Consolidation – Merger – Acquisition

Change of Ownership – Notice

Representations

Joint Insured

Legal Proceeding

Employee Benefit Plans

Reward Payments

Nominees

Loss sustained by any nominee organized by the Insured for the purpose of handling certain of its business transactions and composed exclusively of its "employees" shall, for all purposes of this Bond and whether or not any partner or member of such nominee is implicated in such loss, be deemed to be a loss sustained by the Insured.

Analysis

In banking, the term nominee generally refers to someone an account holder appoints to be able to claim the assets after the account holder dies. The nominee is not necessarily the heir to the estate, just someone appointed to claim the account. An insured may organize a group of its "employees" to handle certain business transactions if the insured dies. If any member of the nominee group is implicated in a loss that loss will be considered to be a loss by the insured.

B. Additional Offices Or Employees – Newly Established Entities If, while this Bond is in force:

another institution, such offices, premises or "employees" of the newly established or created entity shall automatically be covered under this Bond. Notice to the Company of the establishment or creation of the entity is not required and no additional premium will be charged for the remainder of the Bond Period.

1. The Insured establishes any additional offices or premises or hires additional "employees", other than through:a. Consolidation or merger with; or

   b. Purchase or acquisition of assets or liabilities of;

another institution, such offices, premises or "employees" shall automatically be covered under this Bond. Notice to the Company of the increase in the number of offices, premises or "employees" is not required and no additional premium will be charged for the remainder of the Bond Period.

another institution, such offices, premises or "employees" of the newly established or created entity shalautomatically be covered under this Bond. Notice to the Company of the establishment or creation of the entity is not required and no additional premium will be charged for the remainder of the Bond Period.

Analysis

This provision provides coverage when the insured expands and adds additional offices or hires additional staff. For example, the bank of Hope Springs may be expanding and adding new banks with new employees in neighboring towns. Those new locations and new employees do not have to be reported to the company as they are automatically covered under the bond. However, any acquisitions of offices or employees that are acquired through acquisitions of other entities by way of consolidation, merger, purchase or acquisition are not automatically covered. In those instances, the carrier must be notified and additional premium may be charged.

 C. Consolidation – Merger – Acquisition

1. Except as provided in Paragraph 2. below, if the Insured consolidates or merges with, or purchases or acquires the assets or liabilities of, another institution:a. The Insured shall notify the Company in writing as soon as practicable and obtain the Company's written consent to extend the coverage provided by this Bond to such consolidated or merged institution or such purchased or acquired assets or liabilities. The Company may condition its consent by requiring payment of an additional premium; but

   b. For the first ninety days after the effective date of such consolidation, merger or purchase or acquisition of assets or liabilities, the coverage provided by this Bond shall apply to such consolidated or merged institution or such purchased or acquired assets or liabilities, provided that all "occurrences" causing or contributing to loss involving such consolidation, merger or purchase or acquisition of assets or liabilities must take place in their entirety after the effective date of such consolidation, merger or purchase or acquisition of assets or liabilities.

2. For institutions the Insured acquires in which the Insured owns greater than 50 percent of the voting stock or voting rights, coverage under this Bond shall automatically become effective on the date of such acquisition with no additional premium required, provided that:a. All "occurrences" causing or contributing to loss involving the acquired institution must take place in their entirety after the effective date of such acquisition; and

   b. The assets of the acquired institution do not exceed 25 percent of the Insured's total assets as reflected in the Insured's financial statements for the calendar quarter immediately preceding the effective date of such acquisition.

Analysis

This provision details coverage when the insured consolidates, merges with, acquires or purchases another entity. When the insured acquires, consolidates, merges or acquires another entity the company must be notified in writing and the company must agree in writing to extend coverage to the new entity. The company may require additional premium, and coverage applies for the first ninety days after acquisition as long as the loss occurred after the effective date of such acquisition or consolidation. If the insured owns greater than 50 percent of the voting stock or voting rights of the new entity, coverage is automatic as long as the loss occurs after the effective date, and the acquired assets do not exceed 25 percent of the insured's total assets of the insured's financial statements for the quarter immediately preceding the effective date of the acquisition.

D. Change of Ownership – Notice

When the Insured learns of a change of ownership:

1. By a single stockholder, or by a group of affiliated stockholders, of more than 10 percent of the Insured's voting stock, voting rights or ownership interest; or
2. Of a holding company or parent corporation that owns or controls the Insured;

the Insured shall give the Company written notice as soon as practicable, not to exceed sixty days, after such change of ownership. Failure to give the required notice shall result in termination of coverage, effective upon the date of the transfer of voting stock, voting rights or ownership interest, for any loss involving a transferee of such voting stock, voting rights or ownership interest.

Analysis

Ownership of the insured is important for coverage; a change in ownership could change operating procedures, personnel, or many factors that could affect insurability. Anytime an insured's ownership changes more than 10 percent of the insured's voting stock, voting rights or ownership interest, the insured shall notify the carrier within sixty days. Failure to notify the carrier can result in termination of coverage back to the effective date of the transfer of voting stock, rights or ownership for any loss that involves a transferee of such voting stock, rights, or ownership.

E. Representations

1. The Insured represents that all information and statements contained in the application for this Bond are true, accurate and complete. All such information and statements are the basis for the Company issuing this Bond and the application shall be considered as incorporated into and constitute a part of this Bond.

2. Any intentional:

a. Misrepresentation;

b. Omission;

c. Concealment; or

d. Misstatement of a material fact;

in the application or otherwise, shall be grounds for the rescission of this Bond.

Analysis

As with any insurance policy, representations made by the insured should be true, accurate and complete. If the representations intentionally misrepresent, omit, conceal or misstate a material fact in the application or otherwise, such misrepresentations or misstatements are grounds for rescission of the bond.

F. Joint Insured

1. If more than one Insured is named in the Declarations, the first Named Insured shall act for itself and for every other Insured for all purposes of this Bond.

2. Knowledge possessed or "discovery" made by a "designated person" of any Insured shall constitute knowledge or "discovery" by all Insureds for all purposes of this Bond.

3. An "employee" of any Insured is considered to be an "employee" of every Insured.

4. The Company will not pay more for loss or losses sustained by more than one Insured than the amount the Company would pay if all such loss or losses had been sustained by one Insured.

5. Payment by the Company to the first Named Insured for loss sustained by any Insured, or payment by the Company to any "employee benefit plan" for loss sustained by such "employee benefit plan", shall fully release the Company on account of such loss.

Analysis

This section details certain actions when there is more than one insured listed in the declarations. The first named insured acts for itself and all other insureds. Likewise, any knowledge of or "discovery" made by a "designated person" of any insured is considered knowledge or "discovery" by all insureds for purposes of this bond. A "designated person" is defined as any risk manager, director, trustee, elected, appointed or otherwise titled officer, or the highest-ranking "employee" at the office where the employee performs the majority of his duties. Employees of any insured are considered to be employees of every insured. No more is paid for losses sustained by more than one insured than what would have been paid had the loss been incurred by one insured. An amount of loss doesn't duplicate by the number of insureds; the amount of a loss is the amount of a loss, regardless of how many insureds are involved.

Payment for losses are paid to the first named insured. If payment is to an "employee benefit plan", then such payment to the plan releases the company on account of said loss.

G. Legal Proceedings – Court Costs And Attorneys' Fees – Election To Defend

1. The Insured shall notify the Company at the earliest practicable moment, not to exceed sixty days, after receiving notice of any suit or legal proceeding brought to determine the Insured's liability for any loss, claim or damage which, if established, would constitute a collectible loss under this Bond in excess of any Single Loss Deductible Amount. Concurrently, the Insured shall furnish copies of all pleadings and pertinent papers to the Company.

2. The Company, at its sole option, may elect to conduct the defense of such suit or legal proceeding, in whole or in part. If the Company so elects:

a. The defense by the Company shall be in the Insured's name through attorneys selected by the Company;

b. The Insured shall provide all reasonable information and assistance required by the Company for such defense; and

c. The court costs and attorneys' fees incurred by the Company in defense of the legal proceeding shall be in addition to the Single Loss Limit of Insurance of the applicable Insuring Agreement or Coverage.

3. If the Company elects not to conduct the defense of such suit or legal proceeding:

a. The Company will indemnify the Insured for court costs and reasonable attorneys' fees incurred and paid by the Insured in defending against such suit or legal proceeding. Such indemnity shall be part of, not in addition to, the Single Loss Limit of Insurance of the applicable Insuring Agreement or Coverage except, however, when such legal proceeding involves loss sustained by an "employee benefit plan", in which case the Company's payment to the Insured for such court costs and reasonable attorneys' fees shall be in addition to the Limit of Insurance applicable to Insuring Agreement A.

b. If the amount of the Insured's liability or alleged liability is greater than the amount recoverable under this Bond, or if a Single Loss Deductible Amount is applicable, or both, the liability of the Company under this General Agreement is limited to the proportion of court costs and reasonable attorneys' fees incurred and paid by the Insured or by the Company that the amount recoverable under this Bond bears to the total of such amount plus the amount which is not so recoverable.

c. If multiple causes of action are alleged in such suit or legal proceeding, the Insured shall bear the court costs and attorneys' fees incurred in the defense of any such alleged cause of action which, if established against the Insured, would not constitute a collectible loss under this Bond.

d. If the Company pays court costs and reasonable attorneys' fees in excess of its proportionate share of such costs and fees, the Insured shall promptly reimburse the Company for such excess.

4. If the Insured does not give the notices required in Paragraph 1. above and in Paragraph 1.a. of Condition C. Notice – Proof – Legal Proceedings, or if the Company elects not to defend any causes of action, neither a judgment against the Insured, nor a settlement of any legal proceeding by the Insured, shall determine the existence, extent or amount of coverage under this Bond for loss sustained by the Insured.

5. With regard to this General Agreement, Paragraphs 1.b. and 2. of Condition C. Notice – Proof – Legal Proceedings apply upon the entry of such judgment or the occurrence of such settlement instead of upon "discovery" of loss. In addition, the Insured must notify the Company within thirty days after such judgment is entered against the Insured or after the Insured settles such legal proceeding and, subject to Paragraph 3. of Condition C. Notice – Proof – Legal Proceedings, the Insured may not bring legal proceedings for the recovery of such loss after the expiration of twenty-four months from the date of such final judgment or settlement.

Analysis

This section outlines the parameters under which the carrier will pay court costs related to claims filed against the insured. As is typical of most insurance policies, the insured needs to notify the company at the earliest time possible, not to exceed sixty days of any suit or legal proceeding the insured is made aware of that if established would be paid under this policy. Any pleadings or papers related to the legal action must be sent to the carrier.

The carrier has the option to conduct the defense, including hiring its own lawyers, paying for court costs and attorney fees, and the insured will provide any information and assistance required by the carrier. If the carrier opts not to conduct the defense, the carrier will pay the expenses for the court costs and attorney fees paid by the insured for any legal proceedings that exceeds the deductible. If the liability of the loss exceeds the policy limits the carrier is only responsible up to the limits of the policy.

If multiple causes of action are alleged in a suit or legal proceeding, the insured bears the court costs and attorney fees in the defense of any actions that are not covered under this policy. If the carrier pays more than its proportionate share of the court costs and attorney fees, then the insured is to reimburse the carrier for the excess.

If the insured does not give the carrier notice of any suits or proceedings, or if the carrier decides not to defend the insured against causes of action, neither a judgment nor settlement against the insured obligates the carrier to provide coverage for such loss. Without notice of legal action the carrier is at a disadvantage in trying to defend the claim.

The conditions for notice, proof of loss, and legal proceedings apply to this section upon the entry of a judgment or settlement instead of upon "discovery" of loss. The insured may not have been aware of a loss before being notified of a legal proceeding. Again, the insured must notify the carrier within thirty days after any judgment entered against the insured, or after the insured settles legal proceedings in accordance with the legal proceeding notice requirements. Legal proceedings may not be filed after twenty-four months have expired since the date of a judgment or settlement.

H. Employee Benefit Plans

The "employee benefit plans" shown in the Declarations are included as Insureds under Insuring Agreement A., subject to the following:

1. The first Named Insured or the Plan Administrator is responsible for selecting a Single Loss Limit of Insurance for Insuring Agreement A. that is sufficient to provide a limit of insurance for each "employee benefit plan" that is at least equal to that required under ERISA as if each "employee benefit plan" was separately insured.

2. With regard to loss sustained by an "employee benefit plan", Insuring Agreement A. is replaced by the following:

Loss resulting directly from fraudulent or dishonest acts committed by an "employee" acting alone or in collusion with others, while such "employee" is handling "property" of such "employee benefit plan".

3. Any payment the Company makes for loss shall be made directly to the "employee benefit plan" which sustained the loss.

4. The Company will not apply the Single Loss Deductible Amount applicable to Insuring Agreement A. to loss sustained by an "employee benefit plan".

5. Any payment the Company makes for loss:

a. Sustained by two or more "employee benefit plans"; or

b. Of commingled "property" of two or more "employee benefit plans";

shall be made to each "employee benefit plan" sustaining loss in the proportion that the limit of insurance required under ERISA for each "employee benefit plan" bears to the total of those limits.

6. The Company shall be liable for loss sustained by an "employee benefit plan" prior to the effective date of termination or cancellation of:

a. This Bond; or

b. The coverage on such "employee benefit plan";

which is "discovered" by a "designated person" no later than one year from the date of that termination or cancellation.

Analysis

Employee benefit plans are considered insureds subject to six different provisions. A single loss limit of insurance must be selected by either the first named insured or the plan administrator, and the limit must be sufficient to provide a limit for each "employee benefit plan" that is equal to that required under ERISA if each plan was separately insured.

I. Reward Payments

The Company will indemnify the Insured up to an amount of $10,000 per event, for any reward paid by the Insured for information leading to the arrest of any person who, while this Bond is in effect:

1. Robbed or attempted to rob any "messenger"; or

2. Burglarized or attempted to burglarize any of the Insured's offices or premises or "automated teller machines".

Analysis

Rewards up to $10,000 per event are available for information leading to the arrest of any person who robbed or attempted to rob an insured's "messenger", or burglarized or tried to burglarize the insured's offices, premises, or ATMs. This is straightforward coverage.