by any other Person. Further, except as described in Acquiror's Disclosure Letter, (i)Acquiror's and Bank's computer software and related hardware (the "Computer System") used for the storage and processing of data are or will be prior to the year 2000 Year 2000 Readiness; (ii) to the best of Acquiror's knowledge after the inquiry, none ofAcquiror's and Bank's Computer System, operations or business functions of Acquiror or Bank will be materially adversely affected by any third party's failure to be Year 2000 Readiness and to the best ofAcquiror's knowledge after due inquiry, all of Acquiror's and Bank's suppliers, customers and third party providers are, or will be prior to year 2000, Year 2000 Readiness; and (iii) Acquiror and Bank are taking or have taken, all necessary and appropriate action to address and remedy any deficiencies in their Computer System which would keep it from becoming Year 2000 Readiness. As used herein, "Year 2000 Readiness" shall mean the ability of a Computer System to provide the following functions, without human intervention, individually and in combination with other products or systems: (i) consistently handle, record, store, process and present dates and date-related information before, during and after January1, 2000, including but not limited to accepting date input, performing calculations on dates or portion of dates, and providing date output; (ii) function accurately in accordance with the published specifications and without undue interruption, before, during, and after January 1, 2000 (including leap year computations) without any adverse change in operation associated with the advent of the year 2000; (iii) respond to two-digit or four-digit dates and date-related input in a way that resolves any ambiguity as to the year 2000 in a disclosed, defined and predetermined manner, and store and provide output of dates and date-related information in ways that are unambiguous as to the year 2000; and (iv) suitably interact with other software and related hardware in a way which does not compromise its year 2000 readiness capability. 3.17 PERFORMANCE OF OBLIGATIONS. Acquiror and Bank has each performed all of the obligations required to be performed by it to date and is not in material default under or in breach of any term or provision of any material contract, and no event has occurred that, with the giving of notice or the passage of time or both, would constitute such default or breach. To Acquiror's and Bank's knowledge, no party with whom either has an agreement that is material to its business is in default thereunder. 3.18 LICENSES AND PERMITS. Each of Acquiror and Bank has all licenses and permits that are necessary for the conduct of its businesses, and such licenses are in full force and effect, except for any failure to be in full force and effect that would not, individually or in the aggregate, have a material adverse effect on the business, financial condition or results of operations of Acquiror. 22 The properties and operations of Acquiror and Bank are and have been maintained and conducted, in all material respects, in compliance with all applicable Rules. 3.19 UNDISCLOSED LIABILITIES. Except as set forth in Acquiror's Disclosure Letter neither Acquiror nor Bank has any liabilities or obligations, either accrued or contingent, that are material to it and that have not been:(a) reflected or disclosed in the Financial Statements of Acquiror or (b) incurred subsequent to December 31, 1998 in the ordinary course of business. Neither Acquiror nor Bank knows of any basis for the assertion against it of any liability, obligation or claim (including, without limitation, that of any Governmental Entity) that is likely to result in or cause a material adverse change in the business, financial condition or results of operations of Acquiror that is not fairly reflected in the Financial Statements of Acquiror or otherwise disclosed in this Agreement. 3.20 ACCOUNTING RECORDS. Each of Acquiror and Bank maintains accounting records which fairly and validly reflect, in all material respects, its transactions and accounting controls sufficient to provide reasonable assurances that such transactions are (i) executed in accordance with its management's general or specific authorization, and (ii) recorded as necessary to permit the preparation of financial statements in conformity with GAAP. Such records, to the extent they contain material information pertaining to Acquiror or Bank which is not easily and readily available elsewhere, have been duplicated, and such duplicates are stored safely and securely. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF TARGET Target represents and warrants to Acquiror and Bank as follows: 4.1 INCORPORATION, STANDING AND POWER. Target has been duly incorporated and is validly existing as a banking company under the laws of California and is authorized by the Commissioner to conduct a general banking business. Target is not a member bank of the Federal Reserve System and its deposits are insured by the FDIC in the manner and to the extent provided by law. Target has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted. Neither the scope of the business of Target nor the location of any of its properties requires that Target be licensed to do business in any jurisdiction other than in California where the failure to be so licensed would, individually or in the aggregate, have a materially adverse effect on the financial condition, results of operation or business of Target. 23 4.2 CAPITALIZATION. As of the date of this Agreement, the authorized capital stock of Target consists of 5,000,000 shares of Target Stock, of which 1,637,606 shares are outstanding. All the outstanding shares of Target Stock are duly authorized, validly issued, fully paid, nonassessable and without preemptive rights. Except for Target stock options covering 127,172 shares of Target Stock granted pursuant to the Target Stock Option Plan ("Target Stock Options") and except as set forth in Target's Disclosure Letter, there are no outstanding options, warrants or other rights in or with respect to the unissued shares of Target Stock or any other securities convertible into such stock, and Target is not obligated to issue any additional shares of its capital stock or any options, warrants or other rights in or with respect to the unissued shares of its capital stock or any other securities convertible into such stock. 4.3 SUBSIDIARIES. Except as set forth in Target's Disclosure Letter, Target does not own, directly or indirectly, any outstanding stock, Equity Securities or other voting interest in any corporation, partnership, joint venture or other entity or Person, other than DPC Property. 4.4 FINANCIAL STATEMENTS. Target has previously furnished to Bank and Acquiror a copy of the Financial Statements of Target. The Financial Statements of Target: (a) present fairly the financial condition of Target as of the respective dates indicated and its results of operations and cash flow for the respective periods indicated; and (b) have been prepared in accordance with GAAP. The audits of Target have been conducted in accordance with generally accepted auditing standards. The books and records of Target are being maintained in material compliance with applicable legal and accounting requirements. Except to the extent (i) reflected in the Financial Statements of Target and (ii) of liabilities incurred since December 31, 1998 in the ordinary course of business and consistent with past practice, Target has no liabilities, whether absolute, accrued, contingent or otherwise. 4.5 AUTHORITY OF TARGET. The execution and delivery by Target of this Agreement and, subject to the requisite approval of the shareholders of Target, the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Target, and this Agreement is a valid and binding obligation of Target, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, liquidation, receivership, conservatorship, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles and by Section 8(b)(6)(D) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(b)(6)(D). Except as set forth in Target's Disclosure Letter, neither the execution and delivery by Target of this Agreement, the consummation of the Bank Merger or the transactions contemplated herein, nor compliance by Target with any of the provisions hereof, will: (a) violate any provision of its Charter Documents; (b) constitute a breach of or result in a default (or give rise to any rights of termination, cancellation or acceleration, or any right to acquire any securities or assets) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, franchise, license, permit, agreement, Encumbrance or other instrument or obligation to which Target is a party, or by which Target or any of its properties or assets is bound, if in any such circumstances, such event could have consequences materially adverse to Target; or (c) violate any Rule applicable to Target or any of its properties or assets. No Consent of any Governmental Entity having jurisdiction over any aspect of 24 the business or assets of Target, and no Consent of any Person, is required in connection with the execution and delivery by Target of this Agreement or the consummation by Target of the Bank Merger and the transactions contemplated hereby, except (i) the approval of this Agreement and the transactions contemplated hereby by the shareholders of Target; (ii) such approvals or notices as may be required by the FRB, the Commissioner and the FDIC; (iii) the declaring effective of the S-4 by the SEC and the approvals of all necessary blue sky administrators; and (iv) as otherwise set forth in Target's Disclosure Letter. 4.6 INSURANCE. Target has policies of insurance and bonds covering its assets and businesses against such casualties and contingencies and in such amounts, types and forms as are customary in the banking industry for its businesses, operations, properties and assets. All such insurance policies and bonds are in full force and effect. Except as set forth in Target's Disclosure Letter, Target has not received notice from any insurer that any such policy or bond has canceled or indicating an intention to cancel or not to renew any such policy or bond or generally disclaiming liability thereunder. Except as set forth in Target's Disclosure Letter, Target is not in default under any such policy or bond and all material claims thereunder have been filed in a timely fashion. Target's Disclosure Letter sets forth a list of all policies of insurance carried and owned by Target, showing the name of the insurance company, the nature of the coverage, the policy limit, the annual premiums and the expiration dates. The existing insurance carried by Target is sufficient for compliance by Target with all material requirements of law and regulations and agreements to which Target is subject or is a party. 4.7 TITLE TO ASSETS. Target's Disclosure Letter sets forth a summary of all items of personal property and equipment with a book value of $50,000 or more, or having an annual lease payment of $15,000 or more, owned or leased by Target. Target has good and marketable title to all its properties and assets, other than real property, owned or stated to be owned by Target, free and clear of all Encumbrances except: (a) as set forth in the Financial Statements of Target; (b) Encumbrances for current taxes not yet due; (c) Encumbrances incurred in the ordinary course of business, if any, that, to the knowledge of Target, (i) are not substantial in character, amount or extent, (ii) do not materially detract from the value, (iii) do not interfere with present use, of the property subject thereto or affected thereby, and (iv) do not otherwise materially impair the conduct of business of Target; or (d) as set forth in Target's Disclosure Letter. 4.8 REAL ESTATE. Target's Disclosure Letter sets forth a list of all real property, including leaseholds, owned by Target, together with (i) a description of the locations thereof, (ii) a description of each real property lease, sublease, installment purchase, or similar arrangement to which Target is a party, and (iii) a description of each contract for the purchase, sale or development of real estate to which Target is a party. Target has good and marketable title to the real property, and valid leasehold interests in the leaseholds, set forth in Target's Disclosure Letter, free and clear of all Encumbrances, except (a) for rights of lessors, co-lessees or sublessees in such matters that are reflected in the lease; (b) Encumbrances for current taxes not yet due and payable; (c) Encumbrances incurred in the ordinary course of business, if any, that, to the knowledge of Target, (i) are not substantial in character, amount or extent, (ii) do not materially detract from the value, (iii) do not interfere with present use, of the property subject thereto or affected thereby, and 25 (iv) do not otherwise materially impair the conduct of business of Target; or (d) as set forth in Target's Disclosure Letter. Target, as lessee, has the right under valid and subsisting leases to occupy, use and possess all property leased by it, as identified in Target's Disclosure Letter, and, to the knowledge of Target, there has not occurred under any such lease any breach, violation or default. Except as set forth in Target's Disclosure Letter and except with respect to deductibles under insurance policies set forth in Target's Disclosure Letter, Target has not experienced any uninsured damage or destruction with respect to the properties identified in Target's Disclosure Letter. To the knowledge of Target, all properties and assets used by Target are in good operating condition and repair, suitable for the purposes for which they are currently utilized, and comply with all applicable Rules related thereto. Target enjoys peaceful and undisturbed possession under all leases for the use of real or personal property under which it is the lessee, and, to the knowledge of Target, all leases to which Target is a party are valid and enforceable in all material respects in accordance with the terms thereof except as may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights and except as may be limited by the exercise of judicial discretion in applying principles of equity. Target is not in default with respect to any such lease, and to the knowledge of the officers of Target no event has occurred which with the lapse of time or the giving of notice, or both, would constitute a default under any such lease. Copies of each such lease are attached to Target's Disclosure Letter. 4.9 LITIGATION. Except as set forth in Target's Disclosure Letter, to the knowledge of Target, there is no private or governmental suit, claim, action, investigation or proceeding pending, nor to Target's knowledge threatened, against Target or against any of its directors, officers or employees relating to the performance of their duties in such capacities or against or affecting any properties of Target. Also, except as disclosed in Target's Disclosure Letter, there are no judgments, decrees, stipulations or orders against Target enjoining it or any of its directors, officers or employees in respect of, or the effect of which is to prohibit, any business practice or the acquisition of any property or the conduct of business in any area of Target. To the knowledge of Target, Target is not a party to any pending or, to the knowledge of any of the officers, threatened legal, administrative or other claim, action, suit, investigation, arbitration or proceeding challenging the validity or propriety of any of the transactions contemplated by this Agreement. 4.10 TAXES. Except as set forth in Target's Disclosure Letter, Target had filed all federal and foreign income tax returns, all state and local franchise and income tax, real and personal property tax, sales and use tax, premium tax, excise tax and other tax returns of every character required to be filed by it and have paid all taxes, together with any interest and penalties owing in connection therewith, shown on such returns to be due in respect of the periods covered by such returns, other than taxes which are being contested in good faith and for which adequate reserves have been established. Except as set forth in Target's Disclosure Letter, Target has filed all required payroll tax returns, has fulfilled all tax withholding obligations and have paid over to the appropriate governmental authorities the proper amounts with respect to the foregoing. The tax and audit positions taken by Target in connection with the tax returns described in the preceding sentence were reasonable and asserted in good faith. Adequate provision has been made in the books and records of Target and, to the extent required by generally accepted accounting procedures, reflected in the Financial Statements of Target, for all tax liabilities, including interest 26 or penalties, whether or not due and payable and whether or not disputed, with respect to any and all federal, foreign, state, local and other taxes for the periods covered by such financial statements and for all prior periods. Target's Disclosure Letter sets forth (i) the date or dates through which the IRS has examined the federal tax returns of Target and the date or dates through which any foreign, state, local or other taxing authority has examined any other tax returns of Target; (ii) a complete list of each year for which any federal, state, local or foreign tax authority has obtained or has requested an extension of the statute of limitations from Target and lists each tax case of Target currently pending in audit, at the administrative appeals level or in litigation; and (iii) the date and issuing authority of each statutory notice of deficiency, notice of proposed assessment and revenue agent's report issued to Target within the last twelve (12) months. Except as set forth in Target's Disclosure Letter, to the knowledge of Target, neither the IRS nor any foreign, state, local or other taxing authority has, during the past three years, examined or is in the process of examining any federal, foreign, state, local or other tax returns of Target. To the knowledge of Target, neither the IRS nor any foreign, state, local or other taxing authority is now asserting or threatening to assert any deficiency or claim for additional taxes (or interest thereon or penalties in connection therewith) except as set forth in Target's Disclosure Letter. 4.11 COMPLIANCE WITH LAWS AND REGULATIONS. Except as set forth in Target's Disclosure Letter, Target is not in default under or in breach of any provision of its Charter Documents or any Rule promulgated by any Governmental Entity having authority over it, where such default or breach would have a material adverse effect on the business, financial condition or results of operations of Target. 4.12 PERFORMANCE OF OBLIGATIONS. Target has performed all of the obligations required to be performed by it to date and is not in material default under or in breach of any term or provision of any material contract , and no event has occurred that, with the giving of notice or the passage of time or both, would constitute such default or breach. To Target's knowledge, no party with whom Target has an agreement that is material to the business of Target is in default thereunder. 4.13 EMPLOYEES. Except as set forth in Target's Disclosure Letter, there are no controversies pending or threatened between Target and any of its employees that are likely to have a material adverse effect on the business, financial condition or results of operation of Target. Target is not a party to any collective bargaining agreement with respect to any of its employees or any labor organization to which its employees or any of them belong. 4.14 BROKERS AND FINDERS. Except as provided in Target's Disclosure Letter with copies of any such agreements attached, Target is not a party to or obligated under any agreement with any broker or finder relating to the transactions contemplated hereby, and neither the execution of this Agreement nor the consummation of the transactions provided for herein or therein will result in any liability to any broker or finder. 4.15 ABSENCE OF MATERIAL CHANGE. Since December 31, 1998, the business of Target has been conducted only in the ordinary course, in substantially the same manner as theretofore conducted, and, except as set forth in Target's Disclosure Letter, there has not occurred since 27 December 31, 1998, any event that has had or may reasonably be expected to have a material adverse effect on the business, financial condition or results of operation of Target. 4.16 LICENSES AND PERMITS. Target has all licenses and permits that are necessary for the conduct of its businesses, and such licenses are in full force and effect, except for any failure to be in full force and effect that would not, individually or in the aggregate, have a material adverse effect on the business, financial condition or results of operations of Target. The properties and operations of Target are and have been maintained and conducted, in all material respects, in compliance with all applicable Rules. 4.17 UNDISCLOSED LIABILITIES. Except as set forth in Target's Disclosure Letter Target has no liabilities or obligations, either accrued or contingent, that are material to Target and that have not been:(a) reflected or disclosed in the Financial Statements of Target or (b) incurred subsequent to December 31, 1998 in the ordinary course of business. Target does not know of any basis for the assertion against it of any liability, obligation or claim (including, without limitation, that of any Governmental Entity) that is likely to result in or cause a material adverse change in the business, financial condition or results of operations of Target that is not fairly reflected in the Financial Statements of Target or otherwise disclosed in this Agreement. 4.18 EMPLOYEE BENEFIT PLANS. (a) Except as set forth in Target's Disclosure Letter, Target has no "employee benefit plan," as defined in Section 3(3) of ERISA. (b) Target's Disclosure Letter sets forth copies or descriptions of each Benefit Arrangement maintained or otherwise contributed to by Target (such plans and arrangements being collectively referred to herein as "Target Benefit Arrangements"). Except as set forth in Target's Disclosure Letter, all Target Benefit Arrangements which are in effect have been in effect for substantially all of 1998. Except as set forth in Target's Disclosure Letter, there has been no material amendment thereof or increase in the cost thereof or benefits payable thereunder since December 31, 1998. Except as set forth in Target's Disclosure Letter, there has been no material increase in the compensation of or benefits payable to any senior executive employee of Target since December 31, 1998, nor any employment, severance or similar contract entered into with any such employee, nor any amendment to any such contract, since December 31, 1998. Except as set forth in Target's Disclosure Letter, there is no contract, agreement or benefit arrangement covering any employee of Target which individually or collectively could give rise to the payment of any amount which would constitute an "excess parachute payment," as such term is defined in Section 280(G) of the Code. (c) With respect to all Target Benefit Arrangements, Target is in substantial compliance (other than noncompliance the cost or liability for which is not material) with the requirements prescribed by any and all statutes, governmental or court orders, or governmental rules or regulations currently in effect, applicable to such plans or arrangements. 28 (d) Except for the contracts set forth in Target's Disclosure Letter, each Target Benefit Arrangement and each personal services contract, fringe benefit, consulting contract or similar arrangement with or for the benefit of any officer, director, employee or other person can be terminated by Target within a period of 30 days following the Effective Time of the Bank Merger, without payment of any amount as a penalty, bonus, premium, severance pay or other compensation for such termination. 4.19 CORPORATE RECORDS. The Charter Documents of Target and all amendments thereto to the date hereof (true, correct and complete copies of which are set forth in Target's Disclosure Letter) are in full force and effect as of the date of this Agreement. The minute books of Target, together with the documents and other materials incorporated therein by reference, reflect all meetings held and contain complete and accurate records of all corporate actions taken by the board of directors of Target (or any committees thereof) and stockholders. Except as reflected in such minute books, there are no minutes of meetings or consents in lieu of meetings of the board of directors (or any committees thereof) or of the stockholders of Target. 4.20 ACCOUNTING RECORDS. Target maintains accounting records which fairly and validly reflect, in all material respects, its transactions and accounting controls sufficient to provide reasonable assurances that such transactions are (i) executed in accordance with its management's general or specific authorization, and (ii) recorded as necessary to permit the preparation of financial statements in conformity with GAAP. Such records, to the extent they contain material information pertaining to Target which is not easily and readily available elsewhere, have been duplicated, and such duplicates are stored safely and securely. 4.21 OFFICES AND ATMS. Set forth in Target's Disclosure Letter is a list of the headquarters of Target (identified as such) and each of the offices and automated teller machines ("ATMs") maintained and operated (or to be maintained and operated) by Target (including, without limitation, representative and loan production offices and operations centers) and the location thereof. Except as set forth in Target's Disclosure Letter, Target maintains no other office or ATM and conducts business at no other location, and Target has not applied for nor received permission to open any additional branch nor operate at any other location. 4.22 LOAN PORTFOLIO. Target's Disclosure Letter sets forth a description of: (a) by type and classification, all loans, leases, other extensions and commitments to extend credit of Target of $25,000 or more, that have been classified by itself, its bank examiners or auditors (external or internal) as "Watch List," "Substandard," "Doubtful," "Loss" or any comparable classification; and (b) all loans due to Target as to which any payment of principal, interest or any other amount is 30 days or more past due. Target's allowance for loan losses is and will be at the Effective Time adequate and in accordance with GAAP in all materials respects and in accordance with all applicable regulatory requirements of any Governmental Entity. 4.23 POWER OF ATTORNEY. Except as set forth in Target's Disclosure Letter, Target has not granted any Person a power of attorney or similar authorization that is presently in effect or outstanding. 29 4.24 OPERATING LOSSES. Target's Disclosure Letter sets forth any Operating Loss which has occurred at Target during the period after December 31, 1998. To the knowledge of Target, no action has been taken or omitted to be taken by an employee of Target that has resulted in the incurrence by Target of an Operating Loss or that might reasonably be expected to result in an Operating Loss after December 31, 1998, which, net of any insurance proceeds payable in respect thereof, would exceed $25,000. "Operating Loss" means any loss resulting from cash shortages, lost or misposted items, disputed clerical and accounting errors, forged checks, payment of checks over stop payment orders, counterfeit money, wire transfers made in error, theft, robberies, defalcations, check kiting, fraudulent use of credit cards or electronic teller machines or other similar acts or occurrences. 4.25 ENVIRONMENTAL MATTERS. Except as set forth in Target's Disclosure Letter, to the knowledge of Target, (i) Target is in compliance with all Environmental Laws; (ii) there are no Tanks on or about Target Property; (iii) there are no Hazardous Materials on, below or above the surface of, or migrating to or from Target Property; (iv) Target has no loans outstanding secured by real property that is not in compliance with Environmental Laws or which has a leaking Tank or upon which there are Hazardous Materials on or migrating to or from; and (v) without limiting the foregoing representations and warranties contained in clauses (i) through (iv), as of the date of this Agreement, there is no claim, action , suit, or proceeding or notice thereof before any Governmental Entity pending against Target or concerning property securing Target loans and there is no outstanding judgment, order, writ, injunction, decree, or award against or affecting Target Property or property securing Target loans, relating to the foregoing representations (i) -- (iv), in each case the noncompliance with which, or the presence of which would have a material adverse effect on the business, financial condition, results of operations or prospects of Target. "Target Property" shall mean real estate currently owned, leased, or otherwise used by Target, or in which Target has an investment or security interest by mortgage, deed of trust, sale and lease-back or otherwise, including without limitation, properties under foreclosure and properties held by Target in its capacity as a trustee or otherwise. 4.26 COMMUNITY REINVESTMENT ACT. Target received a rating of "satisfactory" or better in its most recent examination or interim review with respect to the Community Reinvestment Act. Target has not been advised of any concerns regarding Target's compliance with the Community Reinvestment Act by any Governmental Entity or by any other Person. 4.27 DERIVATIVES. Target is not currently a party to any interest rate swap, cap, floor, option agreement, other interest rate risk management arrangement or agreement or derivative-type security or derivative arrangement or agreement. 4.28 POOLING OF INTERESTS. It is intended that the Bank Merger be accounted for on a pooling of interest basis and to the knowledge of Target no event has occurred or is reasonable foreseeable (including any transaction contemplated by this Agreement that could alter such treatment.) 30 4.29 SEC REPORTS. Target is not currently required to file any reports pursuant to the Exchange Act. 4.30 MATERIAL CONTRACTS. Except as set forth in Target's Disclosure Letter (all items listed or required to be listed in Target's Disclosure Letter as a result of this Section being referred to herein as "Target Scheduled Contracts"), Target is not a party or otherwise subject to: (a) any employment, deferred compensation, bonus or consulting contract; (b) any advertising, brokerage, licensing, dealership, representative or agency relationship or contract; (c) any contract or agreement that would restrict Acquiror or the Surviving Bank after the Effective Time from competing in any line of business with any Person or using or employing the services of any Person; (d) any collective bargaining agreement or other such contract or agreement with any labor organization; (e) any lease of real or personal property providing for annual lease payments by or to Target in excess of $ 25,000 per annum other than financing leases entered into in the ordinary course of business in which Target is lessor and leases of real property presently used by Target as banking offices. (f) any mortgage, pledge, conditional sales contract, security agreement, option, or any other similar agreement with respect to any interest of Target (other than as mortgagor or pledgor in the ordinary course of their banking business or as mortgagee, secured party or deed of trust beneficiary in the ordinary course of their business) in personal property having a value of $25,000 or more; (g) any stock purchase, stock option, stock bonus, stock ownership, profit sharing, group insurance, bonus, deferred compensation, severance pay, pension, retirement, savings or other incentive, welfare or employment plan or material agreement providing benefits to any present or former employees, officers or directors of Target; (h) any agreement to acquire equipment or any commitment to make capital expenditures of $ 25,000 or more; (i) other than agreements entered into in the ordinary course of business with respect to DPC Property, any agreement for the sale of any property or assets in which Target has an ownership interest or for the grant of any preferential right to purchase any such property or asset; (j) any agreement for the borrowing of any money (other than liabilities or interbank borrowings made in the ordinary course of their banking business and reflected in the financial records of Target); 31 (k) any restrictive covenant contained in any deed to or lease of real property owned or leased by Target (as lessee) that materially restricts the use, transferability or value of such property; (l) any guarantee or indemnification which involves the sum of $25,000 or more, other than letters of credit or loan commitments issued in the normal course of business; (m) any supply, maintenance or landscape contracts not terminable by Target without penalty on 30 days or less notice and which provides for payments in excess of $ 25,000 per annum; (n) other than as disclosed with reference to subparagraph (k) of this Section 4.30, any agreement which would be terminable other than by Target or as a result of the consummation of the transactions contemplated by this Agreement; (o) any contract of participation with any other bank in any loan entered into by Target subsequent to December 31, 1998 in excess of $25,000 or any sales of assets of Target with recourse of any kind to Target except the sale of mortgage loans, servicing rights, repurchase or reverse repurchase agreements, securities or other financial transactions in the ordinary course of business; (p) any other agreement of any other kind, including for data processing and similar services, which involves future payments or receipts or performances of services or delivery of items requiring aggregate payment of $25,000 or more to or by Target other than payments made under or pursuant to loan agreements, participation agreements and other agreements for the extension of credit in the ordinary course of their business; (q) any material agreement, arrangement or understanding not made in the ordinary course of business; (r) any agreement, arrangement or understanding relating to the employment, election, retention in office or severance of any present or former director, officer or employee of Target; (s) any agreement, arrangement or understanding pursuant to which any payment (whether severance pay or otherwise) became or may become due to any director, officer or employee of Target upon execution of this Agreement or upon or following consummation of the transactions contemplated hereby (either alone or in connection with the occurrence of any additional acts or events); or (t) any written agreement, supervisory agreement, memorandum of understanding, consent order, cease and desist order, capital order, or condition of any regulatory order or decree with or by the Commissioner, FDIC, FRB or any other regulatory agency. True copies of all Target Scheduled Contracts, including all amendments and supplements thereto, are attached to Target's Disclosure Letter. 32 4.31 TRUST ADMINISTRATION. Target does not presently exercise trust powers, including, but not limited to, trust administration, and has not exercised such trust powers for a period of at least 3 years prior to the date hereof. The term "trusts" as used in this Section 4.31 includes (i) any and all common law or other trusts between an individual, corporation or other entities and Target, as trustee or co-trustee, including, without limitation, pension or other qualified or nonqualified employee benefit plans, compensation, testamentary, inter vivos and charitable trust indentures; (ii) any and all decedents' estates where Target is serving or has served as a co-executor or sole executor, personal representative or administrator, administrator de bonis non, administrator de bonis non with will annexed, or in any similar fiduciary capacity; (iii) any and all guardianships, conservatorships or similar positions where Target is serving or has served as a co-grantor or a sole grantor or a conservator or a co-conservator of the estate, or any similar fiduciary capacity; and (iv) any and all agency and/or custodial accounts and/or similar arrangements, including plan administrator for employee benefit accounts, under which Target is serving or has served as an agent or custodian for the owner or other party establishing the account with or without investment authority. 4.32 REGULATORY APPROVALS. To the knowledge of Target, except as described in Target's Disclosure Letter, Target has no reason to believe that it would not receive all required approvals from any Governmental Entity of any application to consummate the transaction contemplated by this Agreement without the imposition of a materially burdensome condition in connection with the approval of any such application. 4.33 YEAR 2000 READINESS. Except as described in Target's Disclosure Letter, Target is are taking all reasonable steps to correct itsrespective computer programs and applications so that they will not fail or will create erroneous results by or at the Year 2000 and Target has not been advised of any concerns regarding readiness with Year 2000 issues by any Governmental Entity or by any other Person. Further, except as described in Target's Disclosure Letter, (i) Target's Computer System used for the storage and processing of data are or will be prior to the year 2000 Year 2000 Readiness; (ii) to the best of Target's knowledge after due inquiry, none of Target's Computer System, operations or business functions of Target will be materially adversely affected by any third party's failure to be Year 2000 Readiness and to the best of Target's knowledge after due inquiry, all of its suppliers, customers and third party providers are, or will be prior to year 2000, Year 2000 Readiness; and (iii) Target is taking or has taken, all necessary and appropriate action to address and remedy any deficiencies in its Computer System which would keep it from becoming Year 2000 Readiness. 33 ARTICLE 5 AGREEMENTS WITH RESPECT TO CONDUCT OF ACQUIROR AND BANK AFTER THE DATE HEREOF Acquiror and Bank covenant and agree with Target as follows: 5.1 ACCESS. (a) Acquiror and Bank will authorize and permit Target, its representatives, accountants and counsel, to have access during normal business hours, on notice and in such manner as will not unreasonably interfere with the conduct of the businesses of either Acquiror or Bank, to all properties, books, records, branch operating reports, branch audit reports, operating instructions and procedures, tax returns, tax settlement letters, contracts and documents, and all other information with respect to their business affairs, financial condition, assets and liabilities as Target may from time to time reasonably request. Acquiror and Bank shall permit Target, its representatives, accountants and counsel to make copies of such books, records and other documents and to discuss the business affairs, condition (financial and otherwise), assets and liabilities of Acquiror and Bank with such third Persons, including, without limitation, its directors, officers, employees, accountants, counsel and creditors, as Target considers necessary or appropriate for the purposes of familiarizing itself with the businesses and operations of Acquiror and Bank, obtaining any necessary orders, consents or approvals of the transactions contemplated by this Agreement by any Governmental Entity and conducting an evaluation of the assets and liabilities of Acquiror and Bank. Acquiror and Bank will cause Arthur Anderson LLP ("AA") to make available to Target, its accountants, counsel and other agents, such personnel, work papers and other documentation of AA relating to its work papers and its audits of the books and records of Acquiror and Bank as may be requested by Target in connection with its review of the foregoing matters. (b) The Chairman of the Board of Target or in his absence another representative of Target selected by him shall be invited by Acquiror and Bank to attend all regular and special Board of Directors' and Executive Committee meetings of Acquiror or Bank from the date hereof until the Effective Time. Acquiror and Bank shall inform Target of all such Board meeting at least 5 Business Days in advance of each such meeting; provided, however, that the attendance of such representative of Target shall not be permitted at any meeting, or portion thereof, for the sole purpose of discussing the transaction contemplated by this Agreement or the obligations of either Acquiror or the Bank under this Agreement. 34 5.2 MATERIAL ADVERSE CHANGES; REPORTS; FINANCIAL STATEMENTS; FILINGS. (a) Acquiror and Bank will promptly notify Target (i) of any event of which Acquiror or Bank obtains knowledge which may materially and adversely affect the business, financial condition, or results of operations of either Acquiror or Bank; (ii) in the event Acquiror or Bank determine that it is possible that the conditions to the performance of Target set forth in Sections 8.1 and 8.3 may not be satisfied; or (iii) any event, development or circumstance that, to the best knowledge of Acquiror or Bank, will or, with the passage of time or the giving of notice or both, is reasonably expected to result in the loss to Acquiror or Bank of the services of any Executive Officer of Acquiror or Bank. (b) Acquiror and Bank will furnish to Target, as provided in Section 11.12 of this Agreement, as soon as practicable, and in any event within 5 Business Days after it is prepared or becomes available to either Acquiror or Bank, (i) a copy of any report submitted to the board of directors of either Acquiror or Bank and access to the working papers related thereto and copies of other operating or financial reports prepared for management of any of its businesses and access to the working papers related thereto PROVIDED, HOWEVER, that Acquiror and Bank need not furnish Target any privileged communications of or memoranda prepared by its legal counsel in connection with the transactions contemplated by, and the rights and obligations of Acquiror and Bank under, this Agreement; (ii) quarterly unaudited consolidated balance sheets and statements of operations, changes in stockholders' equity and cash flow for Acquiror and Bank; (iii) monthly unaudited consolidated balance sheets and, statements of operations for Acquiror and Bank; (iv) as soon as available, all letters and communications sent by Acquiror to its shareholders and all reports filed by Acquiror or Bank with the SEC, the FRB, the FDIC, the Commissioner and any other Person; and (v) such other reports as Target may reasonably request relating to Acquiror or Bank. (c) Each of the financial statements delivered pursuant to subsection (b) shall be (i) prepared in accordance with GAAP on a basis consistent with that of the Financial Statements of Acquiror, except that such financial statements may omit statements of cash flows and footnote disclosures required by GAAP; and (ii) accompanied by a certificate of the chief financial officer to the effect that such consolidated financial statements fairly present the financial condition and results of operations of Acquiror and Bank for the period covered, and reflect all adjustments (which consist only of normal recurring adjustments) necessary for a fair presentation. 5.3 CONDUCT OF BUSINESS. (a) Between the date hereof and the Effective Time, except (i) as contemplated by this Agreement and subject to requirements of law and regulation generally applicable to bank holding companies and banks, Acquiror or Bank shall not, without prior written consent of Target (which consent shall not be unreasonably withheld and which consent shall be deemed granted if within five (5) Business Days of Target's receipt of written notice of a request for prior written consent, written notice of objection is not received by Acquiror and Bank): 35 (1) amend, modify, terminate or fail to renew or preserve their material Permits; (2) issue, sell, or grant any Equity Securities of Acquiror or Bank (except pursuant to the Acquiror Stock Option Plan ), any other securities (including long term debt), or any rights, options or securities to acquire any Acquiror Stock Option or any Equity Securities of Acquiror or any other securities (including long term debt) of Acquiror; (3) declare, issue or pay any dividend or other distribution of assets, whether consisting of money, other personal property, real property or other things of value, to the shareholders of Acquiror, or split, combine or reclassify any shares of its capital stock or other Equity Securities except for quarterly cash dividends payable by Acquiror to its shareholders in accordance with past practice and not to exceed $ .20 per share per quarter; (4) purchase, redeem or otherwise acquire any Equity Securities, or other securities of Acquiror or Bank or any rights, options, or securities to acquire any Equity Securities of Acquiror or Bank; (5) amend or modify its Charter Documents except as contemplated hereby; (6) agree or make any commitment to take any actions prohibited by this Section 5.3; (7) take any action which would or is reasonably likely to (i) adversely affect the ability of Acquiror, Bank or Target to obtain any necessary approval of any Governmental Entity required for the transactions contemplated hereby; (ii) adversely affect Acquiror or Bank's ability to perform their covenants and agreements under this Agreement; or (iii) result in any of the conditions to the performance of Acquiror, Bank or Target's obligations hereunder, as set forth in Article 8 herein not being satisfied; (8) knowingly take or cause to be taken any action which would disqualify the Bank Merger as a "reorganization" within the meaning of Section 368 of the Code or prevent Target from accounting for the business combination to be effected by the Bank Merger as a pooling-of-interests; (b) Between the date hereof and the Effective Time, Acquiror and Bank shall: (1) duly observe and conform in all material respects to all lawful requirements applicable to its business; (2) maintain their assets and properties in good condition and repair, normal wear and tear excepted; (3) promptly upon learning of such information, advise Target in writing of any event or any other transaction within its knowledge whereby any Person or Related Group of 36 Persons acquires, directly or indirectly, record or beneficial ownership or control (as defined in Rule 13d-3 promulgated by the SEC under the Exchange Act) of five percent (5%) or more of the outstanding Acquiror Stock prior to the record date fixed for the Acquiror Shareholders' Meeting or any adjourned meeting thereof to approve this Agreement and the transaction contemplated herein; (4) Use their best efforts consistent with this Agreement to maintain and preserve in tact their business organization and to maintain and preserve the relationship and good will with account customers, employees, vendors, and others having business relationships with Acquiror and Bank; (5) provide to Target, as soon as they become available, the proposed final draft of the opinions referred to in Sections 8.1(g) and (h) of this Agreement. 5.4 CERTAIN LOANS AND OTHER EXTENSIONS OF ACQUIROR AND BANK. Acquiror and Bank will promptly inform Target of the amounts and categories of any loans, leases or other extensions of credit that have been classified by any Governmental Entity or by any internal or external loan reviewer of Acquiror or Bank as "Watch List," "Substandard," "Doubtful," "Loss" or any comparable classification. Acquiror and Bank will furnish to Target, as soon as practicable, and in any event within 10 days after the end of each calendar month, schedules including a listing of the following: (a) classified credits, showing with respect to each such credit in amount equal to or exceeding $250,000, the classification category, credit type, and office, and with respect to all other such credits, by credit type and office, the aggregate dollar amount; (b) nonaccrual credits, showing with respect to each such credit in amount equal to or exceeding $250,000, the credit type and office, and with respect to all other such credits, by credit type and office, the aggregate dollar amount; (c) accrual exception credits that are delinquent 90 or more days and have not been placed on nonaccrual status, showing with respect to each such credit in amount equal to or exceeding $250,000, the credit type and office, and with respect to all other such credits, by credit type and office, the aggregate dollar amount; (d) delinquent credits showing with respect to each such credit in amount equal to or exceeding $250,000, the credit type, office and an aging schedule broken down into 30-59, 60-89, 90 + day categories, and with respect to all other such credits, by credit type, office and by aging category, the aggregate dollar amount; (e) loans or leases charged off during the previous month, showing with respect to each such loan or lease, the credit type and office; (f) loans or leases written down during the previous month, including with respect to each the original amount, the writeoff amount, credit type and office; 37 (g) other real estate or assets owned, stating with respect to each its credit type; (h) a reconciliation of the allowance for loan and lease losses, identifying specifically the amount and sources of all additions and reductions to the allowance (which may be by reference to specific portions of another schedule furnished pursuant to this Section 5.4 and, in the case of unallocated adjustments, shall disclose the methodology and calculations through which the amount of such adjustment was determined). 5.5 DISCLOSURE LETTER. Promptly in the case of material matters, and not less than monthly in the case of all other matters, Acquiror and Bank shall amend or supplement the Acquiror Disclosure Letter provided for herein pertaining to Acquiror and Bank as necessary so that the information contained therein accurately reflects the then current status of Acquiror and Bank and shall transmit copies of such amendments or supplements to Target in accordance with Section 11.12 of this Agreement. 5.6 BANK SHAREHOLDER APPROVAL. Bank will promptly take action necessary in accordance with applicable law and its Charter Documents to convene a meeting of its shareholder to be held as soon as practicable, for the purpose of voting on the Bank Merger, this Agreement and related matters. Acquiror shall vote all shares of Bank Stock which it owns at such meeting in favor of the Bank Merger, this Agreement and related matters. 5.7 CONSENTS AND APPROVALS. (a) Acquiror and Bank will cooperate with Target in the preparation of all filings, applications, notices and requests for waiver for Consents necessary or desirable for the consummation of the Bank Merger, and the other transactions contemplated in this Agreement. Acquiror's and Bank's cooperation hereunder shall include, but not be limited to, providing all information concerning Acquiror or Bank and their respective shareholders as may be required for such filings, applications, notices and requests for Consents and signing, to the extent required, all such filings, applications, notices and requests. (b) To the extent that the consent of a third party ("Third Party Consent") with respect to any contract, agreement, license, franchise, lease, commitment, arrangement, Permit or release that is material to the business of Acquiror or Bank or that is contemplated in this Agreement is required in connection with the Bank Merger or the transactions contemplated in this Agreement, Acquiror and Bank shall use its best efforts to obtain such consent prior to the Effective Time. 5.8 COMPLIANCE WITH RULES. Acquiror and Bank shall comply with the requirements of all applicable Rules, the noncompliance with which would materially and adversely affect the assets, liabilities, business, financial condition or results of operations or prospects of Acquiror or Bank. 5.9 AGREEMENT OF MERGER. As soon as practicable, Acquiror and Bank shall execute the Agreement of Merger. 38 5.10 AFFILIATE AND FIVE PERCENT SHAREHOLDER AGREEMENTS Within thirty (30) days of the execution of this Agreement, (a) Acquiror and Bank shall deliver to Target a letter identifying all persons who are then "affiliates" of Acquiror or Bank under the Securities Act and (b) Acquiror shall advise the persons identified in such letter of the sale restrictions imposed under the pooling of interest accounting rules and shall use reasonable efforts to obtain from each person identified in such letter a written agreement substantially in the form attached hereto as Exhibit 5.10. At least 10 Business Days prior to the issuance of the opinion to be provided for in Section 8.1(h), Acquiror shall use its best efforts to cause each person or group of persons who holds more than five percent (5%) of the Acquiror Stock to deliver to AA, KPMG and Knecht & Hansen, a letter stating that such shareholder(s) has no present plan or intention to dispose of Acquiror Stock and committing that such shareholder(s) will not dispose of Acquiror Stock in a manner to cause a violation of the "continuity of shareholder interest" requirements of Treasury Regulation 1.368-1. 5.11 INSURANCE. (a) Acquiror and Bank shall permit Target to extend the discovery period of its directors' and officers' liability insurance for a period of forty-eight (48) months with respect to all matters arising from facts or events which occurred before the Effective Time for which Target would have had an obligation to indemnify its directors and officers; provided, however, that the total costs of the premiums for such extension shall not exceed $30,968.00. (b) If Acquiror or Bank or any of its successors or assigns (i) shall consolidate with or merge into any other corporation or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any individual, corporation or other entity, then and in each such case, Acquiror or Bank shall take no action to impair the rights provided in this Section 5.11. (c) The provisions of this Section are intended to be for the benefit of, and shall be enforceable by, each director or officer of Target and his or her heirs and representatives. ARTICLE 6 AGREEMENTS WITH RESPECT TO CONDUCT OF TARGET AFTER THE DATE HEREOF Target covenant and agree with Acquiror and Bank as follows: 6.1 ACCESS. (a) Target will authorize and permit Acquiror, its representatives, accountants and counsel, to have access during normal business hours, on notice and in such manner as will not unreasonably interfere with the conduct of the businesses of Target, to all properties, books, records, branch operating reports, branch audit reports, operating instructions and procedures, tax 39 returns, tax settlement letters, contracts and documents, and all other information with respect to its business affairs, financial condition, assets and liabilities as Acquiror may from time to time reasonably request. Target shall permit Acquiror, its representatives, accountants and counsel to make copies of such books, records and other documents and to discuss the business affairs, condition (financial and otherwise), assets and liabilities of Target with such third Persons, including, without limitation, its directors, officers, employees, accountants, counsel and creditors, as Acquiror considers necessary or appropriate for the purposes of familiarizing itself with the businesses and operations of Target, obtaining any necessary orders, consents or approvals of the transactions contemplated by this Agreement by any Governmental Entity and conducting an evaluation of the assets and liabilities of Target. Target will cause KPMG Peat Marwick LLP ("KPMG") to make available to Acquiror, its accountants, counsel and other agents, such personnel, work papers and other documentation of KPMG relating to its work papers and its audits of the books and records, including, but not limited to, all tax records of Target as may be requested by Acquiror in connection with its review of the foregoing matters. (b) The President of Acquiror or in his absence another representative of Acquiror selected by him shall be invited by Target to attend all regular and special Board of Directors' and Executive Committee meetings of Target from the date hereof until the Effective Time. Target shall inform Acquiror of all such Board meeting at least 2 Business Days in advance of each such meeting; provided, however, that the attendance of such representative of Acquiror shall not be permitted at any meeting, or portion thereof, for the sole purpose of discussing the transaction contemplated by this Agreement or the obligations of Target under this Agreement. 6.2 MATERIAL ADVERSE CHANGES; REPORTS; FINANCIAL STATEMENTS; FILINGS. (a) Target will promptly notify Acquiror (i) of any event of which Target obtains knowledge which may materially and adversely affect the business, financial condition, or results of operations of either Target; (ii) in the event Target determine that it is possible that the conditions to the performance of Acquiror set forth in Sections 8.1 and 8.2 may not be satisfied; (iii) of the opening or closing of any branch or other office of Target at which business is conducted; or (iv) any event, development or circumstance that, to the best knowledge of Target, will or, with the passage of time or the giving of notice or both, is reasonably expected to result in the loss to Target of the services of any Executive Officer of Target. (b) Target will furnish to Acquiror as provided in Section 11.12 of this Agreement, as soon as practicable, and in any event within 5 Business Days after it is prepared or becomes available to either Target, (i) a copy of any report submitted to the board of directors of either Target and access to the working papers related thereto and copies of other operating or financial reports prepared for management of any of its businesses and access to the working papers related thereto, PROVIDED, HOWEVER, that Target need not furnish Acquiror any privileged communications of or memoranda prepared by its legal counsel in connection with the transactions contemplated by, and the rights and obligations of Target under, this Agreement; (ii) quarterly unaudited balance sheets and statements of operations, changes in stockholders' equity and cash flow for Target; (iii) monthly unaudited balance sheets and, statements of operations for Target; (iv) 40 as soon as available, all letters and communications sent by Target to its shareholders and all reports filed by Target with the SEC, the FRB, the FDIC, the Commissioner and any other Person; and (v) such other reports as Acquiror may reasonably request relating to Target. (c) Each of the financial statements delivered pursuant to subsection (b) shall be (i) prepared in accordance with GAAP on a basis consistent with that of the Financial Statements of Target except that such financial statements may omit statements of cash flows and footnote disclosures required by GAAP; and (ii) accompanied by a certificate of the chief financial officer to the effect that such financial statements fairly present the financial condition and results of operations of Target for the period covered, and reflect all adjustments (which consist only of normal recurring adjustments) necessary for a fair presentation. 6.3 CONDUCT OF BUSINESS. (a) Between the date hereof and the Effective Time, except (i) as contemplated by this Agreement, and subject to requirements of law and regulation generally applicable to bank holding companies and banks, Target shall not, without prior written consent of Acquiror (which consent shall not be unreasonably withheld and which consent [except with respect to subparagraph (29) of this Section 6.3(a)] shall be deemed granted if within five (5) Business Days of Acquiror's receipt of written notice of a request for prior written consent, written notice of objection is not received by Target): (1) amend, modify, terminate or fail to renew or preserve their material Permits; (2) amend or modify in any material respect, or, except as they may expire in accordance with their terms, terminate any Target Scheduled Contract or any other material contract or agreement to which Target is a party, or materially default in the performance of any of its obligations under any such contract or agreement; (3) enter into any agreement or contract that would be required to be included as a Target Scheduled Contract. (4) terminate or unilaterally fail to renew any existing insurance coverage or bonds; (5) make any loan or other extension of credit, or enter into any commitment to make any loan or other extension of credit to any director, officer, employee or shareholder holding 5% or more of the outstanding shares of Target Stock except for any loan, extension of credit or commitment made after the date hereof not exceeding $50,000, to any such person; provided, however, that the aggregate of all loans, extensions of credit or commitments made after the date hereof to any such person shall not exceed $50,000; 41 (6) grant any general or uniform increase in the rate of pay to any employee or employee benefit or profit sharing plan or increase the salary or employee benefits of any non-exempt employee or agent or pay any bonus, severance or similar payment to any Person, except in the ordinary course of business and consistent with past practice or established practices; (7) grant any promotion or any increase in the rate of pay to any exempt employee, profit sharing plan or increase in any employee benefits or pay any bonus, severance or similar payment to any exempt employee except Target may pay immediately prior to the Effective Time to officers and employees then employed by Target or their respective accounts pro rata bonuses and matching 401(k) payments (pro rated through the Effective Date) which bonuses and matching payments have been calculated in accordance with Target's existing bonus compensation program and for which regular monthly accruals have been made on the books of Target; (8) sell, transfer, mortgage, encumber or otherwise dispose of any assets or release or waive any claim, except in the ordinary course of business and consistent with past practice or as required by any existing contract or for ordinary repairs, renewals or replacements or as contemplated in this Agreement; (9) issue, sell, or grant any Equity Securities of Target (except pursuant to the exercise of Target options outstanding as of the date hereof), any other securities (including long term debt), or any rights, options or securities to acquire any Target Stock Option or any Equity Securities of Target or any other securities (including long term debt) of Target; (10) declare, issue or pay any dividend or other distribution of assets, whether consisting of money, other personal property, real property or other things of value, to theshareholders of Target, or split, combine or reclassify any shares of its capital stock or other Equity Securities; (11) purchase, redeem or otherwise acquire any Equity Securities, or other securities of Target or any rights, options, or securities to acquire any Equity Securities of Target; (12) amend or modify its Charter Documents; (13) make their credit underwriting policies, standards or practices relating to the making of loans and other extensions of credit, or commitments to make loans and other extensions of credit, less stringent than those in effect on December 31, 1998; (14) make any capital expenditures, or commitments with respect thereto, in excess of $ 50,000 except in the ordinary course of business and consistent with past practice; (15) make extraordinary payments to any Person other than as contemplated, or as disclosed, in this Agreement; 42 (16) make any investment by purchase of stock or securities (including an Investment Security), contributions to capital, property transfers or otherwise in any other Person, except for federal funds or obligations of the United States Treasury or an agency of the United States Government the obligations of which are entitled to or implied to have the full faith and credit of the United States government and which have an original maturity not in excess of one year, or bank qualified investment grade municipal bonds, and except in any case, in the ordinary course of business consistent with the past practices, and which are not designated as trading; (17) compromise or otherwise settle or adjust any assertion or claim of a deficiency in taxes (or interest thereon or penalties in connection therewith); file any appeal from an asserted deficiency except in a form previously approved by Acquiror in writing; file or amend any United States federal, foreign, state or local tax return without Acquiror's prior written approval, which approval shall not be unreasonably withheld; or make any tax election or change any method or period of accounting unless required by GAAP or applicable law; (18) enter into or consent to any new employment agreement or other Benefit Arrangement, or amend or modify any employment agreement or other Target Benefit Arrangement in effect on the date of this Agreement to which either Target is a party or bound except Target may pay immediately prior to the Effective Time to officers and employees then employed by Target or their respective accounts pro rata bonuses and matching 401(k) payments (pro rated through the Effective Date) which bonuses and matching payments have been calculated in accordance with Target's existing bonus compensation program and for which regular monthly accruals have been made on the books of Target; (19) grant any Person a power of attorney or similar authority except in accordance with a written policy previously disclosed to Acquiror; (20) agree or make any commitment to take any actions prohibited by this Section 6.3; (21) change any of Target's basic policies and practices with respect to liquidity management and cash flow planning, marketing, deposit origination, lending, budgeting, profit and tax planning, personnel practices or any other material aspect of Target's business or operations, except such changes as may be required in the opinion of Target's management to respond to economic or market conditions or as may be required by any Governmental Entity; (22) take any action which would or is reasonably likely to (i) adversely affect the ability of Target, Bank or Acquiror to obtain any necessary approval of any Governmental Entity required for the transactions contemplated hereby; (ii) adversely affect Target's ability to perform their covenants and agreements under this Agreement; or (iii) result in any of the conditions to the performance of Target, Bank or Acquiror's obligations hereunder, as set forth in Article 8 herein not being satisfied; 43 (23) reclassify any Investment Security from hold-to-maturity or available for sale to trading; (24) sell any Investment Security prior to maturity, except in the ordinary course of business; (25) knowingly take or cause to be taken any action which would disqualify the Bank Merger as a "reorganization" within the meaning of Section 368 of the Code or prevent Acquiror from accounting for the business combination to be effected by the Bank Merger as a pooling-of-interests; (26) settle any claim, action or proceeding involving any material liability for monetary damages or enter into any settlement agreement containing material obligations; (27) make, acquire a participation in, or reacquire an interest in a participation sold of, any loan that is not in compliance with its normal credit underwriting standards, policies and procedures as in effect as of the date of this Agreement; or renew, extend the maturity of, or alter any of the material terms of any such loan for a period of greater than six months; (28) incur any indebtedness for borrowed money or assume, guaranty, endorse or otherwise as an accommodation become responsible for the obligations of any other Person, except for (i) in connection with banking transactions with banking customers in the ordinary course of business, or (ii) short-term borrowings made at prevailing market rates and terms; and (29) grant, renew or commit to grant or renew any extension of credit if such extension of credit, together with all other credit then outstanding to the same Person and all Affiliated Persons, would exceed $250,000 on an unsecured basis and $500,000 on a secured basis. Consent shall be deemed granted if within two Business Days of written notice delivered to Bank's Chief Credit Officer, written notice of objection is not received by Target. (b) Between the date hereof and the Effective Time , Target shall: (1) duly observe and conform in all material respects to all lawful requirements applicable to its business; (2) maintain its assets and properties in good condition and repair, normal wear and tear excepted; (3) promptly upon learning of such information, advise Acquiror in writing of any event or any other transaction within its knowledge whereby any Person or Related Group of Persons acquires, directly or indirectly, record or beneficial ownership or control (as defined in Rule 13d-3 promulgated by the SEC under the Exchange Act) of five percent (5%) or 44 more of the outstanding Target Stock prior to the record date fixed for the Target Shareholders' Meeting or any adjourned meeting thereof to approve this Agreement and the transaction contemplated herein; (4) promptly notify Acquiror regarding receipt from any tax authority of any notification of the commencement of an audit, any request to extend the statute of limitations, any statutory notice of deficiency, any revenue agent's report, any notice of proposed assessment, or any other similar notification of potential adjustments to the tax liabilities of Target, or any actual or threatened collection enforcement activity by any tax authority with respect to tax liabilities of Target; and (5) maintain an allowance for loan and lease losses consistent with practices and methodology as in effect on the date of the execution of this Agreement, and shall not, notwithstanding any recoveries received with respect to loans previously charged off, reduce the allowance for loan and lease losses below the amount in effect on the date of the execution of this Agreement. 6.4 CERTAIN LOANS AND OTHER EXTENSIONS OF TARGET. Target will promptly inform Acquiror of the amounts and categories of any loans, leases or other extensions of credit that have been classified by any Governmental Entity or by any internal or external loan reviewer of Target as "Watch List," "Substandard," "Doubtful," "Loss" or any comparable classification. Target will furnish to Acquiror, as soon as practicable, and in any event within 10 days after the end of each calendar month, schedules including a listing of the following: (a) classified credits, showing with respect to each such credit in amount equal to or exceeding $50,000, the classification category, credit type, and office, and with respect to all other such credits, by credit type and office, the aggregate dollar amount; (b) nonaccrual credits, showing with respect to each such credit in amount equal to or exceeding $50,000, the credit type and office, and with respect to all other such credits, by credit type and office, the aggregate dollar amount; (c) accrual exception credits that are delinquent 90 or more days and have not been placed on nonaccrual status, showing with respect to each such credit in amount equal to or exceeding $50,000, the credit type and office, and with respect to all other such credits, by credit type and office, the aggregate dollar amount; (d) delinquent credits showing with respect to each such credit in amount equal to or exceeding $50,000, the credit type, office and an aging schedule broken down into 30-59, 60-89, 90 + day categories, and with respect to all other such credits, by credit type, office and by aging category, the aggregate dollar amount; (e) loan and lease participations, stating, with respect to each, whether it is purchased or sold, the loan or lease type, and the office; 45 (f) loans or leases (including any commitments) by Target to any director, officer, or employee of Target, or any shareholder holding 5% or more of the capital stock of Target, including with respect to each such loan or lease, the identity and, to the best knowledge of Target, the relation of the borrower to Target, the loan or lease type and the outstanding and undrawn amounts; (g) letters of credit, showing with respect to each letter of credit in an amount equal to or exceeding $50,000, the credit type and office, and showing with respect to all other such letters of credit, by credit type and office, the aggregate dollar amount; (h) loans or leases charged off during the previous month, showing with respect to each such loan or lease, the credit type and office; (i) loans or leases written down during the previous month, including with respect to each the original amount, the writeoff amount, credit type and office; (j) other real estate or assets owned, stating with respect to each its credit type; (k) a reconciliation of the allowance for loan and lease losses, identifying specifically the amount and sources of all additions and reductions to the allowance (which may be by reference to specific portions of another schedule furnished pursuant to this Section 6.4 and, in the case of unallocated adjustments, shall disclose the methodology and calculations through which the amount of such adjustment was determined); (l) extensions of credit whether unsecured or secured in amount equal to or exceeding $100,000, originated on or after the date of the schedule previously provided to Acquiror (or if it is the first such schedule, the date of this Agreement) and before the date of the schedule in which reported, showing with respect to each, the credit type and the office; and (m) renewals or extensions of maturity of outstanding extensions of credit whether unsecured or secured in amount equal to or exceeding $100,000, showing with respect to each, the credit type and the office. 6.5 DISCLOSURE LETTER. Promptly in the case of material matters, and not less than monthly in the case of all other matters, Target shall amend or supplement the Target Disclosure Letter provided for herein pertaining to Target as necessary so that the information contained therein accurately reflects the then current status of Target and shall transmit copies of such amendments or supplements to Acquiror in accordance with Section 11.12 of this Agreement. 46 6.6 SHAREHOLDER APPROVAL. Target will promptly take action necessary in accordance with applicable law and its Charter Documents to convene a meeting of its shareholders (the "Target Shareholders' Meeting") to be held as soon as practicable, for the purpose of voting on the Bank Merger, this Agreement and related matters. In connection with the Target Shareholders' Meeting, (i) the Board of Directors of Target shall, subject to fiduciary duty, recommend shareholder approval of the Bank Merger, this Agreement and related matters; and (ii) Target shall use its best efforts to obtain such shareholder approval by the largest possible percentage. 6.7 CONSENTS AND APPROVALS. (a) Target will cooperate with Acquiror in the preparation of all filings, applications, notices and requests for waiver for Consents necessary or desirable for the consummation of the Bank Merger, and the other transactions contemplated in this Agreement. Target's and Bank's cooperation hereunder shall include, but not be limited to, providing all information concerning Target and its shareholders as may be required for such filings, applications, notices and requests for Consents and signing, to the extent required, all such filings, applications, notices and requests. (b) To the extent that a Third Party Consent with respect to any contract, agreement, license, franchise, lease, commitment, arrangement, Permit or release that is material to the business of Target or that is contemplated in this Agreement is required in connection with the Bank Merger or the transactions contemplated in this Agreement, Target shall use its best efforts to obtain such consent prior to the Effective Time. 6.8 PRESERVATION OF EMPLOYMENT RELATIONS PRIOR TO EFFECTIVE TIME. Target will use its best efforts consistent with current employment practices and policies to maintain the services of the officers and employees of Target through the Effective Time. 6.9 COMPLIANCE WITH RULES. Target shall comply with the requirements of all applicable Rules, the noncompliance with which would materially and adversely affect the assets, liabilities, business, financial condition or results of operations or prospects of Target. 6.10 TARGET BENEFIT ARRANGEMENTS. Subject to Section 9.1(d)hereof, Target and any effected officers, directors or employees shall mutually terminate all Target Benefit Arrangements without the imposition of any liability therefor to Acquiror or any other Party. 6.11 AGREEMENT OF MERGER. As soon as practicable, Target shall execute the Agreement of Merger. 6.12 NO SHOP. Neither Target nor any of its Affiliates shall, on or before the earlier of the Effective Time or the date of termination of this Agreement, initiate, solicit or encourage (including by way of furnishing information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to any Competing Transaction (as such term is defined below), or negotiate with any Person in furtherance of such inquiries or to obtain a Competing Transaction, or agree to or endorse any 47 Competing Transaction, or authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or any other representative retained by it or any of its Affiliates to take any such action, and Target shall promptly notify Acquiror (orally and in writing) of all of the relevant details relating to all inquiries and proposals which they may receive relating to any of such matters. For purposes of this Agreement, "Competing Transaction" shall mean any of the following involving Target: any merger, consolidation, share exchange or other business combination; a sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets of Target representing twenty-five percent (25%) or more of the asset of Target; a sale of shares of capital stock (or securities convertible or exchangeable into or otherwise evidencing, or any agreement or instrument evidencing, the right to acquire capital stock) or other Equity Security, representing ten percent (10%) or more of the voting power of Target, a tender offer or exchange offer for at least twenty-five percent (25%) of the outstanding shares of Target Stock; a solicitation of proxies in opposition to approval of the Bank Merger by Target shareholders; or a public announcement of an unsolicited BONA FIDE proposal, plan, or intention to do any of the foregoing. Notwithstanding any other provision in this Section 6.12 or elsewhere in this Agreement, the obligations of Target in this Agreement are subject to the continuing fiduciary duties of its Board of Directors. In the event the Board of Directors of Target receives a bona fide offer for a Competing Transaction with another entity, and reasonably determines, upon written advice of counsel, that as a result of such offer, any duty to act or to refrain from doing any act pursuant to this Agreement, is inconsistent with the continuing fiduciary duties of said Board of Directors to their shareholders, such failure to act or refrain from doing any act shall not constitute the failure of any condition, breach of any covenant or otherwise constitute any breach of this Agreement, except that any such failure to act or refrain from doing any act shall entitle Acquiror to terminate this Agreement pursuant to Section 10.1(f) hereof, and in no event shall this sentence or the previous sentence operate to excuse or modify the obligations of Target under Section 11.1(c) hereof or under the Stock Option Agreement. 6.13 AFFILIATES AND FIVE PERCENT SHAREHOLDER AGREEMENTS. Within thirty (30) days of the execution of this Agreement, (a) Target shall deliver to Acquiror a letter identifying all persons who are then "affiliates" of Target for purposes of Rule 145 under the Securities Act and (b) Target shall advise the persons identified in such letter of the resale restrictions imposed by applicable securities laws and shall use reasonable efforts to obtain from each person identified in such letter a written agreement substantially in the form attached hereto as Exhibit 6.13. Target shall use reasonable efforts to obtain from any person who becomes an affiliate of Target after Target's delivery of the letter referred to above, and on or prior to the date of the Target Shareholders' Meeting to approve this Agreement, a written agreement substantially in the form attached as Exhibit 6.13 hereto as soon as practicable after obtaining such status. At least 10 Business Days prior to the issuance of the opinion to be provided for in Section 8.1(h), Target shall use its best efforts to cause each person or group of persons who holds more than five percent (5%) of the Target Stock (regardless of whether such person is an "affiliate" under Rule 145) to deliver to AA, KPMG and Reitner & Stuart, a letter stating that such shareholder(s) has no present plan or intention to dispose of Target Stock and committing that such shareholder(s) will not dispose of Target Stock in a manner to cause a violation of the "continuity of shareholder interest" requirements of Treasury Regulation 1.368-1. 48 ARTICLE 7 FURTHER COVENANTS OF ACQUIROR, BANK AND TARGET 7.1 S-4 AND PROXY STATEMENT. (a) As promptly as practicable, Acquiror and Target shall cooperate with each other and exercise their best efforts to prepare and file with the SEC the S-4, in which the Proxy Statement will be included as a prospectus. The Parties hereto agree to provide the information necessary for inclusion in the Proxy Statement and S-4. Each of the parties will use its respective best efforts to have the S-4 declared effective under the Securities Act as promptly as practicable after it is filed. Acquiror shall pay all third party costs (except Target's legal and accounting fees) associated with the preparation and filing of the S-4, including the filing fees with the SEC and Blue Sky regulators as well as the costs of printing and mailing the Proxy Statement. (b) After the date of the filing of the S-4 with the SEC, each of the Parties agrees promptly to notify the other of and to correct any information furnished by such Party that shall have become false or misleading in any material respect and to cooperate with the other to take all steps necessary to file with the SEC and have declared effective or cleared by the SEC any amendment or supplement to the S-4 so as to correct such information and to cause the Proxy Statement as so corrected to be disseminated to the shareholders of Acquiror and Target to the extent required by applicable Rules. All documents that the Parties file with the SEC or any other Governmental Entity in connection with this Agreement will comply as to form in all material respects with the provisions of applicable Rules. (c) Acquiror shall take all required action with appropriate Governmental Entities under state securities or blue sky laws in connection with the issuance of Acquiror Stock pursuant to this Agreement. 7.2 FILINGS. The Parties agree that through the Effective Time, each of its reports, registration statements and other filings required to be filed with any applicable Governmental Entity will comply in all material respects with the applicable statutes, rules and regulations enforced or promulgated by the Governmental Entity with which it will be filed and none will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Any financial statement contained in any such report, registration statement or other filing that is intended to represent the financial position of the entities or entity to which it relates will fairly present the financial position of such entities or entity and will be prepared in accordance with GAAP consistently applied during the periods involved. 7.3 APPLICATIONS. Acquiror will promptly prepare and file or cause to be prepared and filed (i) an application for approval of the Bank Merger with the FDIC; (ii) an application for approval of the Bank Merger with the Commissioner; (iii) if required, a request for waiver from the 49 FRB; and (iv) any other applications or notices necessary to consummate the transactions contemplated hereby. Acquiror shall afford Target a reasonable opportunity to review all such applications and all amendments and supplements thereto before the filing thereof. The Parties covenant and agree that the S-4 and the Proxy Statement and all applications to the appropriate Governmental Entities for approval or consent to the Bank Merger, with respect to information relating to it, will comply in all material respects with the provisions of applicable law. Acquiror will use its best efforts to obtain all regulatory approvals or consents necessary to effect the Bank Merger and Target shall cooperate with Acquiror and Bank in such efforts. 7.4 STOCK OPTIONS. (a) At and as of the Effective Time and without further action by any Party, the Stock Option Plan of Target shall terminate. The Acquiror Stock Option Plan shall not be terminated at the Effective Time and outstanding Acquiror Stock Options at the Effective Time shall continue in effect. (b) As of the Effective Time Acquiror shall grant substitute stock options to each person who has at the Effective Time an outstanding Target Stock Option. Each and every substitute stock option so granted by Acquiror to replace a Target Stock Option shall be 100% vested and shall be exercisable for that number of whole shares of Acquiror Stock equal to the product of (A) the number of shares of Target Stock that were purchasable under such Target Stock Option immediately prior to the Effective Time multiplied by (B) the Exchange Ratio, rounded down to the nearest whole number of shares of Acquiror Stock. Further, each and every substitute stock option so granted by Acquiror to replace a Target Stock Option shall provide for a per share exercise price which shall be equal to the quotient determined by dividing (A) the exercise price per share of Target Stock at which such Target Stock Option was exercisable immediately prior to the Effective Time by (B) the Exchange Ratio. At the Effective Time, Acquiror shall issue to each holder of an outstanding Target Stock Option a substitute stock option providing for the terms discussed above. (c) Acquiror shall use its best effort to assure that each holder of an Target Stock Option which qualified as a incentive stock option prior to the Effective Time shall receive a substitute stock option which will qualify as an incentive stock option. 7.5 FURTHER ASSURANCES. Acquiror/Bank and Target agree that from time to time, whether before, at or after the Effective Time, they will execute and deliver such further instruments of conveyance and transfer and to take such other action as may be reasonable or necessary to consummate the Bank Merger and the transactions contemplated in this Agreement. Acquiror, Bank and Target agree to take such further action as may reasonably be requested to facilitate consummation of the Bank Merger and the transactions contemplated in this Agreement and that are not inconsistent with the other provisions of this Agreement. 7.6 REMOVAL OF CONDITIONS. In the event of the imposition of a condition to any consent of, the Commissioner, the FDIC or other Government Entity which any Party deems to materially 50 adversely affect it or to be materially burdensome as provided in Section 8.1(c), the Parties shall use their respective best efforts to obtain the removal of such condition. 7.7 CORPORATE GOVERNANCE. (a) Prior to the Effective Time, Acquiror shall take all necessary steps to effect the Acquiror and Bank Corporate Governance Changes at the Effective Time. 7.8 LISTING OF ACQUIROR STOCK. Acquiror and Bank shall take all reasonable steps to have the shares of Acquiror Stock to be issued in the Bank Merger listed on the NASDAQ National Market as the Effective Date or as soon thereafter as is practicable. ARTICLE 8 CONDITIONS TO THE PARTIES' OBLIGATIONS TO CLOSE 8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CLOSE. The respective obligations of Acquiror and Bank, on the one hand, and Target, on the other, to consummate the Bank Merger and the other transactions contemplated hereby are subject to the satisfaction or waiver at or prior to the Effective Time of each of the following conditions: (a) The Agreement and the transactions contemplated hereby shall have received all requisite approvals of the shareholders of Target. (b) No judgment, decree, injunction, order or proceeding shall be outstanding or threatened by any Governmental Entity which prohibits or restricts the effectuation of, or threatens to invalidate or set aside, the Bank Merger substantially in the form contemplated by this Agreement, unless counsel to the party again whom such action or proceeding was instituted or threatened renders to the other Parties hereto a favorable opinion that such judgment, decree, injunction, order or proceeding is without merit. (c) On or before September 30, 1999, (i) the Parties shall have received any required Consent from the FRB, the Commissioner, the FDIC, and, at or prior to the Effective Time, this Agreement and the transactions contemplated hereby shall have been approved by any other Governmental Entity whose Consent is required for consummation of the transactions contemplated in this Agreement and (ii) no final FASB ruling is adopted prohibiting the use of "pooling of interest" accounting treatment in this transaction or which otherwise limits the benefits to Acquiror of the "pooling of interest" accounting rules as they exist as of the date hereof, in each case either unconditionally or without the imposition of conditions or limitations that are applicable to any Party or would become applicable to Acquiror or the Surviving Bank after the Bank Merger that Acquiror reasonably and in good faith concludes would materially adversely affect the financial condition or operations of any Party or otherwise would be materially burdensome to any Party and all such Consents shall be in effect at the Effective Time, which Consents shall permit the Bank Merger and permit the Surviving Bank to acquire and conduct all direct and indirect activities as previously conducted by Target and Bank, at or prior to the Effective Time, and all required waiting periods shall have expired. 51 (d) No Rule shall be outstanding or threatened by any Governmental Entity which prohibits or materially restricts the consummation of, or threatens to invalidate or set aside, the Bank Merger substantially in the forms contemplated by this Agreement or which would not permit the businesses presently carried on by Target, Acquiror or Bank to continue materially unimpaired following the Effective Time, unless counsel to the Party or Parties against whom such action or proceeding was instituted or threatened renders to the other Party or Parties hereto a favorable opinion that such Rule is without merit and counsel to the other Party concurs with such opinion. (e) All Third Party Consents necessary to permit the Parties to consummate the transactions contemplated in the Agreement shall have been obtained prior to the Effective Time, unless the failure to obtain any such Third Party Consent would not have a material adverse effect on the business, financial condition, or results of operations of Acquiror on a consolidated basis. (f) The S-4 shall have been declared effective by the SEC and shall not be the subject of any stop order or proceedings seeking or threatening a stop order. Acquiror shall have received all state securities or "Blue Sky" permits and other authorization necessary to issue the Acquiror Stock to consummate the Bank Merger. (g) Target and Acquiror shall have received from AA, an opinion reasonably satisfactory to each of them to the effect that the Bank Merger shall not result in the recognition of gain or loss for federal income tax purposes to Target, Acquiror or Bank, nor shall the issuance of Acquiror Stock result in the recognition of gain or loss by the holders of Target Stock who receive such stock in connection with the Bank Merger, nor shall a holder of an outstanding stock option granted under Target's stock option plan recognize income, gain or loss as a result of the granting of a substitute option nor shall the granting of such substitutes be deemed to be a modification of any incentive stock option granted under Target's stock option plan, dated prior to the date of the Proxy Statement is first mailed to the shareholders of Acquiror and Target and such opinions shall not have been withdrawn or modified in any material respect. (h) Prior to the Effective Time, AA shall have delivered a written opinion to Target and Acquiror that the Bank Merger and the other transactions contemplated hereby will qualify for pooling-of-interest accounting treatment. In making its determination that the Bank Merger will qualify for such treatment, AA shall be entitled to assume that cash will be paid with respect to all shares held of record by any holder of Dissenting Shares. 8.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR AND BANK TO CLOSE. The obligations of Acquiror and Bank to consummate the Bank Merger and the other transactions contemplated hereby are subject to the satisfaction or waiver at or prior to the Effective Time of each of the following conditions: (a) All actions necessary to authorize the execution, delivery and performance of the Agreement by Target, the consummation of the Bank Merger by Target and the 52 consummation of the Agreement of Merger by Target shall have been duly and validly taken by the board of directors and shareholders of Target, as the case may be. (b) The representations and warranties of Target contained in Article 4 of this Agreement shall have been true and correct in all material respects (i) on the date of this Agreement; and (ii) at and as of the Effective Time as though all such representations and warranties had been made on and as of the Effective Time, except with respect to representations and warranties that, by their terms, speak as of a different time; and Acquiror and Bank shall have received a certificate to that effect dated the Effective Time and executed on behalf of Target by its chief executive officer and chief financial officer. It is understood and acknowledged that the representations made on and as of the date of the Agreement shall be true and correct as of the date of the Agreement without giving effect to any update with respect to the Disclosure Letter pertaining to Target as updated in accordance with Section 6.5. (c) Each of the covenants and agreements of Target contained in this Agreement to be performed at or before the Effective Time shall have been so performed in all material respects; and Acquiror and Bank shall have received a certificate to that effect dated the Effective Time and executed by the chief executive officer and chief financial officer of Target. (d) During the period from the date of this Agreement to the Effective Time, there shall not have occurred any event related to the business, condition (financial or otherwise), capitalization or properties of Target that has had or could reasonably be expected to have a material adverse effect on the business, financial condition, or results of operations of Target after consummation of the Bank Merger, whether or not such event, change or effect is reflected in Target's Disclosure Letter to this Agreement, as amended or supplemented, after the date of this Agreement; and Acquiror and Bank shall have received a certificate to that effect dated the Effective Time and signed by the chief executive officer and chief financial officer of Target. (e) Target shall have delivered to Acquiror and Bank a written opinion of Knecht & Hansen dated as of the Effective Time substantially in the form attached to this Agreement as Exhibit 8.2(e). (f) Acquiror shall have received a letter from First Security Van Kasper dated as of a date within five (5) Business Days of the mailing of the Proxy Statement to the shareholders of Target to the effect that the transactions contemplated by this Agreement are fair from a financial point of view to the shareholders of Acquiror. (g) Concurrently with the execution of this Agreement, each director of Target shall have executed and delivered to Acquiror an Target Directors' Agreement substantially in the form of Exhibit 2.6. (h) Within 30 days of the execution of this Agreement, Acquiror shall have received from each person named in the letter or otherwise referred to in Section 6.13 of this Agreement an executed copy of the agreement required by Section 6.13. 53 (i) Acquiror shall have received satisfactory evidence that all of Target's Benefit Arrangements have been treated as provided in Articles 6 and 9 of this Agreement. (j) Acquiror shall have received the written resignation of each director of Target dated as of the Effective Date; provided, however, that such resignations shall not effect Acquiror's and Bank's obligations to make the Acquiror and Bank Corporate Governance Changes. (k) As of the month and preceding the Effective Date, Target's shareholders'equity and allowance for credit losses shall not be less than $17,858,000 (including not to exceed $100,000 of legal, accounting and investment advisor fees and expenses relating to the transactions contemplated by this Agreement) and $1,600,000, respectively, and Target shall have received a certificate, dated as of the Effective Date, signed on behalf of Target by its Chief Financial Officer to such effect. 8.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET TO CLOSE. The obligations of Target to consummate the Bank Merger and the other transactions contemplated herein is subject to the satisfaction or waiver, at or prior to the Effective Time, of each of the following conditions: (a) All actions necessary to authorize the execution, delivery and performance of the Agreement, consummation of the Bank Merger by Acquiror and Bank and the consummation of the Agreement of Merger by Acquiror and Bank shall have been duly and validly taken by the respective boards of directors and shareholders of Acquiror and Bank, as the case may be. (b) The representations and warranties of Acquiror and Bank contained in Article 3 of this Agreement shall be true and correct in all material respects (i) on the date of this Agreement; and (ii) at and as of the Effective Time as though all such representations and warranties had been made at and as of such time, except with respect to representations and warranties that, by their terms, speak as of a different time; and Target shall have received a certificate to that effect dated the Effective Time and executed on behalf of Acquiror and Bank by their respective chief executive officers and chief financial officers. It is understood and acknowledged that the representations made on and as of the Effective Time shall be made without giving effect to any update with respect to the Disclosure Letters pertaining to Acquiror and Bank as updated in accordance with Section 5.5. (c) The covenants and agreements of Acquiror and Bank to be performed at or before the Effective Time shall have been duly performed in all material respects; and Target shall have received one or more certificates to that effect dated the Effective Time and executed by the respective chief executive officers and chief financial officers of Acquiror and Bank. (d) During the period from the date of this Agreement to the Effective Time, there shall not have occurred any event related to the business, condition (financial or otherwise), capitalization or properties of Acquiror or Bank that has had or could reasonably be expected to have a material adverse effect on the business, financial condition, or results of operations of the Surviving Bank or Acquiror after consummation of the Bank Merger, whether or not such event, 54 change or effect is reflected in Acquiror's Disclosure Letters to this Agreement, as amended or supplemented, after the date of this Agreement; and Target shall have received a certificate to that effect dated the Effective Time and signed by the chief executive officer and chief financial officer of Acquiror and Bank. (e) Acquiror and Bank shall have delivered to Target a written opinion of Reitner & Stuart dated the Effective Time substantially in the form attached to this Agreement as Exhibit 8.3(e). (f) Target shall have received a letter from the Findley Companies dated as of a date within five (5) Business Days of the mailing of the Proxy Statement to the shareholders of Target, to the effect that the transactions contemplated by this Agreement are fair from a financial point of view to the shareholders of Target. (g) Within 30 days of the execution of this Agreement, Target shall have received from each person named in the letter or otherwise referred to in Section 5.10 of this Agreement an executed agreement required by Section 5.10. (h) All necessary action shall have been taken by Acquiror, to effect the Acquiror Corporate Governance Changes. ARTICLE 9 EMPLOYEE BENEFITS 9.1 EMPLOYEE BENEFITS. (a) All employees of Target at the Effective Time shall be entitled to participate in the Acquiror Benefit Arrangements on the same basis as other similarly situated employees of Bank. Each of these employees will be credited for eligibility, participation and vesting purposes (provided that no more than sixty (60) days of sick leave may be carried over into Acquiror's sick leave program), with such employee's respective years of past service with Target (or other prior service so credited by Target) as though they had been employees of Acquiror. (b) Target, Bank and Acquiror have agreed as set forth on Exhibit 9.1(b) to a severance policy by which all employees of Target who are not offered employment or who are terminated within twelve months following the Effective Time and who satisfy the requirements of the severance plan currently being considered for adoption by Acquiror will receive severance benefits otherwise. 55 (c) Provided such agreement is listed on the Target Disclosure List and a complete copy of such agreement has been provided to Acquiror prior to the date hereof, Acquiror hereby agrees to honor, in accordance with their terms, any existing individual employment, severance, deferred compensation, and similar agreements between Target and the Executive Officers of Target listed on Exhibit 9.1(c)(1). Notwithstanding any other provision of this Agreement, no employee shall receive duplicative benefits by reason of this Section. (d) From the date hereof, Target, Bank and Acquiror shall cooperate to determine the appropriate treatment of Target Benefit Arrangements, such as termination, merger into a plan, etc., and shall take such actions as shall be reasonably requested by Acquiror with respect to Target Benefit Arrangements, provided that Acquiror, Bank and Target shall not be required to take any action that would be in breach of the fiduciary duties of the Plan trustees or administrators. ARTICLE 10 TERMINATION OF AGREEMENT; WAIVER OF CONDITIONS 10.1 TERMINATION OF AGREEMENT. Anything herein to the contrary notwithstanding, this Agreement and the transactions contemplated hereby including the Bank Merger may be terminated at any time before the Effective Time, whether before or after approval by the shareholders of Target as follows, and in no other manner: (a) By mutual consent of Acquiror and Bank, on the one hand, and Target, on the other; (b) By Acquiror, Bank or Target (i) if any conditions set forth in Section 8.1 shall not have been met by September 30, 1999, or (ii) upon the expiration of 20 Business Days after any Governmental Entity denies or refuses to grant any approval, consent or authorization required to be obtained in order to consummate the transaction contemplated by this Agreement unless, within said 20 Business Day period after such denial or refusal, all Parties hereto agree to resubmit the application to the Governmental Entity that has denied, or refused to grant the approval, consent or authorization requested; (c) By Acquiror and Bank if any conditions set forth in Section 8.2 shall not have been met, or by Target if any conditions set forth in section 8.3 shall not have been met, by September 30, 1999, or such earlier time as it becomes apparent that such condition cannot be met; (d) By Acquiror or Bank, if Target should materially default in the observance or in the due and timely performance of any of its covenants and agreements herein contained and such default shall not have been fully cured within 20 Business Days from the date of delivery of written notice specifying the alleged default; 56 (e) By Target, if Acquiror or Bank should materially default in the observance or in the due and timely performance of any of their covenants and agreements herein contained and such default shall not have been fully cured within 20 Business Days from the date of delivery of written notice specifying the alleged default; (f) By Acquiror and Bank, if Target shall have failed to act or refrain from doing any act pursuant to Section 6.12; (g) By Acquiror, if Acquiror elects not to consummate the transaction contemplated by this Agreement because it enters into a transaction to be acquired by another financial institution; or (h) By Target at any time during the two day period following the calculation of the Average Closing Price, if the Average Closing Price is less than $26.60 and if Acquiror has failed to notify Target of its election to fix the purchase price at $20.72, Target shall have the right to terminate this Agreement, subject however, to the following provisions. If Target elects to exercise its termination right pursuant to the immediately preceding sentence, it shall give prompt written notice to Acquiror; provided that such notice may be withdrawn by Target at any time within said two day period. During the two-day period commencing on the day after receipt of such notice, Acquiror shall again have the option of adjusting the Exchange Ratio to provide shareholders of Target a price in shares of Acquiror Common Stock equal to $20.72 (as a result the Exchange Ratio shall then be calculated by dividing $20.72 by the Average Closing Price). If Acquiror makes an election contemplated by the preceding sentence, within such two-day period, it shall give prompt written notice to Target of such election and the revised Exchange Ratio, whereupon no termination shall have occurred pursuant to this subsection and this Agreement shall remain in effect in accordance with its terms (except the Exchange Ratio shall have been modified), and any references in this Agreement to "Exchange Ratio" shall thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant to this subsection. 10.2 EFFECT OF TERMINATION. In the event that this Agreement shall be terminated pursuant to Section 10.1 hereof, all further obligations of the Parties hereto under this Agreement shall terminate without further liability of any Party to another; provided, however, that no termination of this Agreement under Section 10.1 for any reason or in any manner shall release, or be construed as so releasing, any Party from its obligations under Sections 11.1, 11.9 or 11.10, hereof and notwithstanding the foregoing if such termination shall result from the willful failure of a Party to fulfill a condition to the performance of the obligations of any other Party or to perform a covenant of such Party in this Agreement, such Party shall, subject to the provision of Section 11.1, be fully liable for any and all damages, costs and expenses (including, but not limited to, reasonable attorneys' fees sustained or incurred by the other Party or Parties in connection with negotiating and implementing the transactions contemplated in this Agreement). 10.3 WAIVER OF CONDITIONS. If any of the conditions specified in Section 8.2 has not been satisfied, Acquiror and Bank may nevertheless, at their election, proceed with the transactions contemplated in this Agreement. If any of the conditions specified in Section 8.3 has not been 57 satisfied, Target may nevertheless, at its election, proceed with the transactions contemplated in this Agreement. If any Party elects to proceed pursuant to the provisions hereof, the conditions that are unsatisfied immediately prior to the Effective Time shall be deemed to be satisfied, as evidence by a certificate delivered by the electing Party. ARTICLE 11 GENERAL 11.1 EXPENSES. (a) Target hereby agrees that if this Agreement is terminated by Acquiror or Bank pursuant to Section 10.1(c), including the failure of Target shareholders to approve the Agreement and the transactions contemplated hereby, or pursuant to Section 10.1(d), Target shall promptly, and in any event within seven Business Days after such termination, pay Acquiror and Bank all Expenses (as defined below) of Acquiror and Bank but not to exceed $250,000. (b) Acquiror and Bank hereby agree that if this Agreement is terminated by Target pursuant to Section 10.1(c) or pursuant to Section 10.1(e), Acquiror shall promptly, and in any event within seven Business Days after such termination, pay (or cause Bank to pay) Target all Expenses (as defined below) of Target but not to exceed $250,000. (c) As an inducement to Acquiror to enter into this Agreement, in the event this Agreement is terminated by Acquiror pursuant to Section 10.1(f) and Target enters into an agreement for a Competing Transaction prior to termination of this Agreement or during the twelve-month period immediately following termination of this Agreement, Target shall pay Acquiror, in addition to Acquiror's rights under the Stock Option Agreement, $250,000 plus an amount equal to all of Acquiror's reasonably documented expenses up to a maximum of $100,000 which amounts represent (i) Target's direct costs and expenses (including, but not limited to, fees and expenses of financial or other consultants, printing costs, accountants and counsel) incurred in negotiating and undertaking to carry out the transactions contemplated by this Agreement, including Acquiror's management time devoted to negotiation and preparation for the transactions contemplated by this Agreement; (ii) Acquiror's indirect costs and expenses incurred in connection with the transactions contemplated by this Agreement; and (iii) Acquiror's loss as a result of the transactions contemplated by this Agreement not being consummated. (d) As an inducement to Acquiror to enter into this Agreement, in the event this Agreement is terminated by Acquiror pursuant to Section 10.1(g) Acquiror shall promptly, and in any event within seven Business Days after Target terminates the Agreement pay Target $500,000 plus an amount equal to all of Target's reasonably documented expenses up to a maximum of $100,000 which amount represents (i) Target's direct costs and expenses (including, but not limited to, fees and expenses of financial or other consultants, printing costs, accountants and counsel) incurred in negotiating and undertaking to carry out the transactions contemplated by this Agreement, including Target's management time devoted to negotiation and preparation for the 58 transactions contemplated by this Agreement; (ii) Target's indirect costs and expenses incurred in connection with the transactions contemplated by this Agreement; and (iii) Target's loss as a result of the transactions contemplated by this Agreement not being consummated. (e) Except as otherwise provided herein and in Section 7.1, all Expenses incurred by Acquiror/Bank or Target in connection with or related to the authorization, preparation and execution of this Agreement, the solicitation of shareholder approvals and all other matters related to the closing of the transaction contemplated hereby, including, without limitation of the generality of the foregoing, all fees and expenses of agents, representatives, counsel, and accountants employed by either of the Parties or its affiliates, shall be borne solely and entirely by the Party which has incurred the same. (f) "Expenses" as used in this Agreement shall include all reasonable out-of-pocket expenses (including all fees and expenses of attorneys, accountants, investment bankers, experts and consultants to the Party and its Affiliates) incurred by the Party or on its behalf in connection with or related to the authorization, preparation and execution of this Agreement, the solicitation of shareholder approvals and all other matters related to the closing of the transaction contemplated hereby. 11.2 AMENDMENTS. To the fullest extent permitted by law, this Agreement may be amended by agreement in writing of the Parties hereto at any time prior to the Effective Time, whether before or after approval of this Agreement by the shareholders of Target. 11.3 DISCLOSURE LETTER; EXHIBITS; INTEGRATION. Each Disclosure Letter, exhibit and letter delivered pursuant to this Agreement shall be in writing and shall constitute a part of the Agreement, although Disclosure Letters and other letters need not be attached to each copy of this Agreement. This Agreement, together with such Disclosure Letters, exhibits and letters, and the Stock Option Agreement constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements and understanding of the Parties in connection therewith. 11.4 BEST EFFORTS. Each Party will use its best efforts to cause all conditions to the obligations of the Parties to be satisfied. 11.5 GOVERNING LAW. This Agreement and the legal relations between the Parties shall be governed by and construed in accordance with the laws of California except to the extent that the provisions of federal law are mandatorily applicable. 11.6 NO ASSIGNMENT. Neither this Agreement nor any rights, duties or obligations hereunder shall be assignable by Acquiror/Bank or Target, in whole or in part, without the prior written consent of the other Party. Any attempted assignment in violation of this prohibition shall be null and void. Subject to the foregoing, all of the terms and provisions hereof shall be binding upon, and inure to the benefit of, the successors and assigns of the Parties hereto. 59 11.7 HEADINGS. The descriptive headings contained in this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 11.8 COUNTERPARTS. This Agreement and any exhibit hereto may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each Party hereto and delivered to each Party hereto. 11.9 PUBLICITY AND REPORTS. Acquiror and Target shall coordinate all publicity relating to the transactions contemplated by this Agreement and no Party shall issue any press release, publicity statement or other public notice relating to this Agreement or any of the transactions contemplated hereby without obtaining the prior consent of the other Party, except to the extent that legal counsel to any Party shall deliver a written opinion to the other Party to the effect that a particular action is required by applicable Rules. 11.10 CONFIDENTIALITY. All Confidential Information disclosed heretofore or hereafter by any Party to this Agreement to any other Party to this Agreement shall be kept confidential by such other Party and shall not be used by such other Party otherwise than as herein contemplated, except to the extent that (a) it is necessary or appropriate to disclose to the Commissioner, the FDIC or any other Governmental Entity having jurisdiction over any of the Parties or as may be otherwise be required by Rule (any disclosure of Confidential Information to a Governmental Entity shall be accompanied by a request that such Governmental Entity preserve the confidentiality of such Confidential Information): or (b) to the extent such duty as to confidentiality is waived by the other Party. Such obligation as to confidentiality and non-use shall survive the termination of this Agreement pursuant to Article 10. In the event of such termination and on request of another Party, each Party shall use all reasonable efforts to (1) return to the other Parties all documents (and reproductions thereof) received from such other Parties that contain Confidential Information (and, in the case of reproductions, all such reproductions made by the receiving Party); and (2) destroy the originals and all copies of any analyses, computations, studies or other documents prepared for the internal use of such Party that included Confidential Information. 11.11 SPECIFIC PERFORMANCE. Target, Bank and Acquiror each acknowledge that, in view of the uniqueness of their respective businesses and the transactions contemplated in this Agreement, each Party would not have an adequate remedy at law for money damages in the event that this Agreement has not been performed in accordance with its terms, and therefore each Party agrees that the other shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which it may be entitled, at law or in equity. 11.12 NOTICES. Any notice or communication required or permitted hereunder, including, without limitation, supplemental Disclosure Letters shall be deemed to have been given if in writing and (a) delivered in person, (b) telexed, or (c) telecopied (provided that any notice given pursuant to clauses (b) and (c) is also mailed by certified or registered mail, postage prepaid), as follows: 60 If to Acquiror or Bank, addressed to: Carrol R. Pruett Chairman of the Board, President & Chief Executive Officer 1026 Grand Avenue Arroyo Grande, CA 93402 Fax No. (805) 473-7752 With a copy addressed to: Barnet Reitner, Esq. Reitner & Stuart 1319 Marsh Street San Luis Obispo, CA 93401 Fax No. (805) 545-8599 If to Target, addressed to: Eloy Ortega President & Chief Executive Officer City Commerce Bank 33 East Carrillo Street Santa Barbara, CA 93101 Fax No. (805) 564-4874 With a copy addressed to: Loren P. Hansen, Esq. Knecht & Hansen 1301 Dove Street, Suite 900 Newport Beach, CA 92660 Fax No. (949) 851-1732 or at such other address and to the attention of such other Person as a Party may notice to the others in accordance with this Section 11.12. Notwithstanding anything to the contrary contained herein, notice and/or delivery to Acquiror shall be deemed notice and/or delivery to Bank. 61 11.13 KNOWLEDGE. Whenever any statement herein or in any Disclosure Letter, certificate or other document delivered to any Party pursuant to this Agreement is made "to the knowledge" or "to the best knowledge" of any Party or other Person such Party or other Person shall make such statement only after conducting an investigation reasonable under the circumstances of the subject matter thereof, and each such statement shall constitute a representation that such investigation has been conducted. 11.14 SEVERABILITY. If any portion of this Agreement shall be deemed by a court of competent jurisdiction to be unenforceable, the remaining portions shall be valid and enforceable only if, after excluding the portion deemed to be unenforceable, the remaining terms hereof shall provide for the consummation of the transactions contemplated herein in substantially the same manner as originally set forth at the date this Agreement was executed. 62 11.15 ATTORNEYS' FEES. In the event any of the parties to this Agreement brings an action or suit against any other party by reason of any breach of any covenant, agreement, representation, warranty or other provision hereof, or any breach of any duty or obligation created hereunder by such other party, the prevailing party, as determined by the court or the body having jurisdiction, shall be entitled to have and recover of and from the losing party, as determined by the court or other party having jurisdiction, all reasonable costs and expenses incurred or sustained by such prevailing party in connection with such prevailing action, including, without limitation, legal fees and court costs (whether or not taxable as such). 11.16 TERMINATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations, warranties and covenants of each Party contained herein or in any certificate or other writing delivered by such party pursuant hereto or in connection herewith shall not survive the Effective Time. WITNESS, the signature of Acquiror, as of the 19th day of April, 1999, set by its President and attested to by its Secretary, pursuant to a resolution of its Board of Directors, acting by a majority: MID-STATE BANCSHARES By: -------------------------------- President WITNESS, the signature of Bank, as of the 19th day of April, 1999, set by its President and attested to by its Secretary, pursuant to a resolution of its Board of Directors, acting by a majority: MID-STATE BANK By: -------------------------------- President WITNESS, the signature of Target, as of the 19th day of April, 1999, set by its Chairman of the Board and attested to by its Secretary, pursuant to a resolution of its Board of Directors, acting by a majority: CITY COMMERCE BANK By: -------------------------------- Chairman of the Board 63 EX-99.B 3 EXHIBIT 99B EXHIBIT 99B - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- STOCK OPTION AGREEMENT DATED AS OF THE 19TH DAY OF APRIL, 1999 BY AND BETWEEN MID-STATE BANCSHARES AND CITY COMMERCE BANK - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 64 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT, dated as of the 19th day of April, 1999, (this "Agreement"), between MID-STATE BANCSHARES, a California corporation ("Grantee"), and CITY COMMERCE BANK , a California banking corporation ("Issuer") WITNESSETH: WHEREAS, Grantee and Issuer are entering into an Agreement to Merge and Plan of Reorganization dated as of the date hereof (the "Plan"), which is being executed by the parties hereto simultaneously with the execution of this Agreement; WHEREAS, as a condition and inducement to Grantee's entering into the Plan and in consideration therefor, Issuer has agreed to grant Grantee the Option (as defined below); and WHEREAS, the Board of Directors of Issuer has approved the grant of the Option and the Plan prior to the date hereof; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein and in the Plan, the parties hereto agree as follows: SECTION 1. GRANT OF OPTION. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option (the "Option") to purchase, subject to the terms hereof, up to 325,884shares of fully paid and nonassessable shares of Common Stock, no par value per share ("Common Stock"), of Issuer at a fixed price per share of $17.00 (the "Initial Price"); PROVIDED, HOWEVER, that in the event Issuer issues or agrees to issue any shares of Common Stock at a price less than the Initial Price (as adjusted pursuant to Section 5(b)), such price shall be equal to such lesser price (such price, as adjusted as hereinafter provided, the "Option Price"); and, PROVIDED FURTHER, HOWEVER, that in no event shall the number of shares of Common Stock for which the Option is exercisable exceed 19.9% of the number of shares of Common Stock then issued and outstanding without giving effect to any shares subject or issued pursuant to the Option. The number of shares of Common Stock that may be received upon the exercise of the Option and the Option Price are subject to adjustment as herein set forth. (b) In the event that any additional shares of Common Stock are issued or otherwise become outstanding after the date of this Agreement (other than pursuant to this Agreement and other than pursuant to an event described in Section 5(a) hereof), the number of shares of Common Stock subject to the Option shall be increased so that after such issuance such number together with any shares of Common Stock previously issued pursuant hereto, equals 19.9% of the number of shares of Common Stock then issued and outstanding without giving effect to any shares subject or issued pursuant to the Option. Nothing contained in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize Issuer to issue shares in breach of any provision of the Plan. SECTION 2. EXERCISE OF OPTION (a) TIMING OF EXERCISE, TERMINATION. Provided that (i) Grantee shall not be in material breach of the agreements or covenants contained in this Agreement or the Plan and (ii) no preliminary or permanent injunction or other order against delivery of shares covered by the Option issued by any court of competent jurisdiction in the United States shall be in effect, Grantee may exercise the 65 Option, in whole or part, at any time and from time to time following the occurrence of a Purchase Event (as defined below); PROVIDED that the Option shall terminate and be of no further force and effect upon the earliest to occur of (i) the time immediately prior to the Effective Time, (ii)12 months after the first occurrence of a Purchase Event, (iii) 18 months after the termination of the Plan following the occurrence of a Preliminary Purchase Event (as defined below), (iv) termination of the Plan in accordance with the terms thereof prior to the occurrence of a Purchase Event or a Preliminary Purchase Event (other than a termination of the Plan by Grantee pursuant to Section 10.1(c), (d) or (f), or by Grantee and Issuer pursuant to Section 10.1(a) thereof if Grantee shall at that time have been entitled to terminate the Plan pursuant to Section 10.1(c), (d) or (f) thereof), or (v) 18 months after the termination of the Plan by Grantee pursuant to Section 10.1(c), (d) or (f) or by Grantee and Issuer pursuant to Section 10.1(a)thereof if Grantee shall at that time have been entitled to terminate the Plan pursuant to Section 10.1(c),(d) or (f)thereof. The events described in clauses (i) - (v) in the preceding sentence are hereinafter collectively referred to as an "Exercise Termination Event" Anything herein to the contrary notwithstanding, any purchase of shares upon exercise of the Option shall be subject to compliance with applicable law. The rights set forth in Section 7 hereof shall terminate when the right to exercise the Option terminates (other than as a result of a complete exercise of the Option) as set forth herein. (b) PRELIMINARY PURCHASE EVENT. The term "Preliminary Purchase Event" shall mean any of the following events or transactions occurring after the date hereof: (i) Issuer or any of its subsidiaries (each, an "Issuer Subsidiary") shall have entered into an agreement to engage in an Acquisition Transaction (as defined below) with any Person (the term "Person" for purposes of this Agreement having the meaning assigned thereto in Sections 3(a) (9) and 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations thereunder) other than Grantee or any of its subsidiaries (each a "Grantee Subsidiary") or the Board of Directors of Issuer shall have recommended that the shareholders of Issuer approve or accept any Acquisition Transaction with any Person other than Grantee or any Grantee Subsidiary. For purposes of this Agreement, "Acquisition Transaction" shall mean (x) a merger or consolidation, or any similar transaction, involving Issuer or any Issuer Subsidiary, (y) a purchase, lease or other acquisition of all or substantially all of the assests of or assumption of all or substantially all the deposits of Issuer or any Issuer Subsidiary or (z) a purchase or other acquisition (including by way of merger, condolidation, share exchange or otherwise) of securites representing 10% or more of the voting power of Issuer or any Issuer Subsidiary, provided that the term "Acquisition Transaction" does not include any internal merger or consolidation involving only Issuer and/or Issuer Subsidiaries; (ii) Any Person (other than Grantee or any Grantee Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity in the ordinary course of business) shall have acquired Beneficial Ownership or the right to acquire Beneficial Ownership, of shares of Common Stock (the term "Beneficial Ownership" for purposes of this Agreement having the meaning assigned thereto in Section 13(d) of the Exchange Act, and the rules and regulations thereunder) such that, upon the consummation of such acquisition, such Person would have Beneficial Ownership, in the aggregate, of 10% or more of the then outstanding shares of Common Stock; (iii) Any Person other than Grantee or any Grantee Subsidiary shall have made a BONA FIDE proposal to Issuer or its shareholders, by public announcement or written communication that is or becomes the subject of public disclosure, to engage in an Acquisition Transaction (including, without limitation, any situation in which any Person other than Grantee or any Grantee Subsidiary shall have commenced (as such term is defined in Rule 14d-2 under the Exchange Act) or shall have filed a 66 registration statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to, a tender offer or exchange offer to purchase any shares of Common Stock such that, upon consummation of such offer, such Person would own or control 10% or more of the then outstanding shares of Common Stock (such an offer being referred to herein as a "Tender Offer" or an "Exchange Offer", respectively); (iv) After a proposal is made by a third party to Issuer or its shareholders to engage in an Acquisition Transaction, or such third party states its intention to make such a proposal if the Plan terminates and/or the Option expires, Issuer shall have breached any covenant or obligation contained in the Plan and such breach would entitle Grantee to terminate the Plan (without regard to the cure period provided for therein); (v) The holders of the Common Stock shall not have approved the Plan by the requisite vote at the meeting of such shareholders held for the purpose of voting on the Plan, or such meeting shall not have been held or shall have been canceled prior to termination of the Plan, in each case after it shall have been publicly announced that any Person (other than Grantee or any Grantee Subsidiary) shall have (A) made, or disclosed any intention to make, a BONA FIDE proposal to engage in an Acquisition Transaction, (B) commenced a Tender Offer or filed a registration statement under the Securities Act with respect to an Exchange Offer or (C) filed an application (or given a notice) with, whether in draft of final form, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") or any other governmental authority or regulatory or administrative agency or commission (each, a Governmental Authority"), for approval to engage in an Acquisition Transaction; (vi) Any Person (other than Grantee or any Grantee Subsidiary), other than in connection with a transaction to which Grantee has given its prior written consent, shall have filed an application or notice with the Federal Reserve Board or other Governmental Authority for approval to engage in an Acquisition Transaction; or (vii) The Issuer's Board of Directors shall have withdrawn or modified (or publicly announced its intention to withdraw or modify) in any manner adverse in any respect to Grantee its recommendation that the shareholders of Issuer approve the transactions contemplated by the Plan in anticipation of engaging in an Acquisition Proposal, or Issuer or any Issuer Subsidiary shall have authorized, recommended, proposed (or publicly announced in its intention to authorize, recommend or propose) an agreement to engage in an Acquisition Transaction with any person other than Grantee or a Grantee Subsidiary. (c) PURCHASE EVENT. The term "Purchase Event" shall mean either of the following events or transactions occurring after the date hereof: (i) The acquisition by any Person other than Grantee or any Grantee Subsidiary of Beneficial Ownership of shares of Common Stock, such that, upon the consummation of such acquisition, such Person would have Beneficial ownership, in the aggregate, of 25% or more of the then outstanding shares of Common Stock; or (ii) The occurrence of a Preliminary Purchase Event described in Section 2(b)(i) or (ii) hereof except that the percentage referred to in either such case shall be 25%. (d) NOTICE BY ISSUER. Issuer shall notify Grantee promptly in writing of the occurrence of any Preliminary Purchase Event or Purchase Event; PROVIDED, HOWEVER, that the giving of such notice by Issuer shall not be a condition to the right of Grantee to exercise the Option. 67 (e) NOTICE OF EXERCISE. In the event that Grantee is entitled to and wishes to exercise the Option, it shall send to Issuer a written notice (the "Option Notice" and the date of which being hereinafter referred to as the "Notice Date") specifying (i) the total number of shares of Common Stock it will purchase pursuant to such exercise, (ii) the aggregate purchase price as provided herein and (iii) a period of time (that shall not be less than three business days nor more than sixty business days) running from the Notice Date (the "Closing Date") and a place at which the closing of such purchase shall take place; PROVIDED, THAT, if prior notification to or approval of the Federal Reserve Board or any other Governmental Authority is required in connection with such purchase (each, a "Notification" or an "Approval," as the case may be), (a) Grantee shall promptly file, or cause to be filed, the required notice or application for approval ("Notice/Application"), (b) Grantee shall expeditiously process, or cause to be expeditiously processed, the Notice/Application and (c) for the purpose of determining the Closing Date pursuant to clause (iii) of this sentence, the period of time that otherwise would run from the Notice Date shall instead run from the later of (x) in connection with any Notification, the date on which any required notification periods have expired or been terminated and (y) connection with any Approval, the date on which such approval has been obtained and any requisite waiting period or periods shall have expired. For purposes of Section 2(a) hereof, any exercise of the Option shall be deemed to occur on the Notice Date relating thereto. On or prior to the Closing Date, Grantee shall have the right to revoke its exercise of the Option in the event that the transaction constituting a Purchase Event that gives rise to such right to exercise shall not have been consummated. (f) PAYMENTS. At the closing referred to in Section 2(e) hereof, Grantee shall present and surrender this Agreement and pay to Issuer the aggregate Option Price for the shares of Common Stock specified in the Option Notice in immediately available funds by wire transfer to a bank account designated by Issuer; PROVIDED, HOWEVER, that failure or refusal of Issuer to designate such a bank account shall not preclude Grantee from exercising the Option. (g) DELIVERY OF COMMON STOCK. At such closing, simultaneously with the delivery of immediately available funds as provided in Section 2(f) hereof, Issuer shall deliver to Grantee a certificate or certificates representing the number of shares of Common Stock specified in the Option Notice and, if the Option should be exercised in part only, a new Option evidencing the rights of Grantee thereof to purchase the balance of the shares of Common Stock purchasable hereunder. (h) HOLDER OF RECORD. Upon the giving by Grantee to Issuer of an Option Notice and the tender of the applicable purchase price in immediately available funds on the Closing Date, Grantee shall be deemed to be the holder of record of the number of shares of Common Stock specified in the Option Notice, notwithstanding that the stock transfer books of Issuer shall then be closed or that certificates representing such shares of Common Stock shall not then actually be delivered to Grantee. Issuer 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 under this Section 2 in the name of Grantee. SECTION 3. ISSUER'S COVENANTS. (a) AVAILABLE SHARES. The Issuer agrees that it shall at all times until the termination of this Agreement have reserved for issuance upon the exercise of the Option that number of authorized and reserved shares of Common Stock equal to the maximum number of shares of Common Stock at any time and from time to time issuable hereunder, all of which shares will, upon issuance pursuant hereto, be duly authorized, validly issued, fully paid, nonassessable, and delivered free and clear of all claims, liens, encumbrances and security interests and not subject to any preemptive rights. 68 (b) COMPLIANCE. The Issuer agrees that it will not, by amendment of its articles of incorporation or through reorganization, consolidation, merger, dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observance or performance of any of the covenants, stipulations or conditions to be observed or performed hereunder by Issuer. (c) CERTAIN ACTIONS, APPLICATIONS AND ARRANGEMENTS. Issuer shall promptly take all action as may from time to time be required (including (i) complying with all pre-merger notification, reporting and waiting period requirements specified in 15 U.S.C. Section 18a and regulations promulgated thereunder and (ii) in the event, under the Bank Holding Company Act of 1956, as amended "BHCA"), or the Change in Bank Control Act of 1978, as amended, or any California banking law, prior approval of or notice to the Federal Reserve Board or to any other Governmental Authority is necessary before the Option may be exercised, cooperating with Grantee in preparing such applications or notices and providing such information to each such Governmental Authority as it may require in order to permit Grantee to exercise the Option and Issuer duty and effectively to issue shares of Common Stock pursuant hereto, and to protect the rights of Grantee against dilution. SECTION 4. EXCHANGE OF OPTION. This Agreement and the Option granted hereby are exchangeable, without expense, at the option of Grantee, upon presentation and surrender of this Agreement at the principal office of Issuer, for other agreements providing for Options of different denominations entitling the holder thereof to purchase, on the same terms and subject to the same conditions as are set forth herein, in the aggregate the same number of shares of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as used in this Section 4 include any agreements and related options for which this Agreement and the Option granted hereby may be exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Agreement, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like tenor and date. Any such new Agreement executed and delivered shall constitute an additional contractual obligation on the part of Issuer, whether or not the Agreement so lost, stolen, destroyed or mutilated shall at any time be enforceable by anyone. SECTION 5. ADJUSTMENTS. The number of shares of Common Stock purchasable upon the exercise of the Option shall be subject to adjustment from time to time as follows: (a) In the event of any change in, or distributions in respect of, the Common Stock by reason of stock dividends, split-ups, mergers, recapitalizations, combinations, subdivisions, conversions, exchanges of shares or the like, the type and number of shares of Common Stock purchasable upon exercise hereof shall be appropriately adjusted and proper provision shall be made so that, in the event that any additional shares of Common Stock are to be issued or otherwise to become outstanding as a result of any such change (other than pursuant to an exercise of the Option), the number of shares of Common Stock that remain subject to the Option shall be increased so that, after such issuance and together with shares of Common Stock previously issued pursuant to the exercise of the Option (as adjusted on account of any of the foregoing changes in the Common Stock), it represents the same proportion of the number of shares of Common Stock then issued and outstanding as such proportion before the applicable event described in this Section 5(a). (b) Whenever the number of shares of Common Stock purchasable upon exercise hereof is adjusted as provided in this Section 5, the Option Price shall be adjusted by multiplying the Option Price by a fraction, the numerator of which shall be equal to the number of shares of Common Stock purchasable prior to the 69 adjustment and the denominator of which shall be equal to the number of shares of Common Stock purchasable after the adjustment. SECTION 6. REGISTRATION RIGHTS. (a) Upon the occurrence of a Purchase Event that occurs prior to an Exercise Termination Event, Issuer shall, at the request of Grantee (whether on its own behalf or on behalf of any subsequent holder of the Option (or part thereof) or any of the shares of Common Stock issued pursuant hereto), promptly take such action as may be required under applicable federal or state laws, including if applicable registering or qualifying any shares issued and issuable pursuant to the Option for sale or the sale of any such shares or otherwise securing any necessary governmental permits or approvals for the sale of such shares (any and all such actions are hereinafter referred to as a "Registration"), in order to permit the sale or other disposition of any shares of Common Stock issued upon total or partial exercise of the Option ("Option Shares") in accordance with any plan of disposition requested by Grantee. Issuer will use its best efforts to cause such Registration to remain in effect for such period not in excess of 180 days from the day such Registration is first effected. Grantee shall have the right to demand two such Registrations at the Issuer's expense. The foregoing notwithstanding, if, at the time of any such request by Grantee as provided above, Issuer is in the process of a Registration with respect to an underwritten public offering of shares of Common Stock, and if in the good faith judgment of the managing underwriter or managing underwriters, or, if none, the sole underwriter or underwriters, of such offering, the offering or inclusion of the Option Shares would interfere materially with the successful marketing of the shares of Common Stock offered by Issuer, the number of Option Shares otherwise to be covered in such Registration contemplated hereby may be reduced; PROVIDED, HOWEVER, that after any such required reduction, the number of Option Shares to be included in such Registration for the account of Grantee shall constitute at least 33-1/3% of the total number of shares of Common Stock held by Grantee and Issuer covered in such Registration; PROVIDED FURTHER, HOWEVER, that if such reduction occurs, then Issuer shall effect a Registration for the balance of such shares as promptly as practicable thereafter as to which no reduction shall thereafter occur. In addition, if the Issuer proposes to effect a Registration with respect to its Common Stock or any other securities in such a manner that would permit the Registration of the Shares or a sale of the Shares for public sale (whether proposed to be offered for sale by the Issuer or any other Person) it will give prompt written notice to Grantee of its intention to do so, specifying the relevant terms of such proposal, including the proposed maximum offering price thereof. Upon the written notice of Grantee (whether on its own behalf or on behalf of any subsequent holder of the Option [or part thereof] or any of the shares of Common Stock issued pursuant hereto) delivered to the Issuer within 20 business days after the giving of any such notice, which request shall specify the number of Shares desired to be disposed by Grantee, the Issuer will use its best efforts to effect, in connection with such proposed action, the Registration of the Shares or a sale thereof set forth in such request. Grantee shall be entitled to two such Registrations at the Issuer's expense. Grantee shall provide all information reasonably requested by Issuer for inclusion in connection with any such Registration. In connection with any such Registration, Issuer and Grantee shall provide each other with representations, warranties, indemnities and other agreements customarily given in connection with such Registrations. If requested by Grantee in connection with such Registration, Issuer and Grantee shall become a party to any underwriting agreement relating to the sale of such shares, but only to the extent of obligating themselves in respect of representations, warranties, indemnities and other agreements customarily included in such underwriting agreements. (b) In the event that Grantee requests Issuer to effect a Registration following the failure to obtain any approval required to exercise the Option as described in Section 9 hereof, the closing of the sale or other disposition of the Common Stock or other securities pursuant to such Registration shall occur substantially simultaneously with the exercise of the Option. 70 (c) Except where applicable state law prohibits such payments, Issuer will pay all expenses (including without limitation registration fees, qualification fees, blue sky fees and expenses (including the fees and expenses of counsel), legal expenses, including the reasonable fees and expenses of one counsel to the holders of Option Shares which are the subject of a Registration, printing expenses and the costs of special audits or "cold comfort" letters, expenses of underwriters, excluding discounts and commissions but including liability insurance if Issuer so desires or the underwriters so require, and the reasonable fees and expenses of any necessary special experts) in connection with each Registration pursuant to this Section 6 (including the related offerings and sales by holders of Option Shares) and all other qualifications, notification or exemptions pursuant to this Section 6. (d) In connection with any Registration under this Section 6, Issuer hereby indemnifies the Grantee, and each officer, director and controlling person of Grantee and each underwriter thereof, including each person, if any who controls such holder or underwriter within the meaning of Section 15 of the Securities Act, against all expenses, losses, claims, damages and liabilities caused by any untrue, or alleged untrue, statement contained in any registration statement or prospectus or notification or offering circular (including any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission, or alleged omission, to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such expenses, losses, claims, damages or liabilities of such indemnified party are caused by any untrue statement or alleged untrue statement that was included by Issuer in any such registration statement or prospectus or notification or offering circular (including any amendments or supplements thereto) in reliance upon and in conformity with, information furnished in writing to Issuer by such indemnified party expressly for use therein, and Issuer and each officer, director and controlling person of Issuer shall be indemnified by such Grantee, or by such underwriter, as the case may be, for all such expenses, losses, claims, damages and liabilities caused by any untrue, or alleged untrue, statement, that was included by Issuer in any such registration statement or prospectus or notification or offering circular (including any amendments or supplements thereto) in reliance upon, and in conformity with, information furnished in writing to Issuer by such holder or such underwriter, as the case may be, expressly for such use. Promptly upon receipt by a party indemnified under this Section 6(d) of notice of the commencement of any action against such indemnified party in respect of which indemnity or reimbursement may be sought against any indemnifying party under this Section 6(d), such indemnified party shall notify the indemnifying party in writing, of the commencement of such action, but the failure so to notify the indemnifying party shall not relieve it of any liability which it may otherwise have to any indemnified party under this Section 6(d). In case notice of commencement of any such action shall be given to the indemnifying party as above provided, the indemnifying party shall be entitled to participate in and, to the extent it may wish, jointly with any other indemnifying party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such indemnified party. The indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be paid by the indemnified party unless (i) the indemnifying, party either agrees to pay the same, (ii) the indemnifying party fails to assume the defense of such action with counsel reasonably satisfactory to the indemnified party, or (iii) the indemnified party has been advised by counsel that one or more legal defenses may be available to the indemnifying party that may be contrary to the interests of the indemnified party. No indemnifying party shall be liable for the fees and expenses of more than one separate counsel for all indemnified parties or for any settlement entered into without its consent, which consent may not be unreasonably withheld. If the indemnification provided for in this Section 6(d) is unavailable to a party otherwise entitled to be indemnified in respect of any expenses, losses, claims, damages or liabilities referred to herein, then the indemnifying party, in lieu of indemnifying such party otherwise entitled to be indemnified, shall contribute to 71 the amount paid or payable by such party to be indemnified as a result of such expenses, losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of Issuer, the Grantee and the underwriters in connection with the statements or omissions which resulted in such expenses, losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The amount paid or payable by a party as a result of the expenses, losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim; PROVIDED HOWEVER that in no case shall the Grantee be responsible, in the aggregate, for any amount in excess of the net offering proceeds attributable to its Option Shares included in the offering. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Any obligation by any Grantee to indemnify shall be several and not joint with other holders of Option Shares. SECTION 7. OPTION REPURCHASE. (a) Upon the occurrence of a Purchase Event that occurs prior to an Exercise Termination Event, (i) at the request (the date of such request being the "Request Date") of Grantee, delivered within 30 days of the Purchase Event (or such later period as may be provided pursuant to Section 9 hereof), Issuer shall repurchase the Option from Grantee at a price (the "Option Repurchase Price") equal to (x) the amount by which (A) the market/offer price (as defined below) exceeds (B) the Option Price, multiplied by the number of shares for which the Option may then be exercised and (ii) at the request (the date of such request being the "Request Date") of the owner of Option Shares from time to time (the "Owner"), delivered within 3 0) days of a Purchase Event (or such later period as may be provided pursuant to Section 9 hereof), Issuer shall repurchase such number of the Option Shares from the Owner as the Owner shall designate at a price (the "Option Share Repurchase Price") equal to (x) the market/offer price multiplied by the number of Option Shares so designated. The term "market/offer price" shall mean the highest of (i) the price per share of Common Stock at which a tender offer or exchange offer therefor has been made after the date hereof and on or prior to the Request Date, (ii) the price per share of Common Stock paid or to be paid by any third party pursuant to an agreement with Issuer (whether by way of a merger, consolidation or otherwise) or (iv) in the event of a sale of all or substantially all of Issuer's assets, the sum of the price paid in such sale for such assets and the current market value of the remaining assets of Issuer as determined by a nationally recognized independent investment banking firm mutually selected by Grantee or the Owner, as the case may be, on the one hand, and Issuer, on the other hand, divided by the number of shares of Common Stock of Issuer outstanding at the time of such sale. In determining the market/offer price, the value of consideration other than cash shall be determined by a nationally-recognized independent investment banking firm mutually selected by Grantee or Owner, as the case may be, on the one hand, and Issuer, on the other hand, whose determination shall be conclusive and binding on all parties . (b) Grantee or the Owner, as the case may be, may exercise its right to require Issuer to repurchase the Option and/or any Option Shares pursuant to this Section 7 by surrendering for such purpose to Issuer, at its principal office, a copy of this Agreement or certificates for Option Shares, as applicable, accompanied by a written notice or notices stating that Grantee or the Owner, as the case may be, elects to require Issuer to repurchase the Option and/or the Option Shares in accordance with the provisions of this Section 7. As immediately as practicable, and in any event within five business days after the surrender of the Option and/or certificates representing Option Shares and the receipt of such notice or notices relating thereto, Issuer shall deliver or cause to be delivered to Grantee the Option Repurchase Price or to the Owner the Option Share Repurchase Price or the portion thereof that Issuer is not then prohibited from so delivering, under applicable law and regulation or as a consequence of administrative policy. 72 (c) Issuer hereby undertakes to use its best efforts to obtain all required regulatory and legal approvals and to file any required notices as promptly as practicable in order to accomplish any repurchase contemplated by this Section 7. Nonetheless, to the extent that Issuer is prohibited under applicable law or regulation from repurchasing the Option and/or the Option Shares in full, Issuer shall immediately so notify Grantee and/or the Owner and thereafter deliver or cause to be delivered, from time to time, to Grantee and/or the Owner, as appropriate, the portion of the Option Repurchase Price and the Option Share Repurchase Price, respectively, that it is no longer prohibited from delivering, within five business days after the date on which Issuer is no longer so prohibited; provide , however, that if Issuer at any time after delivery of a notice of repurchase pursuant to Section 7(b) is prohibited under applicable law or regulation from delivering to Grantee and/or the Owner, as appropriate, the Option Repurchase Price and the Option Share Repurchase Price, respectively, in full Grantee or Owner may revoke its notice of repurchase of the Option or the Option Shares either in whole or in part whereupon, in the case of a revocation in part, Issuer shall promptly (i) deliver to Grantee and/or the Owner, as appropriate, that portion of the Option Purchase Price or the Option Share Repurchase Price that Issuer is not prohibited from delivering after taking into account any such revocation and (ii) deliver, as appropriate, either (A) to Grantee, a new Agreement evidencing the right of Grantee to purchase that number of shares of Common Stock equal to the number of shares of Common Stock purchasable immediately prior to the delivery of the notice of repurchase less the number of shares of Common Stock covered by the portion of the Option repurchased or (B) to the Owner, a certificate for the number of Option Shares covered by the revocation. (d) Issuer shall not enter into any agreement with any party (other than Grantee or a Grantee Subsidiary) for an Acquisition Transaction unless the other party thereto assumes all the obligations of Issuer pursuant to this Section 7 in the event that a Grantee or Owner elects, in its sole discretion, to require such other party to perform such obligations. SECTION 8. SUBSTITUTE OPTION. (a) GRANT OF SUBSTITUTE OPTION. In the event that prior to an Exercise Termination Event, Issuer shall enter into an agreement (1) to consolidate or merge with any Person, other than Grantee or a Grantee Subsidiary, and shall not be the continuing or surviving corporation of such consolidation or merger, (ii) to permit any Person, other than Grantee or a Grantee Subsidiary, to merge into Issuer and Issuer shall be the continuing or surviving corporation, but, in connection with such merger, the then outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property or the then outstanding shares of Common Stock shall after such merger represent less than 50% of the outstanding shares and share equivalents of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its or any Issuer Subsidiary's assets to any Person, other than Grantee or a Grantee Subsidiary, then, and in each such case, the agreement governing such transaction shall make proper provision so that the Option shall, upon the consummation of such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option (the "'Substitute Option"), at the election of Grantee, of either (x) the Acquiring Corporation (as defined below) or (y) any Person that controls the Acquiring Corporation (the Acquiring Corporation and any such controlling Person being hereinafter referred to as the "Substitute Option Issuer"). (b) EXERCISE OF SUBSTITUTE OPTION. The Substitute Option shall be exercisable for such number of shares of the Substitute Common Stock (as is hereinafter defined) as is equal to the market/offer price (as defined in Section 7 hereof), MULTIPLIED by the number of shares of the Common Stock for which the Option was theretofore exercisable, divided by the Average Price (as is hereinafter defined). The exercise price of the Substitute Option per share of the Substitute Common Stock (the "Substitute Purchase Price") shall then be equal to the product of the Option Price multiplied by a fraction in which the numerator is the number of shares 73 of Common Stock for which the Option was theretofore exercisable and the denominator is the number of shares for which the Substitute Option is exercisable. (c) TERMS OF SUBSTITUTE OPTION. The Substitute Option shall otherwise have the same terms as the Option, PROVIDED, HOWEVER, that if the terms of the Substitute Option cannot, for legal reasons, be the same as the Option, such terms shall be as similar as possible and in no event less advantageous to Grantee. (d) SUBSTITUTE OPTION DEFINITIONS. The following terms have the meanings indicated: (i) "Acquiring Corporation" shall mean (i) the continuing or surviving corporation of a consolidation or merger with Issuer (if other than Issuer), (ii) Issuer in a merger in which Issuer is the continuing or surviving Person, and (iii) the transferee of all or any substantial part of the Issuer's assets (or the assets of any Issuer Subsidiary); (ii) "Substitute Common Stock" shall mean the common stock issued by the Substitute Option Issuer upon exercise of the Substitute Option; and (iii) "Average Price" shall mean the average closing price of a share of the Substitute Common Stock for the one year immediately preceding the consolidation, merger or sale in question, but in no event higher than the closing price of the shares of the Substitute Common Stock on the day preceding such consolidation, merger or sale; PROVIDED, HOWEVER, that if such closing price is not ascertainable due to an absence of a public market for the Substitute. Common Stock, "Average Price" shall mean the higher of (i) the price per share of Substitute Common Stock paid or to be paid by any third party pursuant to an agreement with the issuer of the Substitute Common Stock and (ii) the book value per share, calculated in accordance with generally accepted accounting principles, of the Substitute Common Stock immediately prior to exercise of the Substitute Option; PROVIDED, FURTHER, that if Issuer is the issuer of the Substitute Option, the Average Price shall be computed with respect to a share of common stock issued by Issuer, the Person merging into Issuer or by any company which controls or is controlled by such merging Person, as Grantee may elect. (e) CAP ON SUBSTITUTE OPTION. In no event, pursuant to any of the foregoing paragraphs, shall the Substitute Option be exercisable for more than that ding Substitute Common Stock equal to the proportion of the proportion of the outstanding Common Stock of the Issuer which Grantee had the right to acquire immediately prior to the issuance of the Substitute Option. In the event that the Substitute Option would be exercisable for more than the proportion of the outstanding Substitute Common Stock referred to in the immediately preceding paragraph but for this clause (e), the Substitute Option Issuer shall make a cash payment to Grantee equal to the excess of (i) the value of the Substitute Option without giving effect to the limitation in this clause (e) over (ii) the value of the Substitute Option after giving effect to the limitation in this clause (e). This difference in value shall be determined by a nationally recognized investment banking firm selected by Grantee and reasonably acceptable to the Acquiring Corporation. SECTION 9. EXTENSION OF EXERCISE RIGHT. Notwithstanding Sections 2, 6 and 7 and 11 hereof, if Grantee has given the notice referred to in one or more of such Sections, the exercise of the rights specified in any such Section shall be extended (a) if the exercise of such rights requires obtaining regulatory approvals (including any required waiting periods) to the extent necessary to obtain all regulatory approvals for the exercise of such rights, and (b) to the extent necessary to avoid liability under Section 16(b) of the Exchange Act by reason of such exercise; PROVIDED, HOWEVER that in 74 no event shall any closing date occur more than 6 months after the related Notice Date, and, if the closing date shall not have occurred within such period due to the failure to obtain any required approval by the Federal Reserve Board or any other Governmental Authority despite the best efforts of Issuer or the Substitute Option Issuer, as the case may be, to obtain such approvals, the exercise of the Option shall be deemed to have been rescinded as of the related Notice Date. In the event (a) Grantee receives official notice .that an approval of the Federal Reserve Board or any other Governmental Authority required for the purchase and sale of the Option Shares will not be issued or granted or (b) a closing date has not occurred within six months after the related Notice Date due to the failure to obtain any such required approval, Grantee shall be entitled to exercise the Option in connection with the resale of the Option Shares pursuant to a registration statement as provided in Section 6. SECTION 10. ISSUER'S REPRESENTATIONS AND WARRANTIES. Issuer hereby represents and warrants to Grantee as follows: (a) CORPORATE AUTHORITY. Issuer has full corporate power arid authority to execute and deliver this Agreement and, subject to any approvals or consents referred to herein, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of Issuer and no other corporate proceedings on the part of Issuer are necessary to authorize this Agreement or to consummate the transactions so contemplated. This Agreement has been duly authorized, executed and delivered by the Issuer. (b) AVAILABILITY OF SHARES. Issuer has taken all necessary corporate action to authorize and reserve and to permit it to issue, and at all times from the date hereof through the termination of this Agreement in accordance with its terms will have reserved for issuance upon the exercise of the Option, that number of shares of Common Stock equal to the maximum number of shares of Common Stock at any time and from time to time issuable hereunder, and all such shares, upon issuance pursuant hereto, will be duly authorized, validly issued, fully paid, non-assessable, and will be delivered free and clear of all claims, liens, encumbrances and security interests and not subject to any preemptive rights. (c) NO VIOLATIONS. The execution, delivery and performance of this Agreement does not or will not, and the consummation by Issuer of any of the transactions contemplated hereby will not, constitute or result in (A) a breach or violation of, or a default under, its articles of incorporation or by-laws, or the comparable governing-instruments of any of the Issuer Subsidiaries, or (B) a breach or violation of, or a default under, any agreement, lease, contract, note, mortgage, indenture, arrangement or other obligation of it or any of the Issuer Subsidiaries (with or without the giving of notice, the lapse of time or both) or under any law, rule, ordinance or regulation or judgment, decree, order, award or governmental or non-governmental permit or license to which it or any of the Issuer Subsidiaries is subject, that would, in any case give any other person the ability to prevent or enjoin Issuer's performance under this Agreement in-any material respect. SECTION 11. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee hereby represents and warrants to issuer as follows: (a) CORPORATE AUTHORITY. Grantee has all requisite corporate power and authority to enter into this Agreement and, subject to any approvals or consents referred to herein, to consummate the transactions contemplated hereby. The execution and deliver of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Grantee. This Agreement has been duly authorized, executed and delivered by Grantee. 75 (b) INVESTMENT INTENT. The Option is not being, and any shares of Common Stock or other securities acquired by Grantee upon exercise of the Option will not be, acquired with a view to the public distribution thereof and will not be transferred or otherwise disposed of except in a transaction registered or exempt from registration under the Securities Act. SECTION 12. ASSIGNMENT. Neither of the parties hereto may assign any of its rights or delegate any of its obligations under this Agreement or the Option created hereunder to any other Person without the express written consent of the other party, except that Grantee may assign this Agreement to a wholly owned subsidiary of Grantee and Grantee may assign its rights hereunder in whole or in pall after the occurrence of a Preliminary Purchase Event; PROVIDED, HOWEVER, that until the date at which both the Federal Reserve Board has approved an application by Grantee under the BHCA and the California Commissioner of Financial Institutions (the "Commissioner") has approved or exempted an application by Grantee under Section 700 et. seq. of the California Financial Code to acquire the shares of Common Stock subject to the Option, other than to a wholly owned subsidiary of Grantee, Grantee may not assign its rights under the Option except in (i) a widely dispersed public distribution, (ii) a private placement in which no one party acquires the right to purchase in excess of 2% of the voting shares of Issuer, (iii) an assignment to a single party (e.g., a broker or investment banker) for the purpose of conducting a widely dispersed public distribution on Grantee's behalf, or (iv) any other manner approved by the Federal Reserve Board and the Commissioner. The term "Grantee" as used in this Agreement shall also be deemed to refer to Grantee's permitted assigns. Any attempted assignment prohibited by this Section 12 is void and without effect. SECTION 13. FILINGS AND CONSENTS. Each of Grantee and Issuer will use its reasonable efforts to make all filings with, and to obtain consents of, all third parties and Governmental Authorities necessary to the consummation of the transactions contemplated by this Agreement, including, without limitation, making application if necessary, for listing of the shares of Common Stock issuable hereunder on any exchange or quotation system and applying to the Federal Reserve Board under the BHCA and to state banking authorities for approval to acquire the shares issuable hereunder. SECTION 14. REMEDIES. The parties hereto acknowledge that damages would be an inadequate remedy for a breach of this Agreement by either party hereto and that the obligations of the parties shall hereto be enforceable by either party hereto through injunctive or other equitable relief. Both parties further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such equitable relief and that this provision is without prejudice to any other rights that the parties hereto may have for any failure to perform this Agreement. SECTION 15. SEVERABILITY. If any term, provision, covenant or restriction contained in this Agreement is held by a court or a federal or state regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions and covenants and restrictions contained in this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If for any reason such court or regulatory agency determines that the Holder is not permitted to acquire, or Issuer is not permitted to repurchase pursuant to 76 Section 7, the full number of shares of Common Stock provided in Section 1 (a) hereof (as adjusted pursuant to Section 1 (b) or Section 5 hereof), it is the express intention of Issuer to allow Grantee to acquire or to require Issuer to repurchase such lesser number of shares as may be permissible, without any amendment or modification hereof. SECTION 16. NOTICES. All notices, requests, claims, demands and other communications hereunder shall be deemed to have been duly given when delivered in Person, by cable, telegram, telecopy or telex, or by registered or certified mail (postage prepaid, return receipt requested) at the respective addresses of the parties set forth in the Plan. SECTION 17. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement and shall be effective at the time of execution. SECTION 18. EXPENSES. Except as otherwise expressly provided herein, each of the parties hereto shall bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including fees and expenses of its own financial consultants, investment bankers, accountants and counsel. SECTION 19. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in the Plan, this Agreement contains the entire agreement between the parties with respect to the transactions contemplated hereunder and supersedes all prior arrangements or understandings with respect thereof, written or oral. The terms and conditions of this agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto, and their respective successors except as assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein. SECTION 20. DEFINITIONS. Capitalized terms used in this Agreement and not defined herein but defined in the Plan shall have the meanings assigned thereto in the Plan. SECTION 2 1. EFFECT ON PLAN. Nothing contained in this Agreement shall be deemed to authorize Issuer or Grantee to breach any provision of the Plan. SECTION 22. SELECTIONS. In the event that any selection or determination is to be made by Grantee hereunder and at the time of such selection or determination there is more than one Grantee, such selection shall be made by a majority in interest of such Grantees. 77 SECTION 23. FURTHER ASSURANCES. In the event of any exercise of the option by Grantee, Issuer and such Grantee shall execute and deliver all other documents and instruments and take all other action that may be reasonably necessary in order to consummate the transactions provided for by such exercise. SECTION 24. VOTING. Except to the extent Grantee exercises the Option, Grantee shall have no rights to vote or receive dividends or have any other rights as a shareholder with respect to shares of Common Stock covered hereby. SECTION 25. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 78 IN WITNESS WHEREOF, each of the parties has caused this Stock Option Agreement to be executed on its behalf by their officers thereunto duly authorized, all as of the date first above written. MID-STATE BANCSHARES By: ------------------------------------------ Name: Carrol R. Pruett Title: President and Chief Executive Officer CITY COMMERCE BANK By: ------------------------------------------ Name: Carl Lindros Title: Chairman of the Board 79 EX-99.C 4 EXHIBIT 99C EXHIBIT 99C Mid-State Bancshares [LOGO] NEWS RELEASE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DATE: APRIL 19, 1999 MID-STATE BANCSHARES CONTACT: Carrol R. Pruett, Chairman of the Board/President @ (805) 473-6801 CITY COMMERCE BANK CONTACT: Carl E. Lindros, Chairman of the Board @ (805) 963-5871 NASDAQ SYMBOL: "MDST" WEBSITE ADDRESS: www.midstatebank.com MID-STATE BANCSHARES AND CITY COMMERCE BANK ANNOUNCE MERGER AGREEMENT ARROYO GRANDE--Chairmen Carrol R. Pruett and Carl E. Lindros, along with the Boards of Directors of Mid-State Bancshares, the holding company of Mid-State Bank, and City Commerce Bank, announced today that they have signed a definitive agreement to merge, subject to the approval of banking regulators and shareholders. The merged entity, Mid-State Bancshares, will have assets in excess of $1.35 billion with thirty-two (32) offices serving San Luis Obispo, Santa Barbara and Ventura counties. The agreement provides for an exchange of common stock at a fixed exchange ratio of .7791 that is subject to potential adjustments based on changes in the price of Mid-State Bancshares stock preceding the effective date of the transaction. The transaction is valued at approximately $40 million. The merger is structured to be tax-free, and is intended to be accounted for as a pooling-of-interests. Mid-State expects the transaction to close in early fourth quarter 1999 and be accretive to earnings in the year 2000. Mr. Pruett announced, "We are especially pleased to join forces with City Commerce Bank and improve the presence of Mid-State Bank in Santa Barbara County. City Commerce has done an excellent job in servicing the business community, and Mid-State, with its added resources, can expand those relationships. An added benefit of this combination will be the Bank's opportunity to spread its market to the rapidly expanding economy in Ventura County." Mid-State Bank opened its first office in Goleta in 1964, establishing a presence in the Santa Barbara market. In 1997 another office was opened in the city of Santa Barbara. Hence, the additional offices of City Commerce Bank in downtown Santa Barbara as well as those in Goleta and Ventura will allow the Bank to better serve the customers of both banks. Chairman of the Board of City Commerce Bank, Carl E. Lindros added, "We are happy to join forces with Mid-State Bank, and take advantage of the opportunities the larger asset size will afford our current and prospective customers. Mid-State Bank continues its tradition of working with its communities as partners, making decisions locally, and reinvesting locally. Our philosophies are very similar." 80 Forward looking information: This news release contains statements regarding the performance of Mid-State Bank and City Commerce Bank on a stand-alone and pro-forma combined basis. These statements constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the projections discussed in this release since such projections involve significant risks and uncertainties. Factors that might cause such differences include, but are not limited to, revenues following the merger are lower than expected or expenses are higher than expected, costs or difficulties related to the integration of the banks are greater than expected, competitive pressures among financial institutions increase significantly, economic conditions, either nationally or locally in areas in which the combined companies will conduct their operation are less favorable than expected, or legislation or regulatory changes adversely affect the business in which the company would be engaged. Additional contact: Mid-State Bancshares James G. Stathos Executive Vice President/Chief Financial Officer (805) 473-6803 * * * 81 -----END PRIVACY-ENHANCED MESSAGE-----