Exhibit 2.1

 

 

 

AGREEMENT AND PLAN OF MERGER

DATED AS OF MAY 5, 2016

BY AND BETWEEN

BAR HARBOR BANKSHARES

AND

LAKE SUNAPEE BANK GROUP

 

 

 

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TABLE OF CONTENTS

 

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ARTICLE I THE MERGER					1
Section 1.01		Terms of the Merger			1
Section 1.02		Bank Merger			1
Section 1.03		Tax Consequences			2
Section 1.04		Articles of Incorporation and Bylaws			2
Section 1.05		Directors of Surviving Corporation After Effective Time			2
Section 1.06		Effect of the Merger			2
Section 1.07		Effective Date and Effective Time; Closing			2
Section 1.08		Alternative Structure			2
Section 1.09		Additional Actions			3
Section 1.10		Absence of Control			3
Section 1.11		Lake Sunapee Bank Name and Branding			3
ARTICLE II CONSIDERATION; EXCHANGE PROCEDURES					3
Section 2.01		Merger Consideration			3
Section 2.02		Rights as Shareholders; Stock Transfers			3
Section 2.03		No Fractional Shares			3
Section 2.04		Treasury Shares			3
Section 2.05		Reserved			3
Section 2.06		Exchange Procedures			3
Section 2.07		Reservation of Shares			5
Section 2.08		Listing of Additional Shares			5
Section 2.09		Effect on Outstanding Shares of BHB Common Stock			5
Section 2.10		Effect on Outstanding LSBG Equity Awards			5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF LSBG					5
Section 3.01		Organization, Standing and Authority of LSBG			5
Section 3.02		Organization, Standing and Authority of Lake Sunapee Bank			6
Section 3.03		LSBG Capital Stock			6
Section 3.04		Subsidiaries			6
Section 3.05		Corporate Power; Minute Books			6
Section 3.06		Execution and Delivery			6
Section 3.07		Regulatory Approvals; No Defaults			7
Section 3.08		Financial Statements			7
Section 3.09		Securities Filings			7
Section 3.10		Absence of Certain Changes or Events.			8
Section 3.11		Absence of Undisclosed Liabilities			8
Section 3.12		Financial Controls and Procedures			8
Section 3.13		Regulatory Matters			9
Section 3.14		Legal Proceedings			9
Section 3.15		Compliance with Laws			9
Section 3.16		Material Contracts; Defaults			10
Section 3.17		Brokers			10
Section 3.18		Employee Benefit Plans			10
Section 3.19		Labor Matters			12
Section 3.20		Environmental Matters			13
Section 3.21		Tax Matters			13
Section 3.22		Investment Securities			15
Section 3.23		Derivative Transactions			15
Section 3.24		Loans; Nonperforming and Classified Assets			15
Section 3.25		Tangible Properties and Assets			16
Section 3.26		Intellectual Property			16
Section 3.27		Fiduciary Accounts			16

 

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Section 3.28		Insurance			17
Section 3.29		Antitakeover Provisions			17
Section 3.30		Joint Proxy Statement/Prospectus			17
Section 3.31		Disclosure			17
Section 3.32		Charter Holding Corp.; Charter Trust Company			17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BHB					18
Section 4.01		Organization, Standing and Authority of BHB			18
Section 4.02		Organization, Standing and Authority of Bar Harbor Bank			18
Section 4.03		BHB Capital Stock			18
Section 4.04		Subsidiaries			18
Section 4.05		Corporate Power; Minute Books			19
Section 4.06		Execution and Delivery			19
Section 4.07		Regulatory Approvals; No Defaults			19
Section 4.08		Financial Statements			19
Section 4.09		Securities Filings			20
Section 4.10		Absence of Certain Changes or Events			20
Section 4.11		Financial Controls and Procedures			20
Section 4.12		Regulatory Matters			20
Section 4.13		Legal Proceedings			21
Section 4.14		Compliance with Laws			21
Section 4.15		Material Contracts; Defaults			21
Section 4.16		Brokers			22
Section 4.17		Employee Benefit Plans			22
Section 4.18		Labor Matters			22
Section 4.19		Environmental Matters			23
Section 4.20		Tax Matters			23
Section 4.21		Derivative Transactions			24
Section 4.22		Loans; Nonperforming and Classified Assets			25
Section 4.23		Tangible Properties and Assets			25
Section 4.24		Intellectual Property			26
Section 4.25		Fiduciary Accounts			26
Section 4.26		Insurance			26
Section 4.27		Absence of Undisclosed Liabilities			26
Section 4.28		Antitakeover Provisions			26
Section 4.29		BHB Common Stock			26
Section 4.30		Joint Proxy Statement/Prospectus			27
Section 4.31		Disclosure			27
ARTICLE V COVENANTS					27
Section 5.01		Covenants of LSBG			27
Section 5.02		Covenants of BHB			30
Section 5.03		Reasonable Best Efforts			30
Section 5.04		Shareholder Approval			31
Section 5.05		Merger Registration Statement; Joint Proxy Statement/Prospectus			31
Section 5.06		Cooperation and Information Sharing			31
Section 5.07		Supplements or Amendment			32
Section 5.08		Regulatory Approvals			32
Section 5.09		Press Releases			32
Section 5.10		Access; Information			32
Section 5.11		No Solicitation			33
Section 5.12		Indemnification			34
Section 5.13		Employees; Benefit Plans			35
Section 5.14		Notification of Certain Changes			36
Section 5.15		Current Information			37
Section 5.16		Board Packages			37

 

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Section 5.17		Transition; Informational Systems Conversion			37
Section 5.18		Board of Directors			37
Section 5.19		Exemption from Liability Under Section 16(b)			37
ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER					38
Section 6.01		Conditions to Obligations of the Parties to Effect the Merger			38
Section 6.02		Conditions to Obligations of BHB			38
Section 6.03		Conditions to Obligations of LSBG			39
Section 6.04		Frustration of Closing Conditions			40
ARTICLE VII TERMINATION					40
Section 7.01		Termination			40
Section 7.02		Termination Fee			42
Section 7.03		Effect of Termination and Abandonment			42
ARTICLE VIII MISCELLANEOUS					42
Section 8.01		Survival			42
Section 8.02		Waiver; Amendment			43
Section 8.03		Counterparts			43
Section 8.04		Governing Law			43
Section 8.05		Expenses			43
Section 8.06		Notices			43
Section 8.07		Entire Understanding; No Third Party Beneficiaries			44
Section 8.08		Severability			44
Section 8.09		Enforcement of the Agreement			44
Section 8.10		Interpretation			44
Section 8.11		Assignment			44
ARTICLE IX ADDITIONAL DEFINITIONS					45
Section 9.01		Additional Definitions			45

EXHIBITS

 

Exhibit A		Form of Voting Agreement
Exhibit B		Plan of Bank Merger
Exhibit C		Form of Employment Agreement
Exhibits D-1 to D-7		Forms of Settlement Agreements

 

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TABLE OF DEFINITIONS

 

 

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This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is dated as of May 5, 2016, by and between Bar Harbor Bankshares, a Maine corporation (“BHB”), and Lake Sunapee Bank Group, a Delaware corporation (“LSBG”).

WITNESSETH

WHEREAS, the Board of Directors of BHB and the Board of Directors of LSBG have each (i) determined that this Agreement and the business combination and related transactions contemplated hereby are in the best interests of their respective entities and shareholders; (ii) determined that this Agreement and the transactions contemplated hereby are consistent with and in furtherance of their respective business strategies; and (iii) approved this Agreement;

WHEREAS, in accordance with the terms of this Agreement, LSBG will merge with and into BHB, and BHB shall be the surviving entity (the “Merger”);

WHEREAS, as a material inducement to BHB to enter into this Agreement, each of the directors and certain executive officers of LSBG have entered into a voting agreement with BHB dated as of the date hereof (a “Voting Agreement”), substantially in the form attached hereto as Exhibit A, pursuant to which each such director or executive officer has agreed, among other things, to vote all shares of LSBG Common Stock (as defined herein) owned by such person in favor of the approval of this Agreement and the transactions contemplated hereby, upon the terms and subject to the conditions set forth in such agreement;

WHEREAS, the parties intend for the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and that this Agreement be and hereby is adopted as a “plan of reorganization” within the meaning of Sections 354 and 361 of the Code; and

WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the transactions described in this Agreement and to prescribe certain conditions thereto.

NOW, THEREFORE, in consideration of the mutual promises herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

THE MERGER

Section 1.01 Terms of the Merger. Subject to the terms and conditions of this Agreement, at the Effective Time, LSBG shall merge with and into BHB, and BHB shall be the surviving entity (hereinafter sometimes referred to as the “Surviving Corporation”) and shall continue to be governed by the laws of the State of Maine and its name and separate corporate existence, with all of its rights, privileges, immunities, powers and franchises, shall continue unaffected by the Merger. As part of the Merger, shares of LSBG Common Stock shall, at the Effective Time, be converted into the right to receive the Merger Consideration pursuant to the terms of Article II.

Section 1.02 Bank Merger. Concurrently with or as soon as practicable after the execution and delivery of this Agreement, Bar Harbor Bank & Trust (“Bar Harbor Bank”), a wholly owned subsidiary of BHB, and Lake Sunapee Bank, fsb (“Lake Sunapee Bank”), a wholly owned subsidiary of LSBG, shall enter into the Plan of Bank Merger (the “Plan of Bank Merger”), substantially in the form attached hereto as Exhibit B, pursuant to which Lake Sunapee Bank will merge with and into Bar Harbor Bank, and Bar Harbor Bank shall be the surviving institution (the “Bank Merger”). The parties intend that the Bank Merger will become effective simultaneously with or immediately following the Effective Time.

 

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Section 1.03 Tax Consequences. It is intended that the Merger shall constitute a reorganization within the meaning of Section 368(a) of the Code, and that this Agreement shall constitute a “plan of reorganization” as that term is used in Sections 354 and 361 of the Code. From and after the date of this Agreement and until the Closing, each party hereto shall use its reasonable best efforts to cause the Merger to qualify, and will not knowingly take any action, cause any action to be taken, fail to take any action or cause any action to fail to be taken, which action or failure to act would reasonably be expected to prevent the Merger from qualifying as a reorganization under Section 368(a) of the Code. LSBG and BHB each hereby agree to deliver a certificate substantially in compliance with IRS published advance ruling guidelines, with customary exceptions and modifications thereto, to enable its counsel to deliver the legal opinion contemplated by Section 6.01(e).

Section 1.04 Articles of Incorporation and Bylaws. The Articles of Incorporation, as amended, of BHB, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation until thereafter amended in accordance with applicable law. The Amended and Restated Bylaws of BHB, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended in accordance with applicable law.

Section 1.05 Directors of Surviving Corporation After Effective Time. Subject to Section 5.18, immediately after the Effective Time, until their respective successors are duly elected or appointed and qualified, the directors of the Surviving Corporation shall consist of the directors of BHB serving immediately prior to the Effective Time.

Section 1.06 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided under the Maine Business Corporation Act (the “MBCA”), and the regulations promulgated thereunder. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, the separate corporate existence of LSBG shall cease and all of the rights, privileges, powers, franchises, properties, assets, debts, liabilities, obligations, restrictions, disabilities and duties of LSBG shall be vested in and assumed by BHB.

Section 1.07 Effective Date and Effective Time; Closing.

(a) Subject to the terms and conditions of this Agreement, BHB will make all such filings as may be required to consummate the Merger by applicable laws and regulations. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Secretary of the State of Maine or at such later date or time as BHB and LSBG agree and specify in the Articles of Merger (the date and time the Merger becomes effective being the “Effective Time”).

(b) The closing of the Merger (the “Closing”) shall take place at 10:00 a.m., Eastern time on the Closing Date (as defined below), at the principal offices of K&L Gates LLP in Boston, MA, or such other place or at such other time on the Closing Date as the parties may mutually agree upon. At the Closing, there shall be delivered to BHB and LSBG the certificates and other documents required to be delivered under Article VI hereof. Subject to the satisfaction or waiver of all conditions to closing contained in Article VI hereof, the Closing shall occur no later than ten Business Days following the latest to occur of (i) the receipt of all Regulatory Approvals, and the expiration of any applicable waiting periods, (ii) the approval of the Merger by the stockholders of BHB and by the stockholders of LSBG, or (iii) at such other date or time upon which BHB and LSBG mutually agree (the “Closing Date”).

Section 1.08 Alternative Structure. BHB may, at any time prior to the Effective Time, change the method of effecting the combinations of BHB and LSBG, or Bar Harbor Bank and Lake Sunapee Bank, respectively if and to the extent it deems such change to be necessary, appropriate or desirable; provided, however, that no such change shall (a) alter or change the Merger Consideration in any way; (b) adversely affect the tax treatment of LSBG’s shareholders pursuant to this Agreement; (c) adversely affect the tax treatment of BHB or LSBG pursuant to this Agreement; or (d) be reasonably likely to materially impede or delay consummation of the transactions contemplated by this Agreement or the Plan of Bank Merger. In the event BHB makes such a change, LSBG agrees to execute an appropriate amendment to this Agreement or the Plan of Bank Merger, as applicable, in order to reflect such change.

 

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Section 1.09 Additional Actions. If, at any time after the Effective Time, BHB shall consider or be advised that any further deeds, documents, assignments or assurances in law or any other acts are necessary or desirable to (i) vest, perfect or confirm, or record or otherwise, in BHB its right, title or interest in, to or under any of the rights, properties or assets of LSBG, or (ii) otherwise carry out the purposes of this Agreement, LSBG and its officers and directors shall be deemed to have granted to BHB an irrevocable power of attorney to execute and deliver, in such official corporate capacities, all such deeds, assignments or assurances in law or any other acts as are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in BHB its right, title or interest in, to or under any of the rights, properties or assets of LSBG or (b) otherwise carry out the purposes of this Agreement, and the officers and directors of BHB are authorized in the name of LSBG or otherwise to take any and all such action.

Section 1.10 Absence of Control. It is the intent of the parties to this Agreement that BHB by reason of this Agreement shall not be deemed (until consummation of the transactions contemplated herein) to control, directly or indirectly, LSBG and shall not exercise or be deemed to exercise, directly or indirectly, a controlling influence over the management or policies of LSBG.

Section 1.11 Lake Sunapee Bank Name and Branding. It is the intent of the parties to this Agreement that, from and after the Effective Time, all Lake Sunapee Bank locations in New Hampshire and Vermont (a) shall be maintained and remain in operation (unless such maintenance and operation would not be commercially reasonable) and (b) shall operate under the Lake Sunapee Bank brand (subject to any reference to Bar Harbor Bank required by applicable regulations).

ARTICLE II

CONSIDERATION; EXCHANGE PROCEDURES

Section 2.01 Merger Consideration. Subject to the provisions of this Agreement, by virtue of the Merger, automatically and without any action on the part of the holder thereof, each share of LSBG Common Stock issued and outstanding at the Effective Time, other than Excluded Shares, shall become and be converted into, as provided in and subject to the limitations set forth in this Agreement, the right to receive 0.4970 shares (the “Exchange Ratio”) of BHB Common Stock plus cash in lieu of Fractional Shares as provided for in Section 2.03 (the “Merger Consideration”).

Section 2.02 Rights as Shareholders; Stock Transfers. At the Effective Time, holders of LSBG Common Stock shall cease to be, and shall have no rights as, shareholders of LSBG other than the right to receive the Merger Consideration provided under this Article II. Upon and after the Effective Time, there shall be no transfers on the stock transfer books of LSBG of shares of LSBG Common Stock.

Section 2.03 No Fractional Shares. Notwithstanding any other provision of this Agreement, neither certificates nor scrip for fractional shares of BHB Common Stock (“Fractional Shares”) shall be issued in the Merger. Each holder of a Certificate who otherwise would have been entitled to a fraction of a share of BHB Common Stock shall receive in lieu thereof cash (without interest) in an amount determined by multiplying the fractional share interest to which such holder would otherwise be entitled (after taking into account all shares of LSBG Common Stock owned by such holder at the Effective Time) by the BHB Share Price. No such holder shall be entitled to dividends, voting rights or any other rights in respect of any fractional share.

Section 2.04 Treasury Shares; Shares Owned by the Parties. Notwithstanding any other provision of this Agreement, all shares of LSBG Common Stock that are (i) held by LSBG as treasury shares or (ii) owned by BHB or any of its Subsidiaries immediately prior to the Effective Time, shall be cancelled and retired and shall cease to exist, and no shares of BHB Common Stock or other consideration shall be delivered in exchange therefor. Any shares of BHB Common Stock that are owned by LSBG or any of its Subsidiaries immediately prior to the Effective Time shall be cancelled and retired.

Section 2.05 Reserved.

Section 2.06 Exchange Procedures.

 

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(a) Appropriate transmittal materials (“Letter of Transmittal”) in a form satisfactory to BHB and LSBG shall be mailed as soon as practicable, but in no event later than five Business Days after the Closing Date, after the Effective Time to each holder of record of LSBG Common Stock as of the Effective Time. A Letter of Transmittal will be deemed properly completed only if accompanied by certificates representing all shares of LSBG Common Stock (“Certificate(s)”) to be converted thereby.

(b) At and after the Effective Time, each Certificate shall represent only the right to receive the Merger Consideration.

(c) Prior to the Effective Time, BHB shall (i) reserve for issuance with its transfer agent and registrar a sufficient number of shares of BHB Common Stock to provide for payment of the aggregate Merger Consideration pursuant to Section 2.07 and (ii) deposit, or cause to be deposited, with American Stock Transfer & Trust Company, LLC (the “Exchange Agent”), for the benefit of the holders of shares of LSBG Common Stock, for exchange in accordance with this Section 2.06, an amount of cash sufficient to pay any cash in lieu of Fractional Shares pursuant to Section 2.03.

(d) The Letter of Transmittal shall (i) 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, (ii) be in a form and contain any other provisions as are reasonably satisfactory to LSBG and BHB and (iii) include instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon the proper surrender of the Certificates to the Exchange Agent, together with a properly completed and duly executed Letter of Transmittal, the holder of such Certificates shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of BHB Common Stock that such holder has the right to receive pursuant to Section 2.01, and a check in the amount equal to the cash in lieu of Fractional Shares, if any, that such holder has the right to receive pursuant to Section 2.03, and any dividends or other distributions to which such holder is entitled pursuant to this Section 2.06. Certificates so surrendered shall forthwith be canceled. As soon as practicable following receipt of the properly completed Letter of Transmittal and any necessary accompanying documentation, the Exchange Agent shall distribute BHB Common Stock and cash as provided herein. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the shares of BHB Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect to such shares for the account of the persons entitled thereto. If there is a transfer of ownership of any shares of LSBG Common Stock not registered in the transfer records of LSBG, the Merger Consideration shall be issued to the transferee thereof if the Certificates representing such LSBG Common Stock are presented to the Exchange Agent, accompanied by all documents required, in the reasonable judgment of BHB and the Exchange Agent, to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid.

(e) No dividends or other distributions declared or made after the Effective Time with respect to BHB Common Stock issued pursuant to this Agreement shall be remitted to any person entitled to receive shares of BHB Common Stock hereunder until such person surrenders his or her Certificates in accordance with this Section 2.06. Upon the surrender of such person’s Certificates, such person shall be entitled to receive any dividends or other distributions, without interest thereon, which subsequent to the Effective Time had become payable but not paid with respect to shares of BHB Common Stock represented by such person’s Certificates.

(f) The stock transfer books of LSBG shall be closed immediately upon the Effective Time and from and after the Effective Time there shall be no transfers on the stock transfer records of LSBG of any shares of LSBG Common Stock. If, after the Effective Time, Certificates are presented to BHB, they shall be canceled and exchanged for the Merger Consideration deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Section 2.06.

(g) Any portion of the aggregate amount of cash to be paid pursuant to Section 2.03, any dividends or other distributions to be paid pursuant to this Section 2.06 or any proceeds from any investments thereof that remains unclaimed by the shareholders of LSBG for nine months after the Effective Time shall be repaid by the Exchange Agent to BHB upon the written request of BHB. After such request is made, any shareholders of LSBG who have not theretofore complied with this Section 2.06 shall look only to BHB for the Merger Consideration and cash in lieu of Fractional Shares, if any, deliverable in respect of each share of LSBG Common Stock such shareholder holds, as determined pursuant to Section 2.06 of this Agreement, without any interest thereon. If

 

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outstanding Certificates are not surrendered prior to the date on which such payments would otherwise escheat to or become the property of any governmental unit or agency, the unclaimed items shall, to the extent permitted by any abandoned property, escheat or other applicable laws, become the property of BHB (and, to the extent not in its possession, shall be paid over to it), free and clear of all claims or interest of any person previously entitled to such claims. Notwithstanding the foregoing, neither the Exchange Agent nor any party to this Agreement (or any affiliate thereof) shall be liable to any former holder of LSBG Common Stock for any amount delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

(h) BHB and the Exchange Agent shall be entitled to rely upon LSBG’s stock transfer books to establish the identity of those persons entitled to receive the Merger Consideration, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate, BHB and the Exchange Agent shall be entitled to deposit any Merger Consideration and cash in lieu of Fractional Shares, if any, represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto.

(i) If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Exchange Agent or BHB, the posting by such person of a bond in such amount as the Exchange Agent may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration and cash in lieu of Fractional Shares, if any, deliverable in respect thereof pursuant to Section 2.03.

Section 2.07 Reservation of Shares. Effective upon the date of this Agreement, BHB shall reserve for issuance a sufficient number of shares of the BHB Common Stock for the purpose of issuing shares of BHB Common Stock to LSBG shareholders in accordance with this Article II.

Section 2.08 Listing of Additional Shares. Prior to the Effective Time, BHB shall notify NYSE of the additional shares of BHB Common Stock to be issued by BHB in exchange for the shares of LSBG Common Stock.

Section 2.09 Effect on Outstanding Shares of BHB Common Stock. At the Effective Time, each share of BHB Common Stock issued and outstanding immediately prior to the Effective Time shall remain an issued and outstanding share of common stock of the Surviving Corporation and shall not be affected by the Merger.

Section 2.10 Effect on Outstanding LSBG Equity Awards. Each unvested award of restricted stock issued by LSBG and outstanding at the Effective Time pursuant to the LSBG 2014 Stock Incentive Plan (each, a “LSBG Restricted Share Award”) shall be fully vested as of the Effective Time and converted into BHB Common Stock in the same manner as any other outstanding share of LSBG Common Stock pursuant to the terms of this Article II.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF LSBG

As a material inducement to BHB to enter into this Agreement and to consummate the transactions contemplated hereby, LSBG hereby makes to BHB the representations and warranties contained in this Article III.

Section 3.01 Organization, Standing and Authority of LSBG. LSBG is a Delaware corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly registered as a bank holding company under the Home Owners’ Loan Act of 1933, as amended, as administered by the FRB. LSBG has full corporate power and authority to carry on its business as now conducted. LSBG is duly licensed or qualified to do business in the States of the United States and foreign jurisdictions where its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Effect on LSBG. The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of LSBG, copies of which have been made available to BHB, are true, complete and correct copies of such documents as in full force and effect as of the date of this Agreement.

 

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Section 3.02 Organization, Standing and Authority of Lake Sunapee Bank. Lake Sunapee Bank is a federally chartered savings association duly organized, validly existing and in good standing under the laws of the State of New Hampshire. Lake Sunapee Bank’s deposits are insured by the FDIC in the manner and to the fullest extent provided by applicable law, and all premiums and assessments required to be paid in connection therewith have been paid by Lake Sunapee Bank when due. Lake Sunapee is a member in good standing of the FHLB and owns the requisite amount of stock in the FHLB as set forth on LSBG Disclosure Schedule 3.02. The charter and Bylaws of Lake Sunapee Bank, copies of which have been made available to BHB, are true, complete and correct copies of such documents as in full force and effect as of the date of this Agreement.

Section 3.03 LSBG Capital Stock.

(a) The authorized capital stock of LSBG consists of 32,500,000 shares, of which 30,000,000 are common stock, $0.01 par value per share, of which 8,381,713 shares are outstanding as of the date hereof (“LSBG Common Stock”), and 2,500,000 shares are preferred stock, $0.01 par value per share, none of which are outstanding as of the date hereof (“LSBG Preferred Stock”). As of the date hereof, there are 434,329 shares of LSBG Common Stock held in treasury by LSBG. The outstanding shares of LSBG Common Stock and LSBG Preferred Stock have been duly authorized and validly issued and are fully paid and non-assessable and free of preemptive rights. LSBG does not have any Rights issued or outstanding with respect to LSBG Common Stock or LSBG Preferred Stock and LSBG does not have any commitment to authorize, issue or sell any LSBG Common Stock, LSBG Preferred Stock or Rights.

(b) LSBG Disclosure Schedule 3.03(b) contains a list setting forth, as of the date of this Agreement, all outstanding LSBG Restricted Share Awards, a list of all holders with respect to each such award including identification of any such grantees that are not current or former employees, directors or officers of LSBG, the date of grant, and any vesting schedule applicable to each unvested award. No election has been made with respect to any LSBG Restricted Share Award pursuant to Section 83(b) of the Code. Upon issuance in accordance with the terms of the outstanding award agreements, the shares of LSBG Common Stock issued pursuant to the LSBG Restricted Share Awards shall be issued in compliance with all applicable laws.

Section 3.04 Subsidiaries. Except as disclosed on LSBG Disclosure Schedule 3.04, LSBG does not have any equity interest, direct or indirect, in any other bank or corporation or in any partnership, joint venture or other business enterprise or entity, and the business carried on by LSBG has not been conducted through any other direct or indirect Subsidiary or Affiliate of LSBG. All of the issued and outstanding shares of capital stock or other equity ownership interests of each Subsidiary of LSBG are owned by LSBG, directly or indirectly, free and clear of any Liens, and all such shares or equity ownership interests are duly authorized and validly issued and are fully paid and nonassessable and free of preemptive rights. No such Subsidiary has any Rights issued or outstanding with respect to its capital stock or other equity ownership interests, and it does not have any commitment to authorize, issue or sell any capital stock or other equity ownership interests or Rights. No equity investment identified in LSBG Disclosure Schedule 3.04 is prohibited by the State of New Hampshire, the New Hampshire Banking Department, the OCC or the FDIC.

Section 3.05 Corporate Power; Minute Books. Each of LSBG and Lake Sunapee Bank has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets; and each of LSBG and Lake Sunapee Bank has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby, subject to receipt of all necessary approvals of Governmental Authorities and the approval of the shareholders of LSBG and BHB of this Agreement. The minute books of LSBG, true and complete copies of which have been made available to BHB, contain true, complete and accurate records of all meetings and other corporate actions held or taken by shareholders of LSBG and the LSBG Board (including committees of the LSBG Board).

Section 3.06 Execution and Delivery. Subject to the approval of this Agreement by the shareholders of LSBG, this Agreement and the transactions contemplated hereby have been authorized by all necessary corporate action of LSBG and the LSBG Board on or prior to the date hereof. The LSBG Board has

 

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directed that this Agreement be submitted to LSBG’s shareholders for approval at a meeting of such shareholders and, except for the approval and adoption of this Agreement by the requisite affirmative vote of the holders of the outstanding shares of LSBG Common Stock entitled to vote thereon, no other vote of the shareholders of LSBG is required by law, the Amended and Restated Certificate of Incorporation, the Amended and Restated Bylaws of LSBG or otherwise to approve this Agreement and the transactions contemplated hereby. LSBG has duly executed and delivered this Agreement and, assuming due authorization, execution and delivery by BHB, this Agreement is a valid and legally binding obligation of LSBG, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles).

Section 3.07 Regulatory Approvals; No Defaults.

(a) Except as disclosed on LSBG Disclosure Schedule 3.07, no consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with any third party are required to be made or obtained by LSBG or any of its Subsidiaries in connection with the execution, delivery or performance by LSBG or Lake Sunapee Bank of this Agreement or to consummate the transactions contemplated hereby, except for (i) filings of applications or notices with, and consents, approvals or waivers by the OCC, as may be required, and (ii) the approval of this Agreement by the requisite affirmative vote of the holders of the outstanding shares of LSBG Common Stock. As of the date hereof, LSBG is not aware of any reason why the approvals set forth above and referred to in Section 6.01(a) will not be received in a timely manner.

(b) Subject to receipt, or the making, of the consents, approvals, waivers and filings referred to in the preceding paragraph, and the expiration of related waiting periods, the execution, delivery and performance of this Agreement by LSBG, as applicable, and the consummation of the transactions contemplated hereby do not and will not (i) constitute a breach or violation of, or a default under, the charter or Bylaws (or similar governing documents) of LSBG or any of its Subsidiaries, (ii) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to LSBG or any of its Subsidiaries, or any of their properties or assets or (iii) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of LSBG or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, contract, agreement or other instrument or obligation to which LSBG or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected.

Section 3.08 Financial Statements. LSBG has previously made available to BHB copies of (i) the consolidated balance sheets of LSBG as of December 31 for the fiscal years 2015 and 2014, and the related consolidated statements, comprehensive income, changes in stockholders’ equity, and cash flows for the fiscal years 2015, 2014 and 2013, in each case accompanied by the audit report of Baker Newman and Noyes, LLC (or its predecessor Shatswell, Macleod & Company, P.C.), the independent registered public accounting firm of LSBG (the “LSBG Financial Statements”) and (ii) the consolidated report of condition and income filed with the FDIC by Lake Sunapee Bank for the period ended December 31, 2015. The LSBG Financial Statements (including the related notes, where applicable) fairly present in all material respects the results of the operations and financial position of LSBG and its consolidated Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth; each of such statements (including the related notes, where applicable) complies with applicable accounting requirements; and each of such statements (including the related notes, where applicable) has been prepared in accordance with GAAP consistently applied during the periods involved. The books and records of LSBG have been, and are being, maintained in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions. Baker Newman and Noyes, LLC has not resigned or been dismissed as independent public accountants of LSBG as a result of or in connection with any disagreements with LSBG on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

Section 3.09 Securities Filings. Other than as disclosed on LSBG Disclosure Schedule 3.09, LSBG has filed with the SEC all reports, schedules, registration statements, definitive proxy statements and other documents that it has been required to file under the Securities Act or the Exchange Act since December 31,

 

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2013 (collectively, “LSBG’s SEC Reports”). None of LSBG’s SEC Reports contained 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 circumstances under which they were made, not misleading. As of their respective dates of filing with the SEC, all of LSBG’s SEC Reports complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder. Each of the financial statements (including, in each case, any notes thereto) of LSBG included or incorporated by reference in LSBG’s SEC Reports complied as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. There are no outstanding comments from or unresolved issues raised by the SEC staff with respect to LSBG’s SEC Reports. None of LSBG’s Subsidiaries is required to file periodic reports with the SEC pursuant to Section 13 or 15(d) of the Exchange Act.

Section 3.10 Absence of Certain Changes or Events.

(a) Since December 31, 2015, there has been no change or development or combination of changes or developments which, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect on LSBG.

(b) Since December 31, 2015, each of LSBG and its Subsidiaries has carried on its business only in the ordinary and usual course of business consistent with its past practices (except for the incurrence of expenses in connection with this Agreement).

(c) Except as set forth in LSBG Disclosure Schedule 3.10, since December 31, 2015, none of LSBG or any of its Subsidiaries has (i) increased the wages, salaries, compensation, pension, or other fringe benefits or perquisites payable to any officer, employee or director from the amount thereof in effect as of December 31, 2015, granted any severance or termination pay, entered into any contract to make or grant any severance or termination pay, or paid any bonus, (ii) declared, set aside or paid any dividend or other distribution (whether in cash, stock or property) with respect to any of its capital stock, (iii) effected or authorized any split, combination or reclassification of any of its capital stock or any issuance or issued any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iv) changed any accounting methods (or underlying assumptions), principles or practices affecting its assets, liabilities or business, including any reserving, renewal or residual method, practice or policy, except in accordance with GAAP, (v) made any tax election or any settlement or compromise of any income tax liability, (vi) made any material change in its policies and procedures in connection with underwriting standards, origination, purchase and sale procedures or hedging activities with respect to any Loans, (vii) suffered any strike, work stoppage, slow-down, or other labor disturbance, (viii) been a party to a collective bargaining agreement, contract or other agreement or understanding with a labor union or organization, (ix) had any union organizing activities or (x) made any agreement or commitment (contingent or otherwise) to do any of the foregoing.

Section 3.11 Absence of Undisclosed Liabilities. None of LSBG or any of its Subsidiaries has any liabilities or obligations, whether accrued, absolute, contingent or otherwise, known or unknown, whether due or to become due, whether or not required to be disclosed in a balance sheet prepared in accordance with GAAP, except for those (i) liabilities properly accrued or reserved against in the consolidated balance sheet of LSBG as of December 31, 2015 included in the LSBG SEC Reports, (ii) liabilities and obligations incurred since December 31, 2015 in the ordinary course of business consistent with past practice, (iii) liabilities and obligations that are not material to LSBG and its Subsidiaries, taken as a whole, and (iv) any liabilities and obligations incurred with respect to the transactions contemplated by this Agreement.

Section 3.12 Financial Controls and Procedures. During the periods covered by the LSBG Financial Statements, each of LSBG and its Subsidiaries has had in place internal controls over financial reporting which are designed and maintained to ensure that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. None of LSBG’s or any of its Subsidiaries’ records, systems, controls, data or information are recorded, stored, maintained, operated or otherwise wholly or partly dependent on or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of LSBG or its accountants or agents.

 

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Section 3.13 Regulatory Matters.

(a) Each of LSBG and its Subsidiaries has timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that it was required to file since December 31, 2012 with any Governmental Authority, and has paid all fees and assessments due and payable in connection therewith. Except for normal examinations conducted by any Governmental Authority in the regular course of the business, and except as set forth in LSBG Disclosure Schedule 3.13(a), no Governmental Authority has initiated any proceeding, or to the Knowledge of LSBG, investigation into the business or operations of LSBG or any of its Subsidiaries, since December 31, 2012. Other than as set forth in LSBG Disclosure Schedule 3.13(a), there is no unresolved violation, criticism, or exception by any Governmental Authority with respect to any report or statement relating to any examinations of Lake Sunapee Bank. Lake Sunapee Bank is “well-capitalized” as defined in applicable laws and regulations, and Lake Sunapee Bank has a Community Reinvestment Act of 1977, as amended (the “Community Reinvestment Act”), rating of “satisfactory” or better.

(b) LSBG has timely filed with the SEC and NASDAQ all documents required by the Securities Act and the Exchange Act, and such documents, as the same may have been amended, complied, at the time filed with the SEC, in all material respects with the Securities Act and the Exchange Act.

(c) Other than as set forth in LSBG Disclosure Schedule 3.13(c), neither LSBG nor Lake Sunapee Bank is a party to or is subject to any order, decree, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter (each a “Regulatory Order”) from, any Governmental Authority charged with the supervision or regulation of financial institutions or issuers of securities or engaged in the insurance of deposits or the supervision or regulation of it. Each of LSBG and Lake Sunapee Bank has not been advised by, or has any Knowledge of facts which could give rise to an advisory notice by, any Governmental Authority that such Governmental Authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any Regulatory Order.

Section 3.14 Legal Proceedings.

(a) Other than as set forth in LSBG Disclosure Schedule 3.14, there are no pending or, to LSBG’s Knowledge, threatened legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against LSBG or any of its Subsidiaries.

(b) Other than as set forth in LSBG Disclosure Schedule 3.14, none of LSBG or any of its Subsidiaries is a party to any, or are there any pending or, to LSBG’s Knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against LSBG or any of its Subsidiaries in which, to the Knowledge of LSBG, there is a reasonable probability of any material recovery against or other Material Adverse Effect on LSBG or any of its Subsidiaries or which challenges the validity or propriety of the transactions contemplated by this Agreement.

(c) There is no injunction, order, judgment or decree imposed upon LSBG or any of its Subsidiaries, or their respective assets, and none of LSBG or any of its Subsidiaries has been advised of, or is aware of, the threat of any such action.

Section 3.15 Compliance with Laws.

(a) Each of LSBG and its Subsidiaries is in compliance with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including the Equal Credit Opportunity Act, as amended, the Fair Housing

 

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Act, as amended, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act of 1970, as amended, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, and all other applicable fair lending and fair housing laws or other laws relating to discrimination;

(b) Each of LSBG and its Subsidiaries has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Authorities that are required in order to permit it to own or lease its properties and to conduct its business as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to LSBG’s Knowledge, no suspension or cancellation of any of them is threatened; and

(c) Other than as set forth in LSBG Disclosure Schedule 3.15, none of LSBG or any Subsidiary has received, since December 31, 2013, any notification or communication from any Governmental Authority (i) asserting that it is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces or (ii) threatening to revoke any license, franchise, permit or governmental authorization (nor, to LSBG’s Knowledge, do any grounds for any of the foregoing exist).

Section 3.16 Material Contracts; Defaults.

(a) Other than as set forth in LSBG Disclosure Schedule 3.16(a), none of LSBG or any of its Subsidiaries is a party to, bound by or subject to any agreement, contract, arrangement, commitment or understanding (whether written or oral): (i) with respect to the employment of any directors, officers, employees or consultants; (ii) which would entitle any present or former director, officer, employee or agent of LSBG or any Subsidiary to indemnification from LSBG or such Subsidiary; (iii) which is not terminable on sixty (60) days or less notice and involving the payment of more than $25,000 per annum; (iv) which materially restricts the conduct of any business by LSBG or any Subsidiary or (v) which is a “material contract” (as such term is defined in Item 601(b)(1) of Regulation S-K of the SEC) not filed as an exhibit to LSBG’s Annual Report on Form 10-K for the year ended December 31, 2015 or a subsequently filed Current Report on Form 8-K or Quarterly Report on Form 10-Q of LSBG (collectively, “Material Contracts”). LSBG has previously delivered to BHB true, complete and correct copies of each such document.

(b) To LSBG’s Knowledge, none of LSBG or any of its Subsidiaries is in default under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party, by which its assets, business, or operations may be bound or affected, or under which it or its assets, business, or operations receives benefits, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default. Except as set forth in LSBG Disclosure Schedule 3.16(b), no power of attorney or similar authorization given directly or indirectly by LSBG or any of its Subsidiaries is currently outstanding.

Section 3.17 Brokers. LSBG has received the opinion of Griffin Financial Group LLC to the effect that, as of the date hereof, the Exchange Ratio is fair, from a financial point of view, to LSBG’s shareholders. Other than for financial advisory services performed for LSBG by Griffin Financial Group LLC pursuant to an agreement dated April 11, 2016, a true and complete copy of which has been previously delivered or made available to BHB, neither LSBG nor any of its Subsidiaries, nor any of their respective officers, directors, employees or agents, has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder’s fees, and no broker or finder has acted directly or indirectly for LSBG or any of its Subsidiaries in connection with this Agreement or the transactions contemplated hereby.

Section 3.18 Employee Benefit Plans.

(a) All benefit and compensation plans, contracts, policies or arrangements covering current or former employees of LSBG (the “LSBG Employees”) and current or former directors of LSBG including, but not limited to, “employee benefit plans” within the meaning of Section 3(3) of LSBG, and deferred compensation, stock option, stock purchase, stock appreciation rights, stock based, incentive and bonus plans (the “LSBG Benefit Plans”), are identified in LSBG Disclosure Schedule 3.18(a). True and complete copies of all LSBG Benefit Plans including, but not limited to, any trust instruments and insurance contracts forming a part of any LSBG Benefit Plans and all amendments thereto, have been provided to BHB. With

 

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respect to the LSBG Benefit Plans, true and complete copies of the following have been provided to BHB, where applicable: (i) a copy of the most recent determination, opinion or advisory letter from the Internal Revenue Service, (ii) a copy of the three most recently filed Forms 5500 and summary annual reports, with schedules and financial statements attached, (iii) actuarial valuations and reports for the three most recently completed plan years, and (iv) copies of material notices, letters or other correspondence from any Governmental Authority, copies of current and prior IRS or DOL audits or inquiries, and any filings under any amnesty, voluntary compliance, self-correction or similar program sponsored by any Governmental Authority. Except as set forth in LSBG Disclosure Schedule 3.18(a), LSBG may amend or terminate any such LSBG Benefit Plan at any time without incurring any material liability thereunder.

(b) Each LSBG Benefit Plan covering LSBG Employees are in substantial compliance with its terms and all applicable laws (including ERISA, the Code, and the Affordable Care Act). Each LSBG Benefit Plan which is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA (a “LSBG Pension Plan”) and which is intended to be qualified under Section 401(a) of the Code, has received a favorable determination letter from the IRS, and to the Knowledge of LSBG, there are no circumstances likely to result in revocation of any such favorable determination letter or the loss of the qualification of such LSBG Pension Plan under Section 401(a) of the Code. There is no pending or, to LSBG’s Knowledge, threatened investigation, audit, or litigation relating to the LSBG Benefit Plans. LSBG has not engaged in a transaction with respect to any LSBG Benefit Plan or LSBG Pension Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject LSBG to a material tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.

(c) No LSBG Pension Plan is an “employee stock ownership plan” (as defined in Section 4975(e)(7) of the Code). Except as identified in LSBG Disclosure Schedule 3.18(c), neither LSBG nor or any entity which is considered one employer with LSBG under Section 4001 of ERISA or Section 414 of the Code (a “LSBG ERISA Affiliate”) has ever sponsored a LSBG Pension Plan that is subject to Title IV of ERISA. Neither LSBG nor any LSBG ERISA Affiliate has ever sponsored or contributed to any “multiemployer plan,” as defined in Section 3(37) of ERISA or “multiple employer plan,” as defined in Section 4063 of ERISA. No liability to any Governmental Entity, other than PBGC premiums arising in the ordinary course of business, has been or is expected by LSBG or any Subsidiary with respect to any LSBG Benefit Plan which is subject to Title IV of ERISA (“LSBG Defined Benefit Plan”) currently or formerly maintained by LSBG or any LSBG ERISA Affiliate. No notice of a “reportable event,” within the meaning of Section of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any LSBG Defined Benefit Plan or by any LSBG ERISA Affiliate within the 12 month period ending on the date hereof or will be required to be filed in connection with the transactions contemplated by this Agreement. No LSBG Defined Benefit Plan or single-employer plan of any LSBG ERISA Affiliate has an “accumulated funding deficiency” (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA Affiliate has an outstanding funding waiver. LSBG has not provided, and is not required to provide, security to any LSBG Defined Benefit Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code. No complete or partial termination of any LSBG Defined Benefit Plan has occurred or is expected to occur. Neither LSBG nor any LSBG ERISA Affiliate has ever contributed to, sponsored or maintained any “multiple employer welfare arrangement” within the meaning of Section 3(40) of ERISA.

(d) All material contributions required to be made under the terms of any LSBG Benefit Plan and applicable law have been timely made, and all anticipated contributions and funding obligations are accrued on LSBG’s consolidated financial statements to the extent required by GAAP. LSBG and its Subsidiaries have expensed and accrued as a liability the present value of future benefits under each applicable LSBG Benefit Plan for financial reporting purposes as required by GAAP.

(e) Other than as set forth in LSBG Disclosure Schedule 3.18(e), none of LSBG or any of its Subsidiaries has any obligations for retiree health and life benefits under any LSBG Benefit Plan, other than coverage as may be required under Section 4980B of the Code or Part 6 of Title I of ERISA, or under the continuation of coverage provisions of the laws of any state or locality.

 

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(f) Other than as set forth in LSBG Disclosure Schedule 3.18(f), the execution of this Agreement, shareholder approval of this Agreement or consummation of any of the transactions contemplated by this Agreement (either alone or upon the occurrence of any additional or subsequent events) will not (i) entitle any LSBG Employees to severance pay or any increase in severance pay upon any termination of employment after the date hereof, (ii) accelerate the time of payment or vesting or trigger any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any of the LSBG Benefit Plans, (iii) result in any breach or violation of, or a default under, any of the LSBG Benefit Plans, (iv) result in any payment that would be a “parachute payment” to a “disqualified individual” as those terms are defined in Section 280G of the Code, without regard to whether such payment is reasonable compensation for personal services performed or to be performed in the future, (v) limit or restrict the right of LSBG, or after the consummation of the transactions contemplated herby, BHB or Surviving Corporation, to merge amend, or terminate any of the LSBG Benefit Plans, or (vi) result in payments that would not be deductible under Section 162(m) of the Code. LSBG Disclosure Schedule 3.18(f) contains a schedule showing the present value of the monetary amounts payable as of the date specified in such schedule, whether individually or in the aggregate (including good faith estimates of all amounts not subject to precise quantification as of the date of this Agreement), under certain employment, change-in-control, severance and similar contracts, plans and arrangements with or which cover any present or former director, officer or employee of LSBG who are entitled to any such amount and identifying the types and estimated amounts of the in-kind benefits due under any LSBG Benefit Plans (other than a plan qualified under Section 401(a) of the Code) for each such person, specifying the assumptions in such schedule and providing estimates of other related fees or expenses.

(g) Each LSBG Benefit Plan that is a deferred compensation plan and any deferral elections thereunder are in compliance with the terms of the plan and the operational and documentary requirements Section 409A of the Code, to the extent applicable. Other than as disclosed on LSBG Disclosure Schedule 3.18(g), LSBG does not have any obligation to gross up, indemnify or otherwise reimburse any individual for any excise taxes, interest or penalties incurred under Section 409A or Section 4999 of the Code.

(h) Each LSBG Restricted Share Award (i) was granted in compliance with all applicable laws and all of the terms and conditions of the applicable plan pursuant to which it was issued, (ii) has a grant date identical to the date on which the LSBG Board or the LSBG’s compensation committee actually awarded it, (iii) is exempt from the Section 409A of the Code, and (iv) qualifies for the tax and accounting treatment afforded to such award in the LSBG Tax Returns and the LSBG Financial Statements, respectively.

Section 3.19 Labor Matters.

(a) None of LSBG or any of its Subsidiaries is a party to or bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is LSBG or any of its Subsidiaries the subject of a proceeding asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act, as amended) or seeking to compel LSBG or any of its Subsidiaries to bargain with any labor organization as to wages or conditions of employment, nor is there any strike or other labor dispute involving it pending or, to LSBG’s Knowledge, threatened, nor is LSBG or any of its Subsidiaries aware of any activity involving its employees seeking to certify a collective bargaining unit or engaging in other organizational activity.

(b) Since December 31, 2012, each of LSBG and its Subsidiaries has complied in all material respects with all applicable legal requirements and employment or worker practices related to the employment of its employees and the engagement of its independent contractors, consultant, interns, or other non-employee service providers, including provisions related to wages, hours, overtime exemption classification, independent contractor classification, leaves of absence, equal opportunity, privacy right, retaliation, immigration, wrongful discharge, occupational health and safety, workers’ compensation, severance, employee handbooks or manuals, and the payment of social security and other taxes. There are no material actions, suits, complaints, charges, arbitrations, claims, disputes, grievances, or controversies pending or, to the Knowledge of LSBG, threatened between either LSBG or any of its Subsidiaries and any of their respective present or former employees or independent contractors, consultants, interns, or other non-employee service providers, except as described in LSBG Disclosure Schedule 3.19(b).

 

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(c) To the Knowledge of LSBG, no senior executive officer or manager of any material operations of LSBG or any of its Subsidiaries or any material group of employees of LSBG or any of its Subsidiaries has or have any present plans to terminate their employment with LSBG or such Subsidiary.

(d) LSBG has delivered or made available to BHB a true and complete list of the names, corporate and functional titles, hire dates and full or part-time status (collectively, “LSBG Employees”) as of the date hereof. Except as otherwise set forth on LSBG Disclosure Schedule 3.19(d), (A) none of the LSBG Employees has a contract of employment with LSBG or any of its Subsidiaries, (B) all LSBG Employees are employees “at will” whose employment is terminable without liability therefor and (C) none of the LSBG Employees has a contract with, or is otherwise entitled to receive any payments from, LSBG or any of its Subsidiaries relating to any other bonuses, retention or stay payments, severance pay or benefits, or other perquisites or benefits.

Section 3.20 Environmental Matters.

(a) To LSBG’s Knowledge, LSBG and its Subsidiaries and their respective owned real properties are in material compliance with all Environmental Laws. LSBG is not aware of, nor has LSBG or any of its Subsidiaries received notice of, any past, present, or future conditions, events, activities, practices or incidents that may interfere with or prevent the material compliance of LSBG and its Subsidiaries with all Environmental Laws.

(b) To LSBG’s Knowledge, each of LSBG and its Subsidiaries has obtained all material permits, licenses and authorizations that are required under all Environmental Laws.

(c) To LSBG’s Knowledge, no Hazardous Substance exist on, about or within any of the owned real properties, nor have any Hazardous Substance previously existed on, about or within or been used, generated, stored, transported, disposed of, on or released from any of the Properties. The use that each of LSBG and its Subsidiaries makes and intends to make of the owned real properties shall not result in the use, generation, storage, transportation, accumulation, disposal or release of any Hazardous Substance on, in or from any of those properties.

(d) There is no action, suit, proceeding, investigation, or inquiry before any court, administrative agency or other governmental authority pending or to LSBG’s Knowledge threatened against LSBG or any of its Subsidiaries relating in any way to any Environmental Law. To LSBG’s Knowledge, none of LSBG or any of its Subsidiaries has any liability for remedial action under any Environmental Law. None of LSBG or any of its Subsidiaries has received any request for information by any governmental authority with respect to the condition, use or operation of any of the owned real properties or LSBG Loan Property nor has LSBG or any of its Subsidiaries received any notice of any kind from any governmental authority or other person with respect to any violation of or claimed or potential liability of any kind under any Environmental Law with respect to any of the owned real properties or LSBG Loan Property.

Section 3.21 Tax Matters.

(a) Each of LSBG and its Subsidiaries has filed all Tax Returns that it was required to file under applicable laws and regulations, other than Tax Returns that are not yet due or for which a request for extension was filed. All such Tax Returns were correct and complete in all material respects and have been prepared in substantial compliance with all applicable laws and regulations. All Taxes due and owing by LSBG and its Subsidiaries (whether or not shown on any Tax Return) have been paid other than Taxes that have been reserved or accrued on the balance sheet of LSBG and which LSBG or such Subsidiary is contesting in good faith. None of LSBG or any of its Subsidiaries is the beneficiary of any extension of time within which to file any Tax Return, and other than as set forth on LSBG Disclosure Schedule 3.21(a), neither LSBG nor any of its Subsidiaries currently has any open tax years. No claim has ever been made by an authority in a jurisdiction where LSBG or any Subsidiary thereof does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of LSBG or any of its Subsidiaries.

(b) Each of LSBG and its Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party.

 

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(c) No foreign, federal, state, or local tax audits or administrative or judicial Tax proceedings are being conducted or to the Knowledge of LSBG are pending with respect to LSBG or any of its Subsidiaries. None of LSBG or any of its Subsidiaries has received from any foreign, federal, state, or local taxing authority (including jurisdictions where LSBG or any Subsidiary has not filed Tax Returns) any (i) notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against LSBG or any of its Subsidiaries.

(d) Each of LSBG and its Subsidiaries has provided BHB with true and complete copies of the United States federal, state, local, and foreign income Tax Returns filed with respect to LSBG or such Subsidiary, as the case may be, for taxable periods ended December 31, 2015, 2014 and 2013. Each of LSBG and its Subsidiaries has delivered to BHB correct and complete copies of all examination reports, and statements of deficiencies assessed against or agreed to by LSBG or such Subsidiary, as the case may be, filed for the years ended December 31, 2015, 2014 and 2013. Each of LSBG and its Subsidiaries has timely and properly taken such actions in response to and in compliance with notices LSBG or such Subsidiary, as the case may be, has received from the IRS in respect of information reporting and backup and nonresident withholding as are required by law.

(e) None of LSBG or any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

(f) None of LSBG or any of its Subsidiaries has been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). Each of LSBG and its Subsidiaries has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code Section 6662. Other than as set forth on LSBG Disclosure Schedule 3.21(f), none of LSBG or any of its Subsidiaries is a party to or bound by any Tax allocation or sharing agreement. Except for an affiliated group with its Subsidiaries or LSBG (as applicable), none of LSBG or any of its Subsidiaries (i) has been a member of an affiliated group filing a consolidated federal income Tax Return, or (ii) has any liability for the Taxes of any individual, bank, corporation, partnership, association, joint stock company, business trust, limited liability company, or unincorporated organization (other than LSBG or such Subsidiary) under Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.

(g) The unpaid Taxes of LSBG and its Subsidiaries (i) did not, as of the end of the most recent period covered by LSBG’s or such Subsidiary’s call reports filed on or prior to the date hereof, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the financial statements included in LSBG’s or such Subsidiary’s call reports filed on or prior to the date hereof (rather than in any notes thereto), and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of LSBG or such Subsidiary in filing its Tax Returns. Since the end of the most recent period covered by LSBG’s or any of its Subsidiary’s call reports filed prior to the date hereof, none of LSBG or any of its Subsidiaries has incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the ordinary course of business consistent with past custom and practice.

(h) None of LSBG or any of its Subsidiaries shall be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting for a taxable period ending on or prior to the Closing Date; (ii) “closing agreement” as described in Code Section 7121 (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date; (iii) intercompany transactions or any excess loss account described in Treasury Regulations under Code Section 1502 (or any corresponding or similar provision of state, local or foreign income Tax law); (iv) installment sale or open transaction disposition made on or prior to the Closing Date; or (v) prepaid amount received on or prior to the Closing Date.

(i) None of LSBG or any of its Subsidiaries has distributed stock of another Person or had its stock distributed by another Person in a transaction that was purported or intended to be governed in whole or in part by Section 355 or Section 361 of the Code.

 

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(j) None of LSBG or any of its Subsidiaries has participated in a listed transaction within the meaning of Reg. Section 1.6011-4 (or any predecessor provision) and none of LSBG or any of its Subsidiaries has been notified of, or to LSBG’s Knowledge has participated in, a transaction that is described as a “reportable transaction” within the meaning of Reg. Section 1.6011-4(b)(1).

Section 3.22 Investment Securities. LSBG Disclosure Schedule 3.22 sets forth the book and market value as of March 31, 2016 of the investment securities, mortgage backed securities and securities held for sale of LSBG and its Subsidiaries, as well as, with respect to such securities, descriptions thereof, CUSIP numbers, book values, fair values and coupon rates.

Section 3.23 Derivative Transactions.

(a) All Derivative Transactions entered into by LSBG or any of its Subsidiaries or for the account of any of their respective customers were entered into in accordance with applicable laws, rules, regulations and regulatory policies of any Governmental Authority, and in accordance with the investment, securities, commodities, risk management and other policies, practices and procedures employed by LSBG and its Subsidiaries, and were entered into with counterparties believed at the time to be financially responsible and able to understand (either alone or in consultation with its advisers) and to bear the risks of such Derivative Transactions. Each of LSBG and its Subsidiaries has duly performed all of its obligations under the Derivative Transactions to the extent that such obligations to perform have accrued, and, to the Knowledge of LSBG, there are no breaches, violations or defaults or allegations or assertions of such by any party thereunder.

(b) Except as set forth in LSBG Disclosure Schedule 3.23, no Derivative Transactions, were it to be a Loan held by LSBG or any of its Subsidiaries, would be classified as “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk Assets,” “Concerned Loans,” “Watch List” or words of similar import. The financial position of LSBG and its Subsidiaries under or with respect to each such Derivative Transactions has been reflected in the books and records of LSBG in accordance with GAAP consistently applied, and no open exposure of LSBG or any of its Subsidiaries with respect to any such instrument (or with respect to multiple instruments with respect to any single counterparty) exists.

Section 3.24 Loans; Nonperforming and Classified Assets.

(a) Except as set forth in LSBG Disclosure Schedule 3.24(a), as of the date hereof, none of LSBG or any of its Subsidiaries is a party to any written or oral (i) loan, loan agreement, note or borrowing arrangement (including, leases, credit enhancements, commitments, guarantees and interest-bearing assets) (collectively, “Loans”), under the terms of which the obligor was, as of December 31, 2015, over sixty (60) days delinquent in payment of principal or interest or in default of any other material provision, or (ii) Loan with any director, executive officer or five percent or greater shareholder of LSBG or any of its Subsidiaries, or to the Knowledge of LSBG, any person, corporation or enterprise controlling, controlled by or under common control with any of the foregoing. LSBG Disclosure Schedule 3.24(a) identifies (x) each Loan that as of December 31, 2015 was classified as “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk Assets,” “Concerned Loans,” “Watch List” or words of similar import by LSBG or any of its Subsidiaries or any bank examiner, together with the principal amount of and accrued and unpaid interest on each such Loan and the identity of the borrower thereunder, and (y) each asset of LSBG that as of December 31, 2015 was classified as other real estate owned (“OREO”) and the book value thereof.

(b) Except as identified in LSBG Disclosure Schedule 3.24(b), each Loan (i) is evidenced by notes, agreements or other evidences of indebtedness that are true, genuine and what they purport to be, (ii) to the extent secured, has been secured by valid Liens which have been perfected and (iii) to the Knowledge of LSBG, is a legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

(c) The loan documents with respect to each Loan were in compliance with applicable laws and regulations and LSBG’s or the applicable LSBG Subsidiary’s lending policies at the time of origination of such Loans and are complete and correct.

 

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(d) Except as set forth in LSBG Disclosure Schedule 3.24(d), none of LSBG or any of its Subsidiaries is a party to any agreement or arrangement with (or otherwise obligated to) any Person which obligates LSBG or any of its Subsidiaries to repurchase from any such Person any Loan or other asset of LSBG or any of its Subsidiaries.

Section 3.25 Tangible Properties and Assets.

(a) LSBG Disclosure Schedule 3.25(a) sets forth a true, correct and complete list of all real property owned by LSBG or any of its Subsidiaries. Except as set forth in LSBG Disclosure Schedule 3.25(a), and except for properties and assets disposed of in the ordinary course of business or as permitted by this Agreement, LSBG or one of its Subsidiaries has good and clear record and marketable title to, valid leasehold interests in or otherwise legally enforceable rights to use all of the real property, personal property and other assets (tangible or intangible), used, occupied and operated or held for use by it in connection with its business as presently conducted in each case, free and clear of any Lien, except for (i) statutory Liens for amounts not yet delinquent and (ii) Liens incurred in the ordinary course of business or imperfections of title, easements and encumbrances, if any, that, individually and in the aggregate, are not material in character, amount or extent, and do not materially detract from the value and do not materially interfere with the present use, occupancy or operation of any material asset.

(b) LSBG Disclosure Schedule 3.25(b) sets forth a true, correct and complete schedule of all leases, subleases, licenses and other agreements under which LSBG or any of its Subsidiaries uses or occupies or has the right to use or occupy, now or in the future, real property (the “Leases”). Each of the Leases is valid, binding and in full force and effect and, as of the date hereof, none of LSBG or any of its Subsidiaries has received a written notice of, or otherwise has Knowledge of any, default or termination with respect to any Lease. There has not occurred any event and no condition exists that would constitute a termination event or a material breach by LSBG or any of its Subsidiaries of, or material default by LSBG or any of its Subsidiaries in, the performance of any covenant, agreement or condition contained in any Lease, and to LSBG’s Knowledge, no lessor under a Lease is in material breach or default in the performance of any material covenant, agreement or condition contained in such Lease. Except as set forth on LSBG Disclosure Schedule 3.25(b), there is no pending or, to LSBG’s Knowledge, threatened proceeding, action or governmental or regulatory investigation of any nature by any Governmental Authority with respect to the real property that LSBG or any of its Subsidiaries uses or occupies or has the right to use or occupy, now or in the future, including a pending or threatened taking of any of such real property by eminent domain. Each of LSBG and its Subsidiaries has paid all rents and other charges to the extent due under the Leases.

Section 3.26 Intellectual Property. LSBG Disclosure Schedule 3.26 sets forth a true, complete and correct list of all LSBG Intellectual Property. LSBG or one of its Subsidiaries owns or has a valid license to use all LSBG Intellectual Property, free and clear of all Liens, royalty or other payment obligations (except for royalties or payments with respect to off-the-shelf Software at standard commercial rates). LSBG Intellectual Property constitutes all of the Intellectual Property necessary to carry on the business of LSBG and its Subsidiaries as currently conducted. LSBG Intellectual Property owned by LSBG or any of its Subsidiaries, and to the Knowledge of LSBG, all other LSBG Intellectual Property, is valid and enforceable and has not been cancelled, forfeited, expired or abandoned, and none of LSBG or any of its Subsidiaries has received notice challenging the validity or enforceability of LSBG Intellectual Property. To the Knowledge of LSBG, the conduct of the business of LSBG and its Subsidiaries does not violate, misappropriate or infringe upon the Intellectual Property rights of any third party. The consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of the right of LSBG and its Subsidiaries to own or use any of the LSBG Intellectual Property.

Section 3.27 Fiduciary Accounts. Since December 31, 2015, each of LSBG and its Subsidiaries has properly administered all accounts for which it is or was a fiduciary, including accounts for which it serves or served as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents and applicable laws and regulations. To the Knowledge of LSBG, neither LSBG nor any of its Subsidiaries nor any of their respective directors, officers or employees, has committed any breach of trust with respect to any fiduciary account and the records for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.

 

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Section 3.28 Insurance.

(a) LSBG Disclosure Schedule 3.28(a) identifies all of the material insurance policies, binders, or bonds currently maintained by LSBG or any of its Subsidiaries, other than credit-life policies (the “Insurance Policies”), including the insurer, policy numbers, amount of coverage, effective and termination dates and any pending claims thereunder involving more than $50,000. Each of LSBG and its Subsidiaries is insured with reputable insurers against such risks and in such amounts as the management of LSBG reasonably has determined to be prudent in accordance with industry practices. All the Insurance Policies are in full force and effect, none of LSBG or any of its Subsidiaries is in material default thereunder and all claims thereunder have been filed in due and timely fashion.

(b) LSBG Disclosure Schedule 3.28(b) sets forth a true, correct and complete description of all bank owned life insurance (“BOLI”) owned by LSBG or any of its Subsidiaries, including the value of BOLI as of the end of the month prior to the date hereof. The value of such BOLI as of the date hereof is fairly and accurately reflected in the LSBG Financial Statements in accordance with GAAP.

Section 3.29 Antitakeover Provisions. No “control share acquisition,” “business combination moratorium,” “fair price” or other form of antitakeover statute or regulation is applicable to this Agreement and the transactions contemplated hereby.

Section 3.30 Joint Proxy Statement/Prospectus. As of the date of the Joint Proxy Statement/Prospectus and the dates of the meeting of the shareholders of LSBG to which such Joint Proxy Statement/Prospectus relates, the Joint Proxy Statement/Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that information filed with the SEC and either incorporated by reference in the Joint Proxy Statement/Prospectus or otherwise amending the Joint Proxy Statement/Prospectus as of a later date shall be deemed to modify information as of an earlier date, and further provided that no representation and warranty is made with respect to information relating to BHB and its Subsidiaries provided in writing by BHB and included in the Joint Proxy Statement/Prospectus.

Section 3.31 Disclosure. The representations and warranties contained in this Article III, when considered as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Article III not misleading.

Section 3.32 Charter Holding Corp.; Charter Trust Company.

(a) Charter Holding Corp., a wholly-owned subsidiary of Lake Sunapee Bank, is a New Hampshire corporation duly organized, validly existing and in good standing under the laws of the State of New Hampshire. The charter and bylaws of Charter Holding Corp., copies of which have been made available to BHB, are true, complete and correct copies of such documents as in full force and effect as of the date of this Agreement.

(b) Charter Trust Company, a wholly-owned subsidiary of Charter Holding Corp. is a New Hampshire-chartered non-depository trust company duly organized, validly existing and in good standing under the laws of the State of New Hampshire. The charter and bylaws of Charter Trust Company, copies of which have been made available to BHB, are true, complete and correct copies of such documents as in full force and effect as of the date of this Agreement.

(c) Each of Charter Holding Corp. and Charter Trust Company has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets.

(d) Neither Charter Holding Corp. nor Charter Trust Company is a party to or is subject to any Regulatory Order from any Governmental Authority charged with the supervision or regulation of it. Each of Charter Holding Corp. and Charter Trust Company has not been advised by, or has any Knowledge of facts which could give rise to an advisory notice by, any Governmental Authority that such Governmental Authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any Regulatory Order.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BHB

As a material inducement to LSBG to enter into this Agreement and to consummate the transactions contemplated hereby, BHB hereby makes to LSBG the representations and warranties contained in this Article IV.

Section 4.01 Organization, Standing and Authority of BHB. BHB is a Maine corporation duly organized, validly existing and in good standing under the laws of the State of Maine, and is duly registered as a savings and loan holding company under the Home Owners’ Loan Act of 1933, as amended. BHB has full corporate power and authority to carry on its business as now conducted. BHB is duly licensed or qualified to do business in the States of the United States and foreign jurisdictions where its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Effect on BHB. The Articles of Incorporation, as amended, and Amended and Restated Bylaws of BHB, copies of which have been made available to LSBG, are true, complete and correct copies of such documents as in full force and effect as of the date of this Agreement.

Section 4.02 Organization, Standing and Authority of Bar Harbor Bank. Bar Harbor Bank is a Maine chartered financial institution duly organized, validly existing and in good standing under the laws of the United States. Bar Harbor Bank’s deposits are insured by the FDIC in the manner and to the fullest extent provided by applicable law, and all premiums and assessments required to be paid in connection therewith have been paid by Bar Harbor Bank when due. Bar Harbor Bank is a member in good standing of the FHLB and owns the requisite amount of stock in the FHLB as set forth on BHB Disclosure Schedule 4.02. The charter and Bylaws of Bar Harbor Bank, copies of which have been made available to LSBG, are true, complete and correct copies of such documents as in full force and effect as of the date of this Agreement.

Section 4.03 BHB Capital Stock.

(a) The authorized capital stock of BHB consists of 20,000,000 shares of BHB Common Stock, par value $2.00 per share, of which 6,023,077 shares are outstanding as of the date hereof, and 1,000,000 shares of authorized preferred stock, of which no shares are outstanding (“BHB Preferred Stock”). As of the date hereof, 765,331 shares of BHB Common Stock are held in treasury by BHB. The outstanding shares of BHB Common Stock have been duly authorized and validly issued and are fully paid and non-assessable and free of preemptive rights. Except for the BHB Common Stock to be issued pursuant to this Agreement and pursuant to outstanding BHB Option Awards, BHB does not have any Rights issued or outstanding with respect to BHB Common Stock or BHB Preferred Stock and BHB does not have any commitments to authorize, issue or sell any BHB Common Stock, BHB Preferred Stock or Rights.

(b) As of the date hereof, 13,976,923 shares of BHB Common Stock are available for issuance upon the exercise of outstanding BHB Option Awards or available for issuance pursuant to the Bar Harbor Bankshares and Subsidiaries Incentive Stock Option Plan of 2000, the 2009 Bar Harbor Bankshares and Subsidiaries Equity Incentive Plan and the 2015 Bar Harbor Bankshares and Subsidiaries Equity Incentive Plan. Upon issuance in accordance with the terms of the outstanding award agreements, the shares of BHB Common Stock issued pursuant to the BHB Option Awards shall be issued in compliance with all applicable laws.

Section 4.04 Subsidiaries. Except as disclosed on BHB Disclosure Schedule 4.04, BHB does not have any equity interest, direct or indirect, in any other bank or corporation or in any partnership, joint venture or other business enterprise or entity, and the business carried on by BHB has not been conducted through any other direct or indirect Subsidiary or Affiliate of BHB. All of the issued and outstanding shares of capital stock or other equity ownership interests of each Subsidiary of BHB are owned by BHB, directly or indirectly, free and clear of any Liens, and all such shares or equity ownership interests are duly authorized and validly issued and are fully paid and nonassessable and free of preemptive rights. No such Subsidiary has any Rights issued or outstanding with respect to its capital stock or other equity ownership interests, and it does not have any commitment to authorize, issue or sell any capital stock or other equity ownership interests or Rights. No equity investment identified in BHB Disclosure Schedule 4.04 is prohibited by the State of Maine, the MBFI or the FDIC.

 

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Section 4.05 Corporate Power; Minute Books. Each of BHB and Bar Harbor Bank has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets; and each of BHB and Bar Harbor Bank has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby, subject to receipt of all necessary approvals of Governmental Authorities and the approval of the shareholders of LSBG and BHB of this Agreement. The minute books of BHB, true and complete copies of which have been made available to LSBG, contain true, complete and accurate records of all meetings and other corporate actions held or taken by shareholders of BHB and the BHB Board (including committees of the BHB Board).

Section 4.06 Execution and Delivery. Subject to the approval of this Agreement by the shareholders of BHB, this Agreement and the transactions contemplated hereby have been authorized by all necessary corporate action of BHB and the BHB Board on or prior to the date hereof. The BHB Board has directed that this Agreement be submitted to BHB’s shareholders for approval at a meeting of such shareholders and, except for the approval and adoption of this Agreement by the requisite affirmative vote of the holders of the outstanding shares of BHB Common Stock entitled to vote thereon, no other vote of the shareholders of BHB is required by law, the Articles of Incorporation, as amended, of BHB, the Amended and Restated Bylaws of BHB or otherwise to approve this Agreement and the transactions contemplated hereby. BHB has duly executed and delivered this Agreement and, assuming due authorization, execution and delivery by LSBG, this Agreement is a valid and legally binding obligation of BHB, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles).

Section 4.07 Regulatory Approvals; No Defaults.

(a) No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with any third party are required to be made or obtained by BHB or any of its Subsidiaries in connection with the execution, delivery or performance by BHB or Bar Harbor Bank of this Agreement or to consummate the transactions contemplated hereby, except for (i) filings of applications or notices with, and consents, approvals or waivers by the FRB and MBFI, as may be required, and (ii) the approval of this Agreement by the requisite affirmative vote of the holders of the outstanding shares of BHB Common Stock. As of the date hereof, BHB is not aware of any reason why the approvals set forth above and referred to in Section 6.01(a) will not be received in a timely manner.

(b) Subject to receipt, or the making, of the consents, approvals, waivers and filings referred to in the preceding paragraph and expiration of the related waiting periods, the execution, delivery and performance of this Agreement by BHB, and the consummation of the transactions contemplated hereby do not and will not (i) constitute a breach or violation of, or a default under, the charter or Bylaws (or similar governing documents) of BHB or any of its Subsidiaries, (ii) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to BHB or any of its Subsidiaries, or any of their respective properties or assets or (iii) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of BHB or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, contract, agreement or other instrument or obligation to which BHB or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected.

Section 4.08 Financial Statements. BHB has previously made available to LSBG copies of the consolidated balance sheets of BHB and its Subsidiaries as of December 31 for the fiscal years 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the fiscal years 2015, 2014 and 2013, in each case accompanied by the audit report of RSM US LLP, the independent registered public accounting firm of BHB (or KMPG LLP, the previous independent registered public accounting firm of BHB) (the “BHB Financial Statements”). The BHB Financial Statements (including the related notes, where applicable) fairly present in all material respects the results of the consolidated operations and consolidated financial position of BHB and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth; each of such statements (including the related

 

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notes, where applicable) complies with applicable accounting requirements and each of such statements (including the related notes, where applicable) has been prepared in accordance with GAAP consistently applied during the periods involved. The books and records of BHB and its Subsidiaries have been, and are being, maintained in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions. RSM US LLP has not resigned or been dismissed as independent public accountants of BHB as a result of or in connection with any disagreements with BHB on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

Section 4.09 Securities Filings. BHB has filed with the SEC all reports, schedules, registration statements, definitive proxy statements and other documents that it has been required to file under the Securities Act or the Exchange Act since December 31, 2013 (collectively, “BHB’s SEC Reports”). None of BHB’s SEC Reports contained 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 circumstances under which they were made, not misleading. As of their respective dates of filing with the SEC, all of BHB’s SEC Reports complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder. Each of the financial statements (including, in each case, any notes thereto) of BHB included or incorporated by reference in BHB’s SEC Reports complied as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. There are no outstanding comments or unresolved issued raised by the SEC staff with respect to BHB’s SEC Reports. None of BHB’s Subsidiaries is required to file periodic reports with the SEC pursuant to Section 13 or 15(d) of the Exchange Act.

Section 4.10 Absence of Certain Changes or Events.

(a) Since December 31, 2015, there has been no change or development or combination of changes or developments which, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect on BHB.

(b) Since December 31, 2015, each of BHB and its Subsidiaries has carried on its business only in the ordinary and usual course of business consistent with its past practices (except for the incurrence of expenses in connection with this Agreement).

Section 4.11 Financial Controls and Procedures. During the periods covered by the BHB Financial Statements, each of BHB and its Subsidiaries has had in place internal controls over financial reporting which are designed and maintained to ensure that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. None of BHB’s or any of its Subsidiaries’ records, systems, controls, data or information are recorded, stored, maintained, operated or otherwise wholly or partly dependent on or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of BHB or its accountants or agents.

Section 4.12 Regulatory Matters.

(a) Each of BHB and its Subsidiaries has timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that it was required to file since December 31, 2012 with any Governmental Authority, and has paid all fees and assessments due and payable in connection therewith. Except for normal examinations conducted by any Governmental Authority in the regular course of the business, and except as set forth in BHB Disclosure Schedule 4.12(a), no Governmental Authority has initiated any proceeding, or to the Knowledge of BHB, investigation into the business or operations of BHB and its Subsidiaries, since December 31, 2012. Other than as set forth in BHB Disclosure Schedule 4.12(a) there is no unresolved violation, criticism, or exception by any Governmental Authority with respect to any report or statement relating to any examinations of Bar Harbor Bank. Bar Harbor Bank is “well-capitalized” as defined in applicable laws and regulations, and Bank has a Community Reinvestment Act rating of “satisfactory” or better.

 

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(b) BHB has timely filed with the SEC and NYSE all documents required by the Securities Act and the Exchange Act, and such documents, as the same may have been amended, complied, at the time filed with the SEC, in all material respects with the Securities Act and the Exchange Act.

(c) Other than as set forth in BHB Disclosure Schedule 4.12(c), neither BHB, nor any of its properties is a party to or is subject to any Regulatory Order from any Governmental Authority charged with the supervision or regulation of financial institutions or issuers of securities or engaged in the insurance of deposits or the supervision or regulation of it. BHB has not been advised by, or has any Knowledge of facts which could give rise to an advisory notice by, any Governmental Authority that such Governmental Authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any Regulatory Order.

Section 4.13 Legal Proceedings.

(a) Other than as set forth in BHB Disclosure Schedule 4.13(a), there are no pending or, to BHB’s Knowledge, threatened legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against BHB or any of its Subsidiaries.

(b) None of BHB or any of its Subsidiaries is a party to any, or are there any pending or, to BHB’s Knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against BHB or any of its Subsidiaries in which, to the Knowledge of BHB, there is a reasonable probability of any material recovery against or other Material Adverse Effect on BHB or any of its Subsidiaries or which challenges the validity or propriety of the transactions contemplated by this Agreement.

(c) There is no injunction, order, judgment or decree imposed upon BHB or any of its Subsidiaries, or their respective assets, and none of BHB or any of its Subsidiaries has been advised of, or is aware of, the threat of any such action.

Section 4.14 Compliance with Laws.

(a) Each of BHB and its Subsidiaries is in compliance with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including the Equal Credit Opportunity Act, as amended, the Fair Housing Act, as amended, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act of 1970, as amended, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, and all other applicable fair lending and fair housing laws or other laws relating to discrimination;

(b) Each of BHB and its Subsidiaries has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Authorities that are required in order to permit it to own or lease its properties and to conduct its business as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to BHB’s Knowledge, no suspension or cancellation of any of them is threatened; and

(c) Other than as set forth in BHB Disclosure Schedule 4.14(c), none of BHB or any Subsidiary has received, since December 31, 2013, any notification or communication from any Governmental Authority (i) asserting that it is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces, or (ii) threatening to revoke any license, franchise, permit or governmental authorization (nor, to BHB’s Knowledge, do any grounds for any of the foregoing exist).

Section 4.15 Material Contracts; Defaults. None of BHB or any of its Subsidiaries is a party to, bound by or subject to any agreement, contract, arrangement, commitment or understanding (whether written or oral) which is a “material contract” (as such item is defined in Item 601(b)(10) of Regulation S-K of the

 

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SEC) not filed as an exhibit to BHB’s Annual Report or a subsequently filed Current Report on Form 8-K or Quarterly Report on Form 10-Q of BHB. To its Knowledge, none of BHB or any of its Subsidiaries is in default under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party, by which its assets, business, or operations may be bound or affected, or under which it or its assets, business, or operations receives benefits, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default. No power of attorney or similar authorization given directly or indirectly by BHB or any of its Subsidiaries is currently outstanding.

Section 4.16 Brokers. BHB has received the opinion of Sandler O’Neill & Partners, L.P. to the effect that, as of the date hereof, the Exchange Ratio is fair, from a financial point of view, to BHB. Other than for financial advisory services performed for BHB by Sandler O’Neill & Partners, L.P. pursuant to an agreement dated April 19, 2016, a true and complete copy of which has been previously delivered or made available to LSBG, neither BHB nor any of its Subsidiaries, nor any of their respective officers, directors, employees or agents, has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder’s fees, and no broker or finder has acted directly or indirectly for BHB or any of its Subsidiaries in connection with this Agreement or the transactions contemplated hereby.

Section 4.17 Employee Benefit Plans.

(a) To the Knowledge of BHB, each BHB Benefit Plan has been operated and administered in all material respects in accordance with its terms and with applicable law, including, but not limited to, ERISA, the Code, the Securities Act, the Exchange Act, the Age Discrimination in Employment Act, COBRA, HIPAA, and any regulations or rules promulgated thereunder, and all material filings, disclosures and notices required by ERISA, the Code, the Securities Act, the Exchange Act, the Age Discrimination in Employment Act, COBRA, and HIPAA and any other applicable law have been timely made or any interest, fines, penalties or other impositions for late filings have been paid in full. Neither BHB nor any of its Subsidiaries have engaged in a transaction, or omitted to take any action, with respect to any BHB Benefit Plan that would reasonably be expected to subject BHB or any Subsidiary to a material unpaid tax or penalty imposed by either Section 4975 of the Code or Section 502 of ERISA.

(b) No BHB Benefit Plan currently maintained by BHB or any entity which is considered one employer with BHB under Section 4001(b)(1) of ERISA or Section 414 of the Code (an “BHB ERISA Affiliate”) is subject to Title IV of ERISA (“BHB Defined Benefit Plan”). Neither BHB nor any BHB ERISA Affiliate has contributed to any “multiemployer plan,” as defined in Section 3(37) of ERISA.

Section 4.18 Labor Matters.

(a) None of BHB or any of its Subsidiaries is a party to or bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is BHB or any of its Subsidiaries the subject of a proceeding asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act, as amended) or seeking to compel BHB or any of its Subsidiaries to bargain with any labor organization as to wages or conditions of employment, nor is there any strike or other labor dispute involving it pending or, to BHB’s Knowledge, threatened, nor is BHB or any of its Subsidiaries aware of any activity involving its employees seeking to certify a collective bargaining unit or engaging in other organizational activity.

(b) Since December 31, 2012, each of BHB and its Subsidiaries has complied in all material respects with all applicable legal requirements and employment or worker practices related to the employment of its employees and the engagement of its independent contractors, consultant, interns, or other non-employee service providers, including provisions related to wages, hours, overtime exemption classification, independent contractor classification, leaves of absence, equal opportunity, privacy right, retaliation, immigration, wrongful discharge, occupational health and safety, workers’ compensation, severance, employee handbooks or manuals, and the payment of social security and other taxes. To the Knowledge of BHB, there are no material actions, suits, complaints, charges, arbitrations, claims, disputes, grievances, or controversies pending or threatened between either BHB or any of its Subsidiaries and any of their respective present or former employees or independent contractors, consultants, interns, or other non-employee service providers.

 

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(c) To the Knowledge of BHB, no senior executive officer or manager of any material operations of BHB or any of its Subsidiaries or any material group of employees of BHB or any of its Subsidiaries has or have any present plans to terminate their employment with BHB or such Subsidiary.

Section 4.19 Environmental Matters.

(a) To BHB’s Knowledge, BHB and its Subsidiaries and their respective owned real properties are in material compliance with all Environmental Laws. BHB is not aware of, nor has BHB or any of its Subsidiaries received notice of, any past, present, or future conditions, events, activities, practices or incidents that may interfere with or prevent the material compliance of BHB and its Subsidiaries with all Environmental Laws.

(b) To BHB’s Knowledge, each of BHB and its Subsidiaries has obtained all material permits, licenses and authorizations that are required under all Environmental Laws.

(c) To BHB’s Knowledge, no Hazardous Substance exist on, about or within any of the owned real properties, nor to BHB’s Knowledge have any Hazardous Substance previously existed on, about or within or been used, generated, stored, transported, disposed of, on or released from any of the Properties. The use that each of BHB and its Subsidiaries makes and intends to make of the owned real properties shall not result in the use, generation, storage, transportation, accumulation, disposal or release of any Hazardous Substance on, in or from any of those properties.

(d) There is no action, suit, proceeding, investigation, or inquiry before any court, administrative agency or other governmental authority pending or to BHB’s Knowledge threatened against BHB or any of its Subsidiaries relating in any way to any Environmental Law. To BHB’s Knowledge, none of BHB or any of its Subsidiaries has any liability for remedial action under any Environmental Law. None of BHB or any of its Subsidiaries has received any request for information by any governmental authority with respect to the condition, use or operation of any of the owned real properties or BHB Loan Property nor has BHB or any of its Subsidiaries received any notice of any kind from any governmental authority or other person with respect to any violation of or claimed or potential liability of any kind under any Environmental Law with respect to any of the owned real properties or BHB Loan Property

Section 4.20 Tax Matters.

(a) Each of BHB and its Subsidiaries has filed all Tax Returns that it was required to file under applicable laws and regulations, other than Tax Returns that are not yet due or for which a request for extension was filed. All such Tax Returns were correct and complete in all material respects and have been prepared in substantial compliance with all applicable laws and regulations. All Taxes due and owing by BHB and its Subsidiaries (whether or not shown on any Tax Return) have been paid other than Taxes that have been reserved or accrued on the balance sheet of BHB and which BHB or such Subsidiary is contesting in good faith. None of BHB or any of its Subsidiaries is the beneficiary of any extension of time within which to file any Tax Return, and neither BHB nor any of its Subsidiaries currently has any open tax years. No claim has ever been made by an authority in a jurisdiction where BHB or any Subsidiary thereof does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of BHB or any of its Subsidiaries.

(b) Each of BHB and its Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party.

(c) No foreign, federal, state, or local tax audits or administrative or judicial Tax proceedings are being conducted or to the Knowledge of BHB are pending with respect to BHB or any of its Subsidiaries. None of BHB or any of its Subsidiaries has received from any foreign, federal, state, or local taxing authority (including jurisdictions where BHB or any Subsidiary has not filed Tax Returns) any (i) notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against BHB or any of its Subsidiaries.

 

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(d) Each of BHB and its Subsidiaries has provided LSBG with true and complete copies of the United States federal, state, local, and foreign income Tax Returns filed with respect to BHB or such Subsidiary, as the case may be, for taxable periods ended December 31, 2015, 2014 and 2013. Each of BHB and its Subsidiaries has delivered to LSBG correct and complete copies of all examination reports, and statements of deficiencies assessed against or agreed to by BHB or such Subsidiary, as the case may be, filed for the years ended December 31, 2015, 2014 and 2013. Each of BHB and its Subsidiaries has timely and properly taken such actions in response to and in compliance with notices BHB or such Subsidiary, as the case may be, has received from the IRS in respect of information reporting and backup and nonresident withholding as are required by law.

(e) None of BHB or any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

(f) None of BHB or any of its Subsidiaries has been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). Each of BHB or any of its Subsidiaries has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code Section 6662. None of BHB or any of its Subsidiaries is a party to or bound by any Tax allocation or sharing agreement. Except for an affiliated group with its Subsidiaries or BHB (as applicable), none of BHB or any of its Subsidiaries (i) has been a member of an affiliated group filing a consolidated federal income Tax Return, or (ii) has any liability for the Taxes of any individual, bank, corporation, partnership, association, joint stock company, business trust, limited liability company, or unincorporated organization (other than BHB or such Subsidiary) under Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.

(g) The unpaid Taxes of BHB and its Subsidiaries (i) did not, as of the end of the most recent period covered by BHB’s or such Subsidiary’s call reports filed on or prior to the date hereof, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the financial statements included in BHB’s or such Subsidiary’s call reports filed on or prior to the date hereof (rather than in any notes thereto), and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of BHB or such Subsidiary in filing its Tax Returns. Since the end of the most recent period covered by BHB’s or any of its Subsidiary’s call reports filed prior to the date hereof, none of BHB or any of its Subsidiaries has incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the ordinary course of business consistent with past custom and practice.

(h) None of BHB or any of its Subsidiaries has distributed stock of another Person or had its stock distributed by another Person in a transaction that was purported or intended to be governed in whole or in part by Section 355 or Section 361 of the Code.

(i) None of BHB or any of its Subsidiaries has participated in a listed transaction within the meaning of Reg. Section 1.6011-4 (or any predecessor provision) and none of BHB or any of its Subsidiaries has been notified of, or to BHB’s Knowledge has participated in, a transaction that is described as a “reportable transaction” within the meaning of Reg. Section 1.6011-4(b)(1).

Section 4.21 Derivative Transactions.

(a) All Derivative Transactions entered into by BHB or any of its Subsidiaries or for the account of any of their respective customers were entered into in accordance with applicable laws, rules, regulations and regulatory policies of any Governmental Authority, and in accordance with the investment, securities, commodities, risk management and other policies, practices and procedures employed by BHB and its Subsidiaries, and were entered into with counterparties believed at the time to be financially responsible and able to understand (either alone or in consultation with its advisers) and to bear the risks of such Derivative Transactions. Each of BHB and its Subsidiaries has duly performed all of its obligations under the Derivative Transactions to the extent that such obligations to perform have accrued, and, to the Knowledge of BHB, there are no breaches, violations or defaults or allegations or assertions of such by any party thereunder.

 

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(b) Except as set forth in BHB Disclosure Schedule 4.21(b), no Derivative Transactions, were it to be a Loan held by BHB or any of its Subsidiaries, would be classified as “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk Assets,” “Concerned Loans,” “Watch List” or words of similar import. The financial position of BHB and its Subsidiaries under or with respect to each such Derivative Transactions has been reflected in the books and records of BHB in accordance with GAAP consistently applied, and no open exposure of BHB or any of its Subsidiaries with respect to any such instrument (or with respect to multiple instruments with respect to any single counterparty) exists.

Section 4.22 Loans; Nonperforming and Classified Assets.

(a) Except as set forth in BHB Disclosure Schedule 4.22(a), as of the date hereof, none of BHB or any of its Subsidiaries is a party to any written or oral (i) Loans, under the terms of which the obligor was, as of December 31, 2015, over sixty (60) days delinquent in payment of principal or interest or in default of any other material provision, or (ii) Loan with any director, executive officer or five percent or greater shareholder of BHB or any of its Subsidiaries, or to the Knowledge of BHB, any person, corporation or enterprise controlling, controlled by or under common control with any of the foregoing. BHB Disclosure Schedule 4.22(a) identifies (x) each Loan that as of December 31, 2015 was classified as “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk Assets,” “Concerned Loans,” “Watch List” or words of similar import by BHB or any of its Subsidiaries or any bank examiner, together with the principal amount of and accrued and unpaid interest on each such Loan and the identity of the borrower thereunder, and (y) each asset of BHB that as of December 31, 2015 was classified as OREO and the book value thereof.

(b) Each Loan (i) is evidenced by notes, agreements or other evidences of indebtedness that are true, genuine and what they purport to be, (ii) to the extent secured, has been secured by valid Liens which have been perfected and (iii) to the Knowledge of BHB, is a legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

(c) The loan documents with respect to each Loan were in compliance with applicable laws and regulations and BHB’s or the applicable BHB Subsidiary’s lending policies at the time of origination of such Loans and are complete and correct.

(d) Except as set forth in BHB Disclosure Schedule 4.22(d), none of BHB or any of its Subsidiaries is a party to any agreement or arrangement with (or otherwise obligated to) any Person which obligates BHB or any of its Subsidiary’s to repurchase from any such Person any Loan or other asset of BHB or any of its Subsidiaries.

Section 4.23 Tangible Properties and Assets.

(a) Except as set forth in BHB Disclosure Schedule 4.23(a), and except for properties and assets disposed of in the ordinary course of business or as permitted by this Agreement, BHB or one of its Subsidiaries has good and clear record and marketable title to, valid leasehold interests in or otherwise legally enforceable rights to use all of the real property, personal property and other assets (tangible or intangible), used, occupied and operated or held for use by it in connection with its business as presently conducted in each case, free and clear of any Lien, except for (i) statutory Liens for amounts not yet delinquent and (ii) Liens incurred in the ordinary course of business or imperfections of title, easements and encumbrances, if any, that, individually and in the aggregate, are not material in character, amount or extent, and do not materially detract from the value and do not materially interfere with the present use, occupancy or operation of any material asset.

(b) Each of the Leases of BHB is valid, binding and in full force and effect and, as of the date hereof, BHB has not received a written notice of, and otherwise has no Knowledge of any, default or termination with respect to any Lease. There has not occurred any event and no condition exists that would constitute a termination event or a material breach by BHB of, or material default by BHB in, the performance of any covenant, agreement

 

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or condition contained in any Lease, and to BHB’s Knowledge, no lessor under a Lease is in material breach or default in the performance of any material covenant, agreement or condition contained in such Lease. Except as set forth on BHB Disclosure Schedule 4.23(b), there is no pending or, to BHB’s Knowledge, threatened proceeding, action or governmental or regulatory investigation of any nature by any Governmental Authority with respect to the real property that BHB or any of its Subsidiaries uses or occupies or has the right to use or occupy, now or in the future, including a pending or threatened taking of any of such real property by eminent domain. Each of BHB and its Subsidiaries has paid all rents and other charges to the extent due under the Leases.

Section 4.24 Intellectual Property. BHB or one of its Subsidiaries owns or has a valid license to use all BHB Intellectual Property, free and clear of all Liens, royalty or other payment obligations (except for royalties or payments with respect to off-the-shelf Software at standard commercial rates). BHB Intellectual Property constitutes all of the Intellectual Property necessary to carry on the business of BHB and its Subsidiaries as currently conducted. BHB Intellectual Property owned by BHB or any of its Subsidiaries, and to the Knowledge of BHB, all other BHB Intellectual Property, is valid and enforceable and has not been cancelled, forfeited, expired or abandoned, and none BHB or any of its Subsidiaries has received notice challenging the validity or enforceability of BHB Intellectual Property. To the Knowledge of BHB, the conduct of the business of BHB and its Subsidiaries does not violate, misappropriate or infringe upon the Intellectual Property rights of any third party. The consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of the right of BHB and its Subsidiaries to own or use any of the BHB Intellectual Property.

Section 4.25 Fiduciary Accounts. Since December 31, 2015, each of BHB and its Subsidiaries has properly administered all accounts for which it is or was a fiduciary, including accounts for which it serves or served as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents and applicable laws and regulations. To the Knowledge of BHB, neither BHB nor any of its Subsidiaries nor any of their respective directors, officers or employees, has committed any breach of trust with respect to any fiduciary account and the records for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.

Section 4.26 Insurance.

(a) Each of BHB and its Subsidiaries is insured with reputable insurers against such risks and in such amounts as the management of BHB reasonably has determined to be prudent in accordance with industry practices. All the Insurance Policies are in full force and effect, none of BHB or any of its Subsidiaries is in material default thereunder and all claims thereunder have been filed in due and timely fashion.

(b) BHB Disclosure Schedule 4.26(b) sets forth a true, correct and complete description of all BOLI owned by BHB or any of its Subsidiaries, including the value of BOLI as of the end of the month prior to the date hereof. The value of such BOLI as of the date hereof is fairly and accurately reflected in the BHB Financial Statements in accordance with GAAP.

Section 4.27 Absence of Undisclosed Liabilities. None of BHB and its Subsidiaries has any liabilities or obligations, whether accrued, absolute, contingent or otherwise, known or unknown, whether due or to become due, whether or not required to be disclosed in a balance sheet prepared in accordance with GAAP, except for those (i) liabilities properly accrued or reserved against in the consolidated balance sheet of BHB as of December 31, 2015 included in the BHB SEC Reports, (ii) liabilities and obligations incurred since December 31, 2015 in the ordinary course of business consistent with past practice, (iii) liabilities and obligations that are not material to BHB and its Subsidiaries, taken as a whole, and (iv) any liabilities and obligations incurred with respect to the transactions contemplated by this Agreement.

Section 4.28 Antitakeover Provisions. No “control share acquisition,” “business combination moratorium,” “fair price” or other form of antitakeover statute or regulation is applicable to this Agreement and the transactions contemplated hereby.

Section 4.29 BHB Common Stock. The shares of BHB Common Stock to be issued pursuant to this Agreement, when issued in accordance with the terms of this Agreement, will be duly authorized, validly issued, fully paid and non-assessable and subject to no preemptive rights.

 

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Section 4.30 Joint Proxy Statement/Prospectus. As of the date of the Joint Proxy Statement/Prospectus and the dates of the meeting of the shareholders of BHB to which such Joint Proxy Statement/Prospectus relates, the Joint Proxy Statement/Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that information filed with the SEC and either incorporated by reference in the Joint Proxy Statement/Prospectus or otherwise amending the Joint Proxy Statement/Prospectus as of a later date shall be deemed to modify information as of an earlier date, and further provided that no representation and warranty is made with respect to information relating to LSBG and its Subsidiaries provided in writing by LSBG and included in the Joint Proxy Statement/Prospectus.

Section 4.31 Disclosure. The representations and warranties contained in this Article IV, when considered as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Article IV not misleading.

ARTICLE V

COVENANTS

Section 5.01 Covenants of LSBG. During the period from the date of this Agreement and continuing until the Effective Time, except as expressly contemplated or permitted by this Agreement or with the prior written consent of BHB, LSBG shall, and shall cause each of its Subsidiaries to, carry on its business in the ordinary course consistent with past practice and consistent with prudent banking practice and in compliance in all material respects with all applicable laws and regulations. LSBG will, and shall cause each of its Subsidiaries to, use its reasonable best efforts to (i) preserve its business organization intact, (ii) keep available to itself and BHB the present services of the current officers and employees of LSBG and (iii) preserve for itself and BHB the goodwill of the customers of LSBG and others with whom business relationships exist. Without limiting the generality of the foregoing, and except as set forth in the LSBG Disclosure Schedule or as otherwise expressly contemplated or permitted by this Agreement or consented to in writing by BHB, LSBG shall not, and shall cause each of its Subsidiaries not to:

(a) Capital Stock. Other than pursuant to stock options or stock-based awards outstanding as of the date hereof and listed in the LSBG Disclosure Schedules, (i) issue, sell or otherwise permit to become outstanding, or authorize the creation or reservation of, any additional shares of capital stock or any Rights, (ii) permit any additional shares of capital stock to become subject to grants of employee or director stock options, warrants or other Rights, or (iii) redeem, retire, purchase or otherwise acquire, directly or indirectly, any LSBG Common Stock, or obligate itself to purchase, retire or redeem, any of its shares of LSBG Common Stock.

(b) Dividends; Etc. (i) Make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on, any shares of stock other than (x) dividends from wholly owned Subsidiaries to LSBG or any other wholly owned Subsidiary of LSBG, as applicable, or (y) regular quarterly cash dividends on LSBG Common Stock no greater than the rate paid during the fiscal quarter immediately preceding the date hereof with record and payment dates consistent with past practice (subject to the last sentence of this clause (b)), or (ii) directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock. After the date hereof, LSBG shall coordinate with BHB regarding the declaration of any dividends in respect of LSBG Common Stock and the record dates and payment dates relating thereto, it being the intention of the parties hereto that holders of LSBG Common Stock shall not receive two (2) dividends for any single calendar quarter with respect to their shares of LSBG Common Stock and any shares of BHB Common Stock that such holders receive in exchange therefor in the Merger.

(c) Compensation; Employment Agreements, Etc. Enter into or amend or renew any employment, consulting, severance or similar agreements or arrangements with any director, officer or employee of LSBG or any of its Subsidiaries or grant any salary or wage increase or increase any employee benefit or pay any incentive or bonus payments, except (i) for normal increases in compensation to officers, directors and employees in the ordinary course of business consistent with past practice, provided that no such increase shall be more than three percent (3%) with respect to any individual officer, director or employee and provided further that any increases, either singularly or in the aggregate, shall be consistent with LSBG’s 2016 budget, a copy of which has been made

 

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available to BHB, (ii) LSBG shall be permitted to make cash contributions to the tax-qualified LSBG Pension Plans in the ordinary course of business consistent with past practice, (iii) LSBG shall be permitted to make cash contributions to the supplemental retirement plans in the amounts listed on LSBG Disclosure Schedule 5.01(c)(iii), (iv) LSBG and its Subsidiaries shall be permitted to pay year-end accrued bonuses for fiscal year 2016 in the ordinary course of business consistent with past practice to those employees whose estimated bonus payment amounts for full-fiscal year 2016 are listed on LSBG Disclosure Schedule 5.01(c)(iv), which payment shall be pro-rated through the Closing Date if the Closing occurs in 2016, and (v) if the Closing occurs in 2017, LSBG and its Subsidiaries shall be permitted to pay accrued bonuses for fiscal year 2017 at the Closing Date consistent with past practice and prorated through the Closing Date to those employees whose estimated bonus payment amounts for full-fiscal year 2017 are listed on LSBG Disclosure Schedule 5.01(c)(v).

(d) Hiring. Hire any person as an employee of LSBG or any of its Subsidiaries or promote any employee, except (i) to satisfy contractual obligations existing as of the date hereof and set forth on LSBG Disclosure Schedule 5.01(d) and (ii) persons hired to fill any vacancies in positions existing as of the date hereof arising after the date hereof at an annual salary of less than $50,000 and whose employment is terminable at the will of LSBG or the applicable LSBG Subsidiary.

(e) Benefit Plans. Enter into, establish, adopt, amend, modify or terminate (except (i) as may be required by or to make consistent with applicable law or the terms of this Agreement, subject to the provision of prior written notice and consultation with respect thereto to BHB, or (ii) to satisfy contractual obligations existing as of the date hereof and set forth on LSBG Disclosure Schedule 5.01(e)), any pension, retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement (or similar arrangement) related thereto, in respect of any current or former director, officer or employee of LSBG or any of its Subsidiaries.

(f) Transactions with Affiliates. Pay, loan or advance any amount to, or sell, transfer or lease any properties or assets (real, personal or mixed, tangible or intangible) to, or enter into any agreement or arrangement with, any of its officers or directors or any of their immediate family members or any affiliates or associates (as such terms are defined under the Exchange Act) of any of its officers or directors, other than (i) compensation in the ordinary course of business consistent with past practice, (ii) loans, subject to subsection 5.01(r), or (iii) deposit transactions; provided that, BHB shall have been deemed to have consented to any such renewal, extension or modification of any agreement or arrangement with any such officer or director or any of their immediate family members or affiliates or associates if BHB does not object to any such proposed renewal, extension or modification within five business days of receipt by BHB of a request by LSBG to renew, extend or modify such a transaction along with all financial or other data that BHB may reasonably request in order to evaluate the same;

(g) Dispositions. Sell, transfer, mortgage, pledge, encumber or otherwise dispose of or discontinue any of its assets, deposits, business or properties except in the ordinary course of business consistent with past practice and in a transaction that, together with all other such transactions, is not material to LSBG and its Subsidiaries, taken as a whole.

(h) Acquisitions. Acquire (other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary and usual course of business consistent with past practice) all or any portion of the assets, business, deposits or properties of any other entity.

(i) Capital Expenditures. Other than as set forth on LSBG Disclosure Schedule 5.01(i), make any capital expenditures other than capital expenditures in the ordinary course of business consistent with past practice in amounts not exceeding $25,000 individually or $100,000 in the aggregate.

(j) Governing Documents. Amend LSBG’s Amended and Restated Certificate of Incorporation or Bylaws.

(k) Accounting Methods. Implement or adopt any change in its accounting principles, practices or methods, other than as may be required by applicable laws or regulations or GAAP.

 

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(l) Contracts. Except in the ordinary course of business consistent with past practice or as otherwise expressly permitted by this Agreement, enter into, amend, modify or terminate any Material Contract, Lease or Insurance Policy.

(m) Claims. Enter into any settlement or similar agreement with respect to any action, suit, proceeding, order or investigation to which LSBG or any of its Subsidiaries is or becomes a party after the date of this Agreement, which settlement, agreement or action involves payment by LSBG or any of its Subsidiaries of an amount which exceeds $50,000 and/or would impose any material restriction on the business of LSBG or any of its Subsidiaries.

(n) Banking Operations. Enter into any new material line of business; materially change its material lending, investment, underwriting, risk and asset liability management and other material banking and operating policies, except as required by applicable law, regulation or policies imposed by any Governmental Authority; or file any application or make any contract with respect to branching or site location or site relocation.

(o) Derivatives Transactions. Enter into any Derivatives Transactions, except in the ordinary course of business consistent with past practice.

(p) Indebtedness. Incur any indebtedness for borrowed money (other than deposits, federal funds purchased, borrowings from the FHLB and securities sold under agreements to repurchase, in each case in the ordinary course of business consistent with past practice) or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other Person, other than in the ordinary course of business consistent with past practice.

(q) Investment Securities. Acquire (other than by way of foreclosures or acquisitions in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business consistent with past practice) (i) any debt security or equity investment other than federal funds or United States government securities or United States government agency securities, in each case with a term of one year or less, (ii) dispose of any debt security or equity investment other than in the ordinary course of business or (iii) restructure or materially change its investment securities portfolio or its gap position, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported under GAAP. Any acquisitions or disposals that are subject to this Section 5.01(q) shall not in the aggregate exceed $10,000,000.

(r) Loans. Except to satisfy contractual obligations existing as of the date hereof and set forth on LSBG Disclosure Schedule 5.01(r), make, renegotiate, renew, increase, extend, modify or purchase any Loan, other than in accordance with LSBG’s loan policies and procedures in effect as of the date hereof; provided, however, (x) that the prior notification and approval of BHB is required for (i) any residential mortgage loans in excess of $750,000, (ii) any new origination other than residential mortgage loans in excess of $2,000,000, (iii) any additional extension of credit to a borrower whose Loan is determined to be substandard or classified, (iv) restructuring any loan or (v) classifying any loan as a troubled debt restructuring. For purposes of this Section 5.01(r), consent shall be deemed given unless BHB objects within 48 hours of notification.

(s) Investments in Real Estate. Make any investment or commitment to invest in real estate or in any real estate development project (other than by way of foreclosure or acquisitions in a bona fide fiduciary capacity or in satisfaction of a debt previously contracted in good faith, in each case in the ordinary course of business consistent with past practice).

(t) Taxes. Make or change any Tax election, file any amended Tax Return, enter into any closing agreement, settle or compromise any liability with respect to Taxes, agree to any adjustment of any Tax attribute, file any claim for a refund of Taxes, or consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment.

(u) Compliance with Agreements. Knowingly commit any act or omission which constitutes a material breach or default by LSBG or any of its Subsidiaries under any agreement with any Governmental Authority or under any Material Contract, Lease or other material agreement or material license to which it is a party or by which it or its properties is bound.

 

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(v) Environmental Assessments. Foreclose on or take a deed or title to any commercial real estate without first conducting a Phase I environmental assessment of the property or foreclose on any commercial real estate if such environmental assessment indicates the presence of a Hazardous Substance in amounts which, if such foreclosure were to occur, would be material.

(w) Insurance. Cause or allow the loss of insurance coverage, unless replaced with coverage which is substantially similar (in amount and insurer) to that now in effect.

(x) Liens. Discharge or satisfy any Lien or pay any obligation or liability, whether absolute or contingent, due or to become due, except in the ordinary course of business consistent with normal banking practices.

(y) Adverse Actions. Knowingly take any action or fail to take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (ii) any of the conditions to the Merger set forth in Article VI not being satisfied or (iii) a material violation of any provision of this Agreement, except, in each case, as may be required by applicable law or regulation.

(z) Commitments. Enter into any contract with respect to, or otherwise agree or commit to do, any of the foregoing.

Section 5.02 Covenants of BHB. From the date hereof until the Effective Time, except as expressly contemplated or permitted by this Agreement, without the prior written consent of LSBG, BHB will not, and will cause each of its Subsidiaries not to:

(a) Adverse Actions. (i) take any action reasonably likely to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (ii) take any action reasonably likely to result in any of the conditions to the Merger set forth in Article VI not being satisfied, (iii) take any action reasonably likely to prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code, (iv) agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors in support of, any of the actions prohibited by this Section 5.02, (v) enter into any material definitive merger agreement, purchase and assumption agreement or similar document involving BHB or any of its Subsidiaries with respect to the acquisition of any other insured depository institution or its assets or the assumption of its liabilities, (vi) issue any additional shares of BHB Common Stock or any securities convertible into BHB Common Stock, except for existing and future grants under BHB’s stock-based benefit plans, (vii) take any action reasonably likely to adversely affect or delay its ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby, (viii) take any action reasonably likely to result in a material violation of any provision of this Agreement except, in each case, as may be required by applicable law or regulation, or (ix) operate its business other than in the ordinary course consistent with past practice and consistent with prudent banking practice and in compliance in all material respects with all applicable laws and regulations.

(b) Commitments. Enter into any contract with respect to, or otherwise agree or commit to do, any of the foregoing.

Section 5.03 Reasonable Best Efforts. Subject to the terms and conditions of this Agreement, each of the parties to this Agreement agrees to use its reasonable best efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws, so as to permit consummation of the transactions contemplated hereby as promptly as practicable, and otherwise to enable consummation of the transactions contemplated by this Agreement, including the satisfaction of the conditions set forth in Article VI hereof, and shall cooperate fully with the other parties hereto to that end.

 

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Section 5.04 Shareholder Approval.

(a) BHB agrees to take, in accordance with applicable law, the Articles of Incorporation, as amended, and the Amended and Restated Bylaws of BHB, all action necessary to convene a special meeting of its shareholders to consider and vote upon the approval of this Agreement and any other matters required to be approved by BHB’s shareholders in order to permit consummation of the transactions contemplated by this Agreement (including any adjournment or postponement, the “BHB Meeting”) and, subject to Section 5.08, shall take all lawful action to solicit such approval by such shareholders. BHB agrees to use its reasonable best efforts to convene the BHB Meeting within thirty-five (35) days after the initial mailing of the Joint Proxy Statement/Prospectus to shareholders of BHB pursuant to Section 5.05, and in any event shall convene the BHB Meeting within forty-five (45) days after such mailing. Except for matters that would ordinarily be considered at BHB’s annual meeting of shareholders or with the prior approval of LSBG, no other matters shall be submitted for the approval of BHB shareholders at the BHB Meeting. The BHB Board shall at all times prior to and during the BHB Meeting recommend adoption of this Agreement by the shareholders of BHB and shall not withhold, withdraw, amend or modify such recommendation in any manner or take any other action or make any other public statement inconsistent with such recommendation.

(b) LSBG agrees to take, in accordance with applicable law, the Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws of LSBG, all action necessary to convene a special meeting of its shareholders to consider and vote upon the approval of this Agreement and any other matters required to be approved by LSBG’s shareholders in order to permit consummation of the transactions contemplated by this Agreement (including any adjournment or postponement, the “LSBG Meeting”) and, subject to Section 5.08, shall take all lawful action to solicit such approval by such shareholders. LSBG agrees to use its reasonable best efforts to convene the LSBG Meeting within thirty-five (35) days after the initial mailing of the Joint Proxy Statement/Prospectus to shareholders of LSBG pursuant to Section 5.05, and in any event shall convene the LSBG Meeting within forty-five (45) days after such mailing. Except for matters that would ordinarily be considered at LSBG’s annual meeting of shareholders or with the prior approval of BHB, no other matters shall be submitted for the approval of LSBG shareholders at the LSBG Meeting. The LSBG Board shall at all times prior to and during the LSBG Meeting recommend adoption of this Agreement by the shareholders of LSBG (the “LSBG Recommendation”) and shall not withhold, withdraw, amend or modify such recommendation in any manner adverse to BHB or take any other action or make any other public statement inconsistent with such recommendation, except as and to the extent expressly permitted by Section 5.11 (a “Change in Recommendation”). Notwithstanding any Change in Recommendation, this Agreement shall be submitted to the shareholders of LSBG for their approval at the LSBG Meeting and nothing contained herein shall be deemed to relieve LSBG of such obligation (unless and until this agreement is terminated in accordance with Section 7.01).

Section 5.05 Merger Registration Statement; Joint Proxy Statement/Prospectus. For the purposes of (x) registering BHB Common Stock to be offered to holders of LSBG Common Stock in connection with the Merger with the SEC under the Securities Act and applicable state securities laws and (y) holding the BHB Meeting and the LSBG Meeting, BHB shall draft and prepare, and LSBG shall cooperate in the preparation of, a registration statement on Form S-4 for the registration of the shares to be issued by BHB in the Merger (the “Merger Registration Statement”), including the Joint Proxy Statement/Prospectus. BHB shall provide LSBG with appropriate opportunity to review and comment on the Merger Registration Statement and Joint Proxy Statement/Prospectus prior to the time they are initially filed with the SEC. BHB shall file the Merger Registration Statement with the SEC. Each of BHB and LSBG shall use its reasonable best efforts to have the Merger Registration Statement declared effective under the Securities Act as promptly as practicable after such filing, and the parties shall thereafter promptly mail the Joint Proxy Statement/Prospectus to their respective shareholders. BHB shall also use its reasonable best efforts to obtain any necessary state securities law or “Blue Sky” permits and approvals required to carry out the transactions contemplated by this Agreement, and LSBG shall furnish to BHB all information concerning LSBG and the holders of LSBG Common Stock as may be reasonably requested in connection with such action.

Section 5.06 Cooperation and Information Sharing. LSBG shall provide BHB with any information concerning LSBG that BHB may reasonably request in connection with the drafting and preparation of the Merger Registration Statement and Joint

 

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Proxy Statement/Prospectus, and each party shall notify the other promptly of the receipt of any comments of the SEC with respect to the Merger Registration Statement or Joint Proxy Statement/Prospectus and of any requests by the SEC for any amendment or supplement thereto or for additional information and shall provide to the other party promptly copies of all correspondence between it or any of its representatives and the SEC. BHB shall provide LSBG with appropriate opportunity to review and comment on all amendments and supplements to the Merger Registration Statement and Proxy Statement/Prospectus and all responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the SEC. Each of BHB and LSBG agrees to use all reasonable efforts, after consultation with the other party hereto, to respond promptly to all such comments of and requests by the SEC. Each of BHB and LSBG agrees to cause the Joint Proxy Statement/Prospectus and all required amendments and supplements thereto to be mailed to the holders of LSBG Common Stock entitled to vote at the LSBG Meeting and the holders of BHB Common Stock entitled to vote at the BHB Meeting, respectively, at the earliest practicable time.

Section 5.07 Supplements or Amendments. LSBG and BHB shall promptly notify the other party if at any time it becomes aware that the Joint Proxy Statement/Prospectus or the Merger Registration Statement 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 contained therein, in light of the circumstances under which they were made, not misleading. In such event, LSBG shall cooperate with BHB in the preparation of a supplement or amendment to such Proxy Statement/Prospectus which corrects such misstatement or omission, and BHB shall file an amended Merger Registration Statement with the SEC, and each of BHB and LSBG shall mail an amended Proxy Statement/Prospectus to their respective shareholders.

Section 5.08 Regulatory Approvals. Each of LSBG and BHB will cooperate with the other and use all reasonable efforts to promptly prepare all necessary documentation, to effect all necessary filings and to obtain all necessary permits, consents, approvals and authorizations of all third parties and Governmental Authorities necessary to consummate the transactions contemplated by this Agreement. LSBG and BHB shall each promptly furnish the other with copies of written communications to, or received by them from, any Governmental Authority with respect to the transactions contemplated by this Agreement, to the extent permitted by applicable law. LSBG and BHB will furnish each other and each other’s counsel with all information concerning themselves, their subsidiaries, directors, officers and shareholders and such other matters as may be necessary or advisable in connection with the Joint Proxy Statement/Prospectus and any application, petition or any other statement or application made by or on behalf of BHB or LSBG to any Governmental Authority in connection with the Merger and the Bank Merger and the other transactions contemplated by this Agreement. Each party hereto shall have the right to review and approve in advance all characterizations of the information relating to such party and any of its Subsidiaries that appear in any filing made in connection with the transactions contemplated by this Agreement with any Governmental Authority. In addition, BHB and LSBG shall each furnish to the other for review a copy of each such filing made in connection with the transactions contemplated by this Agreement with any Governmental Authority prior to its filing.

Section 5.09 Press Releases. LSBG and BHB shall consult with each other before issuing any press release with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such public statements without the prior consent of the other party, which shall not be unreasonably withheld or delayed; provided, however, that a party may, without the prior consent of the other party (but after such consultation, to the extent practicable in the circumstances), issue such press release or make such public statements as may upon the advice of outside counsel be required by law. LSBG and BHB shall cooperate to develop all public announcement materials and make appropriate management available at presentations related to this Agreement as reasonably requested by the other party.

Section 5.10 Access; Information.

(a) Each of BHB and LSBG agrees that upon reasonable notice and subject to applicable laws relating to the exchange of information, it shall afford the other party and the other party’s officers, employees, counsel, accountants and other authorized representatives such access during normal business hours throughout the period prior to the Effective Time to its books, records (including Tax Returns and work papers of independent registered public accountants), properties and personnel and to such other information relating to it as the other party may reasonably request and, during such period, shall furnish promptly to the other party all information concerning its business, properties and personnel as may reasonably request.

 

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(b) All information furnished pursuant to Section 5.10(a) shall be subject to, and each party shall hold all such information in confidence in accordance with, the provisions of the Mutual Agreement of Confidentiality, dated as of March 14, 2016, by and between LSBG and BHB (the “Confidentiality Agreement”).

(c) No investigation by a party of the business and affairs of the other party shall affect or be deemed to modify or waive any representation, warranty, covenant or agreement in this Agreement, or the conditions to the obligations of such party to consummate the transactions contemplated by this Agreement.

Section 5.11 No Solicitation.

(a) From the date of this Agreement through the Effective Time, LSBG shall not, nor shall it authorize or permit any of its Subsidiaries or their respective directors, officers or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by it to, directly or indirectly through another Person, (i) solicit, initiate or encourage (including by way of furnishing information or assistance), or take any other action designed to facilitate or that is likely to result in, any inquiries or the making of any proposal that constitutes, or is reasonably likely to lead to, any Acquisition Proposal, (ii) enter into any agreement with respect to an Acquisition Proposal, (iii) participate in any discussions or negotiations regarding any Acquisition Proposal or furnish, or otherwise afford access, to any Person (other than BHB) any information or data with respect to LSBG or any of the LSBG Subsidiaries or otherwise relating to an Acquisition Proposal, or (iv) make or authorize any statement or recommendation in support of any Acquisition Proposal. Notwithstanding the foregoing sentence, LSBG may take any of the actions described in clause (iii) of the foregoing sentence only if, (A) LSBG has received a bona fide unsolicited written Acquisition Proposal prior to the LSBG Meeting that did not result from a breach of this Section 5.11, (B) the LSBG Board of Directors determines in good faith, after consultation with and having considered the advice of its outside legal counsel and its financial advisor, that such Acquisition Proposal constitutes or is reasonably likely to lead to a Superior Proposal, (C) LSBG provides BHB with at least three (3) Business Day’s prior notice of such determination (the “Notice of Superior Proposal”), which notice shall include the name of such Person and the material terms and conditions of any such Acquisition Proposal, and (D) prior to furnishing or affording access to any information or data with respect to LSBG or otherwise relating to an Acquisition Proposal, LSBG receives from such Person a confidentiality agreement with terms no less favorable to LSBG than those contained in the Confidentiality Agreement between BHB and LSBG. LSBG shall promptly provide to BHB any non-public information regarding LSBG and its Subsidiaries provided to any other Person that was not previously provided to BHB, such additional information to be provided no later than the date of provision of such information to such other party.

(b) Notwithstanding Section 5.04, prior to the date of the LSBG Meeting, the LSBG Board may approve or recommend to the stockholders of LSBG a Superior Proposal and withdraw, change, qualify or modify the LSBG Recommendation in connection therewith (a “Change in Recommendation”) after the fifth (5th) Business Day following BHB’s receipt of the Notice of Superior Proposal advising BHB that the LSBG Board has decided that a bona fide unsolicited written Acquisition Proposal that it received (that did not result from a breach of this Section 5.11) constitutes a Superior Proposal (it being understood that LSBG shall be required to deliver a new Notice of Superior Proposal in respect of any revised Superior Proposal from such third party or its affiliates that LSBG proposes to accept and the subsequent notice period (which shall not shorten such original five (5) Business Day period) shall be two (2) Business Days) if, but only if, (a) the LSBG Board has reasonably determined in good faith, after consultation with and having considered the advice of outside legal counsel and its financial advisor, that the failure to take such actions would be reasonably likely to violate its fiduciary duties to LSBG’s stockholders under applicable law, and (b) (i) during such five (5) Business Day period or two (2) Business Day Period (as the case may be), LSBG has negotiated, and has used its reasonable best efforts to cause its financial and legal advisors to negotiate, with BHB in good faith to make such adjustments, modifications or amendments in the terms and conditions of this Agreement such that such Acquisition Proposal would no longer constitute a Superior Proposal and (ii) at the end of such five (5) Business Day period or two (2) Business Day period (as the case may be), after taking into account any such adjusted, modified or amended terms as may have been committed to in writing by BHB since its receipt of such Notice of Superior Proposal (provided, however, that BHB shall not have any obligation to propose any adjustments, modifications or amendments to the terms and conditions of this Agreement), the LSBG Board has again in good faith made the determination (x) in clause (a) of this Section 5.11, and (y) that such Acquisition Proposal constitutes a Superior Proposal. Notwithstanding the foregoing, the withdrawal,

 

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changing, qualifying or modifying of the LSBG Recommendation or the making of a Change in Recommendation by the LSBG Board shall not change the approval of the LSBG Board for purposes of causing any applicable “moratorium,” “control share,” “fair price,” “takeover,” “interested stockholder” or similar law to be inapplicable to this Agreement and the LSBG Voting Agreements and the transactions contemplated hereby and thereby, including the Merger.

(c) LSBG shall immediately cease and cause to be terminated any existing discussions or negotiations with any Persons (other than BHB) conducted heretofore with respect to any of the foregoing, and shall use reasonable best efforts to cause all Persons other than BHB who have been furnished confidential information regarding LSBG in connection with the solicitation of or discussions regarding an Acquisition Proposal within the twelve (12) months prior to the date hereof promptly to return or destroy such information. LSBG agrees not to release any third party from the confidentiality and standstill provisions of any agreement to which LSBG is or may become a party, and shall immediately take all steps necessary to terminate any approval that may have been heretofore given under any such provisions authorizing any Person (other than BHB) to make an Acquisition Proposal.

LSBG shall ensure that the directors, officers, employees, agents and representatives (including any investment bankers, financial advisors, attorneys, accountants or other retained representatives) of LSBG are aware of the restrictions described in this Section 5.11 as reasonably necessary to avoid violations thereof. It is understood that any violation of the restrictions set forth in this Section 5.11 by any director, officer, employee, agent or representative (including any investment banker, financial advisor, attorney, accountant or other retained representative) of LSBG, at the direction or with the consent of LSBG, shall be deemed to be a breach of this Section 5.11 by LSBG.

Section 5.12 Indemnification.

(a) From and after the Effective Time, BHB (the “Indemnifying Party”) shall indemnify and hold harmless each present and former director and officer of LSBG and each other Person entitled to indemnification under the Bylaws of BHB as in effect on the date hereof, as applicable, determined as of the Effective Time (the “Indemnified Parties”) against any costs or expenses (including reasonable attorneys’ fees and expenses), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, arising in whole or in part out of or pertaining to the fact that he or she was a director or officer of LSBG or is or was serving at the request of LSBG as a director, officer, employee or other agent of any other organization or in any capacity with respect to any employee benefit plan of LSBG, including matters related to the negotiation, execution and performance of this Agreement or any of the transactions contemplated hereby, to the fullest extent which such Indemnified Parties would be entitled under the Amended and Restated Bylaws of LSBG as in effect on the date hereof (subject to change as required by law). BHB’s obligations under this Section 5.12(a) shall continue in full force and effect for a period of six years from the Effective Time; provided, however, that all rights to indemnification in respect of any claim asserted or made within such period shall continue until the final disposition of such claim. In addition, BHB shall advance expenses to the Indemnified Parties to the fullest extent which such Indemnified Parties would be entitled under the Amended and Restated Bylaws of LSBG as in effect on the date hereof without regard to director approval of such advancement of expenses.

(b) Any Indemnified Party wishing to claim indemnification under this Section 5.12, upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify the Indemnifying Party, but the failure to so notify shall not relieve the Indemnifying Party of any liability it may have to such Indemnified Party except to the extent that such failure does actually prejudice the Indemnifying Party. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) the Indemnifying Party shall have the right to assume the defense thereof and the Indemnifying Party shall not be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if the Indemnifying Party elects not to assume such defense or counsel for the Indemnified Parties advises that there are issues which raise conflicts of interest between the Indemnifying Party and the Indemnified Parties, the Indemnified Parties may retain counsel

 

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which is reasonably satisfactory to the Indemnifying Party, and the Indemnifying Party shall pay, promptly as statements therefor are received, the reasonable fees and expenses of such counsel for the Indemnified Parties (which may not exceed one firm in any jurisdiction unless counsel for the Indemnified Parties advises that there are issues that raise conflicts of interest between the Indemnified Parties), (ii) the Indemnified Parties will cooperate in the defense of any such matter, (iii) the Indemnifying Party shall not be liable for any settlement effected without its prior written consent and (iv) the Indemnifying Party shall have no obligation hereunder in the event that indemnification of an Indemnified Party in the manner contemplated hereby is prohibited by applicable laws and regulations or by an applicable federal or state banking agency or a court of competent jurisdiction.

(c) Prior to the Effective Time, BHB shall use its reasonable best efforts to cause the persons serving as directors and officers of LSBG immediately prior to the Effective Time to be covered by the directors’ and officers’ liability insurance policy maintained by LSBG (provided that BHB may substitute therefor policies which are not materially less advantageous than such policy or single premium tail coverage with policy limits equal to LSBG’s existing coverage limits) for a six-year period following the Effective Time with respect to acts or omissions occurring prior to the Effective Time which were committed by such directors and officers in their capacities as such, provided that in no event shall BHB be required to expend in any one year more than an amount equal to 175% of the current annual amount expended by LSBG to maintain such insurance (the “Insurance Amount”), and further provided that if BHB is unable to maintain or obtain the insurance called for by this Section 5.12(c) as a result of the preceding provision, BHB shall use its reasonable best efforts to obtain as much comparable insurance as is available for the Insurance Amount.

(d) If BHB or any of its successors or assigns shall consolidate with or merge into any other entity and shall not be the continuing or surviving entity of such consolidation or merger or shall transfer all or substantially all of its assets to any other entity, then and in each case, proper provision shall be made so that the successors and assigns of BHB shall assume the obligations set forth in this Section 5.12.

Section 5.13 Employees; Benefit Plans.

(a) Following the Closing Date, BHB may choose to maintain any or all of the LSBG Benefit Plans in its sole discretion. Effective no later than the day immediately preceding the Closing Date, LSBG shall terminate any LSBG Benefit Plans for which participant consent is not required and that BHB has requested to be terminated by providing written notice to LSBG at least fifteen (15) days prior to the Closing Date. No later than the day immediately preceding the Closing Date, LSBG shall provide BHB with evidence that such LSBG Benefit Plans have been terminated. However, for any LSBG Benefit Plan terminated for which there is a comparable BHB Benefit Plan of general applicability (other than the defined benefit pension plan or any nonqualified deferred compensation plans or arrangements maintained by BHB), BHB shall take all reasonable action so that employees of LSBG shall be entitled to participate in such BHB Benefit Plan to the same extent as similarly-situated employees of BHB (it being understood that inclusion of the employees of LSBG in the BHB Benefit Plans may occur at different times with respect to different plans). BHB shall cause each BHB Benefit Plan in which employees of LSBG are eligible to participate to take into account for purposes of eligibility and vesting under the BHB Benefit Plans (but not for purposes of benefit accrual) the service of such employees with LSBG and its Subsidiaries to the same extent as such service was credited for such purpose by LSBG (other than for the defined benefit pension plan or any nonqualified deferred compensation plans or arrangements maintained by BHB); provided, however, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits. Nothing herein shall limit the ability of BHB to amend or terminate any of the LSBG Benefit Plans or BHB Benefit Plans in accordance with their terms at any time; provided, however, that BHB shall continue to maintain the LSBG Benefit Plans (other than stock-based or incentive plans and the defined benefit pension plan and any nonqualified deferred compensation plans or arrangements) for which there is a comparable BHB Benefit Plan until the LSBG Employees are permitted to participate in the BHB Benefit Plans, unless such BHB Benefit Plan has been frozen or terminated with respect to similarly-situated employees of BHB or any Subsidiary of BHB.

(b) BHB shall assume and honor, under the vacation policies of LSBG, as disclosed on LSBG Disclosure Schedule 3.18, the accrued but unused vacation time of employees of the Surviving Corporation who were employees of LSBG prior to the Effective Time. BHB shall also assume and honor, under the severance pay policies of LSBG, as disclosed on LSBG Disclosure Schedule 3.18, the rights to severance of the employees of the Surviving Corporation who were employees of LSBG prior to the Effective Time. Following the Effective Time BHB shall, and shall cause Bar Harbor Bank, to give priority to terminated LSBG Employees with respect to any job postings at BHB or Bar Harbor Bank, as applicable, for which any such LSBG Employee is qualified.

 

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(c) If employees of LSBG become eligible to participate in a medical, dental or health plan of BHB upon termination of such plan of LSBG, BHB shall make all commercially reasonable efforts to cause each such plan to (i) waive any preexisting condition limitations to the extent such conditions are covered under the applicable medical, health or dental plans of BHB, and (ii) waive any waiting period limitation or evidence of insurability requirement which would otherwise be applicable to such employee on or after the Effective Time, in each case to the extent such employee had satisfied any similar limitation or requirement under an analogous LSBG Benefit Plan prior to the Effective Time.

(d) Concurrently with the execution of this Agreement, LSBG shall obtain from each of the individuals named in LSBG Disclosure Schedule 5.13(d) an agreement (a “Settlement Agreement”) to accept in full settlement of his or her rights under the specified programs the amounts and benefits determined under his or her Settlement Agreement (the aggregate amounts of such payments to be specified in LSBG Disclosure Schedule 5.13(d)) and pay such amounts to such individuals who are employed at the Effective Time pursuant to the terms of the Settlement Agreement, subject to a cut-back of any payment that would constitute an “excess parachute payment”, as defined in Section 280G of the Code, such that no portion of the payment will be subject to the excise tax imposed by Section 4999 of the Code. As to, and only as to, each individual who enters into a Settlement Agreement, BHB acknowledges and agrees that (i) the Merger constitutes a “change of control” or “change in control” for all purposes pursuant to such agreements, and (ii) LSBG will pay out all cash amounts under such agreements at the Closing Date, to the extent permitted by Section 409A of the Code. Any officer or employee of LSBG who is a party to a Settlement Agreement shall be entitled to receive the benefits payable or to be otherwise provided pursuant to the terms of such Settlement Agreement, and BHB agrees to provide the non-cash benefits, if any, pursuant to the terms of the Settlement Agreement.

(e) Concurrently with the execution of this Agreement, BHB and Bar Harbor Bank are entering into an employment agreement with William J. McIver in the form attached hereto as Exhibit C to be effective as of the Effective Time, and BHB, Bar Harbor Bank, LSBG and Lake Sunapee Bank will enter into settlement agreements with Stephen R. Theroux, William J. McIver, Laura Jacobi, Sharon Whitaker, Jodi Hoyt, Stephen W. Ensign and Bliss Dayton in the forms attached hereto as Exhibits D-1 to D-7 hereto, respectively, to be effective as of the Effective Time.

(f) BHB shall provide a retention pool in an amount up to $350,000 for the benefit of certain employees of LSBG to be designated by BHB at its sole discretion; provided that, any such designations shall be made in consultation with LSBG. Such designated employees will enter into retention agreements to be agreed upon by BHB and LSBG.

(g) This Section 5.13 shall be binding upon and inure solely to the benefit of each of the parties to this Agreement, and nothing in this Section 5.13, express or implied, shall confer upon any LSBG or BHB employee, or any legal representative or beneficiary thereof, any rights or remedies, including any right to employment or continued employment for any specified period, or compensation or benefits of any nature or kind whatsoever under this Agreement. Nothing in this Section 5.13, express or implied, shall be deemed an amendment of any plan providing benefits to any LSBG or BHB employee.

Section 5.14 Notification of Certain Changes. BHB and LSBG shall promptly advise the other party of any change or event having, or which could be reasonably expected to have, a Material Adverse Effect on it or which it believes would, or which could reasonably be expected to, cause or constitute a material breach of any of its representations, warranties or covenants contained herein. From time to time prior to the Effective Time (and on the date prior to the Closing Date), each party will supplement or amend its Disclosure Schedules delivered in connection with the execution of this Agreement to reflect any matter which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such Disclosure Schedules or which is necessary to correct any information in such Disclosure Schedules which has been rendered inaccurate thereby. No supplement or amendment to such Disclosure Schedules shall have any effect for the purpose of determining the accuracy of the representations and warranties of the parties contained in Article III and Article IV in order to determine the fulfillment of the conditions set forth in Sections 6.02(a) or 6.03(a) hereof, as the case may be, or the compliance by LSBG or BHB, as the case may be, with the respective covenants and agreements of such parties contained herein.

 

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Section 5.15 Current Information. During the period from the date of this Agreement to the Effective Time, each party will cause one or more of its designated representatives to confer on a regular and frequent basis with representatives of the other party and to report the general status of its ongoing operations. Without limiting the foregoing, each party agrees to provide the other party (i) a copy of each report filed by it with a Governmental Authority within one (1) Business Day following the filing thereof and (ii) monthly updates of the information required to be set forth in LSBG Disclosure Schedule 3.14 or BHB Disclosure Schedule 4.14, as the case may be.

Section 5.16 Board Packages. LSBG shall distribute a copy of its Board package, including the agenda and any draft minutes, to BHB at the same time and in the same manner in which it distributes a copy of such packages to its Board; provided, however, that LSBG shall not be required to copy BHB on any documents that disclose confidential discussions of this Agreement or the transactions contemplated hereby or any third party proposal to acquire control of LSBG or any other matter that LSBG’s Board has been advised of by counsel that such distribution to BHB may violate a confidentiality obligation or fiduciary duty or any law or regulation.

Section 5.17 Transition; Informational Systems Conversion. From and after the date hereof, BHB and LSBG shall use their reasonable best efforts to facilitate the integration of the businesses of LSBG and BHB following consummation of the transactions contemplated hereby, and shall meet on a regular basis to discuss and plan for the conversion of data processing and related electronic informational systems (the “Informational Systems Conversion”) to a single such system. It is the intent of the Parties that, to the extent commercially reasonable, the systems of BHB and Bar Harbor Bank be converted to those used by LSBG and Lake Sunapee Bank. Such planning shall include, but not be limited to: (a) discussion of the parties’ third-party service provider arrangements; (b) non-renewal of personal property leases and software licenses used in connection with the discontinued systems operations; (c) retention of outside consultants and additional employees to assist with the conversion; (d) outsourcing, as appropriate, of proprietary or self-provided system services; and (e) any other actions necessary and appropriate to facilitate the conversion, as soon as practicable following the Effective Time. LSBG shall take all action which is necessary and appropriate to facilitate the Informational Systems Conversion; provided, however, that BHB shall indemnify LSBG for any reasonable out-of-pocket fees, expenses or charges that LSBG may incur as a result of taking, at the request of BHB, any action to facilitate the Informational Systems Conversion. If this Agreement is terminated by BHB and/or LSBG in accordance with Section 7.01(a), 7.01(b), 7.01(c), or 7.01(f), or by LSBG only in accordance with Section 7.01(d), 7.01(e) or 7.01(h)(ii), BHB shall indemnify LSBG for any reasonable fees, expenses or charges related to reversing the Informational Systems Conversion.

Section 5.18 Board of Directors. Effective immediately following the Effective Time, BHB shall take, and shall cause Bar Harbor Bank to take, all action necessary to expand the size of the Board of Directors of each of BHB and Bar Harbor Bank by four seats and to appoint four members of LSBG’s Board of Directors, selected by BHB after consultation with LSBG, to each of BHB’s and Bar Harbor Bank’s Board of Directors, each to serve on BHB’s and Bar Harbor Bank’s Board of Directors for a term expiring at the next annual meeting of BHB’s shareholders, at which meeting each such appointee shall be included as a nominee for election to BHB’s and Bar Harbor Bank’s Board of Directors to serve until the following annual meeting of BHB’s shareholders.

Section 5.19 Exemption from Liability Under Section 16(b). Prior to the Effective Time, BHB shall take all steps as may be required to cause any acquisitions of BHB Common Stock resulting from the transactions contemplated by this Agreement by each director or officer of LSBG who becomes subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to LSBG to be exempt under Rule 16b-3 promulgated under the Exchange Act.

 

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ARTICLE VI

CONDITIONS TO CONSUMMATION OF THE MERGER

Section 6.01 Conditions to Obligations of the Parties to Effect the Merger. The respective obligations of LSBG and BHB to consummate the Merger are subject to the fulfillment or, to the extent permitted by applicable law, written waiver by the parties hereto prior to the Closing Date of each of the following conditions:

(a) Regulatory Approvals. All consents and approvals of a Governmental Authority required to consummate the transactions contemplated by this Agreement (“Regulatory Approvals”) shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired or been terminated.

(b) Merger Registration Statement Effective. The Merger Registration Statement shall have been declared effective by the SEC and no stop order with respect thereto shall be in effect.

(c) NYSE Listing. The shares of BHB Common Stock issuable pursuant to this Agreement shall have been approved for listing on NYSE, subject to official notice of issuance.

(d) No Injunctions or Restraints; Illegality. No judgment, order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of any of the transactions contemplated by this Agreement shall be in effect. No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Authority that prohibits or makes illegal the consummation of any of such transactions.

(e) Tax Opinions. BHB shall have received a letter setting forth the written opinion of Hogan Lovells US LLP, in form and substance reasonably satisfactory to BHB, dated as of the Closing Date, and LSBG shall have received a letter setting forth the written opinion of K&L Gates LLP, in form and substance reasonably satisfactory to LSBG, dated as of the Closing Date, in each case substantially to the effect that, on the basis of the facts, representations and assumptions set forth in such letter, the Merger will constitute a tax free reorganization described in Section 368(a) of the Code.

Section 6.02 Conditions to Obligations of BHB. The obligations of BHB to consummate the Merger also are subject to the fulfillment or written waiver by BHB prior to the Closing Date of each of the following conditions:

(a) Representations and Warranties. The representations and warranties of LSBG set forth in:

(i) Section 3.10(a) shall be true and correct in all respects;

(ii) Section 3.03(a) shall be true and correct in all respects (other than de minimis inaccuracies therein);

(iii) Sections 3.01, 3.04, 3.05, 3.06, 3.07(b), 3.15(a) and (c), 3.16(b), 3.17, 3.18(d) and (f), 3.24(c) and 3.29 shall be true and correct in all material respects; and

(iv) this Agreement (other than the representations and warranties that are the subject of clauses (i), (ii) or (iii)) shall be true and correct in all respects (without giving effect to any “materiality,” “Material Adverse Effect” or similar qualifiers contained in any such representations and warranties), except where the failure or failures of such representations and warranties to be so true and correct, either individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on LSBG;

in each case, as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except, to the extent such representations and warranties speak as of an earlier date, in which event such representation and warranty shall be so true and correct as of such specified date.

 

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BHB shall have received a certificate, dated the Closing Date, signed on behalf of LSBG by the Chief Executive Officer and the Chief Financial Officer of LSBG to the effect of this Section 6.02(a).

(b) Performance of Obligations of LSBG. LSBG shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, including pursuant to Section 5.13(d) and (e), and BHB shall have received a certificate, dated the Closing Date, signed on behalf of LSBG by the Chief Executive Officer of LSBG to such effect.

(c) No Adverse Regulatory Conditions. No regulatory approval referred to in Section 6.01(a) hereof shall contain any condition, restriction or requirement which the Board of Directors of BHB reasonably determines in good faith would, individually or in the aggregate, materially reduce the benefits of the Merger to such a degree that BHB would not have entered into this Agreement had such condition, restriction or requirement been known at the date hereof.

(d) Voting Agreements. The Voting Agreements shall have been executed and delivered by each director and executive officer of LSBG set forth on Schedule 6.01(d) concurrently with LSBG’s execution and delivery of this Agreement.

(e) Shareholder Approval. This Agreement shall have been duly approved by the requisite vote of the holders of outstanding shares of LSBG Common Stock.

(f) Other Actions. LSBG shall have furnished BHB with such certificates of its respective officers or others and such other documents to evidence fulfillment of the conditions set forth in Sections 6.01 and 6.02 as BHB may reasonably request.

Section 6.03 Conditions to Obligations of LSBG. The obligations of LSBG to consummate the Merger also are subject to the fulfillment or written waiver by LSBG prior to the Closing Date of each of the following conditions:

(a) Representations and Warranties. The representations and warranties of BHB set forth in:

(i) Section 4.10(a) shall be true and correct in all respects;

(ii) Section 4.03 shall be true and correct in all respects (other than de minimis inaccuracies therein);

(iii) Sections 4.01, 4.04, 4.05, 4.06, 4.07(b), 4.14(a) and (c), 4.15, 4.16, 4.17(c), 4.22(c) and 4.28 shall be true and correct in all material respects;

(iv) this Agreement (other than the representations and warranties that are the subject of clauses (i), (ii) or (iii)) shall be true and correct in all respects (without giving effect to any “materiality,” “Material Adverse Effect” or similar qualifiers contained in any such representations and warranties), except where the failure or failures of such representations and warranties to be so true and correct, either individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on BHB;

in each case, as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except, to the extent such representations and warranties speak as of an earlier date, in which event such representation and warranty shall be so true and correct as of such specified date.

LSBG shall have received a certificate, dated the Closing Date, signed on behalf of BHB by the Chief Executive Officer and the Chief Financial Officer of BHB to the effect of this Section 6.03(a).

(b) Performance of Obligations of BHB. BHB shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and LSBG shall have received a certificate, dated the Closing Date, signed on behalf of BHB by the Chief Executive Officer and the Chief Financial Officer of BHB to such effect.

 

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(c) No Adverse Regulatory Conditions. No regulatory approval referred to in Section 6.01(a) hereof shall contain any condition, restriction or requirement which the Board of Directors of LSBG reasonably determines in good faith would, individually or in the aggregate, materially reduce the benefits of the Merger to such a degree that LSBG would not have entered into this Agreement had such condition, restriction or requirement been known at the date hereof.

(d) Shareholder Approval. This Agreement shall have been duly approved by the requisite vote of the holders of outstanding shares of BHB Common Stock.

(e) Other Actions. BHB shall have furnished LSBG with such certificates of its respective officers or others and such other documents to evidence fulfillment of the conditions set forth in Sections 6.01 and 6.03 as LSBG may reasonably request.

Section 6.04 Frustration of Closing Conditions. Neither BHB nor LSBG may rely on the failure of any condition set forth in Section 6.01, 6.02 or 6.03, as the case may be, to be satisfied if such failure was caused by such party’s failure to use reasonable best efforts to consummate any of the transactions contemplated by this Agreement, as required by and subject to Section 5.03.

ARTICLE VII

TERMINATION

Section 7.01 Termination. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned:

(a) Mutual Consent. At any time prior to the Effective Time, by the mutual consent of BHB and LSBG if the Board of Directors of each so determines by vote of a majority of the members of its entire Board.

(b) No Regulatory Approval. By either BHB or LSBG, if its Board of Directors so determines by a vote of a majority of the members of its entire Board, in the event the approval of any Governmental Authority required for consummation of the transactions contemplated by this Agreement shall have been denied by final, nonappealable action by such Governmental Authority or an application therefor shall have been permanently withdrawn at the request of a Governmental Authority.

(c) No Shareholder Approval. By either BHB or LSBG (provided that the terminating party is not in material breach of any of its obligations under Section 5.04), if the approval of the shareholders of either party required for the consummation of the transactions contemplated by this Agreement shall not have been obtained by reason of the failure to obtain the required vote at a duly held meeting of such shareholders or at any adjournment or postponement thereof.

(d) Breach of Representations and Warranties. By either BHB or LSBG (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a breach of any of the representations or warranties set forth in this Agreement by the other party, which breach is not cured within thirty (30) days following written notice to the party committing such breach, or which breach, by its nature, cannot be cured prior to the Closing; provided, however, that neither party shall have the right to terminate this Agreement pursuant to this Section 7.01(d) unless the breach of representation or warranty, together with all other such breaches, would entitle the party receiving such representation or warranty not to consummate the Merger under Section 6.02(a) (in the case of a breach of a representation or warranty by LSBG) or Section 6.03(a) (in the case of a breach of a representation or warranty by BHB).

(e) Breach of Covenants. By either BHB or LSBG (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a breach of any of the covenants or agreements set forth in this Agreement on the part of the other party, which

 

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breach shall not have been cured within thirty (30) days following receipt by the breaching party of written notice of such breach from the other party hereto, or which breach, by its nature, cannot be cured prior to the Closing, provided, however, that neither party shall have the right to terminate this Agreement pursuant to this Section 7.01(e) unless the breach of covenant or agreement, together with all other such breaches, would entitle the party receiving the benefit of such covenant or agreement not to consummate the Merger under Section 6.02(b) (in the case of a breach of a covenant or agreement by LSBG) or Section 6.03(b) (in the case of a breach of a representation or warranty by BHB).

(f) Delay. By either BHB or LSBG if the Merger shall not have been consummated on or before March 31, 2017 (the “Termination Date”), unless the failure of the Closing to occur by such date shall be due to a material breach of this Agreement by the party seeking to terminate this Agreement.

(g) Superior Proposal. By LSBG if it has received a Superior Proposal and the LSBG Board of Directors has determined to accept such Superior Proposal in accordance with Section 5.11 (including the obligation therein of the LSBG Board to take into account any adjusted, modified or amended terms of this Agreement proposed by BHB).

(h) Failure to Recommend; Third-Party Acquisition Transaction; Etc.

(i) By BHB, if (A) LSBG shall have materially breached its obligations under Section 5.11, (B) the LSBG Board shall have failed to make its recommendation referred to in Section 5.04(b), withdrawn such recommendation or modified or changed such recommendation in a manner adverse in any respect to the interests of BHB, (C) the LSBG Board shall have recommended, proposed, or publicly announced its intention to recommend or propose, to engage in an Acquisition Transaction with any Person other than BHB or a Subsidiary of BHB or (D) LSBG shall have materially breached its obligations under Section 5.04(b) by failing to call, give notice of, convene and hold the LSBG Meeting in accordance with Section 5.04(b).

(ii) By LSBG, if BHB shall have materially breached its obligations under Section 5.04(a) by failing to call, give notice of, convene and hold the BHB Meeting or by failing to make its recommendation or withdrawing, modifying or changing such recommendation in any manner adverse in any respect to the interests of LSBG in accordance with Section 5.04(a).

(i) Decrease in BHB Stock Price. By LSBG, if the LSBG Board so determines by a vote of the majority of the members of the entire LSBG Board, at any time during the five-day period commencing with the Determination Date (as defined below), if both of the following conditions are satisfied:

(A) The quotient obtained by dividing the Average Closing Price by the Starting Price (as defined below) (the “BHB Ratio”) shall be less than 0.80; and

(B) (x) the BHB Ratio shall be less than (y) the quotient obtained by dividing the Final Index Price by the Index Price on the Starting Date (each as defined below) and subtracting 0.20 from the quotient in this clause (B)(y) (such number in this clause (B)(y) that results from dividing the Final Index Price by the Index Price on the Starting Date being referred to herein as the “Index Ratio”);

subject, however, to the following three sentences. If LSBG elects to exercise its termination right pursuant to this Section 7.01(i), it shall give written notice to BHB promptly, and in any event within the five-day period commencing with the Determination Date. During the five-day period commencing with its receipt of such notice, BHB shall have the option to increase the consideration to be received by the holders of LSBG Common Stock hereunder, by adjusting the Exchange Ratio (calculated to the nearest one one-thousandth) to equal the lesser of (x) a number (rounded to the nearest one one-thousandth) obtained by dividing (A) the product of the Starting Price, 0.80 and the Exchange Ratio (as then in effect) by (B) the Average Closing Price and (y) a number (rounded to the nearest one one-thousandth) obtained by dividing (A) the product of the Index Ratio and the Exchange Ratio (as then in effect) by (B) the BHB Ratio. If BHB so elects within such five-day period, it shall give prompt written notice to LSBG of such election and the revised Exchange Ratio, whereupon no termination shall have occurred pursuant to this Section 7.01(i) and this Agreement shall remain in effect in accordance with its terms (except as the Exchange Ratio shall have been so modified.)

 

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For purposes of this Section 7.01(i) the following terms shall have the meanings indicated:

“Average Closing Price” shall mean the average of the daily closing prices for the shares of BHB Common Stock for the 20 consecutive full trading days on which such shares are actually traded on NYSE (as reported by Bloomberg or, if not reported thereby, any other authoritative source) ending at the close of trading on the Determination Date.

“Determination Date” shall mean the 10th day prior to the Closing Date, provided that if shares of the BHB Common Stock are not actually traded on NYSE on such day, the Determination Date shall be the immediately preceding day to the 10th day prior to the Closing Date on which shares of BHB Common Stock actually trade on NYSE.

“Final Index Price” shall mean the average of the Index Prices for the 20 consecutive full trading days ending on the trading day prior to the Determination Date.

“Index Group” shall mean the SNL Bank Index.

“Index Price” shall mean the closing price on such date of the SNL Bank Index.

“Starting Date” shall mean the last trading day immediately preceding the date of the first public announcement of entry into this Agreement.

“Starting Price” shall mean the closing price of a share of BHB Common Stock on NYSE (as reported by Bloomberg, or if not reported therein, in another authoritative source) on the Starting Date.

Section 7.02 Termination Fee. In recognition of the efforts, expenses and other opportunities foregone by BHB while structuring and pursuing the Merger, the parties hereto agree that LSBG shall pay to BHB a termination fee of $5,500,000 within three (3) Business Days after written demand for payment is made by BHB, following the occurrence of any of the events set forth below:

(a) BHB terminates this Agreement pursuant to Section 7.01(h)(i) or LSBG terminates this Agreement pursuant to 7.01(g); or

(b) LSBG enters into a definitive agreement relating to an Acquisition Proposal or the consummation of an Acquisition Proposal involving LSBG within twelve (12) months following the termination of this Agreement by BHB pursuant to Section 7.01(d) or Section 7.01(e) because of a willful breach by LSBG after an Acquisition Proposal has been publicly announced or otherwise made known LSBG.

Section 7.03 Effect of Termination and Abandonment. In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article VII, no party to this Agreement shall have any liability or further obligation to any other party hereunder except (i) as set forth in Section 7.01 and Section 8.01 and (ii) that termination will not relieve a breaching party from liability for money damages for any breach of any covenant, agreement, representation or warranty of this Agreement giving rise to such termination. Nothing in Section 7.02 or this Section 7.03 shall be deemed to preclude either party from seeking specific performance in equity to enforce the terms of this Agreement.

ARTICLE VIII

MISCELLANEOUS

Section 8.01 Survival. No representations, warranties, agreements and covenants contained in this Agreement shall survive the Effective Time (other than agreements or covenants contained herein that by their express terms are to be performed after the Effective Time) or the termination of this Agreement if this Agreement is terminated prior to the Effective Time (other than Sections 5.10(b), 5.18, 7.02 and this Article VIII,

 

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which shall survive any such termination). Notwithstanding anything in the foregoing to the contrary, no representations, warranties, agreements and covenants contained in this Agreement shall be deemed to be terminated or extinguished so as to deprive a party hereto or any of its affiliates of any defense at law or in equity which otherwise would be available against the claims of any Person, including any shareholder or former shareholder.

Section 8.02 Waiver; Amendment. Prior to the Effective Time, any provision of this Agreement may be (a) waived by the party benefited by the provision or (b) amended or modified at any time, by an agreement in writing among the parties hereto executed in the same manner as this Agreement, except that after the LSBG Meeting and the BHB Meeting no amendment shall be made which by law requires further approval by the shareholders of LSBG or BHB, respectively, without obtaining such approval.

Section 8.03 Counterparts. This Agreement may be executed in one or more counterparts (including by PDF or electronic signature), each of which shall be deemed to constitute an original.

Section 8.04 Governing Law. This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Maine, without regard for conflict of law provisions.

Section 8.05 Expenses. Each party hereto will bear all expenses incurred by it in connection with this Agreement and the transactions contemplated hereby, including fees and expenses of its own financial consultants, accountants and counsel, except that printing expenses for the Joint Proxy Statement/Prospectus shall be shared equally between BHB and LSBG; provided, however, that nothing contained herein shall limit either party’s rights to recover any damages arising out of the other party’s willful breach of any provision of this Agreement.

Section 8.06 Notices. All notices, requests and other communications hereunder to a party shall be in writing and shall be deemed given if personally delivered, mailed by registered or certified mail (return receipt requested) or sent by reputable courier service to such party at its address set forth below or such other address as such party may specify by notice to the parties hereto.

If to BHB:

Bar Harbor Bankshares

P.O. Box 400, 82 Main Street

Bar Harbor, Maine 04609

Attention: Curtis C. Simard

  President and Chief Executive Officer

Email:          csimard@bhbt.com

With a copy to:

K&L Gates LLP

State Street Financial Center, One Lincoln Street

Boston, MA 02111-2950

Attention: Stanley V. Ragalevsky

Email:       stanley.ragalevsky@klgates.com

 

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If to LSBG:

Lake Sunapee Bank Group

9 Main Street, PO Box 9

Newport, New Hampshire 03773

Attention:   Stephen R. Theroux

                   President and Chief Executive Officer

Email:        stheroux@lakesunbank.com

With a copy to:

Hogan Lovells US LLP

55 Thirteenth Street, N.W.

Washington, D.C. 20004

Attention:   Richard A. Schaberg

Email:         richard.schaberg@hoganlovells.com

Section 8.07 Entire Understanding; No Third Party Beneficiaries. This Agreement, the Plan of Bank Merger, the Voting Agreements, and the Confidentiality Agreement represent the entire understanding of the parties hereto and thereto with reference to the transactions, and this Agreement, the Plan of Bank Merger, the Voting Agreements, and the Confidentiality Agreement supersede any and all other oral or written agreements heretofore made. Except for the Indemnified Parties’ right to enforce BHB’s obligation under Section 5.12, which are expressly intended to be for the irrevocable benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives, nothing in this Agreement, expressed or implied, is intended to confer upon any Person, other than the parties hereto or their respective successors, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

Section 8.08 Severability. In the event that any one or more provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, by any court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement and the parties shall use their reasonable efforts to substitute a valid, legal and enforceable provision which, insofar as practical, implements the purposes and intents of this Agreement.

Section 8.09 Enforcement of the Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.

Section 8.10 Interpretation. When a reference is made in this Agreement to sections, exhibits or schedules, such reference shall be to a section of, or exhibit or schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and are not part of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”

Section 8.11 Assignment. No party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other party. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

 

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ARTICLE IX

ADDITIONAL DEFINITIONS

Section 9.01 Additional Definitions. In addition to any other definitions contained in this Agreement, the following words, terms and phrases shall have the following meanings when used in this Agreement:

“Acquisition Proposal” means any proposal or offer with respect to any of the following (other than the transactions contemplated hereunder) involving BHB or LSBG: (a) any merger, consolidation, share exchange, business combination or other similar transactions; (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets and/or liabilities that constitute a substantial portion of the net revenues, net income or assets of LSBG in a single transaction or series of transactions; (c) any tender offer or exchange offer for 20% or more of the outstanding shares of its capital stock or the filing of a registration statement under the Securities Act in connection therewith; or (d) any public announcement by any Person (which shall include any regulatory application or notice, whether in draft or final form) of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.

“Acquisition Transaction” means any of the following (other than the transactions contemplated hereunder): (a) a merger, consolidation, share exchange, business combination or any similar transaction, involving the relevant companies; (b) a sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets and/or liabilities that constitute a substantial portion of the net revenues, net income or assets of the relevant companies in a single transaction or series of transactions; (c) a tender offer or exchange offer for 20% or more of the outstanding shares of the capital stock of the relevant companies or the filing of a registration statement under the Securities Act in connection therewith; or (d) an agreement or commitment by the relevant companies to take any action referenced above.

“Affiliate” means, with respect to any Person, any person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person and, without limiting the generality of the foregoing, includes any executive officer, director, manager or Person who beneficially owns more than ten percent of the equity or voting securities of such Person.

“BHB Benefit Plans” means all benefit and compensation plans, contracts, policies or arrangements covering current or former employees of BHB and its Subsidiaries and current or former directors of BHB and its Subsidiaries including “employee benefit plans” within the meaning of Section 3(3) of ERISA, and deferred compensation, stock option, stock purchase, stock appreciation rights, stock based, incentive and bonus plans.

“BHB Board” means the Board of Directors of BHB.

“BHB Common Stock” means the common stock, par value $2.00 per share, of BHB.

“BHB Disclosure Schedule” means the disclosure schedule delivered by BHB to LSBG on or prior to the date hereof setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express provision of this Agreement or as an exception to one or more of its representations and warranties in Article IV or its covenants in Article V.

“BHB Intellectual Property” means the Intellectual Property used in or held for use in the conduct of the business of BHB.

“BHB Share Price” means the average of the closing sales prices of one share of BHB Common Stock for the ten (10) trading days immediately preceding the Effective Time on NYSE as reported by Bloomberg.

 

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“Business Day” means Monday through Friday of each week, except a legal holiday recognized as such by the U.S. government or any day on which banking institutions in the State of Maine are authorized or obligated to close.

“Certificate” means any certificate that immediately prior to the Effective Time represents shares of LSBG Common Stock.

“Derivative Transaction” means any swap transactions, option, warrant, forward purchase or sale transactions, futures transactions, cap transactions, floor transactions or collar transactions relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, catastrophe events, weather-related events, credit-related events or conditions or any indexes, or any other similar transactions (including any option with respect to any of these transactions) or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions.

“Environmental Law” means any federal, state or local law, regulation, order, decree, permit, authorization, opinion or agency requirement relating to: (a) the protection or restoration of the environment, health, safety, or natural resources, (b) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance or (c) wetlands, indoor air, pollution, contamination or any injury or threat of injury to persons or property in connection with any Hazardous Substance.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations thereunder.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

“Excluded Shares” shall consist of (i) shares held directly or indirectly by BHB (other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted) and (ii) shares of LSBG Common Stock that are held by LSBG as treasury shares immediately prior to the Effective Time.

“FDIC” means the Federal Deposit Insurance Corporation.

“FHLB” means the Federal Home Loan Bank of Boston, or any successor thereto.

“FRB” means the Board of Governors of the Federal Reserve System.

“GAAP” means accounting principles generally accepted in the United States of America.

“Governmental Authority” means any federal, state or local court, administrative agency or commission or other governmental authority or instrumentality.

“Hazardous Substance” includes but is not limited to any and all substances (whether solid, liquid or gas) defined, listed, or otherwise classified as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, or words of similar meaning or regulatory effect under any present or future Environmental Laws or that may have a negative impact on human health or the environment, including petroleum and petroleum products, asbestos and asbestos-containing materials, polychlorinated biphenyls, lead, radon, radioactive materials, flammables and explosives, mold, mycotoxins, microbial matter and airborne pathogens (naturally occurring or otherwise), but excluding substances of kinds and in amounts ordinarily and customarily used or stored in similar properties for the purposes of cleaning or other maintenance or operations.

“Intellectual Property” means (a) trademarks, service marks, trade names, Internet domain names, designs, logos, slogans, and general intangibles of like nature, together with all goodwill, registrations and applications related to the foregoing; (b) patents and industrial designs (including any

 

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continuations, divisionals, continuations-in-part, renewals, reissues, and applications for any of the foregoing); (c) copyrights (including any registrations and applications for any of the foregoing); (d) Software; and (e) technology, trade secrets and other confidential information, know-how, proprietary processes, formulae, algorithms, models, and methodologies.

“IRS” means the Internal Revenue Service.

“Joint Proxy Statement/Prospectus” means the joint proxy statement and prospectus, satisfying all applicable requirements of applicable state securities and banking laws, and of the Securities Act and the Exchange Act, and the rules and regulations thereunder, together with any amendments and supplements thereto, as prepared by BHB and LSBG and as delivered to holders of BHB Common Stock and LSBG Common Stock in connection with the solicitation of their approval of this Agreement.

“Knowledge” as used with respect to a Person (including references to such Person being aware of a particular matter) means those facts that are known by the senior officers and directors of such Person, and includes any facts, matters or circumstances set forth in any written notice from any Governmental Authority or any other written notice received by that Person.

“Lien” means any mortgage, pledge, lien, security interest, conditional and installment sale agreement, encumbrance, charge or other claim of third parties of any kind.

“Loan Property” means any property in which the applicable party (or a subsidiary of it) holds a security interest and, where required by the context, includes the owner or operator of such property, but only with respect to such property.

“LSBG Board” means the Board of Directors of LSBG.

“LSBG Disclosure Schedule” means the disclosure schedule delivered by LSBG to BHB on or prior to the date hereof setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express provision of this Agreement or as an exception to one or more of its representations and warranties in Article III or its covenants in Article V.

“LSBG Intellectual Property” means the Intellectual Property used in or held for use in the conduct of the business of LSBG.

“Material Adverse Effect” means with respect to BHB and its Subsidiaries, taken as a whole, or LSBG and its Subsidiaries, taken as a whole, any event, circumstance, development, change or effect that alone or in the aggregate with other events, circumstances, developments, changes or effects, that is material and adverse to its condition (financial or otherwise), results of operations, properties, assets, liabilities or business or that would materially delay or impair its ability to perform its obligations under this Agreement or otherwise materially delays or impairs its ability to consummate the transactions contemplated by this Agreement; provided, however, that Material Adverse Effect shall not be deemed to include the impact of (i) changes in banking and similar laws of general applicability or interpretations thereof by Governmental Authorities, (ii) changes in GAAP or regulatory accounting requirements applicable to insured depository institutions and their holding companies generally, (iii) changes in general economic conditions (including interest rates) affecting insured depository institutions and their holding companies generally, unless such change has a materially disproportionate adverse effect on such party relative to other similarly situated Persons, (iv) any modifications or changes to valuation policies and practices in connection with the transactions contemplated by this Agreement or restructuring charges taken in connection with the transactions contemplated by this Agreement, in each case in accordance with GAAP, (v) reasonable expenses incurred in connection with the transactions contemplated by this Agreement; (vi) the effects of any action or omission taken with the prior consent of the other party or as otherwise expressly permitted or contemplated by this Agreement; and (vii) any changes in international or domestic political or social conditions, including the occurrence of any military or terrorist attack upon or within the United States of America.

 

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“MBFI” means the Maine Bureau of Financial Institutions.

“NASDAQ” means The Nasdaq Stock Market, LLC.

“NYSE” means the New York Stock Exchange

“OCC” means the Office of the Comptroller of the Currency.

“Person” means any individual, bank, corporation, partnership, association, joint-stock company, business trust, limited liability company, unincorporated organization or other organization or firm of any kind or nature.

“Rights” means, with respect to any Person, warrants, options, rights, convertible securities and other arrangements or commitments which obligate the Person to issue or dispose of any of its capital stock or other ownership interests.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Software” means computer programs, whether in source code or object code form (including any and all software implementation of algorithms, models and methodologies), databases and compilations (including any and all data and collections of data), and all documentation (including user manuals and training materials) related to the foregoing.

“Subsidiary” means, with respect to any party, any corporation or other entity of which a majority of the capital stock or other ownership interest having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such party.

“Superior Proposal” means any bona fide written Acquisition Proposal made by a third party to acquire, directly or indirectly, including pursuant to a tender offer, exchange offer, merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction, for consideration consisting of cash and/or securities, more than 25% of the combined voting power of the shares of LSBG Stock then outstanding or all or substantially all of the assets of LSBG and otherwise (a) on terms which the LSBG Board determines in good faith, after consultation with its financial advisor, to be more favorable from a financial point of view to LSBG’s shareholders than the transactions contemplated by this Agreement, and (b) that constitutes a transaction that, in the LSBG Board’s good faith judgment, is reasonably likely to be consummated on the terms set forth, taking into account all legal, financial, regulatory and other aspects of such proposal.

“Tax” and “Taxes” mean all federal, state, local or foreign income, gross income, gains, gross receipts, sales, use, ad valorem, goods and services, capital, production, transfer, franchise, windfall profits, license, withholding, payroll, employment, disability, employer health, excise, estimated, severance, stamp, occupation, property, environmental, custom duties, unemployment or other taxes of any kind whatsoever, together with any interest, additions or penalties thereto and any interest in respect of such interest and penalties.

“Tax Returns” means any return, declaration or other report (including elections, declarations, schedules, estimates and information returns) with respect to any Taxes.

(Remainder of page intentionally left blank.)

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in counterparts by their duly authorized officers, all as of the day and year first above written.

 

 

[Signature Page to Agreement and Plan of Merger]

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Exhibit A

Voting Agreement

See Exhibit 10.1 to this Form 8-K.

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Exhibit B

Plan of Bank Merger

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PLAN OF BANK MERGER

BY AND BETWEEN

BAR HARBOR BANK & TRUST

AND

LAKE SUNAPEE BANK

DATED AS OF

[            ], 2016

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PLAN OF BANK MERGER

This PLAN OF BANK MERGER, dated as of [ ], 2016 (this “Agreement”), is entered into by and between Bar Harbor Bank & Trust, a Maine-chartered bank whose main office is located in Bar Harbor, Maine (“Bar Harbor”), and Lake Sunapee Bank, a federally-chartered savings association whose main office is located in Newport, New Hampshire (“Lake Sunapee”).

WHEREAS, Bar Harbor is the wholly-owned subsidiary of Bar Harbor Bankshares, a Maine corporation (“BHB”), and Lake Sunapee is the wholly-owned subsidiary of Lake Sunapee Bank Group, a Delaware corporation (“LSBG”);

WHEREAS, Bar Harbor and Lake Sunapee desire that Lake Sunapee merge with and into Bar Harbor as part of the related Agreement and Plan of Merger dated as of May 5, 2016, by and between BHB and LSBG (the “Merger Agreement”), that provides for the merger of LSBG with and into BHB, with BHB as the surviving entity;

WHEREAS, the Boards of Directors of Bar Harbor and Lake Sunapee have determined that it is in the best interests of their respective institutions and sole stockholders to consummate the business combination transaction provided for herein; and

WHEREAS, all capitalized terms used in this Agreement without definition herein shall have the meanings ascribed to them in the Merger Agreement.

NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Bar Harbor and Lake Sunapee hereto agree as follows:

Section 1. The Bank Merger. Subject to the terms and conditions set forth in this Agreement, in the Merger Agreement and pursuant to applicable federal laws and regulations, at the Effective Time (as defined herein), Lake Sunapee shall merge with and into Bar Harbor (the “Bank Merger”). Bar Harbor shall be the surviving institution (sometimes referred to herein as the “Surviving Bank”) of the Bank Merger and shall continue its corporate existence as a Maine-chartered bank subject to the Maine Revised Statutes (the “MRS”), following consummation of the Bank Merger. Upon consummation of the Bank Merger, the separate corporate existence of Lake Sunapee shall cease.

(a) Closing; Closing Date. A closing in respect of the transactions contemplated in this Agreement (the “Closing”) shall take place at 10:00 a.m., Eastern time on the Closing Date (as defined below), at the principal offices of Hogan Lovells US LLP in Washington, D.C., or at such other place or at such other time as the parties may mutually agree upon, which date shall be referred to as the “Closing Date.”

(b) Name and Purpose. At the Effective Time, the name of the Surviving Bank shall be Bar Harbor Bank & Trust. The purpose of the Surviving Bank shall be to continue its existence as a Maine-chartered bank and to engage in the business of banking and activities incidental thereto consistent with applicable federal law and the laws of the State of Maine.

(c) Charter. From and after the Effective Time, the charter of Bar Harbor, as in effect immediately prior to the Effective Time, shall be the charter of the Surviving Bank until amended in accordance with applicable law.

 

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(d) Bylaws. From and after the Effective Time, the bylaws of Bar Harbor, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Bank until amended in accordance with applicable law.

(e) Directors. The directors of the Surviving Bank immediately after the Effective Time shall consist of the directors of Bar Harbor in office immediately prior to the Effective Time and four additional members of the LSBG Board of Directors appointed in accordance with Section 5.18 of the Merger Agreement.

(f) Officers. The officers of the Surviving Bank shall consist of (i) the officers of Bar Harbor in office immediately prior to the Effective Time, and (ii) William J. McIver as an executive vice president and regional president. Each of the officers of the Surviving Bank immediately after the Effective Time shall hold office until his or her successor is elected and qualified or otherwise in accordance with the charter and bylaws of the Surviving Bank.

Section 2. Effects of the Bank Merger. At and after the Effective Time, the Bank Merger shall have the effects provided herein and set forth in applicable provisions of federal law and the MRS.

(a) Surviving Bank. Without limiting the generality of the foregoing and subject thereto, at the Effective Time, the Surviving Bank shall be considered the same business and corporate entity as each of Bar Harbor and Lake Sunapee and thereupon and thereafter all the property, rights, privileges, powers and franchises of Lake Sunapee and of Bar Harbor shall vest in the Surviving Bank, and all debts, liabilities, obligations, restrictions, disabilities and duties of Lake Sunapee and of Bar Harbor shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Bank. Any reference to either of Lake Sunapee and Bar Harbor in any contract, will or document, whether executed or taking effect before or after the Effective Time, shall be considered a reference to the Surviving Bank if not inconsistent with the other provisions of the contract, will or document; and any pending action or other judicial proceeding to which either of Lake Sunapee or Bar Harbor is a party shall not be deemed to have abated or to have been discontinued by reason of the Bank Merger, but may be prosecuted to final judgment, order or decree in the same manner as if the Bank Merger had not been made or the Surviving Bank may be substituted as a party to such action or proceeding, and any judgment, order or decree may be rendered for or against it that might have been rendered for or against either of Lake Sunapee or Bar Harbor if the Bank Merger had not occurred.

(b) Deposits. All deposit accounts of Lake Sunapee shall be and become deposit accounts in the Surviving Bank without change in their respective terms, maturity, minimum required balances or withdrawal value. Appropriate evidence of the deposit account in the Surviving Bank shall be provided by the Surviving Bank to each deposit account holder of Lake Sunapee, as necessary, after consummation of the Bank Merger. All deposit accounts of Bar Harbor prior to consummation of the Bank Merger shall continue to be deposit accounts in the Surviving Bank after consummation of the Bank Merger without any change whatsoever in any of the provisions of such deposit accounts, including, without limitation, their respective terms, maturity, minimum required balances or withdrawal value.

(c) Offices. At the Effective Time, the main office of the Surviving Bank shall be located in Bar Harbor, Maine.

 

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Section 3. Approvals Required. The consummation of the transactions contemplated by this Agreement is specifically conditioned upon receipt of all necessary regulatory approvals and nonobjections, including, but not limited to, those approvals and nonobjections from the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Maine Bureau of Financial Institutions, as may be required, and the expiration of all applicable waiting periods with respect to the Bank Merger. The sole shareholders of Lake Sunapee and of Bar Harbor shall have taken appropriate action to vote to approve this Agreement and the Bank Merger.

Section 4. Conditions Precedent. The respective obligations of each party under this Agreement shall be subject to: (i) the receipt of all required regulatory approvals and the expiration of any required waiting periods specified by applicable federal law or regulation; and (ii) the approval of this Agreement by LSBG in its capacity as the sole shareholder of Lake Sunapee and the approval of this Agreement by BHB in its capacity as sole shareholder of Bar Harbor.

Section 5. Representations. Each of Bar Harbor and Lake Sunapee represents that this Agreement has been duly authorized, executed and delivered by such party and constitutes a legal, valid and binding obligation of such party, enforceable against it in accordance with the terms hereof.

Section 6. Effective Date and Effective Time. Subject to the terms and conditions of this Agreement, Bar Harbor and Lake Sunapee each shall make all such filings as may be required to consummate the Bank Merger in accordance with applicable laws and regulations. The Bank Merger shall become effective on the date specified on the certificate to be issued by the Superintendent of the State of Maine (the “Bank Merger Effective Date”), and at the time specified therein (the “Bank Merger Effective Time”).

Section 7. Amendments. To the extent permitted by applicable federal banking law and Maine law, this Agreement may be amended by a subsequent writing signed by the parties hereto upon the approval of the Board of Directors of each of the parties hereto.

Section 8. Termination. Consummation of the Bank Merger is conditioned upon the satisfaction of all conditions set forth in Article VI of the Merger Agreement. This Agreement shall terminate and forthwith become void automatically and without any action on the part of Bar Harbor or Lake Sunapee immediately upon the termination of the Merger Agreement in accordance with Article VII thereof and, except as set forth in Article VII of the Merger Agreement, there shall be no further liability on the part of Bar Harbor or Lake Sunapee upon such termination.

Section 9. Entire Agreement. This Agreement supersedes all prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof and contains the entire agreement among the parties with respect to the subject matter hereof. This Agreement may not be amended, supplemented or modified, and no provisions hereof may be modified or waived, except by an instrument in writing signed by each party hereto. No waiver of any provisions hereof by either party shall be deemed a waiver of any other provisions hereof by any such party, nor shall any such waiver be deemed a continuing waiver of any provision hereof by such party.

Section 10. Successors. This Agreement shall be binding on the successors of Bar Harbor or Lake Sunapee.

Section 11. Governing Law. This Agreement shall be governed by, and interpreted in accordance with, the laws of the United States of America and the laws of the State of Maine without regard for conflict of law provisions.

 

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[SIGNATURE PAGE FOLLOWS]

 

51.5

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IN WITNESS WHEREOF, Bar Harbor Bank & Trust and Lake Sunapee Bank have executed and delivered this Agreement as of the date first above written.

 

[SIGNATURE PAGE TO PLAN OF BANK MERGER]

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Exhibit C

Form of Employment Agreement with William J. McIver

See Exhibit 10.2 to this Form 8-K.

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Exhibit D-1

Form of Settlement Agreement with Stephen R. Theroux

See Exhibit 10.3 to this Form 8-K.

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Exhibit D-2

Form of Settlement Agreement with William J. McIver

See Exhibit 10.4 to this Form 8-K.

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Exhibit D-3

Form of Settlement Agreement with Laura Jacobi

See Exhibit 10.7 to this Form 8-K.

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Exhibit D-4

Form of Settlement Agreement with Sharon Whitaker

See Exhibit 10.8 to this Form 8-K.

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Exhibit D-5

Form of Settlement Agreement with Jodi Hoyt

See Exhibit 10.9 to this Form 8-K.

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Exhibit D-6

Form of Settlement Agreement with Stephen W. Ensign

See Exhibit 10.6 to this Form 8-K.

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Exhibit D-7

Form of Settlement Agreement with Bliss Dayton

See Exhibit 10.5 to this Form 8-K.

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Schedule 6.01(d)

Voting Agreements

 

1.	Leonard R. Cashman

 

2.	Steve H. Dimick

 

3.	Stephen W. Ensign

 

4.	Catherine A. Feeney

 

5.	Stephen J. Frasca

 

6.	William C. Horn

 

7.	Laura Jacobi

 

8.	Peter R. Lovely

 

9.	William J. McIver

 

10.	Jack H. Nelson

 

11.	John P. Stabile II

 

12.	Stephen R. Theroux

 

13.	Sharon Whitaker

 

14.	Joseph B. Willey