CONTRIBUTIONAND JOINT VENTURE AGREEMENT DATED ASOF OCTOBER 7, 2009 BYAND AMONG FIRSTMARINER BANCORP, MARINERFINANCE, LLC, MFRAVEN HOLDINGS, INC. AND MFHOLDCO, LLC CONTRIBUTIONAND JOINT VENTURE AGREEMENT TABLE OFCONTENTS

(3)           Once the Closing Net Assets have been finally determined in accordance with this Section 2.5(b) (the “Final Closing Net Assets”), the amount of the Preliminary Closing Net Assets shall be subtracted from the amount of the Final Closing Net Assets and the amount of such difference shall be the “Final Adjustment Amount”.  To the extent the amount of the Final Adjustment Amount is positive, JV Corp shall within five (5) Business Days pay to FMB an amount equal to the Final Adjustment Amount in cash by wire transfer of immediately available funds to an account designated by FMB.  To the extent the amount of the Final Adjustment Amount is negative, FMB shall within five (5) Business Days pay to JV Corp an amount equal to the absolute value of the Final Adjustment Amount in cash by wire transfer of immediately available funds to an account designated by JV Corp.

 

(c)           Closing Net Assets.  As used herein the term “Closing Net Assets” shall mean (a) total assets, namely the sum of cash, net loans, OREO property, net property and equipment, goodwill and other intangibles, and “other” assets of the Company and the Subsidiaries (but excluding fair market value of swap and deferred income of amended swap), as of the close of business on the Closing Date, as determined in accordance with GAAP, applied consistently with the Interim Balance Sheet, but updated for activity through the close of business on the Closing Date, less (b) total Liabilities, including the sum of (i) the Wells Fargo Facility, (ii) FMB Subdebt, and (iii) accounts payable of the Company and the Subsidiaries, accrued expenses of the Company and the Subsidiaries, insurance payables, dealer reserves and “other” Liabilities due to FMB, in each case as of the close of business on the Closing Date, as determined in accordance with GAAP, applied consistently with the Interim Balance Sheet.  A sample calculation of the Closing Net Assets of the Company as of December 31, 2008 is set forth for illustrative purposes on Schedule 2.5 attached hereto.

 

Section 2.6.          Access; Information.

 

(a)           FMB agrees that upon reasonable notice and subject to applicable laws relating to the exchange of information, it shall afford JV Corp and JV Corp’s Representatives who have a need to access such information to carry out the terms of this Agreement and consummate the Transactions, such access during normal business hours throughout the period prior to the Closing Date to the books, records (including, without limitation, Tax Returns and work papers of independent auditors), properties, personnel and to such other information of the Company and the Subsidiaries as JV Corp may reasonably request and, during such period, it shall furnish promptly to JV Corp such other information concerning the business, properties and personnel of the Company and the Subsidiaries as JV Corp may reasonably request.

 

(b)           Each Party agrees that it will not, and will cause its Representatives not to, use any information obtained pursuant to this Section 2.6 (as well as any other information obtained prior to the date hereof in connection with the entering into of this Agreement) for any purpose unrelated to the consummation of the Transactions.  Subject to the requirements of law, each Party will keep confidential, and will cause its Representatives to keep confidential, all information and documents obtained pursuant to this Section 2.6 (as well as any other information obtained prior to the date hereof in connection with the entering into of this Agreement) unless such information (i) was already known to such Party, (ii) becomes available to such Party from other sources not known by such Party to be bound by a confidentiality obligation, (iii) is disclosed with the prior written approval of the Party to which such information pertains or (iv) is or becomes readily ascertainable from published information or trade sources through no breach of this Section 2.6.  In the event that this Agreement is terminated or the Transactions shall otherwise fail to be consummated, each Party shall promptly cause all copies of documents or extracts thereof containing information and data as to another Party to be destroyed or returned to the Party which furnished the same.  No investigation by either Party of the business and affairs of the other shall affect or be deemed to modify or waive any representation, warranty, covenant or agreement in this Agreement, or the conditions to either Party’s obligation to consummate the Transactions.

Section 2.7.          Escrow Agreement.  The Escrow Funds will be held by Escrow Agent pursuant to the terms and conditions of an escrow agreement in a form reasonably acceptable to FMB and JV Corp (the “Escrow Agreement”) to secure the indemnity obligations of FMB pursuant to the provisions of Article VI hereof.  The Escrow Funds shall be held by the Escrow Agent in an interest-bearing account pursuant to the terms of the Escrow Agreement, which will provide, inter alia, (i) that the Escrow Funds shall be available to JV Corp in order to satisfy the indemnification obligations of FMB to JV Corp pursuant to the provisions of Article VI hereof, (ii) for the release to FMB of one half of the Escrow Funds (as reduced by any claims of JV Corp against such Escrow Funds) upon payment of the Final Adjustment Amount (or the determination that no such payment is required), and (iii) the balance of the Escrow Funds (as reduced by any claims of JV Corp against such Escrow Funds) on the date that is eighteen (18) months following the Closing Date.  Any fees charged by the Escrow Agent for the establishment of the escrow account to hold the Escrow Funds will be borne equally by JV Corp and FMB.

 

Section 3.1.          Representations and Warranties of FMB and the Company.  Except as Disclosed, FMB and the Company make the following representations and warranties to JV Corp, as of the date hereof and as of the Closing (except to the extent that a representation and warranty expressly speaks to a specified earlier date):

 

(a)         Ownership of Interests and Sub Interests.

 

(1)           The Interests are all of the issued and outstanding securities of the Company, and were issued in compliance with all applicable state and federal securities laws.  The Interests are owned by FMB, free and clear of all Encumbrances.  FMB has not pledged, hypothecated or otherwise granted or assigned any interest in, or otherwise restricted the transfer of, any of the Interests.  The Interests have been validly issued.  There are no outstanding or authorized subscriptions, options, warrants, calls, rights, commitments or any other agreements or arrangements of any character obligating the Company to issue any other securities or evidencing the right to subscribe for any membership interests.  There are no limits or restrictions of any kind on the voting of any of the Interests.

 

(2)           Except as Disclosed on Schedule 3.1(a)(2), the Company holds all of the issued and outstanding equity in the Subsidiaries (the “Sub Interests”), free and clear of all Encumbrances.  The Sub Interests were issued in compliance with all applicable state and federal securities laws and have not been pledged or hypothecated.  The Sub Interests have been validly issued.  There are no outstanding or authorized subscriptions, options, warrants, calls, rights, commitments or any other agreements or arrangements of any character (i) obligating either Subsidiary to issue any other securities or evidencing the right to subscribe for any membership interests, or (ii) granting or assigning any interest in the Sub Interests.  There are no limits or restrictions of any kind on the voting or transfer of any of the Sub Interests.

(b)         Organization and Qualification; Articles of Organization and Operating Agreement; Subsidiaries.

 

(1)           The Company is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Maryland, and has all requisite power and authority to own, lease and operate its properties (real, personal and mixed, and whether tangible or intangible), and to carry on its business as now being conducted.  The Company is duly qualified to transact business as a foreign limited liability company and is in good standing under the laws of Delaware, New Jersey, Pennsylvania, Tennessee and Virginia, which are all of the jurisdictions where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification necessary, except for any jurisdictions where the failure to be so qualified, individually or in the aggregate, would not have a Material Adverse Effect on the Company.  True and complete copies of the Articles of Organization and Operating Agreement of the Company, in each case as amended to date, have previously been delivered to JV Corp.  Except for its equity investments in Mortgage Subsidiary and Virginia Subsidiary and except as Disclosed in Schedule 3.1(b), the Company has no equity investments in any Person.

 

(2)           Mortgage Subsidiary is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Maryland, and has all requisite power and authority to own, lease and operate its properties (real, personal and mixed, and whether tangible or intangible), and to carry on its business as now being conducted.  Mortgage Subsidiary is duly qualified to transact business as a foreign limited liability company and is in good standing under the laws of Alabama, Delaware, Pennsylvania, Virginia, West Virginia and the District of Columbia, which are all of the jurisdictions where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification necessary, except for any jurisdictions where the failure to be so qualified, individually or in the aggregate, would not have a Material Adverse Effect on the Mortgage Subsidiary.  True and complete copies of the Articles of Organization and Operating Agreement of Mortgage Subsidiary, in each case as amended to date, have previously been delivered to JV Corp.  Except as Disclosed in Schedule 3.1(b), Mortgage Subsidiary has no equity investments in any Person.

 

(3)           Virginia Subsidiary is a limited liability company duly formed, validly existing and in good standing under the laws of the Commonwealth of Virginia, and has all requisite power and authority to own, lease and operate its properties (real, personal and mixed, and whether tangible or intangible), and to carry on its business as now being conducted.  Virginia Subsidiary is duly qualified to transact business as a foreign limited liability company and is in good standing under the laws of each of the jurisdictions where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification necessary, except for any jurisdictions where the failure to be so qualified, individually or in the aggregate, would not have a Material Adverse Effect on the Virginia Subsidiary.  True and complete copies of the Articles of Organization and Operating Agreement of Virginia Subsidiary, in each case as amended to date, have previously been delivered to JV Corp.  Except for its equity investment in Mortgage Subsidiary and except as Disclosed in Schedule 3.1(b), Virginia Subsidiary has no equity investments in any Person.

(c)           Authority. Each of FMB and the Company has the absolute and unrestricted right, power, authority and capacity to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the Transactions.  The execution and delivery of this Agreement by FMB and the Company, the consummation by FMB and the Company of the Transactions, and the performance by FMB and the Company of their respective obligations hereunder have been duly authorized by all necessary action on the part of FMB and the Company.  This Agreement has been duly executed and delivered by FMB and the Company and (assuming the due authorization, execution and delivery by JV Corp and Holdco) constitutes the legal, valid and binding obligation of FMB and the Company, enforceable against FMB and the Company in accordance with its terms, except as enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors’ rights and the exercise of judicial discretion in accordance with general principles of equity.

 

(d)           No Violation.  Except as Disclosed in Schedule 3.1(d), the execution and delivery of this Agreement by FMB and the Company, and the consummation of the Transactions by FMB and the Company, do not and will not, with or without the giving of notice or the lapse of time, or both, (i) violate any foreign, federal, state or local laws, ordinances, rules, regulations, codes or administrative directives (“Laws”) or violate any existing term or provision of any order, writ, judgment, injunction or decree of any court, governmental department, commission, board, agency or instrumentality applicable to FMB, the Company, or the Subsidiaries or any of their properties or assets; (ii) violate, result in any breach of, or constitute a default (or give rise to any right of termination, cancellation or acceleration) under any contract, agreement, indenture, mortgage or deed of trust, security agreement, license, instrument or obligation to which any of FMB, the Company, or the Subsidiaries is a party or by which any of them is bound; (iii) require any consent, approval, filing or notice of or with any Person; or (iv) result in the creation or imposition of any Encumbrance upon FMB, the Company, or the Subsidiaries or any of their properties or assets.

 

(e)           Financial Statements.  FMB has delivered to JV Corp (i) true and complete copies of the Company and the Subsidiaries’ balance sheets as of December 31, 2008, 2007 and 2006 and the related statements of income and members’ capital for the fiscal years then ended (collectively, the “Year-End Statements”), and (ii) true and complete copies of the Company and the Subsidiaries’ balance sheet (the “Interim Balance Sheet”) as of August 31, 2009 (the “Interim Date”) and the related statements of income and members’ capital for the period between December 31, 2008 and the Interim Date (together with the Interim Balance Sheet, the “Interim Statements”; and together with the Year-End Statements and the Interim Balance Sheet, the “Financial Statements”).  Except as Disclosed on Schedule 3.1(e), the Financial Statements have been prepared in conformity with GAAP, applied on a consistent basis, and present fairly the financial condition, results of operations, and changes in members’ capital of the Company and the Subsidiaries as of the dates thereof and for the periods included therein; provided, however, that the Year-End Statements lack footnotes, and the Interim Statements lack normal year-end adjustments and footnotes.  The Financial Statements are consistent with the books and records of the Company.  The Financial Statements have been reviewed, but not audited, by Stegman & Company, an independent registered public accounting firm.

(f)         No Undisclosed Liabilities.  None of the Company or the Subsidiaries is liable for or subject to any liabilities, debts or obligations, absolute, accrued, known or unknown, contingent or otherwise (collectively, “Liabilities”) except (i) Liabilities which are fully reflected or reserved against on the Interim Balance Sheet; (ii) Liabilities incurred since the Interim Date in the ordinary course of business, consistent with the past practices of the Company or the respective Subsidiary; and (iii) as Disclosed in Schedule 3.1(f) to this Agreement.

 

(g)         Tax Matters.

 

(1)           All Tax Returns required to be filed by or with respect to each of the Company and the Subsidiaries have been duly and timely filed and each such Tax Return is true, correct and complete.  All Taxes owed by each of the Company and the Subsidiaries have been or, with respect to Taxes not yet due and payable, will be timely paid.  There is adequate provision on the face of the Interim Statements for all Taxes of the Company and the Subsidiaries not yet due and payable as of the Interim Date, and such provision will remain adequate as adjusted through the Closing Date.  Neither the Company nor any Subsidiary is the beneficiary of any extension of time within which to file any Tax Return in respect of any fiscal year that has not since been filed.  No deficiencies for any Tax, assessment or governmental charge have been proposed, asserted or assessed (tentatively or definitely) against the Company or any Subsidiary.  Except as Disclosed in Schedule 3.1(g), neither the Company nor any Subsidiary is undergoing, nor with respect to any of them is there proposed, pending or, to the Knowledge of FMB, threatened any audit, action, dispute, claim or examination with respect to Taxes.  All Taxes required to be withheld and paid over by the Company or any Subsidiary in connection with payments to employees, independent contractors, creditors, members or third parties or other Persons have been so withheld and paid over, and each of the Company and the Subsidiaries has complied with all information reporting and backup withholding requirements.

 

(2)           Except as Disclosed in Schedule 3.1(g), no Tax authority in a jurisdiction where any of the Company or the Subsidiaries does not file Tax Returns has made a written claim, assertion or threat (or, to FMB’s Knowledge, a verbal claim, assertion or threat) that the Company or any of the Subsidiaries is or may be subject to Tax in such jurisdiction.

 

(3)           There are no Encumbrances on any assets of the Company or any of the Subsidiaries with respect to Taxes, except Encumbrances for Taxes not yet due and payable.

 

(4)           Schedule 3.1(g) lists all federal, state, local and foreign Tax Returns filed with respect to the Company or any of the Subsidiaries for taxable periods ended on or after December 31, 2005 and indicates those Tax Returns that have been audited.

 

(5)           Neither the Company nor any Subsidiary is the subject of any waiver of any statute of limitations in respect of Taxes or any extension of time with respect to a Tax assessment or deficiency.

(6)           FMB is not a foreign person within the meaning of Section 1445 of the Code.

 

(7)           Neither the Company nor any of the Subsidiaries is subject to any private ruling from, or agreement with, a Tax authority.

 

(8)           Neither the Company nor any of the Subsidiaries (i) is a party to any Tax allocation or sharing agreement, (ii) has Liability for the Taxes of another Person, whether by Law or regulation, as transferee or successor, by contract, or otherwise.

 

(9)           Neither the Company nor any Subsidiary is a party to any partnership for federal income Tax purposes.

 

(10)           Since the respective formation of each of them, each of the Company and the Subsidiaries has been validly treated for both federal and state income Tax purposes as a disregarded entity (as defined under Treasury Regulation Section ###-###-####-2(a)).  None of the Company or any of the Subsidiaries has elected to be treated for income Tax purposes as a corporation.

 

(h)         Books and Records.  The books of account, membership record books and other records of the Company and the Subsidiaries, all of which have been made available to JV Corp, are complete and correct in all material respects and have been maintained in accordance with sound business practices.  At the Closing, all of the books and records of the Company will be in the possession of the Company and all of the books and records of each Subsidiary will be in the possession of such Subsidiary.

 

(i)         Title to Properties; Absence of Encumbrances.  Except as Disclosed in Schedule 3.1(i), the Company and the Subsidiaries have good, valid and marketable title to, or in the case of leased properties and assets, valid leasehold interests in, their respective properties and assets (real, personal and mixed and whether tangible or intangible), free and clear of all Encumbrances.

 

(j)         Loan Portfolio.

 

(1)           Except as Disclosed in Schedule 3.1(j)(1), all evidences of indebtedness reflected as assets in the books and records of the Company and the Subsidiaries, and all evidences of the security interests of the Company and the Subsidiaries in the collateral pledged to secure such indebtedness, are the obligations of the respective obligors named therein, enforceable in all material respects in accordance with their respective terms, which terms are set forth in writing in the Note and other documents in the Servicing File; except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors’ rights and the exercise of judicial discretion in accordance with general principles of equity.

(2)         FMB has made available to JV Corp a listing, as of July 31, 2009, of all loan agreements, notes or borrowing arrangements (including leases, credit enhancements and interest-bearing assets) payable to the Company or a Subsidiary (each, a “Loan” and collectively, the “Loans”), including the aggregate outstanding principal amount, the borrower, the origination date, maturity date, interest rate, days past due, and other relevant information (the “Loan Schedule”).  The information set forth in the Loan Schedule with respect to each Loan is complete, true and correct in all material respects.  Except as Disclosed on Schedule 3.1(j)(2), with respect to each Loan listed on the Loan Schedule:

 

(i)             The payments on the Loan are current, with the first monthly payment having been made prior to the second scheduled monthly payment becoming due.

 

(ii)             The Loan is not subject to any defenses, setoffs, or counterclaims, including without limitation the defense of usury, and no such defense, setoff, or counterclaim has been asserted with respect thereto, nor will the operation of any of the terms of a Note, or the exercise of any right thereunder, render the Note unenforceable, in whole or in part.  To FMB’s Knowledge, no borrower in respect of the Loan was a debtor in any state or Federal bankruptcy or insolvency proceeding at the time the Loan was originated.

 

(iii)             In originating, servicing and collecting the Loan, the Company and the Subsidiaries complied in all material respects with the requirements of all applicable Laws, including, without limitation, Laws relating to usury, truth-in-lending, predatory and abusive lending, real estate settlement procedures, consumer credit protection, equal credit opportunity and disclosure obligations.

 

(iv)             No material omission, misrepresentation or similar occurrence has taken place, nor, to the Knowledge of FMB, has any fraud or negligence taken place, with respect to a Loan on the part of the Company or any Subsidiary in connection with the origination of the Loan.

 

(v)             The proceeds of the Loan have been fully disbursed and there is no further requirement for future advances thereunder, and any and all requirements as to completion of any on-site or off-site improvement and as to disbursements of any escrow funds therefor have been complied with.

 

(vi)             The Loan Schedule identifies which of the Company, Mortgage Subsidiary or Virginia Subsidiary is the holder of the Loan, and such Person as identified is the sole owner and holder of the Loan.  All Loans acquired by such Person from third parties (including Affiliates) were acquired in a true and legal sale pursuant to which such third party sold, transferred, conveyed and assigned to the Company, Mortgage Subsidiary or Virginia Subsidiary (as applicable) all of its right, title and interest in, to and under such Loan and retained no interest in such Loan.

(vii)             The Loan, to the extent it was made by the Company or any Subsidiary, was made (A) in accordance with the written policies, practices and procedures, including, without limitation, underwriting guidelines, of the Company or one of the Subsidiaries (as applicable) with any exceptions thereto exercised in a prudent manner based on compensating factors and having no adverse effect upon the value of the related Loan or the borrower’s ability to perform thereunder, and (B) on the standard loan documents of the Company or one of the Subsidiaries (as applicable).

 

(viii)             To FMB’s Knowledge, (A) there is no default, breach, violation or event of acceleration existing under the Note and (B) no event has occurred which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration, and neither the Company nor any Subsidiary has waived any default, breach, violation or event of acceleration.

 

(ix)             All escrow deposits and escrow payments made to the Company, Mortgage Subsidiary or Virginia Subsidiary are in the possession of, or under the control of, the Company, Mortgage Subsidiary or Virginia Subsidiary (as applicable) and there exist no deficiencies in connection therewith for which customary arrangements for repayment thereof have not been made. The collection of any escrow payments has complied in all material respects with applicable Laws. Any escrow of funds is not prohibited by applicable Laws and has been established in an amount sufficient to pay for every item that remains unpaid and has been assessed but is not yet due and payable. No escrow deposits or escrow payments or other charges or payments due the Company, Mortgage Subsidiary or Virginia Subsidiary (as applicable) have been capitalized under the Note. All interest rate adjustments, if any, have been made in strict compliance with state and federal law and the terms of the related Note. Any interest required to be paid pursuant to state, federal and local law has been properly paid and credited.

 

(x)             If the Loan is secured by real property (including all improvements, buildings, fixtures, building equipment and personal property thereon and all additions, alterations and replacements made at any time with respect to the foregoing) (the “Mortgaged Property”), the Servicing File contains either (A) an appraisal of the related Mortgaged Property signed prior to the approval of the Loan application by a qualified appraiser, duly appointed by the Company or one of the Subsidiaries (as applicable), who had no interest, direct or indirect in the Mortgaged Property or in any loan made on the security thereof, and whose compensation is not affected by the approval or disapproval of the Loan, and the appraisal and appraiser both satisfy the requirements of Fannie Mae or Freddie Mac and Title XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 as amended and the regulations promulgated thereunder, all as in effect on the date the Loan was originated, or (B) an appraisal of the related Mortgaged Property conducted by an employee of the Company or one of the Subsidiaries (as applicable) signed prior to the approval of the Loan application by such employee.

 

(xi)             The Company and the Subsidiaries did not originate the Loan without giving due regard for the borrower’s ability to repay the Loan.

 

(xii)             Each of the Company and the Subsidiaries, or where none of the Company or the Subsidiaries was the original credit grantor, to FMB’s Knowledge, the original credit grantor, had full power and authority to make the Loan.

 

(3)         Attached hereto as Schedule 3.1(j)(3) is a true, complete and correct copy of the loan losses and default rates of the loan portfolio of the Company and the Subsidiaries since January 1, 2006.

(4)           Except as disclosed in the Financial Statements of the Company and the Subsidiaries, since December 31, 2008, none of the Company or the Subsidiaries have incurred any unusual or extraordinary loan losses which have had or are likely to have a Material Adverse Effect on the Company and the Subsidiaries and in light of the Company’s and the Subsidiaries’ historical loan loss experiences and their managements’ analyses of the quality and performance of its loan portfolios.

 

(k)         Legal Proceedings.  Except as Disclosed in Schedule 3.1(k):

 

(1)           there are no pending or, to FMB’s Knowledge, threatened legal, administrative, governmental or other claims, actions, suits, proceedings or governmental investigations (i) to which the Company or any Subsidiary is a Party or (ii) relating to any of the Company or any Subsidiary’s properties or rights or otherwise affecting the Company or any Subsidiary; and

 

(2)           to FMB’s Knowledge, there is no reasonable basis for any claim, action, suit, proceeding or investigation against or relating to the Company or any Subsidiary or any of their respective properties or rights.

 

(l)           Insurance.  The Company and the Subsidiaries presently maintain, and during their existence have maintained, casualty and liability insurance policies covering all of the material assets, properties and operations of the Company and the Subsidiaries.  There are no material claims pending under any such policy, nor is there, to the Knowledge of FMB, any basis for any such claim, nor has any such claim been denied in the past three (3) years.  Schedule 3.1(l) contains a complete list and brief description of all policies of casualty, liability and other forms of insurance held by the Company and the Subsidiaries.

 

(m)           Employment Matters.  There are no administrative investigations, actions, suits, claims, labor disputes or grievances pending or, to FMB’s Knowledge, threatened or reasonably anticipated relating to any labor, safety, wage rate or discrimination matters involving any employee of the Company or the Subsidiaries.  No unfair labor practice complaint or arbitration against or affecting the Company or the Subsidiaries is pending before the National Labor Relations Board, and no labor strike, dispute, slowdown or stoppage is pending against or affecting the Company or the Subsidiaries, and there is no collective bargaining or similar agreement involving the Company or any Subsidiary as a Party.  To FMB’s Knowledge, there is no union or collective bargaining organizational activity occurring among the employees of the Company or the Subsidiaries.  Each of the Company and the Subsidiaries is in material compliance with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours with respect to its employees.  To FMB’s Knowledge, no employee of the Company or any Subsidiary has violated any employment contract, nondisclosure agreement or noncompetition agreement by which such employee is bound.  Except as Disclosed in Schedule 3.1(m), none of FMB, the Company or any Subsidiary has made any promise or representation to any employee of the Company or the Subsidiaries regarding continuation of such employee’s employment by the Company, either Subsidiary or JV Corp following the Closing.

(n)           Commitments.

 

(1)          Schedule 3.1(n) lists each contract or agreement (including any and all amendments thereto) to which the Company or either Subsidiary is a Party, or by which the Company or either Subsidiary is bound (each, a “Commitment” and collectively, the “Commitments”), of the following types:

 

(i)             Commitments for the sale of any real or personal (tangible or intangible) properties other than in the ordinary course of business, or for the grant of any option or preferential rights to purchase any such properties;

 

(ii)            Commitments for the construction, modification or repair of any building, structure or facility or for any capital expenditures or for the acquisition of fixed assets, providing for aggregate payments in excess of $100,000.00;

 

(iii)           Commitments relating to the acquisition by the Company (or either Subsidiary) of any operating business or the capital stock or equity interest of any other Person that has not been consummated or that has been consummated but contains representations, covenants, guaranties, indemnities or other obligations that remain in effect;

 

(iv)           Commitments pursuant to which any Party is required to purchase or sell a stated portion of its requirements or output to another Party or perform a stated amount of service for, on behalf of, or upon the referral of another Party;

 

(v)            Commitments under which the Company or either Subsidiary agrees to indemnify any Person;

 

(vi)           Commitments containing covenants of the Company or any Subsidiary not to compete, do business in any line of business or in any geographical area or with any Person, or to disclose certain information, or covenants of any Person not to compete with the Company or any Subsidiary in any line of business or in any geographical area or disclose information concerning the Company or any Subsidiary;

 

(vii)          Commitments in respect of any joint venture, partnership or other similar arrangement (including, without limitation, any joint development agreement);

 

(viii)         Commitments relating to any Governmental Authority;

 

(ix)           Commitments relating to warehouse lines of credit, outstanding letters of credit or performance bonds or creating any Liability as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the obligation of any Person, except as endorser or maker of checks endorsed or made in the ordinary course of business;

 

(x)            Commitments (other than loan commitments to customers and those specified in any of clauses (i) through (ix) above) which are material to the Business; and

(xi)           Commitments currently in negotiation by the Company or any Subsidiary of a type which if entered into would be required to be listed in Schedule 3.1(n) or to be Disclosed on any other Schedule hereto.

 

(2)          Complete copies of all Commitments required to be listed in Schedule 3.1(n), including all amendments thereto, have been delivered to JV Corp.  

 

To FMB’s Knowledge, there is no breach, violation or default by the Company or any Subsidiary and no event which, with notice or lapse of time or both, would constitute a breach, violation or default by the Company or any Subsidiary, or give rise to any Encumbrance or right of termination, modification, cancellation, prepayment, suspension, limitation, revocation or acceleration under any Commitment listed in Schedule 3.1(n).

 

To FMB’s Knowledge, no other Party to any of the Commitments listed in Schedule 3.1(n) is in arrears in respect of the performance or satisfaction of the terms and conditions on its part to be performed or satisfied under any of such Commitments, except for arrears which, individually and in the aggregate, have not had, and are not expected to have, a Material Adverse Effect on the Company or any Subsidiary, and no material waiver or material indulgence has been granted by any of the parties thereto.

FMB has no Knowledge that any change will occur in the relationships of the Company or any Subsidiary with any of its respective customers or suppliers, whether or not as a result of the consummation of the Transactions, which would have a Material Adverse Effect on the Company.

After the date of this Agreement, none of the Company or the Subsidiaries will incur any Liability (whether as an indemnity, compensation, reimbursement or otherwise) for terminating any Commitment in accordance with the terms thereof at the end of any stated term, except as expressly set forth in any Commitment or as agreed to by JV Corp.

FMB does not have, nor will it have immediately after the Closing Date, any financial interest in any party, other than the Company or a Subsidiary, to any of the Commitments, and, to FMB’s Knowledge, all of the Commitments were negotiated on an arm’s length basis.

(o)         Intellectual Property.

 

(1)           Schedule 3.1(o)(1) sets forth a true, correct and complete list and, where appropriate, a description of, all intellectual property licenses (including, without limitation, software licenses but excluding shrink-wrap and over-the-counter licenses), patents, trade names, trademarks, service marks, domain names, trade secrets and copyrights (“Intellectual Property”) which are owned by the Company or any Subsidiary (the “Company Intellectual Property”) or which are used in the conduct of the Business pursuant to a third party license or other agreement (“Licensed Intellectual Property”).  Except as Disclosed on Schedule 3.1(o)(1), none of the Company or the Subsidiaries is a party to any written or oral license (either as licensor or licensee), sublicense (either as sublicensor or sublicensee) with respect to the Company Intellectual Property.  Except as Disclosed in Schedule 3.1(o)(1), none of the Company or the Subsidiaries has granted to any Person any right, title, or interest in any Company Intellectual Property and the Company or a Subsidiary owns the complete, unencumbered, unrestricted and exclusive right, title, and interest in the Company Intellectual Property.

(2)           Except as Disclosed in Schedule 3.1(o)(2), to FMB’s Knowledge, (i) the use of the Company Intellectual Property and Licensed Intellectual Property by the Company and the Subsidiaries has not infringed, misappropriated or otherwise violated the rights of any Person, and does not now infringe, misappropriate or otherwise violate the rights of any Person, (ii) no claim with respect to the foregoing has been asserted by any Person, (iii) no claim has been asserted by any Person challenging or questioning the right of the Company or any Subsidiary to use any of the Intellectual Property being used by them, and (iv) except for license agreements Disclosed in Schedule 3.1(o)(1), no Person has made a claim asserting the right to use the Company Intellectual Property.

 

(3)           Except as Disclosed in Schedule 3.1(o)(3), none of FMB, the Company or any Subsidiary has granted or committed to grant any rights of any nature in the Company Intellectual Property to any Person other than authorizations granted to employees or consultants for use within the scope of their employment or consultation.

 

(4)           Except as Disclosed in Schedule 3.1(o)(4), FMB has no Knowledge of any unauthorized use, infringement or misappropriation by any Person of any Company Intellectual Property or Licensed Intellectual Property, including, but not limited to, any employee or consultant or former employee or consultant of the Company or the Subsidiaries.

 

(5)           Except as Disclosed in Schedule 3.1(o)(5), neither FMB nor any other Person, including, but not limited to, any employee or consultant or former employee or consultant of the Company or a Subsidiary, owns or has any right, title, or interest in or to any Company Intellectual Property or Licensed Intellectual Property.  The Company and the Subsidiaries have obtained invention disclosure and assignment agreements from all Persons, including, without limitation, former and current employees and consultants, who participated in any way in the development of any Intellectual Property for the Company or the Subsidiaries.

 

(6)           The execution and performance of this Agreement will not, by themselves, result in any change in the Company’s or a Subsidiary’s right, title, and interest in any Company Intellectual Property or Licensed Intellectual Property.

 

(7)           To FMB’s Knowledge, there is no Intellectual Property which is not currently owned or lawfully used by the Company or any Subsidiary which is required for the continued operation of its Business as presently conducted.

(p)          No Violation of Environmental Laws. To FMB’s Knowledge, except as Disclosed in Schedule 3.1(p), the Company and the Subsidiaries are in material compliance with all applicable federal, state or local laws, ordinances, rules, regulations, codes and administrative directives, and all licenses, permits, authorizations, approvals, consents, legal doctrines, orders, directives, executive or administrative orders, judgments, decrees, injunctions, requirements and agreements with any Governmental Authority relating to (i) the protection, preservation or restoration of the environment (which includes, without limitation, air, water vapor, surface water, groundwater, drinking water supply, structures, soil, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, or (ii) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of, Hazardous Materials (“Environmental Laws”), and no charge, complaint, action, suit, proceeding, hearing, investigation, claim demand, notice or inquiry has been received by FMB, the Company or any Subsidiary, or, to FMB’s Knowledge, is threatened, alleging any failure to comply with any such Environmental Laws.  For purposes of this paragraph, the term “Hazardous Materials” means any substance which is or could be detrimental to human health or safety or to the environment, currently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Laws, whether by type or by quantity, including any substance containing any such substance as a component.

 

(q)          Compliance with Other Laws.  Except as Disclosed in Schedule 3.1(q), the Company and the Subsidiaries are in material compliance with all federal, state and local laws, ordinances, rules, regulations, codes and administrative directives other than Environmental Laws (“Other Laws”) which apply to or materially affect the operation, conduct or ownership of their respective business and assets, and neither FMB nor the Company has received any notice of any claimed violation of any Other Laws.

 

(r)          Licenses and Permits.  The Company and the Subsidiaries have all material permits, licenses, certificates and authorizations of Governmental Authorities necessary for the conduct of its business as presently conducted.  All such permits, licenses, certificates and authorizations of Governmental Authorities are listed in Schedule 3.1(r) and are in full force and effect.  No material violations have occurred or are continuing in respect of any such permit, license, certificate and authorization of Governmental Authorities that threaten to cause the revocation, suspension or limitation of such license, franchise, permit, approval, registration or authorization.  No proceeding is pending or, to FMB’s Knowledge, threatened to revoke, suspend or limit any such permits, licenses, certificates and authorizations of Governmental Authorities.  FMB makes no representation or warranty that after the Closing (i) any of the Company or any Subsidiary’s permits, licenses, certificates and authorizations of Governmental Authorities will be of any use to JV Corp or (ii) JV Corp or the Company or the Subsidiaries will not be required to obtain licenses, permits, approvals, franchises, registrations or other authorizations different from or in addition to those held immediately prior to the Closing by FMB or the Company.  Schedule 3.1(r) also sets forth a list of business activities in which the Company or one of the Subsidiaries is engaged, and for which the Company or such Subsidiary, as applicable, has not obtained a license, permit, approval, franchise, registration or other authorization based on an exemption available to it as an Affiliate of First Mariner Bank.

 

(s)          Absence of Changes.

 

(1)           Except as Disclosed in Schedule 3.1(s), since the Interim Date, there has not been:

(i)             any change in the business, results of operations, earnings, backlog, prospects, properties, assets, Liabilities or condition, financial or otherwise, affecting the Company or a Subsidiary other than changes in the ordinary course of business, which, singly or in the aggregate, has had a Material Adverse Effect on the Company;

 

(ii)            any damage, destruction or loss of any of the Company or any Subsidiary’s assets (whether or not covered by insurance) which has had, or is expected to have, a Material Adverse Effect on the Company;

 

(iii)           except in the ordinary course of business for full and fair value received, any sale, assignment, transfer or other disposition of any tangible or intangible asset of the Company or any Subsidiary;

 

(iv)          any material change in the business or commercial practices or accounting methods customarily followed by the Company or any Subsidiary; or

 

(v)           any change in method of accounting (including Tax accounting), the making, changing or revoking of any election with respect to Taxes, or the entering into any agreement or arrangement with respect to Taxes affecting the Company or any Subsidiary.

 

(2)          Since the Interim Date, except as Disclosed in Schedule 3.1(s), the Company has not (and each Subsidiary has not):

 

(i)             purchased, issued, redeemed, sold, or otherwise acquired or disposed of any membership interests in the Company (or any Subsidiary), or granted any options, warrants or other rights to purchase or convert any obligation into membership interests in the Company (or any Subsidiary);

 

(ii)             incurred, assumed or guaranteed or entered into any commitment in respect of any indebtedness for borrowed money or materially changed any of its indebtedness except in the ordinary course of business;

 

(iii)           made any material increase in the compensation payable or to become payable by it to its employees and other service providers or adopted any increase in any bonus, insurance, pension or other Employee Benefit Plan, payment or arrangement made to, for or with its employees and other service providers;

 

(iv)          made any distributions to FMB;

 

(v)           entered into any material commitment, contract, agreement, license, lease or transaction other than in the ordinary course of business; or

 

(vi)          entered into any agreements, whether in writing or otherwise, to take any action described in this Section 3.1(s).

 

(14)           copies of all consents, approvals, licenses and other authorizations required to be obtained by JV Corp by this Agreement.

 

 

Section 5.1.          Tax Matters.

 

(a)           Transfer Taxes.  FMB shall file or cause to be filed, on a timely basis, any Tax Returns required to be filed in connection with any sales, use, transfer, recording, stamp, documentary, real estate transfer, registration and other similar Taxes (“Transfer Taxes”) incurred on the contribution of the Interests by FMB to JV Corp pursuant to Section 2.1(a), and FMB and JV Corp shall each pay 50% of any such Transfer Taxes.  For the avoidance of doubt, any Transfer Taxes arising out of the sale and assignment of the Transferred Mortgage Loans pursuant to Section 4.1(m) shall not be considered incurred on the contribution of the Interests by FMB to JV Corp and shall be paid solely by FMB.

 

(b)           Preparation and Filing of Pre-Closing Tax Returns.  JV Corp shall prepare or cause to be prepared and file or cause to be filed all Tax Returns of the Company and the Subsidiaries for all periods ending on or prior to the Closing Date which are filed after the Closing Date.  Except as otherwise required by Laws, JV Corp shall prepare or cause to be prepared such Tax Returns in a manner consistent with the past practices of the Company and the Subsidiaries.  JV Corp shall deliver a copy of each such Tax Return to FMB at least fifteen (15) days prior to its filing for FMB’s review and approval, such approval not to be unreasonably withheld, conditioned or delayed.  FMB shall pay to JV Corp the amount of the Taxes with respect to such Tax Returns within five (5) days of demand by JV Corp for such payment.  Notwithstanding the preceding two sentences, if FMB does not approve of any such Tax Return and does not pay to JV Corp the amount of the Taxes with respect thereto, JV Corp shall be entitled to file the Tax Return without FMB’s approval, but the amount of Taxes for which JV Corp is entitled to payment or indemnification under this Agreement shall be limited to the amount of Taxes that is ultimately mutually agreed to by FMB and JV Corp or, if they are unable to reach agreement, the amount ultimately determined by an accounting firm that is mutually selected by the parties, notwithstanding the fact that the Tax Return filed by JV Corp reflects a different amount.

 

(c)           Preparation and Filing of Straddle Tax Returns.  JV Corp shall prepare or cause to be prepared and file or cause to be filed all Tax Returns of the Company and the Subsidiaries for all periods beginning on or prior to the Closing Date that end after the Closing Date.  Except as otherwise required by Laws, JV Corp shall prepare or cause to be prepared such Tax Returns in a manner consistent with the past practices of the Company and the Subsidiaries.  JV Corp shall deliver a copy of each such Tax Return to FMB at least fifteen (15) days prior to its filing for FMB’s review and approval, such approval not to be unreasonably withheld, conditioned or delayed.  FMB shall pay to JV Corp the amount of the Taxes with respect to such Tax Returns equal to the portion of such Taxes which relates to the portion of the taxable period ending on the Closing Date (as determined pursuant to Section 5.1(e)) within five (5) days of demand by JV Corp for such payment.  Notwithstanding the preceding two sentences, if FMB does not approve of any such Tax Return and does not pay the amount of the Taxes pursuant to the preceding sentence, JV Corp shall be entitled to file the Tax Return without FMB’s approval, but the amount of Taxes for which JV Corp is entitled to payment or indemnification under this Agreement shall be limited to the amount of Taxes that is ultimately mutually agreed to by FMB and JV Corp or, if they are unable to reach agreement, the amount ultimately determined by an accounting firm that is mutually selected by the parties, notwithstanding the fact that the Tax Return filed by JV Corp reflects a different amount.

(d)           Income Tax Responsibility.  FMB will include or have included in its income Tax Returns for all taxable periods or portions thereof ending on or before the Closing Date the income of the Company and the Subsidiaries and will pay or cause to be paid all income Taxes attributable to such income.  For the avoidance of doubt, any income arising out of the sale and assignment of the Transferred Mortgage Loans pursuant to Section 4.1(m) shall be attributable to a taxable period or portion thereof ending on or before the Closing Date.

 

(e)           Allocation.

 

(1)           If the Company and the Subsidiaries are permitted but not required under applicable Tax Laws to treat the Closing Date as the last day of a taxable period, then the Parties shall treat that day as the last day of a taxable period.

 

(2)           In the case of any Taxes that are imposed on a periodic basis and are payable for a taxable period that includes, but does not end on, the Closing Date, the portion of such Tax which relates to the portion of such taxable period ending on the Closing Date shall (i) in the case of any Taxes, other than Taxes based upon or related to income, receipts or expenses (e.g., payroll Taxes), be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the number of days in the entire taxable period, and (ii) in the ease of any Tax based upon or related to income, receipts or expenses (e.g., payroll Taxes), be deemed equal to the amount which would be payable if the relevant taxable period ended as of the end of the Closing Date.

 

(f)           Cooperation.  JV Corp and FMB shall, and shall each cause its Affiliates to, provide to the other such cooperation and information, as and to the extent reasonably requested, in connection with the filing of any Tax Return, determining Liability for Taxes or in conducting any audit, litigation or other proceeding with respect to Taxes.  Such cooperation and information shall include providing copies of all relevant portions of relevant Tax Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings and other determinations by Tax authorities, and relevant records concerning the ownership and Tax basis of property, which any such party may possess.

 

(g)           FIRPTA Certificate.  FMB shall deliver to JV Corp on the Closing Date a duly completed and executed certification of non-foreign status pursuant to Section 1.1445-2(b)(2) of the Treasury regulations.

 

(h)           Tax Status.  None of FMB, the Company, the Subsidiaries or their Affiliates will take or fail to take, or cause to be taken or fail to cause to be taken, any action that could result in any of the Company or the Subsidiaries being treated as other than disregarded entities for income Tax purposes.

(i)           Contribution Transaction; Election.  The Parties shall (A) report the FMB Contribution and the Holdco Contribution as a transfer effected pursuant to Section 351 of the Code and shall not take any position inconsistent therewith in any Tax Return or administrative or judicial proceeding relating to Taxes, and (B) make the election set forth in Section 362(e)(2)(C) of the Code (the “Section 362(e)(2)(C) Election”) in connection with such contributions to reduce the Tax basis of the JV Corp Common Stock acquired by FMB (and not the Tax basis of the assets of the Company and the Subsidiaries) in the time and in the form and manner of certification set forth in the “Procedures” section of Notice 2005-70, 2005-2 C.B. 694 (or any superseding guidance).

 

(j)           351 Status.  None of the Parties shall, nor shall they permit any of their Affiliates to, take or cause to be taken any action that reasonably could be expected to prevent the FMB Contribution and Holdco Contribution from qualifying as exchanges under Section 351(a) of the Code.  In the context of a judicial or administrative proceeding relating to Taxes, the Parties agree that so long as FMB and its Affiliates provide any Person who challenges the position that the FMB Contribution and the Holdco Contribution qualify as exchanges under Section 351(a) of the Code with a copy of the Tax Opinion and a statement that the foregoing contributions satisfy the statutory provisions of Section 351(a) and that FMB relied on the Tax Opinion in taking such position, then FMB and its Affiliates shall not (i) be considered to have breached the first sentence of this covenant in such judicial or administrative proceeding or (ii) have any further obligation to defend such challenge in the event it is maintained.

 

Section 5.2.          Approvals.  The Parties shall use their reasonable best efforts, and cooperate with each other, to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions, amendments, filings and refilings, and to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and Governmental Authorities which are necessary or advisable to consummate the Transactions.  Each of JV Corp, FMB and the Company shall have the right to review in advance, and to the extent practicable each will consult the other on, in each case subject to applicable laws relating to the exchange of information, all the information relating to JV Corp, FMB or the Company, as the case may be, and any of their respective Affiliates, which appears in any filing made with, or written materials submitted to, any Governmental Authority, in connection with the Transactions.  In exercising the foregoing right, each of the Parties hereto shall act reasonably and as promptly as practicable.  The Parties hereto agree that they will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all Governmental Authorities necessary or advisable to consummate the Transactions and each party will keep the other apprised of the status of matters relating to completion of the Transactions.  Each of JV Corp, FMB and the Company shall, upon request, furnish each other with all information concerning themselves, their Affiliates, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with any other statement, filing, notice or application made by or on behalf of JV Corp, FMB or the Company, or any of their respective Affiliates to any Governmental Authority in connection with the Transactions.  Each of JV Corp, FMB and the Company shall promptly furnish each other with copies of written communications received by it from any Governmental Authority in respect of the Transactions.

Section 5.3.          Employee Benefits.

 

(a)           General.  JV Corp agrees that, immediately after the Closing, JV Corp shall cause the Company and each of its Subsidiaries to continue the employment of all individuals employed by the Company and its Subsidiaries on the Closing Date (which employees, as of the date of this Agreement, are listed, categorized by position and listed with years of service and base salary or hourly wage, as applicable on Schedule 5.3(a) (the “Transferred Employees”).  Except as provided in Section 5.3(c) and Section 5.3(e), on and after Closing (1) Company and the Subsidiaries will cease to maintain and/or be a participating employer in, and will have no Liability for, the Employee Benefit Plans, including without limitation, the Severance Agreements, and (2) Transferred Employees will be entitled to such employee benefits as JV Corp in its discretion decides that Company will offer.

 

(b)           401(k) Plan Benefits.  No contributions will be made by or on behalf of Transferred Employees to the First Mariner Bancorp 401(k) Plan on account of any compensation earned after Closing.  JV Corp shall cause the Company, or a Subsidiary of the Company, to establish and maintain, or cause the Company and its Subsidiaries to become participating employers in, a defined contribution plan that is intended to be qualified under Section 401(a) of the Code covering the Transferred Employees and is funded through a related trust that is intended to be exempt under Section 501(a) of the Code (the “Company Savings Plan”).  The Company Savings Plan shall recognize service under the First Mariner Bancorp 401(k) Plan as service under the Company Savings Plan for eligibility and vesting purposes.  JV Corp shall cause the Company Savings Plan to accept the rollover of Transferred Employees’ accounts, including any outstanding loan balances in-kind, under the First Mariner Bancorp 401(k) Plan.  FMB shall cause First Mariner Bancorp 401(k) Plan to permit the rollover distribution of Transferred Employees’ accounts, including any outstanding loan balances in-kind, under the First Mariner Bancorp 401(k) Plan to the Company Savings Plan.  Nothing in the preceding sentence will prevent the occurrence of a deemed distribution under Code Section 72(p), or an event of default under applicable loan documentation, for any loan under the First Mariner Bancorp 401(k) Plan if a Transferred Employee does not timely apply for the loan’s rollover distribution to the Company Savings Plan.  The benefits to be provided by the Company Savings Plan will be determined by JV Corp in its discretion.

 

(c)           Health Insurance.  If allowed by CareFirst Blue Cross Blue Shield and to the extent the Company and its Subsidiaries do not sponsor their own health insurance policies as of the Closing, Transferred Employees will remain covered under the health insurance policies (including vision, dental and prescription drug) of FMB that they were covered by before Closing, until the sooner of such time as Company obtains its own health insurance policies or 180 days following Closing.  Company agrees to make reasonable best efforts to obtain its own health insurance policies as soon as practicable after Closing.  Company intends to obtain policies that provide benefits that are as similar as possible to the benefits provided before Closing, but cannot guaranty that it will do so.  Company will promptly reimburse FMB for all premiums paid under FMB’s health insurance policies with respect to Transferred Employees, for all periods from and after Closing (including a prorated reimbursement for the premiums paid for the month of Closing), in accordance with the terms of the Transition Services Agreement.

(d)           COBRA Matters.  FMB retains sole responsibility for providing COBRA continuation coverage under ERISA Sections 601-608 with respect to any Person who is a qualified beneficiary as, or on account of, an employee of Company or the Subsidiaries and whose COBRA qualifying event occurs on or before the Closing Date.

 

(e)           Other Insurance.  To the extent not sponsored exclusively by the Company and its Subsidiaries as of the Closing, in addition to the health insurance plan addressed in Section 5.3(c), Transferred Employees of Company and the Subsidiaries will remain covered under any life and disability insurance policies of FMB that covered such employees on the day before Closing (and under no other employee benefit plans of FMB), until the soonest of such time as Company obtains its own applicable plan or policy, FMB determines to no longer offer such a plan or policy, or 180 days following Closing.  Company agrees to make reasonable best efforts to adopt its own employee benefit plans as soon as practicable after Closing.  Company intends to adopt other employee benefit plans that provide benefits that are as similar as possible to the benefits provided before Closing, but cannot guaranty that it will do so.  Company will promptly reimburse FMB for all expenses incurred under the life and disability policies with respect to Transferred Employees of Company and its Subsidiaries, for all periods from and after Closing.

 

(f)           Communications with Employees.  JV Corp and FMB shall cooperate with one another in making any required communications with the Transferred Employees regarding any Employee Benefit Plans or any arrangements to be established or maintained by the Company or any of its Subsidiaries as of, or after, the Closing.  Nothing in the preceding sentence requires FMB or the Company to obtain the approval of JV Corp before making any communications regarding any Employee Benefit Plans, to the extent such communications would be made without regard to the Transactions.  JV Corp and FMB shall use their reasonable best efforts to take such other actions as may be required in order to effectuate the purposes of this Section 5.3, and agree to exchange data, records, and information as necessary to implement the mutual undertakings set forth herein.

 

Section 5.4.          Conduct of the Business of the Company.  The Company shall, and the Company shall cause each of the Subsidiaries to, (a) conduct the Business in the usual, regular and ordinary course consistent with past practice and prudent business principles, (b) continue to use the accounting methods that customarily have been followed by the Company and the Subsidiaries, and (c) use its best efforts to maintain and preserve intact for itself and for JV Corp its business organization, employees, goodwill with customers and advantageous business relationships and retain the services of its officers and key employees.

 

Section 5.5.          Publicity.  Except as otherwise required by any Other Laws, neither JV Corp, the Company nor FMB shall, or shall permit any of their respective Affiliates to, issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement (including any employee or customer communication) concerning, the Transactions without the consent of the other Party, which consent shall not be unreasonably withheld.  In the event such press release, public announcement, or public statement (including any employee or customer communication) is required by any Other Law, the announcing Party will give the other Party advance notice of such and provide a copy of the proposed release, announcement or statement to the other Party.  Without limiting the scope of the foregoing, JV Corp acknowledges that Other Laws will require FMB to file a Current Report on Form 8-K with the Securities and Exchange Commission within four (4) Business Days of each of (i) the Parties’ execution of this Agreement and (ii) the consummation of the Transactions to disclose the occurrence of such events and certain other information required by Form 8-K, and that FMB’s failure to timely file such Current Reports could result in administrative sanctions against or other adverse consequences to FMB.

 

(a)           For a period of five (5) years after the Closing Date, FMB shall not do any of the following, and shall cause its Affiliates (whether existing on the date hereof or at any time during such period) not to do any of the following, directly or indirectly, without the prior written consent of JV Corp:

 

(1)           engage or participate in any business anywhere in the world that competes with the businesses conducted or intended to be conducted by the Company or the Subsidiaries prior to the Closing Date (a “Competing Business”); provided however, that the foregoing shall not be deemed to restrict (i) FMB or any of its Affiliates from engaging or participating in any activity in which FMB or one of its Affiliates, other than First Mariner Bank, the Company and the Subsidiaries, is engaged as of the date hereof, or (ii) First Mariner Bank from directly engaging or participating in any activity in which it may lawfully engage;

 

(2)           become interested in (as owner, stockholder, partner, co-venturer, director, officer, employee, associate, agent, lender, creditor, adviser or consultant) or otherwise be connected in any manner with any Person engaged in a Competing Business; provided, however, that notwithstanding the foregoing, FMB may hold up to five percent (5%) of the outstanding publicly traded securities of any company;

 

(3)           influence or attempt to influence any licensor, licensee, contractor, agent, strategic partner, distributor, or other Person to terminate or modify any agreement, arrangement or course of dealing with any of the Company, the Subsidiaries, JV Corp, or any of their respective Affiliates; or

 

(4)           employ, engage as an independent contractor, or solicit for employment or for engagement as an independent contractor any Person who was employed by, or any Person who was engaged as an independent contractor by, any of the Company, the Subsidiaries, or JV Corp within the twenty-four (24) month period immediately preceding any employment, engagement, or solicitation by FMB or any Affiliate of FMB; urge any such Person to reduce his or her employment with or provision of services to any of the Company, the Subsidiaries, or JV Corp; or arrange to have any other Person employ or engage such Person; provided, however, that a general solicitation through a public medium not specifically directed toward any Person shall not be considered a breach of paragraphs (a)(3) or (a)(4) of this Section 5.6; and provided, further, that nothing contained in this Section 5.6(a) shall be deemed to impair the rights of FMB and its Affiliates with respect to the leasing of the Company’s mortgage originator employees pursuant to that certain Agreement by and between First Mariner Bank and the Company dated as of March 1, 2009 or the Mortgage Services Agreement, as each may be modified or replaced from time to time.

(b)           For a period of five (5) years after the Closing Date, JV Corp, the Company and the Subsidiaries shall not do any of the following, and shall cause their respective Affiliates not to do any of the following, directly or indirectly, without the prior written consent of FMB:

 

(1)           influence or attempt to influence any licensor, licensee, contractor, agent, strategic partner, distributor, or other Person to terminate or modify any agreement, arrangement or course of dealing with FMB or any Person who is an Affiliate of FMB after the Closing; or

 

(2)           employ, engage as an independent contractor, or solicit for employment or for engagement as an independent contractor any Person who was employed by, or any Person who was engaged as an independent contractor by, FMB or any Person who is an Affiliate of FMB after the Closing; urge any such Person to reduce his or her employment with or provision of services to FMB or any such Affiliate; or arrange to have any other Person employ or engage such Person; provided, however, that a general solicitation through a public medium not specifically directed toward any Person shall not be considered a breach of paragraphs (b)(1) or (b)(2) of this Section 5.6; and provided, further, that nothing contained in this Section 5.6(b) shall be deemed to prohibit the Company or any of the Subsidiaries from continuing the employment or engagement of any Person who is an employee or consultant of the Company or the Subsidiaries as of Closing but who is leased to FMB and/or one of its Affiliates pursuant to that certain Agreement by and between First Mariner Bank and the Company dated as of March 1, 2009 or the Mortgage Services Agreement, as each may be modified or replaced from time to time, upon the termination of the lease of such Person and/or the termination of either such agreement.

 

(c)           FMB, on the one hand, and JV Corp, Company and the Subsidiaries, on the other hand, acknowledge that the restrictions on their activities imposed by this Section 5.6 constitute a material inducement to the consummation of the Transactions, and further acknowledge, stipulate and agree that a breach by them of any of the obligations and agreements set forth in this Section 5.6 will result in irreparable harm and continuing damage to the other Party for which there will be no adequate remedy at law and further agrees that in the event of any breach of said obligations and agreements, the non-breaching Party and its successors and assigns will be entitled to injunctive relief and to such other relief as is proper under the circumstances, including attorney’s fees and costs.

 

(d)           Whenever possible, each provision and term of this Section 5.6 shall be interpreted in a manner to be effective and valid but if any provision or term of this Section 5.6 is held to be prohibited or invalid, then such provision or term will be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provision or term or the remaining provisions or terms of this Section 5.6.  If any of the covenants set forth in this Section 5.6 are held to be unreasonable, arbitrary or against public policy, such covenants will be considered divisible with respect to scope, time and geographic area, and in such lesser scope, time and geographic area, will be effective, binding and enforceable against the Parties and their Affiliates.

Section 5.7.          Further Assurances.  From time to time after the Closing, without additional consideration, each Party hereto will (or, if appropriate, cause its Affiliates to) execute and deliver such further instruments and take such other action as may be necessary or reasonably requested by any other Party or otherwise required to make effective the Transactions and to provide the such other Party with the intended benefits of this Agreement.

 

Section 5.8.          Post-Closing Access to Information.  For a period of five (5) years following the Closing Date, JV Corp and the Company shall permit FMB reasonable access, at reasonable times and in a manner so as not to unreasonably interfere with the normal operation of the Company’s businesses, to any books and records of the Company and the Subsidiaries, relating to the pre-Closing business of the Company and the Subsidiaries, as may reasonably be required by FMB in connection with any regulatory, Tax, or similar filings that may be required to be made by FMB after Closing, or for FMB to respond to any proper request for information from any Governmental Authority in connection with an examination, audit, investigation, or similar proceeding, or in connection with any third party action, suit, or claim against FMB.

 

 

Section 6.1.          Survival of Representations, Warranties and Covenants.  Notwithstanding any investigation by any Party or any of its Representatives, the representations and warranties of the Company, FMB and JV Corp shall survive the Closing for a period of eighteen (18) months thereafter (the “General Survival Period”); provided however, that the representations and warranties set forth in (i) Section 3.1(a), Section 3.1(b), Section 3.1(c), Section 3.1(g), Section 3.1(p), Section 3.1(q), Section 3.1(r), Section 3.1(t), Section 3.2(a), Section 3.2(b) and Section 3.2(d) shall survive until the date that is thirty (30) days following the date that the applicable statute of limitations (including extensions) expires (each such survival period, including the General Survival Period, being a “Survival Period”).  Any claim by a Party based upon any such representation or warranty shall be of no further force and effect after the expiration of the applicable Survival Period, except to the extent that a Party has asserted a claim in accordance with this Article VI for breach of any such representation or warranty prior to the expiration of such Survival Period, in which event any representation or warranty to which such claim relates shall survive with respect to such claim until such claim is resolved as provided in this Article VI.  All covenants and agreements of the Parties shall survive the Closing until performed in accordance with their terms (each such survival period, being a “Covenant Period”).

Section 6.2.          Indemnification by FMB.  Subject to Section 6.5 hereof, during the applicable Survival Period and the applicable Covenant Period, FMB shall (on behalf of itself and on behalf of the Company and the Subsidiaries prior to the Closing) indemnify and hold JV Corp and its Affiliates and their respective directors, officers, managers, members, partners, stockholders, employees, agents and representatives (collectively, the “JV Corp Indemnitees”) harmless from and against (a) all claims, costs, expenses (including reasonable attorney’s fees), Liabilities, obligations, losses (including, without limitation, any losses arising by reason of a loss or reduction of Tax basis), damages, actions, suits and proceedings of any nature (“Losses”) that any of JV Corp Indemnitees may sustain or which are imposed on, incurred by, or accrued against them by reason of or which result from any breach of, or misrepresentation in, any warranty, representation, covenant, agreement or certification of FMB or the Company; (b) any Losses with respect to Taxes imposed on or relating to the Company or any Subsidiary or their assets, properties or business with respect to any taxable period or portion thereof ending on or before the Closing Date; (c) any Losses with respect to Taxes imposed on or relating to another Person for which the Company or any Subsidiary has Liability under Law or regulation by reason of the relationship of the Company or any Subsidiary with such other Person on or before the Closing Date; (d) any Losses with respect to Taxes imposed on or relating to the Company or any Subsidiary as transferee, successor, by contract or otherwise to the extent the Taxes or events giving rise to the Taxes are with respect to any taxable period or portion thereof ending on or before the Closing Date; and (e) any Losses under any Employee Benefit Plans, including without limitation, the Severance Agreements, but excluding Losses relating to contributions, benefit payments or expenses of administration of health, life and disability insurance described in Section 5.3(c) and Section 5.3(e) for periods following the Closing for any individual who is or becomes an employee of the Company and/or the Subsidiaries on or after the Closing Date. 

 

Section 6.3.          Indemnification by JV Corp.  Subject to Section 6.5 hereof, during the applicable Survival Period and the applicable Covenant Period, JV Corp shall indemnify and hold FMB and its Affiliates and their respective directors, officers, managers, members, partners, stockholders, employees, agents and representatives (collectively, the “FMB Indemnitees”) harmless from and against all Losses that any of FMB Indemnitees may sustain or which are imposed on, incurred by, or accrued against them by reason of or which result from any breach of, or misrepresentation in, any warranty, representation, covenant, agreement or certification of JV Corp.

 

Section 6.4.          Assertion of Indemnification Claim.  Subject to Section 6.5, any of the FMB Indemnitees or any of the JV Corp Indemnitees under Section 6.2 or Section 6.3, as the case may be (an “Indemnified Party”), shall give timely notice (a “Claim Notice”) to the Party from whom such indemnification is sought (each, an “Indemnifying Party”) after the Indemnified Party has actual knowledge of any claim as to which indemnification may be sought (a “Claim”) and the amount thereof, if known, and supply any other information in the possession of the Indemnified Party regarding such Claim, and will permit the Indemnifying Party (at its expense) to assume the defense of any third party Claim and any litigation resulting therefrom, including, without limitation, any audit by any Governmental Authority with respect to Taxes, provided that counsel for the Indemnifying Party who shall conduct the defense of such Claim or litigation shall be reasonably satisfactory to the Indemnified Party, and provided further that the failure by the Indemnified Party to give notice as provided herein will not relieve the Indemnifying Party of its indemnification obligations hereunder except to the extent that the Indemnifying Party is materially damaged as a result of the failure to give notice.  The Indemnifying Party may settle or compromise any third party Claim or litigation only with the consent of the Indemnified Party which consent may not be unreasonably withheld, delayed or conditioned.

Notwithstanding the fact that the Indemnifying Party has assumed the defense of any third party Claim, the Indemnified Party shall have the right at all times to participate in the defense, settlement, negotiation or litigation relating to such Claim at its own expense.  In the event that the Indemnifying Party does not assume the defense of any matter which is the proper subject of indemnification as above provided, then the Indemnified Party shall have the right to defend any such third party Claim or demand, and will be entitled to settle any such Claim or demand in its discretion, all at the expense of the Indemnifying Party. In any event, the Indemnified Party will cooperate in the defense of any such action at the expense of the Indemnifying Party and the records of each Party shall be available to the other with respect to such defense.

If the Indemnifying Party fails to give a notice disputing the validity or amount of a Claim (a “Claim Response”) within twenty Business Days following receipt of a Claim Notice, then the Claim shall be deemed to be accepted and the Indemnified Party may pursue whatever legal remedies may be available to recover the Losses as to which the Indemnified Party is seeking indemnification.

The Parties acknowledge and agree that JV Corp shall have the right to set off any Loss with respect to which any JV Corp Indemnitee has a right to indemnification hereunder against any obligations of JV Corp under the Modified Note or, if pledged pursuant to the Stockholders Agreement, to exercise its rights with respect to the JV Corp Common Stock to satisfy any Loss with respect to which any JV Corp Indemnitee has a right to indemnification hereunder, and such rights shall in no way limit any other right or remedy available to JV Corp under this Agreement, at law or in equity, provided however, that (i) JV Corp shall not set off against the Modified Note until the Escrow Funds held by the Escrow Agent (calculated after deduction for amounts claimed with respect to then pending or unresolved matters) have been exhausted or disbursed to FMB in accordance with this Agreement and the Escrow Agreement, and (ii) JV Corp shall not exercise any rights with respect to the JV Corp Common Stock (if pledged pursuant to the Stockholders Agreement) until its set off rights against the Modified Note have been exhausted.  Other than the right to set off against the balance due under the Modified Note, no JV Corp Indemnitee shall have any recourse against the holder of the Modified Note simply by virtue of the fact that such holder holds the Modified Note.

Section 6.5.          Limitation of Liability.  Notwithstanding anything to the contrary contained in this Article VI:

 

(a)           Subject to paragraph (d) of this Section 6.5, no Indemnifying Party shall be required to indemnify an Indemnified Party with respect to any Claim unless and until the aggregate amount of all Claims for which an Indemnified Party would otherwise be entitled to seek indemnification hereunder exceeds 0.40% of the Initial Exchange Amount (the “Basket”); provided, however, that, subject to paragraphs (b) and (c) of this Section, once such threshold is exceeded, the Indemnifying Party shall be liable for the entire amount of such Claims.

 

(b)           Subject to paragraph (d) of this Section 6.5, FMB shall not be liable for indemnification hereunder for any Claims made or filed against or incurred by JV Corp Indemnitees that, when added to all such Claims for which indemnification has already been made by FMB, exceed fifty percent (50%) of the Initial Exchange Amount in the aggregate (the “Cap”).

(c)           Subject to paragraph (d) of this Section 6.5, JV Corp shall not be liable for indemnification hereunder for any Claims made or filed against or incurred by FMB Indemnitees that, when added to all such Claims for which indemnification has already been made by JV Corp, exceed fifty percent (50%) of the Exchange Amount in the aggregate.

 

(d)           Notwithstanding the foregoing, any Losses arising out of, resulting from, or in connection with (i) any misrepresentation or breach of any representation or warranty of Section 3.1(a), Section 3.1(b), Section 3.1(c), Section 3.1(g), Section 3.1(p), Section 3.1(q), Section 3.1(r), Section 3.1(t), Section 3.2(a), Section 3.2(b) or Section 3.2(d), or (ii) any breach of a covenant or agreement, including any covenant or agreement relating to Taxes or the indemnification provided for in Section 6.2(b), Section 6.2(c), Section 6.2(d), or Section 6.2(e) shall not be subject to the Basket or Cap.

 

Section 6.6.          Exclusive Remedy.  Notwithstanding anything to the contrary contained in this Agreement and except for claims involving fraud:

 

(a)           JV Corp’s rights to indemnification under Article VI shall constitute JV Corp’s exclusive remedy for any breach of, or misrepresentation in, any warranty or representation of FMB or the Company; and

 

(b)           FMB’s rights to indemnification under Article VI shall constitute FMB’s exclusive remedy for any breach of, or misrepresentation in, any warranty or representation of JV Corp.

 

Section 6.7.          Liability Arising Post-Closing.  JV Corp and the Company, at all times on and after the Closing Date, shall, jointly and severally, defend, indemnify and hold harmless FMB, its Affiliates and their respective directors, officers, employees, agents and representatives from and against all demands, suits, claims, actions or causes of action, assessments, losses, damages, Liabilities, costs, judgments and expenses, including, without limitation, interest, penalties, reasonable attorneys’ fees, disbursements and expenses, and reasonable consultants’ fees, disbursements and expenses, imposed on, asserted against or incurred by FMB based upon, arising out of, or resulting from, directly or indirectly, the ownership of the Interests and the operation of the Company and the Subsidiaries after the Closing Date (except to the extent based upon, arising out of, or resulting from FMB’s ownership or sale of JV Corp Common Stock); provided, however, that for the avoidance of doubt, this Section 6.7 shall not apply to, and shall not require JV Corp or the Company to indemnify or hold harmless FMB, its Affiliates or their respective directors, officers, employees, agents and representatives for, any Losses addressed in clauses (c) or (d) of Section 6.2 or addressed in clause (a) of Section 6.2 by reason of a breach by FMB of its covenants set forth in Section 5.1(i).  The obligations of JV Corp and the Company imposed pursuant to this Section 6.7 are independent of, and are not subject to any limitation contained in, Section 6.1, Section 6.3, Section 6.5 or Section 6.6 of this Agreement.

 

Section 7.1.          Termination.  Notwithstanding any other provision of this Agreement, this Agreement may be terminated and the Transactions contemplated hereby abandoned at any time prior to the Closing Date:

 

(a)           By the mutual consent of FMB and JV Corp;

 

(b)           By JV Corp or FMB (provided that the Party seeking termination is not then in material breach of any representation, warranty, covenant or other agreement contained herein), in the event of either:  (i) a breach by the other Party of any representation or warranty contained herein, which breach cannot be or has not been cured within 30 days after the giving of written notice to the breaching Party of such breach; or (ii) a breach by the other Party of any of the covenants or agreements contained herein, which breach cannot be or has not been cured within 30 days after the giving of written notice to the breaching Party of such breach, provided that such breach (whether under (i) or (ii)) would be reasonably likely, individually or in the aggregate with other breaches, to result in a Material Adverse Effect on a Party;

 

(c)           At any time after December 15, 2009 by either JV Corp or FMB in writing if the Closing has not occurred by the close of business on such date, and the Party giving the notice is not in breach of any of its representations, warranties, covenants or undertakings herein.

 

Section 7.2.          Effect of Termination.  Article I and Sections 2.6(b), 5.5, 7.2, 7.3, 8.1 through 8.5, inclusive, 8.7 and 8.9 shall survive the termination of this Agreement.

 

Section 7.3.          Payment of Expenses Upon Termination.  Notwithstanding Section 8.1 of this Agreement, but subject to Article VI of this Agreement, should the Transactions not be consummated because of a Party’s breach of this Agreement, in addition to such damages as may be recoverable in law or equity, the other Party shall be entitled to recover from the breaching party upon demand, itemization, and documentation, its reasonable outside legal, accounting, consulting, and other out-of-pocket expenses.

 

 

Section 8.1.          Fees and Expenses.  Whether or not the Transactions are consummated, but subject to Section 7.3, each of the Parties shall pay its own fees and expenses incident to the negotiation, preparation and execution of this Agreement, including attorneys’ and accountants’ fees.  FMB will pay all amounts payable to any finder, investment banker or broker retained by FMB or the Company in connection with this Agreement and the Transactions, and JV Corp will pay all amounts payable to any finder, investment banker or broker retained by JV Corp in connection with this Agreement and the Transactions.  The Company and FMB will cause the Company not to incur any out-of-pocket expenses in connection with this Agreement, except that the Company may incur expenses in connection with obtaining any licenses or permits from any Governmental Authority, including, without limitation, any state lending licenses, that (a) are required to consummate the Transactions and (b) the Company is required to have as of the Closing but does not and is not required by any Other Law to hold as of the date of this Agreement because of the Company’s affiliation with FMB and/or FMB’s bank subsidiary.

Section 8.2.          Notices.  All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) deposited in the United States Mail by registered or certified mail, return receipt requested, (c) sent by telecopier (with electronic confirmation of receipt), provided that a copy is mailed by registered or certified mail, return receipt requested, or (d) received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses or telecopier numbers set forth below (or to such other addresses and telecopier numbers as a Party may designate by notice to the other Parties):

 

if to FMB, as follows:

First Mariner Bancorp

1501 South Clinton Street

Baltimore, Maryland 21224

Attention:  Mark A. Keidel, President

Facsimile:   ###-###-####;

with a copy to:

Andrew D. Bulgin, Esquire

Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC

233 East Redwood Street

Baltimore, Maryland 21202

Facsimile:   ###-###-####;

if to JV Corp or Holdco, to:

c/o Milestone Partners III, L.P.

595 Lancaster Avenue

Suite 303

Saint Davids, PA  19087

Attention:  W. Scott Warren

Facsimile:   ###-###-####;

with a copy to:

Bruce K. Fenton, Esquire

Pepper Hamilton LLP

3000 Two Logan Square

Philadelphia, Pennsylvania 19103-2799

Facsimile:   ###-###-####;