EXHIBIT 2
AGREEMENT AND PLAN
OF MERGER
BY AND AMONG
CITIZENS SOUTH BANKING CORPORATION
CITIZENS SOUTH BANK
AND
TRINITY BANK
MAY 25, 2005
TABLE OF CONTENTS
ARTICLE I CERTAIN DEFINITIONS.....................................................................................2
1.1. Certain Definitions.............................................................................2
ARTICLE II THE MERGER.............................................................................................8
2.1. Merger..........................................................................................8
2.2. Closing; Effective Time.........................................................................9
2.3. Charter and Bylaws..............................................................................9
2.4. Directors and Officers of Surviving Corporation.................................................9
2.5. Additional Directors of Citizens South and Citizens South Bank..................................9
2.6. Effects of the Merger...........................................................................9
2.7. Tax Consequences................................................................................9
2.8. Possible Alternative Structures................................................................10
2.9. Additional Actions.............................................................................10
ARTICLE III CONVERSION OF SHARES.................................................................................11
3.1. Conversion of Trinity Bank Common Stock; Merger Consideration..................................11
3.2. Election Procedures............................................................................12
3.3. Procedures for Exchange of Trinity Bank Common Stock...........................................15
3.4. Treatment of Trinity Bank Options and Trinity Bank Warrants....................................17
3.5. Reservation of Shares..........................................................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TRINITY BANK........................................................18
4.1. Standard.......................................................................................18
4.2. Organization...................................................................................18
4.3. Capitalization.................................................................................19
4.4. Authority; No Violation........................................................................20
4.5. Consents.......................................................................................21
4.6. Financial Statements...........................................................................21
4.7. Taxes..........................................................................................22
4.8. No Material Adverse Effect.....................................................................22
4.9. Material Contracts; Leases; Defaults...........................................................22
4.10. Ownership of Property; Insurance Coverage......................................................24
4.11. Legal Proceedings..............................................................................25
4.12. Compliance With Applicable Law.................................................................25
4.13. Employee Benefit Plans.........................................................................26
4.14. Brokers, Finders and Financial Advisors........................................................29
4.15. Environmental Matters..........................................................................29
4.16. Loan Portfolio.................................................................................31
4.17. Securities Documents...........................................................................32
4.18. Related Party Transactions.....................................................................32
4.19. Deposits.......................................................................................33
4.20. Antitakeover Provisions Inapplicable; Required Vote............................................33
4.21. Registration Obligations.......................................................................33
4.22. Risk Management Instruments....................................................................33
4.23. Fairness Opinion...............................................................................33
4.24. Intellectual Property..........................................................................34
4.25. Trust Accounts.................................................................................34
4.26. Labor Matters..................................................................................34
(i)
4.27. Trinity Bank Information.......................................................................34
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CITIZENS SOUTH AND CITIZENS SOUTH BANK...............................35
5.1. Standard.......................................................................................35
5.2. Organization...................................................................................35
5.3. Capitalization.................................................................................36
5.4. Authority; No Violation........................................................................36
5.5. Consents.......................................................................................37
5.6. Financial Statements...........................................................................38
5.7. Taxes..........................................................................................38
5.8. No Material Adverse Effect.....................................................................39
5.9. Ownership of Property; Insurance Coverage......................................................39
5.10. Legal Proceedings..............................................................................39
5.11. Compliance With Applicable Law.................................................................40
5.12. Employee Benefit Plans.........................................................................41
5.13. Environmental Matters..........................................................................42
5.14. Loan Portfolio.................................................................................43
5.15. Securities Documents...........................................................................44
5.16. Deposits.......................................................................................44
5.17. Antitakeover Provisions Inapplicable...........................................................44
5.18. Brokers, Finders and Financial Advisors........................................................44
5.19. Citizens South Common Stock....................................................................44
5.20. Certain Agreements.............................................................................45
ARTICLE VI COVENANTS OF TRINITY BANK.............................................................................45
6.1. Conduct of Business............................................................................45
6.2. Current Information............................................................................50
6.3. Access to Properties and Records...............................................................51
6.4. Financial and Other Statements.................................................................51
6.5. Maintenance of Insurance.......................................................................52
6.6. Disclosure Supplements.........................................................................52
6.7. Consents and Approvals of Third Parties........................................................52
6.8. All Reasonable Efforts.........................................................................53
6.9. Failure to Fulfill Conditions..................................................................53
6.10. No Solicitation................................................................................53
6.11. Reserves and Merger-Related Costs..............................................................54
ARTICLE VII COVENANTS OF CITIZENS SOUTH AND CITIZENS SOUTH BANK..................................................55
7.1. Conduct of Business............................................................................55
7.2. Current Information and Consultation...........................................................55
7.3. Financial and Other Statements.................................................................55
7.4. Disclosure Supplements.........................................................................56
7.5. Consents and Approvals of Third Parties........................................................56
7.6. All Reasonable Efforts.........................................................................56
7.7. Failure to Fulfill Conditions..................................................................56
7.8. Employee Benefits..............................................................................56
7.9. Directors and Officers Indemnification and Insurance...........................................59
7.10. Stock Listing..................................................................................60
(ii)
7.11. Stock and Cash Reserve.........................................................................61
7.12. Communications to Trinity Bank Employees; Training.............................................61
7.13. Appointment to Citizens South Board of Directors and Citizens South Bank Board of Directors....61
ARTICLE VIII REGULATORY AND OTHER MATTERS........................................................................61
8.1. Meeting of Shareholders........................................................................61
8.2. Proxy Statement-Prospectus; Merger Registration Statement......................................62
8.3. Regulatory Approvals...........................................................................63
8.4. Affiliates.....................................................................................63
ARTICLE IX CLOSING CONDITIONS....................................................................................63
9.1. Conditions to Each Party's Obligations under this Agreement....................................63
9.2. Conditions to the Obligations of Citizens South and Citizens South Bank under this Agreement...65
9.3. Conditions to the Obligations of Trinity Bank under this Agreement.............................66
ARTICLE X THE CLOSING............................................................................................66
10.1. Time and Place.................................................................................66
10.2. Deliveries at the Pre-Closing and the Closing..................................................67
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER.....................................................................67
11.1. Termination....................................................................................67
11.2. Effect of Termination..........................................................................69
11.3. Amendment, Extension and Waiver................................................................70
ARTICLE XII MISCELLANEOUS........................................................................................70
12.1. Confidentiality................................................................................70
12.2. Public Announcements...........................................................................71
12.3. Survival.......................................................................................71
12.4. Notices........................................................................................71
12.5. Parties in Interest............................................................................72
12.6. Complete Agreement.............................................................................72
12.7. Counterparts...................................................................................72
12.8. Severability...................................................................................72
12.9. Governing Law..................................................................................73
12.10. Interpretation.................................................................................73
12.11. Specific Performance...........................................................................73
12.12. Waiver of Trial by Jury........................................................................73
Exhibit A Form of Voting Agreement
Exhibit B Affiliates Agreement
(iii)
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of May
25, 2005, by and among Citizens South Banking Corporation, a Delaware
corporation ("Citizens South"), Citizens South Bank, a Federal savings bank and
the wholly owned subsidiary of Citizens South, and Trinity Bank, a North
Carolina chartered bank.
WHEREAS, the Board of Directors of each of Citizens South and Trinity
Bank (i) has determined that this Agreement and the business combination and
related transactions contemplated hereby are in the best interests of their
respective companies and stockholders or shareholders, as the case may be, and
(ii) has determined that this Agreement and the transactions contemplated hereby
are consistent with and in furtherance of their respective business strategies,
and (iii) has approved this Agreement at meetings of each of such Boards of
Directors; and
WHEREAS, in accordance with the terms of this Agreement, Trinity Bank
will merge with and into Citizens South Bank, the wholly owned subsidiary of
Citizens South (the "Merger"), with Citizens South Bank the surviving
institution; and
WHEREAS, as a condition to the willingness of Citizens South and
Citizens South Bank to enter into this Agreement, each of the directors of
Trinity Bank have entered, or will, promptly after the date hereof, enter into a
Voting Agreement, substantially in the form of Exhibit A hereto, dated as of the
date hereof, with Citizens South (the "Voting Agreement"), pursuant to which
each such director has agreed, or will agree, among other things, to vote all
shares of common stock of Trinity Bank owned by such person in favor of the
approval of this Agreement and the transactions contemplated hereby, upon the
terms and subject to the conditions set forth in such Voting Agreements; and
WHEREAS, the parties intend the Merger to qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that this Agreement be and is hereby adopted as a
"plan of reorganization" within the meaning of Sections 354 and 361 of the Code;
and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the business transactions described in this
Agreement and to prescribe certain conditions thereto.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements herein contained, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
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ARTICLE I
CERTAIN DEFINITIONS
1.1. Certain Definitions.
As used in this Agreement, the following terms have the following
meanings (unless the context otherwise requires, references to Articles and
Sections refer to Articles and Sections of this Agreement).
"Affiliate" means any Person who directly, or indirectly, through one
or more intermediaries, controls, or is controlled by, or is under common
control with, a specified Person and, without limiting the generality of the
foregoing, includes any executive officer or director of such Person and any
affiliate of such executive officer or director.
"Agreement" means this agreement, and any amendment hereto.
"Bank Regulator" shall mean any Federal or state banking regulator,
including but not limited to the OTS, FDIC and the Commissioner, which regulates
Citizens South, Citizens South Bank and Trinity Bank, as the case may be.
"Cash Consideration" shall have the meaning set forth in Section 3.1.3.
"Cash Election" shall have the meaning set forth in Section 3.2.2.
"Cash/Stock Consideration" shall have the meaning set forth in Section
3.1.3.
"Cash Election Shares" shall have the meaning set forth in Section
3.2.1.
"Certificate" shall mean a certificate evidencing shares of Trinity
Bank Common Stock.
"Citizens South" shall mean Citizens South Banking Corporation, a
Delaware corporation, with its principal executive offices located at ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
"Citizens South Bank" shall mean Citizens South Bank, a federally
chartered stock savings bank, with its principal offices located at ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, which is a wholly owned subsidiary of
Citizens South.
"Citizens South Bank Common Stock" shall mean the common stock, par
value $1.00 per share, of Citizens South Bank.
"Citizens South Common Stock" shall mean the common stock, par value
$.01 per share, of Citizens South.
"Citizens South DISCLOSURE SCHEDULE" shall mean a written disclosure
schedule delivered by Citizens South to Trinity Bank specifically referring to
the appropriate section of this Agreement.
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"Citizens South Financial Statements" shall mean the (i) the audited
consolidated statements of financial condition (including related notes and
schedules) of Citizens South as of December 31, 2004 and 2003 and the
consolidated statements of income, comprehensive income, changes in
stockholders' equity and cash flows (including related notes and schedules, if
any) of Citizens South for each of the three years ended December 31, 2004, 2003
and 2002, as set forth in Citizens South's annual report on Form 10-K for the
year ended December 31, 2004, and (ii) the unaudited interim consolidated
financial statements of Citizens South as of the end of each calendar quarter
following December 31, 2004, and for the periods then ended, as filed by
Citizens South in its Securities Documents.
"Citizens South Stock Benefit Plans" shall mean the 1999 and 2003 Stock
Option Plans and the 2003 Recognition and Retention Plan.
"Citizens South Subsidiary" means any corporation, 50% or more of the
capital stock of which is owned, either directly or indirectly, by Citizens
South or Citizens South Bank, except any corporation the stock of which is held
in the ordinary course of the lending activities of Citizens South Bank.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commissioner" shall mean the North Carolina Commissioner of Banks.
"Confidentiality Agreement" shall mean the confidentiality agreement
referred to in Section 12.1 of this Agreement.
"DGCL" shall mean the Delaware General Corporation Law.
"Dissenting Shares" shall have the meaning set forth in Section 3.1.4.
"Dissenting Stockholder" shall have the meaning set forth in Section
3.1.4.
"Effective Time" shall mean the date and time specified pursuant to
Section 2.2 as the effective time of the Merger.
"Election Deadline" shall have the meaning set forth in Section 3.2.3.
"Election Form" shall have the meaning set forth in Section 3.2.2.
"Election Form Record Date" shall have the meaning set forth in Section
3.2.2.
"Environmental Laws" shall mean any applicable Federal, state or local
law, statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
governmental entity relating to (1) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil,
3
plant and animal life or any other natural resource), and/or (2) the use,
storage, recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Materials of Environmental Concern.
The term Environmental Law includes without limitation (a) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss.9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss.6901, et seq; the Clean Air Act, as amended, 42 U.S.C. ss.7401, et
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss.1251, et
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. ss.2601, et seq;
the Emergency Planning and Community Right to Know Act, 42 U.S.C. ss.11001, et
seq; the Safe Drinking Water Act, 42 U.S.C. ss.300f, et seq; and all comparable
state and local laws, and (b) any common law (including without limitation
common law that may impose strict liability) that may impose liability or
obligations for injuries or damages due to the presence of or exposure to any
Materials of Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" shall mean Registrar and Transfer Company, or such
other bank or trust company or other agent designated by Citizens South, which
shall act as agent for Citizens South in connection with the exchange procedures
for exchanging Certificates for the Merger Consideration.
"Exchange Fund" shall have the meaning set forth in Section 3.3.1.
"Exchange Ratio" shall have the meaning set forth in Section 3.1.3.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor thereto.
"FHLB" shall mean the Federal Home Loan Bank of Atlanta.
"FRB" shall mean the Board of Governors of the Federal Reserve System
or any successor thereto.
"GAAP" shall mean accounting principles generally accepted in the
United States of America.
"Governmental Entity" shall mean any Federal or state court,
administrative agency or commission or other governmental authority or
instrumentality.
"HOLA" shall mean the Home Owners' Loan Act, as amended.
"IRS" shall mean the United States Internal Revenue Service.
"Knowledge" as used with respect to a Person (including references to
such Person being aware of a particular matter) means those facts that are
actually known or reasonably should have been known by the executive officers
and directors of such Person, and includes any facts,
4
matters or circumstances set forth in any written notice from any Bank Regulator
or any other material written notice received by an executive officer or
director of that Person.
"Material Adverse Effect" shall mean, with respect to Citizens South or
Trinity Bank, respectively, any effect that (i) is material and adverse to the
financial condition, results of operations or business of Citizens South and its
Subsidiaries taken as a whole, or Trinity Bank and its Subsidiaries taken as a
whole, respectively, or (ii) materially impairs the ability of either Trinity
Bank, on the one hand, or Citizens South or Citizens South Bank, on the other
hand, to perform its obligations under this Agreement or otherwise materially
impedes the consummation of the transactions contemplated by this Agreement;
provided that "Material Adverse Effect" shall not be deemed to include the
impact of (a) changes in laws and regulations affecting banks or thrift
institutions and their holding companies generally, or interpretations thereof
by courts or governmental agencies, (b) changes in GAAP or regulatory accounting
principles generally applicable to financial institutions and/or their holding
companies, (c) actions and omissions of a party hereto (or any of its
Subsidiaries) taken with the prior written consent of the other party, (d)
execution of this Agreement or the consummation of the transactions contemplated
hereby, including the expenses incurred by the parties hereto in consummating
the transactions contemplated by this Agreement (consistent with the information
included in the Citizens South Disclosure Schedules and the Trinity Bank
Disclosure Schedules), and (e) any change in the value of the securities or loan
portfolio of Citizens South or Trinity Bank, respectively, whether held as
available for sale or held to maturity, resulting from a change in interest
rates generally.
"Materials of Environmental Concern" means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products, and any other
materials regulated under Environmental Laws.
"Merger" shall mean the merger of Trinity Bank with and into Citizens
South Bank, with Citizens South Bank as the surviving institution.
"Merger Consideration" shall mean the cash or Citizens South Common
Stock, or combination thereof, in an aggregate per share amount to be paid by
Citizens South for each share of Trinity Bank Common Stock, as set forth in
Section 3.1.
"Merger Registration Statement" shall mean the registration statement,
together with all amendments, filed with the SEC under the Securities Act for
the purpose of registering shares of Citizens South Common Stock to be offered
to holders of Trinity Bank Common Stock in connection with the Merger.
"Merging Institutions" shall collectively mean Trinity Bank and
Citizens South Bank.
"Mixed Election" shall have the meaning set forth in Section 3.2.2.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean the Nasdaq National Market.
"Non-Election" shall have the meaning set forth in Section 3.2.2.
5
"Non-Election Shares" shall have the meaning set forth in Section
3.2.1.
"Option Payment" shall have the meaning set forth in Section 3.4.
"OTS" shall mean the Office of Thrift Supervision or any successor
thereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, trust or "group" (as that term is defined under the
Exchange Act).
"Proxy Statement-Prospectus" shall have the meaning set forth in
Section 8.2.1.
"Regulatory Agreement" shall have the meaning set forth in Section
4.12.3.
"Regulatory Approvals" means the approval of any Bank Regulator that is
necessary in connection with the consummation of the Merger and the related
transactions contemplated by this Agreement.
"Representative" shall have the meaning set forth in Section 3.2.2.
"Rights" shall mean warrants, options, rights, convertible securities,
stock appreciation rights and other arrangements or commitments (i) which
obligate an entity to issue or dispose of any of its capital stock or other
ownership interests, (ii) provide for compensation based on the equity
appreciation of its capital stock, (iii) which grant the right to receive
dividends or distributions of cash or securities of any kind, or (iv) which
grant the right to vote, purchase or receive securities of any kind.
"SBA" shall mean the Small Business Administration or any successor
thereto.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, offering circulars,
proxy statements, registration statements and all similar documents filed
pursuant to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
"Shortfall Number" shall have the meaning set forth in Section 3.2.5.
"Significant Subsidiary" shall have the meaning set forth in Rule 1-02
of Regulation S-X of the SEC.
"Stock Consideration" shall have the meaning set forth in Section
3.1.3.
6
"Stock Conversion Number" shall have the meaning set forth in Section
3.2.1.
"Stock Election Shares" shall have the meaning set forth in Section
3.2.1.
"Stock Election Number" shall have the meaning set forth in Section
3.2.1.
"Stock Election" shall have the meaning set forth in Section 3.2.2.
"Surviving Corporation" shall have the meaning set forth in Section
2.1.
"Termination Date" shall mean December 31, 2005.
"Trinity Bank" shall mean Trinity Bank, a North Carolina chartered
bank, with its principal offices located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
"Trinity Bank Common Stock" shall mean the common stock, par value
$3.50 per share, of Trinity Bank.
"Trinity Bank DISCLOSURE SCHEDULE" shall mean a written disclosure
schedule delivered by Trinity Bank to Citizens South specifically referring to
the appropriate section of this Agreement.
"Trinity Bank Financial Statements" shall mean (i) the audited balance
sheets (including related notes and schedules, if any) of Trinity Bank as of
December 31, 2004 and 2003 and the statements of income, changes in
shareholders' equity and cash flows (including related notes and schedules, if
any) of Trinity Bank for each of the three years ended December 31, 2004, 2003
and 2002, as set forth in Trinity Bank's annual report on Form 10-KSB for the
year ended December 31, 2004 and (ii) the unaudited interim financial statements
of Trinity Bank as of the end of each calendar quarter following December 31,
2004 and for the periods then ended, as filed by Trinity Bank in its Securities
Documents.
"Trinity Bank Option" shall mean an option to purchase shares of
Trinity Bank Common Stock granted pursuant to the Trinity Bank Stock Option
Plans and outstanding as of the date hereof, as set forth in Trinity Bank
DISCLOSURE SCHEDULE 3.4.
"Trinity Bank Stock Option Plans" shall mean the Trinity Bank Employee
Stock Option Plan and the Trinity Bank Director Stock Option Plan.
"Trinity Bank Regulatory Reports" means the Call Reports of Trinity
Bank, and accompanying schedules (other than such schedules as are required to
be kept confidential pursuant to applicable law or regulatory requirements), as
filed with the FDIC with respect to each calendar quarter beginning with the
quarter ended March 31, 2003, through the Closing Date.
"Trinity Bank Shareholders Meeting" shall have the meaning set forth
in Section 8.1.1.
7
"Trinity Bank Subsidiary" means any corporation, 50% or more of the
capital stock of which is owned, either directly or indirectly, by Trinity Bank,
except any corporation the stock of which is held in the ordinary course of the
lending activities of Trinity Bank.
"Trinity Bank Warrants" shall mean warrants to purchase shares of
Trinity Bank Common Stock, as set forth in Trinity Bank DISCLOSURE SCHEDULE 3.4.
"Treasury Stock" shall have the meaning set forth in Section 3.1.2.
Other terms used herein are defined in the preamble and elsewhere in
this Agreement.
ARTICLE II
THE MERGER
2.1. Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time:
2.1.1. Trinity Bank shall merge with and into Citizens South
Bank, with Citizens South Bank as the resulting or surviving
corporation under the name "Citizens South Bank" (the "Surviving
Corporation") and the separate existence of Trinity Bank shall cease
and all of the rights, privileges, powers, franchises, properties,
assets, liabilities and obligations of Trinity Bank shall be vested in
and assumed by Citizens South Bank. The Surviving Corporation shall be
subject to and be deemed to have assumed all of the debts, liabilities,
obligations and duties of Trinity Bank and shall have succeeded to all
of its relationships, fiduciary or otherwise, as fully and to the same
extent as if such property, rights, privileges, powers, franchises,
debts, obligations, duties and relationship had been originally
acquired, incurred or entered into by the Surviving Corporation.
2.1.2. All deposit accounts of Trinity Bank shall be and
become deposit accounts in the Surviving Corporation without change in
their respective terms, maturity, minimum required balances or
withdrawal value. Appropriate evidence of the deposit account in the
Surviving Corporation shall be provided by the Surviving Corporation to
each deposit account holder of Trinity Bank, as necessary, after
consummation of the Merger.
2.1.3. All deposit accounts of Citizens South Bank prior to
consummation of the Merger shall continue to be deposit accounts in the
Surviving Corporation after consummation of the Merger without any
change whatsoever in any of the provisions of such deposit accounts,
including, without limitation, their respective terms, maturity,
minimum required balances or withdrawal value.
2.1.4. Citizens South Bank shall continue as a savings
association chartered and regulated by the OTS. The principal office of
Citizens South Bank shall continue to be ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ after the Effective Time. The former offices
of Trinity Bank will be operated as offices of Citizens South Bank
immediately following the Effective Time.
2.1.5. As part of the Merger, each share of Trinity Bank
Common Stock will be converted into the right to receive the Merger
Consideration pursuant to the terms of Article III.
8
2.2. Closing; Effective Time.
The Merger shall be effected by the filing of the Articles of
Combination with the OTS and by the filing of the applicable
certificates/documents with the Commissioner and the Secretary of State of the
State of North Carolina, in accordance with applicable law. The "Effective Time"
means the date (the "Closing Date") and time upon which the Articles of
Combination are filed with the OTS, or as otherwise stated herein. The
consummation of the transactions contemplated by this Agreement is specifically
conditioned upon receipt of all necessary regulatory approvals, including the
approval of the OTS, and the expiration of all applicable waiting periods with
respect to the Merger.
2.3. Charter and Bylaws.
The Charter and Bylaws of Citizens South Bank as in effect immediately
prior to the Effective Time shall be the Charter and Bylaws of the Surviving
Corporation, until thereafter amended as provided therein and by applicable law.
The Certificate of Incorporation and Bylaws of Citizens South as in effect
immediately prior to the Effective Time shall not be affected by the Merger and
shall remain in full force and effect until thereafter amended as provided
therein and by applicable law.
2.4. Directors and Officers of Surviving Corporation.
Except as provided in Section 2.5, the directors and officers of
Citizens South Bank immediately prior to the Effective Time shall be the initial
directors and officers of the Surviving Corporation, each to hold office in
accordance with the Charter and Bylaws of the Surviving Corporation. Until
changed in accordance with its Charter and Bylaws, the directors and officers of
Citizens South immediately prior to the Effective Time shall be the directors
and officers of Citizens South immediately following the Effective Time, in each
case until their respective successors are duly elected or appointed and
qualified.
2.5. Additional Directors of Citizens South and Citizens South Bank.
Effective as of the Effective Time, one person (presently serving as a
director of Trinity Bank) agreed to by Citizens South and Trinity Bank, shall be
appointed to the Board of Directors of Citizens South and Citizens South Bank.
2.6. Effects of the Merger.
At and after the Effective Time, the Merger shall have the effects as
set forth in the HOLA and North Carolina law.
2.7. Tax Consequences.
It is intended that the Merger shall constitute a reorganization within
the meaning of Section 368(a) of the Code, and that this Agreement shall
constitute a "plan of reorganization" as that term is used in Sections 354 and
361 of the Code. From and after the date of this Agreement and until the
Closing, each party hereto shall use its reasonable best efforts to cause the
Merger to qualify, and will not knowingly take any action, cause any action to
be taken, fail to take any action or cause any action to fail to be taken which
action or failure to act would reasonably be expected to prevent the Merger from
qualifying as a reorganization under Section 368(a) of the Code. Following the
Closing, neither Citizens South or any of its Affiliates shall knowingly take
any
9
action, cause any action to be taken, fail to take any action or cause any
action to fail to be taken, which action or failure to act would reasonably be
expected to cause the Merger to fail to qualify as a reorganization under
Section 368(a) of the Code. Citizens South, Citizens South Bank and Trinity Bank
each hereby agrees to deliver certificates substantially in compliance with IRS
published advance ruling guidelines, with customary exceptions and modifications
thereto, to enable counsel to deliver the legal opinions contemplated by Section
9.1.6, which certificates shall be dated as of the date of such opinions.
2.8. Possible Alternative Structures.
Notwithstanding anything to the contrary contained in this Agreement
and subject to the satisfaction of the conditions set forth in Article IX, prior
to the Effective Time Citizens South and Citizens South Bank shall be entitled
to revise the structure for effecting the Merger described in Section 2.1,
including, without limitation, by substituting a wholly owned subsidiary for
Citizens South Bank, as applicable, provided that (i) any such subsidiary shall
become a party to, and shall agree to be bound by, the terms of this Agreement;
(ii) there are no adverse Federal or state income tax consequences to Trinity
Bank shareholders, and nothing would prevent the rendering of the opinions in
Section 9.1.6, as a result of the modification; (iii) the consideration to be
paid to the holders of Trinity Bank Common Stock under this Agreement is not
thereby changed in kind, value or reduced in amount; and (iv) such modification
will not delay materially or jeopardize receipt of any required Regulatory
Approvals or other consents and approvals relating to the consummation of the
Merger or otherwise cause any condition to Closing set forth in Article IX not
to be capable of being fulfilled. The parties hereto agree to appropriately
amend this Agreement and any related documents in order to reflect any such
revised structure.
2.9. Additional Actions.
If, at any time after the Effective Time, Citizens South or Citizens
South Bank shall consider or be advised that any further deeds, assignments or
assurances in law or any other acts are reasonably necessary or desirable to (i)
vest, perfect or confirm, of record or otherwise, in Citizens South Bank its
right, title or interest in, to or under any of the rights, properties or assets
of Trinity Bank, or (ii) otherwise carry out the purposes of this Agreement,
Trinity Bank and its officers and directors shall be deemed to have granted to
Citizens South and Citizens South Bank an irrevocable power of attorney to
execute and deliver, in such official corporate capacities, all such deeds,
assignments or assurances in law or any other acts as are necessary or desirable
to (a) vest, perfect or confirm, of record or otherwise, in Citizens South Bank
its right, title or interest in, to or under any of the rights, properties or
assets of Trinity Bank or (b) otherwise carry out the purposes of this
Agreement, and the officers and directors of Citizens South Bank and Citizens
South are authorized in the name of Trinity Bank or otherwise to take any and
all such action.
10
ARTICLE III
CONVERSION OF SHARES
3.1. Conversion of Trinity Bank Common Stock; Merger Consideration.
At the Effective Time, by virtue of the Merger and without any action
on the part of Citizens South, Citizens South Bank, Trinity Bank or the holders
of any of the shares of Trinity Bank Common Stock, the Merger shall be effected
in accordance with the following terms:
3.1.1. Each share of Citizens South Common Stock and Citizens
South Bank Common Stock that is issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding
following the Effective Time and shall be unchanged by the Merger.
3.1.2. All shares of Trinity Bank Common Stock held in the
treasury of Trinity Bank and each share of Trinity Bank Common Stock
owned by Citizens South or Citizens South Bank prior to the Effective
Time (other than shares held in a fiduciary capacity or in connection
with debts previously contracted) ("Treasury Stock"), shall, at the
Effective Time, cease to exist, and the certificates for such shares
shall be canceled as promptly as practicable thereafter, and no payment
or distribution shall be made in consideration therefor.
3.1.3. Each share of Trinity Bank Common Stock issued and
outstanding immediately prior to the Effective Time (other than
Treasury Stock and Dissenting Shares) shall become and be converted
into, as provided in and subject to the limitations set forth in this
Agreement, the right to receive at the election of the holder thereof
as provided in Section 3.2 either (i) $18.25 in cash (the "Cash
Consideration"); (ii) 1.3931 shares (the "Exchange Ratio") of Citizens
South Common Stock (the "Stock Consideration"); or (iii) a combination
of the Cash Consideration and the Stock Consideration, as provided in
Section 3.2 (the "Cash/Stock Consideration"). The Cash Consideration,
the Stock Consideration and the Cash/Stock Consideration are sometimes
referred to herein collectively as the "Merger Consideration."
3.1.4. Each outstanding share of Trinity Bank Common Stock,
the holder of which has perfected his right to dissent under North
Carolina law and has not effectively withdrawn or lost such right as of
the Effective Time (the "Dissenting Shares"), shall not be converted
into or represent a right to receive the Merger Consideration
hereunder, and the holder thereof shall be entitled only to such rights
as are granted under applicable law. Trinity Bank shall give Citizens
South prompt notice upon receipt by Trinity Bank of any such demands
for payment of the fair value of such shares of Trinity Bank Common
Stock and of withdrawals of such notice and any other instruments
provided pursuant to applicable law (any stockholder duly making such
demand being hereinafter called a "Dissenting Stockholder"), and
Citizens South shall have the right to participate in all negotiations
and proceedings with respect to any such demands. Trinity Bank shall
not, except with the prior written consent of Citizens South,
voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for payment, or waive any failure to timely
deliver a written demand for payment or the taking of any other action
by such Dissenting Shareholder as may be necessary to perfect
dissenters' rights under North Carolina law. Any payments made in
respect of Dissenting Shares shall be made by the Surviving Company.
11
3.1.5. If any Dissenting Stockholder shall effectively
withdraw or lose (through failure to perfect or otherwise) his right to
such payment at or prior to the Effective Time, such holder's shares of
Trinity Bank Common Stock shall be converted into a right to receive
the Merger Consideration in accordance with the applicable provisions
of this Agreement and applicable law. If such holder shall effectively
withdraw or lose (through failure to perfect or otherwise) his right to
such payment after the Effective Time (or the Election Deadline, as
defined below), each share of Trinity Bank Common Stock of such holder
shall be treated as a Non-Election Share.
3.1.6. After the Effective Time, shares of Trinity Bank Common
Stock shall no longer be outstanding and shall automatically be
canceled and shall cease to exist, and shall thereafter by operation of
this Section 3.1 represent only the right to receive the Merger
Consideration and any dividends or distributions with respect thereto.
3.1.7. In the event Citizens South changes (or establishes a
record date for changing) the number of, or provides for the exchange
of, shares of Citizens South Common Stock issued and outstanding prior
to the Effective Time as a result of a stock split, stock dividend,
recapitalization, reclassification, or similar transaction with respect
to the outstanding Citizens South Common Stock and the record date
therefor shall be prior to the Effective Time, the Exchange Ratio shall
be proportionately and appropriately adjusted; provided, that for the
avoidance of doubt the parties acknowledge that the foregoing is not
intended to result in any such adjustment as a result of share
issuances of Citizens South Common Stock by Citizens South under
Citizens South Compensation and Benefit Plans or where such issuance is
pursuant to a widely distributed stock offering for fair market value
consideration.
3.2. Election Procedures.
3.2.1. Holders of Trinity Bank Common Stock may elect to
receive shares of Citizens South Common Stock or cash (in either case
without interest) in exchange for their shares of Trinity Bank Common
Stock in accordance with the following procedures, provided that, in
the aggregate, and subject to the provisions of Section 3.2.6, 50% of
the total number of shares of Trinity Bank Common Stock issued and
outstanding at the Effective Time, including any Dissenting Shares but
excluding any Treasury Stock (the "Stock Conversion Number"), shall be
converted into the Stock Consideration and the remaining outstanding
shares of Trinity Bank Common Stock shall be converted into the Cash
Consideration. Shares of Trinity Bank Common Stock as to which a Cash
Election (including, pursuant to a Mixed Election) has been made are
referred to herein as "Cash Election Shares." Shares of Trinity Bank
Common Stock as to which a Stock Election has been made (including,
pursuant to a Mixed Election) are referred to as "Stock Election
Shares." Shares of Trinity Bank Common Stock as to which no election
has been made (or as to which an Election Form is not returned properly
completed) are referred to herein as "Non-Election Shares." The
aggregate number of shares of Trinity Bank Common Stock with respect to
which a Stock Election has been made is referred to herein as the
"Stock Election Number."
3.2.2. An election form and other appropriate and customary
transmittal materials (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of such Certificates to the Exchange Agent),
in
12
such form as Trinity Bank and Citizens South shall mutually agree
("Election Form"), shall be mailed no more than 40 business days and no
less than 20 business days prior to the anticipated Effective Time or
on such earlier date as Citizens South and Trinity Bank shall mutually
agree (the "Mailing Date") to each holder of record of Trinity Bank
Common Stock as of five business days prior to the Mailing Date (the
"Election Form Record Date"). Each Election Form shall permit such
holder, subject to the allocation and election procedures set forth in
this Section 3.2, (i) to elect to receive the Cash Consideration for
all of the shares of Trinity Bank Common Stock held by such holder (a
"Cash Election"), in accordance with Section 3.1.3, (ii) to elect to
receive the Stock Consideration for all of such shares (a "Stock
Election"), in accordance with Section 3.1.3, (iii) to elect to receive
the Stock Consideration for a part of such holder's Trinity Bank Common
Stock and the Cash Consideration for the remaining part of such
holder's Trinity Bank Common Stock (a "Mixed Election"), or (iv) to
indicate that such record holder has no preference as to the receipt of
cash or Citizens South Common Stock for such shares (a "Non-Election").
A holder of record of shares of Trinity Bank Common Stock who holds
such shares as nominee, trustee or in another representative capacity
(a "Representative") may submit multiple Election Forms, provided that
each such Election Form covers all the shares of Trinity Bank Common
Stock held by such Representative for a particular beneficial owner.
Any shares of Trinity Bank Common Stock with respect to which the
holder thereof shall not, as of the Election Deadline, have made an
election by submission to the Exchange Agent of an effective, properly
completed Election Form shall be deemed Non-Election Shares. All
Dissenting Shares shall be deemed Cash Election shares, and with
respect to such shares the holders thereof shall in no event receive
consideration comprised of Citizens South Common Stock, subject to
Section 3.1.5; provided, however, that for purposes of making the
proration calculations provided for in this Section 3.2, only
Dissenting Shares as existing at the Effective Time shall be deemed
Cash Election Shares.
3.2.3. To be effective, a properly completed Election Form
shall be submitted to the Exchange Agent on or before 5:00 p.m., North
Carolina time, on the 25th day following the Mailing Date (or such
other time and date as Citizens South and Trinity Bank may mutually
agree) (the "Election Deadline"); provided, however, that the Election
Deadline may not occur on or after the Closing Date. Citizens South
shall use all reasonable efforts to make available as promptly as
possible an Election Form to any holder of record of Trinity Bank
Common Stock who requests such Election Form following the initial
mailing of the Election Forms and prior to the Election Deadline.
Trinity Bank shall provide to the Exchange Agent all information
reasonably necessary for it to perform as specified herein. An election
shall have been properly made only if the Exchange Agent shall have
actually received a properly completed Election Form by the Election
Deadline. An Election Form shall be deemed properly completed only if
accompanied by one or more Certificates (or customary affidavits and
indemnification regarding the loss or destruction of such Certificates
or the guaranteed delivery of such Certificates) representing all
shares of Trinity Bank Common Stock covered by such Election Form,
together with duly executed transmittal materials included with the
Election Form. If a Trinity Bank stockholder either (i) does not submit
a properly completed Election Form in a timely fashion or (ii) revokes
its Election Form prior to the Election Deadline (without later
submitting a properly completed Election Form prior to the Election
Deadline), the shares of Trinity Bank Common Stock held by such
stockholder shall be designated as Non-Election Shares. Any Election
Form may be revoked or changed by the person submitting such Election
Form to the Exchange Agent by written notice to the Exchange Agent only
if such notice of revocation or change is actually
13
received by the Exchange Agent at or prior to the Election Deadline.
Citizens South shall cause the Certificate or Certificates relating to
any revoked Election Form to be promptly returned without charge to the
person submitting the Election Form to the Exchange Agent. Subject to
the terms of this Agreement and of the Election Form, the Exchange
Agent shall have discretion to determine when any election,
modification or revocation is received and whether any such election,
modification or revocation has been properly made.
3.2.4. If the Stock Election Number exceeds the Stock
Conversion Number, then all Cash Election Shares and all Non-Election
Shares shall be converted into the right to receive the Cash
Consideration, and each holder of Stock Election Shares will be
entitled to receive the Stock Consideration only with respect to that
number of Stock Election Shares held by such holder (rounded to the
nearest whole share) equal to the product obtained by multiplying (x)
the number of Stock Election Shares held by such holder by (y) a
fraction, the numerator of which is the Stock Conversion Number and the
denominator of which is the Stock Election Number, with the remaining
number of such holder's Stock Election Shares being converted into the
right to receive the Cash Consideration.
3.2.5. If the Stock Election Number is less than the Stock
Conversion Number (the amount by which the Stock Conversion Number
exceeds the Stock Election Number being referred to herein as the
"Shortfall Number"), then all Stock Election Shares shall be converted
into the right to receive the Stock Consideration and the Non-Election
Shares and Cash Election Shares shall be treated in the following
manner:
(A) if the Shortfall Number is less than or equal to
the number of Non-Election Shares, then all Cash Election
Shares shall be converted into the right to receive the Cash
Consideration and each holder of Non-Election Shares shall
receive the Stock Consideration in respect of that number of
Non-Election Shares held by such holder (rounded to the
nearest whole share) equal to the product obtained by
multiplying (x) the number of Non-Election Shares held by such
holder by (y) a fraction, the numerator of which is the
Shortfall Number and the denominator of which is the total
number of Non-Election Shares, with the remaining number of
such holder's Non-Election Shares being converted into the
right to receive the Cash Consideration; or
(B) if the Shortfall Number exceeds the number of
Non-Election Shares, then all Non-Election Shares shall be
converted into the right to receive the Stock Consideration,
and each holder of Cash Election Shares shall receive the
Stock Consideration in respect of that number of Cash Election
Shares held by such holder (rounded to the nearest whole
share) equal to the product obtained by multiplying (x) the
number of Cash Election Shares held by such holder by (y) a
fraction, the numerator of which is the amount by which (1)
the Shortfall Number exceeds (2) the total number of
Non-Election Shares and the denominator of which is the total
number of Cash Election Shares, with the remaining number of
such holder's Cash Election Shares being converted into the
right to receive the Cash Consideration.
3.2.6. No Fractional Shares. Notwithstanding anything to the
contrary contained herein, no certificates or scrip representing
fractional shares of Citizens South Common Stock shall be issued upon
the surrender for exchange of Certificates, no dividend or
14
distribution with respect to Citizens South Common Stock shall be
payable on or with respect to any fractional share interest, and such
fractional share interests shall not entitle the owner thereof to vote
or to any other rights of a stockholder of Citizens South. In lieu of
the issuance of any such fractional share, Citizens South shall pay to
each former holder of Trinity Bank Common Stock who otherwise would be
entitled to receive a fractional share of Citizens South Common Stock,
an amount in cash, rounded to the nearest cent and without interest,
equal to the product of (i) the fraction of a share to which such
holder would otherwise have been entitled and (ii) the average of the
daily closing sales prices of a share of Citizens South Common Stock as
reported on the Nasdaq National Market for the 30 consecutive trading
days immediately preceding the Closing Date. For purposes of
determining any fractional share interest, all shares of Trinity Bank
Common Stock owned by a Trinity Bank stockholder shall be combined so
as to calculate the maximum number of whole shares of Citizens South
Common Stock issuable to such Trinity Bank stockholder.
3.3. Procedures for Exchange of Trinity Bank Common Stock.
3.3.1. Citizens South to Make Merger Consideration Available.
After the Election Deadline and no later than the Closing Date,
Citizens South shall deposit, or shall cause to be deposited, with the
Exchange Agent for the benefit of the holders of Trinity Bank Common
Stock, for exchange in accordance with this Section 3.3, certificates
representing the shares of Citizens South Common Stock and an aggregate
amount of cash sufficient to pay the aggregate amount of cash payable
pursuant to this Article III (including the estimated amount of cash to
be paid in lieu of fractional shares of Citizens South Common Stock)
(such cash and certificates for shares of Citizens South Common Stock,
together with any dividends or distributions with respect thereto
(without any interest thereon), being hereinafter referred to as the
"Exchange Fund").
3.3.2. Exchange of Certificates. Citizens South shall take all
steps necessary to cause the Exchange Agent, within five (5) business
days after the Effective Time, to mail to each holder of a Certificate
or Certificates who has not previously surrendered such certificates
with an Election Form, a form letter of transmittal for return to the
Exchange Agent and instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration and cash in
lieu of fractional shares into which the Trinity Bank Common Stock
represented by such Certificates shall have been converted as a result
of the Merger, if any. The letter of transmittal (which shall be
subject to the reasonable approval of Trinity Bank) shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent. Upon proper surrender of a Certificate for exchange and
cancellation to the Exchange Agent, together with a properly completed
letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger
Consideration to which such holder of Trinity Bank common stock shall
have become entitled pursuant to Section 3.1.3, and the Certificate so
surrendered shall forthwith be cancelled. No interest will be paid or
accrued on any Cash Consideration or any cash payable in lieu of
fractional shares or any unpaid dividends and distributions, if any,
payable to holders of Certificates.
3.3.3. Rights of Certificate Holders after the Effective Time.
The holder of a Certificate that prior to the Merger represented issued
and outstanding Trinity Bank Common
15
Stock shall have no rights, after the Effective Time, with respect to
such Trinity Bank Common Stock except to surrender the Certificate in
exchange for the Merger Consideration as provided in this Agreement. No
dividends or other distributions declared after the Effective Time with
respect to Citizens South Common Stock shall be paid to the holder of
any unsurrendered Certificate until the holder thereof shall surrender
such Certificate in accordance with this Section 3.3. After the
surrender of a Certificate in accordance with this Section 3.3, the
record holder thereof shall be entitled to receive any such dividends
or other distributions, without any interest thereon, which theretofore
had become payable with respect to shares of Citizens South Common
Stock represented by such Certificate.
3.3.4. Surrender by Persons Other than Record Holders. If the
Person surrendering a Certificate and signing the accompanying letter
of transmittal is not the record holder thereof, then it shall be a
condition of the payment of the Merger Consideration that: (i) such
Certificate is properly endorsed to such Person or is accompanied by
appropriate stock powers, in either case signed exactly as the name of
the record holder appears on such Certificate, and is otherwise in
proper form for transfer, or is accompanied by appropriate evidence of
the authority of the Person surrendering such Certificate and signing
the letter of transmittal to do so on behalf of the record holder; and
(ii) the person requesting such exchange shall pay to the Exchange
Agent in advance any transfer or other similar taxes required by reason
of the payment to a Person other than the registered holder of the
Certificate surrendered, or required for any other reason, or shall
establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
3.3.5. Closing of Transfer Books. From and after the Effective
Time, there shall be no transfers on the stock transfer books of
Trinity Bank of the Trinity Bank Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates representing such shares are presented for transfer to the
Exchange Agent, they shall be exchanged for the Merger Consideration
and canceled as provided in this Section 3.3.
3.3.6. Return of Exchange Fund. At any time following the
twelve (12) month period after the Effective Time, Citizens South shall
be entitled to require the Exchange Agent to deliver to it any portions
of the Exchange Fund which had been made available to the Exchange
Agent and not disbursed to holders of Certificates (including, without
limitation, all interest and other income received by the Exchange
Agent in respect of all funds made available to it), and thereafter
such holders shall be entitled to look to Citizens South (subject to
abandoned property, escheat and other similar laws) with respect to any
Merger Consideration that may be payable upon due surrender of the
Certificates held by them. Notwithstanding the foregoing, none of
Citizens South, Trinity Bank, or the Exchange Agent shall be liable to
any holder of a Certificate for any Merger Consideration delivered in
respect of such Certificate to a public official pursuant to any
abandoned property, escheat or other similar law.
3.3.7. Lost, Stolen or Destroyed Certificates. In the event
any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and the posting by such
person of a bond in such amount as Citizens South may reasonably direct
as indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent will issue in exchange
16
for such lost, stolen or destroyed Certificate the Merger Consideration
deliverable in respect thereof.
3.3.8. Withholding. Citizens South or the Exchange Agent will
be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement or the transactions contemplated
hereby to any holder of Trinity Bank Common Stock such amounts as
Citizens South (or any Affiliate thereof) or the Exchange Agent are
required to deduct and withhold with respect to the making of such
payment under the Code, or any applicable provision of U.S. federal,
state, local or non-U.S. tax law. To the extent that such amounts are
properly withheld by Citizens South or the Exchange Agent, such
withheld amounts will be treated for all purposes of this Agreement as
having been paid to the holder of the Trinity Bank Common Stock in
respect of whom such deduction and withholding were made by Citizens
South or the Exchange Agent.
3.4. Treatment of Trinity Bank Options and Trinity Bank Warrants.
Trinity Bank DISCLOSURE SCHEDULE 3.4 sets forth all of the outstanding
Trinity Bank Options and outstanding Trinity Bank Warrants as of the date
hereof, including the names of the holders thereof and the grant, vesting and
expiration dates thereof and exercise prices thereof. Immediately prior to the
Effective Time, and pursuant to the terms of the Trinity Bank Option Plans, each
Trinity Bank Option that is unexercised and outstanding, whether or not then
exercisable, immediately prior thereto shall, by reason of the Merger, be
cancelled and converted into the right to receive in cash an amount (subject to
required tax withholdings) equal to (i) the excess of (A) the Cash Consideration
per share over (B) the exercise price per share of each such Trinity Bank Option
multiplied by (ii) the number of shares of Trinity Bank Common Stock subject to
the Trinity Bank Option (the "Option Payment"). Prior to receipt of the Option
Payment, each holder of a Trinity Bank Option shall execute a cancellation
agreement, substantially in the form attached to Citizens South DISCLOSURE
SCHEDULE 4.3.1. Immediately prior to the Effective Time, each Trinity Bank
Warrant that is outstanding, whether or not then exercisable, immediately prior
thereto shall, by reason of the Merger, be cancelled and converted into the
right to receive in cash an amount (subject to required tax withholdings) equal
to (i) the excess of (A) the Cash Consideration per share over (B) the exercise
price per share of each such Trinity Bank Warrant multiplied by (ii) the number
of shares of Trinity Bank Common Stock subject to the Trinity Bank Warrant (the
"Warrant Payment"). Prior to receipt of the Warrant Payment, each holder of a
Trinity Bank Warrant shall execute a cancellation agreement, substantially in
the form attached to Citizens South DISCLOSURE SCHEDULE 4.3.1. Trinity Bank
shall make the Option Payment and the Warrant Payment immediately prior to the
Effective Time. Each of the directors of Trinity Bank shall agree to accept the
Option Payment as full consideration for such director's Trinity Bank Options,
and each director shall agree not to sell, transfer or otherwise dispose of any
Trinity Bank Options at any time prior to the Effective Time. Such agreements
shall be reflected in each director's Voting Agreement. Trinity Bank shall use
its best efforts to cause each holder of a Trinity Bank Warrant as soon as
practicable following the date of this Agreement to enter into an agreement
substantially in the form attached in Citizens South DISCLOSURE SCHEDULE 4.3.1
in which such holder agrees to accept the Warrant Payment as full consideration
for such holder's Trinity Bank Warrants or to exercise such holder's Trinity
Bank Warrants prior to the Effective Time, and each holder shall agree not to
sell, transfer or otherwise dispose of any Trinity Bank Warrants at any time
17
prior to the Effective Time. The parties hereto acknowledge and agree that the
failure of Trinity Bank to secure the agreements referred to in the immediately
preceding sentence would have a material adverse effect on Citizens South for
purposes of Section 5(b) of the Stock Purchase Warrant.
3.5. Reservation of Shares.
Citizens South shall reserve for issuance a sufficient number of shares
of the Citizens South Common Stock for the purpose of issuing shares of Citizens
South Common Stock to the Trinity Bank shareholders in accordance with this
Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TRINITY BANK
Trinity Bank represents and warrants to Citizens South that the
statements contained in this Article IV are correct as of the date of this
Agreement and will be correct as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article IV), subject to the standard set forth in Section 4.1
and except as set forth in the Trinity Bank DISCLOSURE SCHEDULE delivered by
Trinity Bank to Citizens South on the date hereof, and except as to any
representation or warranty which specifically relates to an earlier date, which
only need be so correct as of such earlier date. Trinity Bank has made a good
faith effort to ensure that the disclosure on each schedule of the Trinity Bank
DISCLOSURE SCHEDULE corresponds to the section referenced herein. However, for
purposes of the Trinity Bank DISCLOSURE SCHEDULE, any item disclosed on any
schedule therein is deemed to be fully disclosed with respect to all schedules
under which such item may be relevant as and to the extent that it is reasonably
clear on the face of such schedule that such item applies to such other
schedule.
4.1. Standard.
No representation or warranty of Trinity Bank contained in this Article
IV shall be deemed untrue or incorrect, and Trinity Bank shall not be deemed to
have breached a representation or warranty, as a consequence of the existence of
any fact, circumstance or event unless such fact, circumstance or event,
individually or taken together with all other facts, circumstances or events
inconsistent with any paragraph of this Article IV, has had or is reasonably
expected to have a Material Adverse Effect with respect to Trinity Bank,
disregarding for these purposes (x) any qualification or exception for, or
reference to, materiality in any such representation or warranty and (y) any use
of the terms "material", "materially", "in all material respects", "Material
Adverse Effect" or similar terms or phrases in any such representation or
warranty. The foregoing standard shall not apply to representations and
warranties contained in Sections 4.2 (other than the last sentence of Sections
4.2.1 and 4.2.2), 4.4, 4.5, 4.8, 4.12.3, 4.14, 4.13.4, 4.13.6, and 4.13.9, which
shall be deemed untrue, incorrect and breached if they are not true and correct
in all material respects.
4.2. Organization.
4.2.1. Trinity Bank is a North Carolina chartered bank duly
organized, validly existing and in good standing under the laws of the
State of North Carolina. Trinity Bank has full
18
corporate power and authority to carry on its business as now conducted
and is duly licensed or qualified to do business in the states of the
United States and foreign jurisdictions where its ownership or leasing
of property or the conduct of its business requires such qualification.
The deposits of Trinity Bank are insured by the FDIC to the fullest
extent permitted by law, and all premiums and assessments required to
be paid in connection therewith have been paid by Trinity Bank when
due. Trinity Bank is a member in good standing of the FHLB and owns the
requisite amount of stock therein.
4.2.2. Trinity Bank DISCLOSURE SCHEDULE 4.2.2 sets forth each
Trinity Bank Subsidiary. Each Trinity Bank Subsidiary is a corporation,
limited liability company or other legal entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization.
4.2.3. The respective minute books of Trinity Bank and each
Trinity Bank Subsidiary accurately record, in all material respects,
all material corporate actions of their respective stockholders or
shareholders, as the case may be, and boards of directors (including
committees).
4.2.4. Prior to the date of this Agreement, Trinity Bank has
made available to Citizens South true and correct copies of the
certificate of incorporation or charter and bylaws of Trinity Bank and
each Trinity Bank Subsidiary.
4.3. Capitalization.
4.3.1. The authorized capital stock of Trinity Bank consists
of 5,000,000 shares of Trinity Bank Common Stock, of which, as of the
date of this Agreement, 1,837,986 shares are outstanding, validly
issued, fully paid and nonassessable and free of preemptive rights, and
1,000,000 shares of preferred stock, no par value ("Trinity Bank
Preferred Stock"), none of which are outstanding. There are no shares
of Trinity Bank Common Stock held by Trinity Bank as treasury stock.
Neither Trinity Bank nor any Trinity Bank Subsidiary has or is bound by
any Rights of any character, except as set forth on Trinity Bank
DISCLOSURE SCHEDULE 3.4.
4.3.2. Except for the Trinity Bank Subsidiaries and as set
forth in Trinity Bank DISCLOSURE SCHEDULE 4.3.2, Trinity Bank does not
possess, directly or indirectly, any material equity interest in any
corporate entity, except for equity interests held in the investment
portfolios of Trinity Bank (which as to any one issuer, do not exceed
5% of such issuer's outstanding equity securities), equity interests
held by Trinity Bank in a fiduciary capacity, and equity interests held
in connection with the lending activities of Trinity Bank, including
stock in the FHLB. Trinity Bank owns all of the outstanding shares of
capital stock of each Trinity Bank Subsidiary free and clear of all
liens, security interests, pledges, charges, encumbrances, agreements
and restrictions of any kind or nature.
4.3.3. To Trinity Bank's Knowledge, and except as set forth on
Trinity Bank DISCLOSURE SCHEDULE 4.3.3, as of the date hereof no Person
is the beneficial owner (as defined in Section 13(d) of the Exchange
Act) of 5% or more of the outstanding shares of Trinity Bank Common
Stock.
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4.3.4. There are no outstanding bonds, debentures, notes or
other indebtedness having the right to vote on any matters on which
Trinity Bank's shareholders may vote.
4.4. Authority; No Violation.
4.4.1. Trinity Bank has full corporate power and authority to
execute and deliver this Agreement and, subject to the receipt of the
Regulatory Approvals described in Section 8.3 and the approval of this
Agreement by Trinity Bank's shareholders, to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by Trinity Bank and the completion by Trinity Bank of the
transactions contemplated hereby, have been duly and validly approved
by the Board of Directors of Trinity Bank. This Agreement has been duly
and validly executed and delivered by Trinity Bank, and subject to
approval of this Agreement by the shareholders of Trinity Bank and
receipt of the Regulatory Approvals and due and valid execution and
delivery of this Agreement by Citizens South and Citizens South Bank,
constitutes the valid and binding obligation of Trinity Bank,
enforceable against Trinity Bank in accordance with its terms, except
to the extent that enforcement thereof may be limited by applicable
bankruptcy, insolvency, moratorium and similar laws affecting
creditors' rights generally, and to equitable principles that may limit
the right to specific performance of remedies, and further subject to
12 U.S.C. 1818 (b)(6)(D) or any successor statute and to the
application of principles of public policy.
4.4.2. Subject to compliance by Citizens South and Citizens
South Bank with the terms and conditions of this Agreement, (A) the
execution and delivery of this Agreement by Trinity Bank, (B) subject
to receipt of Regulatory Approvals, Trinity Bank's, Citizens South
Bank's and Citizens South's compliance with any conditions contained
herein, the receipt of the approval of the shareholders of Trinity
Bank, the consummation of the transactions contemplated hereby, and (C)
compliance by Trinity Bank with any of the terms or provisions hereof
will not (i) conflict with or result in a breach of any provision of
the Articles of Incorporation or Bylaws of Trinity Bank or any Trinity
Bank Subsidiary; (ii) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to
Trinity Bank or any Trinity Bank Subsidiary or any of their respective
properties or assets; or (iii) except as set forth on Trinity Bank
DISCLOSURE SCHEDULE 4.4.2, violate, conflict with, result in a breach
of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default), under,
result in the termination of, accelerate the performance required by,
or result in a right of termination or acceleration or the creation of
any lien, security interest, charge or other encumbrance upon any of
the properties or assets of Trinity Bank or any Trinity Bank Subsidiary
under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
investment or obligation to which Trinity Bank or Trinity Bank
Subsidiary is a party, or by which they or any of their respective
properties or assets may be bound or affected, except for such
violations, conflicts, breaches or defaults under clause (ii) or (iii)
hereof which, either individually or in the aggregate, will not have a
Material Adverse Effect on Trinity Bank and the Trinity Bank
Subsidiaries taken as a whole.
20
4.5. Consents.
Except for (a) the receipt of the Regulatory Approvals and compliance
with any conditions contained therein, (b) the filing of the Articles of Merger
with the OTS and the filing of the applicable certificates/documents with the
Commissioner and the Secretary of State of the State of North Carolina, and (c)
the approval of this Agreement by the requisite vote of the shareholders of
Trinity Bank, (d) clearance for use of the Proxy Statement/Prospectus by the
FDIC, and (e) those matters set forth on Trinity Bank DISCLOSURE SCHEDULE 4.5,
no consents, waivers or approvals of, or filings or registrations with, any
Governmental Entity or Bank Regulator are necessary, and, to Trinity Bank's
Knowledge, no consents, waivers or approvals of, or filings or registrations
with, any other third parties are necessary, in connection with the execution
and delivery of this Agreement by Trinity Bank, and the completion by Trinity
Bank of the Merger. Trinity Bank has no reason to believe that (i) any required
Regulatory Approvals or other required consents or approvals will not be
received or will include the imposition of any condition or requirement that
could reasonably be expected to result in a Material Adverse Effect on Citizens
South and its Subsidiaries, taken as a whole, or that (ii) any public body or
authority having jurisdiction over the affairs of Trinity Bank or its
subsidiaries, the consent or approval of which is not required or to which a
filing is not required, will object to the completion of the transactions
contemplated by this Agreement.
4.6. Financial Statements.
4.6.1. The Trinity Bank Regulatory Reports have been prepared
in all material respects in accordance with applicable regulatory
accounting principles and practices throughout the periods covered by
such statements, and fairly present in all material respects, the
financial position, results of operations and changes in shareholders'
equity of Trinity Bank as of and for the periods ended on the dates
thereof, in accordance with applicable regulatory accounting principles
applied on a consistent basis.
4.6.2. Trinity Bank has previously made available to Citizens
South the Trinity Bank Financial Statements covering periods ended
prior to the date of this Agreement. The Trinity Bank Financial
Statements have been prepared in accordance with GAAP, except as
indicated in the notes thereto, or in the case of unaudited statements,
as permitted by Form 10-QSB, and fairly present in each case in all
material respects (subject in the case of the unaudited interim
statements to normal year-end adjustments) the financial position,
results of operations and cash flows of Trinity Bank as of and for the
respective periods ended on the dates thereof.
4.6.3. Except as disclosed in Trinity Bank DISCLOSURE SCHEDULE
4.6.3, at the date of each balance sheet included in the Trinity Bank
Financial Statements or in the Trinity Bank Regulatory Reports, Trinity
Bank did not have any liabilities, obligations or loss contingencies of
any nature (whether absolute, accrued, contingent or otherwise) of a
type required to be reflected in such Trinity Bank Financial Statements
or in the Trinity Bank Regulatory Reports or in the footnotes thereto
which are not fully reflected or reserved against therein or fully
disclosed in a footnote thereto, except for liabilities, obligations
and loss contingencies which are not material individually or in the
aggregate, and except for liabilities, obligations and loss
contingencies which are within the subject matter of a specific
21
representation and warranty herein and subject, in the case of any
unaudited statements, to normal, recurring audit adjustments and the
absence of footnotes.
4.7. Taxes.
Trinity Bank and the Trinity Bank Subsidiaries that are at least 80
percent owned by Trinity Bank are members of the same affiliated group within
the meaning of Code Section 1504(a). Except as set forth in Trinity Bank
DISCLOSURE SCHEDULE 4.7, Trinity Bank has duly filed all federal, state and
material local tax returns required to be filed by or with respect to Trinity
Bank and each Subsidiary of Trinity Bank, taking into account any extensions
(all such returns, to Trinity Bank's Knowledge, being accurate and correct in
all material respects) and has duly paid or made provisions for the payment of
all material federal, state and local taxes which have been incurred by or are
due or claimed to be due from Trinity Bank and any Subsidiary of Trinity Bank by
any taxing authority or pursuant to any written tax sharing agreement, other
than taxes or other charges which (i) are not delinquent, (ii) are being
contested in good faith, or (iii) have not yet been fully determined. Except as
set forth in Trinity Bank DISCLOSURE SCHEDULE 4.7, as of the date of this
Agreement, Trinity Bank has not received written notice of any, and to Trinity
Bank's Knowledge there is no, audit examination, deficiency assessment, tax
investigation or refund litigation with respect to any taxes of Trinity Bank or
any of its Subsidiaries, and, to Trinity Bank's Knowledge, no claim has been
made by any taxing authority in a jurisdiction where Trinity Bank or any of its
Subsidiaries do not file tax returns that Trinity Bank or any such Subsidiary is
subject to taxation in that jurisdiction. Except as set forth in Trinity Bank
DISCLOSURE SCHEDULE 4.7, Trinity Bank and its Subsidiaries have not executed an
extension or waiver of any statute of limitations on the assessment or
collection of any material tax due that is currently in effect. Trinity Bank and
each of its Subsidiaries has timely withheld and paid all taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party, and Trinity
Bank and each of its Subsidiaries, to Trinity Bank's Knowledge, has timely
complied with all applicable information reporting requirements under Part III,
Subchapter A of Chapter 61 of the Code and similar applicable state and local
information reporting requirements.
4.8. No Material Adverse Effect.
Trinity Bank and the Trinity Bank Subsidiaries, taken as a whole, have
not suffered any Material Adverse Effect since December 31, 2004 and no event
has occurred or circumstance arisen since that date which, in the aggregate, has
had or is reasonably likely to have a Material Adverse Effect on Trinity Bank
and the Trinity Bank Subsidiaries, taken as a whole.
4.9. Material Contracts; Leases; Defaults.
4.9.1. Except as set forth in Trinity Bank DISCLOSURE SCHEDULE
4.9.1, neither Trinity Bank nor any Trinity Bank Subsidiary is a party
to or subject to: (i) any employment, consulting or severance contract
with any past or present officer, director or employee of Trinity Bank
or any Trinity Bank Subsidiary, except for "at will" arrangements; (ii)
any plan or contract providing for bonuses, pensions, options, deferred
compensation, retirement payments, profit sharing or similar material
arrangements for or with any past or present officers,
22
directors or employees of Trinity Bank or any Trinity Bank Subsidiary;
(iii) any collective bargaining agreement with any labor union relating
to employees of Trinity Bank or any Trinity Bank Subsidiary; (iv) any
agreement which by its terms limits or affects the payment of dividends
by Trinity Bank or any Trinity Bank Subsidiary; (v) any instrument
evidencing or related to indebtedness for borrowed money in excess of
$50,000 (other than deposits, FHLB advances with a term to maturity not
in excess of one year, repurchase agreements, bankers' acceptances,
"treasury tax and loan" accounts and transactions in "federal funds,"
all established in the ordinary course of business consistent with past
practice), whether directly or indirectly, by way of purchase money
obligation, conditional sale, lease purchase, guaranty or otherwise, in
respect of which Trinity Bank or any Trinity Bank Subsidiary is an
obligor to any person, which instrument evidences or relates to
indebtedness of Trinity Bank or which contains financial covenants or
other material non-customary restrictions applicable to Trinity Bank
(other than those relating to the payment of principal and interest
when due) which would be applicable on or after the Closing Date to
Citizens South or any Citizens South Subsidiary; (vi) any other
agreement, written or oral, which is not terminable without cause on 60
days' notice or less without material penalty or payment, or that
obligates Trinity Bank or any Trinity Bank Subsidiary for the payment
of more than $25,000 annually or for the payment of more than $50,000
over its remaining term; or (vii) any agreement (other than this
Agreement), contract, arrangement, commitment or understanding (whether
written or oral) that restricts or limits in any material way the
conduct of business by Trinity Bank or any Trinity Bank Subsidiary (it
being understood that any non-compete or similar provision shall be
deemed material).
4.9.2. Each real estate lease that will require the consent of
the lessor or its agent as a result of the Merger by virtue of the
terms of any such lease, is listed in Trinity Bank DISCLOSURE SCHEDULE
4.9.2 identifying the section of the lease that contains such
prohibition or restriction. Subject to any consents that may be
required as a result of the transactions contemplated by this
Agreement, to its Knowledge, neither Trinity Bank nor any Trinity Bank
Subsidiary is in default in any material respect under any material
contract, agreement, commitment, arrangement, lease, insurance policy
or other instrument to which it is a party, by which its assets,
business, or operations may be bound or affected, or under which it or
its assets, business, or operations receive benefits, and there has not
occurred any event that, with the lapse of time or the giving of notice
or both, would constitute such a default.
4.9.3. True and correct copies of agreements, contracts,
arrangements and instruments referred to in Sections 4.9.1 and 4.9.2
have been made available to Citizens South on or before the date of
this Agreement and are in full force and effect on the date of this
Agreement. Except as set forth in Trinity Bank DISCLOSURE SCHEDULE
4.9.3, no plan, contract, employment agreement, termination agreement,
or similar agreement or arrangement to which Trinity Bank or any
Trinity Bank Subsidiary is a party or under which Trinity Bank or any
Trinity Bank Subsidiary may be liable contains provisions which permit
an employee or independent contractor to terminate it without cause and
continue to accrue future benefits thereunder. Except as set forth in
Trinity Bank DISCLOSURE SCHEDULE 4.9.3, no such agreement, plan,
contract, or arrangement (x) provides for acceleration of payments due
thereunder upon the occurrence of a change in ownership or control of
Trinity Bank or any Trinity Bank Subsidiary or upon the occurrence of a
subsequent event; or (y) requires Trinity Bank or any Trinity Bank
Subsidiary to provide a benefit in the form of Trinity Bank Common
Stock or determined by reference to the value of Trinity Bank Common
Stock.
23
4.10. Ownership of Property; Insurance Coverage.
4.10.1. Except as set forth in Trinity Bank DISCLOSURE
SCHEDULE 4.10.1, Trinity Bank and each Trinity Bank Subsidiary has good
and, as to real property, marketable title to all material assets and
properties owned by Trinity Bank or each Trinity Bank Subsidiary in the
conduct of its businesses, whether such assets and properties are real
or personal, tangible or intangible, including assets and property
reflected in the balance sheet contained in the most recent Trinity
Bank Financial Statements or acquired subsequent thereto (except to the
extent that such assets and properties have been disposed of in the
ordinary course of business, since the date of such balance sheet),
subject to no material encumbrances, liens, mortgages, security
interests or pledges, except (i) those items which secure liabilities
for public or statutory obligations or any discount with, borrowing
from or other obligations to the FHLB, any inter-bank credit
facilities, any reverse repurchase agreements or any transaction by a
Trinity Bank Subsidiary acting in a fiduciary capacity, and (ii)
statutory liens for amounts not yet delinquent or which are being
contested in good faith. Trinity Bank and the Trinity Bank
Subsidiaries, as lessee, have the right under valid and existing leases
of real and personal properties used by Trinity Bank and the Trinity
Bank Subsidiaries in the conduct of their businesses to occupy or use
all such properties as presently occupied and used by each of them.
Such existing leases and commitments to lease constitute or will
constitute operating leases for both tax and financial accounting
purposes and the lease expense and minimum rental commitments with
respect to such leases and lease commitments are as disclosed in all
material respects in the notes to the Trinity Bank Financial
Statements.
4.10.2. With respect to all material agreements pursuant to
which Trinity Bank or any Trinity Bank Subsidiary has purchased
securities subject to an agreement to resell, if any, Trinity Bank or
such Trinity Bank Subsidiary, as the case may be, has a lien or
security interest (which to Trinity Bank's Knowledge is a valid,
perfected first lien) in the securities or other collateral securing
the repurchase agreement, and, to Trinity Bank's Knowledge, the value
of such collateral equals or exceeds the amount of the debt secured
thereby.
4.10.3. Trinity Bank and each other Subsidiary of Trinity Bank
currently maintain insurance considered by each of them to be
reasonable for their respective operations. Neither Trinity Bank nor
any other Subsidiary of Trinity Bank, has received notice from any
insurance carrier on or before the date hereof that (i) such insurance
will be canceled or that coverage thereunder will be reduced or
eliminated, or (ii) premium costs with respect to such policies of
insurance will be substantially increased. There are presently no
material claims pending under such policies of insurance and no notices
of any claims under such policies have been given by Trinity Bank or
any other Subsidiary of Trinity Bank under such policies. To the
Knowledge of Trinity Bank, all such insurance is valid and enforceable
and in full force and effect (other than insurance that expires in
accordance with its terms), and within the last three years Trinity
Bank and each other Subsidiary of Trinity Bank has received each type
of insurance coverage for which it has applied and during such periods
has not been denied indemnification for any material claims submitted
under any of its insurance policies. Trinity Bank DISCLOSURE SCHEDULE
4.10.3 identifies all policies of insurance maintained by Trinity Bank.
24
4.11. Legal Proceedings.
Except as set forth in Trinity Bank DISCLOSURE SCHEDULE 4.11, neither
Trinity Bank nor any Trinity Bank Subsidiary is a party to any, and there are no
pending or, to Trinity Bank's Knowledge, threatened legal, administrative,
arbitration or other proceedings, claims (whether asserted or unasserted),
actions or governmental investigations or inquiries of any nature, (i) against
Trinity Bank or any Trinity Bank Subsidiary, (ii) to which Trinity Bank or any
Trinity Bank Subsidiary's assets are or may be subject, (iii) challenging the
validity or propriety of any of the transactions contemplated by this Agreement,
or (iv) which would reasonably be expected to adversely affect the ability of
Trinity Bank to perform under this Agreement, except for any proceeding, claim,
action, investigation or inquiry which, if adversely determined, individually or
in the aggregate, could not be reasonably expected to have a Material Adverse
Effect.
4.12. Compliance With Applicable Law.
4.12.1. To Trinity Bank's Knowledge, each of Trinity Bank and
each Trinity Bank Subsidiary is in compliance in all material respects
with all applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees applicable
to it, its properties, assets and deposits, its business, and its
conduct of business and its relationship with its employees, including,
without limitation, the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (the
"USA PATRIOT Act") of 2001, the Equal Credit Opportunity Act, the Truth
in Lending Act, the Real Estate Settlement Procedures Act, the Consumer
Credit Protection Act, the Fair Credit Reporting Act, the Fair Debt
Collections Act, the Fair Housing Act, the Community Reinvestment Act
of 1977 ("CRA"), the Home Mortgage Disclosure Act, and all other
applicable fair lending laws and other laws relating to discriminatory
business practices, and neither Trinity Bank nor any Trinity Bank
Subsidiary has received any written notice to the contrary.
4.12.2. Each of Trinity Bank and each Trinity Bank Subsidiary
has all material permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Entities and Bank Regulators that are required
in order to permit it to own or lease its properties and to conduct its
business as presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force and
effect and, to the Knowledge of Trinity Bank, no suspension or
cancellation of any such permit, license, certificate, order or
approval is threatened or will result from the consummation of the
transactions contemplated by this Agreement, subject to obtaining the
approvals set forth in Section 8.3.
4.12.3. For the period beginning January 1, 2000, neither
Trinity Bank nor any Trinity Bank Subsidiary has received any written
notification or, to Trinity Bank's Knowledge, any other communication
from any Bank Regulator (i) asserting that Trinity Bank or any Trinity
Bank Subsidiary is not in material compliance with any of the statutes,
regulations or ordinances which such Bank Regulator enforces; (ii)
threatening to revoke any license, franchise, permit or governmental
authorization which is material to Trinity Bank or any Trinity Bank
Subsidiary; (iii) requiring or threatening to require Trinity Bank or
any Trinity Bank Subsidiary, or
25
indicating that Trinity Bank or any Trinity Bank Subsidiary may be
required, to enter into a cease and desist order, agreement or
memorandum of understanding or any other agreement with any federal or
state governmental agency or authority which is charged with the
supervision or regulation of banks or engages in the insurance of bank
deposits restricting or limiting, or purporting to restrict or limit,
in any material respect the operations of Trinity Bank or any Trinity
Bank Subsidiary, including without limitation any restriction on the
payment of dividends; or (iv) directing, restricting or limiting, or
purporting to direct, restrict or limit, in any material manner the
operations of Trinity Bank or any Trinity Bank Subsidiary (any such
notice, communication, memorandum, agreement or order described in this
sentence is hereinafter referred to as a "Regulatory Agreement").
Neither Trinity Bank nor any Trinity Bank Subsidiary has consented to
or entered into any Regulatory Agreement that is currently in effect.
The most recent regulatory rating given to Trinity Bank as to
compliance with the CRA is satisfactory or better.
4.13. Employee Benefit Plans.
4.13.1. Trinity Bank DISCLOSURE SCHEDULE 4.13.1 contains a
list of each compensation, consulting, employment, termination or
collective bargaining agreement, and each stock option, stock purchase,
stock appreciation right, recognition and retention, life, health,
accident or other insurance, bonus, deferred or incentive compensation,
severance or separation agreement or any agreement providing any
payment or benefit resulting from a change in control, profit sharing,
retirement, or other employee benefit plan, practice, policy or
arrangement of any kind, oral or written, covering employees, former
employees, directors or former directors of Trinity Bank or each
Trinity Bank Subsidiary or their respective beneficiaries, including,
but not limited to, any employee benefit plans within the meaning of
Section 3(3) of ERISA, which Trinity Bank or any Trinity Bank
Subsidiary maintains, to which Trinity Bank or any Trinity Bank
Subsidiary contributes, or under which any employee, former employee,
director or former director of Trinity Bank or any Trinity Bank
Subsidiary is covered or has benefit rights and pursuant to which any
liability of Trinity Bank or any Trinity Bank Subsidiary exists or is
reasonably likely to occur (the "Compensation and Benefit Plans").
Trinity Bank has made available for inspection true and correct copies
of the Compensation and Benefit Plans, as well as current summary plan
descriptions, trust agreements, and insurance contracts, Internal
Revenue Service Form 5500 (for the three most recently completed plan
years) and the most recent IRS determination letters with respect
thereto, and the loan agreement and related documents, including any
amendments thereto, evidencing any outstanding loan to an employee
stock ownership plan maintained by Trinity Bank or any Trinity Bank
Subsidiary. Except as set forth on Trinity Bank DISCLOSURE SCHEDULE
4.13.1, Trinity Bank neither maintains nor has entered into any
Compensation and Benefit Plan or other document, plan or agreement
which contains any change in control provisions which would cause an
increase or acceleration of benefits or benefit entitlements to
employees or former employees of Trinity Bank or any Trinity Bank
Subsidiary or their respective beneficiaries, or other provisions which
would cause an increase in the liability of Trinity Bank or any Trinity
Bank Subsidiary or to Citizens South as a result of the transactions
contemplated by this Agreement (a "Change in Control Benefit"). The
term "Compensation and Benefit Plans" as used herein refers to all
plans contemplated under the preceding sentences of this Section
4.13.1, provided that the term "Plan" or "Plans" is used in this
Agreement for convenience only and does not constitute an
acknowledgment that a particular arrangement is an employee benefit
plan within the meaning of
26
Section 3(3) of ERISA. Neither Trinity Bank nor any Trinity Bank
Subsidiary has been notified by any Governmental Entity to modify or
limit any payments or other compensation paid or payable by Trinity
Bank or any Trinity Bank Subsidiary under any Compensation and Benefit
Plan or otherwise, to or for the benefit of any employee or director of
Trinity Bank or any Trinity Bank Subsidiary and to the knowledge of
Trinity Bank, all such payments are in compliance with all applicable
rules, regulations and bulletins promulgated by the Governmental
Entities. Neither Trinity Bank nor any of its Subsidiaries has any
commitment to create any additional Compensation and Benefit Plan or to
materially modify, change or renew any existing Compensation and
Benefit Plan (any modification or change that increases the cost of
such plans would be deemed material), except as required to maintain
the qualified status thereof or as required in the normal course and
consistent with past practice to continue existing insured welfare
benefits or existing benefits provided through a Code Section 125 plan.
4.13.2. Each of the Compensation and Benefit Plans that is
intended to be a pension, profit sharing, stock bonus, thrift, savings
or employee stock ownership plan that is qualified under Section 401(a)
of the Code ("Trinity Bank Qualified Plans") has been determined by the
IRS to qualify under Section 401(a) of the Code (a copy of each such
determination letter has previously been made available to Citizens
South by Trinity Bank) and, to the Knowledge of Trinity Bank, there
exist no circumstances likely to materially adversely affect the
qualified status of any such Trinity Bank Qualified Plan. All such
Trinity Bank Qualified Plans established or maintained by Trinity Bank
or each Trinity Bank Subsidiary or to which Trinity Bank or any Trinity
Bank Subsidiary contribute are in compliance in all material respects
with all applicable requirements of ERISA, and are in compliance in all
material respects with all applicable requirements (including
qualification and non-discrimination requirements in effect as of the
Effective Time) of the Code for obtaining the tax benefits the Code
permits with respect to such Trinity Bank Qualified Plans. Except as
set forth on Trinity Bank DISCLOSURE SCHEDULE 4.13.2, no Trinity Bank
Qualified Plan is a defined benefit pension plan that is subject to
Title IV of ERISA. All accrued contributions and other payments
required to be made by Trinity Bank or each Trinity Bank Subsidiary to
any Compensation and Benefit Plan through the date hereof, have been
made or reserves adequate for such purposes as of the date hereof, have
been set aside therefor and reflected in the Trinity Bank Financial
Statements to the extent required by GAAP and Trinity Bank and its
Subsidiaries have expensed and accrued as a liability the present value
of future benefits under each applicable Compensation and Benefit Plan
for financial reporting purposes to the extent required by GAAP.
Neither Trinity Bank nor any Trinity Bank Subsidiary is in material
default in performing any of its respective contractual obligations
under any of Compensation and Benefit Plans or any related trust
agreement or insurance contract, and there are no material outstanding
liabilities of any such Plan other than liabilities for benefits to be
paid to participants in such Plan and their beneficiaries in accordance
with the terms of such Plan. Neither Trinity Bank nor any Trinity Bank
Subsidiary has engaged in a transaction, or omitted to take any action,
with respect to any Compensation and Benefit Plan that would reasonably
be expected to subject Trinity Bank or any Trinity Bank Subsidiary to
an unpaid tax or penalty imposed by either Section 4975 of the Code or
Section 502 of ERISA.
4.13.3. Neither Trinity Bank nor any Trinity Bank Subsidiary
presently sponsors or participates in, or has ever sponsored or
participated in, any Trinity Bank Compensation and Benefit Plan that is
a defined benefit plan subject to Title IV of ERISA or any
"single-employer
27
plan" (as defined in Section 4001(a) of ERISA) currently or formerly
maintained by Trinity Bank or any entity which is considered one
employer with Trinity Bank under Section 4001(b)(1) of ERISA or Section
414 of the Code (an "ERISA Affiliate") (such plan hereinafter referred
to as an "ERISA Affiliate Plan"). Except as set forth in Trinity Bank
DISCLOSURE SCHEDULE 4.13.3, neither Trinity Bank nor any ERISA
Affiliate nor any Trinity Bank Compensation and Benefit Plan, nor any
trust created thereunder, nor any trustee or administrator thereof has
engaged in a transaction in connection with which any of the aforesaid
persons or entities would reasonably be expected to be subject to
either a civil liability or penalty pursuant to Section 409, 502(i) or
502(l) of ERISA or a tax imposed pursuant to Chapter 43 of the Code. To
the Knowledge of Trinity Bank, and except as set forth in Trinity Bank
DISCLOSURE SCHEDULE 4.13.3, there is no pending investigation or
enforcement action by any Bank Regulator with respect to any
Compensation and Benefit Plan or any ERISA Affiliate Plan. There is no
pending or, to the Knowledge of Trinity Bank, threatened litigation or
pending claim (other than individual benefit claims made in the
ordinary course) by or on behalf of or against any of Compensation and
Benefit Plans (or with respect to the administration of any of such
Plans) now or heretofore maintained by Trinity Bank or any Trinity Bank
Subsidiary which allege violations of applicable state or federal law
or the terms of the Plan which are reasonably likely to result in a
material liability on the part of Trinity Bank or any Trinity Bank
Subsidiary or any such Plan.
4.13.4. Except as set forth in Trinity Bank DISCLOSURE
SCHEDULE 4.13.4, neither Trinity Bank nor any Trinity Bank Subsidiary
has any obligations to provide retiree health, life insurance,
disability insurance, or other retiree death benefits under any
Compensation and Benefit Plan, other than benefits mandated by Section
4980B of the Code. Except as set forth in Trinity Bank DISCLOSURE
SCHEDULE 4.13.4, there has been no communication to employees by
Trinity Bank or any Trinity Bank Subsidiary that would reasonably be
expected to preclude Trinity Bank (or Citizens South Bank as successor
to Trinity Bank) from amending or terminating any obligations to its
employees or former employees with respect to retiree health, life
insurance, disability insurance, or other retiree death benefits.
4.13.5. All Compensation and Benefit Plans that are group
health plans have been operated in compliance with the group health
plan continuation requirements of Section 4980B of the Code and
Sections 601-609 of ERISA and with the certification of prior coverage
and other requirements of Sections 701-702 and 711-713 of ERISA.
4.13.6. Except as set forth in Trinity Bank DISCLOSURE
SCHEDULE 4.13.6, Trinity Bank and its Subsidiaries do not maintain any
Compensation and Benefit Plans covering employees who are not United
States residents.
4.13.7. Trinity Bank DISCLOSURE SCHEDULE 4.13.7 lists and
describes: (i) each employee, officer and director of Trinity Bank and
each Trinity Bank Subsidiary who is eligible to receive a Change in
Control Benefit, showing the amount of such Change in Control Benefit
for such individuals; and (ii) each employee, officer or director for
whom a supplemental executive retirement, salary continuation or
deferred compensation plan or agreement is maintained, showing the
amounts due under each such plan or agreement and the payment schedule
thereof, and the amounts accrued in Trinity Bank Financial Statements
with respect thereto. Except as disclosed in Trinity Bank DISCLOSURE
SCHEDULE 4.13.7, the
28
consummation of the Merger will not, directly or indirectly (including,
without limitation, as a result of any termination of employment or
service at any time prior to or following the Effective Time) (A)
entitle any employee, consultant or director to any payment or benefit
(including severance pay, change in control benefit, or similar
compensation) or any increase in compensation, (B) result in the
vesting or acceleration of any benefits under any Compensation and
Benefit Plan or (C) result in any material increase in benefits payable
under any Compensation and Benefit Plan. Except as set forth in Trinity
Bank DISCLOSURE SCHEDULE 4.13.7, the consummation of the Merger will
not, directly or indirectly (including without limitation, as a result
of any termination of employment or service at any time prior to or
following the Effective Time), entitle any current or former employee,
director or independent contractor of Trinity Bank or any Trinity Bank
Subsidiary to any actual or deemed payment (or benefit) which would
constitute a "parachute payment" (as such term is defined in Section
280G of the Code).
Except as disclosed in Trinity Bank DISCLOSURE SCHEDULE 4.13.8, neither
Trinity Bank nor any Trinity Bank Subsidiary maintains any compensation
plans, programs or arrangements under which any payment is reasonably
likely to become non-deductible, in whole or in part, for tax reporting
purposes as a result of the limitations under Section 162(m) of the
Code and the regulations issued thereunder.
4.14. Brokers, Finders and Financial Advisors.
Neither Trinity Bank nor any Trinity Bank Subsidiary, nor any of their
respective officers, directors, employees or agents, has employed any broker,
finder or financial advisor in connection with the transactions contemplated by
this Agreement, or incurred any liability or commitment for any fees or
commissions to any such person in connection with the transactions contemplated
by this Agreement except for the retention of ▇▇▇▇▇ Capital Group, LLC ("▇▇▇▇▇")
by Trinity Bank and the fee payable pursuant thereto. Trinity Bank has made
available to Citizens South a true and correct copy of the engagement agreement
with ▇▇▇▇▇, setting forth the fee payable to ▇▇▇▇▇ for its services rendered to
Trinity Bank in connection with the Merger and transactions contemplated by this
Agreement.
4.15. Environmental Matters.
4.15.1. Except as may be set forth in Trinity Bank DISCLOSURE
SCHEDULE 4.15:
(A) Each of Trinity Bank and the Trinity Bank
Subsidiaries and, to Trinity Bank's Knowledge, the
Participation Facilities and the Loan Properties are, and have
been, in substantial compliance with, and are not liable
under, any Environmental Laws;
(B) Trinity Bank has received no written notice that
there is any suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding
pending and, to Trinity Bank's Knowledge, no such action is
threatened, before any court, governmental agency or other
forum against it or any of the Trinity Bank Subsidiaries or
any Participation Facility (x) for alleged noncompliance
(including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the presence of or
release into the
29
environment of any Materials of Environmental Concern (as
defined herein), whether or not occurring at or on a site
owned, leased or operated by it or any of the Trinity Bank
Subsidiaries or any Participation Facility;
(C) Trinity Bank has received no written notice that
there is any suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding
pending and, to Trinity Bank's Knowledge no such action is
threatened, before any court, governmental agency or other
forum relating to or against any Loan Property (or Trinity
Bank or any of the Trinity Bank Subsidiaries in respect of
such Loan Property) (x) relating to alleged noncompliance
(including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the presence of or
release into the environment of any Materials of Environmental
Concern, whether or not occurring at or on a site owned,
leased or operated by a Loan Property;
(D) To Trinity Bank's Knowledge, the properties
currently owned or operated by Trinity Bank or any Trinity
Bank Subsidiary (including, without limitation, soil,
groundwater or surface water on, or under the properties, and
buildings thereon) are not contaminated with and do not
otherwise contain any Materials of Environmental Concern other
than as permitted under applicable Environmental Law;
(E) Neither Trinity Bank nor any Trinity Bank
Subsidiary has received any written notice, demand letter,
executive or administrative order, directive or request for
information from any federal, state, local or foreign
governmental entity or any third party indicating that it may
be in violation of, or liable under, any Environmental Law;
(F) To Trinity Bank's Knowledge, there are no
underground storage tanks on, in or under any properties owned
or operated by Trinity Bank or any of the Trinity Bank
Subsidiaries or any Participation Facility, and to Trinity
Bank's Knowledge, no underground storage tanks have been
closed or removed from any properties owned or operated by
Trinity Bank or any of the Trinity Bank Subsidiaries or any
Participation Facility;
(G) To Trinity Bank's Knowledge, during the period of
(s) Trinity Bank's or any of the Trinity Bank Subsidiaries'
ownership or operation of any of their respective current
properties or (t) Trinity Bank's or any of the Trinity Bank
Subsidiaries' participation in the management of any
Participation Facility, there has been no contamination by or
release of Materials of Environmental Concerns in, on, under
or affecting such properties that could reasonably be expected
to result in material liability under the Environmental Laws.
To Trinity Bank's Knowledge, prior to the period of (x)
Trinity Bank's or any of the Trinity Bank Subsidiaries'
ownership or operation of any of their respective current
properties or (y) Trinity Bank's or any of the Trinity Bank
Subsidiaries' participation in the management of any
Participation Facility, there was no contamination by or
release of Materials of Environmental Concern in, on, under or
affecting such properties that could reasonably be expected to
result in material liability under the Environmental Laws; and
(H) Neither Trinity Bank nor any other Trinity Bank
Subsidiary has conducted any environmental studies during the
past ten years (other than Phase I studies which did not
indicate any contamination of the environment by Materials of
Environmental Concern)
30
with respect to any properties owned or leased by it or any of
its Subsidiaries, or with respect to any Loan Property or any
Participation Facility.
4.15.2. "Loan Property" means any real property in which the
applicable party (or a Subsidiary of it) holds a security interest,
and, where required by the context, includes the owner or operator of
such property, but only with respect to such property. "Participation
Facility" means any facility in which the applicable party (or a
Subsidiary of it) participates in the management (including all
property held as trustee or in any other fiduciary capacity) and, where
required by the context, includes the owner or operator of such
property, but only with respect to such property.
4.16. Loan Portfolio.
4.16.1. The allowance for loan losses reflected in Trinity
Bank's audited balance sheet as December 31, 2004 was, and the
allowance for loan losses shown on the balance sheets in Trinity Bank
Securities Documents for periods ending after December 31, 2004 were,
or will be, adequate as of the dates thereof, under GAAP.
4.16.2. Trinity Bank DISCLOSURE SCHEDULE 4.16.2 sets forth a
listing, as of March 31, 2005, by account, of: (A) all loans (including
loan participations) of Trinity Bank or any other Trinity Bank
Subsidiary that have been accelerated during the past twelve months;
(B) all loan commitments or lines of credit of Trinity Bank or any
other Trinity Bank Subsidiary which have been terminated by Trinity
Bank or any other Trinity Bank Subsidiary during the past twelve months
by reason of a default or adverse developments in the condition of the
borrower or other events or circumstances affecting the credit of the
borrower; (C) all loans, lines of credit and loan commitments as to
which Trinity Bank or any other Trinity Bank Subsidiary has given
written notice of its intent to terminate during the past twelve
months; (D) with respect to all commercial loans (including commercial
real estate loans), all notification letters and other written
communications from Trinity Bank or any other Trinity Bank Subsidiary
to any of their respective borrowers, customers or other parties during
the past twelve months wherein Trinity Bank or any other Trinity Bank
Subsidiary has requested or demanded that actions be taken to correct
existing defaults or facts or circumstances which may become defaults;
(E) each borrower, customer or other party which has notified Trinity
Bank or any other Trinity Bank Subsidiary during the past twelve months
of, or has asserted against Trinity Bank during the past twelve months,
or any other Trinity Bank Subsidiary, in each case in writing, any
"lender liability" or similar claim, and, to the knowledge of Trinity
Bank or any Trinity Bank Subsidiary, each borrower, customer or other
party which has given Trinity Bank, or any other Trinity Bank
Subsidiary any oral notification of, or orally asserted to or against
Trinity Bank, or any other Trinity Bank Subsidiary, any such claim; and
(F) all loans, (1) that are contractually past due 90 days or more in
the payment of principal and/or interest, (2) that are on non-accrual
status, (3) that are classified as "Other Loans Specially Mentioned",
"Special Mention", "Substandard", "Doubtful", "Loss", "Classified",
"Criticized", "Watch list" or words of similar import, together with
the principal amount of and accrued and unpaid interest on each such
Loan and the identity of the obligor thereunder, (4) where a reasonable
doubt exists as to the timely future collectability of principal and/or
interest, whether or not interest is still accruing or the loans are
less than 90 days past due, (5) where the interest rate terms have been
reduced and/or the maturity dates have been extended subsequent to the
agreement under which the loan was
31
originally created due to concerns regarding the borrower's ability to
pay in accordance with such initial terms, or (6) where a specific
reserve allocation exists in connection therewith; and (G) all other
assets classified by Trinity Bank, or any other Trinity Bank Subsidiary
as real estate acquired through foreclosure or in lieu of foreclosure,
including in-substance foreclosures, and all other assets currently
held that were acquired through foreclosure or in lieu of foreclosure.
DISCLOSURE SCHEDULE 4.16.2 may exclude any individual loan with a
principal outstanding balance of less than $50,000, provided that
DISCLOSURE SCHEDULE 4.16.2 includes, for each category described, the
aggregate amount of individual loans with a principal outstanding
balance of less than $50,000 that has been excluded.
4.16.3. All loans receivable (including discounts) and accrued
interest entered on the books of Trinity Bank and the Trinity Bank
Subsidiaries arose out of bona fide arm's-length transactions, were
made for good and valuable consideration in the ordinary course of
Trinity Bank's or the appropriate Trinity Bank Subsidiary's respective
business, and the notes or other evidences of indebtedness with respect
to such loans (including discounts) are true and genuine and are what
they purport to be, except as set forth in Trinity Bank DISCLOSURE
SCHEDULE 4.16.3. To the Knowledge of Trinity Bank, the loans, discounts
and the accrued interest reflected on the books of Trinity Bank and the
Trinity Bank Subsidiaries are subject to no defenses, set-offs or
counterclaims (including, without limitation, those afforded by usury
or truth-in-lending laws), except as may be provided by bankruptcy,
insolvency or similar laws affecting creditors' rights generally or by
general principles of equity. Except as set forth in Trinity Bank
DISCLOSURE SCHEDULE 4.16.3, all such loans are owned by Trinity Bank or
the appropriate Trinity Bank Subsidiary free and clear of any liens.
4.16.4. The notes and other evidences of indebtedness
evidencing the loans described in Section 4.16 hereof, and all pledges,
mortgages, deeds of trust and other collateral documents or security
instruments relating thereto, are, in all material respects, valid,
true and genuine, and what they purport to be.
4.17. Securities Documents.
Trinity Bank has made available to Citizens South copies of its (i)
annual reports on Form 10-KSB for the years ended December 31, 2004, 2003 and
2002, (ii) the quarterly report on Form 10-QSB for the quarter ended March 31,
2005, and (iii) proxy materials used or for use in connection with its meetings
of shareholders held in 2005, 2004 and 2003. Such reports, as amended, and proxy
materials complied, at the time filed with the FDIC, in all material respects,
with the Securities Laws applicable to Trinity Bank.
4.18. Related Party Transactions.
Except as described in Trinity Bank's proxy statement dated April 1,
2005 (the "Trinity Bank Proxy Statement") distributed in connection with its
annual meeting of shareholders held on May 2, 2005 (which has previously been
made available to Citizens South), or as set forth in Trinity Bank DISCLOSURE
SCHEDULE 4.18, neither Trinity Bank nor any Trinity Bank Subsidiary is a party
to any transaction (including any loan or other credit accommodation) with any
Affiliate of Trinity Bank or any Trinity Bank Subsidiary. Except as described in
the Trinity Bank Proxy Statement, all such transactions (a) were made in the
ordinary course of business, (b)
32
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other Persons, and (c) did not involve more than the normal risk of
collectability or present other unfavorable features. No loan or credit
accommodation to any Affiliate of Trinity Bank or any Trinity Bank Subsidiary is
presently in default or, during the three year period prior to the date of this
Agreement, has been in default or has been restructured, modified or extended
except for rate modifications pursuant to Trinity Bank's loan modification
policy that is applicable to all Persons. Neither Trinity Bank nor any Trinity
Bank Subsidiary has been notified that principal or interest with respect to any
such loan or other credit accommodation will not be paid when due or that the
loan grade classification accorded such loan or credit accommodation by Trinity
Bank is inappropriate.
4.19. Deposits.
Except as set forth in Trinity Bank DISCLOSURE SCHEDULE 4.19, none of
the deposits of any Trinity Bank Subsidiary is a "brokered deposit" as defined
in 12 C.F.R. Section 337.6(a)(2).
4.20. Antitakeover Provisions Inapplicable; Required Vote.
The transactions contemplated by this Agreement are not subject to the
requirements of any "moratorium," "control share," "fair price," "affiliate
transactions," "business combination" or other antitakeover laws and regulations
of the State of North Carolina. The affirmative vote of two-thirds of the issued
and outstanding shares of Trinity Bank Common Stock is required to approve this
Agreement and the Merger under North Carolina law and Trinity Bank's articles of
incorporation.
4.21. Registration Obligations.
Neither Trinity Bank nor any Trinity Bank Subsidiary is under any
obligation, contingent or otherwise, which will survive the Effective Time by
reason of any agreement to register any transaction involving any of its
securities under the Securities Act.
4.22. Risk Management Instruments.
Neither Trinity Bank nor any Trinity Bank Subsidiary is a party to any
interest rate swaps, caps, floors, option agreements, futures and forward
contracts and other similar risk management arrangements, whether entered into
for Trinity Bank's own account, or for the account of one or more of Trinity
Bank's Subsidiaries or their customers.
4.23. Fairness Opinion.
Trinity Bank has received an opinion from ▇▇▇▇▇ to the effect that,
subject to the terms, conditions and qualifications set forth therein, as of the
date hereof, the Merger Consideration to be received by the shareholders of
Trinity Bank pursuant to this Agreement is fair to such shareholders from a
financial point of view.
33
4.24. Intellectual Property.
Trinity Bank and each Trinity Bank Subsidiary owns or, to Trinity
Bank's Knowledge, possesses valid and binding licenses and other rights (subject
to expirations in accordance with their terms) to use all material patents,
copyrights, trade secrets, trade names, servicemarks and trademarks used in
their business, each without payment, and neither Trinity Bank nor any Trinity
Bank Subsidiary has received any notice of conflict with respect thereto that
asserts the rights of others. Trinity Bank and each Significant Subsidiary of
Trinity Bank have performed in all material respects all the obligations
required to be performed, and are not in default in any material respect, under
any contract, agreement, arrangement or commitment relating to any of the
foregoing.
4.25. Trust Accounts.
Neither Trinity Bank, nor any Trinity Bank Subsidiary conducts any
trust business.
4.26. Labor Matters.
There are no labor or collective bargaining agreements to which Trinity
Bank or any Trinity Bank Subsidiary is a party. To the Knowledge of Trinity
Bank, there is no union organizing effort pending or threatened against Trinity
Bank or any Trinity Bank Subsidiary. There is no labor strike, labor dispute
(other than routine employee grievances that are not related to union
employees), work slowdown, stoppage or lockout pending or, to the Knowledge of
Trinity Bank, threatened against Trinity Bank or any Trinity Bank Subsidiary.
There is no unfair labor practice or labor arbitration proceeding pending or, to
the Knowledge of Trinity Bank, threatened against Trinity Bank or any Trinity
Bank Subsidiary (other than routine employee grievances that are not related to
union employees). Trinity Bank and each Trinity Bank Subsidiary is in compliance
in all material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and are not engaged in any unfair labor practice.
4.27. Trinity Bank Information.
The information relating to Trinity Bank and any Trinity Bank
Subsidiary to be contained in the Merger Registration Statement, or in any other
document filed with any Bank Regulator or other Governmental Entity in
connection herewith, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances in which they are made, not misleading. The Proxy
Statement/Prospectus will comply in all material respects with the provisions of
the Exchange Act and the rules and regulations of the FDIC thereunder applicable
to Trinity Bank, except that no representation or warranty is made by Trinity
Bank with respect to statements made or incorporated by reference therein based
on information supplied by Citizens South specifically for inclusion or
incorporation by reference in the Proxy Statement/Prospectus.
34
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CITIZENS SOUTH AND CITIZENS SOUTH BANK
Citizens South and Citizens South Bank represent and warrant to Trinity
Bank that the statements contained in this Article V are correct as of the date
of this Agreement and will be correct as of the Closing Date (as though made
then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article V), subject to the standard set forth in
Section 5.1 and except as set forth in the Citizens South DISCLOSURE SCHEDULE
delivered by Citizens South to Trinity Bank on the date hereof, and except to
any representation of warranty which specifically relates to an earlier date,
which only need be so correct as of such earlier date. Citizens South and
Citizens South Bank have made a good faith effort to ensure that the disclosure
on each schedule of the Citizens South DISCLOSURE SCHEDULE corresponds to the
section referenced herein. However, for purposes of the Citizens South
DISCLOSURE SCHEDULE, any item disclosed on any schedule therein is deemed to be
fully disclosed with respect to all schedules under which such item may be
relevant as and to the extent that it is reasonably clear on the face of such
schedule that such item applies to such other schedule. References to the
Knowledge of Citizens South shall include the Knowledge of Citizens South Bank.
5.1. Standard.
No representation or warranty of Citizens South or Citizens South Bank
contained in this Article V shall be deemed untrue or incorrect, and neither
Citizens South nor Citizens South Bank shall be deemed to have breached a
representation or warranty, as a consequence of the existence of any fact,
circumstance or event unless such fact, circumstance or event, individually or
taken together with all other facts, circumstances or events inconsistent with
any paragraph of Article V, has had or is reasonably expected to have a Material
Adverse Effect, disregarding for these purposes (x) any qualification or
exception for, or reference to, materiality in any such representation or
warranty and (y) any use of the terms "material", "materially", "in all material
respects", "Material Adverse Effect" or similar terms or phrases in any such
representation or warranty. The foregoing standard shall not apply to
representations and warranties contained in Sections 5.2 (other than the last
sentence of Sections 5.2.1 and 5.2.2), 5.3 and 5.4, which shall be deemed
untrue, incorrect and breached if they are not true and correct in all material
respects.
5.2. Organization.
5.2.1. Citizens South is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware,
and is duly registered as a savings and loan holding company under the
HOLA. Citizens South has full corporate power and authority to carry on
its business as now conducted and is duly licensed or qualified to do
business in the states of the United States and foreign jurisdictions
where its ownership or leasing of property or the conduct of its
business requires such qualification.
5.2.2. Citizens South Bank is a savings bank duly organized,
validly existing and in good standing under Federal law. The deposits
of Citizens South Bank are insured by the FDIC to the fullest extent
permitted by law, and all premiums and assessments required to be
35
paid in connection therewith have been paid when due. Citizens South
Bank is a member in good standing of the FHLB and owns the requisite
amount of stock therein.
5.2.3. Citizens South DISCLOSURE SCHEDULE 5.2.3 sets forth
each Citizens South Subsidiary. Each Citizens South Subsidiary (other
than Citizens South Bank) is a corporation or limited liability company
duly organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization.
5.2.4. The respective minute books of Citizens South and each
Citizens South Subsidiary accurately record, in all material respects,
all material corporate actions of their respective stockholders and
boards of directors (including committees).
5.2.5. Prior to the date of this Agreement, Citizens South has
made available to Trinity Bank true and correct copies of the
certificate of incorporation or charter and bylaws of Citizens South
and Citizens South Bank and the Citizens South Subsidiaries.
5.3. Capitalization.
5.3.1. The authorized capital stock of Citizens South consists
of 20,000,000 shares of Citizens South Common Stock, of which 7,249,530
shares are outstanding, validly issued, fully paid and nonassessable
and free of preemptive rights, and 1,000,000 shares of preferred stock,
$0.01 par value ("Citizens South Preferred Stock"), none of which are
outstanding. There are 1,813,197 shares of Citizens South Common Stock
held by Citizens South as treasury stock. Neither Citizens South nor
any Citizens South Subsidiary has or is bound by any Rights, other than
shares issuable under the Citizens South Stock Benefit Plans.
5.3.2. Citizens South owns directly all of the capital stock
of Citizens South Bank free and clear of any lien, security interest,
pledge, charge, encumbrance or restriction of any kind or nature.
Either Citizens South or Citizens South Bank owns all of the
outstanding shares of capital stock of each Citizens South Subsidiary
free and clear of all liens, security interests, pledges, charges,
encumbrances, agreements and restrictions of any kind or nature.
5.3.3. Except as set forth in Citizens South DISCLOSURE
SCHEDULE 5.3.3, to the Knowledge of Citizens South, no Person is the
beneficial owner (as defined in Section 13(d) of the Exchange Act) of
5% or more of the outstanding shares of Citizens South Common Stock.
5.3.4. No bonds, debentures, notes or other indebtedness
having the right to vote on any matters on which Citizens South's
stockholders may vote have been issued by Citizens South and are
outstanding.
5.4. Authority; No Violation.
5.4.1. Citizens South and Citizens South Bank each has full
corporate power and authority to execute and deliver this Agreement
and, subject to receipt of the required Regulatory Approvals, to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the completion by Citizens South and
Citizens South Bank of the transactions contemplated hereby, up to and
including the Merger, have been duly and validly
36
approved by the Board of Directors of Citizens South and Citizens South
Bank, and no other corporate proceedings on the part of Citizens South
or Citizens South Bank are necessary to complete the transactions
contemplated hereby, up to and including the Merger. This Agreement has
been duly and validly executed and delivered by Citizens South and
Citizens South Bank, and subject to the receipt of the Regulatory
Approvals described in Section 8.3 and approval by the shareholders of
Trinity Bank and due and valid execution and delivery of this Agreement
by Trinity Bank, constitutes the valid and binding obligations of
Citizens South and Citizens South Bank, enforceable against Citizens
South and Citizens South Bank in accordance with its terms, subject to
applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally, and subject, as to enforceability, to general
principles of equity.
5.4.2. (A) The execution and delivery of this Agreement by
Citizens South and Citizens South Bank, (B) subject to receipt of the
Regulatory Approvals, and compliance by Trinity Bank and Citizens South
and Citizens South Bank with any conditions contained therein, and
subject to the receipt of the approval of the shareholders of Trinity
Bank, the consummation of the transactions contemplated hereby, and (C)
compliance by Citizens South and Citizens South Bank with any of the
terms or provisions hereof will not (i) conflict with or result in a
breach of any provision of the charter or bylaws of Citizens South or
any Citizens South Subsidiary or the charter and bylaws of Citizens
South Bank; (ii) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to
Citizens South or any Citizens South Subsidiary or any of their
respective properties or assets; or (iii) violate, conflict with,
result in a breach of any provisions of, constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, accelerate the
performance required by, or result in a right of termination or
acceleration or the creation of any lien, security interest, charge or
other encumbrance upon any of the properties or assets of Citizens
South, Citizens South Bank or any Citizens South Subsidiary under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other investment
or obligation to which any of them is a party, or by which they or any
of their respective properties or assets may be bound or affected,
except for such violations, conflicts, breaches or defaults under
clause (ii) or (iii) hereof which, either individually or in the
aggregate, will not have a Material Adverse Effect on Citizens South
and the Citizens South Subsidiaries taken as a whole.
5.5. Consents.
Except for (a) the receipt of the Regulatory Approvals and compliance
with any conditions contained therein, (b) the filing of the Articles of Merger
with the OTS and the filing of the applicable certificates/documents with the
Commissioner, (c) the filing with the SEC of (i) the Merger Registration
Statement and (ii) such reports under Sections 13(a), 13(d), 13(g) and 16(a) of
the Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby and the obtaining from the SEC of such orders
as may be required in connection therewith, (d) approval of the listing of
Citizens South Common Stock to be issued in the Merger on the Nasdaq National
Market, (e) such filings and approvals as are required to be made or obtained
under the securities or "Blue Sky" laws of various states in connection with the
issuance of the shares of Citizens South Common Stock pursuant to this
Agreement, and (f) the approval of this Agreement by the requisite vote of the
shareholders of Trinity Bank, no consents, waivers or approvals of, or filings
or registrations with, any
37
Governmental Entity or Bank Regulator are necessary, and, to the Knowledge of
Citizens South, no consents, waivers or approvals of, or filings or
registrations with, any other third parties (including, without limitation, the
stockholders of Citizens South) are necessary, in connection with the execution
and delivery of this Agreement by Citizens South and Citizens South Bank and the
completion by Citizens South Bank of the Merger.
5.6. Financial Statements.
5.6.1. Citizens South has previously made available to Trinity
Bank the Citizens South Financial Statements covering periods ended
prior to the date hereof. The Citizens South Financial Statements have
been prepared in accordance with GAAP, and fairly present in each case
in all material respects (subject in the case of the unaudited interim
statements to normal year-end adjustments) the consolidated financial
position, results of operations and cash flows of Citizens South and
the Citizens South Subsidiaries on a consolidated basis as of and for
the respective periods ending on the dates thereof, in accordance with
GAAP during the periods involved, except as indicated in the notes
thereto, or in the case of unaudited statements, as permitted by Form
10-Q.
5.6.2. At the date of each balance sheet included in the
Citizens South Financial Statements, Citizens South did not have any
liabilities, obligations or loss contingencies of any nature (whether
absolute, accrued, contingent or otherwise) of a type required to be
reflected in such Citizens South Financial Statements or in the
footnotes thereto which are not fully reflected or reserved against
therein or fully disclosed in a footnote thereto, except for
liabilities, obligations and loss contingencies which are not material
individually or in the aggregate or which are incurred in the ordinary
course of business, consistent with past practice, and except for
liabilities, obligations and loss contingencies which are within the
subject matter of a specific representation and warranty herein and
subject, in the case of any unaudited statements, to normal, recurring
audit adjustments and the absence of footnotes.
5.7. Taxes.
Citizens South and the Citizens South Subsidiaries that are at least 80
percent owned by Citizens South are members of the same affiliated group within
the meaning of Code Section 1504(a). Citizens South has duly filed all federal,
state and material local tax returns required to be filed by or with respect to
Citizens South and each Citizens South Subsidiary, taking into account any
extensions (all such returns, to the Knowledge of Citizens South, being accurate
and correct in all material respects) and has duly paid or made provisions for
the payment of all federal, state and material local taxes which have been
incurred by or are due or claimed to be due from Citizens South and any Citizens
South Subsidiary by any taxing authority or pursuant to any written tax sharing
agreement other than taxes or other charges which (i) are not delinquent, (ii)
are being contested in good faith, or (iii) have not yet been fully determined.
As of the date of this Agreement, Citizens South has received no notice of, and
to the Knowledge of Citizens South, there is no audit examination, deficiency
assessment, tax investigation or refund litigation with respect to any taxes of
Citizens South or any of its Subsidiaries, and no claim has been made by any
taxing authority in a jurisdiction where Citizens South or any of its
Subsidiaries do not file tax returns that Citizens South or any such Subsidiary
is subject to taxation in that jurisdiction. Except as set forth in Citizens
South DISCLOSURE
38
SCHEDULE 5.7, Citizens South and its Subsidiaries have not executed an extension
or waiver of any statute of limitations on the assessment or collection of any
material tax due that is currently in effect. Citizens South and each of its
Subsidiaries has timely withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party, and Citizens
South and each of its Subsidiaries, to the Knowledge of Citizens South, has
timely complied with all applicable information reporting requirements under
Part III, Subchapter A of Chapter 61 of the Code and similar applicable state
and local information reporting requirements.
5.8. No Material Adverse Effect.
Citizens South and the Citizens South Subsidiaries, taken as a whole,
have not suffered any Material Adverse Effect since December 31, 2004 and no
event has occurred or circumstance arisen since that date which, in the
aggregate, has had or is reasonably likely to have a Material Adverse Effect on
Citizens South and the Citizens South Subsidiaries, taken as a whole.
5.9. Ownership of Property; Insurance Coverage.
5.9.1. Citizens South and each Significant Subsidiary of
Citizens South has good and, as to real property, marketable title to
all material assets and properties owned by Citizens South or each
Significant Subsidiary of Citizens South in the conduct of its
businesses, whether such assets and properties are real or personal,
tangible or intangible, including assets and property reflected in the
balance sheets contained in the Citizens South Financial Statements or
acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of in the ordinary course of business,
since the date of such balance sheets), subject to no material
encumbrances, liens, mortgages, security interests or pledges, except
(i) those items which secure liabilities for public or statutory
obligations or any discount with, borrowing from or other obligations
to FHLB, inter-bank credit facilities, or any transaction by a Citizens
South Subsidiary acting in a fiduciary capacity, and (ii) statutory
liens for amounts not yet delinquent or which are being contested in
good faith. Citizens South and the Significant Subsidiaries of Citizens
South, as lessee, have the right under valid and subsisting leases of
real and personal properties used by Citizens South and the Significant
Subsidiaries of Citizens South in the conduct of their businesses to
occupy or use all such properties as presently occupied and used by
each of them.
5.9.2. Citizens South and each Subsidiary of Citizens South
currently maintain insurance considered by Citizens South to be
reasonable for their respective operations.
5.10. Legal Proceedings.
Neither Citizens South or any Citizens South Subsidiary is a party to
any, and there are no pending or, to the Knowledge of Citizens South, threatened
legal, administrative, arbitration or other proceedings, claims (whether
asserted or unasserted), actions or governmental investigations or inquiries of
any nature (i) against Citizens South or any Citizens South Subsidiary, (ii) to
which Citizens South or any Citizens South Subsidiary's assets are or may be
subject, (iii) challenging the validity or propriety of any of the transactions
contemplated by this
39
Agreement, or (iv) which would reasonably be expected to adversely affect the
ability of Citizens South to perform under this Agreement, except for any
proceeding, claim, action, investigation or inquiry which, if adversely
determined, individually or in the aggregate, could not be reasonably expected
to have a Material Adverse Effect.
5.11. Compliance With Applicable Law.
5.11.1. To the Knowledge of Citizens South, each of Citizens
South and each Citizens South Subsidiary is in compliance in all
material respects with all applicable federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable to it, its properties, assets and deposits, its
business, and its conduct of business and its relationship with its
employees, including, without limitation, the USA PATRIOT Act, the
Equal Credit Opportunity Act, the Truth in Lending Act, the Real Estate
Settlement Procedures Act, the Consumer Credit Protection Act, the Fair
Credit Reporting Act, the Fair Debt Collections Act, the Fair Housing
Act, the CRA, the Home Mortgage Disclosure Act, and all other
applicable fair lending laws and other laws relating to discriminatory
business practices, and neither Citizens South or any Citizens South
Subsidiary has received any written notice to the contrary.
5.11.2. Each of Citizens South and each Citizens South
Subsidiary has all material permits, licenses, authorizations, orders
and approvals of, and has made all filings, applications and
registrations with, all Governmental Entities and Bank Regulators that
are required in order to permit it to own or lease its properties and
to conduct its business as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full
force and effect and, to the Knowledge of Citizens South, no suspension
or cancellation of any such permit, license, certificate, order or
approval is threatened or will result from the consummation of the
transactions contemplated by this Agreement, subject to obtaining the
approvals set forth in Section 8.3.
5.11.3. For the period beginning January 1, 2001, neither
Citizens South or any Citizens South Subsidiary has received any
written notification or, to the Knowledge of Citizens South, any other
communication from any Bank Regulator (i) asserting that Citizens South
or any Citizens South Subsidiary is not in material compliance with any
of the statutes, regulations or ordinances which such Bank Regulator
enforces; (ii) threatening to revoke any license, franchise, permit or
governmental authorization which is material to Citizens South or any
Citizens South Subsidiary; (iii) requiring or threatening to require
Citizens South or any Citizens South Subsidiary, or indicating that
Citizens South or any Citizens South Subsidiary may be required, to
enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement with any federal or state
governmental agency or authority which is charged with the supervision
or regulation of banks or engages in the insurance of bank deposits
restricting or limiting, or purporting to restrict or limit, in any
material respect the operations of Citizens South or any Citizens South
Subsidiary, including without limitation any restriction on the payment
of dividends; or (iv) directing, restricting or limiting, or purporting
to direct, restrict or limit, in any manner the operations of Citizens
South or any Citizens South Subsidiary, including without limitation
any restriction on the payment of dividends (any such notice,
communication, memorandum, agreement or order described in this
sentence is hereinafter referred to as a "Regulatory Agreement").
Neither Citizens South or any Citizens South Subsidiary has consented
to or entered into any currently effective Regulatory Agreement. The
40
most recent regulatory rating given to Citizens South Bank as to
compliance with the CRA is satisfactory or better.
5.12. Employee Benefit Plans.
5.12.1. Citizens South DISCLOSURE SCHEDULE 5.12.1 includes a
list of all Compensation and Benefit Plans sponsored by Citizens South
or any of its Subsidiaries. "Compensation and Benefit Plans" as used
herein shall have the same meaning as set forth in Section 4.13.1,
substituting the name of Citizens South for Trinity Bank wherever used
therein. Neither Citizens South or any of its Subsidiaries has been
notified by any Governmental Entity to modify or limit any payments or
other compensation paid or payable by Citizens South or any of its
Subsidiaries under this Agreement, any Compensation and Benefit Plan or
otherwise, to or for the benefit of any employee or director of
Citizens South or any of its Subsidiaries and to the best knowledge of
Citizens South, all such payments are in compliance with all applicable
rules, regulations and bulletins promulgated by the any Governmental
Entities. Neither Citizens South or any of its Subsidiaries has any
commitment to create any additional Compensation and Benefit Plan or to
materially modify, change or renew any existing Compensation and
Benefit Plan (any modification or change that increases the cost of
such plans would be deemed material), except as required to maintain
the qualified status thereof.
5.12.2. Each of the Compensation and Benefit Plans that is
intended to be a pension, profit sharing, stock bonus, thrift, savings
or employee stock ownership plan that is qualified under Section 401(a)
of the Code ("Citizens South Qualified Plans") has been determined by
the Internal Revenue Service to qualify under Section 401(a) of the
Code, and, to the best knowledge of Citizens South, there exist no
circumstances likely to materially adversely affect the qualified
status of any such Citizens South Qualified Plan. All such Citizens
South Qualified Plans established or maintained by Citizens South or
each Citizens South Subsidiary or to which Citizens South or any
Citizens South Subsidiary contribute are in compliance in all material
respects with all applicable requirements of ERISA, and are in
compliance in all material respects with all applicable requirements
(including qualification and non-discrimination requirements in effect
as of the Effective Time) of the Code for obtaining the tax benefits
the Code permits with respect to such Citizens South Qualified Plans.
All accrued contributions and other payments required to be made by
Citizens South or each Citizens South Subsidiary to any Compensation
and Benefit Plan through the date hereof, have been made or reserves
adequate for such purposes as of the date hereof, have been set aside
therefor and reflected in Citizens South's consolidated financial
statements to the extent required by GAAP and Citizens South and its
Subsidiaries have expensed and accrued as a liability the present value
of future benefits under each applicable Compensation and Benefit Plan
for financial reporting purposes to the extent required by GAAP.
Neither Citizens South or any Citizens South Subsidiary is in material
default in performing any of its respective contractual obligations
under any Compensation and Benefit Plans or any related trust agreement
or insurance contract, and there are no material outstanding
liabilities of any such Plan other than liabilities for benefits to be
paid to participants in such Plan and their beneficiaries in accordance
with the terms of such Plan. Neither Citizens South or any of its
Subsidiaries has engaged in a transaction, or omitted to take any
action, with respect to any Compensation and Benefit Plan that would
reasonably be expected to subject Citizens South or any of its
Subsidiaries to an unpaid tax or penalty imposed by either Section 4975
of the Code or Section 502 of ERISA.
41
5.12.3. No liability, other than PBGC premiums arising in the
ordinary course of business, has been or is expected by Citizens South
or any of its Subsidiaries to be incurred with respect to any
Compensation and Benefit Plan which is a defined benefit plan subject
to Title IV of ERISA ("Citizens South Defined Benefit Plan"), or with
respect to any "single-employer plan" (as defined in Section 4001(a) of
ERISA) currently or formerly maintained by Citizens South or any entity
which is considered one employer with Citizens South under Section
4001(b)(1) of ERISA or Section 414 of the Code (an "ERISA Affiliate")
(such plan hereinafter referred to as an "ERISA Affiliate Plan"). No
Citizens South Defined Benefit Plan had an "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not
waived, as of the last day of the end of the most recent plan year
ending prior to the date hereof. The net fair market value of the
assets of each Citizens South Defined Benefit Plan exceeds the
actuarial present value of the accumulated plan benefits guaranteed
under Section 4022 of ERISA as of the end of the most recent plan year
ending prior to the date hereof for which Citizens South has completed
actuarial reports that have been filed with the Internal Revenue
Service. There is not currently pending with the PBGC any filings with
respect to any reportable event under Section 4043 of ERISA nor has any
reportable event occurred as to which a filing is required and has not
been made (other than as might be required with respect to this
Agreement and transactions contemplated thereby). Neither Citizens
South or any ERISA Affiliate has contributed to any "multi-employer
plan," as defined in Section 3(37) of ERISA, on or after September 26,
1980. Neither Citizens South or any of its Subsidiaries has provided,
or is required to provide, security to any Citizens South Defined
Benefit Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code or has taken any action, or
omitted to take any action, that has resulted, or would reasonably be
expected to result in the imposition of a lien under Section 412(n) of
the Code or pursuant to ERISA. Neither Citizens South or any ERISA
Affiliate nor any Citizens South Compensation and Benefit Plan, nor any
trust created thereunder, nor any trustee or administrator thereof has
engaged in a transaction in connection with which any of the aforesaid
persons or entities would reasonably be expected to be subject to
either a civil liability or penalty pursuant to Section 409, 502(i) or
502(l) of ERISA or a tax imposed pursuant to Chapter 43 of the Code. To
the Knowledge of Citizens South, there is no pending investigation or
enforcement action by any Bank Regulator with respect to any
Compensation and Benefit Plan or any ERISA Affiliate Plan. There is no
pending or, to the best knowledge of Citizens South, threatened
litigation or pending claim (other than individual benefit claims made
in the ordinary course) by or on behalf of or against any of
Compensation and Benefit Plans (or with respect to the administration
of any of such Plans) now or heretofore maintained by Citizens South or
any Citizens South Subsidiary which allege violations of applicable
state or federal law or the terms of the Plan which are reasonably
likely to result in a liability on the part of Citizens South or any of
its Subsidiaries or any such Plan.
5.12.4. All Compensation and Benefit Plans that are group
health plans have been operated in compliance with the group health
plan continuation requirements of Section 4980B of the Code and
Sections 601-609 of ERISA and with the certification of prior coverage
and other requirements of Sections 701-702 and 711-713 of ERISA.
5.13. Environmental Matters.
5.13.1. To the Knowledge of Citizens South, neither the
conduct nor operation of their business nor any condition of any
property currently or previously owned or operated by
42
any of them (including, without limitation, in a fiduciary or agency
capacity), or on which any of them holds a lien, results or resulted in
a violation of any Environmental Laws that is reasonably likely to
impose a material liability (including a material remediation
obligation) upon Citizens South or any of Citizens South Subsidiary or
to result in a Material Adverse Effect. To the Knowledge of Citizens
South, no condition has existed or event has occurred with respect to
any of them or any such property that, with notice or the passage of
time, or both, is reasonably likely to result in any material liability
or to result in a Material Adverse Effect to Citizens South or any
Citizens South Subsidiary by reason of any Environmental Laws. Neither
Citizens South or any Citizens South Subsidiary has received any
written notice from any Person that Citizens South or any Citizens
South Subsidiary or the operation or condition of any property ever
owned, operated, or held as collateral or in a fiduciary capacity by
any of them are currently in violation of or otherwise are alleged to
have financial exposure under any Environmental Laws or relating to
Materials of Environmental Concern (including, but not limited to,
responsibility (or potential responsibility) for the cleanup or other
remediation of any Materials of Environmental Concern at, on, beneath,
or originating from any such property) for which a material liability
is reasonably likely to be imposed upon Citizens South or any Citizens
South Subsidiary.
5.13.2. There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending
or, to the Citizens South's Knowledge, threatened, before any court,
governmental agency or other forum against Citizens South or any
Citizens South Subsidiary (x) for alleged noncompliance (including by
any predecessor) with, or liability under, any Environmental Law or (y)
relating to the presence of or release into the environment of any
Materials of Environmental Concern (as defined herein), whether or not
occurring at or on a site owned, leased or operated by any of the
Citizens South.
5.14. Loan Portfolio.
5.14.1. The allowance for loan losses reflected in Citizens
South's audited consolidated statement of condition at December 31,
2004 was, and the allowance for loan losses shown on the balance sheets
in Citizens South's Securities Documents for periods ending after
December 31, 2004 were or will be adequate as of the dates thereof,
under GAAP.
5.14.2. Citizens South DISCLOSURE SCHEDULE 5.14.2 sets forth a
listing, as of the most recently available date, all loans of Citizens
South and any Citizens South Subsidiary (1) that are contractually past
due 90 days or more in the payment of principal and/or interest, (2)
that are on non-accrual status, (3) that as of the date of this
Agreement are classified as "Other Loans Specially Mentioned", "Special
Mention", "Substandard", "Doubtful", "Loss", "Classified",
"Criticized", "Watch list" or words of similar import, together with
the principal amount of and accrued and unpaid interest on each such
Loan and the identity of the obligor thereunder, (4) where a reasonable
doubt exists as to the timely future collectability of principal and/or
interest, whether or not interest is still accruing or the loans are
less than 90 days past due, (5) where the interest rate terms have been
reduced and/or the maturity dates have been extended subsequent to the
agreement under which the loan was originally created due to concerns
regarding the borrower's ability to pay in accordance with such initial
terms, or (6) where a specific reserve allocation exists in connection
therewith; and all assets classified by Citizens South or any Citizens
South Subsidiary as real estate acquired through foreclosure or in lieu
of foreclosure, including in-substance foreclosures, and all other
assets currently held that were
43
acquired through foreclosure or in lieu of foreclosure. DISCLOSURE
SCHEDULE 5.14.2 may exclude any individual loan with a principal
outstanding balance of less than $100,000.
5.14.3. All loans receivable (including discounts) and accrued
interest entered on the books of Citizens South and each Citizens South
Subsidiary arose out of bona fide arm's-length transactions, were made
for good and valuable consideration in the ordinary course of business,
and the notes or other evidences of indebtedness with respect to such
loans (including discounts) are true and genuine and are what they
purport to be.
5.14.4. The notes and other evidences of indebtedness
evidencing the loans described above, and all pledges, mortgages, deeds
of trust and other collateral documents or security instruments
relating thereto are, in all material respects, valid, true and
genuine, and what they purport to be.
5.15. Securities Documents.
Citizens South has made available to Trinity Bank copies of its (i)
annual report on Form 10-K for the year ended December 31, 2004, (ii) quarterly
report on Form 10-Q for the quarter ended March 31, 2005 and (iii) proxy
materials used or for use in connection with its annual meeting of stockholders
held on May 9, 2005. Such reports and such proxy materials complied, at the time
filed with the SEC, in all material respects, with the Securities Laws.
5.16. Deposits.
None of the deposits of any Citizens South Subsidiary is a "brokered
deposit" as defined in 12 C.F.R. Section 337.6(a)(2).
5.17. Antitakeover Provisions Inapplicable.
The transactions contemplated by this Agreement are not subject to the
requirements of any "moratorium," "control share," "fair price," "affiliate
transactions," "business combination" or other antitakeover laws and regulations
of the State of Delaware.
5.18. Brokers, Finders and Financial Advisors.
Neither Citizens South or any Citizens South Subsidiary, nor any of
their respective officers, directors, employees or agents, has employed any
broker, finder or financial advisor in connection with the transactions
contemplated by this Agreement, or incurred any liability or commitment for any
fees or commissions to any such person in connection with the transactions
contemplated by this Agreement, except for the retention of ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇, Inc. by Citizens South and the fee payable pursuant thereto.
5.19. Citizens South Common Stock.
The shares of Citizens South Common Stock to be issued pursuant to this
Agreement, when issued in accordance with the terms of this Agreement, will be
duly authorized, validly issued, fully paid and non-assessable and subject to no
preemptive rights.
44
5.20. Certain Agreements.
Neither Citizens South or any Citizens South Subsidiary is a party to
or subject to: (i) any collective bargaining agreement with any labor union
relating to employees of Citizens South or any Citizens South Subsidiary; nor
(ii) any agreement which by its terms limits the payment of dividends by
Citizens South or any Citizens South Subsidiary.
5.20 Labor Matters.
There are no labor or collective bargaining agreements to which
Citizens South or any Citizens South Subsidiary is a party. To the Knowledge of
Citizens South, there is no union organizing effort pending or threatened
against Citizens South or any Citizens South Subsidiary. There is no labor
strike, labor dispute (other than routine employee grievances that are not
related to union employees), work slowdown, stoppage or lockout pending or, to
the Knowledge of Citizens South, threatened against Citizens South or any
Citizens South Subsidiary. There is no unfair labor practice or labor
arbitration proceeding pending or, to the Knowledge of Citizens South,
threatened against Citizens South or any Citizens South Subsidiary (other than
routine employee grievances that are not related to union employees). Citizens
South and each Citizens South Subsidiary is in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and are not
engaged in any unfair labor practice.
5.21 Citizens South Information Supplied.
The information relating to Citizens South and any Citizens South
Subsidiary to be contained in the Merger Registration Statement, or in any other
document filed with any Bank Regulator or other Governmental Entity in
connection herewith, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances in which they are made, not misleading. The Merger
Registration Statement will comply with the provisions of the Exchange Act and
the rules and regulations thereunder and the provisions of the Securities Act
and the rules and regulations thereunder, except that no representation or
warranty is made by Citizens South with respect to statements made or
incorporated by reference therein based on information supplied by Trinity Bank
specifically for inclusion or incorporation by reference in the Merger
Registration Statement.
ARTICLE VI
COVENANTS OF TRINITY BANK
6.1. Conduct of Business.
6.1.1. Affirmative Covenants. During the period from the date
of this Agreement to the Effective Time, except with the written
consent of Citizens South, which consent will not be unreasonably
withheld, Trinity Bank will, and it will cause each Trinity Bank
Subsidiary to: operate its business only in the usual, regular and
ordinary course of business; use reasonable efforts to preserve intact
its business organization and assets and maintain its rights and
franchises; and voluntarily take no action which would: (i) adversely
affect the ability of the parties to obtain the Regulatory Approvals or
materially increase the period of time necessary to
45
obtain the Regulatory Approvals, or (ii) except as permitted pursuant
to Section 6.10 hereof, adversely affect its ability to perform its
covenants and agreements under this Agreement.
6.1.2. Negative Covenants. Trinity Bank agrees that from the
date of this Agreement to the Effective Time, except as otherwise
specifically permitted or required by this Agreement, set forth in
Trinity Bank DISCLOSURE SCHEDULE 6.1.2, or consented to by Citizens
South in writing (which consent shall not be unreasonably withheld), it
will not, and it will cause each of the Trinity Bank Subsidiaries not
to:
(A) change or waive any provision of its Articles of
Incorporation or Bylaws, except as required by law;
(B) change the number of authorized or issued shares
of its capital stock, issue any shares of Trinity Bank Common
Stock that are held as Treasury Shares, or issue or grant any
Right or agreement of any character relating to its authorized
or issued capital stock or any securities convertible into
shares of such stock, make any grant or award under the
Trinity Bank Stock Option Plans, or split, combine or
reclassify any shares of capital stock, or declare, set aside
or pay any dividend or other distribution in respect of
capital stock, or redeem or otherwise acquire any shares of
capital stock, except that Trinity Bank may issue shares of
Trinity Bank Common Stock upon the valid exercise, in
accordance with the information set forth in Trinity Bank
DISCLOSURE SCHEDULE 3.4, of presently outstanding Trinity Bank
Options issued under the Trinity Bank Stock Option Plans and
presently outstanding Trinity Bank Warrants.
(C) enter into, amend in any material respect or
terminate any material contract or agreement (including
without limitation any settlement agreement with respect to
litigation) except in the ordinary course of business
consistent with past practice;
(D) make application for the opening or closing of
any, or open or close any, branch or automated banking
facility;
(E) grant or agree to pay any bonus, severance or
termination to, or enter into, renew or amend any employment
agreement, severance agreement and/or supplemental executive
agreement with, or increase in any manner the compensation or
fringe benefits of, any of its directors, officers or
employees, except (i) as may be required pursuant to
commitments existing on the date hereof and set forth on
Trinity Bank DISCLOSURE SCHEDULES 4.9.1 and 4.13.1, (ii) as to
non-management employees, merit pay increases, of no more than
4% individually, in the ordinary course of business consistent
with past practices, and (iii) as otherwise contemplated by
this Agreement. Neither Trinity Bank nor any Trinity Bank
Subsidiary shall hire or promote any employee to a rank having
a title of senior vice president or other more senior rank or
hire any new employee at an annual rate of compensation in
excess of $60,000, provided that Trinity Bank may hire
at-will, non-officer employees to fill vacancies that may from
time to time arise in the ordinary course of business;
(F) enter into or, except as may be required by law,
materially modify any pension, retirement, stock option, stock
purchase, stock appreciation right, stock grant, savings,
profit sharing, deferred compensation, supplemental
retirement, consulting, bonus,
46
group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers
or employees; or make any contributions to any defined
contribution or defined benefit plan not in the ordinary
course of business consistent with past practice, in each case
except (i) as may be required by applicable law, (ii) as
otherwise contemplated by this Agreement, or (iii) renewals or
replacements in the normal course of business consistent with
past practice of existing insurance benefits or benefits
provided through a Code Section 125 plan;
(G) merge or consolidate Trinity Bank or any Trinity
Bank Subsidiary with any other corporation; sell or lease all
or any substantial portion of the assets or business of
Trinity Bank or any Trinity Bank Subsidiary; make any
acquisition of all or any substantial portion of the business
or assets of any other Person other than in connection with
foreclosures, settlements in lieu of foreclosure, troubled
loan or debt restructuring, or the collection of any loan or
credit arrangement between Trinity Bank, or any Trinity Bank
Subsidiary, and any other Person; enter into a purchase and
assumption transaction with respect to deposits and
liabilities; incur deposit liabilities, other than liabilities
incurred in the ordinary course of business consistent with
past practice (including brokered deposits) and in keeping
with prevailing competitive rates; permit the revocation or
surrender by any Trinity Bank Subsidiary of its certificate of
authority to maintain, or file an application for the
relocation of, any existing branch office, or file an
application for a certificate of authority to establish a new
branch office;
(H) except as permitted by Section 6.1.2(B) sell or
otherwise dispose of the capital stock of Trinity Bank or sell
or otherwise dispose of any asset of Trinity Bank or of any
Trinity Bank Subsidiary other than in the ordinary course of
business consistent with past practice (which ordinary course
of business shall include the sale of foreclosed or
repossessed properties); except for transactions with the
FHLB, subject any asset of Trinity Bank or of any Trinity Bank
Subsidiary to a lien, pledge, security interest or other
encumbrance (other than in connection with deposits,
repurchase agreements, bankers acceptances, "treasury tax and
loan" accounts established in the ordinary course of business,
including pledges in connection with acceptance of
governmental deposits, and transactions in "federal funds" and
the satisfaction of legal requirements in the exercise of
trust powers) other than in the ordinary course of business
consistent with past practice; incur any indebtedness for
borrowed money (or guarantee any indebtedness for borrowed
money), except in the ordinary course of business consistent
with past practice (which ordinary course of business shall
include the creation of deposit liabilities, purchases of
federal funds, FHLB advances and entry into repurchase
agreements);
(I) take any action which would be reasonably
expected to result in any of the representations and
warranties of Trinity Bank set forth in this Agreement
becoming untrue as of any date after the date hereof or in any
of the conditions set forth in Article IX hereof not being
satisfied, except in each case as may be required by
applicable law;
(J) change its method, practice or principle of
accounting, except as may be required from time to time by
GAAP (without regard to any optional early adoption date) or
the Securities Laws applicable to Trinity Bank (without regard
to any optional early adoption date) or any Bank Regulator
responsible for regulating Trinity Bank or regulatory
accounting principles;
47
(K) waive, release, grant or transfer any material
rights of value or modify or change in any material respect
any existing material agreement or indebtedness to which
Trinity Bank or any Trinity Bank Subsidiary is a party, other
than in the ordinary course of business consistent with past
practice;
(L) purchase any equity securities (except for FHLB
common stock in connection with FHLB advances), or purchase
any other securities except securities (i) rated "A" or higher
by either Standard & Poor's Ratings Services or ▇▇▇▇▇'▇
Investors Service, (ii) having a face amount of not more than
$1,500,000, (iii) with a weighted average life of not more
than three years and (iv) otherwise in the ordinary course of
business consistent with past practice, provided, however,
that if Citizens South does not object to a written request
for approval within two business days after receipt, the
request shall be deemed approved;
(M) except as specifically provided below, and except
for commitments issued prior to the date of this Agreement
which have not yet expired and which have been disclosed on
the Trinity Bank DISCLOSURE SCHEDULE 6.1.2(M), and the renewal
of existing lines of credit, make any new loan or other credit
facility commitment (including without limitation, loan
participations, lines of credit and letters of credit) to any
borrower or group of affiliated borrowers in excess of
$100,000 in the aggregate for unsecured loans and $1,000,000
in the aggregate for secured loans; provided, however, that if
Citizens South does not object to a written request for
approval within two business days after receipt, the request
shall be deemed approved. In addition, the following require
the prior consent of Citizens South: a residential loan of
$500,000 or greater (except for residential loans sold as to
which there is an agreement to sell on a non-recourse basis);
a construction loan of $1,000,000 or greater; a secured
commercial business loan of $500,000 or greater; and a
commercial real estate loan of $1,500,000 or greater; or
purchase, invest in or originate any finance lease or any loan
secured by a lease of personal property; provided, however,
that if Citizens South does not object to a written request
for approval within two business days after receipt, the
request shall be deemed approved;
(N) except as set forth on the Trinity Bank
DISCLOSURE SCHEDULE 6.1.2(N), enter into, renew, extend or
modify any other transaction (other than a deposit
transaction) with any Affiliate;
(O) enter into any futures contract, option, interest
rate caps, interest rate floors, interest rate exchange
agreement or other agreement or take any other action for
purposes of hedging the exposure of its interest-earning
assets and interest-bearing liabilities to changes in market
rates of interest;
(P) except for the execution of this Agreement, and
actions taken or which will be taken in accordance with this
Agreement and performance hereunder, take any action that
would give rise to a right of payment to any individual under
any employment agreement;
(Q) except as set forth in Trinity Bank DISCLOSURE
SCHEDULE 6.1.2(Q), make any material change in policies in
existence on the date of this Agreement with regard to: the
extension of credit, or the establishment of reserves with
respect to the possible loss thereon or the charge off of
losses incurred thereon; investments; asset/liability
48
management; or other material banking policies in any material
respect except as may be required by changes in applicable law
or regulations, GAAP, the Securities Laws applicable to
Trinity Bank, or regulatory accounting principles or by a Bank
Regulator;
(R) except for the execution of this Agreement, and
the transactions contemplated herein, take any action that
would give rise to an acceleration of the right to payment to
any individual under any Trinity Bank Compensation and Benefit
Plan;
(S) except as set forth in Trinity Bank DISCLOSURE
SCHEDULE 6.1.2(S), make any capital expenditures in excess of
$50,000 individually or $100,000 in the aggregate, other than
pursuant to binding commitments existing on the date hereof
and other than expenditures necessary to maintain existing
assets in good repair;
(T) except as set forth in Trinity Bank DISCLOSURE
SCHEDULE 6.1.2(T), purchase or otherwise acquire, or sell or
otherwise dispose of, any assets or incur any liabilities
other than in the ordinary course of business consistent with
past practices and policies;
(U) sell any participation interest in any loan
(other than sales of loans secured by one- to four-family real
estate that are consistent with past practice and other than
as listed on Trinity Bank DISCLOSURE SCHEDULE 6.1.2(U)) unless
Citizens South Bank has been given the first opportunity and a
reasonable time to purchase any loan participation being sold,
or purchase any participation interest in any loan other than
purchases of participation interests from Citizens South;
(V) except as set forth in Trinity Bank DISCLOSURE
SCHEDULE 6.1.2(V), undertake or enter into any lease, contract
or other commitment for its account, other than in the normal
course of providing credit to customers as part of its banking
business, involving a payment by Trinity Bank or any Trinity
Bank Subsidiary of more than $100,000 annually, or containing
any financial commitment extending beyond 24 months from the
date hereof; (W) pay, discharge, settle or compromise any
claim, action, litigation, arbitration or proceeding, other
than any such payment, discharge, settlement or compromise in
the ordinary course of business consistent with past practice
that involves solely money damages in the amount not in excess
of $25,000 individually or $50,000 in the aggregate, and that
does not create negative precedent for other pending or
potential claims, actions, litigation, arbitration or
proceedings;
(X) foreclose upon or take a deed or title to any
commercial real estate without first conducting a Phase I
environmental assessment of the property or foreclose upon any
commercial real estate if such environmental assessment
indicates the presence of Materials of Environmental Concern;
(Y) purchase or sell any mortgage loan servicing
rights other than in the ordinary course of business
consistent with past practice;
(Z) issue any communication to employees relating to
post-Closing employment, benefit or compensation information
without the prior consent of Citizens South
49
(which shall not be unreasonably withheld, conditioned or
delayed) or issue any broadly distributed communication of a
general nature to customers without the prior approval of
Citizens South (which shall not be unreasonably withheld),
except for customer communications required by law or in the
ordinary course of business consistent with past practice that
do not relate to the Merger or other transactions contemplated
hereby; or
(AA) agree to do any of the foregoing.
6.2. Current Information.
6.2.1. During the period from the date of this Agreement to
the Effective Time, Trinity Bank will cause one or more of its
representatives to confer with representatives of Citizens South and
report the general status of its ongoing operations at such times as
Citizens South may reasonably request. Trinity Bank will promptly
notify Citizens South of any material change in the normal course of
its business or in the operation of its properties and, to the extent
permitted by applicable law, of any governmental complaints,
investigations or hearings (or communications indicating that the same
may be contemplated), or the institution or the threat of material
litigation involving Trinity Bank or any Trinity Bank Subsidiary.
Without limiting the foregoing, senior officers of Citizens South and
Trinity Bank shall meet on a reasonably regular basis (expected to be
at least monthly) to review the financial and operational affairs of
Trinity Bank and its Subsidiaries, in accordance with applicable law,
and Trinity Bank shall give due consideration to Citizens South's input
on such matters, with the understanding that, notwithstanding any other
provision contained in this Agreement, neither Citizens South or any
Citizens South Subsidiary shall under any circumstance be permitted to
exercise control of Trinity Bank or any Trinity Bank Subsidiary prior
to the Effective Time.
6.2.2. Trinity Bank and Citizens South Bank shall meet on a
regular basis to discuss and plan for the conversion of data processing
and related electronic informational systems of Trinity Bank to those
used by Citizens South Bank, which planning shall include, but not be
limited to, discussion of the possible termination by Trinity Bank of
third-party service provider arrangements effective at the Effective
Time or at a date thereafter, non-renewal of personal property leases
and software licenses used by Trinity Bank in connection with its
systems operations, retention of outside consultants and additional
employees to assist with the conversion, and outsourcing, as
appropriate, of proprietary or self-provided system services, it being
understood that Trinity Bank shall not be obligated to take any such
action prior to the Effective Time and, unless Trinity Bank otherwise
agrees and provided it is permitted by applicable law, no conversion
shall take place prior to the Effective Time. In the event that Trinity
Bank takes, at the written request of Citizens South Bank, any action
relative to third parties to facilitate the conversion that results in
the imposition of any termination fees or charges, Citizens South Bank
shall indemnify Trinity Bank for any such fees and charges, and the
costs of reversing the conversion process, if for any reason the Merger
is not consummated for any reason other than a breach of this Agreement
by Trinity Bank, or a termination of this Agreement under Section
11.1.7 or 11.1.8.
6.2.3. Trinity Bank shall provide Citizens South, within
fifteen (15) business days of the end of each calendar month, a written
list of nonperforming assets (the term "nonperforming assets," for
purposes of this subsection, means (i) loans that are "troubled debt
50
restructuring" as defined in Statement of Financial Accounting
Standards No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructuring," (ii) loans on nonaccrual, (iii) real estate owned,
(iv) all loans ninety (90) days or more past due, and (v) impaired
loans as of the end of such month). On a monthly basis, Trinity Bank
shall provide Citizens South with a schedule of all loan approvals,
which schedule shall indicate the loan amount, loan type and other
material features of the loan.
6.2.4. Trinity Bank shall promptly inform Citizens South upon
receiving notice of any legal, administrative, arbitration or other
proceedings, demands, notices, audits or investigations (by any
federal, state or local commission, agency or board) relating to the
alleged liability of Trinity Bank or any Trinity Bank Subsidiary under
any labor or employment law.
6.3. Access to Properties and Records.
Subject to Section 12.1, Trinity Bank shall permit Citizens South
reasonable access upon reasonable notice to its properties and those of the
Trinity Bank Subsidiaries, and shall disclose and make available to Citizens
South during normal business hours all of its books, papers and records relating
to the assets, properties, operations, obligations and liabilities, including,
but not limited to, all books of account (including the general ledger), tax
records, minute books of directors' (other than minutes that discuss any of the
transactions contemplated by this Agreement or any other subject matter Trinity
Bank reasonably determines should be treated as confidential) and shareholders'
meetings, organizational documents, Bylaws, material contracts and agreements,
filings with any regulatory authority, litigation files, plans affecting
employees, and any other business activities or prospects in which Citizens
South may have a reasonable interest; provided, however, that Trinity Bank shall
not be required to take any action that would provide access to or to disclose
information where such access or disclosure, in Trinity Bank's reasonable
judgment, would interfere with the normal conduct of Trinity Bank's business or
would violate or prejudice the rights or business interests or confidences of
any customer or other person or would result in the waiver by it of the
privilege protecting communications between it and any of its counsel or
contravene any applicable law. Trinity Bank shall provide Citizens South with
such historical financial information regarding it (and shall request its
auditors to provide related audit reports and consents) as Citizens South may
reasonably request for Securities Law disclosure purposes. Citizens South shall
use commercially reasonable efforts to minimize any interference with Trinity
Bank's regular business operations during any such access to Trinity Bank's
property, books and records. Trinity Bank and each Trinity Bank Subsidiary shall
permit Citizens South, at Citizens South's expense, to cause a "phase I
environmental audit" and a "phase II environmental audit" to be performed at any
physical location owned or, to the extent permitted under the applicable lease
agreement, occupied by Trinity Bank or any Trinity Bank Subsidiary.
6.4. Financial and Other Statements.
6.4.1. Promptly after the review thereof by the Board of
Directors (or any committee) of Trinity Bank, Trinity Bank will furnish
to Citizens South copies of each annual, interim or special audit of
the books of Trinity Bank and the Trinity Bank Subsidiaries made by its
independent accountants and copies of all final internal control
reports submitted to Trinity Bank by such accountants, or by any other
accounting firm rendering internal audit services, in
51
connection with each annual, interim or special audit of the books of
Trinity Bank and the Trinity Bank Subsidiaries made by such
accountants.
6.4.2. As soon as reasonably available, but in no event later
than five business days after such documents are filed with the FDIC
under the Exchange Act, Trinity Bank will deliver to Citizens South the
Securities Documents filed by it under the Securities Laws applicable
to Trinity Bank. Within 25 days after the end of each month, Trinity
Bank will deliver to Citizens South a balance sheet and a statement of
operations, without related notes, for such month prepared in
accordance with current financial reporting practices, as well as a
month-end and year to date comparison to budget.
6.4.3. With reasonable promptness, Trinity Bank will furnish
to Citizens South such additional financial data that Trinity Bank
possesses and as Citizens South may reasonably request, including
without limitation, detailed monthly financial statements and loan
reports.
6.5. Maintenance of Insurance.
Trinity Bank shall use commercially reasonable efforts to maintain, and
to cause the Trinity Bank Subsidiaries to maintain, insurance in such amounts as
are reasonable to cover such risks as are customary in relation to the character
and location of its properties and the nature of its business, with such
coverage and in such amounts not less than that currently maintained by Trinity
Bank and the Trinity Bank Subsidiaries and set forth in Trinity Bank DISCLOSURE
SCHEDULE 4.10.3. Trinity Bank will promptly inform Citizens South if Trinity
Bank or any Trinity Bank Subsidiary receives notice from an insurance carrier
that (i) an insurance policy will be canceled or that coverage thereunder will
be reduced or eliminated, or (ii) premium costs with respect to any policy of
insurance will be substantially increased.
6.6. Disclosure Supplements.
From time to time prior to the Effective Time, Trinity Bank will
promptly supplement or amend the Trinity Bank DISCLOSURE SCHEDULE delivered in
connection herewith with respect to any matter hereafter arising which, if
existing, occurring or known at the date of this Agreement, would have been
required to be set forth or described in such Trinity Bank DISCLOSURE SCHEDULE
or which is necessary to correct any information in such Trinity Bank DISCLOSURE
SCHEDULE which has been rendered materially inaccurate thereby. No supplement or
amendment to such Trinity Bank DISCLOSURE SCHEDULE shall have any effect for the
purpose of determining satisfaction of the conditions set forth in Article IX.
Notwithstanding anything to the contrary contained herein, no failure to provide
any such supplement or amendment to the Trinity Bank DISCLOSURE SCHEDULE shall
constitute the failure of any condition set forth in Article IX to be satisfied
unless the underlying breach or inaccuracy would individually or collectively
result in the failure of a condition set forth in Article IX to be satisfied.
6.7. Consents and Approvals of Third Parties.
Trinity Bank shall use all commercially reasonable efforts, and shall
cause each Trinity Bank Subsidiary to use all commercially reasonable efforts to
obtain as soon as practicable all consents and approvals of any other persons
necessary or desirable for the consummation of the
52
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, Trinity Bank shall utilize the services of a professional proxy
soliciting firm to provide assistance in obtaining the stockholder vote required
to be obtained by it hereunder.
6.8. All Reasonable Efforts.
Subject to the terms and conditions herein provided, Trinity Bank
agrees to use all commercially reasonable efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement.
6.9. Failure to Fulfill Conditions.
In the event that Trinity Bank determines that a condition to its
obligation to complete the Merger cannot be fulfilled and that it will not waive
that condition, it will promptly notify Citizens South.
6.10. No Solicitation.
From and after the date hereof until the termination of this Agreement,
neither Trinity Bank, nor any Trinity Bank Subsidiary, nor any of their
respective officers, directors, employees, representatives, agents and
affiliates (including, without limitation, any investment banker, attorney or
accountant retained by Trinity Bank or any of the Trinity Bank Subsidiaries),
will, directly or indirectly, initiate, solicit or knowingly encourage
(including by way of furnishing non-public information or assistance) any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal (as defined below), or enter into
or maintain or continue discussions or negotiate with any Person in furtherance
of such inquiries or to obtain an Acquisition Proposal or agree to or endorse
any Acquisition Proposal, or authorize or permit any of its officers, directors,
or employees or any of its Subsidiaries or any investment banker, financial
advisor, attorney, accountant or other representative retained by any of its
Subsidiaries to take any such action, and Trinity Bank shall notify Citizens
South orally (within one business day) and in writing (as promptly as
practicable) of all of the relevant details relating to all inquiries and
proposals which Trinity Bank or any of its Subsidiaries or any of its officers,
directors or employees, or, to Trinity Bank's Knowledge, investment bankers,
financial advisors, attorneys, accountants or other representatives of Trinity
Bank may receive relating to any of such matters, provided, however, that
nothing contained in this Section 6.10 shall prohibit the Board of Directors of
Trinity Bank from (i) complying with its disclosure obligations under federal or
state law; or (ii) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited Acquisition
Proposal, if, and only to the extent that, (A) the Board of Directors of Trinity
Bank determines in good faith (after consultation with its financial and legal
advisors), taking into account all legal, financial and regulatory aspects of
the proposal and the Person making the proposal, that such proposal, if
consummated, is reasonably likely to result in a transaction more favorable to
Trinity Bank's shareholders from a financial point of view than the Merger; (B)
the Board of Directors of Trinity Bank determines in good faith (after
consultation with its financial and legal advisors) that the failure to furnish
information to or enter into discussions with such Person would likely cause the
Board of Directors to breach its fiduciary duties to shareholders under
applicable law;
53
(C) such Acquisition Proposal was not solicited by Trinity Bank and did not
otherwise result from a breach of this Section 6.10 by Trinity Bank (such
proposal that satisfies clauses (A), (B) and (C) being referred to herein as a
"Superior Proposal"); (D) Trinity Bank promptly notifies Citizens South of such
inquiries, proposals or offers received by, any such information requested from,
or any such discussions or negotiations sought to be initiated or continued with
Trinity Bank or any of its representatives indicating, in connection with such
notice, the name of such Person and the material terms and conditions of any
inquiries, proposals or offers, and receives from such Person an executed
confidentiality agreement in form and substance identical in all material
respects to the confidentiality agreements that Trinity Bank and Citizens South
entered into; and (E) the Trinity Bank Shareholders Meeting has not occurred.
For purposes of this Agreement, "Acquisition Proposal" shall mean any proposal
or offer as to any of the following (other than the transactions contemplated
hereunder) involving Trinity Bank or any of its Subsidiaries: (i) any merger,
consolidation, share exchange, business combination, or other similar
transactions; (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 25% or more of the assets of Trinity Bank and the Trinity
Bank Subsidiaries, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 25% or more of the
outstanding shares of capital stock of Trinity Bank or the filing of a
registration statement under the Securities Act in connection therewith; or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
6.11. Reserves and Merger-Related Costs.
On or before the Effective Date, to the extent consistent with GAAP,
the Securities Laws applicable to Trinity Bank, the rules and regulations of the
FDIC, and applicable banking laws and regulations, Trinity Bank shall establish
such additional accruals and reserves as may be necessary to conform the
accounting reserve practices and methods (including credit loss practices and
methods) of Trinity Bank to those of Citizens South (as such practices and
methods are to be applied to Trinity Bank from and after the Closing Date) and
to Citizens South's plans with respect to the conduct of the business of Trinity
Bank following the Merger and otherwise to reflect Merger-related expenses and
costs incurred by Trinity Bank, provided, however, that Trinity Bank shall not
be required to take such action until immediately prior to the Effective Time
and only if Citizens South and Citizens South Bank represent to Trinity Bank in
writing that all conditions to closing set forth in Section 9.2 have been
satisfied or waived (except for the expiration of any applicable waiting
periods) and that they are aware of no facts or circumstances that would prevent
consummation of the Merger. No accrual or reserve made by Trinity Bank or any
Trinity Bank Subsidiary pursuant to this subsection, or any litigation or
regulatory proceeding arising out of any such accrual or reserve, shall
constitute or be deemed to be a breach or violation of any representation,
warranty, covenant, condition or other provision of this Agreement or to
constitute a termination event within the meaning of Section 11.1.2. No action
shall be required to be taken by Trinity Bank pursuant to this Section 6.11 if,
in the opinion of Trinity Bank's independent auditors, such action would be
inconsistent with GAAP.
54
ARTICLE VII
COVENANTS OF CITIZENS SOUTH AND CITIZENS SOUTH BANK
7.1. Conduct of Business.
During the period from the date of this Agreement to the Effective
Time, except with the written consent of Trinity Bank, which consent will not be
unreasonably withheld, Citizens South and Citizens South Bank will, and it will
cause each Citizens South Subsidiary to: conduct its business only in the usual,
regular and ordinary course consistent with past practices; use reasonable
efforts to preserve intact its business organization and assets and maintain its
rights and franchises; and voluntarily take no action that would: (i) adversely
affect the ability of the parties to obtain the Regulatory Approvals or
materially increase the period of time necessary to obtain such approvals; (ii)
adversely affect their ability to perform their covenants and agreements under
this Agreement; or (iii) result in the representations and warranties contained
in Article V of this Agreement not being true and correct on the date of this
Agreement or at any future date on or prior to the Closing Date or in any of the
conditions set forth in Article IX hereof not being satisfied.
7.2. Current Information and Consultation.
During the period from the date of this Agreement to the Effective
Time, Citizens South will cause one or more of its representatives to confer
with representatives of Trinity Bank and report the general status of its
financial condition, operations and business and matters relating to the
completion of the transactions contemplated hereby, at such times as Trinity
Bank may reasonably request. Citizens South will promptly notify Trinity Bank,
to the extent permitted by applicable law, of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the institution or the threat of material litigation involving
Citizens South and any Citizens South Subsidiary. Citizens South shall be
reasonably responsive to requests by Trinity Bank for access to such information
and personnel regarding Citizens South and its Subsidiaries as may be reasonably
necessary for Trinity Bank to confirm that the representations and warranties of
Citizens South contained herein are true and correct and that the covenants of
Citizens South contained herein have been performed in all material respects;
provided, however, that Citizens South shall not be required to take any action
that would provide access to or to disclose information where such access or
disclosure, in Citizens South's reasonable judgment, would interfere with the
normal conduct of Citizens South's business or would violate or prejudice the
rights or business interests or confidences of any customer or other person or
would result in the waiver by it of the privilege protecting communications
between it and any of its counsel.
7.3. Financial and Other Statements.
As soon as reasonably available, but in no event later than the date
such documents are filed with the SEC, Citizens South will deliver to Trinity
Bank the Securities Documents filed by it with the SEC under the Securities Laws
other than those Securities Documents that are available publicly though the
SEC's ▇▇▇▇▇ data base. Citizens South will advise Trinity Bank promptly of the
receipt of any examination report of any Bank Regulator with respect to the
condition or activities of Citizens South or any of the Citizens South
Subsidiaries.
55
7.4. Disclosure Supplements.
From time to time prior to the Effective Time, Citizens South will
promptly supplement or amend the Citizens South DISCLOSURE SCHEDULE delivered in
connection herewith with respect to any matter hereafter arising which, if
existing, occurring or known at the date of this Agreement, would have been
required to be set forth or described in such Citizens South DISCLOSURE SCHEDULE
or which is necessary to correct any information in such Citizens South
DISCLOSURE SCHEDULE which has been rendered inaccurate thereby. No supplement or
amendment to such Citizens South DISCLOSURE SCHEDULE shall have any effect for
the purpose of determining satisfaction of the conditions set forth in Article
IX. Notwithstanding anything to the contrary contained herein, no failure to
provide any such supplement or amendment to the Citizens South DISCLOSURE
SCHEDULE shall constitute the failure of any condition set forth in Article IX
to be satisfied unless the underlying breach or inaccuracy would individually or
collectively result in the failure of a condition set forth in Article IX to be
satisfied.
7.5. Consents and Approvals of Third Parties.
Citizens South and Citizens South Bank shall use all commercially
reasonable efforts to obtain as soon as practicable all consents and approvals
of any other Persons necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
7.6. All Reasonable Efforts.
Subject to the terms and conditions herein provided, Citizens South
agrees to use and agrees to cause Citizens South Bank to use all commercially
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement.
7.7. Failure to Fulfill Conditions.
In the event that Citizens South determines that a condition to its
obligation to complete the Merger cannot be fulfilled and that it will not waive
that condition, it will promptly notify Trinity Bank.
7.8. Employee Benefits.
7.8.1. As of or after the Effective Time and at Citizens
South's election and subject to the requirements of the Code and ERISA,
the Trinity Bank Compensation and Benefit Plans may be continued and
maintained separately, consolidated, or terminated. Following the
Effective Time, Citizens South shall provide Continuing Employees (as
defined in Section 7.8.7 hereof) with compensation and benefits that
are, in the aggregate, substantially similar to the compensation and
benefits provided to similarly situated Citizens South employees (as of
the date any such compensation or benefit is provided). All Trinity
Bank Employees who become participants in a Citizens South Compensation
and Benefit Plan shall, for purposes of determining eligibility for and
for any applicable vesting periods of such employee benefits only (and
not for benefit accrual purposes) be given credit for service as an
employee of Trinity Bank
56
or any Trinity Bank Subsidiary or any predecessor thereto prior to the
Effective Time, provided, however, that credit for prior service shall
not be given under the Citizens South ESOP, or to the extent that
providing such credit would result in a duplication of benefits. This
Agreement shall not be construed to limit the ability of Citizens South
or Citizens South Bank to terminate the employment of any employee or
to review employee benefits programs from time to time, or to make such
changes as they deem appropriate, subject to the terms and conditions
of such programs, or to terminate any Citizens South Compensation and
Benefit Plan.
7.8.2. Except as specifically set forth in this Section 7.8,
Citizens South shall assume and honor in accordance with their terms
those Trinity Bank employment agreements and change-in-control
agreements listed in Trinity Bank DISCLOSURE SCHEDULE 4.9.1. The
methodology (the "Methodology") for determining the payments to Trinity
Bank employees pursuant to such employment agreements and
change-in-control agreements if such employees are involuntarily
terminated or resign as a result of the occurrence of a "Termination
Event" (as defined in the applicable employment or change-in-control
agreement) or become entitled to a payment thereunder pursuant to this
Agreement, is set forth in Citizens South DISCLOSURE SCHEDULE 7.8.2.
Each Trinity Bank employee who is party to such employment agreement or
change-in-control agreement shall execute the acknowledgment included
in Citizen South DISCLOSURE SCHEDULE 7.8.2 at the time of the execution
of this Agreement pursuant to which such employee shall agree to the
Methodology. Immediately prior to the Effective Time, Trinity Bank
shall pay the amount set forth on Citizens South DISCLOSURE SCHEDULE
7.8.2 to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, President and Chief Administrative Officer
of Trinity Bank, ▇▇▇▇▇▇ ▇▇▇▇▇, Chief Financial Officer of Trinity Bank,
and ▇▇▇▇ ▇▇▇▇▇▇, Senior Vice President and Business Development Officer
at Trinity Bank. At the time the payments to Trinity Bank employees
pursuant to such employment agreements and change-in-control agreements
are made, each such employee shall each execute a Termination Agreement
and Release, in the form set forth in Citizens South DISCLOSURE
SCHEDULE 7.8.2, acknowledging that no further payments are due under
such employment agreements and change-in-control agreements and
releasing Trinity Bank and Citizens South, and their respective
officers, directors and employees, from any and all claims arising
thereunder. Notwithstanding anything herein to the contrary, no payouts
shall be made by Citizens South or Trinity Bank pursuant to the
existing change-in-control agreement to which ▇▇▇ ▇▇▇▇▇▇▇▇▇, loan
officer of Trinity Bank, is a party.
7.8.3. Notwithstanding Section 7.8.2 hereof, concurrent with
the execution of this Agreement, Trinity Bank, Citizens South Bank and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trinity Bank's Chief Executive Officer, shall enter
into a Supplemental Agreement pursuant to which, effective at the
Effective Time, that certain employment agreement by and between
Trinity Bank and ▇▇. ▇▇▇▇▇▇▇ (the "▇▇▇▇▇▇▇ Employment Agreement") shall
be terminated. In consideration for the termination of the ▇▇▇▇▇▇▇
Employment Agreement, the Supplemental Agreement shall provide for
certain payments to be made to ▇▇. ▇▇▇▇▇▇▇ by Citizens South Bank.
Concurrently with the execution of this Agreement, and effective at the
Effective Time, Citizens South, Citizens South Bank and ▇▇. ▇▇▇▇▇▇▇
also shall enter into a new employment agreement with ▇▇▇▇▇ ▇▇▇▇▇▇▇ for
a term of two (2) years from the Effective Time in the form included in
Citizens South DISCLOSURE SCHEDULE 7.8.3 and a Consulting and
Non-Compete Agreement, for a term of two (2) years commencing on the
second anniversary of the Effective Time of the Merger, in the form
included in Citizens South DISCLOSURE SCHEDULE 7.8.3. Concurrent with
the execution of this Agreement, the Supplemental Retirement Plan
established by Trinity Bank for
57
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ in 2003 for which accruals have been incurred by
Trinity Bank from June 2003, shall be frozen and no further accruals
(other than interest, at a rate not in excess of the applicable federal
long-term rate under Code Section 280G at the Effective Time) shall be
made therefor. Prior to the Effective Time, the ▇▇▇▇▇▇▇ Supplemental
Retirement Plan shall be set forth in a written document, in a form
satisfactory to Citizens South, which shall (a) comply with Code
Section 409A, and (b) provide for the payment of ten equal annual
installments commencing January 2010 and continuing until January 2019.
7.8.4. Concurrent with the execution of this Agreement and
effective as of the Effective Time, Citizens South shall enter into a
severance and non-compete agreement in the form included in Citizens
South DISCLOSURE SCHEDULE 7.8.4 with each of ▇▇. ▇▇▇▇▇▇▇▇▇▇ and ▇▇.
▇▇▇▇▇▇▇▇▇. Such severance and non-compete agreement with ▇▇. ▇▇▇▇▇▇▇▇▇
shall be in lieu of and shall supercede the existing change-in-control
agreement between ▇▇. ▇▇▇▇▇▇▇▇▇ and Trinity Bank, which shall be
cancelled.
7.8.5. Citizens South Bank shall pay each employee of Trinity
Bank set forth on Trinity Bank DISCLOSURE SCHEDULE 7.8.5 a special,
one-time bonus (the "Retention Bonus"), which has been mutually agreed
upon by Trinity Bank, Citizens South and Citizens South Bank, and which
is designed to encourage such employees to remain employed by Trinity
Bank from the date hereof and continue to be employed by Citizens South
Bank through the earlier to occur of (i) one month following the
conversion of Trinity Bank's data processing and accounting systems to
the systems of Citizens South Bank, or (ii) six months after the
Closing Date. Unless otherwise mutually agreed by the parties hereto
subsequent to the date hereof, the Retention Bonus payable to each such
Trinity Bank employee shall be equal to the amount indicated on Trinity
Bank DISCLOSURE SCHEDULE 7.8.5 (before taxes and withholding, which
shall be required in accordance with applicable law). The payment of a
Retention Bonus to any such Trinity Bank employee is contingent in all
respects upon such employee remaining employed by Citizens South Bank
and performing those duties and tasks assigned to such employee in a
diligent, timely and cooperative manner through the earlier to occur of
(i) one month following the conversion of Trinity Bank's data
processing and accounting systems to the systems of Citizens South
Bank, or (ii) six months after the Closing Date.
7.8.6. Any employee of Trinity Bank at the Effective Time who
shall not be offered employment with Citizens South Bank in a
substantially similar capacity as such employee served immediately
prior to the execution of this Agreement or whose employment with
Citizens South is terminated by Citizens South (other than for cause)
within six months following the Effective Time shall be paid severance
equal to two weeks salary for each 12 month period of continuous
service from their date of hire (or in the case of hourly employees, as
such hourly rate would translate to an annualized salary), with a
minimum of two weeks of severance for employees with less than 12
months of continuous service, provided, however, that such employee
shall be required to execute a general release releasing Trinity Bank,
Citizens South, and Citizens South Bank from any liability relating to
such employee's termination of employment. Notwithstanding anything
herein to the contrary, no employee of Trinity Bank who is covered by
an employment agreement or change in control agreement which provides
severance benefits in connection with a change in control shall receive
a benefit pursuant to this Section. Any severance payment shall be
subject to tax withholding in accordance with applicable law.
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7.8.7. In the event of any termination of any Trinity Bank
health plan or consolidation of any such plan with any Citizens South
or Citizens South Bank health plan or to the extent that an employee of
Trinity Bank or any Trinity Bank Subsidiary who continues employment
with Citizens South or a Citizens South Subsidiary ("Continuing
Employee") participates in a Citizens South health plan, Citizens South
shall make available to such Continuing Employees and their dependents
employer-provided health coverage (including medical, dental,
pharmaceutical and/or vision benefits) on the same basis as it provides
such coverage to Citizens South employees. Unless a Continuing Employee
affirmatively terminates coverage under a Trinity Bank health plan
prior to the time that such Continuing Employee becomes eligible to
participate in the Citizens South health plan, no coverage of any of
the Continuing Employees or their dependents shall terminate under any
of the Trinity Bank health plans prior to the time such Continuing
Employees and their dependents become eligible to participate in the
health plans, programs and benefits common to all employees of Citizens
South and their dependents. In the event of a termination or
consolidation of any Trinity Bank health plan, terminated Trinity Bank
employees and qualified beneficiaries will have the right to continued
coverage under group health plans of Citizens South in accordance with
Code Section 4980B(f), consistent with the provisions below. In the
event of any termination of any Trinity Bank health plan, or
consolidation of any Trinity Bank health plan with any Citizens South
health plan, any coverage limitation under the Citizens South health
plan due to any pre-existing condition shall be waived by the Citizens
South health plan to the degree that such condition was covered by the
Trinity Bank health plan and such condition would otherwise have been
covered by the Citizens South health plan in the absence of such
coverage limitation. All Trinity Bank Employees who cease participating
in a Trinity Bank health plan and become participants in a comparable
Citizens South health plan shall receive credit for any co-payment and
deductibles paid under Trinity Bank's health plan for purposes of
satisfying any applicable deductible or out-of-pocket requirements
under the Citizens South health plan, upon substantiation, in a form
satisfactory to Citizens South that such co-payment and/or deductible
has been satisfied. Citizens South shall assume the retiree health plan
of Trinity Bank and each Trinity Bank Subsidiary and shall have the
same rights and obligations thereunder.
7.9. Directors and Officers Indemnification and Insurance.
7.9.1. Citizens South shall maintain, or shall cause Citizens
South Bank to maintain, in effect for six years following the Effective
Time, the current directors' and officers' liability insurance policies
maintained by Trinity Bank (provided, that Citizens South may
substitute therefor policies of at least the same coverage containing
terms and conditions which are not substantially less advantageous)
with respect to claims arising from matters occurring prior to the
Effective Time; provided, however, that in no event shall Citizens
South be required to expend in the aggregate pursuant to this Section
7.9.1 more than $45,000 (the "Maximum Amount"); provided, further, that
if the amount of the aggregate premium necessary to maintain or procure
such insurance coverage exceeds the Maximum Amount, Citizens South
shall maintain the most advantageous policies of directors' and
officers' insurance obtainable for an annual premium equal to the
Maximum Amount. In connection with the foregoing, Trinity Bank agrees
in order for Citizens South to fulfill its agreement to provide
directors and officers liability insurance policies for six years to
provide such insurer or substitute insurer with such reasonable and
customary representations as such insurer may request with respect to
the reporting of any prior claims.
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7.9.2. In addition to Section 7.9.1, Citizens South shall, to
the fullest extent permitted under law, indemnify, defend and hold
harmless each person who is now, or who has been at any time before the
date hereof or who becomes before the Effective Time, an officer,
employee, director or agent of Trinity Bank (the "Indemnified Parties")
against all losses, claims, damages, costs, expenses (including
attorneys' fees), liabilities, fines or judgments or amounts that are
paid in settlement of or in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, or administrative
(each a "Claim"), in which an Indemnified Party is, or is threatened to
be made, a party or witness based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director,
officer, employee or agent of Trinity Bank if such Claim pertains to
any matter of fact arising, existing or occurring at or before the
Effective Time (including, without limitation, the Merger and the other
transactions contemplated hereby), regardless of whether such Claim is
asserted or claimed before, or after, the Effective Time (the
"Indemnified Liabilities"), to the fullest extent that such Indemnified
Persons were entitled to indemnification under North Carolina law and
Trinity Bank's Articles of Incorporation and Bylaws, as in effect as of
the Effective Time. Citizens South shall pay expenses in advance of the
final disposition of any such action or proceeding to each Indemnified
Party to the fullest extent permitted by North Carolina law (to the
extent not prohibited by Federal law). Any Indemnified Party wishing to
claim indemnification under this Section 7.9.2 upon learning of any
Claim, shall notify Citizens South (but the failure so to notify
Citizens South shall not relieve it from any liability which it may
have under this Section 7.9.2, except to the extent such failure
materially prejudices Citizens South) and shall, if required by
applicable law, deliver to Citizens South the undertaking referred to
in the previous sentence.
7.9.3. In the event that either Citizens South or any of its
successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving bank or entity of
such consolidation or merger or (ii) transfers all or substantially all
of its properties and assets to any person, then, and in each such
case, proper provision shall be made so that the successors and assigns
of Citizens South shall assume the obligations set forth in this
Section 7.9.
7.9.4. The obligations of Citizens South provided under this
Section 7.9 are intended to be for the benefit of, and enforceable
against Citizens South directly by, the Indemnified Parties and their
heirs and representatives and shall be binding on all respective
successors and permitted assigns of Citizens South. Citizens South
shall pay all reasonable costs, including attorneys' fees, that may be
incurred by any Indemnified Party in successfully enforcing the
indemnity and other obligations provided for in this Section 7.9 to the
fullest extent permitted under applicable law. The rights of each
Indemnified Party hereunder shall be in addition to any other rights
such Indemnified Party may have under applicable law. The provisions of
this Section 7.9 shall survive the Effective Time.
7.10. Stock Listing.
Citizens South agrees to list on the Nasdaq National Market (or such
other national securities exchange on which the shares of the Citizens South
Common Stock shall be listed as of the Closing Date), subject to official notice
of issuance, the shares of Citizens South Common Stock to be issued in the
Merger.
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7.11. Stock and Cash Reserve.
Citizens South agrees at all times from the date of this Agreement
until the Merger Consideration has been paid in full to reserve a sufficient
number of shares of Citizens South Common Stock and to maintain sufficient
liquid accounts or borrowing capacity to fulfill its obligations under this
Agreement.
7.12. Communications to Trinity Bank Employees; Training
Citizens South and Trinity Bank agree that as promptly as practicable
following the execution of this Agreement, meetings with employees of Trinity
Bank shall be held at such location as Citizens South and Trinity Bank shall
mutually agree, provided that representatives of Citizens South shall be
permitted to attend such meetings, to announce the proposed Merger. Citizens
South and Trinity Bank shall mutually agree as to the scope and content of all
communications to the employees of Trinity Bank regarding the Merger, this
Agreement and the transactions contemplated hereunder. At mutually agreed upon
times following execution of this Agreement, representatives of Citizens South
shall be permitted to meet with the employees of Trinity Bank to discuss
employment opportunities with Citizens South, provided that representatives of
Trinity Bank shall be permitted to attend any such meeting. From and after the
date of this Agreement, Citizens South shall also be permitted to conduct a
reasonable number of training sessions outside of normal business hours or at
other times as Trinity Bank may agree, with the employees of Trinity Bank and
may conduct such training seminars at any branch location of Trinity Bank;
provided that Trinity Bank shall not be required to allow such training sessions
to the extent, in its reasonable judgment, such activities would interfere with
Trinity Bank's normal business operations.
7.13. Appointment to Citizens South Board of Directors and Citizens
South Bank Board of Directors
The Board of Directors of each of Citizens South and Citizens South
Bank shall appoint the individual designated pursuant to Section 2.5 hereof to
the Board of Directors, effective as of the Effective Date.
ARTICLE VIII
REGULATORY AND OTHER MATTERS
8.1. Meeting of Shareholders.
8.1.1. Trinity Bank will (i) take all steps necessary to duly
call, give notice of, convene and hold a special meeting of its
shareholders as promptly as practicable after the Merger Registration
Statement is declared effective by the SEC and the Proxy
Statement/Prospectus is cleared for use by the FDIC, for the purpose of
considering this Agreement and the Merger (the "Trinity Bank
Shareholders Meeting"), (ii) in connection with the solicitation of
proxies with respect to the Trinity Bank Shareholders Meeting, have its
Board of Directors recommend approval of this Agreement to the Trinity
Bank shareholders; and (iii) cooperate and consult with Citizens South
with respect to each of the foregoing matters.
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The Board of Directors of Trinity Bank may fail to make such a
recommendation referred to in clause (ii) above, or withdraw, modify or
change any such recommendation, only if the Board of Directors, after
having consulted with and considered the advice of its outside
financial and legal advisors, has determined that the making of such
recommendation, or the failure so to withdraw, modify or change its
recommendation, would be inconsistent with the fiduciary duties of such
directors under applicable law.
8.2. Proxy Statement-Prospectus; Merger Registration Statement.
8.2.1. For the purposes (x) of registering Citizens South
Common Stock to be offered to holders of Trinity Bank Common Stock in
connection with the Merger with the SEC under the Securities Act and
(y) of holding the Trinity Bank Shareholders Meeting, Citizens South
shall draft and prepare, and Trinity Bank shall cooperate in the
preparation of, the Merger Registration Statement, including the proxy
statement and prospectus satisfying all applicable requirements of
applicable state and federal securities and banking laws, including the
Securities Act and the Exchange Act, and the rules and regulations of
the SEC and the FDIC thereunder (such proxy statement and prospectus in
the form mailed by Trinity Bank to the Trinity Bank shareholders,
together with any and all amendments or supplements thereto, being
herein referred to as the "Proxy Statement/Prospectus"). Citizens South
shall provide Trinity Bank and its counsel with appropriate opportunity
to review and comment on the Proxy Statement/Prospectus, and shall
incorporate all appropriate comments thereto, prior to the time it is
initially filed with the SEC or the FDIC or any amendments are filed
with the SEC or the FDIC. Citizens South shall file the Merger
Registration Statement, including the Proxy Statement/Prospectus, with
the SEC, and Trinity Bank shall file the Proxy Statement/Prospectus
with the FDIC. Each of Citizens South and Trinity Bank shall use its
best efforts to have the Merger Registration Statement declared
effective under the Securities Act and cleared for use by the FDIC as
promptly as practicable after such filing, and Trinity Bank shall
thereafter promptly mail the Proxy Statement/Prospectus to its
shareholders. Citizens South shall also use its best efforts to obtain
all necessary state securities law or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement,
and Trinity Bank shall furnish all information concerning Trinity Bank
and the holders of Trinity Bank Common Stock as may be reasonably
requested in connection with any such action.
8.2.2. Citizens South shall, as soon as practicable, file the
Merger Registration Statement with the SEC under the Securities Act in
connection with the transactions contemplated by this Agreement.
Citizens South will advise Trinity Bank promptly after Citizens South
receives notice of the time when the Merger Registration Statement has
become effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the qualifications of
the shares of Citizens South Common Stock issuable pursuant to the
Merger Registration Statement, or the initiation or threat of any
proceeding for any such purpose, or of any request by the SEC for the
amendment or supplement of the Merger Registration Statement, or for
additional information, and Citizens South will provide Trinity Bank
with as many copies of such Merger Registration Statement and all
amendments thereto promptly upon the filing thereof as Trinity Bank may
reasonably request.
8.2.3. Trinity Bank and Citizens South shall promptly notify
the other party if at any time it becomes aware that the Proxy
Statement-Prospectus or the Merger Registration
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Statement contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances
under which they were made, not misleading. In such event, Trinity Bank
shall cooperate with Citizens South in the preparation of a supplement
or amendment to such Proxy Statement-Prospectus that corrects such
misstatement or omission, and Citizens South shall file an amended
Merger Registration Statement with the SEC, and each of Trinity Bank
and Citizens South shall mail an amended Proxy Statement-Prospectus to
Trinity Bank's shareholders.
8.3. Regulatory Approvals.
Each of Trinity Bank and Citizens South will cooperate with the other
and use all reasonable efforts to promptly prepare and as soon as practicable
following the date hereof, file all necessary documentation to obtain all
necessary permits, consents, waivers, approvals and authorizations of the OTS,
the FDIC, and the Commissioner and any other third parties and governmental
bodies necessary to consummate the transactions contemplated by this Agreement.
Trinity Bank and Citizens South will furnish each other and each other's counsel
with all information concerning themselves, their Subsidiaries, directors,
officers and shareholders and such other matters as may be necessary or
advisable in connection with any application, petition or other statement made
by or on behalf of Trinity Bank or Citizens South to any Bank Regulator or
governmental body in connection with the Merger and the other transactions
contemplated by this Agreement. Trinity Bank shall have the right to review and
approve in advance all characterizations of the information relating to Trinity
Bank and any of its Subsidiaries which appear in any filing made in connection
with the transactions contemplated by this Agreement with any governmental body.
In addition, Trinity Bank and Citizens South shall each furnish to the other and
its counsel for review and comment a copy of each such filing made in connection
with the transactions contemplated by this Agreement with any governmental body
prior to its filing.
8.4. Affiliates.
8.4.1. Trinity Bank shall use all reasonable efforts to cause
each director, executive officer and other person who is an "affiliate"
(for purposes of Rule 145 under the Securities Act) of Trinity Bank to
deliver to Citizens South, as soon as practicable after the date of
this Agreement, and at least thirty (30) days prior to the date of the
Trinity Bank Shareholders Meeting, a written agreement, in the form of
Exhibit B hereto, providing that such person will not sell, pledge,
transfer or otherwise dispose of any shares of Citizens South Common
Stock to be received by such "affiliate" as a result of the Merger
otherwise than in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder.
ARTICLE IX
CLOSING CONDITIONS
9.1. Conditions to Each Party's Obligations under this Agreement.
The respective obligations of each party under this Agreement shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions, none of which may be waived:
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9.1.1. Stockholder Approval. This Agreement and the
transactions contemplated hereby shall have been approved and adopted
by the requisite vote of the shareholders of Trinity Bank.
9.1.2. Injunctions. None of the parties hereto shall be
subject to any order, decree or injunction of a court or agency of
competent jurisdiction, and no statute, rule or regulation shall have
been enacted, entered, promulgated, interpreted, applied or enforced by
any Governmental Entity or Bank Regulator, that enjoins or prohibits
the consummation of the transactions contemplated by this Agreement.
9.1.3. Regulatory Approvals. All Regulatory Approvals required
to complete the Merger shall have been obtained and shall remain in
full force and effect and all waiting periods relating thereto shall
have expired.
9.1.4. Effectiveness of Merger Registration Statement. The
Merger Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Merger Registration Statement shall have been issued, and no
proceedings for that purpose shall have been initiated or threatened by
the SEC and, if the offer and sale of Citizens South Common Stock in
the Merger is subject to the Blue Sky laws of any state, shall not be
subject to a stop order of any state securities commissioner. The Proxy
Statement/Prospectus shall have been cleared for use by the FDIC.
9.1.5. Nasdaq Listing. The shares of Citizens South Common
Stock to be issued in the Merger shall have been authorized for listing
on the Nasdaq National Market, subject to official notice of issuance.
9.1.6. Tax Opinions. On the basis of facts, representations
and assumptions which shall be consistent with the state of facts
existing at the Closing Date, Citizens South shall have received an
opinion of ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C., reasonably acceptable
in form and substance to Citizens South, and Trinity Bank shall have
received an opinion of ▇▇▇▇▇ Mulliss & Wicker, PLLC, reasonably
acceptable in form and substance to Trinity Bank, each dated as of the
Closing Date, substantially to the effect that, for Federal income tax
purposes:
(A) The Merger, when consummated in accordance with
the terms hereof, either will constitute a reorganization
within the meaning of Section 368(a) of the Code or will be
treated as part of a reorganization within the meaning of
Section 368(a) of the Code;
(B) No gain or loss will be recognized by Citizens
South, Citizens South Bank or Trinity Bank by reason of the
Merger;
(C) The exchange of Citizens South Common Stock, to
the extent exchanged for Trinity Bank Common Stock, will not
give rise to the recognition of gain or loss for Federal
income tax purposes to the shareholders of Trinity Bank;
(D) The basis of the Citizens South Common Stock to
be received (including any fractional shares deemed received
for tax purposes) by a Trinity Bank stockholder
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will be the same as the basis of the Trinity Bank Common Stock
surrendered pursuant to the Merger in exchange therefor,
increased by any gain recognized by such Trinity Bank
stockholder as a result of the Merger and decreased by any
cash received by such Trinity Bank stockholder in the Merger;
and
(E) The holding period of the shares of Citizens
South Common Stock to be received by a stockholder of Trinity
Bank will include the period during which the stockholder held
the shares of Trinity Bank Common Stock surrendered in
exchange therefore, provided the Trinity Bank Common Stock
surrendered is held as a capital asset at the Effective Time.
9.2. Conditions to the Obligations of Citizens South and Citizens South
Bank under this Agreement.
The obligations of Citizens South and Citizens South Bank under this
Agreement shall be further subject to the satisfaction of the conditions set
forth in Sections 9.2.1 through 9.2.5 at or prior to the Closing Date:
9.2.1. Representations and Warranties. Each of the
representations and warranties of Trinity Bank set forth in this
Agreement shall be true and correct as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made at the Effective Time
(except to the extent such representations and warranties speak as of
the date of this Agreement or another date, which only need be true and
correct as of such date, and except for Section 4.3.1 and Trinity Bank
DISCLOSURE SCHEDULE 3.4, which shall be updated as of the Effective
Time), in any case subject to the standard set forth in Section 4.1;
and Trinity Bank shall have delivered to Citizens South a certificate
to such effect signed by the Chief Executive Officer and the Chief
Financial Officer of Trinity Bank and dated as of the Effective Time.
9.2.2. Agreements and Covenants. Trinity Bank shall have
performed in all material respects all obligations and complied in all
material respects with all agreements or covenants to be performed or
complied with by it at or prior to the Effective Time, and Citizens
South shall have received a certificate signed on behalf of Trinity
Bank by the Chief Executive Officer and Chief Financial Officer of
Trinity Bank to such effect dated as of the Effective Time.
9.2.3. Regulatory Conditions. No Regulatory Approval required
for consummation the Merger includes any condition or requirement,
excluding standard conditions that are normally imposed by the
regulatory authorities in bank merger transactions, that could
reasonably be expected by Citizens South to result in a Material
Adverse Effect on Citizens South and its Subsidiaries, taken as a
whole.
9.2.4. Dissenting Shares. As of immediately prior to the
Effective Time, not more than 5% of the issued and outstanding shares
of Trinity Bank Common Stock shall have dissented to the Merger under
North Carolina law, and preserved, as of immediately prior to the
Effective Time, the right to pursue their right of appraisal for the
fair value of their shares of Trinity Bank Common Stock under North
Carolina Law.
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9.2.5. Permits, Authorizations, Etc. Trinity Bank shall have
obtained any and all material permits, authorizations, consents,
waivers, clearances or approvals required for the lawful consummation
of the Merger, the failure of which to obtain would have a Material
Adverse Effect on Citizens South and its Subsidiaries, taken as a
whole.
9.3. Conditions to the Obligations of Trinity Bank under this
Agreement.
The obligations of Trinity Bank under this Agreement shall be further
subject to the satisfaction of the conditions set forth in Sections 9.3.1
through 9.3.4 at or prior to the Closing Date:
9.3.1. Representations and Warranties. Each of the
representations and warranties of Citizens South and Citizens South
Bank set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Effective Time with the same
effect as though all such representations and warranties had been made
at the Effective Time (except to the extent such representations and
warranties speak as of the date of this Agreement or another date,
which only need be true and correct as of such date), in any case
subject to the standard set forth in Section 5.1; and Citizens South
and Citizens South Bank shall have delivered to Trinity Bank a
certificate to such effect signed by the Chief Executive Officer and
the Chief Financial Officer of each of Citizens South and Citizens
South Bank and dated as of the Effective Time.
9.3.2. Agreements and Covenants. Citizens South and Citizens
South Bank shall have performed in all material respects all
obligations and complied in all material respects with all agreements
or covenants to be performed or complied with by each of them at or
prior to the Effective Time, and Trinity Bank shall have received a
certificate signed on behalf of Citizens South and Citizens South Bank
by the Chief Executive Officer and Chief Financial Officer of each of
Citizens South and Citizens South Bank to such effect dated as of the
Effective Time.
9.3.3. Permits, Authorizations, Etc. Citizens South and its
Subsidiaries shall have obtained any and all material permits,
authorizations, consents, waivers, clearances or approvals required for
the lawful consummation of the Merger, the failure of which to obtain
would have a Material Adverse Effect on Citizens South and its
Subsidiaries, taken as a whole.
9.3.4. Payment of Merger Consideration. Citizens South shall
have delivered the Exchange Fund to the Exchange Agent on or before the
Closing Date and the Exchange Agent shall provide Trinity Bank with a
certificate evidencing such delivery.
ARTICLE X
THE CLOSING
10.1. Time and Place.
Subject to the provisions of Articles IX and XI hereof, the Closing of
the transactions contemplated hereby shall take place at the offices of ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇.▇. at
10:00 a.m. on the date determined by Citizens South, in its sole discretion,
upon five (5) days prior written notice to Trinity Bank, but in no event later
than fifteen (15) days after the last condition precedent (other than those
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conditions that relate to actions to be taken at the Closing, but subject to the
fulfillment or waiver of those conditions) pursuant to this agreement has been
fulfilled or waived (including the expiration of any applicable waiting period),
or at such other place, date or time upon which Citizens South and Trinity Bank
mutually agree. A pre-closing of the transactions contemplated hereby (the
"Pre-Closing") shall take place at the offices of ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇.▇. at 10:00 a.m. on the day
prior to the Closing Date (the "Pre-Closing Date").
10.2. Deliveries at the Pre-Closing and the Closing.
At the Pre-Closing there shall be delivered to Citizens South and
Trinity Bank the opinions, certificates, and other documents and instruments
required to be delivered at the Closing under Article IX hereof. At or prior to
the Closing, Citizens South shall deliver the Merger Consideration as set forth
under Section 9.3.4 hereof.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1. Termination.
This Agreement may be terminated at any time prior to the Closing Date,
whether before or after approval of the Merger by the shareholders of Trinity
Bank:
11.1.1. At any time by the mutual written agreement of
Citizens South, Citizens South Bank and Trinity Bank;
11.1.2. By either party (provided, that the terminating party
is not then in material breach of any representation, warranty,
covenant or other agreement contained herein) if there shall have been
a material breach of any of the representations or warranties set forth
in this Agreement on the part of the other party, which breach by its
nature cannot be cured prior to the Termination Date or shall not have
been cured within 30 days after written notice of such breach by the
terminating party to the other party provided, however, that neither
party shall have the right to terminate this Agreement pursuant to this
Section 11.1.2 unless the breach of representation or warranty,
together with all other such breaches, would entitle the terminating
party not to consummate the transactions contemplated hereby under
Section 9.2.1 (in the case of a breach of a representation or warranty
by Trinity Bank) or Section 9.3.1 (in the case of a breach of a
representation or warranty by Citizens South or Citizens South Bank);
11.1.3. By either party (provided, that the terminating party
is not then in material breach of any representation, warranty,
covenant or other agreement contained herein) if there shall have been
a material failure to perform or comply with any of the covenants or
agreements set forth in this Agreement on the part of the other party,
which failure by its nature cannot be cured prior to the Termination
Date or shall not have been cured within 30 days after written notice
of such failure by the terminating party to the other party; provided,
however, that neither party shall have the right to terminate this
Agreement pursuant to this Section 11.1.3 unless the breach of covenant
or agreement, together with all other such breaches, would entitle the
terminating party not to consummate the transactions contemplated
hereby under Section
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9.2.2 (in the case of a breach of covenant by Trinity Bank) or Section
9.3.2 (in the case of a breach of covenant by Citizens South or
Citizens South Bank);
11.1.4. At the election of either party, if the Closing shall
not have occurred by the Termination Date, or such later date as shall
have been agreed to in writing by Citizens South and Trinity Bank;
provided, that no party may terminate this Agreement pursuant to this
Section 11.1.4 if the failure of the Closing to have occurred on or
before said date was due to such party's material breach of any
representation, warranty, covenant or other agreement contained in this
Agreement;
11.1.5. By either party, if the shareholders of Trinity Bank
shall have voted at the Trinity Bank Shareholders Meeting on the
transactions contemplated by this Agreement and such vote shall not
have been sufficient to approve and adopt such transactions;
11.1.6. By either party if (i) final action has been taken by
a Bank Regulator whose approval is required in order to satisfy the
conditions to the parties' obligations to consummate the transactions
contemplated hereby as set forth in Article IX, which final action (x)
has become unappealable and (y) does not approve this Agreement or the
transactions contemplated hereby, or (ii) any court of competent
jurisdiction or other governmental authority shall have issued an
order, decree, ruling or taken any other action restraining, enjoining
or otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have become final and unappealable;
11.1.7. By the Board of Directors of Citizens South if Trinity
Bank has received a Superior Proposal and the Board of Directors of
Trinity Bank has entered into an acquisition agreement with respect to
the Superior Proposal, terminated this Agreement, withdrawn its
recommendation of this Agreement, has failed to make such
recommendation or has modified or qualified its recommendation in a
manner adverse to Citizens South;
11.1.8. By the Board of Directors of Trinity Bank if Trinity
Bank has received a Superior Proposal and the Board of Directors of
Trinity Bank has made a determination to accept such Superior Proposal;
provided that Trinity Bank shall not terminate this Agreement pursuant
to this Section 11.1.8 and enter in a definitive agreement with respect
to the Superior Proposal until the expiration of five (5) business days
following Citizens South's receipt of written notice advising Citizens
South that Trinity Bank has received a Superior Proposal, specifying
the material terms and conditions of such Superior Proposal (and
including a copy thereof with all accompanying documentation, if in
writing) identifying the person making the Superior Proposal and
stating whether Trinity Bank intends to enter into a definitive
agreement with respect to the Superior Proposal. After providing such
notice, Trinity Bank shall provide a reasonable opportunity to Citizens
South and Citizens South Bank during the five-day period to make such
adjustments in the terms and conditions of this Agreement as would
enable Trinity Bank to proceed with the Merger on such adjusted terms;
or
11.1.9. By the Board of Directors of Trinity Bank if the
average of the daily closing sales prices of a share of Citizens South
Common Stock for the consecutive five-day trading period immediately
preceding the Determination Date is less than 60% of the closing sales
price of a share of Citizens South Common Stock on the date of this
Agreement. For the
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purposes of this Section 11.1.9, the "Determination Date" shall mean
the date on which the last approval, consent or waiver of any
governmental entity required to permit consummation of the transactions
contemplated by this Agreement is received, without regard to any
requisite waiting period in respect thereof. For the purposes of this
Section 11.1.9, closing sales prices shall be those prices reported on
the Nasdaq National Market (as reported in the Wall Street Journal or,
if not reported therein, in another mutually agreed upon authoritative
source).
11.2. Effect of Termination.
11.2.1. In the event of termination of this Agreement pursuant
to any provision of Section 11.1, this Agreement shall forthwith become
void and have no further force, except that the provisions of Sections
11.2, 12.1, 12.2, 12.3, 12.4, 12.5, 12.6, 12.9, 12.10, 12.11, 12.12 and
any other Section which, by its terms, relates to post-termination
rights or obligations, shall survive such termination of this Agreement
and remain in full force and effect.
11.2.2. If this Agreement is terminated, expenses and damages
of the parties hereto shall be determined as follows:
(A) Except as provided below, whether or not the
Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party
incurring such expenses. Notwithstanding the foregoing, the
costs and expenses of printing and mailing the Proxy
Statement-Prospectus, and all filing and other fees paid to
the SEC in connection with the Merger, shall be borne equally
by Citizens South and Trinity Bank.
(B) In the event of a termination of this Agreement
because of a willful breach of any representation, warranty,
covenant or agreement contained in this Agreement, the
breaching party shall remain liable for any and all damages,
costs and expenses, including all reasonable attorneys' fees,
sustained or incurred by the non-breaching party as a result
thereof or in connection therewith or with respect to the
enforcement of its rights hereunder.
(C) As a condition of Citizens South's willingness,
and in order to induce Citizens South, to enter into this
Agreement, and to reimburse Citizens South for incurring the
costs and expenses related to entering into this Agreement and
consummating the transactions contemplated by this Agreement,
Trinity Bank hereby agrees to pay Citizens South, and Citizens
South shall be entitled to payment of, a fee of $1,250,000
(the "Fee"), within three business days after written demand
for payment is made by Citizens South, following the
occurrence of any of the events set forth below:
(i) Trinity Bank terminates this Agreement
pursuant to Section 11.1.8 or Citizens South
terminates this Agreement pursuant to Section 11.1.7;
or
(ii) The entering into a definitive
agreement by Trinity Bank relating to an Acquisition
Proposal or the consummation of an Acquisition
Proposal involving Trinity Bank within twelve months
after the occurrence of any of the following: (i) the
termination of this Agreement by Citizens South
pursuant to Section 11.1.2 or 11.1.3
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because of a willful breach by Trinity Bank or any
Trinity Bank Subsidiary after the occurrence of an
Acquisition Proposal has been publicly announced or
otherwise made known to Trinity Bank; or (ii) the
termination of this Agreement by Citizens South or
Trinity Bank pursuant to Section 11.1.5 because of
the failure of the shareholders of Trinity Bank to
approve this Agreement at the Trinity Bank
Shareholders Meeting after the occurrence of an
Acquisition Proposal has been publicly announced or
otherwise made known to the shareholders of Trinity
Bank.
(D) If demand for payment of the Fee is made pursuant
to Section 11.2.2(C) and payment is timely made, then Citizens
South will not have any other rights or claims against Trinity
Bank or its Subsidiaries, or their respective officers and
directors, under this Agreement, it being agreed that the
acceptance of the Fee under Section 11.2.2(C) will constitute
the sole and exclusive remedy of Citizens South against
Trinity Bank and its Subsidiaries and their respective
officers and directors.
11.3. Amendment, Extension and Waiver.
Subject to applicable law, at any time prior to the Effective Time
(whether before or after approval thereof by the shareholders of Trinity Bank),
the parties hereto by action of their respective Boards of Directors, may (a)
amend this Agreement, (b) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (c) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (d) waive compliance with any of the agreements or
conditions contained herein; provided, however, that after any approval of this
Agreement and the transactions contemplated hereby by the shareholders of
Trinity Bank, there may not be, without further approval of such shareholders,
any amendment of this Agreement which reduces the amount or value, or changes
the form of, the Merger Consideration to be delivered to Trinity Bank's
shareholders pursuant to this Agreement. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. Any agreement on the part of a party hereto to any extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. Any termination of
this Agreement pursuant to this Article XI may only be effected upon a vote of a
majority of the entire Board of Directors of the terminating party.
ARTICLE XII
MISCELLANEOUS
12.1. Confidentiality.
Except as specifically set forth herein, Citizens South, Citizens South
Bank and Trinity Bank mutually agree to be bound by the terms of the
confidentiality provisions of the confidentiality agreements (the
"Confidentiality Agreements") previously executed by the parties hereto, which
requirements as to confidentiality are hereby incorporated herein by reference.
The parties hereto agree that such Confidentiality Agreements shall continue in
accordance with all of their terms upon the termination of this Agreement.
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12.2. Public Announcements.
Trinity Bank, Citizens South and Citizens South Bank shall cooperate
with each other in the development and distribution of all news releases and
other public disclosures with respect to this Agreement. The parties will
provide each other the opportunity to review and comment on any press release or
other public announcements related to the Merger and shall not issue any news
release, or other public announcement or communication with respect to this
Agreement prior to such consultation; provided, however, that nothing in this
Section 12.2 shall be deemed to prohibit any party from making any disclosure
which it reasonably believes, after having consulted with and considered the
advice of its counsel, is necessary in order to satisfy such party's disclosure
obligations under the Securities Laws.
12.3. Survival.
All representations, warranties and covenants in this Agreement or in
any instrument delivered pursuant hereto shall expire and be terminated and
extinguished at the Effective Time, except for Section 7.9 and those covenants
and agreements contained herein which by their terms apply in whole or in part
after the Effective Time.
12.4. Notices.
All notices or other communications hereunder shall be in writing and
shall be deemed given if delivered by facsimile, receipted hand delivery or
mailed by prepaid registered or certified mail (return receipt requested) or by
recognized overnight courier addressed as follows:
If to Trinity Bank, to: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Executive Officer
Trinity Bank
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With required copies to: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇., Esq.
▇▇▇▇▇ Mulliss & Wicker, PLLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Citizens South, to: ▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
Citizens South Banking Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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With required copies to: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given: (a) as of the
date delivered by hand; (b) three (3) business days after being delivered to the
U.S. mail, postage prepaid; or (c) one (1) business day after being delivered to
the overnight courier.
12.5. Parties in Interest.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any party hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party, and that (except as provided in Article III and Section 7.9) nothing in
this Agreement is intended to confer upon any other person any rights or
remedies under or by reason of this Agreement.
12.6. Complete Agreement.
This Agreement, including the Exhibits and Disclosure Schedules hereto
and the documents and other writings referred to herein or therein or delivered
pursuant hereto, and the Confidentiality Agreements referred to in Section 12.1,
contains the entire agreement and understanding of the parties with respect to
its subject matter. There are no restrictions, agreements, promises, warranties,
covenants or undertakings between the parties other than those expressly set
forth herein or therein. This Agreement supersedes all prior agreements and
understandings (other than the applicable provisions of the Confidentiality
Agreements referred to in Section 12.1) between the parties, both written and
oral, with respect to its subject matter.
12.7. Counterparts.
This Agreement may be executed in one or more counterparts all of which
shall be considered one and the same agreement and each of which shall be deemed
an original. A facsimile copy or a .PDF scan of a signature page shall be deemed
to be an original signature page.
12.8. Severability.
In the event that any one or more provisions of this Agreement shall
for any reason be held invalid, illegal or unenforceable in any respect, by any
court of competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement and the parties shall
use their reasonable efforts to substitute a valid, legal and enforceable
provision which, insofar as practical, implements the purposes and intents of
this Agreement.
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12.9. Governing Law.
This Agreement shall be governed by the laws of Delaware, without
giving effect to its principles of conflicts of laws.
12.10. Interpretation.
When a reference is made in this Agreement to Sections or Exhibits,
such reference shall be to a Section of or Exhibit to this Agreement unless
otherwise indicated. The recitals hereto constitute an integral part of this
Agreement. References to Sections include subsections, which are part of the
related Section (e.g., a section numbered "Section 5.5.1" would be part of
"Section 5.5" and references to "Section 5.5" would also refer to material
contained in the subsection described as "Section 5.5.1"). The table of
contents, index and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". The phrases "the date of this Agreement", "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the Recitals to this Agreement. The parties
have participated jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
12.11. Specific Performance.
The parties hereto agree that irreparable damage would occur in the
event that the provisions contained in this Agreement were not performed in
accordance with its specific terms or was otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions thereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
12.12. Waiver of Trial by Jury.
The parties hereto hereby knowingly, voluntarily and intentionally
waive the right any may have to a trial by jury in respect to any litigation
based hereon, or rising out of, under, or in connection with this agreement and
any agreement contemplated to be executed in connection herewith, or any course
of conduct, course of dealing, statements (whether verbal or written) or actions
of either party in connection with such agreements.
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IN WITNESS WHEREOF, Citizens South, Citizens South Bank and Trinity
Bank have caused this Agreement to be executed under seal by their duly
authorized officers as of the date first set forth above.
CITIZENS SOUTH BANKING CORPORATION
Dated: May 25, 2005 By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
CITIZENS SOUTH BANK
Dated: May 25, 2005 By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
TRINITY BANK
Dated: May 25, 2005 By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer
74
EXHIBIT A
VOTING AGREEMENT
May 25, 2005
Citizens South Banking Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Gentlemen:
Citizens South Banking Corporation ("Citizens South"), Citizens South
Bank and Trinity Bank have entered into an Agreement and Plan of Merger dated as
of May 25, 2005 (the "Merger Agreement"), pursuant to which, subject to the
terms and conditions set forth therein, (a) Trinity Bank will merge with and
into Citizens South Bank, with Citizens South Bank surviving the merger (the
"Merger"); and (b) shareholders of Trinity Bank will receive common stock of
Citizens South and/or cash, as stated in the Merger Agreement. Terms that are
undefined herein shall have the meaning set forth in the Merger Agreement.
Citizens South has requested, as a condition to its execution and
delivery to Trinity Bank of the Merger Agreement, that the undersigned, being
directors and executive officers of Trinity Bank, execute and deliver to
Citizens South this Letter Agreement.
Each of the undersigned, in order to induce Citizens South to execute
and deliver to Trinity Bank the Merger Agreement, and intending to be legally
bound, hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at all meetings of
shareholders of Trinity Bank called to vote for approval of the Merger Agreement
and the Merger so that all shares of common stock of Trinity Bank over which the
undersigned, or a member of the undersigned's immediate family living in the
same home, now has sole or shared voting power will be counted for the purpose
of determining the presence of a quorum at such meetings and to vote, or cause
to be voted, all such shares (i) in favor of approval and adoption of the Merger
Agreement and the transactions contemplated thereby (including any amendments or
modifications of the terms thereof approved by the Board of Directors of Trinity
Bank), and (ii) against approval or adoption of any other merger, business
combination, recapitalization, partial liquidation or similar transaction
involving Trinity Bank, it being understood that as to immediate family members,
the undersigned will use his/her reasonable efforts to cause the shares to be
present and voted in accordance with (i) and (ii) above;
(b) Agrees not to vote or execute any written consent to rescind or
amend in any manner any prior vote or written consent, as a shareholder of
Trinity Bank, to approve or adopt the Merger Agreement;
(c) Agrees not to sell, transfer or otherwise dispose of any common
stock of Trinity Bank on or prior to the date of the meeting of Trinity Bank
shareholders to vote on the Merger
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Agreement, except for transfers to charities, charitable trusts, or other
charitable organizations under Section 501(c)(3) of the Code, a lineal
descendant or a spouse of the undersigned, or to a trust or other entity for the
benefit of one or more of the foregoing persons, provided that the transferee
agrees in writing to be bound by the terms of this Letter Agreement;
(d) Agrees in accordance with Section 6.10 of the Merger Agreement not
to solicit, initiate or engage in any negotiations or discussions with any party
other than Citizens South with respect to an Acquisition Proposal, except as
otherwise permitted by Section 6.10;
(e) Agrees in accordance with Section 3.4 of the Merger Agreement not
to sell, assign, transfer or otherwise dispose of any Trinity Bank Option from
the date hereof through the Effective Date, and further agrees in accordance
with Section 3.4 of the Merger Agreement to accept the Option Payment as full
consideration for such director's Trinity Bank Options; and
(f) Represents that the undersigned has the capacity to enter into this
Letter Agreement and that it is a valid and binding obligation enforceable
against the undersigned in accordance with its terms, subject to bankruptcy,
insolvency and other laws affecting creditors' rights and general equitable
principles.
The obligations set forth herein shall terminate concurrently with any
termination of the Merger Agreement.
----------------------------
This Letter Agreement may be executed in two or more counterparts, each
of which shall be deemed to constitute an original, but all of which together
shall constitute one and the same Letter Agreement.
----------------------------
The undersigned intend to be legally bound hereby.
Sincerely,
----------------------------------------
Name
----------------------------------------
Title
A-2
EXHIBIT B
AFFILIATE AGREEMENT
May 25, 2005
Citizens South Banking Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Gentlemen:
I have been advised that I might be considered to be an "affiliate" of
Trinity Bank, a North Carolina bank ("Trinity Bank"), for purposes of paragraphs
(c) and (d) of Rule 145 of the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Securities Act").
Citizens South Banking Corporation ("Citizens South"), Citizens South
Bank and Trinity Bank have entered into an Agreement and Plan of Merger, dated
as of May 25, 2005 (the "Agreement"). Upon consummation of the merger
contemplated by the Agreement (the "Merger"), I may receive shares of common
stock of Citizens South ("Citizens South Common Stock") in exchange for my
shares of common stock, par value $3.50 per share, of Trinity Bank ("Trinity
Bank Common Stock"). This agreement is hereinafter referred to as the "Letter
Agreement." Terms that are undefined herein shall have the meaning set forth in
the Merger Agreement.
I represent and warrant to, and agree with, Citizens South as follows:
1. I have read this Letter Agreement and the Agreement and have
discussed their requirements and other applicable limitations upon my ability to
sell, pledge, transfer or otherwise dispose of shares of Citizens South Common
Stock that I may receive pursuant to the Merger, to the extent I felt necessary,
with my counsel or counsel for Trinity Bank.
2. I have been advised that any issuance of shares of Citizens South
Common Stock to me pursuant to the Merger will be registered with the SEC. I
have also been advised, however, that, because I may be an "affiliate" of
Trinity Bank at the time the Merger will be submitted for a vote of the
shareholders of Trinity Bank and my disposition of such shares has not been
registered under the Securities Act, I must hold such shares indefinitely unless
(i) such disposition of such shares is subject to an effective registration
statement and to the availability of a prospectus under the Securities Act, (ii)
a sale of such shares is made in conformity with the provisions of Rule 145(d)
under the Securities Act, (iii) a sale of such shares is made following
expiration of the restrictive period set forth in Rule 145(d)(2) or (3) or (iv)
in an opinion of counsel, in form and substance reasonably satisfactory to
Citizens South, such disposition of such shares is otherwise exempt from
registration under the Securities Act.
B-1
3. I understand and agree that stop transfer instructions will be given
to the transfer agent of Citizens South with respect to the shares of Citizens
South Common Stock I receive pursuant to the Merger and that there will be
placed on the certificate representing such shares, or any certificates
delivered in substitution therefor, a legend stating in substance:
The shares represented by this certificate were issued in a
transaction to which Rule 145 under the Securities Act applies. The
shares represented by this certificate may only be transferred in
accordance with Rule 145(d) or an effective registration statement or
exemption from registration under the Securities Act.
4. Citizens South reserves the right to put an appropriate legend on
the certificate issued to my transferee unless (i) a transfer of my shares of
the Citizens South Common Stock is a sale made in conformity with the provisions
of Rule 145(d) or made pursuant to any effective registration statement under
the Securities Act, or (ii) I shall have delivered to Citizens South an opinion
of counsel reasonably satisfactory to Citizens South to the effect that such
legend is not required for purposes of the Securities Act.
5. I recognize and agree that the foregoing provisions also apply to
(i) my spouse, (ii) any relative of mine or my spouse's occupying my home, (iii)
any trust or estate in which I, my spouse or any such relative owns at least 10%
beneficial interest or of which any of us serves as trustee, executor or in any
similar capacity and (iv) any corporation or other organization in which I, my
spouse and any such relative collectively own at least 10% of any class of
equity securities or of the equity interest.
6. I understand and agree that Citizens South is under no obligation to
register under the Securities Act the sale, transfer or other disposition of the
shares of Citizens South that I receive as a result of the Merger.
7. I further recognize that in the event I become a director or officer
of Citizens South upon consummation of the Merger, any sale of Citizens South
Common Stock by me may subject me to liability pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended.
8. Execution of this Letter Agreement should not be construed as an
admission on my part that I am an "affiliate" of Trinity Bank as described in
the first paragraph of this Letter Agreement or as a waiver of any rights I may
have to object to any claim that I am such an affiliate on or after the date of
this Letter Agreement.
It is understood and agreed that this Letter Agreement shall terminate
and be of no further force and effect if the Agreement is terminated in
accordance with its terms. It is also understood and agreed that this Letter
Agreement shall terminate and be of no further force and effect and the stop
transfer instructions set forth above shall be lifted forthwith upon the
delivery by the undersigned to Citizens South of an opinion of counsel in form
and substance reasonably satisfactory to Citizens South, or other evidence
reasonably satisfactory to Citizens South, to the effect that a transfer of my
shares of Citizens South Common Stock will not violate the Securities Act or any
of the rules and regulations of the SEC thereunder. In addition, it is
B-2
understood and agreed that the legend set forth in Paragraph 3 above shall be
removed forthwith from the certificate or certificates representing my shares of
Citizens South Common Stock upon (i) expiration of the restrictive period set
forth in Rule 145(d)(2), so long as Citizens South is then in compliance with
SEC Rule 144(c), or the restrictive period set forth in Rule 145(d)(3) or (ii)
if Citizens South shall have received an opinion of counsel in form and
substance reasonably satisfactory to Citizens South, or other evidence
satisfactory to Citizens South that a transfer of my shares of the Citizens
South Common Stock represented by such certificate or certificates will be a
sale made in conformity with the provisions of Rule 145(d), made pursuant to an
effective registration statement under the Securities Act or made pursuant to an
exemption from registration under the Securities Act.
* * * * *
By acceptance hereof, Citizens South agrees that, for a period of two
years after the effective time of the Merger, so long as it is obligated to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, it will use its reasonable best efforts to timely file such reports
so that the public information requirements of Rule 144(c) promulgated under the
Securities Act are satisfied and the resale provisions of Rule 145(d)(1) and (2)
are therefore available to me if I desire to transfer Citizens South Common
Stock issued to me in the Merger.
This Letter Agreement shall be binding on my heirs, legal
representatives and successors.
Very truly yours,
Signature
--------------------------------------
Name (Please Print)
Accepted as of the date first above written
Citizens South Banking Corporation
By:
--------------------------------------------------
Name:
Title:
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