AGREEMENT AND PLAN OF MERGER
By and Among
▇▇▇▇▇▇ FEDERAL HOLDINGS, MHC
▇▇▇▇▇▇ FEDERAL BANCORP, INC.
▇▇▇▇▇▇ MERGER SUBSIDIARY, INC.
▇▇▇▇▇▇ FEDERAL BANK
And
INNES STREET FINANCIAL CORPORATION
And
CITIZENS BANK, INC.
Dated as of July 16, 2001
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
Page
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Definitions..................................... 2
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01 Effects of Merger; Surviving Corporation........ 7
Section 2.02 Conversion of Shares............................ 8
Section 2.03 Exchange Procedures............................. 9
Section 2.04 Stock Options................................... 10
Section 2.05 Restricted Stock................................ 10
Section 2.06 Depositors...................................... 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INNES STREET AND CITIZENS
BANK
Section 3.01 Organization.................................... 11
Section 3.02 Capitalization.................................. 12
Section 3.03 Authority; No Violation......................... 12
Section 3.04 Consents........................................ 13
Section 3.05 Financial Statements............................ 14
Section 3.06 Taxes........................................... 14
Section 3.07 No Material Adverse Effect...................... 15
Section 3.08 Material Contracts; Leases; Defaults............ 15
Section 3.09 Ownership of Property; Insurance Coverage....... 16
Section 3.10 Legal Proceedings............................... 17
Section 3.11 Compliance With Applicable Law.................. 17
Section 3.12 Employee Benefit Plans.......................... 18
Section 3.13 Brokers, Finders and Financial Advisors......... 21
Section 3.14 Environmental Matters........................... 21
Section 3.15 Loan Portfolio.................................. 22
Section 3.16 Securities Documents............................ 23
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Section 3.17 Related Party Transactions.............................................. 24
Section 3.18 Schedule of Termination Benefits........................................ 24
Section 3.19 Deposits................................................................ 24
Section 3.20 Antitakeover Provisions Inapplicable.................................... 24
Section 3.21 Registration Obligations................................................ 24
Section 3.22 Risk Management Instruments............................................. 25
Section 3.23 Fairness Opinion........................................................ 25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇▇ FEDERAL
AND ▇▇▇▇▇▇ BANCORP
Section 4.01 Organization............................................................ 25
Section 4.02 Authority; No Violation................................................. 26
Section 4.03 Consents................................................................ 27
Section 4.04 Financial Statements.................................................... 28
Section 4.05 Compliance With Applicable Law.......................................... 28
Section 4.06 Financing............................................................... 29
Section 4.07 Regulatory Approvals.................................................... 29
Section 4.08 Legal Proceedings....................................................... 29
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.01 Conduct of Innes Street's Business...................................... 29
Section 5.02 Access; Confidentiality................................................. 33
Section 5.03 Regulatory Matters and Consents......................................... 34
Section 5.04 Taking of Necessary Action.............................................. 35
Section 5.05 Certain Agreements...................................................... 36
Section 5.06 No Other Bids and Related Matters....................................... 37
Section 5.07 Duty to Advise; Duty to Update Innes Street's Disclosure Schedules...... 38
Section 5.08 Conduct of ▇▇▇▇▇▇ Bancorp's Business.................................... 38
Section 5.09 Board and Committee Minutes............................................. 39
Section 5.10 Undertakings by Innes Street and ▇▇▇▇▇▇ Bancorp......................... 39
Section 5.11 Employee and Termination Benefits; Directors and Management............. 42
Section 5.12 Duty to Advise; Duty to Update ▇▇▇▇▇▇ Bancorp's Disclosure Schedules.... 44
Section 5.13 Bank and Related Merger Transactions.................................... 44
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ARTICLE VI
CONDITIONS
Section 6.01 Conditions to Innes Street's Obligations under this Agreement........................ 45
Section 6.02 Conditions to ▇▇▇▇▇▇ Bancorp's Obligations under this Agreement...................... 46
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
Section 7.01 Termination.......................................................................... 47
Section 7.02 Effect of Termination................................................................ 48
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Expenses............................................................................. 48
Section 8.02 Non-Survival of Representations and Warranties....................................... 49
Section 8.03 Amendment, Extension and Waiver...................................................... 49
Section 8.04 Entire Agreement..................................................................... 50
Section 8.05 No Assignment........................................................................ 50
Section 8.06 Notices.............................................................................. 50
Section 8.07 Captions............................................................................. 51
Section 8.08 Counterparts......................................................................... 51
Section 8.09 Severability......................................................................... 51
Section 8.10 Governing Law........................................................................ 51
Section 8.11 Specific Performance................................................................. 51
Exhibits:
Exhibit A Form of Bank Merger Agreement
Exhibit B Form of Innes Street Voting Agreement
Exhibit C Form of Opinion of Counsel
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of July 16,
2001, is by and among ▇▇▇▇▇▇ Federal Holdings, MHC, a Federal mutual holding
company ("▇▇▇▇▇▇ MHC"), ▇▇▇▇▇▇ Federal Bancorp, Inc., a Federal corporation
("▇▇▇▇▇▇ Bancorp"), ▇▇▇▇▇▇ Merger Subsidiary, Inc., a wholly owned subsidiary of
▇▇▇▇▇▇ Bancorp incorporated under the laws of the State of North Carolina
("▇▇▇▇▇▇ Merger Subsidiary"), ▇▇▇▇▇▇ Federal Bank, a Federal savings bank
("▇▇▇▇▇▇ Federal"), and Innes Street Financial Corporation, a North Carolina
corporation ("Innes Street") and Citizens Bank, Inc. a North Carolina savings
bank ("Citizens Bank"). Each of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Merger Subsidiary, ▇▇▇▇▇▇
Federal, Innes Street and Citizens Bank is sometimes individually referred to
herein as a "party," and all of them are sometimes collectively referred to
herein as the "parties."
RECITALS
WHEREAS, ▇▇▇▇▇▇ MHC, a registered savings and loan holding company, with
principal offices in Gastonia, North Carolina, owns a majority of the issued and
outstanding capital stock of ▇▇▇▇▇▇ Bancorp, with principal offices in Gastonia,
North Carolina.
WHEREAS, ▇▇▇▇▇▇ Bancorp, a registered savings and loan holding company,
with principal offices in Gastonia, North Carolina, owns all of the issued and
outstanding capital stock of ▇▇▇▇▇▇ Federal, with principal offices in Gastonia,
North Carolina.
WHEREAS, Innes Street, a registered bank holding company, with principal
offices in Salisbury, North Carolina, owns all of the issued and outstanding
capital stock of Citizens Bank, with principal offices in Salisbury, North
Carolina.
WHEREAS, the Board of Directors of Innes Street deems it advisable and in
the best interests of Innes Street shareholders and the Board of Directors of
▇▇▇▇▇▇ Bancorp deems it advisable and in the best interests of ▇▇▇▇▇▇ Bancorp
shareholders to consummate the business combination transaction contemplated
herein in which: (i) ▇▇▇▇▇▇ Merger Subsidiary, subject to the terms and
conditions set forth herein, shall be merged with and into Innes Street, with
Innes Street surviving the merger (the "Merger"), (ii) to be followed by the
merger or liquidation of Innes Street with and into ▇▇▇▇▇▇ Bancorp, with ▇▇▇▇▇▇
Bancorp as the surviving entity (the "Company Merger"), with the result that
Citizens Bank shall be a wholly-owned subsidiary of ▇▇▇▇▇▇ Bancorp, and (iii)
Citizens Bank shall be merged with and into ▇▇▇▇▇▇ Federal, with ▇▇▇▇▇▇ Federal
being the surviving corporation (the "Bank Merger") (the Merger, Company Merger
and the Bank Merger are sometimes collectively referred to as the "Mergers");
and
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
Merger, and the other transactions contemplated by this Agreement.
1
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Definitions. Except as otherwise provided herein, as used in
this Agreement, the following terms shall have the indicated meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Affiliate" means, with respect to any Person, any Person who
directly, or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, such Person and, without
limiting the generality of the foregoing, includes any executive officer or
director of such Person and any Affiliate of such executive officer or
director.
"Agreement" means this agreement, and any amendment or supplement
hereto, which constitutes a "plan of merger" between ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇
Merger Subsidiary and Innes Street.
"Applications" means the applications for all Regulatory Approvals
that are required by the transactions contemplated hereby.
"Banking Commission" means the North Carolina Office of the
Commissioner of Banks.
"Bank Merger" means the merger of Citizens Bank with and into ▇▇▇▇▇▇
Federal, with ▇▇▇▇▇▇ Federal as the surviving institution.
"Business Day" means any day other than a Saturday, Sunday or
Federal holiday.
"Closing Date" means the Business Day determined by ▇▇▇▇▇▇ Bancorp,
in its sole discretion, upon five (5) days prior written notice to Innes
Street, but in no event later than fifteen (15) Business Days after the
last condition precedent (other than the delivery of certificates or other
instruments and documents to be delivered at closing) pursuant to this
Agreement has been fulfilled or waived (including the expiration of any
applicable waiting period), or such other date as to which ▇▇▇▇▇▇ Bancorp
and Innes Street shall mutually agree.
"Closing Expense Statement" has the meaning given to that term in
Section 5.10(c) of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Commissioner" means the Commissioner of Banks, of the State of North
Carolina.
"Company Merger" means the merger or liquidation of Innes Street, as a
wholly owned subsidiary of ▇▇▇▇▇▇ Bancorp, with and into ▇▇▇▇▇▇ Bancorp,
with ▇▇▇▇▇▇ Bancorp being the surviving corporation.
"Compensation and Benefit Plans" has the meaning given to that term in
Section 3.12 of this Agreement.
"Dissenters' Shares" means shares of Innes Street Common Stock that
have not been voted in favor of approval of the Merger and with respect to
which dissenters' rights have been perfected in accordance with the NCBCA.
"DOL" means the U.S. Department of Labor.
"Environmental Law" means any federal, state, or local statute,
regulation, or ordinance for the protection of human health, natural
resources, or the environment, including without limitation (a) the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, 42 U.S.C. (S) (S) 9601 et seq.; (b) the Hazardous Materials
Transportation Act, 49 U.S.C. (S) 1801 et seq.; (c) the Clean Water Act, 33
U.S.C. (S) (S) 1251 et seq.; (d) the Resource Conservation and Recovery
Act, 42 U.S.C. (S) (S) 6901 et seq.; (e) the Toxic Substances Control Act
15 U.S.C. (S) (S) 2601 et seq.; (f) the Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. (S) (S) 136 et seq.; (g) the Clean Air Act, 42
U.S.C. (S) (S) 7401 et seq.; (h) Subtitle I of the Hazardous and Solid
Waste Amendments of 1984, 42 U.S.C. (S) (S) 6991 et seq.; (i) the North
Carolina Oil Pollution and Hazardous Substances Control Act, N.C.G.S. (S)
(S) 143-215.75 et seq.; (j) any regulations promulgated under or pursuant
to (a) through (i); (k) any amendments now existing or hereafter enacted to
9a) through (j); and (l) any statutes subsequently enacted and regulations
subsequently adopted that address, govern, or affect the subjects regulated
by (a) through (j).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated from time to time thereunder.
"Exchange Agent" means Registrar and Transfer Company, the transfer
agent for ▇▇▇▇▇▇ Bancorp, or such other entity selected by ▇▇▇▇▇▇ Bancorp
and agreed to by Innes Street.
"FDIA" means the Federal Deposit Insurance Act, as amended.
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"FDIC" means the Federal Deposit Insurance Corporation.
"FHLB" means a Federal Home Loan Bank.
"FRB" means the Board of Governors of the Federal Reserve System.
"GAAP" means generally accepted accounting principles as in effect at
the relevant date and consistently applied.
"▇▇▇▇▇▇ Bancorp Disclosure Schedules" means the Disclosure Schedules
delivered by ▇▇▇▇▇▇ Bancorp to Innes Street pursuant to Article IV of this
Agreement.
"▇▇▇▇▇▇ Bancorp Financials" means (i) the audited consolidated
financial statements of ▇▇▇▇▇▇ Bancorp as of September 30 2000 and 1999 and
for the three years ended September 30, 2000, including the notes thereto
and (ii) the unaudited interim consolidated financial statements of ▇▇▇▇▇▇
Bancorp as of each calendar quarter thereafter.
"▇▇▇▇▇▇ Bancorp Regulatory Reports" means the Thrift Financial Reports
of ▇▇▇▇▇▇ Federal and accompanying schedules, as filed with the OTS, for
each calendar quarter beginning with the quarter ended June 30, 2000,
through the Closing Date, and all Annual, Quarterly and Current Reports
filed on Form H-(b)11 with the OTS by ▇▇▇▇▇▇ Bancorp from June 30, 2000
through the Closing Date.
"▇▇▇▇▇▇ Bancorp Subsidiary" means any corporation, 50% or more of the
capital stock of which is owned, either directly or indirectly, by ▇▇▇▇▇▇
Bancorp or ▇▇▇▇▇▇ Federal, except any corporation the stock of which is
held as security by ▇▇▇▇▇▇ Federal in the ordinary course of its lending
activities.
"Hazardous Material" means any chemical, element, compound, substance,
byproduct, or waste of any nature or composition that is defined as
hazardous or toxic by, or is regulated or restricted under, any
Environmental Laws. However, for the purpose of this Agreement the
following are considered "Hazardous materials" whether or not specifically
defined as hazardous or toxic by the Environmental Laws: petroleum
distillates, asbestos containing material, polychlorinated biphenyls,
concentrations of radon in excess of background conditions, and any source
deemed a high-level radioactive waste.
"HOLA" means the Home Owners' Loan Act, as amended.
"Innes Street Common Stock" means the common stock of Innes Street
described in Section 3.02(a).
▇
"▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇" means the Disclosure Schedules
delivered by Innes Street to ▇▇▇▇▇▇ Bancorp pursuant to Article III of this
Agreement.
"Innes Street Financials" means (i) the audited consolidated financial
statements of Innes Street as of September 30, 2000 and 1999 and for the
three years ended September 30, 2000, including the notes thereto, and (ii)
the unaudited interim consolidated financial statements of Innes Street as
of each calendar quarter thereafter included in Securities Documents filed
by Innes Street.
"Innes Street Option" means issued and outstanding options granted by
Innes Street to purchase shares of Innes Street Common Stock pursuant to
the Innes Street Stock Option Plan.
"Innes Street Regulatory Reports" means the Thrift Financial Reports
and FDIC Call Reports of Citizens Bank and accompanying schedules, as filed
with the OTS and FDIC, for each appropriate calendar quarter beginning with
the quarter ended September 30, 2000, through the Closing Date, and all
Annual, Quarterly and Current Reports filed with the OTS and/or the FRB, as
appropriate, by Innes Street from September 30, 2000 through the Closing
Date.
"Innes Street Restricted Stock Plan" means the Citizens Bank, Inc.
Management Recognition Plan and Trust.
"Innes Street Stock Option Plan" means the Innes Street Financial
Corporation Stock Option Plan.
"IRS" means the Internal Revenue Service.
"Knowledge" as used with respect to a Person (including references to
such Person being aware of a particular matter) means those facts that are
known, or should have been known, by the senior officers and directors of
such Person, and includes any facts, matters or circumstances set forth in
any written notice from any Regulatory Authority or any other material
written notice received by that Person.
"Loan Property" shall have the meaning given to such term in Section
3.14(b) of this Agreement.
"Material Adverse Effect" shall mean, with respect to a Person, any
adverse effect on its assets, financial condition or results of operations
which is material to its assets, financial condition or results of
operations on a consolidated basis, except for any such effect caused by
(i) any change in the value of such Person's assets resulting from a change
in interest rates generally, (ii) any change or combination of changes
occurring after the date hereof in any federal or state law, rule or
regulation or in GAAP, which change(s) or affect(s) financial institutions
generally, (iii) compliance with this
5
Agreement, or (iv) expenses incurred in connection with this Agreement and
the transactions contemplated thereby.
"Merger" means the merger of ▇▇▇▇▇▇ Merger Subsidiary with and into
Innes Street, with Innes Street as the surviving corporation.
"Merger Effective Date" means that date upon which the articles of
merger as to the Merger are accepted for filing by the Office of the North
Carolina Secretary of State, or such other date as otherwise stated in such
filed articles of merger, in accordance with the NCBCA.
"Merger Consideration" has the meaning given to that term in Section
2.02(a)(i) of this Agreement.
"NCBCA" means the North Carolina Business Corporation Act, as from
time to time amended, and any successor thereto.
"OTS" means the Office of Thrift Supervision.
"Participation Facility" shall have the meaning given to such term in
Section 3.14(b) of this Agreement.
"Pension Plan" has the meaning given to that term in Section 3.12 of
this Agreement.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, trust or "group" (as that
term is defined in Section 13(d)(3) of the Exchange Act).
"Proxy Statement" means the proxy statement, together with any
supplements thereto, to be transmitted to holders of Innes Street Common
Stock in connection with the transactions contemplated by this Agreement.
"Regulatory Agreement" has the meaning given to that term in Section
3.11(c) of this Agreement.
"Regulatory Approvals" means all consents, waivers, approvals,
nonobjections and clearances required to be obtained from or issued by the
OTS, the FRB, the FDIC, the Banking Commission, the Commissioner, the SEC
or the respective staffs thereof in order to complete the transactions
contemplated hereby.
"Regulatory Authority" means any agency or department of any federal,
state or local government, including without limitation the OTS, the FRB,
the FDIC, the Banking Commission, the Commissioner, the SEC or the
respective staffs thereof.
6
"Rights" means warrants, options, rights, convertible securities and
other capital stock equivalents that obligate an entity to issue its
securities or to make payments of cash in lieu of issuing such securities
or in respect to such securities.
"SAIF" means the Savings Association Insurance Fund of the FDIC.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated from time to time thereunder.
"Securities Documents" means all registration statements, schedules,
statements, forms, reports, proxy material, and other documents required to
be filed under the Securities Laws.
"Securities Laws" means the Securities Act and the Exchange Act.
"Subsidiary" means any corporation, 50% or more of the capital stock
of which is owned, either directly or indirectly, by another entity, except
any corporation the stock of which is held as security by either ▇▇▇▇▇▇
Federal or Citizens Bank, as the case may be, in the ordinary course of its
lending activities.
"Surviving Corporation" has the meaning given to that term in Section
2.01(a)(i) of this Agreement.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Effects of Merger; Surviving Corporation.
(a) As of the Merger Effective Date, the following shall occur:
(i) ▇▇▇▇▇▇ Merger Subsidiary shall merge with and into Innes Street;
the separate existence of ▇▇▇▇▇▇ Merger Subsidiary shall cease; Innes Street
shall be the surviving corporation in the Merger (the "Surviving Corporation")
and a wholly owned subsidiary of ▇▇▇▇▇▇ Bancorp; and all of the property (real,
personal and mixed), rights, powers and duties and obligations of ▇▇▇▇▇▇ Merger
Subsidiary shall be taken and deemed to be transferred to and vested in Innes
Street, as the Surviving Corporation in the Merger, without further act or deed;
all in accordance with the NCBCA.
(ii) the Articles of Incorporation of the Surviving Corporation shall
be amended and restated to read in their entirety as the Articles of
Incorporation of ▇▇▇▇▇▇ Merger Subsidiary, in effect immediately prior to the
Merger Effective Date; and the Bylaws of the
7
Surviving Corporation shall be amended and restated to read in their entirety as
the Bylaws of ▇▇▇▇▇▇ Merger Subsidiary, in effect immediately prior to the
Merger Effective Date, until thereafter altered, amended or repealed in
accordance with applicable law.
(iii) the directors of ▇▇▇▇▇▇ Merger Subsidiary duly elected and
holding office immediately prior to the Merger Effective Date shall be the
directors of the Surviving Corporation, each to hold office until his or her
successor is elected and qualified or otherwise in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation.
(iv) the officers of ▇▇▇▇▇▇ Merger Subsidiary duly elected and
holding office immediately prior to the Merger Effective Date shall be the
officers of the Surviving Corporation, each to hold office until his or her
successor is elected and qualified or otherwise in accordance with the Articles
of Incorporation and the Bylaws of the Surviving Corporation.
(b) Notwithstanding any provision of this Agreement to the contrary,
▇▇▇▇▇▇ Bancorp may elect, subject to the filing of all Applications and the
receipt of all Regulatory Approvals, to modify the structure of the transactions
contemplated hereby, and the parties shall enter into such alternative
transactions, so long as (i) there are no adverse tax consequences to any of the
shareholders of Innes Street as a result of such modification, (ii) the Merger
Consideration is not thereby changed in kind or reduced in amount because of
such modification, and (iii) such modification will not be likely to delay or
jeopardize receipt of any Regulatory Approvals or of the tax opinion required
under Sections 6.02(h).
Section 2.02. Conversion of Shares. At the Merger Effective Date, by
virtue of the Merger and without any action on the part of Innes Street or the
holders of shares of Innes Street Common Stock:
(i) Each outstanding share of Innes Street Common Stock issued and
outstanding at the Merger Effective Date, except as provided in clauses (ii) and
(iii) of this Section, shall cease to be outstanding, and shall be converted
into the right to receive $18.50 in cash (the "Merger Consideration").
(ii) Any shares of Innes Street Common Stock which are owned or held by
any party hereto or any of their respective Subsidiaries (other than in a
fiduciary capacity or in connection with debts previously contracted) at the
Merger Effective Date shall be deemed cancelled and the certificates for such
shares shall be deemed retired, such shares shall not be converted into the
Merger Consideration, and no cash or shares of capital stock of ▇▇▇▇▇▇ Bancorp
shall be issued or exchanged therefor.
(iii) The Surviving Corporation shall pay for any Dissenters' Shares in
accordance with the NCBCA, and the holders thereof shall not be entitled to
receive any Merger Consideration; provided, that if dissenters' rights under the
NCBCA with respect to any Dissenters' Shares shall have been effectively
withdrawn or lost, such shares will thereupon
8
cease to be treated as Dissenters' Shares and shall be converted into the right
to receive the Merger Consideration pursuant to Section 2.02(i).
(iv) Each share of ▇▇▇▇▇▇ Merger Subsidiary common stock issued and
outstanding immediately before the Merger Effective Date shall be converted into
and become an outstanding share of common stock of the Surviving Corporation.
(v) The holders of certificates representing shares of Innes Street
Common Stock (any such certificate being hereinafter referred to as a
"Certificate") shall cease to have any rights as shareholders of Innes Street,
except such rights, if any, as they may have pursuant to applicable law and this
Agreement.
Section 2.03. Exchange Procedures.
(a) As promptly as practicable after the Merger Effective Date, and in any
event within five (5) Business Days thereafter, the Exchange Agent shall mail to
each holder of record of outstanding shares of Innes Street Common Stock a
letter of transmittal in form and substance reasonably acceptable to Innes
Street ("Letter of Transmittal") containing instructions for the surrender of
the Certificate(s) held by such holder for payment therefore. Upon a holder's
surrender of the Certificate(s) to the Exchange Agent in accordance with the
instructions set forth in the Letter of Transmittal, such holder shall promptly
receive in exchange therefor the Merger Consideration, without interest thereon.
Approval of this Agreement by the shareholders of Innes Street shall constitute
authorization for ▇▇▇▇▇▇ Bancorp to designate and appoint the Exchange Agent.
Neither ▇▇▇▇▇▇ Bancorp nor the Exchange Agent shall be obligated to deliver the
Merger Consideration to a former shareholder of Innes Street until such former
shareholder surrenders his Certificate(s).
(b) If payment of the Merger Consideration is to be made to a Person other
than the Person in whose name a Certificate surrendered in exchange therefore is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed (or accompanied by an appropriate
instrument of transfer) and otherwise in proper form for transfer, and that the
Person requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a Person other than the registered holder of the
Certificate surrendered, or required for any other reason, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(c) On or prior to the day following the Merger Effective Date, ▇▇▇▇▇▇
Bancorp and/or ▇▇▇▇▇▇ Federal shall deposit or cause to be deposited, in trust
with the Exchange Agent, an amount of cash equal to the aggregate Merger
Consideration that the Innes Street shareholders shall be entitled to receive on
the Merger Effective Date pursuant to Section 2.02 hereof.
(d) The payment of the Merger Consideration upon the exchange of Innes
Street Common Stock in accordance with the terms and conditions hereof shall
constitute full satisfaction of all rights pertaining to such Innes Street
Common Stock.
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(e) Promptly following the date which is twelve (12) months after the
Merger Effective Date, the Exchange Agent shall deliver to ▇▇▇▇▇▇ Bancorp all
cash, Certificates and other documents in its possession relating to the
transactions described in this Agreement, and the Exchange Agent's duties shall
terminate. Thereafter, each holder of a Certificate formerly representing
shares of Innes Street Common Stock may surrender such Certificate to ▇▇▇▇▇▇
Bancorp and (subject to applicable abandoned property, escheat and similar laws)
receive in consideration therefore the Merger Consideration multiplied by the
number of shares of Innes Street Common Stock formerly represented by such
Certificate, without any interest or dividends thereon.
(f) As of the close of business on the Merger Effective Date, there shall
be no transfers on the stock transfer books of Innes Street of the shares of
Innes Street Common Stock which are outstanding immediately prior to the Merger
Effective Date, and the stock transfer books of Innes Street shall be closed
with respect to such shares. If, after the Merger Effective Date, Certificates
representing such shares are presented for transfer to the Exchange Agent, they
shall be canceled and exchanged for the Merger Consideration as provided in this
Article II.
(g) In the event any Certificate for Innes Street Common Stock shall have
been lost, stolen or destroyed, the Exchange Agent shall deliver (except as
otherwise provided in Section 2.02(iii)) in exchange for such lost, stolen or
destroyed certificate, upon the making of an affidavit of the fact by the holder
thereof, the cash to be paid in the Merger as provided for herein; provided,
however, that ▇▇▇▇▇▇ Bancorp may, in its sole discretion and as a condition
precedent to the delivery thereof, require the owner of such lost, stolen or
destroyed Certificate to deliver a bond in such reasonable sum as ▇▇▇▇▇▇ Bancorp
may determine as indemnity against any claim that may be made against Innes
Street, ▇▇▇▇▇▇ Bancorp or any other party with respect to the Certificate
alleged to have been lost, stolen or destroyed.
Section 2.04. Stock Options. At the Merger Effective Date, each Innes
Street Option, whether or not such option is exercisable as of the Merger
Effective Date, shall, by reason of the Merger, cease to be outstanding and be
converted into the right to receive in cash an amount equal to (i) the
difference (if a positive number) between (A) the Merger Consideration and (B)
the exercise price of each such Innes Street Option multiplied by (ii) the
number of shares of Innes Street Common Stock subject to the Innes Street
Option.
Section 2.05. Restricted Stock. At the Merger Effective Date, each
unvested share of restricted stock awarded pursuant to the Innes Street
Restricted Stock Plan shall automatically vest and the holder thereof shall be
entitled to receive the Merger Consideration.
Section 2.06. Depositors. As a result of the Bank Merger, each holder of
a deposit account at Citizens Bank shall become a holder of a deposit account at
▇▇▇▇▇▇ Federal with the same rights, privileges and obligations as a member of
▇▇▇▇▇▇ MHC as a holder of a deposit account at ▇▇▇▇▇▇ Federal at the effective
time of the Bank Merger. In any mutual-to-stock conversion of ▇▇▇▇▇▇ MHC, to
the extent permitted by Regulatory Authorities, all deposit
10
accounts established at Citizens Bank prior to the effective time of the Bank
Merger shall be deemed to have been established at ▇▇▇▇▇▇ Federal on the date
that they were established at Citizens Bank.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INNES STREET AND CITIZENS
BANK
Innes Street and Citizens Bank represent and warrant to ▇▇▇▇▇▇ Bancorp and
▇▇▇▇▇▇ Federal that the statements contained in this Article III are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article III), except
as set forth in the Innes Street Disclosure Schedules delivered by Innes Street
to ▇▇▇▇▇▇ Bancorp on the date hereof, and except as to any representation or
warranty which specifically relates to an earlier date. Innes Street and
Citizens Bank have made a good faith effort to ensure that the disclosure on
each schedule of the Innes Street Disclosure Schedules corresponds to the
section reference herein. However, for purposes of the Innes Street Disclosure
Schedules, any item disclosed on any schedule therein is deemed to be fully
disclosed with respect to all schedules under which such item may be relevant.
Section 3.01 Organization.
(a) Innes Street is a corporation duly organized, validly existing and in
good standing under the NCBCA, and is duly registered as a bank holding company
under the Bank Holding Company Act of ▇▇▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇ has full corporate
power and authority to carry on its business as now conducted and is duly
licensed or qualified to do business in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or the conduct
of its business requires such qualification, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Innes Street.
(b) Citizens Bank is a savings bank organized, validly existing and in
good standing under the laws of the State of North Carolina. Citizens Bank is
the only Subsidiary of Innes Street. The deposits of Citizens Bank are insured
by the FDIC through the SAIF to the fullest extent permitted by law, and all
premiums and assessments required to be paid in connection therewith have been
paid by Citizens Bank when due. Citizens Bank has no Subsidiary.
(c) Citizens Bank is a member in good standing of the FHLB of Atlanta and
owns the requisite amount of stock therein.
(d) The respective minute books of Innes Street and Citizens Bank
accurately records, in all material respects, all material corporate actions of
their respective shareholders and boards of directors (including committees)
through the date of this Agreement.
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(e) Prior to the date of this Agreement, Innes Street has made available
to ▇▇▇▇▇▇ Bancorp true and correct copies of the articles or certificate of
incorporation and bylaws of Innes Street and Citizens Bank.
Section 3.02 Capitalization.
(a) The authorized capital stock of Innes Street consists of 20,000,000
shares of common stock, no par value ("Innes Street Common Stock"), of which
1,974,325 shares are outstanding, validly issued, fully paid and nonassessable
and free of preemptive rights, and 5,000,000 shares of preferred stock, no par
value ("Innes Street Preferred Stock"), none of which are outstanding. There are
no shares of Innes Street Common Stock held by Innes Street as treasury stock.
Neither Innes Street nor Citizens Bank has or is bound by any Rights or other
agreements of any character relating to the purchase, sale or issuance or voting
of, or right to receive dividends or other distributions on any shares of Innes
Street Common Stock, or any other security of Innes Street or any securities
representing the right to vote, purchase or otherwise receive any shares of
Innes Street Common Stock or any other security of Innes Street, other than
shares issuable under the Innes Street Stock Option Plan. Innes Street
DISCLOSURE SCHEDULE 3.02(a) sets forth the name of each holder of awards under
the Innes Street Restricted Stock Plan and Innes Street Stock Options under the
Innes Street Stock Option Plan, the number of shares each such individual may
acquire pursuant to the exercise of Innes Street Stock Options, the number of
shares of restricted stock held by each such individual under the Innes Street
Restricted Stock Plan, the vesting dates, and the exercise price relating to the
Innes Street Stock Options.
(b) Innes Street owns all of the capital stock of Citizens Bank, free and
clear of any lien or encumbrance. Except for Citizens Bank, Innes Street does
not possess, directly or indirectly, any material equity interest in any
corporate entity, except for equity interests held in the investment portfolios
of Citizens Bank, equity interests held by Citizens Bank in a fiduciary
capacity, and equity interests held in connection with the lending activities of
Citizens Bank, including stock in the FHLB of Atlanta.
(c) To Innes Street's Knowledge, no Person, is the beneficial owner (as
defined in Section 13(d) of the Exchange Act) of 5% or more of the outstanding
shares of Innes Street Common Stock.
Section 3.03 Authority; No Violation.
(a) Innes Street and Citizens Bank each has full corporate power and
authority to execute and deliver this Agreement and, subject to a favorable vote
of the Innes Street shareholders and receipt of all Regulatory Approvals, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Innes Street and Citizens Bank and the completion by Innes
Street and Citizens Bank of the transactions contemplated hereby, up to and
including the Merger, have been duly and validly approved by the Boards of
Directors of Innes Street and Citizens Bank, and, except for approval of the
shareholders of Innes
12
Street, no other corporate proceedings on the part of Innes Street or Citizens
Bank are necessary to complete the transactions contemplated hereby, up to and
including the Merger. This Agreement has been duly and validly executed and
delivered by Innes Street and Citizens Bank, and the Bank Merger has been duly
and validly approved by the Board of Directors of Citizens Bank, and by Innes
Street in its capacity as sole shareholder of Citizens Bank, and subject to
approval by the shareholders of Innes Street and receipt of the Regulatory
Approvals, constitutes the valid and binding obligations of Innes Street and
Citizens Bank, enforceable against Innes Street and Citizens Bank in accordance
with its terms, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally, and as to Citizens Bank, the
conservatorship or receivership provisions of the FDIA, and subject, as to
enforceability, to general principles of equity.
(b) (A) The execution and delivery of this Agreement by Innes Street and
Citizens Bank, (B) subject to receipt of all Regulatory Approvals, and the
compliance by Innes Street and ▇▇▇▇▇▇ Bancorp with any conditions contained
therein, and subject to the receipt of the approval of shareholders of Innes
Street, the consummation of the transactions contemplated hereby, and (C)
compliance by Innes Street and Citizens Bank with all of the terms or provisions
hereof will not (i) conflict with or result in a breach of any provision of the
articles of incorporation or bylaws of Innes Street or the charter and bylaws of
Citizens Bank; (ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Innes Street or
Citizens Bank or any of their respective properties or assets; or (iii) violate,
conflict with, result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration or the creation
of any lien, security interest, charge or other encumbrance upon any of the
properties or assets of Innes Street or Citizens Bank under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other investment or obligation to which Innes
Street or Citizens Bank is a party, or by which they or any of their respective
properties or assets may be bound or affected, except for such violations,
conflicts, breaches or defaults under clause (ii) or (iii) hereof which, either
individually or in the aggregate, will not have a Material Adverse Effect on
Innes Street and Citizens Bank taken as a whole.
Section 3.04 Consents. Except for the receipt of the Regulatory Approvals
and compliance with any conditions contained therein, the approval of this
Agreement by the shareholders of Innes Street, the filing of articles of merger
with the Office of the North Carolina Secretary of State pursuant to the NCBCA,
and the filing of articles of combination with the OTS, no consents or approvals
of, or filings or registrations with, any public body or authority are
necessary, and no consents or approvals of any Persons are necessary, or will
be, in connection with (a) the execution and delivery of this Agreement by Innes
Street and Citizens Bank, and (b) the completion by Innes Street and Citizens
Bank of the transactions contemplated hereby. Innes Street and Citizens Bank
have no reason to believe that (i) any Regulatory Approvals will not be received
or that (ii) any public body or authority, the consent or approval of which is
not required or to which a filing is not required, will object to the completion
of the transactions contemplated by this Agreement.
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Section 3.05 Financial Statements.
(a) Innes Street has previously made available to ▇▇▇▇▇▇ Bancorp the Innes
Street Regulatory Reports. The Innes Street Regulatory Reports have been
prepared in all material respects in accordance with applicable regulatory
accounting principles and practices throughout the periods covered by such
statements, and fairly present in all material respects, the consolidated
financial position, results of operations and changes in shareholders' equity of
Innes Street as of and for the periods ended on the dates thereof, in accordance
with applicable regulatory accounting principles applied on a consistent basis.
(b) Innes Street has previously made available to ▇▇▇▇▇▇ Bancorp the Innes
Street Financials. The Innes Street Financials have been prepared in accordance
with GAAP, and (including the related notes where applicable) fairly present in
each case in all material respects (subject in the case of the unaudited interim
statements to normal year-end adjustments), the consolidated financial position,
results of operations and cash flows of Innes Street and Citizens Bank on a
consolidated basis as of and for the respective periods ending on the dates
thereof, in accordance with GAAP applied on a consistent basis during the
periods involved, except as indicated in the notes thereto, or in the case of
unaudited statements, as permitted by Form 10-Q.
(c) At the date of each balance sheet included in the Innes Street
Financials or the Innes Street Regulatory Reports, Innes Street did not have any
liabilities, obligations or loss contingencies of any nature (whether absolute,
accrued, contingent or otherwise) of a type required to be reflected in such
Innes Street Financials or Innes Street Regulatory Reports or in the footnotes
thereto which are not fully reflected or reserved against therein or fully
disclosed in a footnote thereto, except for liabilities, obligations and loss
contingencies which are not material individually or in the aggregate or which
are incurred in the ordinary course of business, consistent with past practice,
and except for liabilities, obligations and loss contingencies which are within
the subject matter of a specific representation and warranty herein and subject,
in the case of any unaudited statements, to normal, recurring audit adjustments
and the absence of footnotes.
Section 3.06 Taxes. Innes Street and Citizens Bank are members of the same
affiliated group within the meaning of Code Section 1504(a). Innes Street has
duly filed all federal, state and material local tax returns required to be
filed by or with respect to Innes Street and Citizens Bank on or prior to the
Merger Effective Date (all such returns being accurate and correct in all
material respects) and has duly paid or made provisions for the payment of all
material federal, state and local taxes which have been incurred by or are due
or claimed to be due from Innes Street and Citizens Bank by any taxing authority
or pursuant to any written tax sharing agreement on or prior to the Closing Date
other than taxes or other charges which (i) are not delinquent, (ii) are being
contested in good faith, or (iii) have not yet been fully determined. As of the
date of this Agreement, there is no audit examination, deficiency assessment,
tax investigation or refund litigation with respect to any taxes of Innes Street
or any of its Subsidiaries, and no claim has been made by any authority in a
jurisdiction where Innes Street or
14
any of its Subsidiaries do not file tax returns that Innes Street or any such
Subsidiary is subject to taxation in that jurisdiction. Innes Street and its
Subsidiaries have not executed an extension or waiver of any statute of
limitations on the assessment or collection of any material tax due that is
currently in effect. Innes Street and each of its Subsidiaries has withheld and
paid all taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
shareholder or other third party, and Innes Street and each of its Subsidiaries
has timely complied with all applicable information reporting requirements under
Part III, Subchapter A of Chapter 61 of the Code and similar applicable state
and local information reporting requirements.
Section 3.07. No Material Adverse Effect. Innes Street has not suffered any
Material Adverse Effect since September 30, 2000.
Section 3.08. Material Contracts; Leases; Defaults.
(a) Except for this Agreement, and those agreements and other documents
filed as exhibits to Innes Street's Securities Documents, neither Innes Street
nor Citizens Bank is a party to, bound by or subject to (i) agreement, contract,
arrangement, commitment or understanding (whether written or oral) that is a
"material contract" within the meaning of Item 601(b)(10) of the SEC's
Regulation S-K (ii) any collective bargaining agreement with any labor union
relating to employees of Innes Street or Citizens Bank; (iii) any agreement
which by its terms limits the payment of dividends by Innes Street or Citizens
Bank; (iv) any instrument evidencing or related to material indebtedness for
borrowed money whether directly or indirectly, by way of purchase money
obligation, conditional sale, lease purchase, guaranty or otherwise, in respect
of which Innes Street or Citizens Bank is an obligor to any Person, which
instrument evidences or relates to indebtedness other than deposits, repurchase
agreements, FHLB of Atlanta advances, bankers' acceptances, "treasury tax and
loan" accounts established in the ordinary course of business and transactions
in "federal funds" or which contains financial covenants or other restrictions
(other than those relating to the payment of principal and interest when due)
which would be applicable on or after the Merger Effective Date to ▇▇▇▇▇▇
Bancorp or any ▇▇▇▇▇▇ Bancorp Subsidiary; (v) any contract (other than this
Agreement) limiting the freedom, in any material respect, of Innes Street or
Citizens Bank to engage in any type of banking or bank-related business which
Innes Street or Citizens Bank is permitted to engage in under applicable law as
of the date of this Agreement or (vi) any agreement, contract, arrangement,
commitment or understanding (whether written or oral) that restricts or limits
in any material way the conduct of business by Innes Street or Citizens Bank (it
being understood that any non-compete or similar provision shall be deemed
material).
(b) Each real estate lease that may require the consent of the lessor or
its agent resulting from the Company Merger or the Bank Merger by virtue of a
prohibition or restriction relating to assignment, by operation of law or
otherwise, or change in control, is listed in Innes Street DISCLOSURE SCHEDULE
3.08(b) identifying the section of the lease that contains such prohibition or
restriction. Neither Innes Street nor Citizens Bank is in default in any
material respect under any material contract, agreement, commitment,
arrangement, lease, insurance
15
policy or other instrument to which it is a party, by which its assets,
business, or operations may be bound or affected, or under which it or its
assets, business, or operations receive benefits, and there has not occurred any
event that, with the lapse of time or the giving of notice or both, would
constitute such a default.
(c) True and correct copies of agreements, plans, contracts, arrangements
and instruments referred to in Section 3.08(a) and (b), have been made available
to ▇▇▇▇▇▇ Bancorp on or before the date hereof, are listed on Innes Street
DISCLOSURE SCHEDULE 3.08(a) and are in full force and effect on the date hereof
and neither Innes Street nor Citizens Bank (nor, to the Knowledge of Innes
Street, any other party to any such contract, plan, arrangement or instrument)
has materially breached any provision of, or is in default in any respect under
any term of, any such contract, plan, arrangement or instrument. No party to any
material contract, plan, arrangement or instrument will have the right to
terminate any or all of the provisions of any such contract, plan, arrangement
or instrument as a result of the execution of, and the transactions contemplated
by, this Agreement, or require the payment of an early termination fee or
penalty. No plan, contract, or similar agreement or arrangement to which Innes
Street or Citizens Bank is a party or under which Innes Street or Citizens Bank
may be liable contains provisions which permit an independent contractor to
terminate it without cause and continue to accrue future benefits thereunder.
Section 3.09. Ownership of Property; Insurance Coverage.
(a) Innes Street and the Citizens Bank each has good and, as to real
property, marketable title to all material assets and properties owned by Innes
Street or Citizens Bank in the conduct of their business, whether such assets
and properties are real or personal, tangible or intangible, including assets
and property reflected in the balance sheets contained in the Innes Street
Regulatory Reports and in the Innes Street Financials or acquired subsequent
thereto (except to the extent that such assets and properties have been disposed
of in the ordinary course of business, since the date of such balance sheets),
subject to no material liens, mortgages, security interests or pledges, or to
the knowledge of Innes Street, encumbrances, except (i) those items which secure
liabilities for public or statutory obligations or any discount with, borrowing
from or other obligations to FHLB of Atlanta, inter-bank credit facilities, or
any transaction by Citizens Bank acting in a fiduciary capacity, and (ii)
statutory liens for amounts not yet delinquent or which are being contested in
good faith. Innes Street and Citizens Bank, as lessee, have the right under
valid and subsisting leases of real and personal properties used by Innes Street
and Citizens Bank in the conduct of their business to occupy or use all such
properties as presently occupied and used by each of them. Such existing leases
and commitments to lease constitute or will constitute operating leases for both
tax and financial accounting purposes and the lease expense and minimum rental
commitments with respect to such leases and lease commitments are as disclosed
in the notes to the Innes Street Financials.
(b) With respect to all material agreements pursuant to which Innes Street
or Citizens Bank has purchased securities subject to an agreement to resell, if
any, Innes Street or Citizens Bank has a lien or security interest (which to
Innes Street's Knowledge is a valid, perfected first
16
lien) in the securities or other collateral securing the repurchase agreement,
and the value of such collateral equals or exceeds the amount of the debt
secured thereby.
(c) Innes Street and Citizens Bank each currently maintains insurance
considered by Innes Street to be reasonable for their respective operations.
Innes Street has not received notice from any insurance carrier that (i) such
insurance will be canceled or that coverage thereunder will be reduced or
eliminated, or (ii) premium costs with respect to such policies of insurance
will be substantially increased. There are presently no material claims pending
under such policies of insurance and no notices have been given by Innes Street
under such policies. All such insurance is valid and enforceable and in full
force and effect, and within the last three (3) years Innes Street has received
each type of insurance coverage for which it has applied and during such periods
has not been denied indemnification for any material claims submitted under any
of its insurance policies. Innes Street DISCLOSURE SCHEDULE 3.09 identifies all
policies of insurance maintained by Innes Street and Citizens Bank.
Section 3.10. Legal Proceedings. Neither Innes Street nor Citizens Bank is
a party to any, and there are no pending or, to Innes Street's Knowledge,
threatened legal, administrative, arbitration or other proceedings, claims
(whether asserted or unasserted), actions or governmental investigations or
inquiries of any nature (i) against Innes Street or Citizens Bank (other than
routine bank regulatory examinations), (ii) to which Innes Street or Citizens
Bank's assets are or may be subject, (iii) challenging the validity or propriety
of any of the transactions contemplated by this Agreement, or (iv) which could
adversely affect the ability of Innes Street or Citizens Bank to perform under
this Agreement, except for any proceedings, claims, actions, investigations or
inquiries referred to in clauses (i) or (ii) which, if adversely determined,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on Innes Street and Citizens Bank, taken as a whole.
Section 3.11 Compliance With Applicable Law.
(a) Since January 1, ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ and Citizens Bank each was, and
is, in substantial compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable to it, its properties, assets and deposits, its business, and
its conduct of business and its relationship with its employees, including,
without limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act of 1977, the Home Mortgage Disclosure Act and all
other applicable fair lending laws and other laws relating to discriminatory
business practices.
(b) Innes Street and Citizens Bank each has all material permits,
licenses, authorizations, orders and approvals of, and has made all filings,
applications and registrations with, all Regulatory Authorities that are
required in order to permit it to own or lease its properties and to conduct its
business as presently conducted; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect and, to the
Knowledge of Innes Street, no suspension or cancellation of any such permit,
license, certificate, order or
17
approval is threatened or will result from the consummation of the transactions
contemplated by this Agreement.
(c) Neither Innes Street nor Citizens Bank has received any notification
or communication from any Regulatory Authority (i) asserting that Innes Street
or Citizens Bank is not in material compliance with any of the statutes,
regulations or ordinances that such Regulatory Authority enforces; (ii)
threatening to revoke any license, franchise, permit or governmental
authorization that is material to Innes Street or Citizens Bank; (iii) requiring
or threatening to require Innes Street or Citizens Bank, or indicating that
Innes Street or Citizens Bank may be required, to enter into a cease and desist
order, agreement or memorandum of understanding or any other agreement with any
federal or state governmental agency or authority that is charged with the
supervision or regulation of banks or engages in the insurance of bank deposits
restricting or limiting, or purporting to restrict or limit, in any material
respect the operations of Innes Street or Citizens Bank, including without
limitation any restriction on the payment of dividends; or (iv) directing,
restricting or limiting, or purporting to direct, restrict or limit, in any
manner the operations of Innes Street or Citizens Bank, including without
limitation any restriction on the payment of dividends (any such notice,
communication, memorandum, agreement or order described in this sentence is
hereinafter referred to as a "Regulatory Agreement"). Neither Innes Street nor
Citizens Bank has consented to or entered into any currently effective
Regulatory Agreement. The most recent regulatory rating given to Citizens Bank
as to compliance with the Community Reinvestment Act ("CRA") is satisfactory or
better.
Section 3.12 Employee Benefit Plans.
(a) Innes Street DISCLOSURE SCHEDULE 3.12 includes a list of all existing
bonus, incentive, deferred compensation, pension, retirement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock, stock option, stock appreciation, phantom stock, severance,
welfare and fringe benefit plans, employment, severance and change in control
agreements and all other benefit practices, policies and arrangements maintained
by Innes Street or Citizens Bank in which any employee or former employee,
consultant or former consultant or director or former director of Innes Street
or Citizens Bank participates or to which any such employee, consultant or
director is a party or is otherwise entitled to receive benefits other than
plans and programs involving immaterial obligations (the "Compensation and
Benefit Plans"). Neither Innes Street nor Citizens Bank has any commitment to
create any additional Compensation and Benefit Plan or to modify, change or
renew any existing Compensation and Benefit Plan, except as required to maintain
the qualified status thereof. Innes Street has made available to ▇▇▇▇▇▇ Bancorp
true and correct copies of the Compensation and Benefit Plans.
(b) Each Compensation and Benefit Plan has been operated and administered
in all material respects in accordance with its terms and with applicable law,
including, but not limited to, ERISA, the Code, the Securities Act, the Exchange
Act, the
18
Age Discrimination in Employment Act, and any regulations or rules promulgated
thereunder, and all material filings, disclosures and notices required by ERISA,
the Code, the Securities Act, the Exchange Act, the Age Discrimination in
Employment Act and any other applicable law have been timely made. Each
Compensation and Benefit Plan which is an "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA (a "Pension Plan") and which is intended to
be qualified under Section 401(a) of the Code has received a favorable
determination letter from the IRS, or uses a regional prototype document that
has received a favorable determination letter, and Innes Street is not aware of
any circumstances which are reasonably likely to result in revocation of any
such favorable determination letter. There is no material pending or, to the
Knowledge of Innes Street, threatened action, suit or claim relating to any of
the Compensation and Benefit Plans (other than routine claims for benefits).
Neither Innes Street nor Citizens Bank has engaged in a transaction, or omitted
to take any action, with respect to any Compensation and Benefit Plan that would
reasonably be expected to subject Innes Street or Citizens Bank to a tax or
penalty imposed by either Section 4975 of the Code or Section 502 of ERISA,
assuming for purposes of Section 4975 of the Code that the taxable period of any
such transaction expired as of the date hereof and subsequently expires as of
the day next preceding the Merger Effective Date.
(c) Neither Innes Street, Citizens Bank nor any entity which is considered
one employer with Innes Street under Section 4001(a)(14) of ERISA or Section
414(b) or (c) of the Code (an "ERISA Affiliate") is a sponsor of or maintains a
defined benefit Pension Plan or any Compensation and Benefit Plan subject to
Title IV of ERISA, or has any liability under any such plan that was previously
sponsored or maintained by it. No notice of a "reportable event", within the
meaning of Section 4043 of ERISA for which the 30-day reporting requirement has
not been waived, has been required to be filed for any Compensation and Benefit
Plan or by any single employer plan of an ERISA Affiliate (an "ERISA Affiliate
Plan") within the twelve (12) months ending on the date hereof. To the Knowledge
of Innes Street, there is no pending investigation or enforcement action by any
Regulatory Authority with respect to any Compensation and Benefit Plan or any
ERISA Affiliate Plan.
(d) All material contributions required to be made under the terms of any
Compensation and Benefit Plan or ERISA Affiliate Plan or any employee benefit
arrangements to which Innes Street or Citizens Bank is a party or a sponsor have
been timely made, and all anticipated contributions and funding obligations are
accrued monthly on Innes Street's consolidated financial statements. Innes
Street and its Subsidiaries have expensed and accrued as a liability the present
value of future benefits under each applicable Compensation and Benefit Plan in
accordance with GAAP consistently applied. Neither any Pension Plan nor any
ERISA Affiliate Plan has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of ERISA.
None of Innes Street, Citizens Bank nor any ERISA Affiliate (x) has provided, or
would reasonably be expected to be required to provide, security to any Pension
Plan or to any ERISA Affiliate Plan pursuant to Section 401(a)(29) of the Code,
or (y) has taken any action, or omitted to take any action, that has resulted,
or would reasonably be expected to result, in the imposition of a Lien under
Section 412(n) of the Code or pursuant to ERISA.
19
(e) Neither Innes Street nor Citizens Bank has any obligations to provide
retiree health, life insurance, disability insurance, or other retiree death
benefits under any Compensation and Benefit Plan, other than benefits mandated
by Section 4980B of the Code. There has been no communication to employees by
Innes Street or Citizens Bank that would reasonably be expected to promise or
guarantee such employees retiree health, life insurance, disability insurance,
or other retiree death benefits.
(f) Innes Street and Citizens Bank do not maintain any Compensation and
Benefit Plans covering employees who are not United States residents.
(g) With respect to each Compensation and Benefit Plan, if applicable,
Innes Street has provided or made available to ▇▇▇▇▇▇ Bancorp copies of the: (A)
trust instruments and insurance contracts; (B) most recent Form 5500 filed with
the IRS; (C) most recent actuarial report and financial statement; (D) the most
recent summary plan description; (E) most recent determination letter issued by
the IRS; (F) any Form 5310 or Form 5330 filed with the IRS; and (G) most recent
nondiscrimination tests performed under ERISA and the Code (including 401(k) and
401(m) tests).
(h) The consummation of the Merger will not, directly or indirectly
(including, without limitation, as a result of any termination of employment or
service at any time prior to or following the Merger Effective Date) (A) entitle
any employee, consultant or director to any payment or benefit (including
severance pay, change in control benefit, or similar compensation) or any
increase in compensation, (B) result in the vesting or acceleration of any
benefits under any Compensation and Benefit Plan or (C) result in any material
increase in benefits payable under any Compensation and Benefit Plan.
(i) Neither Innes Street nor Citizens Bank maintains any compensation
plans, programs or arrangements under which any payment is reasonably likely to
become non-deductible, in whole or in part, for tax reporting purposes as a
result of the limitations under Section 162(m) of the Code and the regulations
issued thereunder.
(j) The consummation of the Merger will not, directly or indirectly
(including without limitation, as a result of any termination of employment or
service at any time prior to or following the Merger Effective Date), entitle
any current or former employee, director or independent contractor of Innes
Street or Citizens Bank to any actual or deemed payment (or benefit) which would
constitute a "parachute payment" (as such term is defined in Section 280G of the
Code).
(k) There are no stock appreciation or similar rights, earned dividends or
dividend equivalents, or shares of restricted stock, outstanding under any of
the Compensation and Benefit Plan or otherwise as of the date hereof and none
will be granted, awarded, or credited after the date hereof.
20
Section 3.13 Brokers, Finders and Financial Advisors. Except for the
engagement of Trident Securities, a division of McDonald Investments, Inc.
("Trident") in connection with the transactions contemplated by this agreement,
neither Innes Street nor Citizens Bank, nor any of their respective officers,
directors, employees or agents, has employed any broker, finder or financial
advisor in connection with the transactions contemplated by this Agreement, or
incurred any liability or commitment for any fees or commissions to any such
Person in connection with the transactions contemplated by this Agreement, which
has not been reflected in the Innes Street Financials.
Section 3.14. Environmental Matters.
(a) With respect to Innes Street and Citizens Bank:
(i) Each of Innes Street and Citizens Bank, the Participation
Facilities, and, to Innes Street's Knowledge, the Loan Properties are, and have
been, in substantial compliance with, and are not liable under, any
Environmental Laws;
(ii) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or, to
Innes Street's Knowledge, threatened, before any court, governmental agency or
board or other forum against it or Citizens Bank or any Participation Facility
(x) for alleged noncompliance (including by any predecessor) with, or liability
under, any Environmental Law or (y) relating to the presence of or release (as
defined herein) into the environment of any Hazardous Material (as defined
herein), whether or not occurring at or on a site owned, leased or operated by
it or Citizens Bank or any Participation Facility;
(iii) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or, to
Innes Street's Knowledge threatened, before any court, governmental agency or
board or other forum relating to or against any Loan Property (or Innes Street
or Citizens Bank in respect of such Loan Property) (x) relating to alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the presence of or release into the
environment of any Hazardous Material, whether or not occurring at or on a site
owned, leased or operated by a Loan Property;
(iv) To Innes Street's Knowledge, the properties currently owned or
operated by Innes Street or Citizens Bank (including, without limitation, soil,
groundwater or surface water on, under or adjacent to the properties, and
buildings thereon) are not contaminated with and do not otherwise contain any
Hazardous Material other than as permitted under applicable Environmental Law;
(v) Neither Innes Street nor Citizens Bank has received any notice,
demand letter, executive or administrative order, directive or request for
information from any federal, state, local or foreign governmental entity or any
other Person indicating that it may be in violation of, or liable under, any
Environmental Law;
21
(vi) To Innes Street's Knowledge, there are no underground storage
tanks on, in or under any properties owned or operated by Innes Street or
Citizens Bank or any Participation Facility, and no underground storage tanks
have been closed or removed from any properties owned or operated by Innes
Street or Citizens Bank or any Participation Facility; and
(vii) To Innes Street's Knowledge, during the period of (s) Innes
Street's or Citizens Bank's ownership or operation of any of their respective
current properties or (t) Innes Street's or Citizens Bank's participation in the
management of any Participation Facility, there has been no contamination by or
release of Hazardous Materials in, on, under or affecting such properties. To
Innes Street's Knowledge, prior to the period of (x) Innes Street's or Citizens
Bank's ownership or operation of any of their respective current properties or
(y) Innes Street's or Citizens Bank's participation in the management of any
Participation Facility, there was no contamination by or release of Hazardous
Material in, on, under or affecting such properties.
(b) "Loan Property" means any property in which the applicable party (or a
Subsidiary of it) holds a security interest, and, where required by the context,
includes the owner or operator of such property, but only with respect to such
property. "Participation Facility" means any facility in which the applicable
party (or a Subsidiary of it) participates in the management (including all
property held as trustee or in any other fiduciary capacity) and, where required
by the context, includes the owner or operator of such property, but only with
respect to such property.
Section 3.15. Loan Portfolio.
(a) The allowance for possible losses reflected in the consolidated
balance sheet contained in the Innes Street Financials as of September 30, 2000
was, and the allowance for possible losses shown on the consolidated balance
sheets contained in the Innes Street Financials for periods ending after
September 30, 2000 were and will be, adequate, as of the dates thereof, under
GAAP.
(b) Innes Street DISCLOSURE SCHEDULE 3.15 sets forth a listing, as of the
last Business Day prior to the date of this Agreement, by account, of: (A) all
loans (including loan participations) of Innes Street or Citizens Bank that have
been accelerated during the past twelve (12) months; (B) all loan commitments or
lines of credit of Innes Street or Citizens Bank that have been terminated by
Innes Street or Citizens Bank during the past twelve (12) months by reason of a
default or adverse developments in the condition of the borrower or other events
or circumstances affecting the credit of the borrower; (C) all loans, lines of
credit and loan commitments as to which Innes Street or Citizens Bank has given
written notice of its intent to terminate during the past twelve (12) months;
(D) with respect to all commercial loans (including commercial real estate
loans), all notification letters and other written communications from Innes
Street or Citizens Bank to any of their respective borrowers, customers or other
parties during the past twelve (12) months wherein Innes Street or Citizens Bank
has requested or demanded that actions be taken to correct existing defaults or
facts or circumstances which may
22
become defaults; (E) each borrower, customer or other party which has notified
Innes Street or Citizens Bank during the past twelve (12) months of, or has
asserted against Innes Street or Citizens Bank, in each case in writing, any
"lender liability" or similar claim, and, to the Knowledge of Innes Street, each
borrower, customer or other party which has given Innes Street or Citizens Bank
any oral notification of, or orally asserted to or against Innes Street or
Citizens Bank, any such claim; (F) all loans, (1) that are contractually past
due 90 days or more in the payment of principal and/or interest, (2) that are on
non-accrual status, (3) that as of the date of this Agreement are classified as
"Other Loans Specially Mentioned", "Special Mention", "Substandard", "Doubtful",
"Loss", "Classified", "Criticized", "Watch list" or words of similar import,
together with the principal amount of and accrued and unpaid interest on each
such Loan and the identity of the obligor thereunder, (4) where a reasonable
doubt exists as to the timely future collectibility of principal and/or
interest, whether or not interest is still accruing or the loans are less than
90 days past due, (5) where the interest rate terms have been reduced and/or the
maturity dates have been extended subsequent to the agreement under which the
loan was originally created due to concerns regarding the borrower's ability to
pay in accordance with such initial terms, or (6) where a specific reserve
allocation exists in connection therewith, and (G) all assets classified by
Innes Street or Citizens Bank as real estate acquired through foreclosure or in
lieu of foreclosure, including in-substance foreclosures, and all other assets
currently held that were acquired through foreclosure or in lieu of foreclosure.
(c) All loans receivable (including discounts) and accrued interest
entered on the books of Innes Street and Citizens Bank arose out of bona fide
arm's-length transactions, were made for good and valuable consideration in the
ordinary course of Innes Street's or Citizens Bank's respective business, and
the notes or other evidences of indebtedness with respect to such loans
(including discounts) are true and genuine and are what they purport to be. To
the Knowledge of Innes Street, the loans, discounts and the accrued interest
reflected on the books of Innes Street and Citizens Bank are subject to no
defenses, set-offs or counterclaims (including, without limitation, those
afforded by usury or truth-in-lending laws), except as may be provided by
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
by general principles of equity. All such loans are owned by Innes Street or
Citizens Bank free and clear of any Liens.
(d) The notes and other evidences of indebtedness evidencing the loans
described in Section 3.15(c) above, and all pledges, mortgages, deeds of trust
and other collateral documents or security instruments relating thereto are, in
all material respects, valid, true and genuine, and what they purport to be.
Section 3.16. Securities Documents. Innes Street has made available to
▇▇▇▇▇▇ Bancorp copies of its (i) annual reports on Form 10-K for the years ended
September 30, 2000, 1999 and 1998, (ii) quarterly reports on Form 10-Q for the
quarters ended December 31, 2000 and March 31, 2001 and (iii) proxy materials
used or for use in connection with its meetings of shareholders held in 2001,
2000 and 1999. Such reports and such proxy materials complied, at the time filed
with the SEC, in all material respects, with the Securities Laws.
23
Section 3.17. Related Party Transactions. Except as described in Innes
Street's Proxy Statement distributed in connection with the 2001 annual meeting
of shareholders, neither Innes Street nor Citizens Bank is a party to any
transaction (including any loan or other credit accommodation) with any
Affiliate of Innes Street. All such transactions (a) were made in the ordinary
course of business, (b) were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other Persons, and (c) did not involve more than the normal
risk of collectability or present other unfavorable features. No loan or credit
accommodation to any Affiliate of Innes Street or Citizens Bank is presently in
default or, during the three (3) year period prior to the date of this
Agreement, has been in default or has been restructured, modified or extended.
Neither Innes Street nor Citizens Bank has been notified that principal and
interest with respect to any such loan or other credit accommodation will not be
paid when due or that the loan grade classification accorded such loan or credit
accommodation by Innes Street is inappropriate.
Section 3.18. Schedule of Termination Benefits. Innes Street DISCLOSURE
SCHEDULE 3.18 includes a schedule of all termination benefits and related
payments that would be payable to the individuals identified thereon, excluding
any Innes Street Options granted to such individuals, under any and all
employment agreements, special termination agreements, change in control
agreements, supplemental executive retirement plans, deferred bonus plans,
deferred compensation plans, salary continuation plans, or any compensation
arrangement, or other pension benefit or welfare benefit plan maintained by
Innes Street or Citizens Bank for the benefit of officers or directors of Innes
Street or Citizens Bank (the "Benefits Schedule"), assuming their employment or
service is terminated as of January 1, 2002 and the Closing Date occurs prior to
such termination. No other individuals are entitled to benefits under any such
plans.
Section 3.19. Deposits. None of the deposits of Innes Street or Citizens
Bank is a "brokered deposit" as defined in 12 CFR Section 337.6(a)(2).
Section 3.20. Antitakeover Provisions Inapplicable. The transactions
contemplated by this Agreement are not subject to the requirements of any
"moratorium," "control share," "fair price," "affiliate transactions," "business
combination" or other antitakeover or laws and regulations of any state,
including the provisions of Sections 55-9-1 et. seq. and 55-9A-1 et. seq. of the
NCBCA ("Takeover Laws") applicable to Innes Street or Citizens Bank. The
shareholder voting restrictions contained in Section 7.2 of Innes Street's
articles of incorporation do not apply to the Merger. The affirmative vote of a
majority of the issued and outstanding shares of Innes Street Common Stock is
required to approve this Agreement under Innes Street's articles of
incorporation and the NCBCA.
Section 3.21. Registration Obligations. Neither Innes Street nor Citizens
Bank is under any obligation, contingent or otherwise, that will survive the
Merger Effective Date by reason of any agreement to register any transaction
involving any of its securities under the Securities Act.
24
Section 3.22 Risk Management Instruments. All material interest rate
swaps, caps, floors, option agreements, futures and forward contracts and other
similar risk management arrangements, whether entered into for the account of
Innes Street or Citizens Bank or their customers (all of which are set forth in
Innes Street DISCLOSURE SCHEDULE 3.23), were entered into in accordance with
prudent business practices and in all material respects in compliance with all
applicable laws, rules, regulations and regulatory policies and with
counterparties believed to be financially responsible at the time; and each of
them constitutes the valid and legally binding obligation of Innes Street or
Citizens Bank, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles), and is in full force and effect. Neither Innes Street, Citizens
Bank, nor to the Knowledge of Innes Street any other party thereto, is in breach
of any of its obligations under any such agreement or arrangement in any
material respect.
Section 3.23. Fairness Opinion. Innes Street has received a written opinion
from Trident dated as of the date of this Agreement and updated as of the date
of the mailing of the Proxy Statement, to the effect that, subject to the terms,
conditions and qualifications set forth therein, as of the date thereof, the
Merger Consideration to be received by the shareholders of Innes Street pursuant
to this Agreement is fair to such shareholders from a financial point of view.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇▇ FEDERAL AND ▇▇▇▇▇▇ BANCORP
▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal represent and warrant to Innes Street and
Citizens Bank that the statements contained in this Article IV are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article IV), except
as set forth in the ▇▇▇▇▇▇ Bancorp Disclosure Schedules delivered by ▇▇▇▇▇▇
Bancorp to Innes Street on the date hereof and except as to any representation
or warranty which specifically relates to an earlier date. ▇▇▇▇▇▇ Bancorp and
▇▇▇▇▇▇ Federal have made a good faith effort to ensure that the disclosure on
each schedule of the ▇▇▇▇▇▇ Bancorp Disclosure Schedules corresponds to the
Section referenced herein. However, for purposes of the ▇▇▇▇▇▇ Bancorp
Disclosure Schedules, any item disclosed on any schedule therein is deemed to be
fully disclosed with respect to all schedules under which such item may be
relevant.
Section 4.01. Organization.
(a) ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ MHC are corporations duly organized, validly
existing and in good standing under the laws of the United States, and are duly
registered as savings association holding companies under the HOLA. ▇▇▇▇▇▇
Bancorp has full corporate power and authority to carry on its business as now
conducted and is duly licensed or qualified to
25
do business in the states of the United States and foreign jurisdictions where
its ownership or leasing of property or the conduct of its business requires
such qualification, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on ▇▇▇▇▇▇ Bancorp.
(b) ▇▇▇▇▇▇ Federal is a stock savings bank duly organized, validly
existing and in good standing under the laws of the United States. The deposits
of ▇▇▇▇▇▇ Federal are insured by the FDIC through the SAIF to the fullest extent
permitted by law, and all premiums and assessments required to be paid in
connection therewith have been paid when due by ▇▇▇▇▇▇ Federal. Each other
▇▇▇▇▇▇ Bancorp Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation or
organization.
(c) ▇▇▇▇▇▇ Federal is a member in good standing of the FHLB of Atlanta and
owns the requisite amount of stock therein.
(d) Prior to the date of this Agreement, ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal
have delivered to Innes Street true and correct copies of their charters and
bylaws.
(e) ▇▇▇▇▇▇ Merger Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of North Carolina,
with its principal executive offices in Gastonia, North Carolina. ▇▇▇▇▇▇ Merger
Subsidiary is a wholly owned subsidiary of ▇▇▇▇▇▇ Bancorp.
Section 4.02 Authority; No Violation.
(a) ▇▇▇▇▇▇ MHC, ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger
Subsidiary have full corporate power and authority to execute and deliver this
Agreement and ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary have
full corporate power and authority to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇
Federal and ▇▇▇▇▇▇ Merger Subsidiary and the completion by ▇▇▇▇▇▇ Bancorp,
▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary of the transactions contemplated
hereby have been duly and validly approved by the Boards of Directors of ▇▇▇▇▇▇
MHC, ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary and no other
corporate proceedings on the part of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal or ▇▇▇▇▇▇
Merger Subsidiary are necessary to complete the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary and, subject to
receipt of the Regulatory Approvals, constitutes the valid and binding
obligation of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary,
enforceable against ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary
in accordance with its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally.
(b) (A) The execution and delivery of this Agreement by ▇▇▇▇▇▇ Bancorp,
▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary, (B) subject to receipt of approvals
from the Regulatory
26
Authorities referred to in Section 4.03 hereof and Innes Street's and ▇▇▇▇▇▇
Bancorp's and ▇▇▇▇▇▇ Merger Subsidiary's compliance with any conditions
contained therein, the consummation of the transactions contemplated hereby, and
(C) compliance by ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary
with any of the terms or provisions hereof, will not (i) conflict with or result
in a breach of any provision of the charter or bylaws of ▇▇▇▇▇▇ Bancorp or
▇▇▇▇▇▇ Federal, or the certificate of incorporation or bylaws of any ▇▇▇▇▇▇
Bancorp Subsidiary; (ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to ▇▇▇▇▇▇ Bancorp or any
▇▇▇▇▇▇ Bancorp Subsidiary or any of their respective properties or assets; or
(iii) violate, conflict with, result in a breach of any provisions of,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default), under, result in the termination of, accelerate the
performance required by, or result in a right of termination or acceleration or
the creation of any lien, security interest, charge or other encumbrance upon
any of the properties or assets of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Merger Subsidiary or
▇▇▇▇▇▇ Federal under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
investment or obligation to which ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Merger Subsidiary or
▇▇▇▇▇▇ Federal is a party, or by which they or any of their respective
properties or assets may be bound or affected, except for such violations,
conflicts, breaches or defaults under clause (ii) or (iii) hereof which, either
individually or in the aggregate, will not have a Material Adverse Effect on
▇▇▇▇▇▇ Bancorp.
Section 4.03. Consents. Except for the receipt of the Regulatory Approvals
and compliance with any conditions contained therein, the approval of this
Agreement by the shareholders of Innes Street, the filing of articles of merger
with the Office of the North Carolina Secretary of State pursuant to the NCBCA,
and the filing of articles of combination with the OTS, no consents or approvals
of, or filings or registrations with, any public body or authority are
necessary, and no consents or approvals of any Persons are necessary, or will
be, in connection with (a) the execution and delivery of this Agreement by
▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary, and (b) the
completion by ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary of the
transactions contemplated hereby. ▇▇▇▇▇▇ Bancorp has no reason to believe that
(i) any Regulatory Approvals will not be received or will be received with
conditions, limitations or restrictions unacceptable to it or that would
adversely impact the ability of ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Bancorp to complete
the transactions contemplated by this Agreement or that (ii) any public body or
authority, the consent or approval of which is not required or to which a filing
is not required, will object to the completion of the transactions contemplated
by this Agreement.
27
Section 4.04. Financial Statements.
(a) ▇▇▇▇▇▇ Bancorp has made available to Innes Street the ▇▇▇▇▇▇ Bancorp
Financials. The ▇▇▇▇▇▇ Bancorp Financials have been prepared in accordance with
GAAP and practices applied on a consistent basis throughout the periods covered
by such statements, and (including the related notes where applicable) fairly
present the consolidated financial position, results of operations and cash
flows of ▇▇▇▇▇▇ Bancorp and the ▇▇▇▇▇▇ Bancorp Subsidiaries as of and for the
respective periods ending on the dates thereof, in accordance with GAAP applied
on a consistent basis during the periods involved, except as indicated in the
notes thereto.
Section 4.05. Compliance With Applicable Law.
(a) Each of ▇▇▇▇▇▇ Bancorp and each ▇▇▇▇▇▇ Bancorp Subsidiary is in
substantial compliance with all applicable federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees
applicable to it, its properties, assets and deposits, its business, its conduct
of business and its relationship with its employees, including, without
limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act of 1977, the Home Mortgage Disclosure Act and all
other applicable fair lending laws and other laws relating to discriminatory
business practices.
(b) Each of ▇▇▇▇▇▇ Bancorp and each ▇▇▇▇▇▇ Bancorp Subsidiary has all
material permits, licenses, authorizations, orders and approvals of, and has
made all filings, applications and registrations with, all Regulatory
Authorities that are required in order to permit it to own or lease its
properties and to conduct its business as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect and, to the best Knowledge of ▇▇▇▇▇▇ Bancorp, no suspension or
cancellation of any such permit, license, certificate, order or approval is
threatened or will result from the consummation of the transactions contemplated
by this Agreement.
(c) Except as disclosed in ▇▇▇▇▇▇ Bancorp DISCLOSURE SCHEDULE 4.05(c),
neither ▇▇▇▇▇▇ Bancorp nor any ▇▇▇▇▇▇ Bancorp Subsidiary has received any
notification or communication from any Regulatory Authority (i) asserting that
▇▇▇▇▇▇ Bancorp or any ▇▇▇▇▇▇ Bancorp Subsidiary is not in material compliance
with any of the statutes, regulations or ordinances which such Regulatory
Authority enforces; (ii) threatening to revoke any license, franchise, permit or
governmental authorization which is material to ▇▇▇▇▇▇ Bancorp or any ▇▇▇▇▇▇
Bancorp Subsidiary; (iii) requiring or threatening to require ▇▇▇▇▇▇ Bancorp or
any ▇▇▇▇▇▇ Bancorp Subsidiary, or indicating that ▇▇▇▇▇▇ Bancorp or any ▇▇▇▇▇▇
Bancorp Subsidiary may be required, to enter into a cease and desist order,
agreement or memorandum of understanding or any other agreement with any federal
or state governmental agency or authority which is charged with the supervision
or regulation of banks or engages in the insurance of bank deposits restricting
or limiting, or purporting to restrict or limit, in any material respect the
operations of ▇▇▇▇▇▇ Bancorp or any ▇▇▇▇▇▇ Bancorp Subsidiary, including without
limitation any restriction on the payment of dividends; or (iv) directing,
restricting or limiting, or purporting to direct, restrict or limit, in any
manner the operations of ▇▇▇▇▇▇ Bancorp or any
28
▇▇▇▇▇▇ Bancorp Subsidiary, including without limitation any restriction on the
payment of dividends (any such notice, communication, memorandum, agreement or
order described in this sentence is hereinafter referred to as a "Regulatory
Agreement"). Neither ▇▇▇▇▇▇ Bancorp nor any ▇▇▇▇▇▇ Bancorp Subsidiary has
consented to or entered into any currently effective Regulatory Agreement,
except as set forth in ▇▇▇▇▇▇ Bancorp DISCLOSURE SCHEDULE 4.05(c). The most
recent regulatory rating given to ▇▇▇▇▇▇ Federal as to compliance with the CRA
is satisfactory or better.
Section 4.06. Financing. As of the Merger Effective Date and giving effect
to the Mergers, ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal together will have funds that
are sufficient and available to meet their obligations under this Agreement.
Section 4.07. Regulatory Approvals. ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal are
not aware of any reason that they cannot obtain the Regulatory Approvals, and
neither ▇▇▇▇▇▇ Bancorp nor ▇▇▇▇▇▇ Federal has received any advice or information
from any Regulatory Authority indicating that any such approval will be denied
or are doubtful.
Section 4.08. Legal Proceedings. As of the date of this Agreement, neither
▇▇▇▇▇▇ Bancorp, nor any ▇▇▇▇▇▇ Bancorp Subsidiary, is a party to any, and there
are no pending or, to ▇▇▇▇▇▇ Bancorp's Knowledge, threatened legal,
administrative, arbitration or other proceedings, claims (whether asserted or
unasserted), actions or governmental investigations or inquiries of any nature
challenging the validity or propriety of any of the transactions contemplated by
this Agreement, or that could adversely affect the ability of ▇▇▇▇▇▇ Bancorp to
perform under this Agreement.
Section 4.09. Tax Opinion. ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal are not aware
of any reason that they cannot obtain the tax opinion referenced in Section
6.02(h).
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.01. Conduct of Innes Street's Business.
(a) From the date of this Agreement to the Closing Date, Innes Street and
Citizens Bank each will conduct its business and engage in transactions,
including extensions of credit, only in the ordinary course and consistent with
past practice and policies, except as otherwise required or contemplated by this
Agreement or with the written consent of ▇▇▇▇▇▇ Bancorp. Innes Street and
Citizens Bank will use their reasonable good faith efforts, to (i) preserve
their business organizations intact, (ii) maintain good relationships with
employees, and (iii) preserve for themselves the goodwill of their customers and
others with whom business relationships exist. From the date hereof to the
Closing Date, except as otherwise consented to or approved by ▇▇▇▇▇▇ Bancorp in
writing (which approval will not be unreasonably delayed or withheld) or as
29
contemplated or required by this Agreement, Innes Street will not, and Innes
Street will not permit Citizens Bank to:
(i) amend any provision of its articles of incorporation, charter
or other chartering documents or bylaws, impose, or suffer the imposition, on
any share of stock held by Innes Street in Citizens Bank of any material lien,
charge or encumbrance or permit any such lien to exist, or waive or release any
material right or cancel or compromise any material debt or claim except as set
forth in Innes Street DISCLOSURE SCHEDULE 5.01(a)(i);
(ii) change the number of shares of its authorized capital stock or
issue or grant any option, warrant, call, commitment, subscription, right to
purchase or agreement of any character relating to its authorized or issued
capital stock, or any securities convertible into shares of such capital stock,
or split, combine or reclassify any shares of its capital stock, redeem or
otherwise acquire any shares of such capital stock, or sell or issue any shares
of capital stock (except pursuant to the exercise of Innes Street Options);
(iii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock, except that Citizens Bank may pay cash dividends to Innes
Street, and except that Innes Street may declare and pay a quarterly cash
dividend not in excess of $0.05 per share. The Board of Directors of Innes
Street shall cause its last quarterly dividend record date to occur on the day
immediately preceding the Merger Effective Date with the dividend amount to be
calculated on a pro-rata basis from the previous dividend record date on a daily
basis, rounded up to the nearest $0.005;
(iv) grant or agree to pay any bonus, severance or termination to,
or enter into, extend or amend any employment agreement, severance agreement
and/or supplemental executive agreement with, or increase in any manner the
compensation or fringe benefits of, any employee, officer or director, except
for legally binding commitments existing on the date hereof and set forth in
Innes Street DISCLOSURE SCHEDULE 3.12, except for normal increases in the
ordinary course of business consistent with past practice and except as
otherwise provided in Section 5.11(e) hereof, or hiring any new employee without
consulting with ▇▇▇▇▇▇ Bancorp prior to such hiring;
(v) enter into or, except as may be required by law to maintain
the qualified status thereof, modify any pension, retirement, stock option,
stock purchase, stock appreciation right, stock grant, savings, profit sharing,
deferred compensation, supplemental retirement, consulting, bonus, group
insurance or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any of its
directors, officers or employees, or former directors, officers or employees; or
make any contributions to any defined contribution or defined benefit plan not
in the ordinary course of business consistent with past practice;
(vi) merge or consolidate with any other corporation; sell or lease
all or any substantial portion of its assets or business; make any acquisition
of all or any substantial portion
30
of the business or assets of any other Person, firm, association, corporation or
business organization other than in connection with foreclosures, settlements in
lieu of foreclosure, troubled loan or debt restructuring, or the collection of
any loan or credit arrangement between Innes Street, or Citizens Bank, and any
other Person; enter into a purchase and assumption transaction with respect to
deposits and liabilities; permit the revocation or surrender of its certificate
of authority to maintain, or file an application for the relocation of, any
existing branch office, or file an application for a certificate of authority to
establish a new branch office;
(vii) sell or otherwise dispose of the capital stock of Citizens
Bank, or sell or otherwise dispose of any asset other than in the ordinary
course of business consistent with past practice; subject any asset to a lien,
pledge, security interest or other encumbrance (other than in connection with
deposits, repurchase agreements, bankers acceptances, "treasury tax and loan"
accounts established in the ordinary course of business and transactions in
"federal funds" and the satisfaction of legal requirements in the exercise of
trust powers) other than in the ordinary course of business consistent with past
practice; incur any liability or indebtedness for borrowed money (or guarantee
any indebtedness for borrowed money), except in the ordinary course of business
consistent with past practice;
(viii) make any change in policies with regard to: the extension of
credit, or the establishment of reserves with respect to the possible loss
thereon or the charge off of losses incurred thereon; investments;
asset/liability management; or other material banking policies in any material
respect except as may be required by changes in applicable law or regulations,
or GAAP;
(ix) acquire any new loan participation or loan servicing rights;
(x) except for any commitments disclosed on the Innes Street
DISCLOSURE SCHEDULE 5.01(a)(x): make any new loan or other credit facility
commitment (including without limitation, lines of credit and letters of credit)
in excess of $300,000; or increase, compromise, extend, renew or modify any
existing loan or commitment outstanding in excess of $300,000; or make any new
loan or other credit facility commitment (including without limitation, lines of
credit and letters of credit) in any amount if thereafter the exposure to any
one borrower or group of affiliated borrowers (including obligors under loan
participations) in the aggregate would exceed $750,000;
(xi) except for automatically renewing leases, renew or extend any
lease, or by any act, or omission to act, allow any lease to renew or be
extended;
(xii) make any capital expenditures in excess of $10,000
individually or $50,000 in the aggregate, other than pursuant to binding
commitments existing on the date hereof;
(xiii) except for the execution of, and as otherwise provided or
contemplated in, this Agreement, the Schedules, and the Exhibits hereto, take
any action that would give rise to a
31
right of payment to any individual under any employment agreement, or take any
action that would give rise to a right of payment to any individual under any
Compensation and Benefit Plan;
(xiv) purchase any security for its investment portfolio not rated
"A" or higher by either Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investor
Services, Inc, or with a remaining term to maturity of more than five (5) years;
(xv) engage in any new loan transaction with an officer or
director;
(xvi) materially change the pricing strategies of Citizens Bank
with respect to its deposit or loan accounts;
(xvii) enter into any agreement, arrangement or commitment not made
in the ordinary course of business;
(xviii) change its method of accounting in effect prior to the Merger
Effective Date, except as required by changes in laws or regulations, by
Regulatory Authorities having jurisdiction over Innes Street or Citizens Bank,
or by GAAP concurred in by Innes Street's independent certified public
accountants;
(xix) enter into any futures contract, option, interest rate caps,
interest rate floors, interest rate exchange agreement or other agreement or
take any other action for purposes of hedging the exposure of its interest-
earning assets and interest-bearing liabilities to changes in market rates of
interest;
(xx) invest in "high risk" mortgage derivative investments as
defined by the Federal Financial Institutions Examination Council;
(xxi) discharge or satisfy any lien or encumbrance or pay any
material obligation or liability (absolute or contingent) other than at
scheduled maturity or in the ordinary course of business;
(xxii) enter or agree to enter into any agreement or arrangement
granting any preferential right to purchase any of its assets or rights or
requiring the consent of any party to the transfer and assignment of any such
assets or rights;
(xxiii) take any action that would result in any of the
representations or warranties of Innes Street or Citizens Bank contained in this
Agreement not to be true and correct in any material respect as of the Merger
Effective Date or that could reasonably result in a material delay in
consummation of the transactions contemplated hereby;
(xxiv) foreclose upon or otherwise take title to or possession or
control of any real property without first obtaining a phase one environmental
report thereon indicating that
32
there is no apparent violation of or liability under the Environmental Laws,
provided, however, that it shall not be required to obtain such a report with
respect to one- to four-family, non-agricultural residential property of five
(5) acres or less to be foreclosed upon unless it has reason to believe that
such property might be in violation of or require remediation under
Environmental Laws;
(xxv) except in the ordinary course of business consistent with
past practice and involving an amount not in excess of $50,000, settle any
claim, action or proceeding; provided that no settlement shall be made if it
involves a precedent for other similar claims, which in the aggregate, could be
material to Innes Street and Citizens Bank, taken as a whole; or
(xxvi) agree to do any of the foregoing.
For purposes of this Section 5.01, unless provided for in a business plan,
budget or similar document delivered to ▇▇▇▇▇▇ Bancorp prior to the date of this
Agreement, it shall not be considered in the ordinary course of business for
Innes Street or Citizens Bank to do any of the following: (i) make any sale,
assignment, transfer, pledge, hypothecation or other disposition of any assets
having a book or market value, whichever is greater, in the aggregate in excess
of $100,000, other than pledges of assets to secure government deposits, to
exercise trust powers, sales of assets received in satisfaction of debts
previously contracted in the ordinary course of business, issuance of loans,
sales of previously purchased government guaranteed loans, or transactions in
the investment securities portfolio by Innes Street or a Citizens Bank or
repurchase agreements made, in each case, in the ordinary course of business; or
(ii) undertake or enter any lease, contract or other commitment for its account,
other than in the ordinary course of providing credit to customers as part of
its banking business, involving a payment by Innes Street or Citizens Bank of
more than $10,000 annually, or containing a material financial commitment and
extending beyond twelve (12) months from the date hereof.
Section 5.02. Access; Confidentiality.
(a) Each of Innes Street and Citizens Bank shall permit ▇▇▇▇▇▇ Bancorp and
its representatives reasonable access to its properties, and shall disclose and
make available to them all books, papers and records relating to the assets,
properties, operations, obligations and liabilities of Innes Street and Citizens
Bank, including, but not limited to, all books of account (including the general
ledger), tax records, minute books of meetings of boards of directors (and any
committees thereof) (other than minutes of any confidential discussion of this
Agreement and the transactions contemplated hereby), and shareholders,
organizational documents, bylaws, material contracts and agreements, filings
with any regulatory authority, accountants' work papers, litigation files, plans
affecting employees, and any other business activities or prospects in which
▇▇▇▇▇▇ Bancorp may have a reasonable interest (provided that Innes Street shall
not be required to provide access to any information that would violate its, or
Citizens Bank's, attorney-client privilege or would violate applicable law or
regulation). Innes Street and Citizens Bank shall make their respective
officers, employees and agents and authorized representatives (including counsel
and independent public accountants) available to confer with ▇▇▇▇▇▇ Bancorp
33
and its representatives. In addition, from the date of this Agreement through
the Closing Date, Innes Street and Citizens Bank shall permit employees of
▇▇▇▇▇▇ Bancorp reasonable access to information relating to problem loans, loan
restructurings and loan workouts of Innes Street and Citizens Bank. The parties
will hold all such information delivered in confidence to the extent required
by, and in accordance with, the provisions of the confidentiality agreement,
dated May 24, 2001, between Innes Street and ▇▇▇▇▇▇ Bancorp (the
"Confidentiality Agreement").
(b) ▇▇▇▇▇▇ Bancorp agrees to conduct such investigations and discussions
hereunder in a manner so as not to interfere unreasonably with normal operations
and customer and employee relationships of Innes Street and Citizens Bank.
(c) If the transactions contemplated by this Agreement shall not be
consummated, Innes Street and ▇▇▇▇▇▇ Bancorp will each destroy or return all
documents and records obtained from the other party or its representatives,
during the course of its investigation and will cause all information with
respect to the other party obtained pursuant to this Agreement or preliminarily
thereto to be kept confidential, except to the extent such information becomes
public through no fault of the party to whom the information was provided or any
of its representatives or agents and except to the extent disclosure of any such
information is legally required. Innes Street and ▇▇▇▇▇▇ Bancorp shall each give
prompt written notice to the other party of any contemplated disclosure where
such disclosure is so legally required.
Section 5.03. Regulatory Matters and Consents.
(a) ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal will prepare all Applications and
make all filings for, and use their best efforts to obtain as promptly as
practicable after the date hereof, all Regulatory Approvals necessary or
advisable to consummate the transactions contemplated by this Agreement. The
information supplied, or to be supplied, by ▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal for
inclusion in the Applications will, at the time such documents are filed with
any Regulatory Authority, be accurate in all material aspects.
(b) Innes Street will furnish Gaston Bancorp with all information
concerning Innes Street and Citizens Bank as may be necessary or advisable in
connection with any Application or filing made by or on behalf of ▇▇▇▇▇▇ Bancorp
to any Regulatory Authority in connection with the transactions contemplated by
this Agreement. The information supplied, or to be supplied, by Innes Street for
inclusion in the Applications will, at the time such documents are filed with
any Regulatory Authority, be accurate in all material respects.
(c) ▇▇▇▇▇▇ Bancorp and Innes Street will promptly furnish each other with
copies of all material written communications to, or received by them from any
Regulatory Authority, and notice of material oral communications with the
Regulatory Authorities, in respect of the transactions contemplated hereby,
except information that is filed by either party which is designated as
confidential.
34
(d) The parties hereto agree that they will consult with each other with
respect to the obtaining of all Regulatory Approvals and other necessary
permits, consents, approvals and authorizations of Regulatory Authorities.
▇▇▇▇▇▇ Bancorp will furnish Innes Street with (i) copies of all Applications
prior to filing with any Regulatory Authority and provide Innes Street a
reasonable opportunity to provide changes to such Applications, (ii) copies of
all Applications filed by ▇▇▇▇▇▇ Bancorp and (iii) copies of all Regulatory
Reports filed by ▇▇▇▇▇▇ Bancorp after the date hereof.
(e) Innes Street and Citizens Bank, and ▇▇▇▇▇▇ Bancorp, will cooperate
with each other in the foregoing matters and will furnish the responsible party
with all information concerning it as may be necessary or advisable in
connection with any Application or filing (including the Proxy Statement and any
report filed with the SEC) made by or on behalf of ▇▇▇▇▇▇ Bancorp or Innes
Street to any Regulatory Authority in connection with the transactions
contemplated by this Agreement, and such information will be accurate and
complete in all material respects. In connection therewith, each party will
provide certificates and other documents reasonably requested by the other.
Section 5.04. Taking of Necessary Action.
(a) ▇▇▇▇▇▇ Bancorp and Innes Street shall each use its best efforts in
good faith, and each of them shall cause its Subsidiaries to use their best
efforts in good faith, to (i) furnish such information as may be required in
connection with the preparation of the documents referred to in Section 5.03 of
this Agreement, and (ii) take or cause to be taken all action necessary or
desirable on its part using its best efforts so as to permit completion of the
Mergers and the other transactions contemplated by this Agreement, including,
without limitation, (A) obtaining the consent or approval of each Person whose
consent or approval is required or desirable for consummation of the
transactions contemplated hereby (including assignment of leases without any
change in terms), provided that neither Innes Street nor Citizens Bank shall
agree to make any payments or modifications to agreements in connection
therewith without the prior written consent of ▇▇▇▇▇▇ Bancorp, and (B)
requesting the delivery of appropriate opinions, consents and letters from its
counsel and independent auditors. No party hereto shall take, or cause, or to
the best of its ability permit to be taken, any action that would substantially
impair the prospects of completing the Merger pursuant to this Agreement;
provided that nothing herein contained shall preclude ▇▇▇▇▇▇ Bancorp or Innes
Street from exercising its rights under this Agreement.
(b) Innes Street shall prepare, subject to the review and consent of
▇▇▇▇▇▇ Bancorp with respect to matters relating to ▇▇▇▇▇▇ Bancorp and the
transactions contemplated by this Agreement, a Proxy Statement to be filed by
Innes Street with the SEC and to be mailed to the shareholders of Innes Street
in connection with the meeting of its shareholders and transactions contemplated
hereby, which Proxy Statement shall conform to all applicable legal
requirements. The parties shall cooperate with each other with respect to the
preparation of the Proxy Statement. Innes Street shall, as promptly as
practicable following the preparation thereof, file the Proxy Statement with the
SEC and Innes Street shall use all reasonable efforts to have the Proxy
Statement mailed to shareholders as promptly as practicable after such filing.
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇
will promptly advise ▇▇▇▇▇▇ Bancorp of the time when the Proxy Statement has
been filed and mailed, or of any comments from the SEC or any request by the SEC
for additional information. The information to be supplied by ▇▇▇▇▇▇ Bancorp for
inclusion in the Proxy Statement will not, at the time the Proxy Statement is
mailed to Innes Street shareholders, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein not misleading.
Section 5.05. Certain Agreements.
(a) From and after the Merger Effective Date, ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇
Federal, jointly and severally, agree to indemnify, defend and hold harmless
each present and former director and officer of Innes Street and Citizens Bank
as of the Merger Effective Date (the "Indemnified Parties") against all losses,
claims, damages, costs, expenses (including reasonable attorneys' fees and
expenses), liabilities, judgments or amounts paid in settlement (with the
approval of ▇▇▇▇▇▇ Bancorp, which approval shall not be unreasonably withheld)
or in connection with any claim, action, suit, proceeding or investigation
arising out of matters existing or occurring at or prior to the Merger Effective
Date (a "Claim") in which an Indemnified Party is, or is threatened to be made,
a party or a witness based in whole or in part on, or arising in whole or in
part out of, the fact that such Indemnified Party is or was a director or
officer of Innes Street or Citizens Bank, regardless of whether such Claim is
asserted or claimed prior to, at or after the Merger Effective Date, to the
fullest extent to which directors and officers of Innes Street are entitled
under the NCBCA, Innes Street's articles of incorporation and bylaws, or other
applicable law as in effect on the date hereof (and ▇▇▇▇▇▇ Bancorp shall pay
expenses in advance of the final disposition of any such action or proceeding to
each Indemnified Party to the extent permissible to a North Carolina corporation
under the NCBCA and Innes Street's articles of incorporation and bylaws as in
effect on the date hereof; provided, that the Indemnified Party to whom expenses
are advanced provides an undertaking to repay such expenses if it is ultimately
determined that such Indemnified Party is not entitled to indemnification). All
rights to indemnification in respect of a Claim shall continue until the final
disposition of such Claim. No indemnification shall be required under this
Section 5.05(a) if prohibited by applicable law.
(b) Any Indemnified Party wishing to claim indemnification under Section
5.05(a), upon learning of any Claim, shall promptly notify ▇▇▇▇▇▇ Bancorp, but
the failure to so notify shall not relieve ▇▇▇▇▇▇ Bancorp of any liability it
may have to such Indemnified Party except to the extent that such failure
materially prejudices ▇▇▇▇▇▇ Bancorp. In the event of any Claim, (1) ▇▇▇▇▇▇
Bancorp shall have the right to assume the defense thereof (with counsel
reasonably satisfactory to the Indemnified Party) and shall not be liable to
such Indemnified Party for any legal expenses of other legal counsel or any
other expenses subsequently incurred by such Indemnified Party in connection
with the defense thereof, except that, if ▇▇▇▇▇▇ Bancorp elects not to assume
such defense or counsel for the Indemnified Party advises that there are issues
which raise conflicts of interest between ▇▇▇▇▇▇ Bancorp and the Indemnified
Party, the Indemnified Party may retain counsel satisfactory to him, and ▇▇▇▇▇▇
Bancorp shall pay all reasonable fees and expenses of such counsel for the
Indemnified Party promptly as statements
36
therefore are received, provided further that ▇▇▇▇▇▇ Bancorp shall in all Claims
be obligated pursuant to this Section 5.05(b) to pay for only one firm of
counsel for all Indemnified Parties, (2) the Indemnified Party will cooperate in
the defense of any such Claim and (3) ▇▇▇▇▇▇ Bancorp shall not be liable for any
settlement effected without its prior written consent (which consent shall not
unreasonably be withheld).
(c) In the event ▇▇▇▇▇▇ Bancorp or any of is successors or assigns (1)
consolidates with or merges into any other Person and shall not continue or
survive such consolidation or merger, or (2) transfers or conveys all or
substantially all of its properties and assets to any Person, then, and in each
such case, to the extent necessary, proper provision shall be made so that the
successors and assigns of ▇▇▇▇▇▇ Bancorp assume the obligations set forth in
this Section 5.05.
(d) ▇▇▇▇▇▇ Bancorp shall maintain in effect for three (3) years from the
Merger Effective Date, if available, the current directors' and officers'
liability insurance policy maintained by Innes Street (provided that ▇▇▇▇▇▇
Bancorp may substitute therefor policies of at least the same coverage
containing terms and conditions which are not materially less favorable) with
respect to matters occurring at or prior to the Merger Effective Date; provided,
however, that in no event shall ▇▇▇▇▇▇ Bancorp be required to expend pursuant to
this Section 5.05(d) more than the amount equal to 125% of the current annual
amount expended by Innes Street to maintain or procure its current insurance
coverage. In connection with the foregoing, Innes Street agrees to provide such
insurer or substitute insurer with such representations as such insurer may
reasonably request with respect to the reporting of any prior claims.
(e) The provisions of this Section 5.05 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
Section 5.06. No Other Bids and Related Matters. From and after the date
hereof until the termination of this Agreement, neither Innes Street, nor
Citizens Bank, nor any of their respective officers, directors, employees,
representatives, agents or affiliates (including, without limitation, any
investment banker, attorney or accountant retained by Innes Street or Citizens
Bank), will, directly or indirectly, initiate, solicit or knowingly encourage
(including by way of furnishing non-public information or assistance), or
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any Person in furtherance of such inquiries or to obtain an
Acquisition Proposal or agree to or endorse any Acquisition Proposal, or
authorize or permit any of its officers, directors, employees, investment
bankers, financial advisors, attorneys, accountants or other representatives to
take any such action, and Innes Street shall notify ▇▇▇▇▇▇ Bancorp orally
(within one Business Day) and in writing (as promptly as practicable) of all of
the relevant details relating to all inquiries and proposals that it or Citizens
Bank or any such officer, director employee, investment banker, financial
advisor, attorney, accountant or other representative may receive relating to
any of such matters. Provided, however, that nothing contained in this Section
5.06 shall prohibit the Board of Directors of Innes Street from (i) furnishing
information to, or
37
entering into discussions or negotiations with any Person that makes an
unsolicited written, bona fide proposal, to acquire Innes Street or Citizens
Bank pursuant to a merger, consolidation, share exchange, business combination,
tender or exchange offer or other similar transaction, if, and only to the
extent that, (A) the Board of Directors of Innes Street receives a written
opinion from its independent financial advisor that such proposal may be
superior to the Merger from a financial point-of-view to Innes Street's
shareholders, (B) the Board of Directors of Innes Street, after consultation
with and based upon the advice of independent legal counsel, determines in good
faith that such action is necessary for the Board of Directors of Innes Street
to comply with its fiduciary duties to shareholders under applicable law (such
proposal that satisfies (A) and (B) being referred to herein as a "Superior
Proposal"), (C) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, Innes Street (x)
provides reasonable notice to ▇▇▇▇▇▇ Bancorp to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity (identifying such person or entity) and (y) receives from such person
or entity an executed confidentiality agreement substantially identical in all
material respects to the Confidentiality Agreement, and (D) the Innes Street
meeting of shareholders convened to approve this Agreement has not occurred,
(ii) complying with Rule 14e-2 promulgated under the Exchange Act with regard to
a tender or exchange offer, or (iii) prior to the Innes Street Special Meeting
of Shareholders convened to approve this Agreement, failing to make or
withdrawing or modifying its recommendation to shareholders, after consultation
with and based upon the advice of independent legal counsel, determined in good
faith that such action is necessary for such Board of Directors to comply with
its fiduciary duties under applicable law. For purposes of this Agreement,
"Acquisition Proposal" shall mean any of the following (other than the
transactions contemplated hereunder) involving Innes Street or any of its
subsidiaries: (i) any merger, consolidation, share exchange, business
combination, or other similar transactions; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 20% or more of the assets of
Innes Street, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 20% or more of the
outstanding shares of capital stock of Innes Street or the filing of a
registration statement under the Securities Act in connection therewith; or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
Section 5.07. Duty to Advise; Duty to Update Innes Street's Disclosure
Schedules. Innes Street shall promptly advise ▇▇▇▇▇▇ Bancorp of any change or
event having a Material Adverse Effect on it or on Citizens Bank or that it
believes would or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants set forth herein.
Innes Street shall update Innes Street's DISCLOSURE SCHEDULES as promptly as
practicable after the occurrence of an event or fact that, if such event or fact
had occurred prior to the date of this Agreement, would have been disclosed in
the Innes Street DISCLOSURE SCHEDULES. The delivery of such updated Schedule
shall not relieve Innes Street from any breach or violation of this Agreement
and shall not have any effect for the purposes of determining the satisfaction
of the condition set forth in Section 6.02(c) hereof.
Section 5.08. Conduct of ▇▇▇▇▇▇ Bancorp's and ▇▇▇▇▇▇ Federal's Business.
From the date of this Agreement to the Closing Date, ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇
Federal each will use its
38
best efforts to (x) preserve its business organizations intact, (y) maintain
good relationships with its employees, and (z) preserve for itself the goodwill
of its customers. From the date of this Agreement to the Merger Effective Date,
neither ▇▇▇▇▇▇ Bancorp nor ▇▇▇▇▇▇ Federal will (i) amend its charter or bylaws
in any manner inconsistent with the prompt and timely consummation of the
transactions contemplated by this Agreement; (ii) take any action that would
result in any of the representations and warranties of ▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇
Federal set forth in this Agreement becoming untrue as of any date after the
date hereof or in any of the conditions set forth in Article VI hereof not being
satisfied, except in each case as may be required by applicable law; (iii) take
any action which would or is reasonably likely to adversely effect or materially
delay the receipt of the Regulatory Approvals or other necessary approvals; (iv)
take action which would or is reasonably likely to materially and adversely
affect ▇▇▇▇▇▇ Bancorp's or ▇▇▇▇▇▇ Federal's ability to perform its covenants and
agreements under this Agreement; (v) take any action that would result in any of
the conditions to the Merger not being satisfied; or (vi) agree to do any of the
foregoing.
Section 5.09. Board and Committee Minutes. Innes Street and Citizens Bank
shall each provide to ▇▇▇▇▇▇ Bancorp, within thirty (30) days after any meeting
of their respective Board of Directors, or any committee thereof, or any senior
management committee, a copy of the minutes of such meeting, except for
information relating to the transactions contemplated by this agreement and
deemed confidential by the Board of Directors or subject to the attorney-client
privilege, except that with respect to any meeting held within thirty (30) days
of the Closing Date, such minutes shall be provided to each party prior to the
Closing Date.
Section 5.10. Undertakings by Innes Street and ▇▇▇▇▇▇ Bancorp.
(a) From and after the date of this Agreement:
(i) Voting by Directors. Simultaneous with the execution of this
Agreement, Innes Street's directors shall each enter into the agreement set
forth as Exhibit B to this Agreement;
(ii) Proxy Solicitor. Innes Street shall retain a proxy solicitor in
connection with the solicitation of shareholder approval of this Agreement;
(iii) Outside Service Bureau Contracts. If requested to do so by
▇▇▇▇▇▇ Bancorp, Innes Street shall use its best efforts to obtain an extension
of any contract with an outside service bureau or other vendor of services to
Innes Street, on terms and conditions mutually acceptable to Innes Street and
▇▇▇▇▇▇ Bancorp;
(iv) Board Meetings. Innes Street and Citizens Bank shall permit a
representative of ▇▇▇▇▇▇ Bancorp to attend any meeting of Innes Street and/or
Citizens Bank's Board of Directors or the Executive Committees thereof (provided
that neither Innes Street nor Citizens Bank shall be required to permit the
▇▇▇▇▇▇ Bancorp representative to remain present during any confidential
discussion);
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(v) List of Nonperforming Assets. Innes Street shall provide ▇▇▇▇▇▇
Bancorp, within ten (10) days of the end of each calendar month, a written list
of nonperforming assets (the term "nonperforming assets," for purposes of this
Section 5.10(a)(v), means (i) loans that are "Troubled debt restructurings" as
defined in Statement of Financial Accounting Standards No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructuring," (ii) loans on
nonaccrual, (iii) real estate owned, (iv) all loans ninety (90) days or more
past due as of the end of such month and (iv) impaired loans;
(vi) Reserves and Merger Related Costs. On or before the Merger
Effective Date, and at the request of ▇▇▇▇▇▇ Bancorp, Innes Street shall
establish such additional accruals and reserves as may be necessary to conform
the accounting reserve practices and methods (including credit loss practices
and methods) of Innes Street to those of ▇▇▇▇▇▇ Bancorp (as such practices and
methods are to be applied to Innes Street from and after the Merger Effective
Date) and ▇▇▇▇▇▇ Bancorp's plans with respect to the conduct of the business of
Innes Street following the Merger Effective Date and otherwise to reflect Merger
related expenses and costs incurred by Innes Street; provided, however, that
Innes Street shall not be required to take such action unless ▇▇▇▇▇▇ Bancorp
agrees in writing that all conditions to closing set forth in Section 6.02 have
been satisfied or waived (except for the expiration of any applicable waiting
periods); prior to the delivery by ▇▇▇▇▇▇ Bancorp of the writing referred to in
the preceding clause, Innes Street shall provide ▇▇▇▇▇▇ Bancorp a written
statement, certified without personal liability by the chief executive officer
of Innes Street and dated the date of such writing, that the representation made
in Section 3.15 hereof is true as of such date or, alternatively, setting forth
in detail the circumstances that prevent such representation from being true as
of such date; and no accrual or reserve made by Innes Street or Citizens Bank
pursuant to this Section 5.10(a)(vi), or any litigation or regulatory proceeding
arising out of any such accrual or reserve, shall constitute or be deemed to be
a breach or violation of any representation, warranty, covenant, condition or
other provision of this Agreement or to constitute a termination event within
the meaning of Section 7.01(b) hereof. No action shall be required to be taken
by Innes Street pursuant to this Section 5.10(vii) if, in the opinion of Innes
Street's independent auditors, such action would contravene GAAP;
(vii) Shareholders' Meeting. Innes Street shall submit this Agreement
to its shareholders for approval at a special meeting to be held as soon as
practicable, and, subject to the next sentence, its Boards of Director shall
recommend approval of this Agreement to the Innes Street shareholders. The Board
of Directors of Innes Street may fail to make such a recommendation, or
withdraw, modify or change any such recommendation only in connection with a
Superior Proposal, as set forth in Section 5.06 of this Agreement, and only if
such Board of Directors, after having consulted with and considered the advice
of outside counsel to such Board, has determined that the making of such
recommendation, or the failure so to withdraw, modify or change its
recommendation, would constitute a breach of the fiduciary duties of such
directors under North Carolina law. Innes Street shall take all steps necessary
in order to hold a special meeting of shareholders for the purpose of approving
this Agreement within three (3) months of the date of this Agreement, or as soon
thereafter as is practicable. Innes Street shall
40
promptly inform ▇▇▇▇▇▇ Bancorp of any shareholder from whom Innes Street
receives notice of intent to assert dissenters' rights under the NCBCA in
connection with the Merger. The Proxy Statement will not, at the time it is
mailed to Innes Street shareholders, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein not misleading; except the Innes Street assumes no
responsibility for any statement of a material fact, or failure to state a
material fact necessary in order to make the statements therein not misleading,
concerning ▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal that is included in the Proxy
Statement and that is provided in writing by ▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal;
and
(b) From and after the date of this Agreement, ▇▇▇▇▇▇ Bancorp and Innes
Street shall each:
(i) Filings and Approvals. Cooperate with the other in the
preparation and filing, as soon as practicable, of (A) the Applications, (B) the
Proxy Statement, (C) all other documents necessary to obtain any other
approvals, consents, waivers and authorizations required to effect the
completion of the Merger and the other transactions contemplated by this
Agreement, and (D) all other documents contemplated by this Agreement;
(ii) Public Announcements. Cooperate and cause their respective
officers, directors, employees and agents to cooperate in good faith, consistent
with their respective legal obligations, in the preparation and distribution of,
and agree upon the form and substance of, any press release related to this
Agreement and the transactions contemplated hereby, and any other public
disclosures related thereto, including without limitation communications to
shareholders, internal announcements and customer disclosures, but nothing
contained herein shall prohibit any party from making any disclosure that its
counsel deems necessary, provided that the disclosing party notifies the other
party reasonably in advance of the timing and contents of such disclosure;
(iiii) Maintenance of Insurance. Maintain, and cause their respective
Subsidiaries to maintain, insurance in such amounts as are reasonable to cover
such risks as are customary in relation to the character and location of its
properties and the nature of its business;
(iv) Maintenance of Books and Records. Maintain, and cause their
respective Subsidiaries to maintain, books of account and records in accordance
with GAAP applied on a basis consistent with those principles used in preparing
the financial statements heretofore delivered;
(v) Delivery of Securities Documents. Deliver to the other, copies
of all Securities Documents and Regulatory Reports simultaneously with the
filing thereof; and
(vi) Taxes. File all federal, state, and local tax returns required
to be filed by them or their respective Subsidiaries on or before the date such
returns are due (including any extensions) and pay all taxes shown to be due on
such returns on or before the date such payment is due, except those being
contested in good faith.
41
(c) Innes Street DISCLOSURE SCHEDULE 5.10(c) sets forth a good faith
estimate of Innes Street's budget of Merger-related expenses (the "Budget") to
be incurred and payable by Innes Street in connection with this Agreement and
the transactions contemplated hereby, including the fee and expenses of counsel,
accountants, investment bankers and other professionals. Innes Street shall
promptly notify ▇▇▇▇▇▇ Bancorp if or when it determines that it expects to
exceed its Budget. Promptly, but in any event within 30 days, after the
execution of this Agreement, Innes Street shall ask all of its attorneys and
other professionals to render current and correct invoices for all unbilled time
and disbursements. Innes Street shall accrue and/or pay all of such amounts as
soon as possible. Innes Street shall request that its professionals render
monthly invoices within 30 days after the end of each month. Innes Street shall
notify ▇▇▇▇▇▇ Bancorp monthly of all out-of-pocket expenses, which Innes Street
has incurred in connection with this Agreement. No later than three (3) business
days prior to the Closing Date, Innes Street shall provide ▇▇▇▇▇▇ Bancorp with a
statement of all Merger-related expenses incurred and payable, and to be
incurred and payable, including the fees and expenses of counsel, accountants,
investment bankers and other professionals, and all costs and expenses
associated with any legal proceedings relating to this Agreement and the
transactions contemplated hereunder, through the merger Effective Date (the
"Closing Expense Statement").
Section 5.11. Employee and Termination Benefits; Directors and Management.
(a) Employee Benefits. Except as otherwise provided in Section 5.11(d) of
this Agreement, as of or after the Merger Effective Date, and at ▇▇▇▇▇▇
Bancorp's election and subject to the requirements of the Code, the Compensation
and Benefit Plans may continue to be maintained separately, consolidated, or
terminated. If requested by ▇▇▇▇▇▇ Bancorp in writing not later than ten (10)
days before the Merger Effective Date, Innes Street shall take such steps within
its power to effectuate a termination of any Compensation and Benefit Plan as of
the Merger Effective Date, provided that the Compensation and Benefit Plan can
be terminated within such period. In the event of a consolidation of any or all
of such plans or in the event of termination of any Innes Street Compensation
and Benefit Plan, except as specifically noted in this Section 5.11, employees
of Innes Street or Citizens Bank who continue as employees of ▇▇▇▇▇▇ Bancorp or
▇▇▇▇▇▇ Federal after the Merger Effective Date ("Continuing Employees") shall
receive credit for service with Innes Street or Citizens Bank (for purposes of
eligibility and vesting determination but not for benefit accrual purposes)
under any similar existing ▇▇▇▇▇▇ Bancorp benefit plan except the ▇▇▇▇▇▇ Federal
Employee Stock Ownership Plan (in which Continuing Employees shall be treated as
new employees), or new ▇▇▇▇▇▇ Bancorp benefit plan in which such employees or
their dependents would be eligible to enroll, subject to any pre-existing
conditions or other exclusions to which such person were subject under the Innes
Street Compensation and Benefit Plans. Such service shall also apply for
purposes of satisfying any waiting periods, actively-at-work requirements and
evidence of insurability requirements.
(b) In the event of the termination or consolidation of any Innes Street
health plan with any ▇▇▇▇▇▇ Bancorp health plan, ▇▇▇▇▇▇ Bancorp shall make
available to Continuing Employees and their dependents employer-provided health
coverage on the same basis as it
42
provides such coverage to employees of ▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal. Unless
a Continuing Employee affirmatively terminates coverage under a Innes Street
health plan prior to the time that such Continuing Employee becomes eligible to
participate in the ▇▇▇▇▇▇ Bancorp health plan, no coverage of any of the
Continuing Employees or their dependents shall terminate under any of the Innes
Street health plans prior to the time such Continuing Employees and their
dependents become eligible to participate in the health plans, programs and
benefits common to all employees of ▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal and their
dependents. Terminated Innes Street and Citizens Bank employees and qualified
beneficiaries will have the right to continue coverage under group health plans
of ▇▇▇▇▇▇ Bancorp and/or ▇▇▇▇▇▇ Bancorp Subsidiaries in accordance with Code
Section 4980B(f). Continuing Employees who become covered under a ▇▇▇▇▇▇ Bancorp
health plan shall be required to satisfy the deductible limitations of the
▇▇▇▇▇▇ Bancorp health plan for the plan year in which the coverage commences,
without offset for deductibles satisfied under the Innes Street health plan.
(c) If, after the Merger Effective Date, ▇▇▇▇▇▇ Federal continues in
effect the 401(k) plan previously maintained by Citizens Bank, ▇▇▇▇▇▇ Federal
shall not be required to cause employees who are covered by such plan to
participate in any other 401(k) plan with respect to any period for which ▇▇▇▇▇▇
Federal makes contributions to such Citizens Bank 401(k) plan, and nothing in
this Section 5.11 shall be construed to require any duplication of benefits.
(d) The Citizens Bank Employee Stock Ownership Plan (the "Citizens Bank
ESOP") shall be terminated as of the Merger Effective Date (all shares held by
the Citizens Bank ESOP shall be converted into the right to receive the Merger
Consideration), all outstanding Citizens Bank ESOP indebtedness shall be repaid,
and the remaining balance shall be allocated to Citizens Bank employees, as
provided for in the Citizens Bank ESOP, subject to the Code, ERISA, and rules
and regulations promulgated thereunder. In connection with the termination of
the Citizens Bank ESOP, Citizens Bank shall promptly apply to the IRS for a
favorable determination letter on the tax-qualified status of the Citizens Bank
ESOP on termination and any amendments made to the Citizens Bank ESOP in
connection with its termination or otherwise, if such amendments have not
previously received a favorable determination letter from the IRS with respect
to their qualification under Code Section 401(a). Any and all distributions from
the Citizens Bank ESOP after its termination shall be made consistent with the
aforementioned determination letter.
(e) ▇▇▇▇▇▇ Bancorp shall honor the existing employment, change of control
and severance contracts or plans set forth in Innes Street DISCLOSURE SCHEDULE
3.12(a); provided that notwithstanding anything contained in any existing
employment or severance agreement, as of the Merger Effective Date, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ shall execute an amendment and release to his employment agreement in
the form set forth in Innes Street DISCLOSURE SCHEDULE 5.11(e)(1), to provide
that such employment agreement shall terminate as of the Merger Effective Date
and, in lieu of any payments due under such employment agreement, shall be
entitled to receive a payment equal to the payment that he would receive under
such employment agreement upon termination following a change in control as of
the Merger Effective Date, and provided further that no payment shall be made
under any of the aforesaid
43
agreements which would constitute a "parachute payment" (as such term is defined
in Section 280G of the Code). ▇▇. ▇▇▇▇▇▇▇ shall be offered an employment
agreement the form of which is set forth in SCHEDULE 5.11(e)(2).
(f) ▇▇▇▇▇▇ Bancorp shall honor the existing, as modified, deferred
compensation plans and rabbi trusts established by Innes Street or Citizens Bank
for existing officers and directors as set forth in Innes Street DISCLOSURE
SCHEDULE 5.11(f). From and after the Merger Effective Date, ▇▇▇▇▇▇ Bancorp shall
pay for the adminstration of said rabbi trusts as modified.
(g) As of the Merger Effective Date, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Bancorp may
designate for appointment to the Board of Directors of ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇
Bancorp one person who currently serves on the Innes Street Board of Directors.
(h) ▇▇▇▇▇▇ Bancorp shall establish an Innes Street Advisory Board of
Directors to consist of those persons who currently serve on the Innes Street
Board of Directors, and such persons shall commence service on the Advisory
Board of Directors immediately following the Merger Effective Date. The Advisory
Board shall be maintained for at least one (1) year following the Merger
Effective Date and each of its members shall be compensated at a rate of $1,000
per meeting attended. Meetings of the Advisory Board will be held monthly.
Section 5.12. Duty to Advise; Duty to Update ▇▇▇▇▇▇ Bancorp's Disclosure
Schedules. ▇▇▇▇▇▇ Bancorp shall promptly advise Innes Street of any change or
event having a Material Adverse Effect on it or on any ▇▇▇▇▇▇ Bancorp Subsidiary
or that it believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants set forth
herein. ▇▇▇▇▇▇ Bancorp shall update the ▇▇▇▇▇▇ Bancorp DISCLOSURE SCHEDULES as
promptly as practicable after the occurrence of an event or fact that, if such
event or fact had occurred prior to the date of this Agreement, would have been
disclosed in the ▇▇▇▇▇▇ Bancorp DISCLOSURE SCHEDULE. The delivery of such
updated Schedules shall not relieve ▇▇▇▇▇▇ Bancorp from any breach or violation
of this Agreement and shall not have any effect for the purposes of determining
the satisfaction of the condition set forth in Section 6.01(c) hereof.
Section 5.13. Bank and Related Merger Transactions.
(a) As soon as practicable following the Merger Effective Date, ▇▇▇▇▇▇
Bancorp shall, and it shall cause Innes Street (as the Surviving Corporation in
the Merger) to, effect the Company Merger by executing a merger agreement and
filing articles of merger or a certificate of complete liquidation with the
Office of the North Carolina Secretary of State pursuant to the NCBCA, and
articles of combination with the OTS. The Company Merger shall become effective
at the time (the "Subsequent Effective Time") specified in the articles of
merger or certificate of complete liquidation and/or articles of combination. As
a result of the Company Merger, the separate corporate existence of Innes Street
shall cease and ▇▇▇▇▇▇ Bancorp shall be
44
the surviving corporation and continue its corporate existence under the laws of
the United States.
(b) As soon as practicable after consummation of the Company Merger,
▇▇▇▇▇▇ Federal and Citizens Bank shall take all actions necessary and
appropriate, including entering into an appropriate merger agreement in the form
attached to this Agreement as Exhibit A (the "Bank Merger Agreement"), to cause
Citizens Bank to effect the Bank Merger in accordance with applicable laws and
regulations and the terms of the Bank Merger Agreement. As a result of the Bank
Merger, the separate corporate existence of Citizens Bank shall cease and ▇▇▇▇▇▇
Federal shall be the surviving corporation and continue its corporate existence
under the laws of the United States.
ARTICLE VI
CONDITIONS
Section 6.01. Conditions to Innes Street's Obligations under this
Agreement. The obligations of Innes Street and Citizens Bank hereunder shall be
subject to satisfaction as of or prior to the Merger Effective Date of each of
the following conditions, unless waived by Innes Street pursuant to Section 8.03
hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the
part of, ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the Merger, shall have been duly and validly taken by ▇▇▇▇▇▇
Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary, and Innes Street shall
have received certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇
Federal and ▇▇▇▇▇▇ Merger Subsidiary required by this Agreement to be performed
by ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary as of or prior to
the Merger Effective Date shall have been duly performed and complied with in
all material respects;
(c) Representations and Warranties. Each of the representations and
warranties of ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal in this Agreement that is
qualified as to materiality shall be true and correct, and each such
representation or warranty that is not so qualified shall be true and correct in
all material respects, in each case as of the date of this Agreement, and (other
than Section 4.08 and except to the extent such representations and warranties
speak as of an earlier date) as of the Merger Effective Date;
(d) Approvals of Regulatory Authorities. ▇▇▇▇▇▇ Bancorp shall have
received all Regulatory Approvals and other approvals necessary to effect the
Merger; and all notice and waiting periods required thereunder shall have
expired or been terminated;
45
(e) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction that enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) Officer's Certificate. ▇▇▇▇▇▇ Bancorp shall have delivered to Innes
Street a certificate, dated the Closing Date and signed, without personal
liability, by its chairman of the board or president, to the effect that the
conditions set forth in subsections (a) through (e) of this Section 6.01 have
been satisfied, to the Knowledge of the officer executing the same; and
(g) Approval of Innes Street's Shareholders. This Agreement shall have
been approved by the shareholders of Innes Street by such vote as is required
under the NCBCA, Innes Street's certificate of incorporation and bylaws, and
under Nasdaq requirements applicable to it.
(h) Innes Street shall have received the update of the written opinion of
Trident dated as of the date of the mailing of the Proxy Statement as referenced
in Section 3.23.
Section 6.02. Conditions to ▇▇▇▇▇▇ Bancorp's Obligations under this
Agreement. The obligations of ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal hereunder shall
be subject to satisfaction as of or prior to the Merger Effective Date of each
of the following conditions, unless waived by ▇▇▇▇▇▇ Bancorp pursuant to Section
8.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the
part of, Innes Street and Citizens Bank to authorize the execution, delivery and
performance of this Agreement, and the consummation of the Merger, shall have
been duly and validly taken by Innes Street and Citizens Bank, and ▇▇▇▇▇▇
Bancorp shall have received certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of Innes Street and Citizens
Bank required by this Agreement to be performed as of or prior to the Merger
Effective Date shall have been duly performed and complied with in all material
respects;
(c) Representations and Warranties. Each of the representations and
warranties of Innes Street and Citizens Bank in this Agreement which is
qualified as to materiality shall be true and correct, and each such
representation or warranty that is not so qualified shall be true and correct in
all material respects, in each case as of the date of this Agreement, and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Merger Effective Date;
(d) Approvals of Regulatory Authorities. ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal
shall have received all Regulatory Approvals and other approvals necessary to
effect the Merger (without the imposition of any condition that is in ▇▇▇▇▇▇
Bancorp's reasonable judgment unduly burdensome, excluding standard conditions
that are normally imposed by the Regulatory Authorities in bank merger
transactions); and all notice and waiting periods required thereunder shall have
expired or been terminated;
46
(e) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction that enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) No Material Adverse Effect. Since September 30, 2000, there shall not
have occurred any Material Adverse Effect with respect to Innes Street; and
(g) Officer's Certificate. Innes Street shall have delivered to ▇▇▇▇▇▇
Bancorp a certificate, dated the Closing Date and signed, without personal
liability, by its chairman of the board or president, to the effect that the
conditions set forth in subsections (a) through (f) (but excluding (d)) of this
Section 6.02 have been satisfied, to the Knowledge of the officer executing the
same.
(h) Tax Opinion. ▇▇▇▇▇▇ Bancorp shall have received an opinion or opinions
of ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C., counsel to ▇▇▇▇▇▇ Bancorp,
substantially to the effect set forth on Exhibit C.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
Section 7.01 Termination. This Agreement may be terminated at any time
prior to the Merger Effective Date, whether before or after approval of the
shareholders of Innes Street referred to in Section 5.10(a)(viii) hereof:
(a) by mutual written consent of the parties authorized by their
respective boards of directors;
(b) by ▇▇▇▇▇▇ Bancorp or Innes Street (i) if the Merger Effective Date
shall not have occurred on or prior to ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇) if a vote of the
shareholders of Innes Street is taken and such shareholders fail to approve this
Agreement at the special meeting of shareholders (or any adjournment thereof) of
Innes Street contemplated by Section 5.10(a)(viii) hereof, or (iii) any
Regulatory Authority formally disapproves the issuance of any Regulatory
Approval or other necessary approval, unless in the case of clause (ii) of this
Section 7.01(b) such failure is due to the failure of the party seeking to
terminate this Agreement to perform or observe its agreements set forth herein
to be performed or observed by such party on or before such special meeting of
shareholders, and in the case of clause (i) of this Section 7.01(b), the right
to terminate shall not be available to any party whose failure to perform an
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Merger and the other transactions contemplated hereby to be
consummated by April 30, 2002.
(c) by ▇▇▇▇▇▇ Bancorp if (i) at the time of such termination any of the
representations and warranties of Innes Street or Citizens Bank contained in
this Agreement shall not be true and
47
correct to the extent that the condition set forth in Section 6.02(b) or (c)
hereof cannot be satisfied, (ii) there shall have been any material breach of
any covenant, agreement or obligation of Innes Street or Citizens Bank hereunder
and such breach shall have not been remedied by Innes Street, Citizens Bank or
any other Person within fifteen (15) Business Days after receipt by Innes Street
of notice in writing from ▇▇▇▇▇▇ Bancorp specifying the nature of such breach
and requesting that it be remedied, (iii) any Regulatory Authority approves the
transactions contemplated but with conditions attached such that the
requirements of Section 6.02(d) are not satisfied, or (iv) Innes Street has
received a Superior Proposal, and in accordance with Section 5.06 of this
Agreement, the Board of Directors of Innes Street has entered into an
acquisition agreement with respect to the Superior Proposal or withdraws its
recommendation of this Agreement, fails to make such recommendation or modifies
or qualifies its recommendation in a manner adverse to ▇▇▇▇▇▇ Bancorp.
(d) by Innes Street if (i) at the time of such termination any of the
representations and warranties of ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal contained in
this Agreement shall not be true and correct to the extent that the condition
set forth in Section 6.01(b) and/or (c) hereof cannot be satisfied, (ii) there
shall have been any material breach of any covenant, agreement or obligation of
▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal hereunder and such breach shall not have been
remedied by ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal or any other Person within fifteen
(15) Business Days after receipt by ▇▇▇▇▇▇ Bancorp of notice in writing from
Innes Street specifying the nature of such breach and requesting that it be
remedied, (iii) any event occurs such that a condition set forth in Sections
6.01 hereof which must be fulfilled before Innes Street is obligated to
consummate the Merger cannot be fulfilled and non-fulfillment is not waived by
Innes Street, or (iv) Innes Street has received a Superior Proposal, and in
accordance with Section 5.06 of this Agreement, the Board of Directors of Innes
Street has made a determination to accept such Superior Proposal subject to
approval thereof by the Innes Street's shareholders, and simultaneously with the
termination of this Agreement pursuant to this Section 7.01(d)(iv) Innes Street
enters into an acquisition agreement with respect to the Superior Proposal.
Section 7.02. Effect of Termination. Except as otherwise provided in this
Agreement, if this Agreement is terminated pursuant to Section 7.01 hereof, this
Agreement shall forthwith become void (other than Section 5.02 and Section 8.01
hereof, which shall remain in full force and effect), and there shall be no
further liability on the part of ▇▇▇▇▇▇ Bancorp or Innes Street to the other,
except that no party shall be relieved or released from any liabilities or
damages arising out of its willful breach of any provision of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Expenses. (a) Except as otherwise provided in this
Agreement, each party hereto shall bear and pay all costs and expenses ("Costs
and Expenses") incurred by it in connection with the transactions contemplated
by this Agreement, including fees and expenses of its own financial advisors,
consultants, accountants and counsel, and other costs and expenses
48
("Costs and Expenses"). Notwithstanding anything in this Section 8.01(a) to the
contrary, if the failure to consummate the Merger shall be due to the willful
breach of a representation or warranty by one of the parties hereto or to the
willful failure of one of the parties hereto to perform or observe its
covenants, agreements or obligations set forth herein to be performed or
observed by it at or before the Merger Effective Date, then such party shall pay
the other parties all of their Costs and Expenses in addition to any remedies at
law or in equity which may be available to the other parties for breach of this
Agreement.
(b) As a condition of ▇▇▇▇▇▇ Bancorp's willingness, and in order to induce
▇▇▇▇▇▇ Bancorp to enter into this Agreement and to reimburse ▇▇▇▇▇▇ Bancorp for
incurring the costs and expenses related to entering into this Agreement and
consummating the transactions contemplated by this Agreement, Innes Street
hereby agrees to pay ▇▇▇▇▇▇ Bancorp, and ▇▇▇▇▇▇ Bancorp shall be entitled to
payment of a fee of $1.5 million (the "Fee"), within five (5) Business Days
after written demand for payment is made by ▇▇▇▇▇▇ Bancorp, following the
occurrence of any of the events set forth below:
(i) Innes Street terminates this Agreement pursuant to Section
7.01(d)(iv) or ▇▇▇▇▇▇ Bancorp terminates this Agreement pursuant to Section
7.01(c)(iv); or
(ii) the entering into a definitive agreement by Innes Street or
Citizens Bank relating to a Superior Proposal or the consummation of a Superior
Proposal involving Innes Street or Citizens Bank within twelve (12) months after
the occurrence of any of the following: (i) the termination of the Agreement by
▇▇▇▇▇▇ Bancorp pursuant to Section 7.01(c)(ii) following a willful breach of any
covenant, agreement or obligation of Innes Street or Citizens Bank; (ii) the
failure of the shareholders of Innes Street to approve this Agreement after the
occurrence of an Acquisition Proposal, or (iii) April 30, 2002 if prior thereto
the Innes Street shareholders have not adopted of this Agreement.
If demand for payment of the Fee is made pursuant to this Section 8.01(b)
and payment is timely made, then ▇▇▇▇▇▇ Bancorp will not have any other rights
or claims against Innes Street, Citizens Bank, and their respective officers,
directors, attorneys and financial advisors under this Agreement, it being
agreed that the acceptance of the Fee under this Section 8.01(b) will constitute
the sole and exclusive remedy of ▇▇▇▇▇▇ Bancorp against Innes Street, Citizens
Bank, and their respective officers, directors, attorneys and financial
advisors.
Section 8.02. Non-Survival of Representations and Warranties. All
representations, warranties and, except to the extent specifically provided
otherwise herein, agreements and covenants, other than those agreements in
Article II and covenants set forth in Sections 502(a), 5.05 and 5.11, which
will survive the Merger, shall terminate on the Merger Effective Date.
Section 8.03. Amendment, Extension and Waiver. Subject to applicable law,
at any time prior to the consummation of the transactions contemplated by this
Agreement, the parties may (a) amend this Agreement, (b) extend the time for the
performance of any of the obligations or other acts of either party hereto, (c)
waive any inaccuracies in the representations and warranties
49
contained herein or in any document delivered pursuant hereto, or (d) waive
compliance with any of the agreements or conditions contained in Articles V and
VI hereof or otherwise; provided, however, that after any approval of the
transactions contemplated by this Agreement by Innes Street's shareholders,
there may not be, without further approval of such shareholders, any amendment
of this Agreement which reduces the amount or changes the form of the
consideration to be delivered to Innes Street shareholders hereunder other than
as contemplated by this Agreement. This Agreement may not be amended except by
an instrument in writing authorized by the respective Boards of Directors and
signed, by duly authorized officers, on behalf of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed by a duly authorized
officer on behalf of such party, but such waiver or failure to insist on strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
Section 8.04. Entire Agreement. This Agreement, including the documents and
other writings referred to herein or delivered pursuant hereto, contains the
entire agreement and understanding of the parties with respect to its subject
matter. This Agreement supersedes all prior arrangements and understandings
between the parties, both written or oral with respect to its subject matter.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors; provided, however, that nothing in this
Agreement, expressed or implied, is intended to confer upon any Person, other
than the parties hereto and their respective successors, any rights, remedies,
obligations or liabilities other than pursuant to Article II and Sections
5.02(a), 5.05 and, with respect only to executive officers and directors and
their respective successors, Section 5.11.
Section 8.05. No Assignment. Neither party hereto may assign any of its
rights or obligations hereunder to any other person, without the prior written
consent of the other party hereto.
Section 8.06. Notices. All notices or other communications hereunder shall
be in writing and shall be deemed given if delivered personally, or mailed by
prepaid registered or certified mail (return receipt requested), addressed as
follows:
(a) If to ▇▇▇▇▇▇ Federal Bancorp, Inc. to:
▇▇▇▇▇▇ Federal Bancorp, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
P.O. Box 2249
Gastonia, North Carolina 28053-2249
Attention: ▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
with a copy to:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, PC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(b) If to Innes Street, to:
Innes Street Financial Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive Officer
with a copy to:
Brooks, Pierce, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Section 8.07. Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 8.08. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
Section 8.09. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
Section 8.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic internal law (including the law of
conflicts of law) of the State of North Carolina, except to the extent federal
law and regulations applicable to financial institutions shall be controlling.
Section 8.11. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in
this Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions thereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
51
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
▇▇▇▇▇▇ FEDERAL BANCORP, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
▇▇▇▇▇▇ MERGER SUBSIDIARY, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
▇▇▇▇▇▇ FEDERAL BANK
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
▇▇▇▇▇▇ FEDERAL HOLDINGS, MHC
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
INNES STREET FINANCIAL CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive Officer
CITIZENS BANK, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive Officer
52
EXHIBIT A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Agreement") is dated as of ________, 2001,
by and between ▇▇▇▇▇▇ Federal Bank ("▇▇▇▇▇▇ Federal"), a Federal savings
association, and Citizens Bank, Inc. ("Citizens Bank"), a North Carolina savings
bank.
WHEREAS, pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated as of July ___, 2001, by and among ▇▇▇▇▇▇ Federal Holdings, MHC, ▇▇▇▇▇▇
Federal Bancorp, Inc. ("▇▇▇▇▇▇ Bancorp"), a Federal corporation, ▇▇▇▇▇▇ Merger
Subsidiary, Inc. ("▇▇▇▇▇▇ Merger Subsidiary"), a North Carolina corporation and
wholly-owned subsidiary of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal, and Innes Street
Financial Corporation ("Innes Street"), a North Carolina corporation, and
Citizens Bank, ▇▇▇▇▇▇ Merger Subsidiary will be merged with and into ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ as the surviving entity will be merged with and into
▇▇▇▇▇▇ Bancorp, with ▇▇▇▇▇▇ Bancorp surviving this merger, with the result that
Citizens Bank will become a wholly owned subsidiary of ▇▇▇▇▇▇ Bancorp (the
"Company Merger"); and
WHEREAS, the Merger Agreement provides that as soon as practicable after the
merger of ▇▇▇▇▇▇ Merger Subsidiary with and into Innes Street, and the merger of
Innes Street with and into ▇▇▇▇▇▇ Bancorp, Citizens Bank shall be merged with
and into ▇▇▇▇▇▇ Federal (the "Merger");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Merger Agreement and for good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Citizens Bank and ▇▇▇▇▇▇ Federal hereby agree that, subject to the
terms and conditions hereinafter set forth, and in accordance with all
applicable laws and regulations, Citizens Bank shall be merged with and into
▇▇▇▇▇▇ Federal on even date herewith (the "Merger"). The parties hereto do
hereby agree and covenant as follows:
ARTICLE I
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth below
shall have the following meanings:
1.1 "Effective Time" shall mean the date and time at which the merger
contemplated by this Agreement of Merger becomes effective as provided in
Section 2.2 of this Agreement of Merger.
1.2 "Merger" shall refer to the merger of Citizens Bank with and into
▇▇▇▇▇▇ Federal as provided in Section 2.1 of this Agreement of Merger.
A-1
1.3 "Merging Banks" shall collectively refer to Citizens Bank and ▇▇▇▇▇▇
Federal.
1.4 "Thrift Regulations" shall mean the rules and regulations promulgated
under the Home Owners Loan Act.
1.5 "OTS" shall mean the Office of Thrift Supervision.
1.6 "Surviving Bank" shall refer to ▇▇▇▇▇▇ Federal as the surviving bank
of the Merger.
ARTICLE II
TERMS OF THE MERGER
2.1 The Merger.
(a) Subject to the terms and conditions set forth in the Merger Agreement,
at the Effective Time, Citizens Bank shall be merged with and into ▇▇▇▇▇▇
Federal pursuant to Section 552.13 of the Thrift Regulations. ▇▇▇▇▇▇ Federal
shall be the surviving bank of the Merger and shall continue to be governed by
the Home Owners Loan Act and the Thrift Regulations.
(b) As a result of the Merger, (i) each share of common stock, par value
$_______ per share, of Citizens Bank issued and outstanding immediately prior to
the Effective Time shall be canceled and (ii) each share of common stock, par
value $1.00 per share, of ▇▇▇▇▇▇ Federal issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding and shall
constitute the only shares of capital stock of the Surviving Bank issued and
outstanding immediately after the Effective Time.
(c) At the Effective Time, the Surviving Bank shall be considered the same
business and corporate entity as each of the Merging Banks and thereupon and
thereafter all the property, rights, powers and franchises of each of the
Merging Banks shall vest in the Surviving Bank and the Surviving Bank shall be
subject to and be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of the Merging Banks and shall have succeeded to
all of each of their relationships, fiduciary or otherwise, as fully and to the
same extent as if such property, rights, privileges, powers, franchises, debts,
obligations, duties and relationship had been originally acquired, incurred or
entered into by the Surviving Bank. The deposit taking offices of Citizens Bank
shall be operated by the Surviving Bank. In addition, any reference to either of
the Merging Banks in any contract, will or document, whether executed or taking
effect before or after the Effective Time, shall be considered a reference to
the Surviving Bank if not inconsistent with the other provisions of the
contract, will or document; and any pending, action or other judicial proceeding
to which either of the Merging Banks is a party shall not be deemed to have
abated or to have been discontinued by reason of the Merger, but may be
prosecuted to final judgment, order or decree in the same manner as if the
Merger had not been made or the
A-2
Surviving Bank may be substituted as a party to such action or proceeding, and
any judgment, order or decree may be rendered for or against it that might have
been rendered for or against either of the Merging Banks if the Merger had not
occurred.
2.2 Effective Time. The Merger shall become effective on the date and at
the time the Articles of Combination for such merger are endorsed by the OTS
pursuant to Section 552.13(k) of the Thrift Regulations.
2.3 Name of Surviving Bank. The name of the Surviving Bank shall be
"▇▇▇▇▇▇ Federal Bank."
2.4 Charter. On and after the Effective Time, the Charter of ▇▇▇▇▇▇
Federal shall be the Charter of the Surviving Bank until amended in accordance
with applicable law.
2.5 Bylaws. On and after the Effective Time, the Bylaws of ▇▇▇▇▇▇ Federal
shall be the Bylaws of the Surviving Bank until amended in accordance with
applicable law.
2.5 Directors and Officers. Except as otherwise provided in the Merger
Agreement, on and after the Effective Time, until changed in accordance with the
Charter and Bylaws of the Surviving Bank, (i) the directors of the Surviving
Bank shall be the directors of ▇▇▇▇▇▇ Federal immediately prior to the Effective
Time and (ii) the officers of the Surviving Bank shall be the officers of ▇▇▇▇▇▇
Federal immediately prior to the Effective Time. The directors and officers of
the Surviving Bank shall hold office in accordance with the Charter and Bylaws
of the Surviving Bank.
ARTICLE III
MISCELLANEOUS
3.1 Conditions Precedent. The respective obligations of each party under
this Agreement of Merger shall be subject to (i) the satisfaction, or waiver by
the party permitted to do so, of the conditions set forth in Article VI of the
Merger Agreement and (ii) the approval of this Agreement of Merger by ▇▇▇▇▇▇
Bancorp as sole stockholder of Citizens Bank.
3.2 Termination. This Agreement of Merger shall be terminated
automatically without further act or deed of either of the parties hereto in the
event of the termination of the Merger Agreement in accordance with Section 7.01
thereof.
3.3 Amendments. To the extent permitted by the Thrift Regulations, this
Agreement of Merger may be amended by a subsequent writing signed by the parties
hereto upon the approval of the board of directors of each of the parties
hereto.
3.4 Successors. This Agreement of Merger shall be binding on the
successors of Citizens Bank and ▇▇▇▇▇▇ Federal.
A-3
IN WITNESS WHEREOF, Citizens Bank and ▇▇▇▇▇▇ Federal have caused this
Agreement of Merger to be executed by their duly authorized officers as of the
day and year first above written.
▇▇▇▇▇▇ Federal Bank
ATTEST:
______________________________ By:____________________________________
▇▇▇▇ ▇. ▇▇▇▇, ▇▇. ▇▇▇ ▇. ▇▇▇▇▇
Secretary President and Chief Executive Officer
Citizens Bank, Inc.
ATTEST:
______________________________ By:____________________________________
Ralphelle ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Secretary President and Chief Executive Officer
A-4
EXHIBIT B
July ___, 2001
▇▇▇▇▇▇ Federal Bancorp, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Ladies and Gentlemen:
▇▇▇▇▇▇ Federal Bancorp, Inc. ("▇▇▇▇▇▇ Bancorp"), ▇▇▇▇▇▇ Federal Bank
("▇▇▇▇▇▇ Federal"), ▇▇▇▇▇▇ Merger Subsidiary ("▇▇▇▇▇▇ Merger Subsidiary@), and
Innes Street Financial Corporation ("Innes Street") and Citizens Bank, Inc.
("Citizens Bank") have entered into an Agreement and Plan of Merger dated as of
July ___, 2001 (the "Merger Agreement"), pursuant to which, subject to the terms
and conditions set forth therein, (a) ▇▇▇▇▇▇ Merger Subsidiary will merge with
and into Innes Street, with Innes Street surviving the merger, to be followed by
the merger of Innes Street with and into ▇▇▇▇▇▇ Bancorp, with ▇▇▇▇▇▇ Bancorp
surviving the merger; (b) shareholders of Innes Street will receive $18.50 in
cash in exchange for each share of Innes Street Common Stock; and (c) thereafter
Citizens Bank will be merged with and into ▇▇▇▇▇▇ Federal, with ▇▇▇▇▇▇ Federal
being the surviving institution.
▇▇▇▇▇▇ Bancorp has requested, as a condition to its execution and delivery
to Innes Street of the Merger Agreement, that the undersigned, being directors
and executive officers of Innes Street, execute and deliver to ▇▇▇▇▇▇ Bancorp
this Letter Agreement.
Each of the undersigned, in order to induce ▇▇▇▇▇▇ Bancorp to execute and
deliver to Innes Street the Merger Agreement, hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at all meetings of
shareholders of Innes Street called to vote for approval of the Merger Agreement
so that all shares of common stock of Innes Street then beneficially owned by
the undersigned, and as to which the undersigned has voting power, will be
counted for the purpose of determining the presence of a quorum at such meetings
and to vote all such shares (i) in favor of approval and adoption of the Merger
Agreement and the transactions contemplated thereby (including any amendments or
modifications of the terms thereof approved by the Board of Directors of Innes
Street), and (ii) against approval or adoption of any other merger, business
combination, recapitalization, partial liquidation or similar transaction
involving Innes Street;
(b) Agrees not to vote or execute any written consent to rescind or amend
in any manner any prior vote or written consent, as a shareholder of Innes
Street, to approve or adopt the Merger Agreement;
B-1
(c) Agrees not to sell, transfer or otherwise dispose of any common stock
of Innes Street on or prior to the date of the meeting of Innes Street
shareholders to vote on the Merger Agreement, except for transfers effected in
the undersigned's capacity as a fiduciary, and except for transfers to a lineal
descendant or a spouse of the undersigned, or to a trust for the benefit of one
or more of the foregoing persons, providing that in each such case the
transferee agrees in writing to be bound by the terms of this Letter Agreement;
and
(d) Represents that the undersigned has the capacity to enter into this
Letter Agreement and that it is a valid and binding obligation enforceable
against the undersigned in accordance with its terms, subject to bankruptcy,
insolvency and other laws affecting creditors' rights and general equitable
principles.
The obligations set forth herein shall terminate concurrently with any
termination of the Merger Agreement.
____________________________
This Letter Agreement may be executed in two or more counterparts, each of
which shall be deemed to constitute an original, but all of which together shall
constitute one and the same Letter Agreement.
____________________________
The undersigned intends to be legally bound hereby.
Sincerely,
Name
Title
B-2
EXHIBIT C
[Matters to be covered in Opinion of Counsel to be delivered to ▇▇▇▇▇▇ Bancorp
pursuant to Section 6.02(h) of the Agreement]
1. The formation of ▇▇▇▇▇▇ Merger Subsidiary and its merger with and into
Innes Street will be disregarded for federal income tax purposes, and the
transaction will be treated as a purchase by ▇▇▇▇▇▇ Bancorp of the outstanding
shares of Innes Street Common Stock. See 90-95, 1990-2 C.B. 67; Rev. Rul.
73~27, 1973-2 C.B. 301. The purchase will be treated as a qualified stock
purchase within the meaning of Section 338(d)(3) of the Code.
2. For federal income tax purposes, no gain or loss will be recognized by
▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Merger Subsidiary or Innes Street as a result of the
Merger.
3. For federal income tax purposes, the statutory merger of Innes Street into
▇▇▇▇▇▇ Bancorp pursuant to applicable law (the "Company Merger") will be treated
as a distribution by Innes Street in complete liquidation within the meaning of
Section 332 of the Code. See Section 1.332-2(d) of the Treasury Regulations.
4. For federal income tax purposes, no gain or loss will be recognized by
▇▇▇▇▇▇ Bancorp on its receipt of the assets of Innes Street distributed in the
Company Merger. See Section 332(a) of the Code.
5. For federal income tax purposes, no gain or loss will be recognized by
Innes Street on the distribution of its assets to ▇▇▇▇▇▇ Bancorp in the Company
Merger. See Section 337(a) of the Code.
6. For federal income tax purposes, the basis of the assets of Innes Street
in the hands of ▇▇▇▇▇▇ Bancorp will be the same as the basis of those assets in
the hands of Innes Street immediately preceding the Company Merger. See Section
334(b)(1) of the Code.
7. The holding period of the assets received by ▇▇▇▇▇▇ Bancorp in the Company
Merger will include the period during which such property was held by Innes
Street. See Section 1223(2) of the Code.
8. As provided in Section 381(c)(2) of the Code and Section 1.381(c)(2)-1 of
the Treasury Regulations, ▇▇▇▇▇▇ Bancorp will succeed to and take into account
the earnings and profits, or deficit in earnings and profits, of Innes Street as
of the date of the Company Merger, subject to the limitations of Sections 382
and 383 of the Code.
9. For federal income tax purposes, the statutory merger of Citizens Bank
into ▇▇▇▇▇▇ Federal pursuant to applicable law (the "Bank Merger") will be
treated as tax-free reorganization within the meaning of Section 368(a) of the
Code.
C-1
10. For federal income tax purposes, no gain or loss will be recognized by
▇▇▇▇▇▇ Federal on its receipt of the assets of Citizens Bank in constructive
exchange for ▇▇▇▇▇▇ Federal common stock in the Bank Merger. See Code. Section
1032(a).
11. For federal income tax purposes, no gain or loss will be recognized by
Citizens Bank on the distribution of its assets to ▇▇▇▇▇▇ Federal in
constructive exchange for ▇▇▇▇▇▇ Federal common stock and the assumption by
▇▇▇▇▇▇ Federal of the liabilities of Citizens Bank in the Bank Merger. Code
Sections 361(a) and 357(a).
12. For federal income tax purposes, the basis of the assets of Citizens Bank
in the hands of ▇▇▇▇▇▇ Federal will be the same as the basis of those assets in
the hands of Citizens Bank immediately preceding the Bank Merger. See Section
362(b) of the Code.
13. The holding period of the assets received by ▇▇▇▇▇▇ Federal in the Bank
Merger will include the period during which such property was held by Citizens
Bank. See Section 1223(2) of the Code.
14. As provided in Section 381(c)(2) of the Code and Section 1.381(c)(2)-1 of
the Treasury Regulations, ▇▇▇▇▇▇ Federal will succeed to and take into account
the earnings and profits, or deficit in earnings and profits, of Citizens Bank
as of the date of the Bank Merger, subject to the limitations of Sections 382
and 383 of the Code.
▇-▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
3.01(d) Minute Books
3.02(a) Stock Options
3.02(c) Security Ownership of Certain Beneficial Owners
3.03(b) Termination/Acceleration
3.05(c) Liabilities, Obligations, or Loss Contingencies
3.06 Taxes
3.07 Material Adverse Effect
3.08(a)(i) Material Contracts
3.08(a)(iii) Limitations on Payment of Dividends
3.08(b) Real Estate Leases
3.08(c) Early Termination Fees or Penalties
3.09(c) Insurance Policies
3.10 Legal Proceedings
3.11(a) Compliance with Applicable Law
3.12 Employee Benefit Plans
3.12(a) Modification of Compensation and Benefit Plans
3.12(e) Retiree Insurance and Death Benefits
3.12(h) Severance Pay, Acceleration and Change in Control Clauses,
Material Increases in Benefits
3.12(j) Parachute Payments
3.12(k) Stock Appreciation Rights, Earned Dividends, Restricted Stock,
Dividends Paid on Options
3.15 Loans; Loan Commitments; Lines of Credit; Loan Loss Allowance
3.15(a) Allowance for Possible Losses
3.18 Termination Benefits and Related Payments
3.22 Risk Management Instruments
5.01(a)(i) Amendment of Charter or Bylaws; Release of Material Right, Debt,
or Claim
5.01(a)(iv) Bonus, Severance, or Termination Payments
5.01(a)(x) Loan Commitments
5.10(c) Merger Budget
5.11(f) Deferred Compensation Plans and Rabbi Trusts
3.01(d)
Minute Books
The minute books of Innes Street and Citizens Bank do not contain records
of the corporate actions of their respective Boards of Directors for the June
26, 2001 meetings because such records have not yet been prepared or finalized.
3.02(a)
Stock Options
The following table sets forth the name of each holder of Innes Street
Stock Options, the number of shares each such individual may acquire pursuant to
the exercise of such options, the vesting dates, and the exercise price relating
to the options held.
------------------------------------------------------------------------------------------------------------------------------------
Title of Class Number of
of Shares Under Exercise
Name Position Securities Option Price Vesting
------------------------------------------------------------------------------------------------------------------------------------
25% vested on 2/1/00;
25% on 2/1/01; the
remaining vest in equal
Chairman, CEO, installments on 2/1/02
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and President Common Stock 44,965 $9.28 and 2/1/03
------------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Vice-Chairman Common Stock 6,745 $9.28 100% vested on 2/1/01
------------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇. Director Common Stock 6,745 $9.28 100% vested on 2/1/01
------------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇ Director Common Stock 6,745 $9.28 100% vested on 2/1/01
------------------------------------------------------------------------------------------------------------------------------------
▇. ▇. ▇▇▇▇▇▇, ▇▇. Director Common Stock 6,745 $9.28 100% vested on 2/1/01
------------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Director Common Stock 6,745 $9.28 100% vested on 2/1/01
------------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇ Director Common Stock 6,745 $9.28 100% vested on 2/1/01
------------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Treasurer and Common Stock 22,482 $9.28 25% vested on 2/1/00;
Controller 25% vested on 2/1/01;
the remaining vest in
equal installments on
2/1/02 and 2/1/03
------------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Chief Lending Officer Common Stock 22,482 $9.28 25% vested on 2/1/00;
25% vested on 2/1/01;
the remaining vest in
equal installments on
2/1/02 and 2/1/03
------------------------------------------------------------------------------------------------------------------------------------
▇▇▇ ▇▇▇▇▇▇ Branch Administrator Common Stock 22,482 $9.28 25% vested on 2/1/00;
25% vested on 2/1/01;
the remaining vest in
equal installments on
2/1/02 and 2/1/03
------------------------------------------------------------------------------------------------------------------------------------
Options granted under the Innes Street Stock Option Plan are accompanied by
tandem stock appreciation rights, pursuant to which optionees have the right to
surrender exercisable options in exchange for payment by the Innes Street of an
amount equal to the excess of the market value of shares of the common stock
subject to the surrendered options over the exercise price of the surrendered
options. In the discretion of the committee of the Board of Directors
administering the Innes Street Stock Option Plan, this payment may be made in
cash or in shares of common stock or in some combination of cash and common
stock. Stock appreciation rights will terminate upon exercise of the options to
which they are attached. Stock appreciation rights
are subject to the same vesting and termination provisions as are applicable to
the stock options to which they are attached.
Under the terms of the Innes Street Stock Option Plan, the Board of
Directors may award eligible directors and employees cash payments at the time
of payment of a dividend or other distribution with respect to the common stock
of the Innes Street. The cash payment will equal the dividend or distribution
paid per share multiplied by the number of shares of common stock subject to the
non-forfeited, unexercised options held by such optionee.
As of the date of this Agreement, nine (9) directors, officers and
employees are eligible to participate in the Innes Street Restricted Stock Plan.
On February 1, 2000, the Innes Street Restricted Stock Plan Committee awarded a
total of 89,930 restricted shares of common stock to eligible participants and
the MRP Trust under the Innes Street Restricted Stock Plan. As of the date of
this Agreement, 53,948 unvested shares remained held in the Innes Street
Restricted Stock Plan. No cash consideration was paid for the shares awarded,
which had a market value of $13.00 per share at the time of the award. Twenty
percent (20%) of the shares which were vested immediately upon grant (February
1, 2000), and twenty percent (20%) will vest on each anniversary date
thereafter, so that all shares currently awarded will have vested no later than
February 1, 2004. Grants of the common stock under the MRP immediately vest upon
the death, disability or termination of employment with or service to the
Company, the Bank or any subsidiary due to death or disability or following a
change of control of the Company or the Bank, as defined in the MRP. Under the
terms of the MRP, if a recipient terminates employment or service for reasons
other than death, or disability or following a change in control of the Company
or the Bank, the recipient will forfeit all rights to the allocated shares which
have not yet vested. The awards under the MRP are not forfeitable upon vesting.
For information related to the number of restricted shares held by
individuals under the Innes Street Restricted Stock Plan and vesting dates of
those restricted shares, see Innes Street DISCLOSURE SCHEDULE 3.18.
3.02(c)
Security Ownership of Certain Beneficial Owners
Following is certain information, as of the date of this Agreement,
regarding all persons or "groups," as defined in the Exchange Act, who held of
record or who are known to management of Innes Street to own beneficially more
than 5% of the outstanding shares of Innes Street common stock.
Amount and Nature of Percentage
-------------------- ----------
Name and Address Beneficial Ownership/1/ of Class/2/
---------------- ----------------------- -----------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 370,800/3, 4, 5/ 17.90%
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 358,982/3, 4, 6/ 17.33%
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇ 289,290/3, 7/ 13.97%
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Employee Stock Ownership Plan 204,706 10.4%
of Citizens Bank, Inc.
The First Manhattan Co. 135,950 6.9%
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 117,323/8/ 5.67%
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
__________________________________
/1/ Unless otherwise noted, all shares are owned directly or indirectly by the
named individuals, by their spouses and minor children, or by other
entities controlled by the named individuals.
/2/ Based upon a total of 1,974,325 shares of common stock outstanding as of
the date of this Agreement and 96,679 stock options that have vested under
the Innes Street Stock Option Plan.
/3/ This number includes 204,706 unallocated shares of Innes Street's common
stock held by the Bank's employee stock ownership plan (the "ESOP"). ▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇ and ▇▇. ▇▇▇▇▇▇ serve as trustees of the ESOP and, as
such, share certain voting and investment power of such shares.
/4/ This number includes 53,948 shares of the Bank's common stock held by the
MRP Trust as of the date of this Agreement. ▇▇. ▇▇▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇▇ and
▇▇. ▇▇▇▇▇ serve as trustees of the MRP Trust and, as such, share certain
voting and investment power of such shares.
/5/ This number also includes for ▇▇. ▇▇▇▇▇▇ 6,745 shares subject to options
which have vested under the Innes Street Stock Option Plan.
/6/ This number also includes for ▇▇. ▇▇▇▇▇▇▇▇▇ 6,745 shares subject to options
which have vested under the Innes Street Stock Option Plan.
/7/ This number also includes for ▇▇. ▇▇▇▇ 6,745 shares subject to options
which have vested under the Innes Street Stock Option Plan.
/8/ This number also includes for ▇▇. ▇▇▇▇▇▇▇ 22,482 shares subject to options
which have vested under the Innes Street Stock Option Plan.
3.03(b)
Termination/Acceleration
1. Pursuant to the Employee Stock Ownership Plan of Citizens Bank, Innes
Street made a loan to the ESOP for Citizens Bank so that the ESOP could purchase
shares of stock. Termination of the ESOP pursuant to this Agreement will cause
the loan to be accelerated under the terms of the Promissory Note from Citizens
Bank to Innes Street and the Loan Agreement both dated December 28, 1998.
The Note states that upon the occurrence of any of the "Events of Default"
listed in the Loan Agreement, all amounts then remaining unpaid on the Note may
become immediately due and payable. The Loan Agreement states that if the ESOP
is terminated or ceases to exist, that is an Event of Default (Section 6.01(h)).
Termination of the ESOP will occur upon the Merger Effective Date. Section 6.01
of the Loan Agreement continues to provide that "upon the occurrence of any
Event of Default and at any time thereafter, the Holding Company may, at its
option, declare the Note . . . to be immediately due and payable in full . . .
."
2. Citizens Bank is party to a two-year Data Processing Service Agreement with
Fiserv Basis, Inc. for the provision of certain item processing and statement
rendering services. This agreement provides for liquidated damages in the event
of an early termination or reduction in services. Pursuant to Section 18 of the
agreement, Fiserv will allow early termination of the agreement in the event of
a merger between Citizens Bank and another organization (such that Citizens Bank
is not the surviving entity) upon certain terms and conditions. In the event of
a merger, three (3) months advance written notice must be given and Fiserv may
charge a termination fee in accordance with Section 15 of the agreement.
Liquidated damages are calculated as an amount equal to the "activity level" in
effect on the date of termination multiplied by the number of months remaining
in the contract term. In general, the "activity level" is eighty percent (80%)
of Citizens Bank's average total monthly ▇▇▇▇▇▇▇▇ under the agreement for the
most recent twelve (12) months. For more information regarding this agreement,
see Innes Street DISCLOSURE SCHEDULE 3.08(a)(i).
3. Citizens Bank does business with the FHLB of Atlanta for advances and
processing services. For some purposes, an institution must be a member of the
FHLB to receive services or preferred rates. Citizens Bank is a member. We
make no representation or warranty about Citizens Bank's ability to continue its
arrangements with the FHLB of Atlanta if Citizens Bank or its successor ceases
to be a member.
4. Citizens Bank's Directors & Officers and Company Liability Policy through
St. ▇▇▇▇ requires written notice to the insuror in the event of a change in
control of Citizens Bank and provides for certain limitations in coverage in
such event as well.
5. The Financial Institution Employee Dishonesty Bond of Citizens Bank which
was issued by St. ▇▇▇▇ requires written notice to the insuror in the event of a
change in control and provides
for certain limitations in coverage in such event as well. In addition, failure
to give the required notice in the event of a change in control will result in
the termination of coverage for any loss involving a transferee, effective upon
the date of the stock transfer.
6. Citizens Bank's Worker's Compensation and Employers Liability Policy
through Cincinnati Insurance Company requires written notice to the insuror
within 90 days in the event of a change in control of Citizens Bank.
7. Other financial institution bond and insurance policies of Citizens Bank
may have provisions that would require notice to the insuror or bonding company
in the event of a change in control of Citizens Bank and that may trigger rights
of the insuror or bonding company in such event. Citizens Bank will cooperate
with ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal to give all required notices under such
policies. See Innes Street DISCLOSURE SCHEDULE 3.09(c) for a list of insurance
policies maintained by Innes Street or Citizens Bank.
8. See Innes Street DISCLOSURE SCHEDULE 3.12(h) for a list of Compensation and
Benefit Plans which contain certain provisions that may be triggered by a change
in control.
3.05(c)
Liabilities, Obligations, or Loss Contingencies
One of Citizens Bank's commercial real estate loans is presently in
foreclosure. The loan was brokered through First Trust Mortgage in Greenville,
South Carolina as part of a refinancing of a construction/perm loan with CCB.
The outstanding loan was made to Hallmark 385 IV, LLC in the original principal
amount of $1,606,400.00. The outstanding balance on this loan as of the date of
this Agreement is $1,588,308.00. No payments have been made on this loan since
July 2000.
A copy of the Amended Complaint filed by Citizens Bank against Hallmark 385
IV, LLC, ▇.▇. ▇▇▇▇▇▇, III, and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇; et al. which complaint alleges
causes of action for foreclosure and collection on a guaranty agreement is
attached to this Schedule. As of the date of this Agreement, the outcome of
this foreclosure proceeding cannot be predicted.
Hallmark 385 IV, LLC is an 18,000 square foot office building located in
Greenville, South Carolina, which was built in 1999. Citizens Bank funded
construction. The building consists of four suites which were to be pre-leased;
however, the building has never been fully occupied. Two of the four suites are
currently vacant, one of which comprises 9,000 square feet that was reportedly
to be occupied by Hallmark Construction, Inc., an affiliate of the borrower.
The project has experienced cash flow problems since it was completed and the
note has been placed on nonaccrual status.
The original appraisal of the property involved was for $2,008,000;
however, a more recent appraisal obtained by Citizens Bank in February, 2001 was
for $1,400,000. This represents a difference in value of $600,000 or a thirty
percent (30%) discount of Citizens Bank' original appraisal value. Citizens
Bank has requested a third appraisal to be conducted on the property.
Based on the conflicting appraisal values obtained for this property,
$188,000 of the loan balance has been classified as "doubtful" and the remaining
$1,400,000 as "substandard." If the issue of property value is not resolved
favorably to Citizen Bank, the Allowance for Loan and Lease Losses reported on
Innes Street Financials will probably be deficient (possibly by an amount of
approximately $65,000) which will depress second quarter earnings.
3.06
Taxes
Though they are members of the same affiliated group, Innes Street and
Citizens Bank do not and have not filed consolidated tax returns. ▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇ and Citizens Bank have paid all taxes associated with each
respective entity independently of the other.
3.07
Material Adverse Effect
See Innes Street DISCLOSURE SCHEDULE 3.05(c) for a discussion of
circumstances or events which could have a Material Adverse Effect on Innes
Street.
3.08(a)(i)
Material Contracts
The following is a list of material contracts which have been filed as
exhibits to Innes Street's Securities Documents:
1. Employment Agreement between Citizens Bank and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, which was
filed as Exhibit 10(a) to the Form 10-KSB dated December 20, 1999.
2. Innes Street Financial Corporation Stock Option Plan, which was filed as
Exhibit 10(c) to the Form 10-KSB dated December 20, 1999.
3. Citizens Bank Management Recognition Plan and Trust, which was filed as
Exhibit 10(d) to the Form 10-KSB dated December 20, 1999.
4. Severance Agreement, which was filed as Exhibit 10(e) to the Registration
Statement on Form S-1, Registration No. 333-63363, dated September 14,
1998, as amended by Pre-Effective Amendment No. 1, dated November 2, 1998,
Pre-Effective Amendment No. 2, dated November 10, 1998 and Pre-Effective
Amendment No. 3, dated November 12, 1998.
5. Amended and Restated Nonqualified Deferred Compensation Plan, which was
filed as Exhibit 10(f) to the Registration Statement on Form S-1,
Registration No. 333-63363, dated September 14, 1998, as amended by Pre-
Effective Amendment No. 1, dated November 2, 1998, Pre-Effective Amendment
No. 2, dated November 10, 1998 and Pre-Effective Amendment No. 3, dated
November 12, 1998.
6. Amended and Restated Directors Deferred Compensation Plan, which was filed
as Exhibit 10(g) to the Registration Statement on Form S-1, Registration
No. 333-63363, dated September 14, 1998, as amended by Pre-Effective
Amendment No. 1, dated November 2, 1998, Pre-Effective Amendment No. 2,
dated November 10, 1998 and Pre-Effective Amendment No. 3, dated November
12, 1998.
7. Second Directors Deferred Compensation Plan of Citizens Bank, which was
filed as Exhibit 10(i) to the Form 10-QSB dated May 13, 1999.
8. Second Nonqualified Deferred Compensation Plan for Key Employees of
Citizens Bank, which was filed as Exhibit 10(ii) to the Form 10-QSB dated
May 13, 1999.
9. Subscription Agreement dated May 14, 1999 between Citizens Bank and the
North Carolina Bankers Association Health Benefit Trust, as amended October
17, 2000 (along with corresponding North Carolina Health Benefit Trust)
through which Citizens Bank
participates in the North Carolina Bankers Assocation Health Benefit Trust
(sometimes referred to as the North Carolina Bankers Association MEWA).
The following table sets forth a summary of certain contracts, leases
(other than real estate leases), and agreements entered into by Innes Street or
Citizens Bank in the ordinary course of business:
-----------------------------------------------------------------------------------------------------------------------------
Agreement Date Cancellation notice Amount
Company Purpose Expiration Terms
-----------------------------------------------------------------------------------------------------------------------------
Brink's Cash delivery/pickup December 1, 1997 Can be cancelled with 30 Averages $470
Incorporated to branches Automatically renews annually days written notice prior per month
unless cancelled to any anniversary date
-----------------------------------------------------------------------------------------------------------------------------
American Express Official check program April 1, 1996 Can be cancelled with 90 N/A.
Travel Related Automatically renews annually days written notice prior
Services unless cancelled to any anniversary date
Company, Inc.
(IPS)
-----------------------------------------------------------------------------------------------------------------------------
United Parcel Overnight delivery April 27, 2001 Can be terminated at any Averages $1,300
Service Service Rates are in effect for 157 time with a 30 day written per month
weeks. notice
-----------------------------------------------------------------------------------------------------------------------------
Diebold Maintenance on July 1, 1963 Can be cancelled with 60 $6,057.06 per
security equipment Automatically renews annually days written notice prior year
unless cancelled to any anniversary date
-----------------------------------------------------------------------------------------------------------------------------
Deluxe Check related products April 14, 1997 Can be cancelled with 90 Average $2,000
Corporation Expires on June 6, 2000 and days written notice prior per month
rolls automatically for a one to any anniversary date
year period
-----------------------------------------------------------------------------------------------------------------------------
Xerox Maintenance agreement May 1, 2001 Can be cancelled with 90 $648 per year
on copier at ▇▇▇▇▇▇ Automatically renews annually days written notice prior
House (we own copier) unless cancelled to any anniversary date
-----------------------------------------------------------------------------------------------------------------------------
Xerox Maintenance agreement January 1, 2001 Can be cancelled with 90 $264 per year
on copier at Rockwell Automatically renews annually days written notice prior
(we own copier) unless cancelled to any anniversary date
-----------------------------------------------------------------------------------------------------------------------------
National Welders Leased helium tank May 31, 2002 $78.18 per year
Expires in one year
-----------------------------------------------------------------------------------------------------------------------------
Fiserv Basis, Item processing and February 1, 1995 Can be cancelled with 180 Averages $2,100
Inc. statement rendering Renews every 2 years days written notice prior per month
to expiration of initial
term or any renewal term (2
year renewal term)
-----------------------------------------------------------------------------------------------------------------------------
BellSouth Maintenance contract March 12, 1997 $149.40 per
on phone system at Ends March 11, 2002 quarter
Statesville
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
IPS Sendero Support agreement for July 27, 2000 Can be cancelled with 90
a/p, fixed asset, and Expires July 27, 2003 and then days written notice prior
asset/liability automatically renews for one to expiration of
software year periods then-current term
-----------------------------------------------------------------------------------------------------------------------------
First Union Bank account; encoding July 27, 1994 Can cancel at any time with Averages $2,700
on deposits; cash 30 day written notice per month
management, etc.
-----------------------------------------------------------------------------------------------------------------------------
Fiserv Milwaukee Main computer processor Have been operating month to Averages $19,000
month since our computer per month.
conversion 9/15/00 from FIS
Orlando. We have no written
contract with Fiserv Milwaukee.
-----------------------------------------------------------------------------------------------------------------------------
Pitney ▇▇▇▇▇ Postage meter rental 5/27/96 Can be cancelled at any $348.13 per
No term. Pay quarterly. time with 90 days prior quarter
written notice
-----------------------------------------------------------------------------------------------------------------------------
Modern Service contract on 5/1/01 Can be cancelled with 30 $580 per year
Impressions copier used by Automatically renews annually days written notice prior
executive secretary unless canceled or no payment. to any anniversary date
-----------------------------------------------------------------------------------------------------------------------------
Modern Service contract on 2/1/01 Can be cancelled with 30 $1,185 per year
Impressions copier used by ▇▇▇▇▇▇ Automatically renews annually days written notice prior
House unless canceled or no payment. to any anniversary date
-----------------------------------------------------------------------------------------------------------------------------
Modern Service contract on 2/1/01 Can be cancelled with 30 $1,185 per year
Impressions copier used by Lending Automatically renews annually days written notice prior
at main office unless canceled or no payment. to any anniversary date
-----------------------------------------------------------------------------------------------------------------------------
Great American Lease one copier used 1/26/00 $1,385.92 per
Leasing by lending and one expires 3/26/03-renews on a month
Corporation copier used by ▇▇▇▇▇▇ monthly basis if no 30 day
House notice given
-----------------------------------------------------------------------------------------------------------------------------
Modern Lease one copier for 6/17/98 $365.11 per month
Impressions main office Expired in June 2001. We are
now paying on a monthly basis.
-----------------------------------------------------------------------------------------------------------------------------
Modern Lease one copier for 6/17/98 $577.70 per month
Impressions executive secretary Expired in June 2001. We are
now paying on a monthly basis.
-----------------------------------------------------------------------------------------------------------------------------
Morning Star Lease 4 mini warehouse 8/98 and 2/99 Can be cancelled with 10 $755 per month
for document and Renews month to month days written notice prior
furniture storage to month end
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Lending Tree Internet Marketing 5/5/00--180 day trial period Can be terminated at any
Service Agreement commenced time after Initial Term
Initial Term for 1 year after upon 30 days written notice
expiration of trial period
Subsequent term continues until
agreement terminated in
accordance with its provisions
-----------------------------------------------------------------------------------------------------------------------------
Lending Tree Software License and 3/9/00 Can be terminated at any
Services Agreement for Initial Term for 1 year after time after Initial Term
Lend-X Service Bureau expiration of trial period upon 60 days written notice
Model Subsequent term continues until
agreement terminated in
accordance with its provisions
-----------------------------------------------------------------------------------------------------------------------------
Pentegra Service Agreement for 3/12/99 Can be terminated upon 60
Services, Inc. Innes Street ESOP days written notice
(administrative
services)
-----------------------------------------------------------------------------------------------------------------------------
Pentegra Service Agreement for 7/8/98 Can be terminated upon 60
Services, Inc. Citizens Bank Employee days written notice
Savings & Profit
Sharing Plan and Trust
-----------------------------------------------------------------------------------------------------------------------------
3.08(a)(iii)
Limitations on Payment of Dividends
As a North Carolina corporation, Innes Street may pay dividends only to the
extent permitted by North Carolina General Statutes (S)55-6-40. Section 55-6-
40(c) provides that no dividend may be paid if after giving it effect, (1) the
company would not be able to pay its debts as they become due in the usual
course of business, or (2) the company's total assets would be less than the sum
of its total liabilities.
In addition, the Administrator of the North Carolina Savings Institutions
Division (the "Administrator") historically has required that he receive notice
of payment of a dividend by Innes Street.
As a North Carolina chartered stock savings bank, the payment of dividends
by Citizens Bank is limited by North Carolina General Statutes (S)55-6-40
(described above).
Payment of dividends by Citizens Bank is also limited by the
Administrator's regulations which are set forth in 4 NCAC 16A.0105. These
regulations provide that a stock savings institution may not declare or pay a
cash dividend or repurchase any of its capital stock if the effect would be to
reduce the net worth of the institution to an amount which less than applicable
capital requirements.
Also, for a period of five (5) years after its conversion from mutual to
stock form, Citizens Bank must obtain the written approval of the North Carolina
Administrator before declaring or paying a cash dividend in excess of one-half
of the greater of (a) Citizens Bank's net income for its most recent fiscal year
end, or (b) the average of Citizens Bank's net income after dividends for the
most recent fiscal year end and not more than two (2) of the immediately
proceeding fiscal year ends, if applicable. Event though the regulations, as
written, only require the Administrator's approval before paying a dividend in
excess of the amount set forth above, in practice, the Administrator requires
that Citizens Bank request approval to pay any dividend-even if the dividend
---
clearly does not violate the limitations set forth above. The Administrator
takes the position that it must make its own determination that the dividend
does not violate the above described limitation.
3.08(b)
Real Estate Leases
None.
3.08(c)
Early Termination Fees or Penalties
See Innes Street DISCLOSURE SCHEDULE 3.03(b) for information related to
material contracts, plans, arrangements, or instruments which may require the
payment of an early termination fee or penalty as a result of the execution of,
and the transactions contemplated by, this Agreement.
3.09(c)
Insurance Policies
The following is a list of all policies of insurance maintained by Innes
Street or Citizens Bank:
1. Financial Institution Employee Dishonesty Bond
Insuror: St. ▇▇▇▇ Mercury Insurance Company
Insured: Innes Street and Citizens Bank
Policy No. 0432BD0049
Policy Period: 5-6-1999 to 5-6-2002
2. Commercial Insurance Policy Package
Insuror: Cincinnati Insurance Company
Insured: Citizens Bank
Policy No. FIP 141 55 68
Policy Period: 4-6-1999 to 4-6-2002
This policy includes the following types of coverage: Blanket buildings &
contents; building laws safeguard; valuable papers extension; unscheduled
fine arts; EDP equipment; $100,000 occurrence liability
3. Worker's Compensation and Employers Liability Policy
Insuror: Cincinnati Insurance Company
Insured: Citizens Bank
Policy No. WC ▇▇▇▇▇▇▇-06
Policy Period: 4-6-2001 to 4-6-2002
4. Umbrella Policy
Insuror: Cincinnati Insurance Company
Insured: Citizens Bank
Policy No. CCC 446 30 87
Policy Period: 4-6-1999 to 4-6-2002
5. Business Auto Policy (for 2001 Buick Park Avenue--
VIN # ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇)
Insuror: Cincinnati Insurance Company
Insured: Citizens Bank
Policy No. NCA 545 13 59
Policy Period: 4-6-2001 to 4-6-2002
6. Directors & Officers and Company Liability Policy
Insuror: St. ▇▇▇▇ Mercury Insurance Company
Insured: ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇. ▇▇▇▇▇▇▇▇▇
Policy Period: 5-6-1999 to 5-6-2002
7. STAMP Surety Bond
Insuror: St. ▇▇▇▇ Surety
Insured: Citizens Bank
Policy No. 400JY6895
Policy Period: 9-1-2000 to 9-1-2001
8. Home Equity Protector Policy
Insuror: The Travelers Insurance Companies
Insured: Citizens Bank
Policy No. KTJ-660-122D-965-8-98
Policy Period: 7-1-1998 to 12-31-2001
9. Mortgage Protection Insurance Policy
Insuror: The Travelers Insurance Companies
Insured: Citizens Bank
Policy No. KTJ-660-229T703-3-99
Policy Period: 1-1-2000 to 1-1-2003
3.10
Legal Proceedings
See Innes Street DISCLOSURE SCHEDULE 3.05(c) for a discussion of matters
related to a claim by Citizens Bank against Hallmark 385 IV, LLC, which if
adversely determined could reasonably be expected to have a Material Adverse
Effect on Citizens Bank and Innes Street.
3.11(a)
Compliance with Applicable Law
A. General
-------
1. While a comprehensive audit of their facilities has not been conducted,
Innes Street and Citizens Bank believe that their facilities may not be in
compliance with the Americans with Disabilities Act of 1990 in a number of
areas.
2. In March 1998, the FDIC noted numerous documentation exceptions. Citizens
Bank's management has addressed those exceptions as evidenced by the OTS's March
1999 Examination Report.
3. In March 1999, the OTS noted that not all of Citizens Bank written plans
for its Year 2000 project conformed to various Year 2000 related guidelines
promulgated by the Federal Financial Institutions Examination Council. OTS also
recommended various modifications to Citizens Bank's contingency plan measures.
As evidenced in the OTS's September 1999 Examination Report, Citizens Bank
subsequently complied with all recommendations to modify its plans, procedures,
and time targets necessary to conform with these guidelines and recommendations.
4. In May 1999, the OTS recommended that Citizens Bank (i) adopt various
changes to its internal interest rate risk policy, general loan policy, adequacy
of valuation policy, and liquidity policy (ii) modify several policies to
reflect OTS regulatory source citations, (iii) make various modifications to its
lot loans policy to comply with applicable supervisory loan-to-value limits, and
(iv) expand its investment policy, land loan policy, non-residential first
mortgage policy, and asset classification policy.
5. In October 1999, the OTS noted minor weaknesses in Citizens Bank's internal
policies, procedures and practices. Specifically, OTS recommended that Citizens
Bank (i) revise its policy on interest rate risk to update it for compliance
with Thrift Bulletin 13a, (ii) develop a data security policy, (iii) revise its
internal appraisal, construction loan, and environmental risk policies, and (iv)
update its internal policy on asset classification to reflect OTS regulatory
references.
6. In November 1999, the OTS cited Citizens Bank for certain violations of the
Flood Disaster Protection Act (12 CFR 572.3(a)) due to inadequate insurance
coverage under certain loans. OTS noted that while its review disclosed no
evidence of prohibited lending practices, it did disclose a concern regarding
the level of minority lending activity. OTS recommended that Citizens Bank
formulate a strategy to increase the number of mortgage loans originated to low-
income individuals within Citizens Bank's assessment area. OTS noted various
technical deficiencies discovered during the examination and discussed those
deficiencies with management of Citizens Bank. OTS noted that those technical
deficiencies were not significant enough to warrant comment in its examination
report.
7. In May 2001, the North Carolina Savings Institutions Division and FDIC
cited Citizens Bank for certain deficiencies in its liquidity and interest rate
policies and recommended improved oversight of these policies by the Board of
Directors. The Savings Institutions Division and FDIC recommended that Citizens
Bank (i) implement an independent internal audit program immediately, (ii)
upgrade its disaster recovery plan, (iii) establish a data security program, and
(iv) obtain a written contract with its core application processing server. The
Savings Institutions Division and FDIC noted that Citizens Bank failed to
exercise normal due diligence in approving a specific loan for funding which has
resulted in an increase in classifications. Both also noted that while asset
quality was considered strong and Citizens Bank's methodology for computing is
adequate, a concern existed regarding the allowance for loan and lease losses
due to a large commercial real estate loan which has been classified.
B. Reporting Compliance
--------------------
Other than as noted below, based solely on a review of the copies of such
forms furnished to Innes Street and written representations from Innes Street's
executive officers and directors, Innes Street believes that during the fiscal
year ended September 30, 2000, all of its executive officers and directors and
greater than 10% beneficial owners complied with all applicable Section 16(a)
filing requirements. A Form 4 for each executive officer and director was not
filed at the time of the (i) granting of options to purchase an aggregate of
62,954 shares of Innes Street's common stock on February 1, 2000 pursuant to the
Stock Option Plan and (ii) award of an aggregate of 89,930 restricted shares of
Innes Street's common stock on February 1, 2000 pursuant to the Citizens Bank,
FSB Management Recognition Plan and Trust. The directors and executive
officers at all times believed that they were in compliance with the applicable
law with respect to these transactions, and a Form 4 for each of ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇, ▇. ▇. ▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, and ▇▇▇▇▇
▇. ▇▇▇▇▇, was filed as soon as they were made aware of the filing requirement.
3.12
Employee Benefit Plans
The following is a list of all Compensation and Benefit Plans maintained by
Innes Street and Citizens Bank as provided in Section 3.12 of the Agreement.
1. Amended and Restated Nonqualified Deferred Compensation Plan of Citizens
Savings Bank.
2. Second Directors' Deferred Compensation Plan of Citizens Bank, FSB.
3. Second Nonqualified Deferred Compensation Plan for Key Employees of
Citizens Bank, FSB.
4. Amended and Restated Directors' Deferred Compensation Plan of Citizens
Savings Bank.
5. Employee Stock Ownership Plan of Citizens Bank, FSB.
6. Citizens Savings Bank of Salisbury, SSB Employees' Savings and Profit
Sharing Plan and Trust.
7. Citizens Bank, FSB Management Recognition Plan and Trust Agreement and
associated Stock Grant Agreements.
8. Innes Street Financial Corporation Stock Option Plan and associated Stock
Option Grants and Agreements.
9. Citizens Bank, FSB Employment Agreement with ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ dated
December 28, 1998.
10. Health Plan (Citizens Bank participates in the North Carolina Bankers
Association Health Insurance Trust, a multiple employer welfare arrangement
("MEWA") which is self-insured and regulated by the North Carolina
Department of Insurance. Citizens participates in three of the PPO plans
offered by the MEWA (PPO 100, PPO 95, and PPO 90), and Citizens pays the
premium for employee-only coverage for any employee who elects coverage
through the PPO 95 plan).
11. Dental Plan (Citizens Bank participates in the dental plan offered through
the North Carolina Bankers Association MEWA).
12. Group Life (Citizens Bank offers group term life insurance through the
North Carolina Bankers Association, providing employees with a life
insurance benefit of two times annual salary). Citizens does not have any
written document for this benefit plan.
13. Long Term Disability Plan (Citizens offers long term disability through
Combined Insurance Company of America. Policy Number = K3 34 1010-5004).
14. Citizens Bank Premium Only Plan (Cafeteria Plan through Ceridian Benefits
Services).
15. Citizens Bank, FSB Severance Plan.
16. Bonuses -
a. Employees have been given a discretionary holiday bonus each year near
Thanskgiving. All employees receive bonuses based upon their hours
worked in the year. Employees who are terminated or voluntarily quit
prior to the award are not eligible; however, employees who retire may
be eligible.
b. Loan officers receive a nominal bonus if they open a checking account
at the time they write a loan.
c. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ receives a discretionary annual bonus as provided
for in his Employment Agreement.
17. Vacation Pay - Citizens pays its employees for earned, but unused vacation
pay upon termination of employment. Employees are generally not allowed to
carry over unused vacation pay from year to year.
3.12(a)
Modification of Compensation and Benefit Plans
The existing Compensation and Benefit Plans listed as items 1 through 4 of
Innes Street DISCLOSURE SCHEDULE 3.12 will be modified by Citizens Bank with
such modification to be approved by ▇▇▇▇▇▇ Bancorp.
In addition, the parties have agreed to amend the existing Employment
Agreement between Citizens Bank and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ as provided in Section
5.11(e)(1) of this Agreement (as agreed to by ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇). The form of the amendment and release to this employment agreement is
set forth in SCHEDULE 5.11(e)(1).
3.12(e)
Retiree Insurance and Death Benefits
The North Carolina Bankers Association MEWA plans provide that employees
who retire from employment with ten (10) years of service and have attained 55
years of age (and who are retiring for reasons other than disability or
attainment of age 65) are eligible to continue participation in the plan in
which they were participating at the time of such retirement. Citizens Bank has
no obligation to pay for the premiums of such coverage, however.
Retirees are allowed to obtain life insurance through the group life
insurance obtained through the North Carolina Bankers Association.
The following retired employees of Citizens Bank purchase life and/or
dental insurance through the Citizens Bank MEWA plans at their own cost:
--------------------------------------------------------------------------------
Name Type of Insurance
---- -----------------
--------------------------------------------------------------------------------
▇▇▇ ▇▇▇▇▇ Life Insurance
--------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇ Life Insurance
--------------------------------------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇ Life Insurance
--------------------------------------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇ Life Insurance
--------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Life and Dental Insurance
--------------------------------------------------------------------------------
▇▇▇ ▇▇▇▇ Life and Dental Insurance
--------------------------------------------------------------------------------
3.12(h)
Severance Pay, Acceleration and Change in Control Clauses, Material Increases in
Benefits
The following Compensation and Benefit Plans which are listed as items 1
through 9 and 15 of Innes Street DISCLOSURE SCHEDULE 3.12 contain provisions (as
indicated below) which could result in one or more of the circumstances or
events listed in Section 3.12(h) of the Agreement.
1. Amended and Restated Nonqualified Deferred Compensation Plan of Citizens
Savings Bank. (change in control)
2. Second Directors' Deferred Compensation Plan of Citizens Bank, FSB.
(change in control)
3. Second Nonqualified Deferred Compensation Plan for Key Employees of
Citizens Bank, FSB. (change in control)
4. Amended and Restated Directors' Deferred Compensation Plan of Citizens
Savings Bank. (change in control)
5. Employee Stock Ownership Plan of Citizens Bank, FSB. (full vesting upon
termination of ESOP as required by Section 5.11(d) of Merger Agreement)
6. Citizens Savings Bank of Salisbury, SSB Employees' Savings and Profit
Sharing Plan and Trust. (if plan is terminated, there will be full vesting
upon termination)
7. Citizens Bank, FSB Management Recognition Plan and Trust Agreement and
associated Stock Grant Agreements. (change in control)
8. Innes Street Financial Corporation Stock Option Plan and associated Stock
Option Grants and Agreements. (change in control)
9. Citizens Bank, FSB Employment Agreement with ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
(imposes benefit obligations if ▇▇. ▇▇▇▇▇▇▇ is terminated without just
cause or if he quits with good reason)
15. Citizens Bank, FSB Severance Plan. (change in control)
3.12(j)
Parachute Payments
The following directors are owners of at least one percent (1%) of Innes
Street Common Stock and may receive a small payment (or benefit) which would
constitute a parachute payment as a result of the accelerated vesting provisions
of the Innes Street Restricted Stock Plan:
▇▇▇▇▇ ▇. ▇▇▇▇▇ (parachute payment of approximately $16,000; tax of approximately
$3,200)*
▇▇▇▇▇ ▇. ▇▇▇▇ (parachute payment of approximately $16,000; tax of approximately
$3,200)*
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇. (parachute payment of approximately $16,000; tax of
approximately $3,200)*
▇.▇. ▇▇▇▇▇▇, ▇▇. (parachute payment of approximately $16,000; tax of
approximately $3,200)*
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (parachute payment of approximately $8,000; tax of
approximately $1,600)*
* These approximate calculations are subject to change based upon date of
closing and change in interest rate.
3.12(k)
Stock Appreciation Rights, Earned Dividends, Restricted Stock, Dividends Paid on
Options
The Compensation and Benefit Plans listed as items 7 and 8 of Innes Street
DISCLOSURE SCHEDULE 3.12 have stock appreciation or similar rights or shares of
restricted stock outstanding thereunder as of the date of this Agreement.
See Innes Street DISCLOSURE SCHEDULE 3.02(a) for a discussion related to
tandem stock appreciation rights accompanying Innes Street Options and to the
payment of dividends on options as authorized by the Innes Street Stock Option
Plan.
Innes Street and Citizens Bank hereby disclose that 89,930 restricted
shares of Innes Street stock have been awarded under the Innes Street Restricted
Stock Plan.
3.15
Loans; Loan Commitments; Lines of Credit; Loan Loss Allowance
The following table sets forth all loans (including loan participations) of
Innes Street or Citizens Bank that have been accelerated during the past twelve
(12) months.
Account Number Borrower Loan Amount Status
-------------- -------- ----------- ------
GL #1005 Hallmark, LLC $1,588,308.42 In Foreclosure
▇▇▇▇ ▇▇▇▇▇▇ $ 115,888.92 REO under contract
for $151,500.00
3913208340 ▇▇▇▇▇▇▇ ▇▇▇▇▇ $ 59,844.00 Foreclosed and out
bid by second
mortgagor
(Wachovia); Paid in
full
Attached to this Schedule 3.15 are copies of the Amended Summons and
Amended Complaint filed in the Court of Common Pleas in Greenville County, South
Carolina on behalf of Citizens Bank against Hallmark 385 IV, LLC et al.
Due to the fact that Citizens Bank does not service the Hallmark loan,
Citizens Bank does not have any other correspondence or documents directed to
the borrower. First Trust Mortgage of Greenville, South Carolina is the servicer
of this loan and has been, and is, responsible for all of the initial collection
actions.
Attached to this Schedule 3.15 is a list of all loans that are
contractually past due for the following periods: 31-59 days, 60-89 days, and 90
days and non-accruing. It is the policy of Citizens Bank to place all loans past
due for 90 days on non-accrual and at that time, any accrued interest is
reversed off of Citizens Bank's system.
Although the following loan is still accruing interest and is not past due,
Citizens Bank has placed this loan on its "watch list" due to reasonably doubts
as to timely future collectibility of principal and/or interest.
Account Number Borrower Loan Amount Status
-------------- -------- ----------- ------
0391362231 ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ $ 50,351.00 Current
Watch List
Citizens Bank maintains a specific reserve allocation for the following
loan.
Account Number Borrower Loan Amount Status
-------------- -------- ----------- ------
3913171520 ▇▇▇▇▇▇ ▇▇▇▇▇▇ $ 13,613.00 30 Days Past Due
This loan was charged off in the late 1980s. After that time, ▇▇. ▇▇▇▇▇▇
reestablished the loan with Citizens Bank and began to make payments. The loan
is 100% reserved and shows on the 30 day delinquency report.
The following is a list of all assets classified by Innes Street or
Citizens Bank as real estate acquired through foreclosure or in lieu of
foreclosure, including in-substance foreclosures, and all other assets currently
held that were acquired through foreclosure or in lieu of foreclosure.
Borrower Loan Amount Status
-------- ----------- ------
▇▇▇▇ ▇▇▇▇▇▇ $115,888.92 REO under contract for
$151,500.00
3.15(a)
Allowance for Possible Losses
See Innes Street DISCLOSURE SCHEDULE 3.05(c) for discussion related to a
loss contingency which could effect the allowance for possible losses listed on
the Innes Street Financials.
3.18
Termination Benefits and Related Payments
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
He chose not to defer any fees under the Second Directors Deferred
Compensation Agreement, but deferred 100% of his benefit under the Management
Recognition Plan ("MRP") program.
He chose to defer 100% of his director's fees under the Directors Deferred
Compensation Agreement.
He chose not to defer any of his compensation under the Second Nonqualified
Deferred Compensation Plan for Key Employees, but deferred 100% of his benefit
under the MRP program.
He chose not to defer any of his compensation under the Amended and
Restated Nonqualified Deferred Compensation Plan.
He obtained 17,986 shares of stock under the MRP Plan. Vesting 3,598
shares on February 1, 2000 and 2001, and 3,597 shares on February 1, 2002, 2003
and 2004. Full vesting upon change in control. So, as of the date of this
Agreement, he is vested in 7,196 shares. An additional 10,790 will vest upon
change in control.
He obtained incentive stock option to purchase 44,965 shares of common
stock at $13.00; option price was amended to $9.28. Optionee was granted Stock
Appreciation Rights in accordance with Section 14 of the Innes Street Stock
Option Plan. Options to vest 11,242 shares on February 1, 2000 and 11,241 shares
on February 1, 2001, 2002, and 2003. Full vesting on change in control. So, as
of the date of this Agreement, he is vested in 22,483. An additional 22,482 will
vest upon change in control.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
He chose not to defer any fees under the Second Directors Deferred
Compensation Agreement, but deferred 100% of his benefit under the MRP program.
He chose to defer 100% of his director's fees under the Directors Deferred
Compensation Agreement.
He obtained 4,497 shares of stock under the MRP Plan. Vesting 900 shares on
February 1, 2000 and 2001, and 899 shares on February 1, 2002, 2003 and 2004.
Full vesting upon change in control. So, as of the date of this Agreement, he is
vested in 1,800 shares. An additional 2,697 will vest upon change in control.
He obtained a nonqualified stock option to purchase 6,745 shares at $13.00;
option price was amended to $9.28. Optionee was granted Stock Appreciation
Rights in accordance with Section 14 of the Innes Street Stock Option Plan.
Option fully vested at time of grant.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
He chose not to defer any fees under the Second Directors Deferred
Compensation Agreement, but deferred 100% of his benefit under the MRP program.
He chose to defer 100% of his director's fees under the Directors Deferred
Compensation Agreement.
He obtained 8,993 shares of stock under the MRP Plan. Vesting 1,799 shares
on February 1, 2000, 2001, and 2002 and 1,798 shares on February 1, 2003 and
2004. Full vesting upon change in control. So, as of the date of this Agreement,
he is vested in 3,598 shares. An additional 5,395 will vest upon change in
control.
He obtained a nonqualified stock option to purchase 6,745 shares at $13.00;
option price was amended to $9.28. Optionee was granted Stock Appreciation
Rights in accordance with Section 14 of the Innes Street Stock Option Plan.
Option fully vested at time of grant.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
He chose not to defer any fees under the Second Directors Deferred
Compensation Agreement, but deferred 100% of his benefit under the MRP program.
He chose to defer 100% of his director's fees under the Directors Deferred
Compensation Agreement.
He obtained 8,993 shares of stock under the MRP Plan. Vesting 1,799 shares
on February 1, 2000, 2001, and 2002 and 1,798 shares on February 1, 2003 and
2004. Full vesting upon change in control. So, as of the date of this Agreement,
he is vested in 3,598 shares. An additional 5,395 will vest upon change in
control.
He obtained a nonqualified stock option to purchase 6,745 shares at $13.00;
option price was amended to $9.28. Optionee was granted Stock Appreciation
Rights in accordance with Section 14 of the Innes Street Stock Option Plan.
Option fully vested at time of grant.
▇▇▇▇▇ ▇. ▇▇▇▇
He chose not to defer any fees under the Second Directors Deferred
Compensation Agreement, but deferred 100% of his benefit under the MRP program.
He chose to defer 100% of his director's fees under the Directors Deferred
Compensation Agreement.
He obtained 8,993 shares of stock under the MRP Plan. Vesting 1,799 shares
on February 1, 2000, 2001, and 2002 and 1,798 shares on February 1, 2003 and
2004. Full vesting upon change in control. So, as of the date of this Agreement,
he is vested in 3,598 shares. An additional 5,395 will vest upon change in
control.
He obtained a nonqualified stock option to purchase 6,745 shares at $13.00;
option price was amended to $9.28. Optionee was granted Stock Appreciation
Rights in accordance with Section 14 of the Innes Street Stock Option Plan.
Option fully vested at time of grant.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇.
He chose not to defer any fees under the Second Directors Deferred
Compensation Agreement, but deferred 100% of his benefit under the MRP program.
He chose not to defer any of his director's fees under the Directors
Deferred Compensation Agreement.
He obtained 8,993 shares of stock under the MRP Plan. Vesting 1,799 shares
on February 1, 2000, 2001, and 2002, and 1,798 shares on February 1, 2003 and
2004. Full vesting upon change in control. So, as of the date of this Agreement,
he is vested in 3,598 shares. An additional 5,395 will vest upon change in
control.
He obtained a nonqualified stock option to purchase 6,745 shares at $13.00;
option price was amended to $9.28. Optionee was granted Stock Appreciation
Rights in accordance with Section 14 of the Innes Street Stock Option Plan.
Option fully vested at time of grant.
▇▇▇▇▇ ▇. ▇▇▇▇▇
He chose not to defer any fees under the Second Directors Deferred
Compensation Agreement, but deferred 100% of his benefit under the MRP program.
He chose to defer 100% of his director's fees under the Directors Deferred
Compensation Agreement.
He obtained 8,993 shares of stock under the MRP Plan. Vesting 1,799 shares
on February 1, 2000, 2001, and 2002 and 1,798 shares on February 1, 2003 and
2004. Full vesting upon change in control. So, as of the date of this Agreement,
he is vested in 3,598 shares. An additional 5,395 will vest upon change in
control.
He obtained a nonqualified stock option to purchase 6,745 shares at $13.00;
option price was amended to $9.28. Optionee was granted Stock Appreciation
Rights in accordance with Section 14 of the Innes Street Stock Option Plan.
Option fully vested at time of grant.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (now ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇)
She chose not to defer any of her compensation under the Second
Nonqualified Deferred Comp. Plan for Key Employees.
She chose to defer 5% of her compensation under the Amended and Restated
Nonqualified Deferred Compensation Plan.
She obtained incentive stock option to purchase 22,482 shares of common
stock at $13.00; option price was amended to $9.28. Optionee was granted Stock
Appreciation Rights in accordance with Section 14 of the Innes Street Stock
Option Plan. Options to vest 5,621 shares on February 1, 2000 and 5,620 shares
on February 1, 2001, 2002, and 2003. Full vesting on change in control. So, as
of the date of this Agreement, she is vested in 11,242. An additional 11,240
will vest upon change in control.
Under Severance Plan, she is entitled to the greater of (1) two weeks'
salary at time of termination times the number of complete years of service at
time of termination; or (2) one month's salary at time of termination.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
She chose not to defer any of her compensation under the Second
Nonqualified Deferred Comp. Plan for Key Employees, but deferred 100% of her
benefit under the MRP program. She chose to defer 5% of her compensation under
the Amended and Restated Nonqualified Deferred Compensation Plan.
She obtained 11,241 shares of stock under the MRP Plan. Vesting 2,249
shares on February 1, 2000 and 2001, and 2,248 shares on February 1, 2002, 2003
and 2004. Full vesting upon change in control. So, as of the date of this
Agreement, she is vested in 4,498 shares. An additional 6,743 will vest upon
change in control.
She obtained incentive stock option to purchase 22,482 shares of common
stock at $13.00; option price was amended to $9.28. Optionee was granted Stock
Appreciation Rights in accordance with Section 14 of the Innes Street Stock
Option Plan. Options to vest 5,621 shares
on February 1, 2000 and and 2001 and 5,620 shares on February 1, 2002, and 2003.
Full vesting on change in control. So, as of the date of this Agreement, she is
vested in 11,242. An additional 11,240 will vest upon change in control.
Under Severance Plan, she is entitled to the greater of (1) two weeks'
salary at time of termination times the number of complete years of service at
time of termination; or (2) one month's salary at time of termination.
▇▇▇▇ ▇▇▇▇▇▇▇▇
He chose not to defer any of his compensation under the Second Nonqualified
Deferred Comp. Plan for Key Employees, but deferred 100% of his benefit under
the MRP program.
He chose not to defer any of his compensation under the Amended and
Restated Nonqualified Deferred Compensation Plan.
He obtained 11,241 shares of stock under the MRP Plan. Vesting 2,249
shares on February 1, 2000 and 2001, and 2,248 shares on February 1, 2002, 2003,
and 2,247 shares on February 1, 2004. Full vesting upon change in control. So,
as of the date of this Agreement, he is vested in 4,498 shares. An additional
6,743 will vest upon change in control.
He obtained incentive stock option to purchase 22,482 shares of common
stock at $13.00; option price was amended to $9.28. Optionee was granted Stock
Appreciation Rights in accordance with Section 14 of the Innes Street Stock
Option Plan. Options to vest 5,621 shares on February 1, 2000 and 2001 and
5,620 shares on February 1, 2002, and 2003. Full vesting on change in control.
So, as of the date of this Agreement, he is vested in 11,242. An additional
11,240 will vest upon change in control.
Under Severance Plan, he is entitled to the greater of (1) two weeks'
salary at time of termination times the number of complete years of service at
time of termination; or (2) one month's salary at time of termination.
3.22
Risk Management Instruments
None.
5.01(a)(i)
Amendment of Charter or Bylaws; Release of Material Right, Debt, or Claim
See Innes Street DISCLOSURE SCHEDULE 3.05(c) for a discussion of a material
claim that has been asserted by Citizens Bank against Hallmark 385 IV, LLC et
al. Innes Street and Citizens Bank will not waive or release any material
rights or compromise any material claim in conjunction with this cause of action
without the prior consent of ▇▇▇▇▇▇ Bancorp.
5.01(a)(iv)
Bonus, Severance, or Termination Payments
The Compensation and Benefit Plans listed on Innes Street DISCLOSURE
SCHEDULE 3.12(a) and as item 9 on Innes Street DISCLOSURE SCHEDULE 3.12 contain
legally binding commitments existing on the date of this Agreement which shall
be excepted from the conditions set forth in Section 5.01(a)(iv) of the
Agreement.
5.01(a)(x)
Loan Commitments
On July 9, 2001, Citizens Bank offered a commitment to Sapona Land Company,
LLC to make a loan in the amount of $4,010,000 for a proposed medical facility
upon the terms disclosed in a letter from Citizens Bank dated the same date. A
copy of this commitment letter was provided to ▇▇▇▇▇▇ Bancorp prior to the date
of this Agreement.
5.10(c)
Merger Budget
Estimated Fees and Expenses of Brooks, Pierce, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
L.L.P.
Merger-Related Expenses
Innes Street Financial Corporation
Merger-Related fees and expenses for month of June 2001: $ 1,000
Merger-Related fees and expenses July 1 through July 16, 2001:
Fees: $29,200
Expenses: 400
Estimate of future merger-related fees:
Preparation of Proxy Statement: $25,000
Termination of ESOP 7,500
Advice and service re: tax issues, ERISA and benefits matters 3,500
Review of applications 2,000
Services related to closing and immediately after 15,000
Expenses 5,000
Estimate of Innes Street's Budget of Merger-Related Expenses
Agreement and Plan of Merger
Estimated charges of accountants $ 15,000
Estimated charges of Trident Securities $ 768,692
Estimated charges of Brooks, Pierce, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ see above
Estimated charges of Womble, Carlyle, ▇▇▇▇▇▇▇▇▇ & Rice $ 10,000
RR ▇▇▇▇▇▇▇▇ Financial $ 10,000
Continental Stock Trust & Transfer Company $ 3,000
Minor miscellaneous charges (e.g. press release
5.11(f)
Deferred Compensation Plans and Rabbi Trusts
The deferred compensation plans and rabbi trusts (the "DC Plans") shall be
modified to provide as follows:
(i) the DC Plans shall not terminate at the Merger Effective Date,
although the DC Plans will terminate following a change of control of
▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal;
(ii) assets currently held in the "non-diversified" DC Plans (whether or
not subsequently transferred to the "diversified" DC Plans) will be
restricted to investments in U.S. Treasury securities, brokered CDs,
pass-through mortgage-backed securities issued by agencies of the
U.S. Government and corporate bonds rated no lower than AAA, with
maturities on all securities other than mortgage-backed securities
limited to no longer than ten (10) years;
(iii) Participants shall have their accrued benefits paid to them in cash
in a lump sum or in equal annual installments over a term of five (5)
or ten (10) years, as elected by such participant commencing as of
the first day of the calendar quarter following the date of
termination of their service on the Advisory Board (or Board of
Directors of ▇▇▇▇▇▇ Bancorp) and on each anniversary of such date.
Schedule 5.11(e)(1)
TERMINATION AGREEMENT AND RELEASE
---------------------------------
This Termination Agreement and Release (this "Agreement") is entered into
as of ______, 2001 by and between ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (the "Executive") and
Citizens Bank, Inc. (the "Bank", or "Citizens Bank").
WHEREAS, the Bank and the Bank's sole stockholder, Innes Street Financial
Corporation ("Innes Street") entered into an Agreement and Plan of Merger dated
July __, 2001 (the "Merger Agreement") with ▇▇▇▇▇▇ Federal Bancorp, MHC ("▇▇▇▇▇▇
MHC"), ▇▇▇▇▇▇ Federal Bancorp, Inc. ("▇▇▇▇▇▇ Bancorp"), ▇▇▇▇▇▇ Merger
Subsidiary, Inc. ("▇▇▇▇▇▇ Merger Subsidiary"), and ▇▇▇▇▇▇ Federal Bank ("▇▇▇▇▇▇
Federal"); and
WHEREAS, the Merger Agreement provides in Section 5.11 and the Executive
otherwise agrees that in exchange for the consideration described herein the
Executive shall execute a termination agreement and release relating to the
Employment Agreement between himself and the Bank, dated December 28,1998 (the
"Employment Agreement").
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
1. Acknowledement of Payment, Release and Waiver. The Executive hereby
---------------------------------------------
acknowledges that the Bank, or its successor in interest, has made or shall make
a payment to him of $370,000 (subject to applicable withholding) (the "Payment")
and that the Employment Agreement is terminated as of immediately prior to the
Merger Effective Date (as defined in the Merger Agreement). The Executive hereby
releases, waives, discharges and acquits Innes Street, Citizens Bank, ▇▇▇▇▇▇
Bancorp, and ▇▇▇▇▇▇ Federal and their respective successors, from any and all
claims, known or unknown, which the Executive, his heirs, successors and
assigns, have or might have arising from or relating to his employment by or
service as a director of Innes Street, Citizens Bank and all other Innes Street
affiliates prior to the Merger Effective Date and to his entitlement to
severance pay or severance or change in control benefits or any other payment
under the Employment Agreement or under any other agreement or arrangement, oral
or written. This release shall not affect the Executive's rights or benefits
vested at or prior to the Merger Effective Date under any qualified employee
benefit plan or (except for the Employment Agreement) any nonqualified employee
benefit plan, including certain non-qualified deferred compensation plans and
rabbi trust; nor any rights to indemnification that Executive has under the
articles of incorporation and bylaws of Innes Street and/or Citizens Bank. The
Executive acknowledges that he is not entitled to any severance payment or
severance or change in control benefit or any other payment in connection with
his employment by or service as a director of Innes Street, Citizens Bank or any
other Innes Street affiliate prior to the Merger Effective Date other than the
Payment.
2. No Parachute Payment. The parties acknowledge that the payments
--------------------
hereunder shall not constitute a parachute payment within the meaning of Section
28OG of the Internal Revenue Code of 1986, as amended ("Section 280G"), and
regulations thereunder, in connection with the acquisition of Innes Street and
Citizens Bank by ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal.
3. General Provisions.
------------------
(a) Heirs, Successors and Assigns. The terms of this Agreement shall
-----------------------------
be binding upon the parties hereto and their respective heirs, successors and
assigns, including but not limited to ▇▇▇▇▇▇ Bancorp and its affiliates.
(b) Final Agreement. This Agreement represents the entire
---------------
understanding of the parties with respect to the subject matter thereof and
supersedes all prior understandings, written or oral. The terms of this
Agreement may be changed, modified or discharged only by an instrument in
writing signed by the parties hereto.
(c) Governing Law. This Agreement shall be construed, enforced and
-------------
interpreted in accordance with and governed by the laws of the State of North
Carolina, without reference to its principles of conflicts of law.
(d) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which counterpart, when so executed and delivered, shall
be deemed an original and all of which counterparts, taken together, shall
constitute but one and the same agreement.
4. Voluntary Action and Waiver. The Executive acknowledges that, by his
---------------------------
free and voluntary act of signing below, the Executive agrees to all of the
terms of this Agreement and intends to be legally bound thereby. The Executive
acknowledges that he has been advised to consult with an attorney prior to
executing this Agreement. The Executive understands and acknowledges that he has
the legal entitlement of 45 days in which to determine whether or not he wants
to sign this Agreement. Understanding those rights, the Executive has determined
to sign this Agreement and has done so effective the day and year first above
written. The Executive recognizes that only two (2) days have transpired since
he received this Agreement, but has made the decision to sign this Agreement and
not wait the entire 45 day period to which he is entitled, thereby knowingly and
freely waiving any statutory rights to sign this Agreement at a later time.
Notwithstanding the foregoing, this Agreement may be revoked by the Executive
within seven (7) days after the day first hereinabove written by the delivery of
written notice of revocation to _____________________. In the event of any
revocation of this Agreement by the Executive within the time period specified
above, the Executive shall not be entitled to the Payment theretofore provided
or paid to the Executive, the Executive shall be required to repay ▇▇▇▇▇▇
Bancorp or the Bank or their successors in interest the amount of the Payment
with
interest at the Federal finds rate applicable under Section 28OG at the time the
Executive delivers his written notice of revocation of this Agreement.
This Agreement has been executed as of the day and year first herein above
written.
CITIZENS BANK, INC.
By: ________________________________
Name:
Title:
EXECUTIVE
________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Schedule 5.11(e)(2)
▇▇▇▇▇▇ FEDERAL BANK
EMPLOYMENT AGREEMENT
This Agreement is made effective as of ______________, 2001 by and between
▇▇▇▇▇▇ Federal Bank (the "Bank"), a federally-chartered stock savings bank, with
its principal executive office at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (the "Executive"). Any reference to "Company"
herein shall mean ▇▇▇▇▇▇ Federal Bancorp, Inc., the stock holding company parent
of the Bank or any successor thereto.
WHEREAS, the Bank wishes to assure itself of the continued services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Bank on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive agrees to serve as
_______________________________ of the Bank (the "Executive Position"). At the
Merger Effective Date the Executive shall be appointed to the Board of Directors
of the Company and the Bank, and During said period, Executive also agrees to
continue to serve, if elected, as an officer and director of any subsidiary or
affiliate of the Bank. Failure to reelect Executive to the Executive Position
without the consent of the Executive during the term of this Agreement shall
constitute a breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement shall begin
as of the date first above written and shall continue for a period of twenty-
four (24) full calendar months thereafter.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Bank; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, business
companies or business organizations, which, in such Board's judgment, will not
present any conflict of interest with the Bank, or materially affect the
performance of Executive's duties pursuant to this Agreement (it being
understood that membership in social, religious, charitable or similar
organizations does not require Board approval pursuant to this Section 2(b)).
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of $150,000 per year ("Base
Salary"). Such Base Salary shall be payable biweekly. In addition to the Base
Salary provided in this Section 3(a), the Bank shall provide Executive at no
cost to Executive with all such other benefits as are provided uniformly to
permanent full-time employees of the Bank.
(b) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Bank shall pay any dues associated with the Executives
involvement with civic clubs and his membership dues in the Salisbury County
Club and shall provide an automobile allowance (not to exceed $750 per month)
for the Executive, and, pay or reimburse Executive for all reasonable travel and
other reasonable expenses incurred by Executive performing his obligations under
this Agreement and may provide such additional compensation in such form and
such amounts as the Board may from time to time determine.
(c) Compensation and reimbursement to be paid pursuant to paragraphs (a)
and (b) of this Section 3 shall be paid by the Bank and the Company,
respectively on a pro rata basis based upon the amount of service the Executive
devotes to the Bank and Company, respectively.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 14.
(a) The provisions of this Section shall apply upon the occurrence of an
Event of Termination (as herein defined) during the Executive's term of
employment under this Agreement. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following:
(i) the termination by the Bank or the Company of Executive's full-time
employment hereunder for any reason other than (A) Disability, as defined in
Section 5 below, or (B) Termination for Cause as defined in Section 6 hereof; or
(ii) Executive's resignation from the Bank's employ, upon any
(A) failure to elect or reelect or to appoint or reappoint Executive
to the Executive Position,
(B) a relocation of Executive's principal place of employment by more
than 50 miles from its location at the effective date of this
Agreement,
(C) liquidation or dissolution of the Bank or Company, other than
liquidations or dissolutions that are caused by reorganizations that
do not affect the status of Executive (including any mutual to stock
conversion of ▇▇▇▇▇▇ Federal Holdings, MHC); or
(D) breach of this Agreement by the Bank.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 7, the Bank shall pay Executive, or, in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a lump sum
cash payment equal to the pro-rated Base Salary for the remaining term of the
Agreement; provided however, that if the Bank is not in compliance with its
minimum capital requirements or if such payments would cause the Bank's capital
to be reduced below its minimum capital requirements, such payments shall be
deferred until such time as the Bank is in capital compliance. Such payments
shall not be reduced in the event the Executive obtains other employment
following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, and dental coverage substantially identical to the
coverage maintained by the Bank for Executive prior to his termination for the
reminding term of the Agreement. Such coverage shall cease upon the expiration
of the remaining term of this Agreement.
(d) Notwithstanding the preceding paragraphs of this Section 4, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits")
would be deemed to include an "excess parachute payment" under
Section 280G of the Code or any successor thereto, and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to the total amount of payments
permissible under Section 280G of the Code or any successor
thereto.
then the Termination Benefits to be paid to Executive shall be so
reduced so as to be a Non-Triggering Amount.
5. TERMINATION UPON DISABILITY
In the event Executive is unable to perform his duties under this Agreement
on a full-time basis for a period of six (6) consecutive months by reason of
illness or other physical or mental disability, the Employer may terminate this
Agreement, provided that the Employer shall continue to be obligated to pay the
Executive his Base Salary for the remaining term of the Agreement, provided that
any amounts actually paid to Executive pursuant to any disability insurance or
other similar such program which the Employer has provided or may provide on
behalf of its employees or pursuant to any ▇▇▇▇▇▇▇'▇ or social security
disability program shall reduce the compensation to be paid to the Executive
pursuant to this paragraph.
6. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. In determining incompetence, the acts
or omissions shall be measured against standards generally prevailing in the
savings institutions industry. For purposes of this para-graph, no act or
failure to act on the part of Executive shall be considered "willful" unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Execu-tive's action or omission was in the best
interest of the Bank. -Notwith-standing the foregoing, Executive shall not be
deemed to have been Terminated for Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote of
not less than three-fourths of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to Executive and
an opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. The Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause. Any stock options
granted to Executive under any stock option plan of the Bank, the Company or any
subsidiary or affiliate thereof, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to Section 7
hereof, and shall not be exercisable by Executive at any time subsequent to such
Termination for Cause.
7. NOTICE
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for Cause, the Date of Termination shall be immediate
upon receipt of the notice, and (C) if his employment is terminated for any
other reason, the date specified in the Notice of Termination (which shall not
be less than thirty (30) days from the date such Notice of Termination is
given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the voluntary termination
by the Executive in which case the Date of Termination shall be the date
specified in the Notice, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of the parties
or by a binding arbitration award. Notwithstanding the foregoing, no
compensation or benefits shall be paid to Executive in the event the Executive
is Terminated for Cause. In the event that such Termination for Cause is found
to have been wrongful or such dispute is otherwise decided in Executive's favor,
the Executive shall be entitled to receive all compensation and benefits which
accrued for up to a period of nine months after Termination for Cause. If such
dispute is not resolved within such nine-month period, the Bank shall not be
obligated, upon final resolution of such dispute, to pay Executive compensation
and other payments accruing more than nine months from the Date of the
Termination specified in the Notice of Termination. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with paragraph (b) of this Section 8 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information and
assistance to the Bank as may reasonably be required by the Bank in connection
with any litigation in which it or any of its subsidiaries or affiliates is, or
may become, a party.
9. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder as a result
of which the Association is paying Executive benefits under Section 4 of this
Agreement, Executive agrees not to compete with the Bank and/or the Company for
a period of one (1) year following such termination in any city, town or county
in which the Bank and/or the Company has an office or has filed an application
for regulatory approval to establish an office, determined as of the effective
date of such termination, except as agreed to pursuant to a resolution duly
adopted by the Board. Executive agrees that during such period and within said
cities, towns and counties, Executive shall not work for or advise, consult or
otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Bank and/or the Company. The parties
hereto, recognizing that irreparable injury will result to the Bank and/or the
Company, its business and property in the event of Executive's breach of this
Subsection 9(a) agree that in the event of any such breach by Executive, the
Bank and/or the Company will be entitled, in addition to any other remedies and
damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employers, employees and all
persons acting for or with Executive. Executive represents and admits that
Executive's experience and capabilities are such that Executive can obtain
employment in a business engaged in other lines and/or of a different nature
than the Bank and/or the Company, and that the enforcement of a remedy by way of
injunction will not prevent Executive from earning a livelihood. Nothing herein
will be construed as prohibiting the Bank and/or the Company from pursuing any
other remedies available to the Bank and/or the Company for such breach or
threatened breach, including the recovery of damages from Executive. This
paragraph (a) shall not apply if an termination of Executive's employment occurs
in connection with a change in control of the Bank, within the meaning of the
Home Owners' Loan Act and the Rules and Regulations promulgated by the Office of
Thrift Supervision (or its predecessor agency) thereunder.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever (except
for such disclosure as may be required to be provided to the Office of Thrift
Supervision (the "OTS"), the Federal Deposit Insurance Corporation (the "FDIC"),
or other federal banking agency with jurisdiction over the Bank or Executive).
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank, and
Executive may disclose any information regarding the Bank or the Company which
is otherwise publicly available. In the event of a breach or threatened breach
by the Executive of the Provisions of this Section 9, the Bank will be entitled
to an injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
10. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees
payment and provision of all amounts and benefits due hereunder to Executive
and, if such amounts and benefits due from the
Bank are not timely paid or provided by the Bank, such amounts and benefits
shall be paid or provided by the Company.
11. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
12. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
13. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
14. REQUIRED PROVISIONS
(a) The Bank's Board of Directors may terminate the Executive's employment
at any time, but any termination by the Bank's Board of Directors, other than
Termination for Cause, shall not prejudice Executive's right to compensation or
other benefits under this Agreement. Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause as defined in Section 7 herein above.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) (12 U.S.C. (S)(S) 1818(e)(3)) or 8(g) (12 U.S.C.
(S) 1818(g)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, the Bank's
obligations under this contract shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Bank may in its discretion (i) pay the Executive all or part of
the compensation withheld while their contract obligations were suspended and
(ii) reinstate (in whole or in part) any of the obligations which were
suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e) (12 U.S.C. (S)(S) 1818(e)) or 8(g) (12 U.S.C. (S) 1818(g)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, all obligations of the Bank under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x) (12 U.S.C. (S)
1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution, (i) by the Director, at the time
FDIC or the Resolution Trust Corporation enters into an agreement to provide
assistance to or on behalf of the Bank; or (ii) by the OTS at the time the OTS
or its District Director approves a supervisory merger to resolve problems
related to the operations of the Bank or when the Bank is determined by the OTS
or FDIC to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 USC
Section 1828(k) and any regulations promulgated thereunder.
15. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW
This Agreement shall be governed by the laws of the State of North Carolina
but only to the extent not superseded by federal law. In the event that any
discrepancies arise between the contract and laws or regulations which are
effective with respect to the contract, the laws and regulations will prevail.
18. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within
thirty (30) miles from the location of the Bank, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
19. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Bank's obligations under
this Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to
be executed and their seals to be affixed hereunto by their duly authorized
officers, and Executives have signed this Agreement, on the day and date first
above written.
ATTEST: ▇▇▇▇▇▇ FEDERAL BANK
______________________________ By: ___________________________________
Secretary Chairman of the Board
WITNESS: EXECUTIVE:
______________________________ _______________________________________
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