Exhibit 2
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
by and between
CENTENNIAL BANK
and
CRESCENT STATE BANK
and
CRESCENT FINANCIAL CORPORATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement") is
entered into as of the 12th day of March, 2003 by and between CENTENNIAL BANK, a
North Carolina banking corporation ("Centennial"), CRESCENT STATE BANK, a North
Carolina banking corporation ("Crescent") and CRESCENT FINANCIAL CORPORATION, a
North Carolina corporation and registered bank holding company ("Crescent
Financial");
W I T N E S S E T H:
WHEREAS, the parties hereto have agreed that it is in their mutual best
interests and in the best interests of their respective shareholders for
Centennial to be merged with and into Crescent pursuant to a plan of merger (the
"Plan of Merger") in the form attached hereto as Schedule A, with the effect
that each of the outstanding shares of Centennial's common stock will be
converted into cash and/or newly issued shares of Crescent Financial's common
stock, all in the manner set forth herein, and the parties desire to provide for
certain undertakings, conditions, representations, warranties and covenants in
connection with the Merger and transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises, the mutual benefits to be
derived from this Agreement, and of the representations, warranties, conditions,
covenants and promises herein contained, and subject to the terms and conditions
hereof, the parties hereto mutually agree as follows:
ARTICLE I. THE MERGER
1.1 Merger. Subject to the provisions of this Agreement and the Plan of
Merger, as of the Effective Time (as defined in Section 1.12 hereof), Centennial
shall be merged with and into Crescent pursuant to N.C. General Statutes Section
53-12 (the "Merger"), the separate corporate existence of Centennial shall cease
and the corporate existence of Crescent, as the surviving corporation in the
Merger, shall continue under the laws of the State of North Carolina. Crescent,
as the surviving corporation in the Merger, is hereinafter sometimes referred to
as the "Surviving Corporation."
1.2 Effect of the Merger. At the Effective Time and by reason of the
Merger, and in accordance with applicable law, all of the property, assets and
rights of every kind and character of Centennial including, without limitation,
all real, personal or mixed property, all debts due on
whatever account, all other choses in action and every other interest of or
belonging to or due to Centennial, whether tangible or intangible, shall vest in
the Surviving Corporation, and the Surviving Corporation shall succeed to all
the rights, privileges, immunities, powers, purposes and franchises of a public
or private nature of Centennial, all without any conveyance, assignment or
further act or deed; and the Surviving Corporation shall become responsible for
all of the liabilities, duties and obligations of every kind, nature and
description of Centennial as of the Effective Time.
1.3 Articles of Incorporation, Bylaws and Management. The Articles of
Incorporation and bylaws of Crescent in effect at the Effective Time shall be
the Articles of Incorporation and bylaws of the Surviving Corporation until
thereafter amended in accordance with applicable laws. The officers and
directors of Crescent at the Effective Time shall continue to hold such offices
and positions of the Surviving Corporation until removed as provided by law or
until the election or appointment of their respective successors.
1.4 Conversion of Shares.
(a) Centennial Stock. Except as otherwise provided herein, at the
Effective Time, all rights of Centennial's shareholders with respect to all then
outstanding shares of the common stock of Centennial, $3.50 par value
("Centennial Stock"), shall cease to exist, and the holders of shares of
Centennial Stock shall cease to be and shall have no further rights as
shareholders of Centennial. At the Effective Time, each such outstanding share
of Centennial Stock (except for shares held, other than in a fiduciary capacity
or as a result of debts previously contracted, by Centennial, Crescent or
Crescent Financial, which shall be canceled in the Merger, and for Dissenting
Shares (as defined in Section 1.9)) shall be converted, without any action on
the part of the holder of such shares, into the right to receive the Merger
Consideration (as defined in Section 1.5) in accordance with this Article I.
Following the Effective Time, certificates representing shares of Centennial
Stock outstanding at the Effective Time shall evidence only the right of the
registered holder thereof to receive, and may be exchanged for, the Merger
Consideration.
(b) Outstanding Crescent Financial Stock and Crescent Stock. Each
share of common stock of Crescent Financial, par value $1.00 ("Crescent
Financial Stock"), and of Crescent, par value $5.00, issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding and shall not be affected by the Merger.
1.5 Merger Consideration.
(a) Per Share Consideration. Subject to the provisions of this Article
I, at the Effective Time each outstanding share of Centennial Stock (except for
shares held, other than in a fiduciary capacity or as a result of debts
previously contracted, by Centennial, Crescent, or Crescent Financial and for
Dissenting Shares) shall cease to represent any interest (equity, shareholder or
otherwise) in Centennial and shall automatically be converted exclusively into
the right to receive, at the election of the holder thereof, either: (A) cash in
the amount of $10.11 (the "Per Share Amount"), without interest; (B) the
Exchange Ratio (as defined in Section 1.5(b) below) of shares of Crescent
Financial Stock; or (C) 50% of the cash amount set forth in clause (A) above and
a number of shares of Crescent Financial Stock equal to 50% of the Exchange
2
Ratio; provided however, that a holder of Centennial Stock may, pursuant to
Section 1.6, make no election, in which case such share of Centennial Stock held
by such holder shall be converted exclusively into the right to receive the
consideration set forth in Section 1.6(e) below with respect to Non-Election
Shares (as defined in Section 1.6(b)). The amount of cash into which shares of
Centennial Stock shall be converted pursuant to this Agreement is sometimes
hereinafter referred to as "Cash Consideration," and the number of shares of
Crescent Financial Stock into which shares of Centennial Stock shall be
converted pursuant to this Agreement is sometimes hereinafter referred to as
"Stock Consideration." The Cash Consideration and Stock Consideration are
sometimes referred to herein collectively as the "Merger Consideration." No
share of Centennial Stock, other than Dissenting Shares (as defined in Section
1.9), shall be deemed to be outstanding or have any rights other than those set
forth in this Section 1.5(a) after the Effective Time.
(b) Stock Consideration Exchange Ratio. The exchange ratio of Crescent
Financial Stock for Centennial Stock shall be determined based upon the value of
the Per Share Amount of Centennial Stock and the average of the closing price of
Crescent Financial Stock for the thirty (30) day period ending three (3)
business days immediately prior to the Effective Time (the "Exchange Ratio").
The Exchange Ratio is subject to possible adjustment in accordance with Section
1.5(d) below. Notwithstanding the foregoing, if calculation of the Exchange
Ratio results in a ratio less than .8107, the Exchange Ratio shall be fixed at
..8107. If calculation of the Exchange Ratio results in a ratio more than 1.0965,
the Exchange Ratio shall be fixed at 1.0965.
(c) Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Centennial Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of Crescent Financial Stock (after taking into account all certificates
delivered by such holder under Sections 1.6(c) and 1.8(a) below and the
elections made pursuant to Section 1.6) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Crescent Financial Stock multiplied by the market value of one share of Crescent
Financial Stock at the Effective Time. The market value of one share of Crescent
Financial Stock at the Effective Time shall be the last sale price of Crescent
Financial Stock on Nasdaq Market, Inc. SmallCap Market ("Nasdaq") as reported by
The Wall Street Journal or, if not reported thereby, any other authoritative
source selected by Crescent Financial, on the last trading day preceding the
Effective Time. No such holder will be entitled to dividends, voting rights, or
any other rights as a shareholder in respect of any fractional shares.
(d) Anti-Dilution Provisions. In the event Crescent Financial changes
the number of shares of Crescent Financial Stock issued and outstanding prior to
the Effective Time as a result of a stock split, stock dividend,
recapitalization, reclassification, combination, exchange of shares, or similar
transaction with respect to such stock and the record date therefor (in the case
of a stock dividend) or the effective date thereof (in the case of a stock
split, recapitalization, reclassification, combination, exchange of shares, or
similar transaction for which a record date is not established) shall be prior
to the Effective Time, the Exchange Ratio shall be appropriately adjusted to
reflect such change.
3
1.6 Election and Allocation Procedures.
(a) An election form (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 theretofore
representing Centennial Stock shall pass, only upon proper delivery of such
certificates to the Exchange Agent (as hereinafter defined) in such form as
Centennial and Crescent Financial shall mutually agree shall be mailed on the
Mailing Date (as defined below) to each shareholder of record of Centennial. The
"Mailing Date" shall be the date on which proxy materials relating to the Merger
are mailed to holders of shares of Centennial Stock.
(b) Each Election Form shall entitle the holder of shares of
Centennial Stock (or the beneficial owner through appropriate and customary
documentation and instructions) to (i) elect to receive the Cash Consideration
for all of such holder's shares (a "Cash Election"), (ii)elect to receive the
Stock Consideration for all of such holder's shares (a "Stock Election"),
(iii)elect to receive Merger Consideration in accordance with clause (C) of the
first sentence of Section 1.5(a) (a "Mixed Election"), or (iv) make no election
or to indicate that such holder has no preference as to the receipt of the Cash
Consideration or the Stock Consideration (a "Non-Election"). Shareholders of
record of Centennial who hold shares of Centennial Stock as nominees, trustees
or in other representative capacities may submit multiple Election Forms,
provided that such representative certifies that each such Election Form covers
all the shares of Centennial Stock held by that representative for a particular
beneficial owner. Shares of Centennial Stock with respect to which a Cash
Election shall have been made are referred to herein as "Cash Election Shares."
Shares of Centennial Stock with respect to which a Stock Election shall have
been made are referred to herein as "Stock Election Shares." Shares of
Centennial Stock with respect to which no election shall have been made are
referred to herein as "Non-Election Shares." The aggregate number of shares of
Centennial Stock with respect to which a Stock Election shall have been made is
referred to herein as the "Stock Election Number." Shares of Centennial Stock
with respect to which a Mixed Election shall have been made shall not be deemed
either Stock Election Shares or Cash Election Shares, but shall in all events be
converted into the right to receive the Merger Consideration as specified in
subsection (e) of this Section 1.6.
(c) 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 last business day prior to the date of the Centennial shareholders' meeting
contemplated by Section 4.3(a) (or such other time and date as Centennial,
Crescent and Crescent Financial may mutually agree) (the "Election Deadline").
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, if required by Crescent
Financial pursuant to Section 1.8(b), indemnification regarding the loss or
destruction of such certificates or the guaranteed delivery of such
certificates) representing all shares of Centennial Stock covered by such
Election Form, together with duly executed transmittal materials included with
the Election Form. Any Centennial shareholder may at any time prior to the
Election Deadline change his or her election
4
by written notice received by the Exchange Agent prior to the Election Deadline
accompanied by a properly completed and signed revised Election Form. Any
Centennial shareholder may, at any time prior to the Election Deadline, revoke
his or her election by written notice received by the Exchange Agent prior to
the Election Deadline or by withdrawal prior to the Election Deadline of his or
her certificates, or of the guarantee of delivery of such certificates,
previously deposited with the Exchange Agent. All elections shall be revoked
automatically if the Exchange Agent is notified in writing by Crescent
Financial, Crescent and Centennial that this Agreement has been terminated. If a
Centennial shareholder either (i) does not submit a properly completed Election
Form by the Election Deadline, or (ii) revokes its Election Form prior to the
Election Deadline, the shares of Centennial Stock held by such shareholder shall
be designated Non-Election Shares. Crescent Financial shall cause the
certificates representing Centennial Stock described in clause (ii) above to be
promptly returned without charge to the person submitting the Election Form upon
written request to that effect from the person who submitted the Election Form.
Subject to the terms of this Agreement and of the Election Form, the Exchange
Agent shall have reasonable discretion to determine whether any election,
revocation or change has been properly or timely made and to disregard
immaterial defects in any Election Form, and any good faith decisions of the
Exchange Agent regarding such matters shall be binding and conclusive.
(d) Notwithstanding any other provision contained in this Agreement,
50% (the "Stock Conversion Number") of the total number of shares of Centennial
Stock outstanding at the Effective Time to be converted into Merger
Consideration pursuant to Section 1.5(a), excluding such shares as may be
subject to an effective Mixed Election (the "Adjustable Conversion Shares"),
shall be converted into the Stock Consideration and the remaining Adjustable
Conversion Shares shall be converted into Cash Consideration (excluding shares
of Centennial Stock to be canceled as provided in Section 1.4(a) and Dissenting
Shares); provided, however, that for federal income tax purposes, it is intended
that the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and in
order that the Merger will not fail to satisfy continuity of interest
requirements under applicable federal income tax principles relating to
reorganizations under Section 368(a) of the Code, as reasonably determined by
counsel to Crescent Financial, Crescent Financial shall increase the number of
Adjustable Conversion Shares that will be converted into the Stock Consideration
and reduce the number of Adjustable Conversion Shares that will be converted
into the right to receive the Cash Consideration.
(e) Within five business days after the later to occur of the Election
Deadline or the Effective Time, Crescent Financial shall cause the Exchange
Agent to effect the allocation among holders of Centennial Stock of rights to
receive the Cash Consideration and Stock Consideration as follows:
(i) In any event, all shares of Centennial Stock with respect to
which a Mixed Election shall have been made shall be converted into
50% of the amount of cash set forth in clause (A) of the first
sentence of Section 1.5(a) and a number of shares of Crescent
Financial Stock equal to 50% of the Exchange Ratio;
(ii) If the Stock Election Number exceeds the Stock Conversion
Number, then all Cash Election Shares and all Non-Election Shares
shall be
5
converted into the right to receive the Cash Consideration, and each
holder of Stock Election Shares will be entitled to receive the Stock
Consideration in respect of that number of Stock Election Shares 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; and
(iii) 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 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
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.
For purposes of this Section 1.6(e), if Crescent Financial is obligated to
increase the number of Adjustable Conversion Shares to be converted into shares
of Crescent Financial Stock as a result of the application of the last clause of
Section 1.6(d) above, then the higher number shall be the Stock Conversion
Number in the calculations set forth in this Section 1.6(e).
1.7 Closing Payment. As of the Effective Time, Crescent Financial shall
deposit, or shall cause to be deposited, with First-Citizens Bank and Trust
Company, transfer agent of Crescent Financial Stock (the "Exchange Agent"), for
the benefit of each holder of Centennial Stock for exchange in accordance with
this Article I, (i) certificates representing the aggregate
6
number of whole shares of Crescent Financial Stock to be issued as Stock
Consideration, and (ii) an aggregate amount of cash to be delivered to holders
of Centennial Stock as Cash Consideration and in lieu of any fractional shares,
to be issued and paid pursuant to this Article I for outstanding shares of
Centennial Stock (such certificates for shares of Crescent Financial Stock and
such cash are referred to as the "Exchange Fund"). The Exchange Agent shall,
pursuant to irrevocable instructions in accordance with this Article I, deliver
the Crescent Financial Stock and cash contemplated to be issued with respect to
Centennial Stock out of the Exchange Fund. The Exchange Fund shall not be used
for any other purpose. The Exchange Agent shall invest any cash included in the
Exchange Fund, as directed by Crescent Financial, on a daily basis. Any interest
and other income resulting from such investments shall be paid to Crescent
Financial.
1.8 Exchange of Shares.
(a) Exchange Procedures. After the Effective Time, Crescent Financial
shall cause the Exchange Agent to mail to the shareholders of Centennial of
record at the Effective Time who did not previously submit a completed Election
Form transmittal materials and other appropriate written instructions
(collectively, a "Transmittal Letter") (which shall specify that delivery shall
be effected, and risk of loss and title to the certificate representing shares
of Centennial Stock prior to such Effective Time shall pass, only upon proper
delivery of such certificates to the Exchange Agent and which shall be in such
form and have such other provisions as Crescent Financial may reasonably
specify). After the Effective Time and upon the proper surrender of
certificate(s) representing shares of Centennial Stock to the Exchange Agent,
together with a properly completed and duly executed Transmittal Letter or, as
applicable, Election Form, the holder of such certificate(s) shall be entitled
to receive in exchange therefor the number of shares of Crescent Financial Stock
and the cash to which such holder is entitled hereunder (including any cash
payments to which such holder is entitled hereunder in respect of rights to
receive fractional shares and any dividends or other distributions to which such
holder is entitled pursuant to Section 1.8(c)), subject to any required
withholding of applicable taxes. Neither Crescent Financial nor the Exchange
Agent shall be obligated to deliver any of such payments in cash or stock until
such holder surrenders the certificate(s) representing such holder's shares. The
certificate(s) so surrendered shall be duly endorsed as the Exchange Agent may
require. If there is a transfer of ownership of any shares of Centennial Stock
not registered in the transfer records of Centennial, the Merger Consideration
shall be issued to the transferee thereof if the certificates representing such
Centennial Stock are presented to the Exchange Agent, accompanied by all
documents required, in the reasonable judgment of Crescent Financial and the
Exchange Agent, to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. Any portion of the Exchange Fund
which remains undistributed to the holders of certificates representing
Centennial Stock for six months after the Effective Time shall be delivered to
Crescent Financial, upon demand, and any shareholders of Centennial who have not
previously complied with the provisions of this Article I shall thereafter look
only to Crescent Financial for payment of their claim for Crescent Financial
Stock and/or cash and any dividends or distributions with respect to Crescent
Financial Stock. Any portion of the Exchange Fund remaining unclaimed by holders
of Centennial Stock five years after the Effective Time (or such earlier date
immediately prior to such time as such portion would otherwise escheat to or
become property of any government entity) shall, to the extent permitted by
applicable law, become the property of
7
Crescent Financial free and clear of any claims or interest of any person
previously entitled therein. Any other provision of this Agreement
notwithstanding, neither Crescent Financial nor the Exchange Agent shall be
liable to any holder of shares of Centennial Stock for any amounts paid or
properly delivered in good faith to a public official pursuant to any applicable
abandoned property law.
(b) Lost Certificates. Any shareholder of Centennial whose certificate
representing shares of Centennial Stock has been lost, destroyed, stolen or
otherwise is missing shall be entitled to receive a certificate representing the
shares of Crescent Financial Stock and/or any cash, including cash in lieu of
fractional shares, to which he or she is entitled in accordance with and upon
compliance with conditions reasonably imposed by the Exchange Agent or Crescent
Financial (including, without limitation, a requirement that the shareholder
provide a lost instruments indemnity bond in form, substance and amount
reasonably satisfactory to the Exchange Agent and Crescent Financial).
(c) Rights of Former Centennial Shareholders. At the Effective Time,
the stock transfer books of Centennial shall be closed as to holders of
Centennial Stock immediately prior to the Effective Time and no transfer of
Centennial Stock by any such holder shall thereafter be made or recognized.
Until surrendered for exchange in accordance with the provisions of Section
1.8(a) of this Agreement, each certificate theretofore representing shares of
Centennial Stock (other than shares to be canceled pursuant to Section 1.4(a) of
this Agreement and Dissenting Shares) shall from and after the Effective Time
represent for all purposes only the right to receive the Merger Consideration.
If, after the Effective Time, certificates representing Centennial Stock are
presented to Centennial, Crescent Financial or the Exchange Agent for any
reason, they shall be canceled and exchanged as provided in this Article I. To
the extent permitted by North Carolina law, former shareholders of record of
Centennial shall be entitled to vote after the Effective Time at any meeting of
shareholders of Crescent Financial the number of whole shares of Crescent
Financial Stock into which their respective shares of Centennial Stock are
converted, regardless of whether such holders have exchanged their certificates
representing Centennial Stock for certificates representing Crescent Financial
Stock in accordance with the provisions of this Agreement. Whenever a dividend
or other distribution is declared by Crescent Financial on the Crescent
Financial Stock, the record date for which is at or after the Effective Time,
the declaration shall include dividends or other distributions on all shares of
Crescent Financial Stock to be issued pursuant to the Merger, but beginning at
the Effective Time no dividend or other distribution payable to the holders of
record of Crescent Financial Stock as of any time subsequent to the Effective
Time shall be delivered to the holder of any certificate representing shares of
Centennial Stock issued and outstanding at the Effective Time until such holder
surrenders such certificate for exchange as provided in Section 1.8(a) of this
Agreement; provided, however, that upon surrender of such Centennial Stock
certificate (or compliance with Section 1.8(b) of this Agreement), the Crescent
Financial Stock certificate, together with all undelivered dividends or other
distributions (without interest) and any cash payments to be paid for fractional
share interests (without interest), shall be delivered and paid with respect to
each share represented by such Centennial Stock certificate.
1.9 Dissenting Shares. Notwithstanding any other provision of this
Agreement to the contrary, shares of Centennial Stock that are outstanding
immediately prior to the Effective Time and that are held by shareholders who
shall have not voted in favor of the Merger or consented
8
thereto in writing and who properly shall have demanded appraisal for such
shares in accordance with Article 13 of the North Carolina Business Corporation
Act (collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the Merger Consideration. Such shareholders
instead shall be entitled to receive payment of the appraised value of such
shares held by them in accordance with the provisions of Article 13 of the North
Carolina Business Corporation Act, except that all Dissenting Shares held by
shareholders who shall have failed to perfect or who effectively shall have
withdrawn or otherwise lost their rights to appraisal of such shares under
Article 13 of the North Carolina Business Corporation Act shall thereupon be
deemed to have been converted into and to have become exchangeable, as of the
Effective Time, for the right to receive, without any interest thereon, the
Merger Consideration upon surrender in the manner provided in Section 1.8 of the
certificate or certificates that, immediately prior to the Effective Time,
evidenced such shares. Centennial shall give Crescent Financial (i)prompt notice
of any written demands for appraisal of any shares of Centennial Stock,
attempted withdrawals of such demands for appraisal or any other instruments
served pursuant to Article 13 of the North Carolina Business Corporation Act and
received by Centennial relating to shareholders' rights of appraisal, and (ii)
the opportunity to participate in all negotiations and proceedings with respect
to demands under Article 13 of the North Carolina Business Corporation Act
consistent with the obligations of Centennial thereunder. Centennial shall not,
except with the prior written consent of Crescent Financial, (x) make any
payment with respect to such demand, (y) offer to settle or settle any demand
for appraisal, or (z) waive any failure to timely deliver a written demand for
appraisal or timely take any other action to perfect appraisal rights in
accordance with Article 13 of the North Carolina Business Corporation Act.
1.10 Treatment of Centennial Stock Options.
(a) At the Effective Time, Crescent Financial shall assume each option
to purchase Centennial Stock granted and outstanding under the Centennial Bank
2000 Incentive Stock Option Plan and the Centennial Bank 2000 Nonstatutory Stock
Option Plan (collectively, the "Centennial Option Plans"), whether or not then
exercisable, in accordance with the terms of the Centennial Option Plans and
stock option agreement by which it is evidenced, except that from and after the
Effective Time with respect to each such plan or agreement: (i) Crescent
Financial shall be substituted for Centennial; (ii) the Crescent Financial stock
option committee shall be substituted for the compensation committee of the
Centennial Board of Directors administering the Centennial Option Plans; (iii)
each stock option granted and outstanding under the Centennial Option Plans may
be exercised solely for shares of Crescent Financial Stock; (iv) the number of
shares of Crescent Financial Stock subject to each such stock option shall be
the number of whole shares of Crescent Financial Stock (omitting any fractional
share) determined by multiplying the number of shares of Centennial Stock
subject to such stock option immediately prior to the Effective Time by the
Exchange Ratio; and (v) the per share exercise price under each such stock
option shall be adjusted by dividing the per share exercise price under each
such stock option by the Exchange Ratio and rounding up to the nearest cent. In
addition, each stock option which is an "incentive stock option" under the
Centennial Option Plans shall be adjusted as required by Section 424 of the Code
and the regulations promulgated thereunder so as to continue as an incentive
stock option under Section 424(a) of the Code, and so as not to constitute a
modification, extension, or renewal of the option, within the meaning of Section
424(h) of the Code. Crescent Financial and Centennial shall take all necessary
steps to
9
effectuate the foregoing provisions of this Section 1.10, including appropriate
amendments to the Centennial Option Plans if necessary.
(b) As soon as practicable after the Effective Time, Crescent
Financial shall deliver to each of the participants in the Centennial Option
Plans an appropriate notice setting forth such participant's rights pursuant
thereto, and the grants pursuant to the Centennial Option Plans shall continue
in effect on the same terms and conditions (subject to the adjustments required
by Section 1.10(a) after giving effect to the Merger). At or prior to the
Effective Time, Crescent Financial shall take all corporate action necessary to
reserve for issuance sufficient shares of Crescent Financial Stock for delivery
upon exercise of the stock options assumed by it in accordance with this Section
1.10. Centennial hereby represents that the Centennial Option Plans in its
current form complies with Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended, as in effect as of the date hereof.
(c) As soon as practicable after the Effective Time, Crescent
Financial will use its best efforts to cause the shares subject to options
granted under the Centennial Option Plans prior to the Effective Time (or any
substitute options) to be registered under the Securities Act of 1933, as
amended (the "1933 Act"), on a Form S-8 (or equivalent successor form)
registration statement.
1.11 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Crescent in Cary,
North Carolina, or at such other place as Crescent Financial shall designate, on
a date mutually agreeable to Centennial and Crescent Financial (the "Closing
Date") after the expiration of any and all required waiting periods following
the effective date of all required approvals of the Merger by the Federal
Deposit Insurance Corporation ("FDIC"), the North Carolina Commissioner of Banks
(the "Commissioner") and any other governmental or regulatory authorities (as
soon as practicable, but in no event to be more than 60 days following the
expiration of all such required waiting periods). At the Closing, Crescent
Financial and Centennial shall take such actions (including, without limitation,
the delivery of certain closing documents and the execution of Articles of
Merger under North Carolina law) as are required herein and as otherwise shall
be required by law to consummate the Merger and cause it to become effective.
1.12 Effective Time. Subject to satisfaction or waiver of all conditions
precedent set forth in this Agreement, the Merger shall become effective (the
"Effective Time") on the date and at the time on which Articles of Merger
containing the Plan of Merger and the other provisions required by, and executed
in accordance with applicable North Carolina and applicable federal law shall
have been accepted for filing by the Secretary of State of the State of North
Carolina (or such later time as may be specified in the Articles of Merger);
provided, however, that unless otherwise mutually agreed upon by the parties
hereto, the Effective Time shall in no event be more than ten days following the
Closing Date.
1.13 Further Assurances. If at any time after the Effective Time Crescent
Financial shall consider or be advised that any further deeds, assignments or
assurances in law or any other actions are necessary, desirable or proper to
vest, perfect or confirm of record or otherwise, in the Surviving Corporation,
the title to any property or rights of Centennial acquired or to be acquired by
reason of, or as a result of, the Merger, Centennial, and its officers and
directors
10
shall execute and deliver all such proper deeds, assignments and assurances in
law and do all things necessary, desirable or proper to vest, perfect or confirm
title to such property or rights in Crescent Financial and otherwise to carry
out the purpose of this Agreement, and that the officers and directors of
Crescent Financial are fully authorized and directed in the name of Centennial
or otherwise to take any and all such actions.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF CENTENNIAL
Except as otherwise specifically provided herein or as "Previously
Disclosed" to Crescent Financial, Centennial hereby makes the following
representations and warranties to Crescent Financial. ("Previously Disclosed"
shall mean, as to Centennial, the disclosure of information in a letter
delivered by Centennial to Crescent Financial specifically referring to this
Agreement and arranged in sections corresponding to the sections, subsections
and items of this Agreement applicable thereto, and which letter has been
delivered prior to the execution of this Agreement. Information shall be deemed
Previously Disclosed for the purpose of a given section, subsection or item of
this Agreement only to the extent that a specific reference thereto is made in
connection with disclosure of such information at the time of such delivery.)
2.1 Corporate Organization, Capacity and Authority.
(a) Organization. Centennial is a banking corporation duly organized
and incorporated and validly existing under the laws of the State of North
Carolina with its deposits insured up to applicable limits by the FDIC.
Centennial has no subsidiary corporations.
(b) Power and Authority. Centennial has all requisite power and
authority (corporate and other) to own, lease and operate its properties and to
carry on its business as it is now being conducted, is duly qualified to do
business and is in good standing in each other jurisdiction in which the
character of the properties owned, leased or operated by it therein or in which
the transaction of its business makes such qualification necessary, except where
failure so to qualify would not have a Material Adverse Effect (as defined
herein) on Centennial, and, to the best knowledge and belief of the management
of Centennial, is not transacting business or operating any properties owned or
leased by it in violation of any provision of federal, state or local law or any
rule or regulation promulgated thereunder, which violation would have a Material
Adverse Effect on Centennial. For purposes of this Article II, "Material Adverse
Effect" shall mean: any change in the business of Centennial that is or could be
materially adverse to the financial condition, results of operations, prospects,
business, assets, investments, properties or operations of Centennial.
(c) Constituent Documents. Centennial has previously delivered to
Crescent Financial true, accurate and complete copies of the currently effective
charter and bylaws or equivalent organizational documents of Centennial,
including all amendments and proposed amendments thereto.
2.2 Capital Stock. The authorized capital stock of Centennial consists of
5,000,000 shares of common stock, $3.50 par value, of which 872,861 shares are
issued and outstanding as of February 28, 2003 , and 1,000,000 shares of
preferred stock, no par value, of which no shares are issued and outstanding.
Other than the Centennial Stock, Centennial has no outstanding class
11
of capital stock. Each outstanding share of Centennial Stock has been duly
authorized and validly issued, is fully paid and nonassessable, (except to the
extent assessable pursuant to N.C. General Statutes Section 53-42) has been
issued in compliance with applicable federal and state securities laws and has
not been issued in violation of the preemptive rights of any shareholder.
2.3 Principal Shareholders. There are no persons or entities known to
Centennial that own beneficially, directly or indirectly, more than 5% of the
outstanding shares of Centennial Stock.
2.4 Convertible Securities, Options, Etc. Except for the Centennial Option
Plans and the stock options granted thereunder, Centennial does not have any
outstanding (i) securities or other obligations (including debentures or other
debt instruments) which are convertible into shares of Centennial Stock or any
other securities of Centennial, (ii) options, warrants, rights, calls or other
commitments of any nature which entitle any person to receive or acquire any
shares of Centennial Stock or any other securities of Centennial, or (iii) plan,
agreement or other arrangement pursuant to which shares of Centennial Stock or
any other securities of Centennial or options, warrants, rights, calls or other
commitments of any nature pertaining thereto, have been or may be issued.
2.5 Authorization and Validity of Agreement. This Agreement has been duly
and validly approved by Centennial's Board of Directors. Subject only to
approval of the Plan of Merger by the shareholders of Centennial, (i) Centennial
has the corporate power and authority to execute and deliver this Agreement and
to perform its obligations and agreements and carry out the transactions
described herein, (ii) all corporate proceedings and approvals required to be
taken to authorize Centennial to enter into this Agreement and to perform its
obligations and agreements and to carry out the transactions described herein
have been duly and properly taken, and (iii) this Agreement constitutes the
valid and binding agreement of Centennial enforceable in accordance with its
terms (except to the extent enforceability may be limited by (A) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect which affect creditors' rights generally, (B) legal and equitable
limitations on the availability of injunctive relief, specific performance and
other equitable remedies, and (C) general principles of equity and applicable
laws or court decisions limiting the enforceability of indemnification
provisions).
2.6 Validity of Transactions; Absence of Required Consents or Waivers.
Provided the required approvals of Centennial's shareholders and of governmental
or regulatory authorities are obtained, neither the execution and delivery of
this Agreement, nor the consummation of the transactions described herein, nor
compliance by Centennial with any of its obligations or agreements contained
herein, will: (i) conflict with or result in a breach of the terms and
conditions of, or constitute a default or violation under any provision of, the
Articles of Incorporation or bylaws or the equivalent organizational documents
of Centennial, or any material contract, agreement, lease, mortgage, note, bond,
indenture, license, or obligation or understanding (oral or written) to which
Centennial is bound or by which it or its business, capital stock or any of its
properties or assets may be affected; (ii) result in the creation or imposition
of any lien, claim, interest, charge, restriction or encumbrance upon any of the
properties or assets of Centennial; (iii) violate any applicable federal or
state statute, law, rule or regulation, or any judgment, order, writ, injunction
or decree of any court, administrative or
12
regulatory agency or governmental body; (iv) result in the acceleration of any
obligation or indebtedness of Centennial; or (v) interfere with or otherwise
adversely affect the ability of Centennial to carry on its business as presently
conducted, or interfere with or otherwise adversely affect the ability of
Crescent Financial to carry on such business after the Effective Time. No
consents, approvals or waivers are required to be obtained from any person or
entity in connection with Centennial's execution and delivery of this Agreement,
or the performance of its obligations or agreements or the consummation of the
transactions described herein, except for required approvals of Centennial's
shareholders as described in Section 7.1(a) below and of governmental or
regulatory authorities as described in Section 7.1(d) below and approvals
previously obtained.
2.7 Books and Records. The books of account of Centennial have been
maintained in material compliance with all applicable legal and accounting
requirements and in accordance with good business practices, and such books of
account are complete and reflect accurately in all material respects
Centennial's items of income and expense and all of its assets, liabilities and
shareholders' equity. The minute books of Centennial accurately reflect in all
material respects the corporate actions which its shareholders and board of
directors, and all committees thereof, have taken during the time periods
covered by such minute books. All such minute books have been or will be made
available to Crescent Financial and its representatives.
2.8 Regulatory Reports. Since its date of incorporation, Centennial has
filed all reports, registrations and statements, together with any amendments
required to be made with respect thereto, that were required to be filed with
(i) the FDIC, (ii) the Commissioner, and (iii) any other governmental or
regulatory authorities having jurisdiction over Centennial except to the extent
that failure to file such reports, registrations and statements would not have a
Material Adverse Effect on Centennial. All such reports, registrations and
statements filed by Centennial with the FDIC, the Commissioner or other such
regulatory authority are collectively referred to herein as the "Centennial
Reports." As of their respective dates, the Centennial Reports complied in all
material respects with all the statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and
Centennial has not been notified that any such Centennial Reports were deficient
as to form or content. Following the date of this Agreement, Centennial shall
deliver to Crescent Financial, simultaneous with the filing thereof, a copy of
each report, registration, statement or other regulatory filing made thereafter
by Centennial, with the FDIC, the Commissioner or any other such regulatory
authority.
2.9 Shareholder Communications and FDIC Filings; Financial Statements.
(a) Shareholder Communications and FDIC Filings. Centennial has made
available to Crescent Financial true, accurate and complete copies of all annual
reports, quarterly reports, proxy statements and other communications by
Centennial to its shareholders generally since its date of incorporation
(collectively, the "Centennial Shareholder Reports"). The Centennial Shareholder
Reports did not as of their respective dates contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
Centennial
13
Shareholder Reports or necessary in order to make the statements in such
Centennial Shareholder Reports, in light of the circumstances under which they
were made, not misleading.
(b) Financial Statements. Centennial has made available to Crescent
Financial the following financial statements (collectively, the "Centennial
Financial Statements"): (i) its balance sheets as of December 31, 2002 and 2001
and its statements of operations, changes in stockholders' equity and cash flows
for the years ended December 31, 2002, 2001 and 2000, together with notes
thereto, all as audited by ▇▇▇▇▇ ▇▇▇▇ PLLC, independent certified public
accountants. Following the date of this Agreement, Centennial promptly will
deliver to Crescent Financial all other annual or interim financial statements
prepared by or for Centennial. The Centennial Financial Statements (including
any related notes and schedules thereto) (x) are in accordance with Centennial's
books and records, and (y) except as stated therein, were prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods indicated and present fairly Centennial's financial
condition, assets and liabilities, results of operations, changes in
stockholders' equity and changes in cash flows as of the dates indicated and for
the periods specified therein subject, in the case of unaudited interim
financial statements, to normal year-end adjustments and any other adjustments
described therein, which adjustments will not be material in amount or effect.
2.10 Tax Returns and Other Tax Matters. (i) Centennial has timely filed or
caused to be filed, or obtained proper extensions of time for filing, all
federal, state and local income tax returns and reports which are required by
law to have been filed, and all such returns and reports were true, correct and
complete in all material respects and contained all material information
required to be contained therein; (ii) all federal, state and local income,
profits, franchise, sales, use, occupation, property, excise, withholding,
employment and other taxes (including interest and penalties), charges and
assessments which have become due from or been assessed or levied against
Centennial, or its respective properties have been fully paid or, if not yet
due, a reserve or accrual which is reasonably believed by the management of
Centennial to be adequate in all material respects for the payment of all such
taxes to be paid and the obligation for such unpaid taxes is reflected on the
Centennial Financial Statements; (iii) tax returns and reports of Centennial
have not been subject to audit by the Internal Revenue Service (the "IRS") or
the North Carolina Department of Revenue since its incorporation and Centennial
has not received any indication of the pendency of any audit or examination in
connection with any such tax return or report or has any knowledge that any such
return or report is subject to adjustment; and (iv) Centennial has not executed
any waiver or extended the statute of limitations (or been asked to execute a
waiver or extend a statute of limitations) with respect to any tax.
2.11 Absence of Material Adverse Changes or Certain Other Events.
(a) Since December 31, 2002, Centennial has conducted business only in
the ordinary course, and there has been no Material Adverse Effect, and there
has occurred no event or development and there currently exists no condition or
circumstance which, with the lapse of time or otherwise, may or could cause,
create or result in a Material Adverse Effect, on Centennial.
14
(b) Since December 31, 2002, and other than in the ordinary course of
its business, Centennial has not incurred any material liability or engaged in
any material transaction or entered into any material agreement, increased the
salaries, compensation or general benefits payable to its employees, suffered
any loss, destruction or damage to any of its respective properties or assets,
or made a material acquisition or disposition of any assets or entered into any
material contract or lease.
2.12 Absence of Undisclosed Liabilities. Centennial has no liabilities or
obligations, whether known or unknown, matured or unmatured, accrued, absolute,
contingent or otherwise, whether due or to become due (including, without
limitation, tax liabilities or unfunded liabilities under employee benefit plans
or arrangements), other than (i) those reflected in the Centennial Financial
Statements, or (ii) obligations or liabilities incurred in the ordinary course
of its business since December 31, 2002 and which are not, individually or in
the aggregate, material to Centennial. No facts or circumstances exist that
could reasonably be expected to serve as the basis for any other liabilities of
Centennial.
2.13 Litigation and Compliance with Law.
(a) There are no actions, suits, arbitrations, controversies or other
proceedings or investigations (or, to the best knowledge and belief of
management of Centennial, any facts or circumstances which reasonably could
result in such), including, without limitation, any such action by any
governmental or regulatory authority, which currently exist or are ongoing,
pending or, to the best knowledge and belief of management of Centennial,
threatened, contemplated or probable of assertion, against, relating to or
otherwise affecting Centennial, or any of their respective properties, assets or
employees which, if determined adversely, could result in liability on the part
of Centennial for, or subject Centennial to, material monetary damages, fines or
penalties or an injunction, or which could have a Material Adverse Effect on
Centennial or on Centennial's ability to consummate the Merger.
(b) Except for such licenses, permits, orders, authorizations or
approvals ("Permits") the absence of which would not have a Material Adverse
Effect on Centennial, Centennial has all Permits of any federal, state, local or
foreign governmental or regulatory body that are material to or necessary for
the conduct of its respective business or to own, lease and operate its
respective properties. Except as would not have a Material Adverse Effect on
Centennial, all such Permits are in full force and effect and no violations are
or have been recorded in respect of any such Permits. No proceeding is pending
or, to the best knowledge and belief of management of Centennial, threatened or
probable of assertion to suspend, cancel, revoke or limit any Permit.
(c) Centennial is not subject to any supervisory agreement,
enforcement order, writ, injunction, capital directive, supervisory directive,
memorandum of understanding or other similar agreement, order, directive,
memorandum or consent of, with or issued by any regulatory or other governmental
authority (including, without limitation, the Commissioner, or the FDIC)
relating to its financial condition, directors or officers, employees,
operations, capital, regulatory compliance or otherwise; there are no judgments,
orders, stipulations, injunctions, decrees or awards against Centennial that in
any manner limit, restrict, regulate, enjoin or prohibit any present or past
business or practice of Centennial; and Centennial has not been
15
advised or has any reason to believe that any regulatory or other governmental
authority or any court is contemplating, threatening or requesting the issuance
of any such agreement, order, injunction, directive, memorandum, judgment,
stipulation, decree or award.
(d) Centennial is not in violation or default under, and each has
complied with, all laws, statutes, ordinances, rules, regulations, orders,
writs, injunctions or decrees of any court or federal, state, municipal or other
governmental or regulatory authority having jurisdiction or authority over it or
its business operations, properties or assets (including, without limitation,
all provisions of North Carolina law relating to usury, the Consumer Credit
Protection Act, and all other laws and regulations applicable to extensions of
credit) except for any such violation, default or noncompliance as does not or
would not have a Material Adverse Effect on Centennial, and, to the best
knowledge and belief of management of Centennial, there is no basis for any
claim by any person or authority for compensation, reimbursement or damages or
otherwise for any violation of any of the foregoing.
2.14 Real Properties. Centennial has Previously Disclosed to Crescent
Financial a listing of all real property owned or leased by Centennial (the
"Real Property") and all leases pertaining to any such Real Property to which
Centennial is a party (the "Real Property Leases"). With respect to all Real
Property, Centennial has good and marketable fee simple title to, or a valid and
subsisting leasehold interest in, such Real Property and owns the same free and
clear of all mortgages, liens, leases, encumbrances, title defects and
exceptions to title other than (i) the lien of current taxes not yet due and
payable, and (ii) such imperfections of title and restrictions, covenants and
easements (including utility easements) which do not materially affect the value
of the Real Property and which do not and will not materially detract from,
interfere with or restrict the present or future use of the properties subject
thereto or affected thereby. With respect to each Real Property Lease (i) such
lease is valid and enforceable in accordance with its terms, (ii) there
currently exists no circumstance or condition which constitutes an event of
default by Centennial (as lessor or lessee) or its respective lessor or which,
with the passage of time or the giving of required notices will or could
constitute such an event of default, and (iii) subject to any required consent
of Centennial's lessor, each such Real Property Lease may be assigned to
Crescent Financial and the execution and delivery of this Agreement does not
constitute an event of default thereunder. To the best knowledge and belief of
management of Centennial, the Real Property complies with all applicable
federal, state and local laws, regulations, ordinances or orders of any
governmental authority, including those relating to zoning, building and use
permits, except for such noncompliance as does not or would not have a Material
Adverse Effect on Centennial, and the Real Property may be used under applicable
zoning ordinances for commercial banking facilities as a matter of right rather
than as a conditional or nonconforming use. All improvements and fixtures
included in or on the Real Property are in good condition and repair, ordinary
wear and tear excepted, and there does not exist any condition which materially
adversely affects the economic value thereof or materially adversely interferes
(or will interfere after the Merger) with the contemplated use thereof.
2.15 Loans, Accounts, Notes and Other Receivables.
(a) All loans, accounts, notes and other receivables reflected as
assets on the books and records of Centennial (i) have resulted from bona fide
business transactions in the ordinary course of operations of Centennial, (ii)
were made in accordance with the standard loan
16
policies and procedures of Centennial, and (iii) are owned by Centennial free
and clear of all liens, encumbrances, assignments, participation or repurchase
agreements or other exceptions to title or to the ownership or collection rights
of any other person or entity.
(b) All of the records of Centennial regarding all outstanding loans,
accounts, notes and other receivables, and all other real estate owned, are
accurate in all material respects, and, with respect to such loans the loan
documentation of which indicate are secured by any real or personal property or
property rights ("Loan Collateral"), such loans are in all material respects
secured by valid, perfected and enforceable liens on all such Loan Collateral
having the priority described in the records of such loan. Centennial has not
engaged in any form of indirect lending and no such indirect loans are
outstanding.
(c) To the best knowledge and belief of management of Centennial, each
loan reflected as an asset on the books of Centennial and each guaranty
therefor, is the legal, valid and binding obligation of the obligor or guarantor
thereon, and no defense, offset or counterclaim has been asserted with respect
to any such loan or guaranty.
(d) Centennial has previously delivered to Crescent Financial (i) a
written listing of each loan, extension of credit or other asset of Centennial
which, as of December 31, 2002, is classified by the FDIC or the Commissioner as
"Loss," "Doubtful," "Substandard" or "Special Mention" (or otherwise by words of
similar import), or which it has designated as a special asset or for special
handling or placed on any "watch list" because of concerns regarding the
ultimate collectibility or deteriorating condition of such asset or any obligor
or Loan Collateral therefor, and (ii) a written listing of each loan or
extension of credit that, as of December 31, 2002, was past due as to the
payment of principal or interest or both, or as to which any obligor thereon
(including the borrower or any guarantor) otherwise was in default, is the
subject of a proceeding in bankruptcy or otherwise has indicated any inability
or intention not to repay such loan or extension of credit. Each such listing is
accurate and complete in all material respects as of the date indicated.
(e) As of December 31, 2002, Centennial's, reserve for possible loan
losses (the "Loan Loss Reserve") has been established in conformity with GAAP,
sound banking practices and all applicable requirements, rules and policies of
the FDIC and the Commissioner and, in the best judgment of management of
Centennial, is reasonable in view of the size and character of its loan
portfolio, current economic conditions and other relevant factors, and is
adequate to provide for losses relating to or the risk of loss inherent in its
loan portfolio.
2.16 Securities Portfolio and Investments. All securities owned by
Centennial (whether owned of record or beneficially) are held free and clear of
all mortgages, liens, pledges, encumbrances or any other restriction or rights
of any other person or entity, whether contractual or statutory, which would
materially impair the ability of Centennial to dispose freely of any such
security or otherwise to realize the benefits of ownership thereof at any time.
There are no voting trusts or other agreements or undertakings to which
Centennial is a party with respect to the voting of any such securities. With
respect to all "repurchase agreements" to which Centennial has "purchased"
securities under agreement to resell, Centennial has a valid, perfected first
lien or security interest in the government securities or other collateral
securing the repurchase agreement, and the value of the collateral securing each
such repurchase
17
agreement equals or exceeds the amount of the debt owed that is secured by such
collateral. Except for fluctuations in the market values of its investment
securities, since December 31, 2002, there has been no significant deterioration
or material adverse change in the quality, or any material decrease in the
value, of Centennial's securities portfolio as a whole.
2.17 Personal Property and Other Assets. All tangible personal property of
Centennial material to the business operations of Centennial (including, without
limitation, all banking equipment, data processing equipment, vehicles, and all
other tangible personal property located in any office of or used by Centennial
in the operation of its business) is owned or leased by Centennial free and
clear of all liens, encumbrances, leases, title defects or exceptions to title
other than such as are not material in character, amount or extent, and which do
not materially detract from the value of, or interfere with the present or
future use or ability to convey, the property subject thereto or affected
thereby. All of Centennial's tangible personal property material to its business
is in good operating condition and repair, ordinary wear and tear excepted.
2.18 Patents and Trademarks. Centennial owns, possesses or has the right to
use any and all patents, licenses, trademarks, trade names, copyrights, trade
secrets and proprietary and other confidential information necessary to conduct
its business as now conducted; and Centennial has not violated, and currently is
not in conflict with, any patent, license, trademark, trade name, copyright or
proprietary right of any other person or entity.
2.19 Environmental Matters.
(a) Centennial has Previously Disclosed to Crescent Financial copies
of all written reports, correspondence, notices or other materials, if any, in
its possession pertaining to environmental surveys or assessments of the Real
Property or any of its Loan Collateral and any improvements thereon, or to any
violation of "Environmental Laws" (as defined below) on, affecting or otherwise
involving the Real Property or any Loan Collateral.
(b) There has been no presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, reporting,
testing, processing, emission, discharge, release, threatened release, control,
removal, clean-up or remediation of any "Hazardous Substances" (as defined
below) by any person prior to the date hereof on, from or relating to the Real
Property or, to the best knowledge and belief of management of Centennial, the
Loan Collateral, which constitutes a violation of any Environmental Laws.
(c) Centennial has not violated any federal, state or local law, rule,
regulation, order, permit or other requirement relating to health, safety or the
environment or imposing liability, responsibility or standards of conduct
applicable to environmental conditions, and there has been no violation of any
Environmental Laws (as defined in Section 2.19(f) below) (including, to the best
knowledge and belief of management of Centennial, any violation with respect to
or relating to any Loan Collateral) by any other person or entity for whose
liability or obligation with respect to any particular matter or violation
Centennial is or may be responsible or liable, except to the extent any
violations of which, when taken as a whole, would not have a Material Adverse
Effect on Centennial.
18
(d) Centennial is not subject to any claims, demands, causes of
action, suits, proceedings, losses, damages, penalties, liabilities,
obligations, costs or expenses of any kind and nature which arise out of, under
or in connection with, or which result from or are based upon the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, emission, discharge,
release, threatened release, control, removal, clean-up or remediation of any
Hazardous Substances on, from or relating to the Real Property or, to the best
knowledge and belief of management of Centennial, any Loan Collateral by any
person or entity.
(e) No facts, events or conditions relating to the Real Property or,
to the best knowledge and belief of management of Centennial, any Loan
Collateral, or the operations of Centennial, will prevent, hinder or limit
continued compliance with Environmental Laws, or give rise to any investigatory,
emergency removal, remedial or corrective actions, obligations or liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise) pursuant to
Environmental Laws.
(f) For purposes of this Agreement, "Environmental Laws" shall
include:
(i) all federal, state and local statutes, regulations,
ordinances, orders, decrees, and similar provisions having the force
or effect of law,
(ii) all contractual agreements, and
(iii) all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all standards of
conduct and bases of obligations relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, discharge, release,
threatened release, control, emergency removal, clean-up or remediation of any
Hazardous Substances (including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act, the Superfund Amendment
and Reauthorization Act, the Federal Insecticide, Fungicide and Rodenticide Act,
the Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act, the Clean Water Act, the Clean Air Act, the Toxic Substances
Control Act, any "Superfund" or "Superlien" law, the Americans with Disabilities
Act, and the Occupational Safety and Health Act), as such may now or at any time
hereafter be defined or in effect.
(g) For purposes of this Agreement, "Hazardous Substances" shall
include hazardous, toxic or otherwise regulated materials, substances or wastes;
chemical substances or mixtures; pesticides; pollutants; contaminants; toxic
chemicals; oil or other petroleum products, byproducts, or constituents
(including but not limited to crude oil, diesel oil, fuel oil, gasoline,
lubrication oil, oil refuse, oil mixed with other waste, oil sludge, and all
other liquid hydrocarbons regardless of specific gravity); asbestos or asbestos
containing material; flammable explosives; polychlorinated biphenyls ("PCBs") or
any material containing PCBs; radioactive materials; biological micro organisms,
viruses, fungi, spores; environmental tobacco smoke; radon or radon gas;
formaldehyde or any material containing formaldehyde; fumigants; any
19
material or substance comprising or contributing to conditions known as "sick
building syndrome," "building-related illness" or similar conditions or
exposures; and/or any hazardous, toxic, regulated or dangerous waste, substance
or material defined as such by the United States Environmental Protection Agency
or any other federal, state or local governmental agency or political
subdivision thereof, or for the purpose of or by any Environmental Laws, as now
or at any time hereafter may be in effect.
2.20 Brokerage or Finders' Commissions. All negotiations relative to this
Agreement and the transactions described herein have been carried on by
Centennial or its representative, ▇▇▇▇▇ Capital ("▇▇▇▇▇"), directly with
Crescent Financial or its representatives, and no person or firm other than
▇▇▇▇▇ has been retained by or has acted on behalf of, pursuant to any agreement,
arrangement or understanding with, or under the authority of, Centennial or its
Board of Directors, as a broker, finder or agent or has performed similar
functions or otherwise is or may be entitled to receive or claim a brokerage fee
or other commission in connection with or as a result of the transactions
described herein.
2.21 Material Contracts.
(a) Except as Previously Disclosed, Centennial is not a party to or
bound by any agreement, other than loans made in the ordinary course of
business, (i)involving money or other property in an amount or with a value in
excess of $25,000, (ii) which calls for the provision of goods or services to
Centennial and cannot be terminated without material penalty upon written notice
to the other party thereto, (iii) which is material to Centennial and was not
entered into in the ordinary course of business, (iv) which involves hedging,
options or any similar trading activity, or interest rate exchanges or swaps,
(v) which commits Centennial to extend any loan or credit (with the exception of
letters of credit, lines of credit and loan commitments extended in the ordinary
course of business), (vi) which involves the purchase or sale of any assets of
Centennial, or the purchase, sale, issuance, redemption or transfer of any
capital stock or other securities of Centennial, or (vii) with any director,
officer or principal shareholder of Centennial (including, without limitation,
any consulting agreement, but not including any agreement relating to loans or
other banking services which were made in the ordinary course of its business
and on substantially the same terms and conditions as were prevailing at that
time for similar agreements with unrelated persons).
(b) Centennial is not in default, and there has not occurred any event
which with the lapse of time or giving of notice or both would constitute such a
default, under any contract, lease, insurance policy, commitment or arrangement
to which it is a party or by which it or its property is or may be bound or
affected or under which it or its property receives benefits.
2.22 Employment Matters; Employee Relations.
(a) Centennial (i) has paid in full to or accrued on behalf of all its
respective directors, officers and employees all wages, salaries, commissions,
bonuses, fees and other direct compensation for all labor or services rendered,
including all wages, salaries, commissions, bonuses, fees and other direct
compensation for all labor or services performed by them to the date of this
Agreement and all vacation pay, sick pay, severance pay and other amounts
promised to the extent required by law or its existing policies or practices,
and (ii) is in compliance in all
20
material respects with all applicable federal, state and local laws, statutes,
rules and regulations with regard to employment and employment practices, terms
and conditions, and wages and hours and other compensation matters; and no
person has, to the best knowledge and belief of management of Centennial,
asserted that Centennial is liable in any amount for any arrearages in wages or
employment taxes or for any penalties for failure to comply with any of the
foregoing.
(b) There is no action, suit or proceeding by any person pending or,
to the best knowledge and belief of management of Centennial, threatened against
Centennial (or its employees), involving employment discrimination, harassment,
wrongful discharge or similar claims. Centennial is not a party to or bound by
any collective bargaining agreement with any of its employees, any labor union
or any other collective bargaining unit or organization. There is no pending or,
to Centennial's best knowledge, threatened labor dispute, work stoppage or
strike involving Centennial, or any of its employees, or any pending or, to
Centennial's best knowledge, threatened proceeding in which it is asserted that
Centennial has committed an unfair labor practice; and, Centennial is not aware
of any activity involving it or any of its employees seeking to certify a
collective bargaining unit or engaging in any other labor organization activity.
2.23 Employment Agreements; Employee Benefit Plans.
(a) Centennial has Previously Disclosed to Crescent Financial a true
and complete list of all bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock and stock option plans; all employment and severance
contracts; all medical, dental, health, and life insurance plans; all vacation,
sickness and other leave plans, disability and death benefit plans; and all
other employee benefit plans, contracts, or arrangements maintained or
contributed to by Centennial for the benefit of any employees, former employees,
directors, former directors or any of their beneficiaries (collectively, the
"Plans"). True and complete copies of all Plans, including, but not limited to,
any trust instruments or insurance contracts, if any, forming a part thereof,
and all amendments thereto, previously have been supplied to Crescent Financial.
Centennial does not maintain, sponsor, contribute to or otherwise participate in
any "Employee Benefit Plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), any "Multiemployer
Plan" within the meaning of Section 3(37) of ERISA, or any "Multiple Employer
Welfare Arrangement" within the meaning of Section 3(40) of ERISA. Each Plan
that is an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA and which is intended to be qualified under Section 401(a) of the Code,
has received or applied for a favorable determination letter from the IRS and
Centennial is not aware of any circumstances reasonably likely to result in the
revocation or denial of any such favorable determination letter. All reports and
returns with respect to the Plans (and any Plans previously maintained by
Centennial) required to be filed with any governmental department, agency,
service or other authority, including, without limitation, Internal Revenue
Service Form 5500 (Annual Report), have been properly and timely filed.
(b) All "Employee Benefit Plans" maintained by or otherwise covering
employees or former employees of Centennial currently are, and at all times have
been, in compliance with all provisions and requirements of ERISA except those
the noncompliance of which, when taken as a whole, would not have a Material
Adverse Effect on Centennial. There is
21
no pending or, to Centennial's best knowledge, threatened litigation relating to
any Plan or any such Plan previously maintained by Centennial. Centennial has
not engaged in a transaction with respect to any Plan that has subjected it, or
absent the exemption under which the transaction was effected, would subject it
to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i)
of ERISA.
(c) Centennial has delivered to Crescent Financial a true, correct and
complete copy (including copies of all amendments thereto) of each of its
retirement plans that is intended to be qualified under Section 401(a) of the
Code (collectively, the "Retirement Plans"), together with true, correct and
complete copies of the summary plan descriptions relating to the Retirement
Plans, the most recent determination letters received from the IRS regarding the
Retirement Plans, and the most recent Annual Reports (Form 5500 series) and
related schedules, if any, for the Retirement Plans. The Retirement Plans are
qualified under the provisions of Section 401(a) of the Code, the trusts under
the Retirement Plans are exempt trusts under Section 501(a) of the Code, and
determination letters have been issued or applied for with respect to the
Retirement Plans to said effect, including determination letters covering the
current terms and provisions of the Retirement Plans. There are no issues
relating to said qualification or exemption of the Retirement Plans currently
pending before the IRS, the United States Department of Labor, the Pension
Benefit Guaranty Corporation or any court. The Retirement Plans and the
administration thereof meet (and have met since the establishment of the
Retirement Plans) the requirements of ERISA, the Code and all other laws, rules
and regulations applicable to the Retirement Plans and do not violate (and since
the establishment of the Retirement Plans have not violated) any of the
provisions of ERISA, the Code and such other laws, rules and regulations, except
to the extent such violation, when taken as a whole, would not have a Material
Adverse Effect on Centennial. Without limiting the generality of the foregoing,
all reports and returns with respect to the Retirement Plans required to be
filed with any governmental department, agency, service or other authority have
been properly and timely filed. There are no disputes or unresolved
disagreements with respect to the Retirement Plans or the administration thereof
currently existing between Centennial, or any trustee or other fiduciary
thereunder, and any governmental agency, any current or former employee of
Centennial, or beneficiary of any such employee or any other person or entity.
No "reportable event" within the meaning of Section 4043(b) of ERISA has
occurred at any time with respect to the Retirement Plans, other than those,
when taken as a whole, would not have a Material Adverse Effect on Centennial.
(d) No liability under subtitle C or D of Title IV of ERISA has been
or is expected to be incurred by Centennial with respect to the Retirement Plans
or with respect to any other ongoing, frozen or terminated defined benefit
pension plan currently or formerly maintained by Centennial. Centennial
presently does not contribute to a "Multiemployer Plan" or has ever contributed
to such a plan. All contributions required to be made pursuant to the terms of
each of the Plans (including without limitation the Retirement Plans and any
other "pension plan" (as defined in Section 3(2) of ERISA, provided such plan is
intended to qualify under the provisions of Section 401(a) of the Code)
maintained by Centennial have been timely made. Neither the Retirement Plans nor
any other "pension plan" maintained by Centennial have an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. Centennial has not provided, and is not required
to provide, security to any "pension plan" or to any "Single Employer Plan"
pursuant to Section 401(a)(29)
22
of the Code. Under the Retirement Plans and any other "pension plan" maintained
by Centennial as of the last day of the most recent plan year ended prior to the
date hereof, the actuarially determined present value of all "benefit
liabilities," within the meaning of Section 4001(a)(16) of ERISA (as determined
on the basis of the actuarial assumptions contained in the plan's most recent
actuarial valuation) did not exceed the then current value of the assets of such
plan, and there has been no material change in the financial condition of any
such plan since the last day of the most recent plan year.
(e) There are no restrictions on the rights of Centennial to amend or
terminate any Plan. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (except as otherwise
specifically provided for or contemplated by the transactions described in this
Agreement) (i) result in any payment to any person (including, without
limitation, any severance compensation or payment, unemployment compensation,
"golden parachute" or "change in control" payment, or otherwise) becoming due
under any plan or agreement to any director, officer, employee or consultant,
(ii)increase any benefits otherwise payable under any plan or agreement, or
(iii) result in any acceleration of the time of payment or vesting of any such
benefit.
2.24 Insurance. Centennial has in effect a "financial institutions bond"
and such other policies of general liability, casualty, directors and officers
liability, employee fidelity, errors and omissions and other property and
liability insurance as have been Previously Disclosed to Crescent Financial (the
"Policies"). The Policies provide coverage in such amounts and against such
liabilities, casualties, losses or risks as is required by applicable law or
regulation; and, in the judgment of management of Centennial, the insurance
coverage provided under the Policies is reasonable and adequate in all respects
for Centennial. Each of the Policies is in full force and effect and is valid
and enforceable in accordance with its terms, and is underwritten by an insurer
of recognized financial responsibility that is qualified to transact business in
North Carolina; and Centennial has taken all requisite actions (including the
giving of required notices) under each such Policy to preserve all rights
thereunder with respect to all matters. Centennial is not in default under the
provisions of, has received notice of cancellation or nonrenewal of or any
premium increase on, or has any knowledge of any failure to pay any premium on
or any inaccuracy in any application for any Policy. There are no pending claims
under any Policy, and Centennial has no knowledge of any facts or of the
occurrence of any event that is reasonably likely to result in any such claim.
2.25 Insurance of Deposits. Centennial is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder. The deposits of each depositor in Centennial are insured by the FDIC
to the maximum amount provided by law, all deposit insurance premiums due from
Centennial to the FDIC have been paid in full in a timely fashion, and, to the
best knowledge and belief of Centennial, no proceedings have been commenced or
are contemplated by the FDIC or otherwise to terminate such insurance.
2.26 Compensation; Stock Ownership. Centennial has Previously Disclosed (i)
the name and current salary or wage rate for each present employee of
Centennial, (ii) the name of and number of shares of Centennial Stock
beneficially owned by each of the directors and officers of Centennial and by
any person or entity known to Centennial to own beneficially 5% or more of
Centennial Stock, and (iii) the name, number and vesting schedule of outstanding
23
options and restricted stock awards held by each person to whom a stock option
or restricted stock award has been granted and currently is outstanding under
any stock option or other plan of Centennial, including, without limitation, the
Centennial Option Plans.
2.27 Affiliates. Centennial will deliver to Crescent Financial within 15
days of the date hereof a listing of those persons deemed by Centennial and its
counsel as of the date of this Agreement to be "Affiliates" of Centennial as
that term is defined in Rule 405 promulgated under the 1933 Act, including
persons, trusts, estates or other entities related to persons deemed to be
Affiliates of Centennial.
2.28 Obstacles to Regulatory Approval or Tax Treatment. To the best
knowledge and belief of management of Centennial, there exists no fact or
condition relating to Centennial that may reasonably be expected to (i) prevent,
impede or delay Crescent Financial or Centennial from obtaining the regulatory
approvals required to consummate transactions described herein, or (ii) prevent
the Merger from qualifying to be a tax-free reorganization under Section
368(a)(1)(A) of the Code; and, if any such fact or condition becomes known to
Centennial, Centennial shall promptly (and in any event within three days after
obtaining such knowledge) communicate such fact or condition to the President of
Crescent Financial.
2.29 Disclosure. To the best knowledge and belief of management of
Centennial, no written statement, certificate, schedule, list or other written
information furnished by or on behalf of Centennial at any time to Crescent
Financial in connection with this Agreement (including without limitation the
statements contained herein), when considered as a whole, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading. Each
document delivered or to be delivered by Centennial to Crescent Financial is or
will be a true and complete copy of such document, unmodified except by another
document delivered by Centennial.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF CRESCENT FINANCIAL
Except as otherwise specifically described herein or as "Previously
Disclosed" to Centennial, Crescent Financial hereby makes the following
representations and warranties to Centennial. ("Previously Disclosed" shall
mean, as to Crescent Financial, the disclosure of information in a letter
delivered by Crescent Financial to Centennial specifically referring to this
Agreement and arranged in sections corresponding to the sections, subsections
and items of this Agreement applicable thereto, and which letter has been
delivered prior to the execution of this Agreement. Information shall be deemed
Previously Disclosed for the purpose of a given section, subsection or item of
this Agreement only to the extent a specific reference thereto is made in
connection with disclosure of such information at the time of such delivery.)
3.1 Corporate Organization, Capacity and Authority.
(a) Organization. Crescent Financial is a corporation duly organized
and validly existing under the laws of the State of North Carolina and is
registered with the
24
Commissioner as a commercial bank holding company and with the Federal Reserve
Board as a bank holding company under the Bank Holding Company Act of 1956, as
amended.
(b) Subsidiaries. Crescent Financial has one wholly owned subsidiary,
Crescent. Other than Crescent, Crescent Financial has no subsidiaries, direct or
indirect, and does not own, directly or indirectly, any stock or other equity
interest in any other corporation, service corporation, joint venture,
partnership or other entity, except for equity issues reflected in Crescent
Financial's investment portfolio and securities held in a fiduciary capacity.
(c) Organization of Subsidiary. Crescent is duly organized and validly
existing under the laws of the State of North Carolina. All of the outstanding
capital stock of Crescent is owned of record and beneficially, free and clear of
all security interests and claims, by Crescent Financial. All of the outstanding
shares of capital stock of Crescent are duly authorized, validly issued, fully
paid and nonassessable, except to the extent set forth in N.C. General Statutes
Section 53-42.
(d) Power and Authority. Each of Crescent Financial and Crescent has
all requisite power and authority (corporate and other) to own, lease and
operate its properties and conduct its business as now being conducted, is duly
qualified to do business and is in good standing in each other jurisdiction in
which the character of the properties owned or leased by it therein or in which
the transaction of its business makes such qualification necessary, except where
failure so to qualify would not have a Material Adverse Effect (as defined
herein) on Crescent Financial and Crescent, and is not transacting business, or
operating any properties owned or leased by it, in violation of any provision of
federal or state law or any rule or regulation promulgated thereunder, which
violation would have a Material Adverse Effect on Crescent Financial and
Crescent. For purposes of this Article III, "Material Adverse Effect" shall
mean: (a) with respect to references to Crescent Financial, any change in the
business of Crescent Financial that is or could be materially adverse to the
financial condition, results of operations, prospects, business, assets,
investments, properties or operations of Crescent Financial, or (b) with respect
to references to Crescent, any change in the business of Crescent that is or
could be materially adverse to the financial condition, results of operations,
prospects, business, assets, loan portfolio, investments, properties or
operations of Crescent Financial and Crescent considered as one enterprise.
(e) Constituent Documents. Crescent Financial has previously delivered
to Centennial true, accurate and complete copies of the currently effective
charter and bylaws or equivalent organizational documents of each of Crescent
Financial and Crescent, including all amendments and proposed amendments
thereto.
3.2 Capital Stock. The authorized capital stock of Crescent Financial
consists of 20,000,000 shares of Crescent Financial Stock, of which 2,143,249
shares are issued and outstanding as of December 31, 2002, and 5,000,000 shares
of preferred stock, no par value, of which no shares are issued and outstanding.
Each outstanding share of Crescent Financial Stock has been duly authorized and
validly issued, is fully paid and nonassessable, has been issued in compliance
with applicable federal and state securities laws and has not been issued in
violation of the preemptive rights of any shareholder. The shares of Crescent
Financial Stock issued to Centennial's shareholders pursuant to this Agreement,
when issued as described herein, will be
25
duly authorized, validly issued, fully paid and nonassessable, and will be
issued in compliance with applicable federal and state securities laws.
3.3 Convertible Securities, Options, Etc. Except for the Crescent Financial
1999 Incentive Stock Option Plan and the stock options granted thereunder and
the Crescent Financial 1999 Nonqualified Stock Option Plan for Directors and the
stock options granted thereunder. Crescent Financial does not have any
outstanding (i) securities or other obligations (including debentures or other
debt instruments) which are convertible into shares of Crescent Financial Stock
or any other securities of Crescent Financial, (ii) options, warrants, rights,
calls or other commitments of any nature which entitle any person to receive or
acquire any shares of Crescent Financial Stock or any other securities of
Crescent Financial, or (iii) plan, agreement or other arrangement pursuant to
which shares of Crescent Financial Stock or any other securities of Crescent
Financial, or options, warrants, rights, calls or other commitments of any
nature pertaining thereto, have been or may be issued.
3.4 Authorization and Validity of Agreement. This Agreement has been duly
and validly approved by Crescent Financial's and Crescent's Boards of Directors.
(i) Crescent Financial and Crescent have the corporate power and authority to
execute and deliver this Agreement and to perform their obligations and
agreements and carry out the transactions described herein, (ii) all corporate
proceedings and approvals required to be taken to authorize Crescent Financial
and Crescent to enter into this Agreement and to perform its respective
obligations and agreements and to carry out the transactions described herein
have been duly and properly taken, and (iii) this Agreement constitutes the
valid and binding agreement of Crescent Financial and Crescent enforceable in
accordance with its terms (except to the extent enforceability may be limited by
(A) applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect which affect creditors' rights generally, (B)
legal and equitable limitations on the availability of injunctive relief,
specific performance and other equitable remedies, and (C) general principles of
equity and applicable laws or court decisions limiting the enforceability of
indemnification provisions).
3.5 Validity of Transactions; Absence of Required Consents or Waivers.
Provided the required approvals of governmental or regulatory authorities are
obtained, neither the execution and delivery of this Agreement, nor the
consummation of the transactions described herein, nor compliance by Crescent
Financial or Crescent with any of its obligations or agreements contained
herein, will: (i) conflict with or result in a breach of the terms and
conditions of, or constitute a default or violation under any provision of, the
Articles of Incorporation or bylaws or the equivalent organizational documents
of Crescent Financial or Crescent, or any material contract, agreement, lease,
mortgage, note, bond, indenture, license, or obligation or understanding (oral
or written) to which Crescent Financial or Crescent, is bound or by which it,
its business, capital stock or any of its properties or assets may be affected;
(ii) result in the creation or imposition of any lien, claim, interest, charge,
restriction or encumbrance upon any of the properties or assets of Crescent
Financial or Crescent; (iii) violate any applicable federal or state statute,
law, rule or regulation, or any order, writ, injunction or decree of any court,
administrative or regulatory agency or governmental body; (iv) result in the
acceleration of any obligation or indebtedness of Crescent Financial or
Crescent; or (v) interfere with or otherwise adversely affect Crescent
Financial's or Crescent's ability to carry on its business as presently
conducted. No consents, approvals or waivers are required to be obtained from
any
26
governmental or regulatory authority in connection with Crescent Financial's or
Crescent's execution and delivery of this Agreement, or the performance of its
obligations or agreements or the consummation of the transactions described
herein, except for required approvals of governmental or regulatory authorities
described in Section 7.1 below and approvals previously obtained.
3.6 Books and Records. The books of account of Crescent Financial and
Crescent have been maintained in material compliance with all applicable legal
and accounting requirements and in accordance with good business practices, and
such books of account are complete and reflect accurately in all material
respects Crescent Financial's and Crescent's, respectively, items of income and
expense and all of its assets, liabilities and shareholders' equity. The minute
books of each of Crescent Financial and Crescent accurately reflect in all
material respects the corporate actions which its respective shareholders and
board of directors, and all committees thereof, have taken during the time
periods covered by such minute books. All such minute books have been or will be
made available to Centennial and its representatives.
3.7 Regulatory Reports. Crescent Financial and Crescent have filed all
reports, registrations and statements, together with any amendments that were
required to be made with respect thereto, that were required to be filed with
(i) the Federal Reserve Board, (ii) the FDIC, (iii) the Commissioner, and (iv)
any other governmental or regulatory authorities having jurisdiction over
Crescent Financial or Crescent except to the extent that failure to file such
reports, registrations and statements would not have a Material Adverse Effect
on Crescent Financial and Crescent. All such reports and statements filed with
the Federal Reserve Board, the FDIC, the Commissioner or other such regulatory
authority are collectively referred to herein as the "Crescent Financial
Reports." As of their respective dates, the Crescent Financial Reports complied
in all material respects with all the statutes, rules and regulations enforced
or promulgated by the regulatory authority with which they were filed and did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and, Crescent Financial has not been notified that any such Crescent
Financial Reports were deficient in any material respect as to form or content.
Following the date of this Agreement, Crescent Financial shall deliver to
Centennial upon its request a copy of any report, registration, statement or
other regulatory filing made by Crescent Financial or Crescent with the Federal
Reserve Board, the FDIC, the Commissioner or any other such regulatory
authority.
3.8 SEC Filings; Financial Statements.
(a) SEC Filings. Crescent Financial has filed and made available to
Centennial all forms, reports, and documents required to be filed by Crescent
Financial with the SEC since its date of incorporation and Crescent has filed
and made available to Centennial all forms, reports and documents required to be
filed by Crescent with the FDIC (collectively, the "Crescent Financial SEC
Reports"). The Crescent Financial SEC Reports (i) at the time filed, complied in
all material respects with the applicable requirements of the 1933 Act and the
Securities Exchange Act of 1934, as amended (the "1934 Act") and (ii)did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material
27
fact required to be stated in such Crescent Financial SEC Reports or necessary
in order to make the statements in such Crescent Financial SEC Reports, in light
of the circumstances under which they were made, not misleading.
(b) Financial Statements. Crescent Financial has filed with the SEC
and made available to Centennial the following financial statements
(collectively, the "Crescent Financial Statements"): (i) its consolidated
balance sheets as of December 31, 2002 and 2001 and its consolidated statements
of operations, changes in shareholders' equity and cash flows for the years
ended December 31, 2002, 2001 and 2000, together with notes thereto, all as
audited by ▇▇▇▇▇ ▇▇▇▇ PLLC, independent certified public accountants. Following
the date of this Agreement, Crescent Financial promptly will deliver to
Centennial all other annual or interim financial statements prepared by or for
Crescent Financial. The Crescent Financial Statements (including any related
notes and schedules thereto) (i) are in accordance with Crescent Financial's
books and records, and (ii) were prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated and present fairly Crescent
Financial's consolidated financial condition, assets and liabilities, results of
operations, changes in shareholders' equity and changes in cash flows as of the
dates indicated and for the periods specified therein subject, in the case of
unaudited interim financial statements, to normal year-end adjustments and any
other adjustments described therein, which adjustments will not be material in
amount or effect.
3.9 Tax Returns and Other Tax Matters. (i) Each of Crescent Financial and
Crescent has timely filed or caused to be filed, or obtained proper extensions
of time for filing, all federal, state and local income tax returns and reports
which are required by law to have been filed, and all such returns and reports
were true, correct and complete in all material respects and contained all
material information required to be contained therein; (ii) all federal, state
and local income, profits, franchise, sales, use, occupation, property, excise,
withholding, employment and other taxes (including interest and penalties),
charges and assessments which have become due from or been assessed or levied
against Crescent Financial, Crescent or their respective properties have been
fully paid or, if not yet due, a reserve or accrual which is reasonably believed
by the management of Crescent Financial to be adequate in all material respects
for the payment of all such taxes to be paid and the obligation for such unpaid
taxes is reflected on the Crescent Financial Statements; (iii) tax returns and
reports of Crescent Financial and Crescent have not been subject to audit by the
IRS or the North Carolina Department of Revenue since incorporation and neither
Crescent Financial nor Crescent has received any indication of the pendency of
any audit or examination in connection with any such tax return or report or has
any knowledge that any such return or report is subject to adjustment; and (iv)
neither Crescent Financial nor Crescent has executed any waiver or extended the
statute of limitations (or been asked to execute a waiver or extend a statute of
limitations) with respect to any tax.
3.10 Absence of Material Adverse Changes. Since December 31, 2002, there
has been no material adverse change, and there has occurred no event or
development and there currently exists no condition or circumstance which, with
the lapse of time or otherwise, may or could cause, create or result in a
Material Adverse Effect on Crescent Financial and Crescent.
3.11 Absence of Undisclosed Liabilities. Neither Crescent Financial nor
Crescent have any liabilities or obligations, whether known or unknown, matured
or unmatured, accrued,
28
absolute, contingent or otherwise, whether due or to become due (including
without limitation tax liabilities or unfunded liabilities under employee
benefit plans or arrangements), other than (i) those reflected in the Crescent
Financial Statements, or (ii) obligations or liabilities incurred in the
ordinary course of its business since December 31, 2001 and which are not,
individually or in the aggregate, material to Crescent Financial and Crescent
considered as one enterprise.
3.12 Litigation and Compliance with Law.
(a) There are no actions, suits, arbitrations, controversies or other
proceedings or investigations (or, to the best knowledge and belief of
management of Crescent Financial, any facts or circumstances which reasonably
could result in such), including, without limitation, any such action by any
governmental or regulatory authority, which currently exist or are ongoing,
pending or, to the best knowledge and belief of management of Crescent
Financial, threatened, contemplated or probable of assertion, against, relating
to or otherwise affecting Crescent Financial, Crescent or any of their
respective properties, assets or employees which, if determined adversely, could
result in liability on the part of Crescent Financial or Crescent for, or
subject Crescent Financial or Crescent to, material monetary damages, fines or
penalties or an injunction, or which could have a Material Adverse Effect on
Crescent Financial and Crescent or on Crescent Financial's ability to consummate
the Merger.
(b) Except for such licenses, permits, orders, authorizations or
approvals ("Permits") the absence of which would not have a Material Adverse
Effect on Crescent Financial or Crescent, each of Crescent Financial and
Crescent has all Permits of any federal, state, local or foreign governmental or
regulatory body that are material to or necessary for the conduct of its
respective business or to own, lease and operate its respective properties.
Except as would not have a Material Adverse Effect on Crescent Financial and
Crescent, all such Permits are in full force and effect and no violations are or
have been recorded in respect of any such Permits. No proceeding is pending or,
to the best knowledge and belief of management of Crescent Financial, threatened
or probable of assertion to suspend, cancel, revoke or limit any Permit.
(c) Neither Crescent Financial nor Crescent is subject to any
supervisory agreement, enforcement order, writ, injunction, capital directive,
supervisory directive, memorandum of understanding or other similar agreement,
order, directive, memorandum or consent of, with or issued by any regulatory or
other governmental authority (including, without limitation, the Federal Reserve
Board, the FDIC or the Commissioner) relating to its financial condition,
directors or officers, employees, operations, capital, regulatory compliance or
otherwise; there are no judgments, orders, stipulations, injunctions, decrees or
awards against Crescent Financial or Crescent which in any manner limits,
restricts, regulates, enjoins or prohibits any present or past business or
practice of Crescent Financial or Crescent; and neither Crescent Financial nor
Crescent has been advised or has any reason to believe that any regulatory or
other governmental authority or any court is contemplating, threatening or
requesting the issuance of any such agreement, order, injunction, directive,
memorandum, judgment, stipulation, decree or award.
(d) Neither Crescent Financial nor Crescent is in violation or default
under, and each has complied with, all laws, statutes, ordinances, rules,
regulations, orders, writs,
29
injunctions or decrees of any court or federal, state, municipal or other
governmental or regulatory authority having jurisdiction or authority over it or
its business operations, properties or assets (including without limitation all
provisions of North Carolina law relating to usury, the Consumer Credit
Protection Act, and all other laws and regulations applicable to extensions of
credit) except for any such violation, default or noncompliance as does not or
would not have a Material Adverse Effect on Crescent Financial and Crescent,
and, to the best knowledge and belief of management of Crescent Financial, there
is no basis for any claim by any person or authority for compensation,
reimbursement or damages or otherwise for any violation of any of the foregoing.
3.13 Absence of Brokerage or Finders' Commissions. All negotiations
relative to this Agreement and the transactions described herein have been
carried on by Crescent Financial or its representative, ▇▇▇▇ ▇▇▇▇ & Co ("▇▇▇▇
▇▇▇▇") directly with Centennial or its representatives and no person or firm or
other than ▇▇▇▇ ▇▇▇▇ has been retained by or has acted on behalf of, pursuant to
any agreement, arrangement or understanding with, or under the authority of,
Crescent Financial or its Board of Directors, as a broker, finder or agent or
has performed similar functions or otherwise is or may be entitled to receive or
claim a brokerage fee or other commission in connection with or as a result of
the transactions described herein.
3.14 Obstacles to Regulatory Approval or Tax Treatment. To the best of the
knowledge and belief of the management of Crescent Financial, no fact or
condition relating to Crescent Financial exists that may reasonably be expected
to (i) prevent, impede or delay Crescent Financial or Centennial from obtaining
the regulatory approvals required in order to consummate transactions described
herein, or (ii) prevent the Merger from qualifying to be a tax-free
reorganization under Section 368(a)(1)(A) of the Code; and, if any such fact or
condition becomes known to the executive officers of Crescent Financial,
Crescent Financial promptly (and in any event within three days after obtaining
such knowledge) shall communicate such fact or condition to the President of
Centennial.
3.15 Loans, Accounts, Notes and Other Receivables.
(a) All loans, accounts, notes and other receivables reflected as
assets on the books and records of Crescent Financial and Crescent (i) have
resulted from bona fide business transactions in the ordinary course of
operations of Crescent Financial and Crescent, (ii) were made in accordance with
the standard loan policies and procedures of Crescent Financial and Crescent,
and (iii)are owned by Crescent Financial or Crescent free and clear of all
liens, encumbrances, assignments, participation or repurchase agreements or
other exceptions to title or to the ownership or collection rights of any other
person or entity.
(b) All of the records of Crescent Financial and Crescent regarding
all outstanding loans, accounts, notes and other receivables, and all other real
estate owned, are accurate in all material respects, and, with respect to such
loans the loan documentation of which indicate are secured by any Loan
Collateral, such loans are in all material respects secured by valid, perfected
and enforceable liens on all such Loan Collateral having the priority described
in the records of such loan.
30
(c) To the best knowledge and belief of management of Crescent
Financial, each loan reflected as an asset on the books of Crescent Financial
and Crescent and each guaranty therefor, is the legal, valid and binding
obligation of the obligor or guarantor thereon, and no defense, offset or
counterclaim has been asserted with respect to any such loan or guaranty.
3.16 Securities Portfolio and Investments. All securities owned by Crescent
Financial or Crescent (whether owned of record or beneficially) are held free
and clear of all mortgages, liens, pledges, encumbrances or any other
restriction or rights of any other person or entity, whether contractual or
statutory, which would materially impair the ability of Crescent Financial or
Crescent to dispose freely of any such security or otherwise to realize the
benefits of ownership thereof at any time. There are no voting trusts or other
agreements or undertakings to which Crescent Financial or Crescent is a party
with respect to the voting of any such securities. With respect to all
"repurchase agreements" to which Crescent Financial or Crescent has "purchased"
securities under agreement to resell, Crescent Financial or Crescent has a
valid, perfected first lien or security interest in the government securities or
other collateral securing the repurchase agreement, and the value of the
collateral securing each such repurchase agreement equals or exceeds the amount
of the debt owed that is secured by such collateral. Except for fluctuations in
the market values of its investment securities, since December 31, 2002, there
has been no significant deterioration or material adverse change in the quality,
or any material decrease in the value, of Crescent Financial's securities
portfolio as a whole.
3.17 Disclosure. To the best of the knowledge and belief of Crescent
Financial, no written statement, certificate, schedule, list or written
information furnished by or on behalf of Crescent Financial at any time to
Centennial in connection with this Agreement (including, without limitation, the
statements contained herein), when considered as a whole, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading. Each
document delivered or to be delivered by Crescent Financial to Centennial is or
will be a true and complete copy of such document, unmodified except by another
document delivered by Crescent Financial.
ARTICLE IV. COVENANTS OF CENTENNIAL
4.1 Affirmative Covenants of Centennial. Centennial hereby covenants and
agrees as follows with Crescent Financial:
(a) "Affiliates" of Centennial. Centennial will use its best efforts
to cause each Affiliate disclosed to Crescent Financial (in addition to each
additional person who shall become an Affiliate of Centennial after the date of
this Agreement or who shall be deemed by Crescent Financial or its counsel, in
their sole discretion, to be an Affiliate of Centennial, and including persons,
trusts, estates, corporations or other entities related to persons deemed to be
Affiliates of Centennial) to execute and deliver to Crescent Financial prior to
the Closing a written agreement (the "Affiliates' Agreement") relating to
restrictions on shares of Crescent Financial Stock to be received by such
Affiliates pursuant to this Agreement, which Affiliates' Agreement shall be in
form and content reasonably satisfactory to Crescent Financial. Certificates for
the shares of Crescent Financial Stock issued to Affiliates of Centennial shall
31
bear a restrictive legend (substantially in the form as shall be set forth in
the Affiliates' Agreement) with respect to the restrictions applicable to such
shares.
(b) Conduct of Business Prior to Effective Time. Between the date of
this Agreement and the Effective Time, except as otherwise agreed by Crescent
Financial in writing, Centennial will carry on its business in and only in the
regular and usual course in substantially the same manner as such business
heretofore was conducted, and will:
(i) make all reasonable efforts to preserve intact its present
business organization, keep available their present officers and
employees, and preserve its relationships with customers, depositors,
creditors, correspondents, suppliers, and others having business
relationships with them;
(ii) maintain all of its properties and equipment used in its
business in customary repair, order and condition, ordinary wear and
tear excepted;
(iii) maintain its books of account and records in the usual,
regular and ordinary manner in accordance with sound business
practices applied on a consistent basis except to the extent otherwise
reasonably required by applicable laws or regulations or GAAP;
(iv) comply in all material respects with all laws, rules and
regulations applicable to it, its properties, assets or employees and
to the conduct of its business;
(v) not change its existing loan underwriting guidelines,
policies or procedures except as may be required by law;
(vi) continue to maintain in force insurance such as is described
in Section 2.24 above; not modify any bonds or policies of insurance
in effect as of the date hereof unless the same, as modified, provides
substantially equivalent coverage; and, not cancel, allow to be
terminated or, to the extent available, fail to renew, any such bond
or policy of insurance unless the same is replaced with a bond or
policy providing substantially equivalent coverage; and
(vii) promptly provide to Crescent Financial such information
about its financial condition, results of operations, prospects,
businesses, assets, loan portfolio, investments, properties or
operations as Crescent Financial reasonably shall request.
(c) Loans. Centennial will obtain Crescent Financial's prior approval
for each new extension of credit (including the issuance of unfunded
commitments) that it proposes to make within the following categories: (i) loan
participations, (ii) loans for acquisition and development purposes, and (iii)
non-residential construction loans exceeding $500,000 in principal amount.
Centennial will not enter into any form of indirect lending. Additionally,
Centennial will make available and provide to Crescent Financial the following
information with respect to its loans and other extensions of credit (such
assets herein referred to as "Loans") as of December 31, 2002 and as of the end
of each month thereafter until the Effective Time, such
32
information for each month, or in the case of (ii) below, quarterly to be in
form and substance as is usual and customary in the conduct of its business and
to be furnished within 25 days of the end of each month ending after the date
hereof, except as otherwise provided:
(i) a list of Loans past due for 30 days or more as to principal
or interest;
(ii) an analysis of the Loan Loss Reserve and management's
assessment of the adequacy of the Loan Loss Reserve, which analysis
and assessment shall include a list of all classified or "watch list"
Loans, along with the outstanding balance and amount specifically
allocated to the Loan Loss Reserve for each such classified or "watch
list" Loan;
(iii) a list of Loans in nonaccrual status;
(iv) a list of all Loans over $50,000 without principal reduction
for a period of longer than one year;
(v) a list of all foreclosed real property or other real estate
owned and all repossessed personal property;
(vi) a list of reworked or restructured Loans over $50,000 and
still outstanding, including original terms, restructured terms and
status; and
(vii) a list of any actual or threatened litigation by or against
Centennial pertaining to any Loans or credits, together with the
pleadings and other filed documents related thereto.
(d) Notice of Certain Changes or Events. Following the execution of
this Agreement and up to the Effective Time, Centennial promptly will notify
Crescent Financial in writing of and provide to it such information as it shall
request regarding (i) any material adverse change in its financial condition,
results of operations, prospects, business, assets, loan portfolio, investments,
properties or operations, or of the actual or prospective occurrence of any
condition or event which, with the lapse of time or otherwise, may or could
cause, create or result in any such material adverse change, or of (ii) the
actual or prospective existence or occurrence of any condition or event which,
with the lapse of time or otherwise, has caused or may or could cause any
statement, representation or warranty of Centennial herein to be or become
inaccurate, misleading or incomplete, or which has resulted or may or could
cause, create or result in the breach or violation of any of Centennial's
covenants or agreements contained herein or in the failure of any of the
conditions described in Sections 7.1 or 7.3 below.
(e) Consents to Assignment of Contracts and Leases. Centennial will
use its best efforts to obtain all required consents to the assignment to
Crescent Financial of Centennial's rights and obligations under any contracts or
personal or real property leases, each of which consents shall be in such form
as shall be specified by Crescent Financial.
(f) Qualified Plans. Centennial shall take all appropriate action as
shall be necessary to maintain the Centennial 401(k) Plan (the "Centennial
401(k) Plan"), as a qualified
33
plan for purposes of ERISA. Centennial acknowledges that Crescent Financial
intends (i) that the Centennial 40l(k) Plan will be merged into Crescent
Financial's Section 401(k) Savings Plan (the "Crescent Financial 401(k) Plan")
as soon as practicable after the Effective Time. Centennial shall take all such
actions with respect to such plans as shall be necessary to accomplish such
intent and, until the Effective Time, will not take any other extraordinary
actions with respects to such plans without the written consent of Crescent
Financial.
(g) Further Action; Instruments of Transfer. Centennial shall (i) use
its best efforts in good faith to take or cause to be taken all action required
of it hereunder as promptly as practicable so as to permit the expeditious
consummation of the transactions described herein, (ii) perform all acts and
execute and deliver to Crescent Financial all documents or instruments required
herein or as otherwise shall be reasonably necessary or useful to or requested
of Centennial in consummating such transactions and (iii) cooperate with
Crescent Financial fully in carrying out, and will pursue diligently the
expeditious completion of, such transactions.
4.2 Negative Covenants of Centennial. Between the date hereof and the
Effective Time, Centennial will not do any of the following things or take any
of the following actions without the prior written consent and authorization of
the President of Crescent Financial:
(a) Amendments to Articles of Incorporation or Bylaws. Amend its
Articles of Incorporation or bylaws.
(b) Change in Capital Stock. Make any change in its authorized capital
stock, or create any other or additional authorized capital stock or other
securities, or issue (except pursuant to the exercise of options heretofore
granted and outstanding under the Centennial Option Plans), sell, purchase,
redeem, retire, reclassify, combine or split any shares of its capital stock or
other securities (including securities convertible into capital stock), or enter
into any agreement or understanding with respect to any such action.
(c) Options, Warrants and Rights. Grant or issue any options,
warrants, calls, puts or other rights of any kind relating to the purchase,
redemption or conversion of shares of its capital stock or any other securities
(including securities convertible into capital stock) or enter into any
agreement or understanding with respect to any such action.
(d) Dividends. Declare or pay any dividends on the outstanding shares
of capital stock or make any other distributions on or in respect of any shares
of its capital stock or otherwise to its shareholders.
(e) Employment, Benefit or Retirement Agreements or Plans. Except as
required by law, contemplated by this Agreement or Previously Disclosed, (i)
enter into, become bound by, renew or extend any oral or written contract,
agreement or commitment for the employment or compensation of any director,
officer, employee or consultant which is not immediately terminable by
Centennial without cost or other liability on no more than 30 days' notice; (ii)
amend any existing, or adopt, enter into or become bound by any new or
additional, profit-sharing, bonus, incentive, change in control or "golden
parachute," stock option, stock purchase, pension, retirement, insurance
(hospitalization, life or other), paid leave (sick leave,
34
vacation leave or other) or similar contract, agreement, commitment,
understanding, plan or arrangement (whether formal or informal) with respect to
or which provides for benefits for any of its current or former directors,
officers, employees or consultants; (iii) grant or amend any existing options
under the Centennial Option Plans; (iv) make contributions to the Centennial
401(k) Plan other than basic and matching contributions in accordance with the
terms of the Centennial 401(k) Plan as Previously Disclosed; or (v) enter into
or become bound by any contract with or commitment to any labor or trade union
or association or any collective bargaining group.
(f) Increase in Compensation. With the exception of the anticipated
increases in annual salary and annual officer and employee bonuses Previously
Disclosed to Crescent Financial and such other raises as are in the ordinary
course of business and in accordance with historical practices, increase the
compensation or benefits of, or pay any bonus or other special or additional
compensation to, any of its directors, officers, employees or consultants.
(g) Accounting Practices. Make any changes in its accounting methods,
practices or procedures or in depreciation or amortization policies, schedules
or rates heretofore applied (except as required by GAAP or governmental
regulations).
(h) Acquisitions; Additional Branch Offices. Directly or indirectly
(i)acquire or merge with, or acquire any branch or all or any significant part
of the assets of, any other person or entity, (ii) open any new branch office,
or (iii) enter into or become bound by any contract, agreement, commitment or
letter of intent relating to, or otherwise take or agree to take any action in
furtherance of, any such transaction or the opening of a new branch office.
(i) Changes in Business Practices. Except as may be required by the
FDIC, the Commissioner or any other governmental or other regulatory agency or
as shall be required by applicable law, regulation or this Agreement, (i) change
in any material respect the nature of its business or the manner in which it
conducts its business, (ii) discontinue any material portion or line of its
business or (iii) change in any material respect its lending, investment,
asset-liability management or other material banking or business policies
(except to the extent required by Section 4.1(b) above and Section 6.9 below).
(j) Exclusive Merger Agreement. Directly or indirectly, through any
person (i) encourage, solicit or attempt to initiate or procure discussions,
negotiations or offers with or from any person or entity (other than Crescent
Financial) relating to a merger or other acquisition of Centennial or the
purchase or acquisition of any Centennial Stock or all or any significant part
of Centennial's assets; or, except as required by law or by fiduciary
obligations owed to the person assisted, provide assistance to any person in
connection with any such offer; (ii) except to the extent required by law,
disclose to any person or entity any information not customarily disclosed to
the public concerning Centennial or its business, or afford to any other person
or entity access to its properties, facilities, books or records; (iii) sell or
transfer all or any significant part of Centennial's assets to any other person
or entity; or (iv) enter into or become bound by any contract, agreement,
commitment or letter of intent relating to, or otherwise take or agree to take
any action in furtherance of, any such transaction.
35
(k) Acquisition or Disposition of Assets.
(i) Except in the ordinary course of business consistent with its
past practices, sell or lease (as lessor), or enter into or become
bound by any contract, agreement, option or commitment relating to the
sale, lease (as lessor) or other disposition of any real estate; or
sell or lease (as lessor), or enter into or become bound by any
contract, agreement, option or commitment relating to the sale, lease
(as lessor) or other disposition of any equipment or any other fixed
or capital asset (other than real estate) having a book value or a
fair market value, whichever is greater, of more than $25,000 for any
individual item or asset, or more than $50,000 in the aggregate for
all such items or assets; provided, however, that for the purposes of
this Agreement, the sale of "other assets owned", "other real estate
owned" or any similar property obtained upon foreclosure of loans by
Centennial, shall not be considered to be in the ordinary course of
business.
(ii) Except in the ordinary course of business consistent with
past practices, purchase or lease (as lessee), or enter into or become
bound by any contract, agreement, option or commitment relating to the
purchase, lease (as lessee) or other acquisition of any real property;
or purchase or lease (as lessee), or enter into or become bound by any
contract, agreement, option or commitment relating to the purchase,
lease (as lessee) or other acquisition of any equipment or any other
fixed assets (other than real estate) having a purchase price, or
involving aggregate lease payments, in excess of $25,000 for any
individual item or asset, or more than $50,000 in the aggregate for
all such items or assets;
(iii) Enter into any purchase commitment for supplies or services
which calls for prices of goods or fees for services materially higher
than current market prices or fees or which obligates Centennial for a
period longer than six months;
(iv) Except in the ordinary course of its business consistent
with its past practices, sell, purchase or repurchase, or enter into
or become bound by any contract, agreement, option or commitment to
sell, purchase or repurchase, any loan or other receivable or any
participation in any loan or other receivable; or
(v) Sell or dispose of, or enter into or become bound by any
contract, agreement, option or commitment relating to the sale or
other disposition of, any other asset (whether tangible or intangible,
and including without limitation any trade name, trademark, copyright,
service ▇▇▇▇ or intellectual property right or license) other than
assets that are obsolete or no longer used in Centennial's business;
or assign its right to or otherwise give any other person its
permission or consent to use or do business under the corporate name
of Centennial or any name similar thereto; or release, transfer or
waive any license or right granted to it by any other person to use
any trademark, trade name, copyright, service ▇▇▇▇ or intellectual
property right.
36
(l) Debt; Liabilities. Except in the ordinary course of its business
consistent with its past practices, (i) enter into or become bound by any
promissory note, loan agreement or other agreement or arrangement pertaining to
its borrowing of money, (ii) assume, guarantee, endorse or otherwise become
responsible or liable for any obligation of any other person or entity, or (iii)
incur any other liability or obligation (absolute or contingent).
(m) Liens; Encumbrances. Mortgage, pledge or subject any of its assets
to, or permit any of its assets to become or (with the exception of those liens
and encumbrances Previously Disclosed to Crescent Financial with specificity)
remain subject to, any lien or any other encumbrance (other than in the ordinary
course of business consistent with its past practices in connection with
borrowings from the Federal Home Loan Bank of Atlanta, securing of public funds
deposits, repurchase agreements or other similar operating matters).
(n) Waiver of Rights. Waive, release or compromise any material rights
in its favor (except in the ordinary course of business) except in good faith
for fair value in money or money's worth, nor waive, release or compromise any
rights against or with respect to any of its officers, directors or shareholders
or members of families of officers, directors or shareholders.
(o) Other Contracts. Except as Previously Disclosed, enter into or
become bound by any contracts, agreements, commitments or understandings (other
than those described elsewhere in this Section 4.2) (i) for or with respect to
any charitable contributions in excess of $5,000; (ii) with any governmental or
regulatory agency or authority; (iii) pursuant to which Centennial would assume,
guarantee, endorse or otherwise become liable for the debt, liability or
obligation of any other person or entity; (iv) which is entered into other than
in the ordinary course of its business; or (v) which, in the case of any one
contract, agreement, commitment or understanding and whether or not in the
ordinary course of its business, would obligate or commit Centennial to make
expenditures of more than $15,000 (other than contracts, agreements, commitments
or understandings entered into in the ordinary course of Centennial's lending
operations).
(p) Deposit Liabilities. Following the date of this Agreement and up
to the Effective Time, Centennial will make pricing decisions with respect to
its deposit accounts in a manner consistent with its past practices based on
competition and prevailing market rates in its banking markets.
4.3 Shareholder Approval.
(a) Meeting of Shareholders. Centennial shall cause a meeting of its
shareholders to be duly called and held as soon as practicable for the purpose
of voting on the approval and adoption of this Agreement and Plan of Merger. In
connection with the call and conduct of and all other matters relating to its
shareholders' meeting (including the solicitation of proxies), Centennial shall
fully comply with all provisions of applicable federal and state law and
regulations and with its Articles of Incorporation and bylaws.
(b) Recommendation of Board of Directors. Subject to its fiduciary
obligations, the Board of Directors of Centennial shall recommend to the
shareholders of
37
Centennial that they vote their shares at the shareholders' meeting contemplated
by Section 4.3(a) above to approve this Agreement and Plan of Merger and the
Proxy Statement/Prospectus (as defined in Section 6.1(b) will so indicate and
state that Centennial's Board of Directors considers the Merger to be advisable
and in the best interests of Centennial and its shareholders.
ARTICLE V. COVENANTS OF CRESCENT FINANCIAL
Crescent Financial hereby covenants and agrees as follows with Centennial:
5.1 NASDAQ Notification. Prior to the Effective Time, Crescent Financial
shall file with the National Association of Securities Dealers such
notifications and other materials (and shall pay such fees) as shall be required
for the listing on Nasdaq of the shares of Crescent Financial Stock to be issued
to Centennial's shareholders pursuant to the Merger.
5.2 Employment.
(a) Contracts. At the Effective Time, Crescent will enter into the
Confidentiality and Non-Compete Agreement with ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. substantially
in the form attached hereto as Exhibit A and shall enter into the Employment
Agreement with ▇▇▇▇▇ ▇. ▇▇▇▇ substantially in the form of Exhibit B hereto.
(b) Other Employees. After the Effective Time, Crescent Financial may,
but shall be under no obligation to, retain other employees of Centennial. Any
such person retained shall be an employee of Crescent Financial or Crescent on
an "at-will" basis, and nothing in this Agreement shall be deemed to constitute
an employment agreement with any such person or to obligate Crescent Financial
or Crescent to employ any such person for any specific period of time or in any
specific position or location or to restrict Crescent Financial's or Crescent's
right to change the rate of compensation or terminate the employment of any such
person at any time and for any reason.
(c) Severance Policy. Any employee of Centennial at the Effective Time
who shall not be offered employment with Crescent after the Effective Time shall
be paid a severance in an amount equal to two (2) weeks of compensation of such
employee for every full or partial year of employment with Centennial. Crescent
and Centennial shall mutually agree upon a special cash bonus policy for
selected non-officer employees of Centennial designed to encourage such
employees to remain employed with Centennial from the date hereof through the
Effective Time.
(d) 2003 Centennial Management Incentive Plan. Crescent Financial and
Crescent will honor the terms, conditions and payout of the 2003 Centennial
Management Incentive Plan immediately after December 31, 2003 or the Effective
Time, whichever is the last to occur, as if such Plan were in effect for
Centennial for the entire fiscal year ended December 31, 2003, except that ▇▇▇▇
▇. ▇▇▇▇▇▇, ▇▇. shall not be considered a participant in the Plan for any
purpose.
38
5.3 Employee Benefits.
(a) Generally. Except as otherwise provided herein and to the extent
permitted by contribution and deduction limitations of ERISA and the Code with
respect to Crescent Financial's qualified plans, any employee of Centennial who
continues employment with Crescent Financial or Centennial at the Effective Time
(a "New Employee") shall become entitled to receive all employee benefits and to
participate in all benefit plans provided by Crescent Financial on the same
basis and subject to the same eligibility and vesting requirements, and to the
same conditions, restrictions and limitations, as generally are in effect and
applicable to other newly hired employees of Crescent Financial. However, each
New Employee shall be given credit for his or her full years of service with
Centennial for purposes of (i) entitlement to vacation and sick leave and for
participation in all Crescent Financial welfare, insurance and other fringe
benefit plans, and (ii) eligibility for participation and vesting in the
Crescent Financial 401(k) Plan. Notwithstanding any provision herein to the
contrary, Crescent Financial will not be required to take any action that could
adversely affect the continuing qualification of the Crescent Financial 40l(k)
Plan. Crescent Financial will grant to each New Employee a pro rata amount of
sick leave and vacation leave, in accordance with Crescent Financial's standard
leave policies, for the period between the Effective Time and the end of the
calendar year during which the Effective Time occurs. Each New Employee will be
permitted to carry over accrued and unused sick leave and vacation leave earned
at Centennial but shall thereafter be subject to Crescent Financial's leave
policies.
(b) Health Insurance. Each New Employee shall be entitled to
participate in Crescent's group health insurance plan at a cost equal to the
cost for any Crescent employee and such participation shall be without regard to
pre-existing condition requirements under Crescent's group health insurance
plan, to the extent any such condition at the Effective Time would have been
covered under the health insurance plans of Centennial.
(c) Option Plans. Crescent Financial shall assume each stock option
granted under the Centennial Option Plans as provided in Section 1.10(a) above.
(d) Key Man Insurance. Crescent Financial shall cause the $500,000
"key man" life insurance policy on the life of ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. insured by
Protective Life Insurance Company (Policy Number: PL0679670) to be assigned to
▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
5.4 Centennial Directors.
(a) Representation on Crescent Board. Crescent Financial and Crescent
shall each appoint ▇▇▇▇▇▇▇ ▇. Quis, Jr. to its Board of Directors.
(b) Crescent Advisory Board. Each member of the Board of Directors of
Centennial serving at the Effective Time shall be appointed to serve on the
advisory board of Crescent for the Southern Pines-Pinehurst region of North
Carolina. Such members shall be compensated in the same manner as other advisory
board members of other branches of Crescent.
39
5.5 Indemnification of Directors and Officers.
(a) After the Effective Time, without releasing any insurance carrier
and after exhaustion of all applicable director and liability insurance coverage
for Centennial and its directors and officers, Crescent Financial shall
indemnify, hold harmless and defend the directors and officers of Centennial in
office on the date hereof or the Effective Time, to the same extent as it
indemnifies its own directors and officers, from and against any and all claims,
disputes, demands, causes of action, suits, proceedings, losses, damages,
liabilities, obligations, costs and expenses of every kind and nature including,
without limitation, reasonable attorneys' fees and legal costs and expenses
therewith whether known or unknown and whether now existing or hereafter arising
which may be threatened against, incurred, undertaken, received or paid by such
persons in connection with or which arise out of or result from or are based
upon any action or failure to act by such person in the ordinary scope of his
duties as a director or officer of Centennial (including service as a fiduciary
of any of the Centennial Plans (as defined in Section 2.23(a)) through the
Effective Time; provided, however, that Crescent Financial shall not be
obligated to indemnify such person for (i) any act not available for statutory
or permissible indemnification under North Carolina law, (ii) any penalty,
decree, order, finding or other action imposed or taken by any regulatory
authority, (iii) any violation or alleged violation of federal or state
securities laws to the extent that indemnification is prohibited by law, or (iv)
any claim of sexual or other unlawful harassment, or any form of employment
discrimination prohibited by federal or state law; further, provided, however,
that (A) Crescent Financial shall have the right to assume the defense thereof
and upon such assumption Crescent Financial shall not be liable to any director
or officer of Centennial for any legal expenses of other counsel or any other
expenses subsequently incurred by such director or officer in connection with
the defense thereof, except that if Crescent Financial elects not to assume such
defense or counsel for such director or officer reasonably advises such director
or officer that there are issues which raise conflicts of interest between
Crescent Financial and such director or officer, such director or officer may
retain counsel reasonably satisfactory to him, and Crescent Financial shall pay
the reasonable fees and expenses of such counsel, (B) Crescent Financial shall
not be liable for any settlement effected without its prior written consent, and
(C) Crescent Financial shall have no obligation hereunder to any director or
officer of Centennial when and if a court of competent jurisdiction shall
determine that indemnification of such director or officer in the manner
contemplated hereby is prohibited by applicable law. The indemnification
provided herein shall be in addition to any indemnification rights an indemnitee
may have by law, pursuant to the charter or bylaws of Centennial or pursuant to
any Plan for which the indemnity serves as a fiduciary.
(b) From and after the Effective Time, Crescent Financial will
directly or indirectly cause the persons who served as directors or officers of
Centennial at the Effective Time to be covered by Centennial's existing
directors' and officers' liability insurance policy (provided that Crescent
Financial may substitute therefor policies of at least the same coverage in
amounts contained and terms and conditions which are not less advantageous than
such policy). Such insurance coverage shall commence at the Effective Time and
will be provided for a period of no less than three years after the Effective
Time.
(c) The indemnification provided by this Section 5.5 is the sole
indemnification provided by Crescent Financial to the directors and officers of
Centennial for
40
service in such positions up to and through the Effective Time. This Section 5.5
is intended to create personal rights in the directors and officers of
Centennial, who shall be deemed to be third-party beneficiaries hereof.
Notwithstanding any other provision of this Agreement, at the Effective Time,
the indemnification rights provided herein shall not be extinguished but shall
instead survive for a period of three years after the Effective Time.
5.6 Notice of Certain Changes or Events. Following the execution of this
Agreement and up to the Effective Time, Crescent Financial promptly will notify
Centennial in writing of and provide to it such information as it shall request
regarding (i) any material adverse change in its consolidated financial
condition, consolidated results of operations, prospects, business, assets, loan
portfolio, investments, properties or operations, or of the actual or
prospective occurrence of any condition or event which, with the lapse of time
or otherwise, may or could cause, create or result in any such material adverse
change, or (ii) the actual or prospective existence or occurrence of any
condition or event which, with the lapse of time or otherwise, has caused or may
or could cause any statement, representation or warranty of Crescent Financial
herein to be or become inaccurate, misleading or incomplete, or which has
resulted or may or could cause, create or result in the breach or violation of
any of Crescent Financial's covenants or agreements contained herein or in the
failure of any of the conditions described in Sections 7.1 or 7.2 below.
5.7 Further Action; Instruments of Transfer. Crescent Financial shall (i)
use its best efforts in good faith to take or cause to be taken all action
required of it hereunder as promptly as practicable so as to permit the
expeditious consummation of the transactions described herein, (ii) perform all
acts and execute and deliver to Centennial all documents or instruments required
herein or as otherwise shall be reasonably necessary or useful to or requested
of Crescent Financial in consummating such transactions and (iii) cooperate with
Centennial fully in carrying out, and will pursue diligently the expeditious
completion of, such transactions.
5.8 Shareholder Approval.
(a) Meeting of Shareholders. Crescent Financial shall cause a meeting
of its shareholders to be duly called and held as soon as practicable following
the effectiveness of the Registration Statement for the purpose of voting on
approval and adoption of this Agreement. In connection with the calling conduct
of and all other matters relating to its shareholders' meeting (including the
solicitation of proxies), Crescent Financial shall fully comply with all
provisions of applicable federal and state law and regulations and with its
Articles of Incorporation and Bylaws.
(b) Recommendation of Board of Directors. Subject to its fiduciary
obligations, the Board of Directors of Crescent Financial shall recommend to the
shareholders of Crescent Financial that they vote their shares at the
shareholders' meeting contemplated by Section 5.8(a) above to approve this
Agreement and the Proxy Statement/Prospectus (as defined in Section 6.1(b)) will
so indicate and state that Crescent Financial's Board of Directors considers the
Merger to be advisable and in the best interests of Crescent Financial and its
shareholders.
41
ARTICLE VI. MUTUAL AGREEMENTS
6.1 Registration Statement; Proxy Statement/Prospectus.
(a) Registration Statement and "Blue Sky" Approvals. As soon as
practicable following the execution of this Agreement and after the furnishing
by Centennial of all information required to be contained therein, Crescent
Financial shall prepare and file with the SEC under the 1933 Act a registration
statement on Form S-4 (or on such other form as Crescent Financial shall
determine to be appropriate) (the "Registration Statement") covering the
Crescent Financial Stock to be issued to shareholders of Centennial pursuant to
this Agreement. Additionally, Crescent Financial shall take all such other
actions, if any, as shall be required by applicable state securities or "blue
sky" laws (i) to cause the Crescent Financial Stock to be issued upon
consummation of the Merger, and at the time of the issuance thereof, to be duly
qualified or registered (unless exempt) under such laws, (ii) to cause all
conditions to any exemptions from qualification or registration under such laws
to have been satisfied, and (iii) to obtain any and all required approvals or
consents to the issuance of such stock. Crescent Financial shall deliver to
Centennial and its counsel a preliminary draft of the Registration Statement and
the Proxy Statement/Prospectus as soon as practicable after the date of this
Agreement.
(b) Preparation and Distribution of Proxy Statement/Prospectus.
Crescent Financial and Centennial jointly shall prepare a "Proxy
Statement/Prospectus" for distribution to the shareholders of Centennial as the
proxy statement relating to solicitation of proxies for use at the shareholders'
meeting contemplated in Section 4.3(a) above and as Crescent Financial's
prospectus relating to the offer and distribution of Crescent Financial Stock as
described herein. The Proxy Statement/Prospectus shall be in such form and shall
contain or be accompanied by such information regarding the shareholders'
meeting, this Agreement, the parties hereto, the Merger and other transactions
described herein as is required by applicable law and regulations and otherwise
as shall be agreed upon by Crescent Financial and Centennial. Crescent Financial
shall include the Proxy Statement/Prospectus as the prospectus in its
"Registration Statement" described above; and Crescent Financial and Centennial
shall cooperate with each other in good faith and shall use their best efforts
to cause the Proxy Statement/Prospectus to comply with any comments of the SEC.
Centennial shall mail the Proxy Statement/Prospectus to its shareholders prior
to the scheduled date of their shareholders' meetings; provided, however, that
no such materials shall be mailed to Centennial's shareholders unless and until
Crescent Financial shall have determined to its own satisfaction that the
conditions specified in Sections 7.1(b) and (c) below have been satisfied and
shall have approved such mailing.
(c) Information for Proxy Statement/Prospectus and Registration
Statement. Each of Crescent Financial and Centennial shall promptly respond, and
use its best efforts to cause its directors, officers, accountants and
affiliates to promptly respond, to requests by the other party and its counsel
for information for inclusion in the various applications for regulatory
approvals and in the Proxy Statement/Prospectus. Each of Crescent Financial and
Centennial hereby covenants with the other that none of the information provided
by it for inclusion in the Proxy Statement/Prospectus will, at the time of its
mailing, contain any untrue statement of a material fact or omit any material
fact required to be stated therein or necessary in
42
order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading; and, at all times following such
mailing up to and including the Effective Time, none of such information
contained in the Proxy Statement/Prospectus, as it may be amended or
supplemented, will contain any untrue statement of a material fact or omit any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
6.2 Regulatory Approvals. Within 75 days after the date of this Agreement,
each of Crescent Financial and Centennial shall prepare and file, or cause to be
prepared and filed, all applications for regulatory approvals and actions as may
be required of it, by applicable law and regulations with respect to the
transactions described herein (including applications to the FDIC, the
Commissioner and to any other applicable federal or state banking, securities or
other regulatory authority). Each party shall use its best efforts in good faith
to obtain all necessary regulatory approvals required for consummation of the
transactions described herein. Each party shall cooperate with the other party
in the preparation of all applications to regulatory authorities and, upon
request, promptly shall furnish all documents, information, financial statements
or other material that may be required by any other party to complete any such
application; and, before the filing therefor, each party to this Agreement shall
have the right to review and comment on the form and content of any such
application to be filed by any other party. Should the appearance of any of the
officers, directors, employees or counsel of any of the parties hereto be
requested by any other party or by any governmental agency at any hearing in
connection with any such application, such party shall promptly use its best
efforts to arrange for such appearance.
6.3 Access. Following the date of this Agreement and to and including the
Effective Time, Centennial and Crescent Financial shall each provide the other
party and such other party's employees, accountants, counsel or other
representatives, access to all its books, records, files and other information
(whether maintained electronically or otherwise), to all its properties and
facilities, and to all its employees, accountants, counsel and consultants as
Centennial and Crescent Financial, as the case may be, shall, in its sole
discretion, consider to be necessary or appropriate; provided, however, that any
investigation or reviews conducted by Crescent Financial or Centennial shall be
performed in such a manner as will not interfere unreasonably with the other
party's normal operations or with relationship with its customers or employees,
and shall be conducted in accordance with procedures established by the parties
having due regard for the foregoing.
6.4 Costs. Subject to the provisions of Section 8.3(c) below, and whether
or not this Agreement shall be terminated or the Merger shall be consummated,
each of Crescent Financial and Centennial shall pay its own legal, accounting
and financial advisory fees and all its other costs and expenses incurred or to
be incurred in connection with the execution and performance of its obligations
under this Agreement including, in the case of Centennial, payments to The
Strategic Alliance Corporation, or otherwise in connection with this Agreement
and the transactions described herein (including, without limitation, all
accounting fees, legal fees, filing fees, printing costs, mailing costs, travel
expenses, and investment banking fees).
6.5 Announcements. No person other than the parties to this Agreement is
authorized to make any public announcements or statements about this Agreement
or any of the
43
transactions described herein, and, without the prior review and consent of the
others (which consent shall not unreasonably be denied or delayed), no party
hereto may make any public announcement, statement or disclosure as to the terms
and conditions of this Agreement or the transactions described herein, except
for such disclosures as may be required incidental to obtaining the prior
approval of any regulatory agency or official to the consummation of the
transactions described herein. However, notwithstanding anything contained
herein to the contrary, prior review and consent shall not be required if in the
good faith opinion of counsel to Crescent Financial or Centennial any such
disclosure by Crescent Financial or Centennial, as the case may be, is required
by law or otherwise is prudent.
6.6 Confidentiality. Crescent Financial and Centennial each shall treat as
confidential and not disclose to any unauthorized person any documents or other
information obtained from or learned about the other during the course of the
negotiation of this Agreement and the carrying out of the events and
transactions described herein (including any information obtained during the
course of any due diligence investigation or review provided for herein or
otherwise) and which documents or other information relates in any way to the
business, operations, personnel, customers or financial condition of such other
party; and that it will not use any such documents or other information for any
purpose except for the purposes for which such documents and information were
provided to it and in furtherance of the transactions described herein. However,
the above obligations of confidentiality shall not prohibit the disclosure of
any such document or information by any party to this Agreement to the extent
(i) such document or information is then available generally to the public or is
already known to the person or entity to whom disclosure is proposed to be made
(other than through the previous actions of such party in violation of this
Section 6.6), (ii) such document or information was available to the disclosing
party on a nonconfidential basis prior to the same being obtained pursuant to
this Agreement, (iii) disclosure is required by subpoena or order of a court or
regulatory authority of competent jurisdiction, or by the SEC or other
regulatory authorities in connection with the transactions described herein, or
(iv) to the extent that, in the reasonable opinion of legal counsel to such
party, disclosure otherwise is required by law. In the event this Agreement is
terminated for any reason, then each of the parties hereto immediately shall
return to the other party all copies of any and all documents or other written
materials or information (including computer generated and stored data) of or
relating to such other party which were obtained from them during the course of
the negotiation of this Agreement and the carrying out of the events and
transactions described herein (whether during the course of any due diligence
investigation or review provided for herein or otherwise) and which documents or
other information relates in any way to the business, operations, personnel,
customers or financial condition of such other party. The parties' obligations
of confidentiality under this Section 6.6 shall survive and remain in effect
following any termination of this Agreement.
6.7 Environmental Studies. At its option, Crescent Financial may cause to
be conducted Phase I environmental assessments of the Real Property, the real
estate subject to any Real Property Lease, or the Loan Collateral, or any
portion thereof, together with such other studies, testing and intrusive
sampling and analyses as Crescent Financial shall deem necessary or desirable
(collectively, the "Environmental Survey"); provided, however, that the
Environmental Survey, as much as possible, shall be performed in such a manner
as will not interfere unreasonably with Centennial's normal operations, and
provided further, however, that Centennial shall use its best efforts to obtain
any required consents of third parties to permit any
44
Environmental Survey of any Loan Collateral. Crescent Financial shall attempt in
good faith to complete all such Phase I environmental assessments within 60 days
following the date of this Agreement and thereafter to conduct and complete any
such additional studies, testing, sampling and analyses as promptly as
practicable. Subject to the provisions of Section 8.3(c) below, the costs of the
Environmental Survey shall be paid by Crescent Financial. If (i) the final
results of any Environmental Survey (or any related analytical data) reflect
that there likely has been any discharge, disposal, release or emission by any
person of any Hazardous Substance on, from or relating to any of the Real
Property, real estate subject to a Real Property Lease or Loan Collateral at any
time prior to the Effective Time, or that any action has been taken or not
taken, or a condition or event likely has occurred or exists, with respect to
any of the Real Property, real estate subject to a Real Property Lease or Loan
Collateral which constitutes or would constitute a violation of any
Environmental Laws, and if, (ii) based on the advice of its legal counsel or
other consultants, Crescent Financial believes that Centennial or, following the
Merger, Crescent Financial or Crescent, could become responsible for the
remediation of such discharge, disposal, release or emission or for other
corrective action with respect to any such violation, or that Centennial or,
following the Merger, Crescent Financial or Crescent, could become liable for
monetary damages (including without limitation any civil or criminal penalties
or assessments) resulting therefrom (or that, in the case of any of the Loan
Collateral, Centennial or, following the Merger, Crescent Financial or Crescent,
could incur any such liability if it acquired title to such Loan Collateral),
and if, (iii) based on the advice of their legal counsel or other consultants,
Crescent Financial reasonably believes the amount of expenses or liability which
either of them could incur or for which either of them could become responsible
or liable on account of any and all such remediation, corrective action or
monetary damages at any time during the next twenty years could equal or exceed
an aggregate of $250,000, then Crescent Financial shall give Centennial prompt
written notice thereof (together with all information in its possession relating
thereto) and, at Crescent Financial's sole option and discretion, at any time
thereafter and up to the Effective Time, it may terminate this Agreement without
further obligation or liability to Centennial or its shareholders.
6.8 Tax-Free Reorganization. Crescent Financial and Centennial shall each
use its best efforts to cause the Merger to qualify as a tax-free
"reorganization" within the meaning of Section 368(a)(1)(A) of the Code and that
it shall not intentionally take any action that would cause the Merger to fail
to so qualify.
6.9 Certain Modifications. Crescent Financial and Centennial shall consult
with each other with respect to their loan, litigation and real estate valuation
policies and practices (including loan classifications and levels of reserves)
and Centennial shall make such modifications or changes to its policies and
practices, if any, prior to the Effective Time, as may be mutually agreed upon.
Crescent Financial and Centennial also shall consult with each other with
respect to the character, amount and timing of restructuring and Merger-related
expense charges to be taken by each of them in connection with the transactions
contemplated by this Agreement and shall take such charges in accordance with
GAAP as may be mutually agreed upon by them. The representations, warranties and
covenants of each of Crescent Financial and Centennial contained in this
Agreement shall not be deemed to be inaccurate or breached in any respect as a
consequence of any modifications or charges undertaken by reason of this Section
6.9.
45
6.10 Transition Team. Crescent Financial and Centennial shall create a
transition team comprised of staff and representatives of Centennial and staff
and representatives of Crescent (the "Transition Team"). The purpose of the
Transition Team shall be to provide detailed guidance to Crescent Financial in
fulfilling and consummating the Merger, to maintain open lines of communication
between Centennial and Crescent Financial, and to handle customer inquiries
regarding the Merger. The Transition Team shall meet as necessary until the
Effective Time. Members of the Transition Team shall receive no separate
compensation for such service.
ARTICLE VII. CONDITIONS PRECEDENT TO MERGER
7.1 Conditions to all Parties' Obligations. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of each of the
parties to this Agreement to consummate the transactions described herein shall
be conditioned upon the satisfaction of each of the following conditions
precedent on or prior to the Closing Date:
(a) Corporate Action. All corporate action necessary to authorize the
execution, delivery and performance of this Agreement and the Plan of Merger in
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken, including, without limitation, the approval of the
shareholders of Centennial of this Agreement and Plan of Merger.
(b) Registration Statement Effective. The Registration Statement
(including any post-effective amendments thereto) shall be effective under the
1933 Act, and no stop orders or proceedings shall be pending or, to the
knowledge of Crescent Financial, threatened by the SEC to suspend the
effectiveness of such Registration Statement.
(c) "Blue Sky" Approvals. Crescent Financial shall have received all
state securities or "Blue Sky" permits or other authorizations, or confirmations
as to the availability of exemptions from Blue Sky registration requirements as
may be necessary, and no stop orders or proceedings shall be pending or, to the
knowledge of Crescent Financial, threatened by any state Blue Sky administration
to suspend the effectiveness of any registration statement filed therewith with
respect to the issuance of Crescent Financial Stock in the Merger.
(d) Regulatory Approvals. (i) The Merger and other transactions
described herein shall have been approved, to the extent required by law, by the
FDIC, the Commissioner, and by all other governmental or regulatory agencies or
authorities having jurisdiction over such transactions, (ii) no governmental or
regulatory agency or authority shall have withdrawn its approval of such
transactions or imposed any condition on such transactions or conditioned its
approval thereof, which condition is reasonably deemed by Crescent Financial or
Centennial to be materially disadvantageous or burdensome or to so adversely
affect the economic or business benefits of this Agreement to Crescent Financial
or Centennial's shareholders as to render it inadvisable for it to consummate
the Merger; (iii) all applicable waiting periods following regulatory approvals
shall have expired without objection to the Merger by the FDIC or other
applicable regulatory authorities; and (iv) all other consents, approvals and
permissions, and the satisfaction of all of the requirements prescribed by law
or regulation, necessary to the carrying out of the transactions contemplated
herein shall have been procured.
46
(e) Adverse Proceedings, Injunction, Etc. There shall not be (i) any
order, decree or injunction of any court or agency of competent jurisdiction
which enjoins or prohibits the Merger or any of the other transactions described
herein or any of the parties hereto from consummating any such transaction, (ii)
any pending or threatened investigation of the Merger or any of such other
transactions by the FDIC, or any actual or threatened litigation under federal
antitrust laws relating to the Merger or any other such transaction, (iii)any
suit, action or proceeding by any person (including any governmental,
administrative or regulatory agency), pending or threatened before any court or
governmental agency in which it is sought to restrain or prohibit Centennial
Crescent Financial or Crescent from consummating the Merger or carrying out any
of the terms or provisions of this Agreement, or (iv) any other suit, claim,
action or proceeding pending or threatened against Centennial, Crescent
Financial or Crescent or any of their respective officers or directors which
shall reasonably be considered by Centennial or Crescent Financial to be
materially burdensome in relation to the proposed Merger or materially adverse
in relation to the financial condition, results of operations, prospects,
businesses, assets, loan portfolio, investments, properties or operations of
either such corporation, and which has not been dismissed, terminated or
resolved to the satisfaction of all parties hereto within 90 days of the
institution or threat thereof.
(f) Tax Opinion. The parties shall have received an opinion, dated the
Closing Date, of ▇▇▇▇▇ ▇▇▇▇ PLLC or another tax advisor in form and substance
satisfactory to Crescent Financial and Centennial, substantially to the effect
that, for federal income tax purposes: (i) consummation of the Merger will
constitute a "reorganization" as defined in Section 368(a) of the Code; (ii) no
gain or loss will be recognized by Crescent Financial or Centennial by reason of
the Merger, (iii) the exchange or cancellation of shares of Centennial Stock in
the Merger will not give rise to recognition of gain or loss for federal income
tax purposes to the shareholders of Centennial to the extent such shareholders
receive Crescent Financial Stock in exchange for their shares of Centennial
Stock (except with respect to cash in lieu of fractional shares); (iv) the basis
of the Crescent Financial Stock to be received by a shareholder of Centennial
will be the same as the basis of the Centennial Stock surrendered in exchange
therefor, decreased by the amount of cash received, if any, and increased by the
amount of dividend income or gain recognized, if any, as a result of the Merger;
and (v) if Centennial Stock is a capital asset in the hands of the shareholder
at the Effective Time, the holding period of the Crescent Financial Stock
received by the shareholder in the Merger will include the holding period of
Centennial Stock surrendered in exchange therefor. In rendering its opinion,
▇▇▇▇▇ ▇▇▇▇ PLLC or such other tax advisor will require and rely on
representations by officers of Crescent Financial and Centennial, and will be
entitled to make reasonable assumptions.
(g) Nasdaq Listing. Crescent Financial shall have satisfied all
requirements for the shares of Crescent Financial Stock to be issued to the
shareholders of Centennial and holders of options issued under the Centennial
Option Plans in connection with the Merger to be listed on Nasdaq as of the
Effective Time.
7.2 Additional Conditions to Centennial's Obligations. Notwithstanding any
other provision of this Agreement to the contrary, Centennial's separate
obligation to consummate the transactions described herein shall be conditioned
upon the satisfaction of each of the following conditions precedent on or prior
to the Closing Date:
47
(a) Material Adverse Change. There shall not have been any material
adverse change in the consolidated financial condition, results of operations,
prospects, businesses, assets, loan portfolio, investments, properties or
operations of Crescent Financial and Crescent considered as one enterprise and
there shall not have occurred any event or development and there shall not exist
any condition or circumstance which, with the lapse of time or otherwise, may or
could cause, create or result in any such material adverse change.
(b) Compliance with Laws. Crescent Financial and Crescent shall have
complied in all material respects with all federal and state laws and
regulations applicable to the transactions described herein and where the
violation of or failure to comply with any such law or regulation could or may
have a material adverse effect on the consolidated financial condition, results
of operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of Crescent Financial and Crescent considered as one
enterprise.
(c) Crescent Financial's Representations and Warranties and
Performance of Agreements; Officers' Certificate. Unless waived in writing by
Centennial as provided in Section 10.2 below, (i) each of the representations
and warranties of Crescent Financial and Crescent contained in this Agreement
shall have been true and correct as of the date hereof and shall be true and
correct on and as of the Effective Time with the same force and effect as though
made on and as of such date, except (A) for changes which are not, in the
aggregate, material and adverse to the consolidated financial condition, results
of operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of Crescent Financial and Crescent considered as one
enterprise, and (B) for the effect of any activities or transactions that may
have taken place after the date of this Agreement and are expressly contemplated
by this Agreement; and (ii) Crescent Financial shall have performed in all
material respects all of its obligations, covenants and agreements hereunder to
be performed by it on or before the Closing Date. Centennial shall have received
a certificate dated as of the Closing Date and executed by the chief executive
officer and chief financial officer of Crescent Financial to the foregoing
effect and as to such other matters as may be reasonably requested by
Centennial.
(d) Legal Opinion of Crescent Financial's Counsel. Centennial shall
have received from ▇▇▇▇▇ & Associates, P.A., counsel for Crescent Financial, a
written opinion dated as of the Closing Date in form and substance customary for
transactions of this nature and otherwise reasonably satisfactory to Centennial
and its counsel.
(e) Fairness Opinion. Centennial shall have received from its
financial advisor, ▇▇▇▇▇ Capital, an opinion dated as of a date prior to the
mailing of the Proxy Statement/Prospectus to Centennial's shareholders in
connection with its shareholders' meeting to the effect that the consideration
to be received by Centennial's shareholders in the Merger is fair, from a
financial point of view, to Centennial and its shareholders.
(f) Other Documents and Information from Crescent Financial. Crescent
Financial shall have provided to Centennial correct and complete copies of its
Articles of Incorporation, bylaws and Board of Directors resolutions approving
this Agreement and the Merger (all certified by its Secretary), together with
certificates of the incumbency of its officers
48
and such other closing documents and information as may be reasonably requested
by Centennial or its counsel.
7.3 Additional Conditions to Crescent Financial's Obligations.
Notwithstanding any other provision of this Agreement to the contrary, Crescent
Financial's obligations to consummate the transactions described herein shall be
conditioned upon the satisfaction of each of the following conditions precedent
on or prior to the Closing Date:
(a) Material Adverse Change. There shall not have occurred any
material adverse change in the financial condition, results of operations,
prospects, businesses, assets, loan portfolio, investments, properties or
operations of Centennial and there shall not have occurred any event or
development and there shall not exist any condition or circumstance which, with
the lapse of time or otherwise, may or could cause, create or result in any such
material adverse change.
(b) Compliance with Laws. Centennial shall have complied in all
material respects with all federal and state laws and regulations applicable to
the transactions described herein and where the violation of or failure to
comply with any such law or regulation could or may have a material adverse
effect on the financial condition, results of operations, prospects, businesses,
assets, loan portfolio, investments, properties or operations of Crescent
Financial or Centennial.
(c) Centennial's Representations and Warranties and Performance of
Agreements; Officers' Certificate. Unless waived in writing by Crescent
Financial as provided in Section 10.2 below, (i) each of the representations and
warranties of Centennial contained in this Agreement shall have been true and
correct as of the date hereof and shall be true and correct at and as of the
Effective Time with the same force and effect as though made on and as of such
date, except (A) for changes which are not, in the aggregate, material and
adverse to the financial condition, results of operations, prospects,
businesses, assets, loan portfolio, investments, properties or operations of
Centennial, and (B) for the effect of any activities or transactions that may
have taken place after the date of this Agreement and are expressly contemplated
by this Agreement, and (ii) Centennial shall have performed in all material
respects all its obligations, covenants and agreements hereunder to be performed
by it on or before the Closing Date. Crescent Financial shall have received a
certificate dated as of the Closing Date and executed by the chief executive
officer and chief financial officer of Centennial to the foregoing effect and as
to such other matters as may be reasonably requested by Crescent Financial.
(d) Legal Opinion of Centennial's Counsel. Crescent Financial shall
have received from ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇, P.A. counsel to Centennial, a
written opinion, dated as of the Closing Date in form and substance customary
for transactions of this nature and otherwise reasonably satisfactory to
Crescent Financial and its counsel.
(e) Fairness Opinion.Crescent Financial shall have received from its
financial advisor, ▇▇▇▇ ▇▇▇▇, an opinion dated as of a date prior to the mailing
of the Proxy Statement/Prospectus to Crescent Financial's shareholders in
connection with its shareholders' meeting to the effect that the consideration
to be paid to Centennial's shareholders in the Merger is fair, from a financial
point of view, to Crescent Financial and its shareholders.
49
(f) Other Documents and Information from Centennial. Centennial shall
have provided to Crescent Financial correct and complete copies of Centennial's
Articles of Incorporation, bylaws and Board and shareholder resolutions (all
certified by Centennial's Secretary), together with certificates of the
incumbency of Centennial's officers and such other closing documents and
information as may be reasonably requested by Crescent Financial or its counsel.
(g) Amendments to Benefit Plans. The Board of Directors of Centennial
shall have adopted and implemented, effective as of the Effective Time, such
amendments to the Centennial Option Plans as may be necessary in accordance with
the provisions of this Agreement and otherwise satisfactory to Crescent
Financial.
(h) Consents to Assignment of Property Leases. Centennial shall have
obtained all required consents to the assignment to Crescent Financial of its
rights and obligations under any personal property lease and any Real Property
Lease material to the business of Centennial, and such consents shall be in such
form and substance as shall be satisfactory to Crescent Financial; and each of
the lessors of Centennial shall have confirmed in writing that Centennial is not
in default under the terms and conditions of any personal property lease or any
Real Property Lease.
(i) Employee Agreements. ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. and ▇▇▇▇▇ ▇. ▇▇▇▇ shall
have entered into the Agreements set forth in Section 5.2(a) hereof.
ARTICLE VIII. TERMINATION; BREACH; REMEDIES
8.1 Mutual Termination. At any time prior to the Effective Time (and
whether before or after approval hereof by the shareholders of Centennial), this
Agreement may be terminated by the mutual agreement of Crescent Financial and
Centennial. Upon any such mutual termination, all obligations of Centennial and
Crescent Financial hereunder shall terminate and each party shall pay costs and
expenses as provided in Section 6.4 above.
8.2 Unilateral Termination. This Agreement may be terminated by either
Crescent Financial or Centennial (whether before or after approval hereof by
Centennial's or Crescent Financial's shareholders) upon written notice to the
other parties and under the circumstances described below.
(a) Termination by Crescent Financial. This Agreement may be
terminated by Crescent Financial by action of its Board of Directors:
(i) if any of the conditions to the obligations of Crescent
Financial (as set forth in Section 7.1 and 7.3 above) shall not have
been satisfied or effectively waived in writing by Crescent Financial
by September 20, 2003 (except to the extent that the failure of such
condition to be satisfied has been caused by the failure of Crescent
Financial to satisfy any of its obligations, covenants or agreements
contained herein);
50
(ii) if Centennial shall have violated or failed to fully perform
any of its obligations, covenants or agreements contained in Article
IV or Article VI herein in any material respect;
(iii) if Crescent Financial determines at any time that any of
Centennial's representations or warranties contained in Article II
above or in any other certificate or writing delivered pursuant to
this Agreement shall have been false or misleading in any material
respect when made, or that there has occurred any event or development
or that there exists any condition or circumstance which has caused
or, with the lapse of time or otherwise, may or could cause any such
representations or warranties to become false or misleading in any
material respect;
(iv) if, notwithstanding Crescent Financial's satisfaction of its
obligations under Section 6.1 above, Centennial's shareholders do not
approve this Agreement and Plan of Merger at its shareholders' meeting
held for such purpose;
(v) if the Merger shall not have become effective on or before
September 30, 2003 unless such date is extended as evidenced by the
written mutual agreement of the parties hereto; provided, however,
that in the event there is a delay of not more than 30 days caused by
circumstances beyond the control of the parties hereto, the dates set
forth in this Section 8.2(a) shall be extended by mutual agreement for
up to an additional 60 days;
(vi) under the circumstances described in Section 6.7 above; and
(vii) if Crescent Financial enters into a transaction with a
third party whereby such party will acquire all or substantially all
of the capital stock of Crescent Financial or Crescent Financial will
merge with the third party and such agreement provides that such
acquisition or merger may only be effected if Crescent Financial
terminates this Agreement; provided, however, that in the event this
Agreement is terminated by Crescent Financial pursuant to this Section
8.2(a)(vii), Crescent Financial shall reimburse Centennial for its
reasonable out-of-pocket expenses relating to the Merger in an amount
not to exceed $100,000.
However, before Crescent Financial may terminate this Agreement for any of
the reasons specified above in (i), (ii) or (iii) of this Section 8.2(a), it
shall give written notice to Centennial as provided herein stating its intent to
terminate and a description of the specific breach, default, violation or other
condition giving rise to its right to so terminate, and, such termination by
Crescent Financial shall not become effective if, within 30 days following the
giving of such notice, Centennial shall cure such breach, default or violation
or satisfy such condition to the reasonable satisfaction of Crescent Financial.
In the event Centennial cannot or does not cure such breach, default or
violation or satisfy such condition to the reasonable satisfaction of Crescent
Financial within such 30-day period, Crescent Financial shall have 30 days to
notify Centennial of its intention to terminate this Agreement. A failure to so
notify Centennial will be
51
deemed to be a waiver by Crescent Financial of the breach, default or violation
pursuant to Section 10.2 below.
(b) Termination by Centennial. This Agreement may be terminated by
Centennial by action of its Board of Directors:
(i) if any of the conditions of the obligations of Centennial (as
set forth in Section 7.1 and 7.2 above) shall not have been satisfied
or effectively waived in writing by Centennial by September 30, 2003
(except to the extent that the failure of such condition to be
satisfied has been caused by the failure of Centennial to satisfy any
of its obligations, covenants or agreements contained herein);
(ii) if Crescent Financial shall have violated or failed to fully
perform any of its obligations, covenants or agreements contained in
Article V or Article VI herein in any material respect;
(iii) if Centennial determines that any of Crescent Financial's
representations and warranties contained in Article III herein or in
any other certificate or writing delivered pursuant to this Agreement
shall have been false or misleading in any material respect when made,
or that there has occurred any event or development or that there
exists any condition or circumstance which has caused or, with the
lapse of time or otherwise, may or could cause any such
representations or warranties to become false or misleading in any
material respect;
(iv) if, notwithstanding Centennial's satisfaction of its
obligations contained in Section 6.1 above, Centennial's or Crescent
Financial's shareholders do not approve this Agreement and Plan of
Merger at its shareholders' meeting called for such purpose;
(v) if, prior to the Effective Time, a corporation, partnership,
person, or other entity or group shall have made a bona fide proposal
to acquire all or substantially all of the capital stock of Centennial
or to merge with Centennial (an "Acquisition Transaction") that the
Centennial Board of Directors determines, in its good faith judgment
and in the exercise of its fiduciary duties, with respect to legal
matters on the written opinion of legal counsel and as to financial
matters on the written opinion of ▇▇▇▇▇ Capital or other investment
banking firm of national reputation, is more favorable to the
Centennial shareholders and that the failure to terminate this
Agreement and accept such alternative Acquisition Proposal would be
inconsistent with the proper exercise of such fiduciary duties;
provided, however, that in the event this Agreement is terminated by
Centennial pursuant to this Section 8.2(b)(v), Centennial shall
reimburse Crescent Financial for its reasonable out-of-pocket expenses
relating to the Merger in an amount not to exceed $100,000.
52
However, before Centennial may terminate this Agreement for any of the
reasons specified above in clause (i), (ii) or (iii) of this Section 8.2(b), it
shall give written notice to Crescent Financial as provided herein stating its
intent to terminate and a description of the specific breach, default, violation
or other condition giving rise to its right to so terminate, and, such
termination by Centennial shall not become effective if, within 30 days
following the giving of such notice, Crescent Financial shall cure such breach,
default or violation or satisfy such condition to the reasonable satisfaction of
Centennial. In the event Crescent Financial cannot or does not cure such breach,
default or violation or satisfy such condition to the reasonable satisfaction of
Centennial within such 30-day period, Centennial shall have 30 days to notify
Crescent Financial of its intention to terminate this Agreement. A failure to so
notify Crescent Financial will be deemed to be a waiver by Centennial of the
breach, default or violation pursuant to Section 10.2 below.
8.3 Effect of Termination.
(a) In the event that (i) this Agreement is terminated by Centennial
pursuant to Section 8.2(b)(v) and (ii) within 12 months of such termination,
Centennial enters into a definitive agreement regarding an Acquisition
Transaction, Centennial shall, immediately upon the consummation of such
Acquisition Transaction, make a cash payment to Crescent Financial in the amount
of $450,000. In the event that this Agreement is terminated by Crescent
Financial pursuant to Section 8.2(a)(vii), Crescent Financial shall, immediately
upon the consummation of such transaction, make a cash payment to Centennial in
the amount of $450,000.
(b) Except as set forth in subsection (a) of this Section 8.3 and
Section 8.2(v), in the event of the termination of this Agreement, this
Agreement shall become void and have no effect except that the provisions of
this Section 10.2 and Section 6.6 of this Agreement shall survive such
termination, and neither party hereto shall have any liability to the other
party in connection with such termination.
ARTICLE IX. INDEMNIFICATION
9.1 Agreement to Indemnify. In the event this Agreement is terminated for
any reason and the Merger is not consummated, then Centennial and Crescent
Financial will indemnify each other as provided below.
(a) By Centennial. Centennial shall indemnify, hold harmless and
defend Crescent Financial from and against any and all claims, disputes,
demands, causes of action, suits, proceedings, losses, damages, liabilities,
obligations, costs and expenses of every kind and nature that arise from or are
related to claims by third parties, including without limitation reasonable
attorneys' fees and legal costs and expenses in connection therewith, whether
known or unknown, and whether now existing or hereafter arising, which may be
threatened against, incurred, undertaken, received or paid by Crescent
Financial:
(i) in connection with or which arise out of or result from or
are based upon (A) Centennial's operations or business transactions or
its relationship with any of its employees, or (B) Centennial's
failure to comply with any statute or
53
regulation of any federal, state or local government or agency (or any
political subdivision thereof) in connection with the transactions
described in this Agreement;
(ii) in connection with or which arise out of or result from or
are based upon any fact, condition or circumstance that constitutes a
breach by Centennial of, or any inaccuracy, incompleteness or
inadequacy in, any of its representations or warranties under or in
connection with this Agreement, or any failure of Centennial to
perform any of its covenants, agreements or obligations under or in
connection with this Agreement;
(iii) in connection with or which arise out of or result from or
are based upon any information provided by Centennial which is
included in the Proxy Statement/Prospectus and which information
causes the Proxy Statement/Prospectus at the time of its mailing to
Centennial's and Crescent Financial's shareholders to contain any
untrue statement of a material fact or to omit any material fact
required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under
which they were made, not false or misleading; and
(iv) in connection with or which arise out of or result from or
are based upon the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling,
reporting, testing, processing, emission, discharge, release,
threatened release, control, removal, clean-up or remediation on, from
or relating to the Real Property by Centennial or any other person of
any Hazardous Substances, or any action taken or any event or
condition occurring or existing with respect to the Real Property
which constitutes a violation of any Environmental Laws by Centennial
or any other person.
(b) By Crescent Financial. Crescent Financial shall indemnify, hold
harmless and defend Centennial from and against any and all claims, disputes,
demands, causes of action, suits, proceedings, losses, damages, liabilities,
obligations, costs and expenses of every kind and nature that arise from or are
related to claims by third parties, including without limitation reasonable
attorneys' fees and legal costs and expenses in connection therewith, whether
known or unknown, and whether now existing or hereafter arising, which may be
threatened against, incurred, undertaken, received or paid by Centennial:
(i) in connection with or which arise out of or result from or
are based upon (A) Crescent Financial's operations or business
transactions or its relationship with any of its employees, or (B)
Crescent Financial's failure to comply with any statute or regulation
of any federal, state or local government or agency (or any political
subdivision thereof) in connection with the transactions described in
this Agreement;
(ii) in connection with or which arise out of or result from or
are based upon any fact, condition or circumstance that constitutes a
breach by Crescent Financial of, or any inaccuracy, incompleteness or
inadequacy in, any of its
54
representations or warranties under or in connection with this
Agreement, or any failure of Crescent Financial to perform any of its
covenants, agreements or obligations under or in connection with this
Agreement; and,
(iii) in connection with or which arise out of or result from or
are based upon any information provided by Crescent Financial which is
included in the Proxy Statement/Prospectus and which information
causes the Proxy Statement/Prospectus at the time of its mailing to
Centennial's and Crescent Financial's shareholders to contain any
untrue statement of a material fact or to omit any material fact
required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under
which they were made, not false or misleading.
9.2 Procedure for Claiming Indemnification.
(a) By Crescent Financial. If any matter subject to indemnification
hereunder arises in the form of a claim against Crescent Financial or its
successors and assigns (herein referred to as a "Third Party Claim"), Crescent
Financial promptly shall give notice and details thereof, including copies of
all pleadings and pertinent documents, to Centennial. Within 15 days of such
notice, Centennial either (i) shall pay the Third Party Claim either in full or
upon agreed compromise or (ii) shall notify Crescent Financial that Centennial
disputes the Third Party Claim and intends to defend against it, and thereafter
shall so defend and pay any adverse final judgment or award in regard thereto.
Such defense shall be controlled by Centennial and the cost of such defense
shall be borne by Centennial except that Crescent Financial shall have the right
to participate in such defense at its own expense and provided that Centennial
shall have no right in connection with any such defense or the resolution of any
such Third Party Claim to impose any cost, restriction, limitation or condition
of any kind upon Crescent Financial or its successors or assigns. Crescent
Financial agrees that it shall cooperate in all reasonable respects in the
defense of any such Third Party Claim, including making personnel, books and
records relevant to the Third Party Claim available to Centennial without charge
therefor except for out-of-pocket expenses. If Centennial fails to take action
within 15 days as hereinabove provided or, having taken such action, thereafter
fails diligently to defend and resolve the Third Party Claim, Crescent Financial
shall have the right to pay, compromise or defend the Third Party Claim and to
assert the indemnification provisions hereof. Crescent Financial also shall have
the right, exercisable in good faith, to take such action as may be necessary to
avoid a default prior to the assumption of the defense of the Third Party Claim
by Centennial.
(b) By Centennial. If any matter subject to indemnification hereunder
arises in the form of a claim against Centennial or its successors and assigns
(herein referred to as a "Third Party Claim"), Centennial promptly shall give
notice and details thereof, including copies of all pleadings and pertinent
documents, to Crescent Financial. Within 15 days of such notice, Crescent
Financial either (i) shall pay the Third Party Claim either in full or upon
agreed compromise or (ii) shall notify Centennial that Crescent Financial
disputes the Third Party Claim and intends to defend against it, and thereafter
shall so defend and pay any adverse final judgment or award in regard thereto.
Such defense shall be controlled by Crescent Financial and the cost of such
defense shall be borne by Crescent Financial except that Centennial shall have
the right to participate in such defense at its own expense and provided that
Crescent Financial
55
shall have no right in connection with any such defense or the resolution of any
such Third Party Claim to impose any cost, restriction, limitation or condition
of any kind upon Centennial or its successors and assigns. Centennial agrees
that it shall cooperate in all reasonable respects in the defense of any such
Third Party Claim, including making personnel, books and records relevant to the
Third Party Claim available to Crescent Financial without charge therefor except
for out-of-pocket expenses. If Crescent Financial fails to take action within 15
days as hereinabove provided or, having taken such action, thereafter fails
diligently to defend and resolve the Third Party Claim, Centennial shall have
the right to pay, compromise or defend the Third Party Claim and to assert the
indemnification provisions hereof. Centennial also shall have the right,
exercisable in good faith, to take such action as may be necessary to avoid a
default prior to the assumption of the defense of the Third Party Claim by
Crescent Financial.
ARTICLE X. MISCELLANEOUS PROVISIONS
10.1 Reservation of Right to Revise Structure. Notwithstanding any
provision herein to the contrary, Crescent Financial shall have the unilateral
right to revise the structure of the Merger to achieve the tax consequences
described in Section 6.8 or for any other reason Crescent Financial may deem
advisable; provided, however, that no such change will (i) alter or change the
amount or kind of consideration to be received by the shareholders of Centennial
in the Merger or (ii) adversely affect the tax treatment to the shareholders of
Centennial as a result of receiving such consideration. In the event of such
election by Crescent Financial, the parties hereto shall execute an appropriate
amendment to this Agreement.
10.2 Survival of Representations, Warranties, Indemnification and Other
Agreements.
(a) Representations, Warranties and Other Agreements. None of the
representations, warranties or agreements herein shall survive the effectiveness
of the Merger, and no party shall have any right after the Effective Time to
recover damages or any other relief from any other party to this Agreement by
reason of any breach of representation or warranty, any nonfulfillment or
nonperformance of any agreement contained herein, or otherwise; provided,
however, that the parties' agreements contained in Section 6.6 above, Crescent
Financial's covenants contained in Sections 5.1 through 5.5 above shall survive
the effectiveness of the Merger.
(b) Indemnification. The parties' indemnification agreements and
obligations pursuant to Section 9.1 above shall become effective only in the
event this Agreement is terminated, and neither of the parties shall have any
obligations under Section 9.1 in the event of or following consummation of the
Merger.
10.3 Waiver. Any term or condition of this Agreement may be waived (except
as to matters of regulatory approvals and approvals required by law), either in
whole or in part, at any time by the party which is, and whose shareholders are,
entitled to the benefits thereof, provided, however, that any such waiver shall
be effective only upon a determination by the waiving party (through action of
its Board of Directors) that such waiver would not adversely affect the
interests of the waiving party or its shareholders; and, provided further, that
no waiver of any term or condition of this Agreement by any party shall be
effective unless such waiver is in
56
writing and signed by the waiving party or as provided in Sections 8.2(a) and
8.2(b) above, or be construed to be a waiver of any succeeding breach of the
same term or condition. No failure or delay of any party to exercise any power,
or to insist upon a strict compliance by any other party of any obligation, and
no custom or practice at variance with any terms hereof, shall constitute a
waiver of the right of any party to demand full and complete compliance with
such terms.
10.4 Amendment. This Agreement may be amended, modified or supplemented at
any time or from time to time prior to the Effective Time, and either before or
after its approval by the shareholders of Centennial and Crescent Financial, by
an agreement in writing approved by a majority of the Boards of Directors of
Crescent Financial and Centennial executed in the same manner as this Agreement;
provided however, that the provisions of this Agreement relating to the manner
or basis in which shares of Centennial Stock are converted into Crescent
Financial Stock shall not be amended after the approval of this Agreement and
Plan of Merger by the shareholders of Centennial without the requisite approval
of such shareholders of such amendment.
10.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
by courier, or mailed by certified mail, return receipt requested, postage
prepaid, and addressed as follows:
(a) If to Centennial, to:
Centennial Bank
Attention: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., President
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, P.A.
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
(b) If to Crescent Financial, to:
Crescent Financial Corporation
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With copy to:
▇▇▇▇▇ & Associates, P.A.
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
57
10.6 Further Assurance. Centennial and Crescent Financial shall each
furnish to the other such further assurances with respect to the matters
contemplated herein and their respective agreements, covenants, representations
and warranties contained herein, including the opinion of legal counsel, as such
other party may reasonably request.
10.7 Headings and Captions. Headings and captions of the sections and
Sections of this Agreement have been inserted for convenience of reference only
and do not constitute a part hereof.
10.8 Entire Agreement. This Agreement (including all schedules and exhibits
attached hereto and all documents incorporated herein by reference) contains the
entire agreement of the parties with respect to the transactions described
herein and supersedes any and all other oral or written agreement(s) heretofore
made, and there are no representations or inducements by or to, or any
agreements between, any of the parties hereto other than those contained herein
in writing.
10.9 Severability of Provisions. The invalidity or unenforceability of any
term, phrase, clause, Section, restriction, covenant, agreement or other
provision hereof shall in no way affect the validity or enforceability of any
other provision or part hereof.
10.10 Assignment. This Agreement may not be assigned by either party hereto
except with the prior written consent of the other party hereto.
10.11 Counterparts. Any number of counterparts of this Agreement may be
signed and delivered, each of which shall be considered an original and all of
which together shall constitute one agreement.
10.12 Governing Law. This Agreement is made in and shall be construed and
enforced in accordance with the laws of North Carolina.
10.13 Inspection. Any right of Crescent Financial or Centennial hereunder
to investigate or inspect the assets, books, records, files and other
information of the other in no way shall establish any presumption that Crescent
Financial or Centennial should have conducted any investigation or that such
right has been exercised by Crescent Financial or Centennial or their agents,
representatives or others. Any investigations or inspections that have been made
by Crescent Financial or Centennial or their agents, representatives or others
prior to the Closing Date shall not be deemed in any way in derogation or
limitation of the covenants, representations and warranties made by or on behalf
of Centennial or Crescent Financial in this Agreement.
58
IN WITNESS WHEREOF, Centennial and Crescent Financial each has caused this
Agreement to be executed in its name by its duly authorized officers and its
corporate seal to be affixed hereto as of the date first above written.
CENTENNIAL BANK
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
President and Chief Executive Officer
ATTEST:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------
Secretary
CRESCENT FINANCIAL CORPORATION
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive Officer
ATTEST:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary
CRESCENT STATE BANK
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive Officer
ATTEST:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary
59
SCHEDULES AND EXHIBITS TO
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
SCHEDULE DESCRIPTION
-------- -----------
A Plan of Merger
EXHIBIT DESCRIPTION
------- -----------
A Confidentiality and Non-Compete
Agreement with ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
B Employment Agreement with ▇▇▇▇▇ ▇. ▇▇▇▇
60
SCHEDULE A
PLAN OF MERGER
By and Between
CRESCENT STATE BANK
and
CENTENNIAL BANK
1.01. Names of the Merging Corporations. The names of the banking
corporations proposed to be merged are Crescent State Bank ("Crescent") and
Centennial Bank ("Centennial").
1.02. Nature of Transaction; Plan of Merger. Subject to the provisions of
this Plan of Merger, at the "Effective Time" specified in the Articles of Merger
filed with the North Carolina Secretary of State, Centennial will be merged into
and with Crescent pursuant to Section 53-12 of the North Carolina General
Statutes (the "Merger").
1.03. Effect of Merger. At the Effective Time, and by reason of the Merger,
the separate corporate existence of Centennial shall cease while the corporate
existence of Crescent, as the surviving corporation in the Merger, shall
continue with all of its purposes, objects, rights, privileges, powers and
franchises, all of which shall be unaffected and unimpaired by the Merger.
1.04 Surviving Corporation. Following the Merger, Crescent shall continue
to operate as a North Carolina banking corporation and will conduct its business
at the then legally established branch and main offices of Crescent and
Centennial. The duration of the corporate existence of Crescent, as the
surviving corporation in the Merger, shall be perpetual and unlimited.
1.05. Terms and Conditions of the Merger. The Merger shall be effected
pursuant to the terms and conditions of this Plan of Merger and of the Agreement
and Plan of Reorganization and Merger, dated as of March 12, 2003, by and among
Centennial, Crescent and Crescent's sole shareholder, Crescent Financial
Corporation, (the "Agreement").
1.06 Assets and Liabilities of Centennial. At the Effective Time, and by
reason of the Merger, and in accordance with applicable law, all property,
assets and rights of every kind and character of Centennial (including without
limitation all real, personal or mixed property, all debts due on whatever
account, all other choses in action and every other interest of or belonging to
or due to Centennial, whether tangible or intangible) shall be transferred to
and vest in Crescent, and Crescent shall succeed to all the rights, privileges,
immunities, powers, purposes and franchises of a public or private nature of
Centennial (including all trust and other fiduciary properties, powers and
rights), all without any conveyance, assignment or further act or deed; and,
Crescent shall become responsible for all other liabilities, duties and
obligations of every kind, nature and description of Centennial (including
duties as trustee or fiduciary) as of the Effective Time.
61
1.07. Articles of Incorporation, Bylaws and Management. The Articles of
Incorporation and Bylaws of Crescent in effect at the Effective Time shall be
the Articles of Incorporation and Bylaws of Crescent as the surviving
corporation in the Merger.
1.08. Conversion of Shares.
(a) Centennial Stock. Except as otherwise provided herein, at the
Effective Time, all rights of Centennial's shareholders with respect to all
then outstanding shares of the common stock of Centennial, $3.50 par value
per share ("Centennial Stock"), shall cease to exist, and the holders of
shares of Centennial Stock shall cease to be and shall have no further
rights as shareholders of Centennial. At the Effective Time, each such
outstanding share of Centennial Stock (except for shares held, other than
in a fiduciary capacity or as a result of debts previously contracted, by
Centennial, Crescent or Crescent Financial Corporation, which shall be
canceled in the Merger, and for "Dissenting Shares" (as defined in Section
1.9 of the Agreement)) shall be converted, without any action on the part
of the holder of such shares, into the right to receive the "Merger
Consideration" (as defined herein) in accordance with this Plan of Merger
and Article I of the Agreement. Following the Effective Time, certificates
representing shares of Centennial Stock outstanding at the Effective Time
shall evidence only the right of the registered holder thereof to receive,
and may be exchanged for, the Merger Consideration.
(b) Outstanding Stock of Crescent Financial Corporation and Crescent.
Each share of common stock of Crescent Financial Corporation, par value
$1.00 per share ("Crescent Financial Stock"), and each share of common
stock of Crescent, par value $5.00 per share, issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding and shall not be affected by the Merger.
1.09 Merger Consideration.
(a) Per Share Consideration. Subject to the provisions of this Plan of
Merger and Article I of the Agreement, at the Effective Time each
outstanding share of Centennial Stock (except for shares held, other than
in a fiduciary capacity or as a result of debts previously contracted, by
Centennial, Crescent, or Crescent Financial Corporation and for Dissenting
Shares) shall cease to represent any interest (equity, shareholder or
otherwise) in Centennial and shall automatically be converted exclusively
into the right to receive, at the election of the holder thereof, either:
(i) cash in the amount of $10.11 (the "Per Share Amount"),
without interest;
(ii) the "Exchange Ratio" (as defined below) of shares of
Crescent Financial Stock; or
(iii) 50% of the cash amount set forth in clause (i) above and a
number of shares of Crescent Financial Stock equal to 50% of the
Exchange Ratio;
62
provided however, that a holder of Centennial Stock may, pursuant to
Section 1.6 of the Agreement, make no election, in which case such shares
of Centennial Stock held by such holder shall be converted exclusively into
the right to receive the consideration set forth below with respect to
"Non-Election Shares" (as defined in Paragraph 1.10(b) of this Plan of
Merger). The amount of cash into which shares of Centennial Stock shall be
converted pursuant to this Plan of Merger and the Agreement is sometimes
hereinafter referred to as "Cash Consideration," and the number of shares
of Crescent Financial Stock into which shares of Centennial Stock shall be
converted pursuant to this Plan of Merger and the Agreement is sometimes
hereinafter referred to as "Stock Consideration." The Cash Consideration
and Stock Consideration are sometimes referred to herein collectively as
the "Merger Consideration." No share of Centennial Stock, other than
"Dissenting Shares" (as defined in Section 1.9 of the Agreement), shall be
deemed to be outstanding or have any rights other than those set forth
herein after the Effective Time.
(b) Stock Consideration Exchange Ratio. The exchange ratio of Crescent
Financial Stock for Centennial Stock shall be determined based upon the
value of the Per Share Amount of Centennial Stock and the average of the
closing price of Crescent Financial Stock for the thirty (30) day period
ending three (3) business days immediately prior to the Effective Time (the
"Exchange Ratio"). The Exchange Ratio is subject to possible adjustment in
accordance with paragraph 1.09(d) below. Notwithstanding the foregoing, if
calculation of the Exchange Ratio results in a ratio less than .8107, the
Exchange Ratio shall be fixed at .8107. If calculation of the Exchange
Ratio results in a ratio more than 1.0965, the Exchange Ratio shall be
fixed at 1.0965.
(c) Fractional Shares. Notwithstanding any other provision of this
Plan of Merger and the Agreement, each holder of shares of Centennial Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Crescent Financial Stock (after taking
into account all certificates delivered by such holder under Sections
1.6(c) and 1.8(a) of the Agreement and the elections made pursuant to
Section 1.6 of the Agreement) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Crescent
Financial Stock multiplied by the market value of one share of Crescent
Financial Stock at the Effective Time. The market value of one share of
Crescent Financial Stock at the Effective Time shall be the last sale price
of Crescent Financial Stock on the Nasdaq Market, Inc. SmallCap Market
("Nasdaq") as reported by The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by Crescent Financial
Corporation, on the last trading day preceding the Effective Time. No such
holder will be entitled to dividends, voting rights, or any other rights as
a shareholder in respect of any fractional shares.
(d) Anti-Dilution Provisions. In the event Crescent Financial
Corporation changes the number of shares of Crescent Financial Stock issued
and outstanding prior to the Effective Time as a result of a stock split,
stock dividend, recapitalization, reclassification, combination, exchange
of shares, or similar transaction with respect to such stock and the record
date therefor (in the case of a stock dividend) or the effective
63
date thereof (in the case of a stock split, recapitalization,
reclassification, combination, exchange of shares, or similar transaction
for which a record date is not established) shall be prior to the Effective
Time, the Exchange Ratio shall be appropriately adjusted to reflect such
change.
1.10 Election and Allocation Procedures.
(a) An election form (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 theretofore
representing Centennial Stock shall pass, only upon proper delivery of such
certificates to the Exchange Agent (as hereinafter defined) in such form as
Centennial and Crescent Financial Corporation shall mutually agree shall be
mailed on the Mailing Date (as defined below) to each shareholder of record
of Centennial. The "Mailing Date" shall be the date on which proxy
materials relating to the Merger are mailed to holders of shares of
Centennial Stock.
(b) Each Election Form shall entitle the holder of shares of
Centennial Stock (or the beneficial owner through appropriate and customary
documentation and instructions) to (i) elect to receive the Cash
Consideration for all of such holder's shares (a "Cash Election"), (ii)
elect to receive the Stock Consideration for all of such holder's shares (a
"Stock Election"), (iii) elect to receive Merger Consideration in
accordance with clause (iii) of Paragraph 1.09(a) hereof (a "Mixed
Election"), or (iv) make no election or to indicate that such holder has no
preference as to the receipt of the Cash Consideration or the Stock
Consideration (a "Non-Election"). Shareholders of record of Centennial who
hold shares of Centennial Stock as nominees, trustees or in other
representative capacities may submit multiple Election Forms, provided that
such representative certifies that each such Election Form covers all the
shares of Centennial Stock held by that representative for a particular
beneficial owner. Shares of Centennial Stock with respect to which a Cash
Election shall have been made are referred to herein as "Cash Election
Shares." Shares of Centennial Stock with respect to which a Stock Election
shall have been made are referred to herein as "Stock Election Shares."
Shares of Centennial Stock with respect to which no election shall have
been made are referred to herein as "Non-Election Shares." The aggregate
number of shares of Centennial Stock with respect to which a Stock Election
shall have been made is referred to herein as the "Stock Election Number."
Shares of Centennial Stock with respect to which a Mixed Election shall
have been made shall not be deemed either Stock Election Shares or Cash
Election Shares, but shall in all events be converted into the right to
receive the Merger Consideration as specified in Paragraph 1.10(e) hereof.
(c) 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 last business day prior to the date of the Centennial shareholders'
meeting contemplated by the Agreement (or such other time and date as
Centennial, Crescent and Crescent Financial Corporation may mutually agree)
(the "Election Deadline"). 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
64
completed only if accompanied by one or more certificates (or customary
affidavits and, if required by Crescent Financial Corporation pursuant to
Section 1.8(b) of the Agreement, indemnification regarding the loss or
destruction of such certificates or the guaranteed delivery of such
certificates) representing all shares of Centennial Stock covered by such
Election Form, together with duly executed transmittal materials included
with the Election Form. Any Centennial shareholder may at any time prior to
the Election Deadline change his or her election by written notice received
by the Exchange Agent prior to the Election Deadline accompanied by a
properly completed and signed revised Election Form. Any Centennial
shareholder may, at any time prior to the Election Deadline, revoke his or
her election by written notice received by the Exchange Agent prior to the
Election Deadline or by withdrawal prior to the Election Deadline of his or
her certificates, or of the guarantee of delivery of such certificates,
previously deposited with the Exchange Agent. All elections shall be
revoked automatically if the Exchange Agent is notified in writing by
Crescent Financial Corporation, Crescent and Centennial that the Agreement
has been terminated. If a Centennial shareholder either (i)does not submit
a properly completed Election Form by the Election Deadline, or (ii)
revokes its Election Form prior to the Election Deadline, the shares of
Centennial Stock held by such shareholder shall be designated Non-Election
Shares. Crescent Financial Corporation shall cause the certificates
representing Centennial Stock described in clause (ii) above to be promptly
returned without charge to the person submitting the Election Form upon
written request to that effect from the person who submitted the Election
Form. Subject to the terms of the Agreement and of the Election Form, the
Exchange Agent shall have reasonable discretion to determine whether any
election, revocation or change has been properly or timely made and to
disregard immaterial defects in any Election Form, and any good faith
decisions of the Exchange Agent regarding such matters shall be binding and
conclusive.
(d) Notwithstanding any other provision contained in the Agreement,
50% (the "Stock Conversion Number") of the total number of shares of
Centennial Stock outstanding at the Effective Time to be converted into
Merger Consideration pursuant to Paragraph 1.09(a) hereof, excluding such
shares as may be subject to an effective Mixed Election (the "Adjustable
Conversion Shares"), shall be converted into the Stock Consideration and
the remaining Adjustable Conversion Shares shall be converted into Cash
Consideration (excluding Dissenting Shares and shares of Centennial Stock
to be canceled as provided in Section 1.4(a) of the Agreement); provided,
however, that for federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and
in order that the Merger will not fail to satisfy continuity of interest
requirements under applicable federal income tax principles relating to
reorganizations under Section 368(a) of the Code, as reasonably determined
by counsel to Crescent Financial Corporation, Crescent Financial
Corporation shall increase the number of Adjustable Conversion Shares that
will be converted into the Stock Consideration and reduce the number of
Adjustable Conversion Shares that will be converted into the right to
receive the Cash Consideration.
(e) Within five business days after the later to occur of the Election
Deadline
65
or the Effective Time, Crescent Financial shall cause the Exchange Agent to
effect the allocation among holders of Centennial Stock of rights to
receive the Cash Consideration and Stock Consideration as follows:
(i) In any event, all shares of Centennial Stock with respect to
which a Mixed Election shall have been made shall be converted into
50% of the amount of cash set forth in clause (i) of the first
sentence of Paragraph 1.09(a) hereof and a number of shares of
Crescent Financial Stock equal to 50% of the Exchange Ratio;
(ii) 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 in respect of that number of Stock Election
Shares 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; and
(iii) 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: (1) 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 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 (2) 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 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 the Shortfall Number exceeds 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.
66
For purposes of this Paragraph 1.10(e), if Crescent Financial Corporation
is obligated to increase the number of Adjustable Conversion Shares to be
converted into shares of Crescent Financial Stock as a result of the application
of the last clause of Paragraph 1.10(d) above, then the higher number shall be
the Stock Conversion Number in the calculations set forth in this Paragraph
1.10(e).
1.11 Treatment of Centennial Stock Options.
(a) At the Effective Time, Crescent Financial Corporation shall assume
each option to purchase Centennial Stock granted and outstanding under the
Centennial Bank 2000 Incentive Stock Option Plan and the Centennial Bank
2000 Nonstatutory Stock Option Plan (collectively, the "Centennial Option
Plans"), whether or not then exercisable, in accordance with the terms of
the Centennial Option Plans and stock option agreements by which it is
evidenced, except that from and after the Effective Time with respect to
each such plan or agreement: (i) Crescent Financial Corporation shall be
substituted for Centennial; (ii) the Crescent Financial Corporation stock
option committee shall be substituted for the compensation committee of the
Centennial Board of Directors administering the Centennial Option Plans;
(iii) each stock option granted and outstanding under the Centennial Option
Plans may be exercised solely for shares of Crescent Financial Stock; (iv)
the number of shares of Crescent Financial Stock subject to each such stock
option shall be the number of whole shares of Crescent Financial Stock
(omitting any fractional share) determined by multiplying the number of
shares of Centennial Stock subject to such stock option immediately prior
to the Effective Time by the Exchange Ratio; and (v) the per share exercise
price under each such stock option shall be adjusted by dividing the per
share exercise price under each such stock option by the Exchange Ratio and
rounding up to the nearest cent. In addition, each stock option which is an
"incentive stock option" under the Centennial Option Plans shall be
adjusted as required by Section 424 of the Code and the regulations
promulgated thereunder so as to continue as an incentive stock option under
Section 424(a) of the Code, and so as not to constitute a modification,
extension, or renewal of the option, within the meaning of Section 424(h)
of the Code. Crescent Financial Corporation and Centennial shall take all
necessary steps to effectuate the foregoing provisions of this Paragraph
1.11, including appropriate amendments to the Centennial Option Plans if
necessary.
(b) As soon as practicable after the Effective Time, Crescent
Financial Corporation shall deliver to each of the participants in the
Centennial Option Plans an appropriate notice setting forth such
participant's rights pursuant thereto, and the grants pursuant to the
Centennial Option Plans shall continue in effect on the same terms and
conditions (subject to the adjustments required by Paragraph 1.11(a) hereof
after giving effect to the Merger). At or prior to the Effective Time,
Crescent Financial Corporation shall take all corporate action necessary to
reserve for issuance sufficient shares of Crescent Financial Stock for
delivery upon exercise of the stock options assumed by it in accordance
with this Paragraph 1.11.
(c) As soon as practicable after the Effective Time, Crescent
Financial Corporation will use its best efforts to cause the shares subject
to options granted under
67
the Centennial Option Plans prior to the Effective Time (or any substitute
options) to be registered under the Securities Act of 1933, as amended (the
"1933 Act"), on a Form S-8 (or equivalent successor form) registration
statement.
1.12 Closing; Effective Time. The closing of the Merger and other
transactions contemplated by the agreement between Crescent Financial
Corporation, Crescent and Centennial shall take place at the offices of Crescent
in Cary, North Carolina, or at such other place as Crescent shall designate, on
a date mutually agreeable to Crescent and Centennial (the "Closing Date") after
the expiration of any and all required waiting periods following the effective
date of required approvals of the Merger by governmental or regulatory
authorities (but in no event more that sixty (60) days following the expiration
of all such required waiting periods).
1.13 Abandonment. After receipt of all required shareholder, governmental
and regulatory approvals, and at any time prior to the Effective Time, the Board
of Directors of Crescent may, in its discretion, abandon the Merger.
68
EXHIBIT A
STATE OF NORTH CAROLINA
COUNTY OF WAKE
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
This Confidentiality and Non-Compete Agreement (the "Agreement") entered
into by and between Crescent Financial Corporation, a North Carolina corporation
("CFC"), Crescent State Bank, a North Carolina banking corporation ("Crescent")
and ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. ("▇▇▇▇▇▇") is made and entered into this the day of
----
, 2003.
-------------
W I T N E S S E T H:
WHEREAS, CFC and Crescent have entered into an Agreement and Plan of
Reorganization and Merger effective March 12, 2003 with Centennial Bank,
Southern Pines, North Carolina (the "Merger Agreement"); and
WHEREAS, ▇▇▇▇▇▇ served as the President of Centennial Bank ("Centennial")
since its organization pursuant to an Employment Agreement dated November 15,
2000, which contained restrictions on his ability to compete after termination
of his employment with Centennial Bank; and
WHEREAS, the non-compete provision is not applicable upon a change of
control; and
WHEREAS, ▇▇▇▇▇▇, as an inducement for CFC and Crescent to enter into the
Merger Agreement, has agreed to continue to be subject to this Confidentiality
and Non-Compete Agreement.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby is
acknowledged, the Bank and ▇▇▇▇▇▇ hereby agree as follows:
1. Confidentiality. ▇▇▇▇▇▇ hereby acknowledges and agrees that (i) in the
course of his service as an officer of Centennial, he gained substantial
knowledge of and
69
familiarity with Centennial's customers and its dealings with them, and other
information concerning Centennial's business, all of which constitutes valuable
assets and privileged information that is particularly sensitive due to the
fiduciary responsibilities inherent in the banking business and all of which now
constitutes valuable assets and privileged information of CFC and Crescent by
virtue of the Merger Agreement; and, (ii) in order to protect CFC's and
Crescent's interest in and to assure it the benefit of the transactions set
forth in the Merger Agreement, it is reasonable and necessary to place certain
restrictions on ▇▇▇▇▇▇'▇ ability to compete against CFC and Crescent and on his
disclosure of information about CFC's and Crescent's business and customers. For
that purpose, and in consideration of CFC's and Crescent's agreements contained
herein, ▇▇▇▇▇▇ covenants and agrees as provided below.
For the purposes of this Agreement, the following terms shall have the
meanings set forth below:
Customer. The term "Customer" means any Person with whom,
as of the effective date of the Merger Agreement, Centennial had a depository,
loan and/or other banking relationship.
Financial Institution. The term "Financial Institution"
means any federal or state chartered bank, savings bank, savings and loan
association or credit union, or any holding company for or corporation that owns
or controls any such entity, or any other Person engaged in the business of
making loans of any type or receiving deposits, other than CFC or Crescent.
Person. The term "Person" means any natural person or any
corporation, partnership, proprietorship, joint venture, limited liability
company, trust, estate, governmental agency or instrumentality, fiduciary,
unincorporated association or other entity.
(a) Confidentiality Covenant. ▇▇▇▇▇▇ covenants and agrees that
any and all data, figures, projections, estimates, lists, files, records,
documents, manuals or other such materials or information (financial or
otherwise) relating to Centennial and its banking business, regulatory
examinations, financial results and condition, lending and deposit operations,
customers (including lists of Centennial's customers and information regarding
their accounts and business dealings with Centennial), policies and procedures,
computer systems and software, shareholders, employees, officers and directors
(herein referred to as "Confidential Information") are proprietary to CFC and
Crescent and are valuable, special and unique assets of CFC's and
70
Crescent's business to which ▇▇▇▇▇▇ had access during his employment with
Centennial. ▇▇▇▇▇▇ agrees that (i) all such Confidential Information shall be
considered and kept as the confidential, private and privileged records and
information of Crescent, and (ii) at all times during the term of this Agreement
or otherwise pursuant to the direct, written authorization of CFC or Crescent,
▇▇▇▇▇▇ will not: divulge any such Confidential Information to any other Person
or Financial Institution; or make any use of any Confidential Information for
his own purposes or for the benefit of any Person or Financial Institution.
However, this subparagraph (a) shall not apply to any Confidential Information
which is in the public domain (provided that ▇▇▇▇▇▇ was not responsible,
directly or indirectly, for permitting such Confidential Information to enter
the public domain without CFC's or Crescent's consent), or which is obtained by
▇▇▇▇▇▇ from a third party which or who is not obligated under an agreement of
confidentiality with respect to such information.
(b) Covenant Not to Compete. ▇▇▇▇▇▇ acknowledges that Centennial
invested substantial time, money and resources in the development of its
business, its competitive strategy, and the development of its Customers and
that during the course of ▇▇▇▇▇▇'▇ employment with Centennial, ▇▇▇▇▇▇ has had
access to Centennial's information in that regard and that such information, by
reason of the Merger Agreement, is now the property of CFC and Crescent. ▇▇▇▇▇▇
further acknowledges that CFC's and Crescent's business is a sixty (60) mile
radius from each of its branch offices in operation at the time of this
Agreement, including the offices of Centennial. In recognition of this, ▇▇▇▇▇▇
covenants and agrees that for a period of one (1) year from the date hereof,
▇▇▇▇▇▇ will not, directly or indirectly (i) provide in CFC's and Crescent's
relevant market, as set forth above, financial services or become employed in
any manner by any Financial Institution; (ii) consult with organizers to create
a de novo Financial Institution; (iii) otherwise compete with CFC or Crescent;
or (iv) recruit or hire any person employed by Crescent on the date of this
Agreement. Notwithstanding the foregoing, ▇▇▇▇▇▇ shall be entitled to be a
consultant, full time or part time employee of Sidus Financial Corporation
provided that ▇▇▇▇▇▇'▇ consultative or employee duties and responsibilities
shall be commensurate with the business and operations of Sidus Financial
Corporation in effect as of the date of this Agreement.
(c) Remedies for Breach. ▇▇▇▇▇▇ understands and agrees that a
breach or violation by him of the covenants contained in this Agreement will be
deemed a
71
material breach of this Agreement and will cause irreparable injury to CFC and
Crescent, and that it would be difficult to ascertain the amount of monetary
damages that would result from any such violation. In the event of ▇▇▇▇▇▇'▇
actual or threatened breach or violation of the covenants contained in this
Agreement, CFC or Crescent shall be entitled to bring a civil action seeking an
injunction restraining ▇▇▇▇▇▇ from violating or continuing to violate those
covenants or from any threatened violation thereof, or for any other legal or
equitable relief relating to the breach or violation of such covenant. ▇▇▇▇▇▇
agrees that, if CFC or Crescent institute any action or proceeding against
▇▇▇▇▇▇ seeking to enforce any of such covenants or to recover other relief
relating to an actual or threatened breach or violation of any of such
covenants, ▇▇▇▇▇▇ shall be deemed to have waived the claim or defense that CFC
or Crescent has an adequate remedy at law and shall not urge in any such action
or proceeding the claim or defense that such a remedy at law exists. However,
the exercise by CFC or Crescent of any such right, remedy, power or privilege
shall not preclude CFC or Crescent or their successors or assigns from pursuing
any other remedy or exercising any other right, power or privilege available to
it for any such breach or violation, whether at law or in equity, including the
recovery of damages, all of which shall be cumulative and in addition to all
other rights, remedies, powers or privileges of CFC or Crescent.
Notwithstanding anything contained herein to the contrary, ▇▇▇▇▇▇
agrees that the provisions of this Agreement and the remedies provided herein
for a breach by ▇▇▇▇▇▇ shall be in addition to, and shall not be deemed to
supersede or to otherwise restrict, limit or impair the rights of CFC or
Crescent under the Trade Secrets Protection Act contained in Article 24, Chapter
66 of the North Carolina General Statutes, or any other state or federal law or
regulation dealing with or providing a remedy for the wrongful disclosure,
misuse or misappropriation of trade secrets or other proprietary or confidential
information.
2. Term and Consideration. This Agreement shall commence on the date hereof
and continue for a period of one (1) year hereafter. As consideration for
▇▇▇▇▇▇'▇ covenants and agreements under this Agreement, Crescent hereby agrees
to pay to ▇▇▇▇▇▇ in such number of installments or in one lump sum payment as
determined by ▇▇▇▇▇▇, the average annualized amount as set forth on Exhibit A
hereto.
3. Entire Agreement. This Agreement contains the entire agreement of the
parties
72
with respect to the transactions described herein and supersedes any and all
other oral or written agreements heretofore made, and there are no
representations or inducements by or to, or any agreements between, any of the
parties hereto other than those contained herein in writing.
[Signature page follows]
73
IN WITNESS WHEREOF, the parties have executed this Agreement under seal and
in such form as to be binding as of the day and year first hereinabove written.
CRESCENT FINANCIAL CORPORATION
By:
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President and CEO
ATTEST:
-------------------------------
, Secretary
--------------------
CRESCENT STATE BANK
By:
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President and CEO
ATTEST:
-------------------------------
, Secretary
--------------------
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. [SEAL]
74
EXHIBIT A
to ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Confidentiality and Non-Compete Agreement
Centennial Bank
Base Amount Calculation -
▇▇▇▇ ▇▇▇▇▇▇
1999 2000 2001 2002 Average
--------- ---------- ---------- ---------- ----------
Gross Wages 70,269.28 99,166.74 105,000.00 110,250.00
Less- non-taxable amounts
401(K) -- -- -- --
Pre-tax Insurance (884.56) (3,000.74) (4,492.04) (4,986.38)
Plus Taxable Fringe Benefits -- 774.00 1,267.20 --
Bonus -- 30,000.00 26,000.00 37,500.00
Other Taxable Payments -- -- -- --
--------- ---------- ---------- ----------
Subtotal 69,384.72 126,940.00 127,775.16 142,763.62
Annualization Factor
24/# pay periods paid 1.263 1.000 1.000 1.000
--------- ---------- ---------- ---------- ----------
Annualized amount 87,643.86 126,940.00 127,775.16 142,763.62 121,280.66
========= ========== ========== ========== ==========
75
EXHIBIT B
STATE OF NORTH CAROLINA
COUNTY OF WAKE
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of , 2003 by and between
-----------------
CRESCENT STATE BANK (hereinafter referred to as the "Bank") and ▇▇▇▇▇ ▇. ▇▇▇▇
(hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employee is a party to that certain Employment Agreement dated
November 15, 2000 by and between Employee and Centennial Bank, Southern Pines,
North Carolina, a North Carolina banking corporation (the "Centennial
Agreement") ;
WHEREAS, Centennial Bank has been merged with and into the Bank as of the
effective date of this Agreement with the Bank being the surviving corporation;
and
WHEREAS, the expertise and experience of Employee and his relationships and
reputation in the financial institutions industry are extremely valuable to the
Bank and the Bank desires to enter into this Agreement with the Employee in
exchange for the Employee forfeiting any and all rights Employee may have under
the Centennial Agreement.
WHEREAS, the Bank and Employee desire to enter into this Agreement to
establish the scope, terms and conditions of Employee's employment by the Bank.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth, and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the Bank and Employee hereby agree as follows:
1. Employment. The Bank hereby agrees to employ Employee, and Employee
hereby agrees to serve as an officer of the Bank, all upon the terms and
conditions stated herein. As an officer of the Bank, Employee will (i) serve as
Regional Executive /Commercial Banker for the Southern Pines Region of the Bank,
and (ii) have such other duties and responsibilities, and render to the Bank
such other management services, as are customary for persons in Employee's
position with the Bank or as shall otherwise be reasonably assigned to him from
time to time by the Bank. Employee shall faithfully and diligently discharge his
duties
76
and responsibilities under this Agreement and shall use his best efforts to
implement the policies established by the Bank. Employee hereby agrees to devote
such number of hours of his working time and endeavors to the employment granted
hereunder as Employee and the Bank shall deem to be necessary to discharge his
duties hereunder, and, for so long as employment hereunder shall exist, Employee
shall not engage in any other occupation which requires a significant amount of
Employee's personal attention during the Bank's regular business hours or which
otherwise interferes with Employee's attention to or performance of his duties
and responsibilities as an officer of the Bank hereunder except with the prior
written consent of the Bank. However, nothing herein contained shall restrict or
prevent Employee from personally, and for Employee's own account, trading in
stocks, bonds, securities, or other forms of investment for Employee's own
benefit so long as said activities do not interfere with Employee's attention to
or performance of his duties and responsibilities as an officer of the Bank
hereunder. Any real estate investments made by Employee shall require the prior
approval of the President of the Bank.
During the term of this Agreement, Employee shall be allowed, in his
sole discretion, to maintain his primary work location in ▇▇▇▇▇ County, North
Carolina.
2. Compensation.
(a) For all services rendered by Employee to the Bank under this
Agreement, the Bank shall pay Employee a base salary at a rate of One Hundred
Three Thousand Five Hundred Dollars and 00/100's ($103,500.00) per annum;
provided that the rate of such salary shall be reviewed by the Board of
Directors not less often than annually and the Board of Directors may increase,
but shall not decrease, such rate during the term of this Agreement. Salary paid
under this Agreement shall be payable in cash not less frequently than monthly.
All compensation hereunder shall be subject to customary withholding taxes and
such other employment taxes as are required by law.
(b) The Employee shall be entitled to participate in any cash
bonus or other compensation plans available to all other similarly situated
officers with the Bank and shall be paid, within thirty (30) days of the date of
this Agreement, a one time cash bonus equal to Seven Thousand Five Hundred
Dollars and 00/100's ($7,500.00). Such payment shall be subject to forfeiture on
a pro rata basis should Employee unilaterally terminate this Agreement prior to
a period of twelve (12) months from the date hereof and shall be in
consideration of Employee
77
forfeiting any and all rights Employee may have under the Centennial Agreement
pursuant to Section 14 hereof.
(c) On the date of this Agreement, Employee shall be granted
three thousand options (3,000) to purchase shares of common stock of Crescent
Financial Corporation ("CFC") under CFC's 1999 Incentive Stock Option Plan.
3. Participation in Retirement and Employee Benefit Plans; Fringe
Benefits. Subject to the terms and conditions of this Agreement, Employee shall
be entitled to participate in any and all employee benefit programs and
compensation plans from time to time maintained by the Bank and available to all
employees of the Bank, all in accordance with the terms and conditions
(including eligibility requirements) of such programs and plans of the Bank,
resolutions of the Bank's Board of Directors establishing such programs and
plans, and the Bank's normal practices and established policies regarding such
programs and plans. In addition to the foregoing, Employee shall specifically be
entitled to the following fringe benefits: (a) the Bank shall pay the expenses
of the Employee for his personal membership, dues and assessments in the Country
Club of North Carolina provided that any personal charges shall be reimbursed by
the Employee to the Bank; (b) the Bank shall pay the expenses of the Employee
for membership and dues in such civic clubs as the President of the Bank may
determine; (c) the Employee shall be entitled to three (3) weeks of paid
vacation on an annual basis; (d) the Bank shall reimburse the Employee for all
out-of-pocket reasonable and necessary business expenses which the Employee may
incur in connection with the Employee's services on behalf of the Bank; and (e)
the Bank shall pay the fees and expenses associated with Employee's attendance
at the ▇▇▇▇▇▇▇ School of Banking.
4. Term. Unless sooner terminated as provided in this Agreement and
subject to the right of either Employee or the Bank to terminate Employee's
employment at any time as provided herein, the initial term of this Agreement
and Employee's employment with the Bank hereunder shall be for a period
commencing on the date hereof and continuing for a period of three (3) years. On
each anniversary of the Effective Date of this Agreement, the term of this
Agreement shall automatically be extended for an additional one (1) year period
beyond the then effective expiration date unless written notice from the Bank or
the Employee is received ninety (90) days prior to an anniversary date advising
the other that this Agreement shall not be further extended.
78
5. Confidentiality; Noncompetition. Employee hereby acknowledges and
agrees that (i) in the course of his service as an officer of the Bank, he will
gain substantial knowledge of and familiarity with the Bank's customers and its
dealings with them, and other information concerning the Bank's business, all of
which constitutes valuable assets and privileged information that is
particularly sensitive due to the fiduciary responsibilities inherent in the
banking business; and, (ii) in order to protect the Bank's interest in and to
assure it the benefit of its business, it is reasonable and necessary to place
certain restrictions on Employee's ability to compete against the Bank and on
his disclosure of information about the Bank's business and customers. For that
purpose, and in consideration of the Bank's agreements contained herein,
Employee covenants and agrees as provided below.
(a) Covenant Not to Compete. During a period of three (3) years
following the effective date of termination of this Agreement or Employee's
employment with the Bank for any reason (except for termination of employment
pursuant to the provisions of Section 8 hereof), Employee will not "Compete" (as
defined below), directly or indirectly, with the Bank within a sixty (60) mile
radius of Southern Pines, North Carolina (the "Relevant Market").
For the purposes of this Paragraph 5, the following terms shall have
the meanings set forth below:
Compete. The term "Compete" means: (i) soliciting or
securing deposits from any Person residing in the Relevant Market for any
Financial Institution; (ii) soliciting any Person residing in the Relevant
Market to become a borrower from any Financial Institution, or assisting (other
than through the performance of ministerial or clerical duties) any Financial
Institution in making loans to any such Person; (iii) including or attempting to
induce any Person who was a Customer of the Bank on the date of termination of
Employee's employment with the Bank, to change such Customer's depository, loan
and/or other banking relationship from the Bank to another Financial
Institution; (iv) acting as a consultant, officer, director, independent
contractor, or employee of any Financial Institution that has its main or
principal office in the Relevant Market, or, in acting in any such capacity with
any other Financial Institution, to maintain an office or be employed at or
assigned to or to have any direct involvement in the management, business or
operation of any office of such Financial Institution located in the Relevant
Market; or (v) communicating to any Financial Institution the names or
79
addresses or any financial information concerning any Person who was a Customer
of the Bank at the date of Employee's termination of this Agreement.
Customer. The term "Customer" means any Person with whom, as
of the effective date of termination of this Agreement or during Employee's
employment with the Bank, the Bank has or has had a depository, loan and/or
other banking relationship.
Financial Institution. The term "Financial Institution"
means any federal or state chartered bank, savings bank, savings and loan
association or credit union, or any holding company for or corporation that owns
or controls any such entity, or any other Person engaged in the business of
making loans of any type or receiving deposits, other than the Bank.
Person. The term "Person" means any natural person or any
corporation, partnership, proprietorship, joint venture, limited liability
company, trust, estate, governmental agency or instrumentality, fiduciary,
unincorporated association or other entity.
(b) Confidentiality Covenant. Employee covenants and agrees that
any and all data, figures, projections, estimates, lists, files, records,
documents, manuals or other such materials or information (financial or
otherwise) relating to the Bank and its banking business, regulatory
examinations, financial results and condition, lending and deposit operations,
customers (including lists of the Bank's customers and information regarding
their accounts and business dealings with the Bank), policies and procedures,
computer systems and software, shareholders, employees, officers and directors
(herein referred to as "Confidential Information") are proprietary to the Bank
and are valuable, special and unique assets of the Bank's business to which
Employee will have access during his employment with the Bank. Employee agrees
that (i) all such Confidential Information shall be considered and kept as the
confidential, private and privileged records and information of the Bank, and
(ii) at all times during the term of his employment with the Bank and following
the termination of this Agreement or his employment for any reason, and except
as shall be required in the course of the performance by Employee of his duties
on behalf of the Bank or otherwise pursuant to the direct, written authorization
of the Bank, Employee will not: divulge any such Confidential Information to any
other Person or Financial Institution; remove any such Confidential Information
in written or other recorded form from the Bank's premises; or make any use of
any Confidential Information for his own purposes or for the benefit of any
Person or Financial Institution other than the Bank. However, following the
termination of Employee's employment with the Bank,
80
this subparagraph (b) shall not apply to any Confidential Information which then
is in the public domain (provided that Employee was not responsible, directly or
indirectly, for permitting such Confidential Information to enter the public
domain without the Bank's consent), or which is obtained by Employee from a
third party which or who is not obligated under an agreement of confidentiality
with respect to such information.
(c) Remedies for Breach. Employee understands and agrees that a
breach or violation by him of the covenants contained in Paragraph 5(a) and 5(b)
of this Agreement will be deemed a material breach of this Agreement and will
cause irreparable injury to the Bank, and that it would be difficult to
ascertain the amount of monetary damages that would result from any such
violation. In the event of Employee's actual or threatened breach or violation
of the covenants contained in Paragraph 5(a) or 5(b) , the Bank shall be
entitled to bring a civil action seeking an injunction restraining Employee from
violating or continuing to violate those covenants or from any threatened
violation thereof, or for any other legal or equitable relief relating to the
breach or violation of such covenant. Employee agrees that, if the Bank
institutes any action or proceeding against Employee seeking to enforce any of
such covenants or to recover other relief relating to an actual or threatened
breach or violation of any of such covenants, Employee shall be deemed to have
waived the claim or defense that the Bank has an adequate remedy at law and
shall not urge in any such action or proceeding the claim or defense that such a
remedy at law exists. However, the exercise by the Bank of any such right,
remedy, power or privilege shall not preclude the Bank or its successors or
assigns from pursuing any other remedy or exercising any other right, power or
privilege available to it for any such breach or violation, whether at law or in
equity, including the recovery of damages, all of which shall be cumulative and
in addition to all other rights, remedies, powers or privileges of the Bank.
Notwithstanding anything contained herein to the contrary,
Employee agrees that the provisions of Paragraph 5(a) and 5(b) above and the
remedies provided in this Paragraph 5(c) for a breach by Employee shall be in
addition to, and shall not be deemed to supersede or to otherwise restrict,
limit or impair the rights of the Bank under the Trade Secrets Protection Act
contained in Article 24, Chapter 66 of the North Carolina General Statutes, or
any other state or federal law or regulation dealing with or providing a remedy
for the wrongful disclosure, misuse or misappropriation of trade secrets or
other proprietary or confidential information.
81
(d) Survival of Covenants. Employee's covenants and agreements
and the Bank's rights and remedies provided for in this Paragraph 5 shall
survive any termination of this Agreement or Employee's employment with the
Bank.
6. Termination and Termination Pay.
(a) Employee's employment under this Agreement may be terminated
at any time by Employee upon ninety (90) days written notice to the Bank. Upon
such termination, Employee shall be entitled to receive compensation through the
effective date of such termination; provided, however, that the Bank, in its
sole discretion, may elect for Employee not to serve out part or all of said
notice period.
(b) Employee's employment under this Agreement shall be
terminated upon the death of Employee during the term of this Agreement. Upon
any such termination, Employee's estate shall be entitled to receive any
compensation due to Employee computed through the last day of the calendar month
in which his death shall have occurred but which remains unpaid.
(c) In the event Employee becomes disabled during the term of his
employment hereunder and it is determined by the Bank that Employee is
permanently unable to perform his duties under this Agreement, Employee's
employment hereunder shall terminate, provided, however, that the Bank shall
continue to compensate Employee at the level of compensation described in
Paragraph 2 above, and shall continue to provide Employee each of the other
benefits set forth or described in this Agreement, for the ninety (90) day
period as set forth in the Bank's extended sick leave policy. Thereafter,
Employee shall not be entitled to any compensation or benefit hereunder and
shell only received benefits under the Bank's long-term disability policy. In
the event of any disagreement between Employee and the Bank as to whether
Employee is physically or mentally incapacitated such as will result in the
termination of Employee's employment pursuant to this Paragraph 6(c), the
question of such incapacity shall be submitted to an impartial and reputable
physician for determination, selected by mutual agreement of Employee and the
Bank or, failing such agreement, by two (2) physicians (one (1) of whom shall be
selected by the Bank and the other by Employee), and such determination of the
question of such incapacity by such physician or physicians shall be final and
binding on Employee and the Bank. The Bank shall pay the reasonable fees and
expenses of such physician or physicians in making any determination required
under this Paragraph 6(c). After such ninety
82
(90) day period, Employee shall not be entitled to any benefits provided
hereunder except for receipt of payments under the Bank's then current
disability insurance policy applicable to Employee.
(d) The Bank may terminate Employee's employment at any time for
any reason with or without "Cause" (as defined below), but any termination by
the Bank other than termination for "Cause", (as defined below) shall not
prejudice Employee's right to compensation or other benefits under this
Agreement. Following any termination of Employee's employment by the Bank for
"Cause", Employee shall have no further rights under this Agreement (including
any right to receive compensation or other benefits for any period after such
termination).
For purposes of this Paragraph 6(d), the Bank shall have "Cause" to
terminate Employee's employment upon:
(i) A determination by the Bank, in good faith, that
Employee (A) has breached in any material respect any of the terms or conditions
of this Agreement, or (B) is engaging or has engaged in willful misconduct or
conduct which is detrimental to the business prospects of the Bank or which has
had or likely will have a material adverse effect on the Bank's business or
reputation. Prior to any termination by the Bank of Employee's employment for a
breach, failure to perform or conduct described in this subparagraph (i), the
Bank shall give Employee written notice which describes such breach, failure to
perform or conduct and if during a period of five (5) business days following
such notice Employee cures or corrects the same to the reasonable satisfaction
of the Bank, then this Agreement shall remain in full force and effect. However,
notwithstanding the above, if the Bank has given written notice to Employee on a
previous occasion of the same or a substantially similar breach, failure to
perform or conduct, or of a breach, failure to perform or conduct which the Bank
determines in good faith to be of substantially similar import, or if the Bank
determines in good faith that the then current breach, failure to perform or
conduct is not reasonably curable, then termination under this subparagraph (i)
shall be effective immediately and Employee shall have no right to cure such
breach, failure to perform or conduct.
(ii) The violation by Employee of any applicable federal or
state law, or any applicable rule, regulation, order or statement of policy
promulgated by any governmental agency or authority having jurisdiction over the
Bank or any of its affiliates or
83
subsidiaries (a "Regulatory Authority", including without limitation the Federal
Deposit Insurance Corporation, the North Carolina Commissioner of Banks or any
other banking regulator having legal jurisdiction over the Bank), which results
from Employee's gross negligence, willful misconduct or intentional disregard of
such law, rule, regulation, order or policy statement and results in any
substantial damage, monetary or otherwise, to the Bank or any of its affiliates
or subsidiaries or to the Bank's reputation;
(iii) The commission in the course of Employee's employment
with the Bank of an act of fraud, embezzlement, theft or proven personal
dishonesty (whether or not resulting in criminal prosecution or conviction);
(iv) The conviction of Employee of any felony or any
criminal offense involving dishonesty or breach of trust, or the occurrence of
any event described in Section 19 of the Federal Deposit Insurance Act or any
other event or circumstance which disqualifies Employee from serving as an
employee or executive officer of, or a party affiliated with, the Bank or its
bank holding company;
(v) Employee becomes unacceptable to, or is removed,
suspended or prohibited from participating in the conduct of the Bank's affairs
(or if proceedings for that purpose are commenced) by any Regulatory Authority;
and,
(vi) The occurrence of any event believed by the Bank, in
good faith, to have resulted in Employee being excluded from coverage, or having
coverage limited as to Employee as compared to other covered officers or
employees, under the Bank's then current "blanket bond" or other fidelity bond
or insurance policy covering its directors, officers or employees.
7. Additional Regulatory Requirements. Notwithstanding anything
contained in this Agreement to the contrary, it is understood and agreed that
the Bank (or its successors in interest) shall not be required to make any
payment or take any action under this Agreement if (a) the Bank is declared by
any Regulatory Authority to be insolvent, in default or operating in an unsafe
or unsound manner, or if (b) in the opinion of counsel to the Bank such payment
or action (i) would be prohibited by or would violate any provision of state or
federal law applicable to the Bank, including without limitation the Federal
Deposit Insurance Act and Chapter 53 of the North Carolina General Statutes as
now in effect or hereafter amended, (ii) would be prohibited by or would violate
any applicable rules, regulations, orders or statements of
84
policy, whether now existing or hereafter promulgated, of any Regulatory
Authority, or (iii) otherwise would be prohibited by any Regulatory Authority.
8. Change in Control
(a) In the event of a "Change in Control" (as defined in
Subparagraph (d) below), of Crescent Financial Corporation, parent holding
company of the Bank ("CFC"), Employee shall be entitled to terminate this
Agreement upon the occurrence, following a Change in Control, of any Termination
Event as defined in Subparagraph (b) below.
(b) A Termination Event shall mean the occurrence of any of the
following events:
(i) Employee is assigned any duties and/or
responsibilities that are inconsistent with his
position, duties, responsibilities or status at the
time of the Change in Control or with his reporting
responsibilities with the Bank in effect at such
time;
(ii) Employee's annual base salary is reduced below the
amount in effect as of the effective date of a
Change in Control or as the same shall have been
increased from time to time following such effective
date;
(iii) Employee's life insurance, medical or
hospitalization insurance, disability insurance,
dental insurance, stock option plans, stock purchase
plans, deferred compensation plans, management
retention plans, retirement plans, or similar plans
or benefits being provided by the Bank to Employee
as of the effective date of the Change in Control
are reduced in their level, scope or coverage or any
such insurance, plans, or benefits are eliminated,
unless such reduction or elimination applies
proportionately to all salaried employees of the
Bank who participated in such benefits prior to such
Change in Control; or
(iv) Employee is transferred to a location outside of
▇▇▇▇▇
85
County, North Carolina, without Employee's express
written consent.
A Termination Event shall be deemed to have occurred
on the date such action or event is implemented or
takes effect.
(c) In the event that Employee terminates this Agreement or the
Bank terminates this Agreement pursuant to this Paragraph 8,
the Bank will be obligated to pay or cause to be paid to
Employee all amounts due and owing to the end of the term of
this Agreement and an amount equal to two hundred percent
(200%) of the Employee's "base amount" as defined in Section
280G(b) (3) (A) of the Internal Revenue Code of 1986, as
amended (the "Code").
(d) For the purposes of this Agreement, the term Change in
Control shall mean any of the following events: (i) After
the effective date of this Agreement, any "person" (as such
term is defined in Section 7 (j) (8) (A) of the Change in
Bank Control Act of 1978), directly or indirectly, acquires
beneficial ownership of voting stock, or acquires
irrevocable proxies or any combination of voting stock and
irrevocable proxies, representing fifty percent (50%) or
more of any class of voting securities of CFC, or acquires
control of in any manner the election of a majority of the
directors of CFC;
(ii) CFC consolidates or merges with or into another
corporation, association, or entity, or is otherwise
reorganized, where CFC is not either the surviving
corporation in such transaction or a majority of the shares
of the surviving corporation are not owned by persons who
were shareholders of CFC immediately prior to the
consummation of such transaction; or
(iii) All or substantially all of the assets of either CFC
or the
86
Bank are sold or otherwise transferred to or are acquired by
any other corporation, association, or other person, entity,
or group.
Notwithstanding the other provisions of this Paragraph 8, a
transaction or event shall not be considered a Change in Control if, prior to
the consummation or occurrence of such transaction or event, Employee and the
Bank agree in writing that the same shall not be treated as a Change in Control
for purposes of this Agreement.
(e) Amounts payable pursuant to this Paragraph 8 shall be paid,
at the option of Employee either in one lump sum or in equal monthly payments
over the remaining term of this Agreement.
(f) Following a Termination Event which gives rise to Employee's
rights hereunder, Employee shall have twelve (12) months from the date of
occurrence of the Termination Event to terminate this Agreement pursuant to this
Paragraph 8. Any such termination shall be deemed to have occurred only upon
delivery to the Bank or any successor thereto, of written notice of termination,
which describes the Change in Control and Termination Event. If Employee does
not so terminate this Agreement within such twenty-four month period, Employee
shall thereafter have no further rights hereunder with respect to that
Termination Event, but shall retain rights, if any, hereunder with respect to
any other Termination Event as to which such period has not expired.
(g) It is the intent of the parties hereto that all payments made
pursuant to this Agreement be deductible by the Bank for federal income tax
purposes and not result in the imposition of an excise tax on Employee.
Notwithstanding anything contained in this Agreement to the contrary, any
payments to be made to or for the benefit of Employee which are deemed to be
"parachute payments" as that term is defined in Section 28OG(b) (2) of the Code,
shall be modified or reduced to the extent deemed to be necessary by the Bank's
Board of Directors to avoid the imposition of an excise tax on Employee under
Section 4999 of the Code or the disallowance of a deduction to the Bank under
Section 28OG(a) of the Code.
(h) In the event any dispute shall arise between Employee and the
Bank as to the terms or interpretation of this Agreement, including this
Paragraph 8, whether instituted by formal legal proceedings or otherwise,
including any action taken by Employee to enforce the terms of this Paragraph 8
or in defending against any action taken by the Bank, the
87
Bank shall reimburse Employee for all costs and expenses, proceedings or
actions, in the event Employee prevails in any such action.
9. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and he binding
upon any corporate or other successor of the Bank which shall acquire, directly
or indirectly, by conversion, merger, consolidation, purchase or otherwise, all
or substantially all of the assets of the Bank.
(b) The Bank is contracting for the unique and personal skills of
Employee. Therefore, Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
the Bank.
10. Modification; Waiver; Amendments. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by the parties hereto. No waiver by
either party hereto, at any time, of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
both parties, except as herein otherwise provided.
11. Applicable Law. This Agreement shall be governed in all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
12. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
13. Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the transactions described herein and supersedes any
and all other oral or written agreements heretofore made, and there are no
representations or inducements by or to, or any agreements between, any of the
parties hereto other than those contained herein in writing.
14. Centennial Agreement. By entering into this Agreement, Employee
acknowledges that the Centennial Agreement is hereby deemed to be null, void and
of no further
88
effect and Employee forfeits any and all rights Employee may have under the
Centennial Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement under
seal and in such form as to be binding as of the day and year first hereinabove
written.
CRESCENT STATE BANK
By:
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President and CEO
ATTEST:
-------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary
EMPLOYEE
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇
89
