Exhibit 2.1
EXECUTION COPY
MERGER AGREEMENT
DATED AS OF DECEMBER 10, 2007
BY AND AMONG
FOUR OAKS FINCORP, INC.
FOUR OAKS BANK & TRUST COMPANY
AND
LONGLEAF COMMUNITY BANK
TABLE OF CONTENTS
PAGE
----
ARTICLE I -- DEFINED TERMS.....................................................1
1.1. DEFINITIONS........................................................1
ARTICLE II -- THE MERGER; CONVERSION AND EXCHANGE OF COMPANY SHARES............9
2.1. THE MERGER.........................................................9
2.2 COMPANY SHARES....................................................10
2.3 MERGER CONSIDERATION..............................................10
2.4 ELECTION AND ALLOCATION PROCEDURES................................11
2.5 EXCHANGE PROCEDURES...............................................14
2.6 COMPANY STOCK OPTIONS.............................................15
2.7 DISSENTING SHARES.................................................16
ARTICLE III -- THE CLOSING....................................................17
3.1 CLOSING...........................................................17
3.2 DELIVERIES BY THE COMPANY.........................................17
3.3 DELIVERIES BY THE PARENT AND THE BUYER............................17
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................17
4.1 ORGANIZATION, STANDING AND POWER..................................18
4.2 AUTHORITY; NO CONFLICTS...........................................18
4.3 CAPITAL STOCK; SUBSIDIARIES.......................................18
4.4 COMPANY FILINGS, FINANCIAL STATEMENTS, AND BOOKS AND RECORDS......19
4.5 ABSENCE OF UNDISCLOSED LIABILITIES................................20
4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS..............................20
4.7 TAX MATTERS.......................................................22
4.8 ASSETS; INSURANCE.................................................22
4.9 SECURITIES PORTFOLIO AND INVESTMENTS..............................23
4.10 ENVIRONMENTAL MATTERS.............................................23
4.11 COMPLIANCE WITH LAWS..............................................24
4.12 LABOR RELATIONS...................................................24
4.13 EMPLOYEE BENEFIT PLANS............................................25
4.14 MATERIAL CONTRACTS................................................26
4.15 LEGAL PROCEEDINGS.................................................26
4.16 REPORTS...........................................................27
4.17 ACCOUNTING, TAX, AND REGULATORY MATTERS...........................27
4.18 ORGANIZATIONAL DOCUMENTS..........................................27
4.19 STOCK RECORDS.....................................................27
4.20 INVESTMENT COMPANY................................................27
4.21 LOANS; ALLOWANCE FOR LOAN LOSSES..................................27
4.22 REPURCHASE AGREEMENTS; DERIVATIVES................................27
4.23 DEPOSIT ACCOUNTS..................................................28
4.24 RELATED PARTY TRANSACTIONS........................................28
4.25 COMMISSIONS.......................................................28
4.26 VOTING AGREEMENTS.................................................28
4.27 INTELLECTUAL PROPERTY.............................................28
4.28 TECHNOLOGY SYSTEMS................................................29
4.29 BANK SECRECY ACT COMPLIANCE; USA PATRIOT ACT......................29
4.30 OFAC..............................................................29
4.31 NONCOMPETES.......................................................29
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE BUYER.......29
5.1 ORGANIZATION, STANDING AND POWER..................................29
5.2 AUTHORITY; NO CONFLICTS...........................................30
5.3 PARENT'S STOCK....................................................30
5.4 SEC FILINGS; PARENT FINANCIAL STATEMENTS..........................31
5.5 REGISTRATION STATEMENT; PROXY STATEMENT...........................32
5.6 ABSENCE OF UNDISCLOSED LIABILITIES................................32
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS..............................32
5.8 TAX MATTERS.......................................................32
5.9 COMPLIANCE WITH LAWS..............................................33
5.10 LEGAL PROCEEDINGS.................................................33
5.11 REPORTS...........................................................34
5.12 ACCOUNTING, TAX, AND REGULATORY MATTERS...........................34
5.13 ORGANIZATIONAL DOCUMENTS..........................................34
5.14 INVESTMENT COMPANY................................................34
5.15 DEPOSIT ACCOUNTS..................................................34
5.16 COMMISSIONS.......................................................34
5.17 OFAC..............................................................34
ARTICLE VI -- COVENANTS.......................................................34
6.1 COVENANTS OF THE COMPANY..........................................34
6.2 COVENANTS OF THE PARENT AND THE BUYER.............................40
6.3 COVENANTS OF ALL PARTIES TO THE AGREEMENT.........................43
ARTICLE VII -- DISCLOSURE OF ADDITIONAL INFORMATION...........................44
7.1 ACCESS TO INFORMATION.............................................45
7.2 ACCESS TO PREMISES................................................45
7.3 ENVIRONMENTAL SURVEY..............................................45
7.4 ANNOUNCEMENTS; CONFIDENTIAL INFORMATION...........................45
ARTICLE VIII -- CONDITIONS TO CLOSING........................................47
8.1 MUTUAL CONDITIONS.................................................47
8.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY......................48
8.3 CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND THE BUYER.........50
ARTICLE IX -- TERMINATION.....................................................51
9.1 TERMINATION.......................................................52
9.2 PROCEDURE AND EFFECT OF TERMINATION...............................53
9.3 TERMINATION EXPENSES AND FEES.....................................53
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ARTICLE X -- MISCELLANEOUS PROVISIONS.........................................53
10.1 EXPENSES..........................................................54
10.2 NO SURVIVAL OF REPRESENTATIONS....................................54
10.3 AMENDMENT AND MODIFICATION........................................54
10.4 WAIVER OF COMPLIANCE; CONSENTS....................................54
10.5 NOTICES...........................................................54
10.6 ASSIGNMENT........................................................55
10.7 SEPARABLE PROVISIONS..............................................55
10.8 GOVERNING LAW.....................................................55
10.9 COUNTERPARTS......................................................55
10.10 INTERPRETATION....................................................55
10.11 ENTIRE AGREEMENT..................................................55
EXHIBIT A FORM OF ▇▇▇▇▇▇▇ CONSULTING AGREEMENT
EXHIBIT B FORM OF FARRAH EMPLOYMENT AGREEMENT
EXHIBIT C FORM OF VOTING AGREEMENT
EXHIBIT D FORM OF AFFILIATE LETTER
iii
MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement"), dated as of the 10th day of
December, 2007, is by and among:
FOUR OAKS FINCORP, INC., a North Carolina corporation and a bank holding
company registered with the Board of Governors of the Federal Reserve System
under the Bank Holding Company Act of 1956, as amended, and a North Carolina
bank holding company (the "Parent");
FOUR OAKS BANK & TRUST COMPANY, a North Carolina banking corporation and a
state chartered member of the Federal Reserve System (the "Buyer"); and
LONGLEAF COMMUNITY BANK, a North Carolina banking corporation (the
"Company").
ARTICLE I. BACKGROUND STATEMENT
--------------------
The Parent, the Buyer and the Company desire to effect a merger pursuant
to which the Company will merge into the Buyer, with the Buyer being the
surviving corporation (the "Merger"). In consideration of the Merger, the
shareholders of the Company will receive shares of common stock of the Parent
and/or cash. It is intended that the Merger qualify as a tax-free reorganization
under Section 368 of the Internal Revenue Code of 1986, as amended.
ARTICLE II. STATEMENT OF AGREEMENT
----------------------
In consideration of the premises and the mutual representations,
warranties, covenants, agreements and conditions contained herein, the parties
hereto agree as follows:
ARTICLE I
ARTICLE III. DEFINED TERMS
-------------
1.1. DEFINITIONS. As used in this Agreement, the following capitalized
terms have the following meanings:
"Actual Average Closing Price" means, with respect to the Parent's Stock,
the volume weighted average of the daily closing sales price thereof as quoted
on the OTC Bulletin Board during the twenty (20) consecutive trading days ending
three (3) Business Days prior to the Closing Date.
"Acquisition Proposal" has the meaning given to it in Section 6.1(c).
"Advisory Board" has the meaning given to it in Section 6.2(b).
"Affiliate" means, with respect to any Person, each of the Persons that
directly or indirectly, through one or more intermediaries, owns or Controls, or
is Controlled by or is under common Control with, such Person. Without limiting
the foregoing, the term "Affiliates" includes Subsidiaries.
"Agreement" has the meaning given to it in the introductory paragraph
hereof.
"All Cash Consideration Election Amount" has the meaning given to it in
Section 2.4(a).
"All Stock Consideration Election Amount" has the meaning given to it in
Section 2.4(a).
"Assets" means all of the assets, properties, businesses and rights of a
Person of every kind, nature, character and description, whether real, personal
or mixed, tangible or intangible, accrued or contingent, whether or not carried
on any books and records of such Person, whether or not owned in such Person's
name and wherever located.
"Average Closing Price" means the Actual Average Closing Price; provided,
in the event that the Actual Average Closing Price is greater than $19.3397452,
the Average Closing Price shall be $19.3397452; provided, further, in the event
that the Actual Average Closing Price is less than $14.2945943, the Average
Closing Price shall be $14.2945943.
"Benefit Plans" means all pension, retirement, profit-sharing, SIMPLE ▇▇▇,
deferred compensation, stock option, employee stock ownership, restricted stock,
severance pay, vacation, bonus, or other incentive plan, all other written
employee programs or agreements, all medical, vision, dental, or other health
plans, welfare plans, all life insurance plans, and all other employee benefit
plans, arrangements, fringe benefit plans or perquisites, whether written or
unwritten, including without limitation "employee benefit plans" as that term is
defined in Section 3(3) of ERISA maintained by, sponsored in whole or in part
by, or contributed to by, a Person or any of its subsidiaries for the benefit of
that Person's employees or retirees, or directors and/or their spouses,
dependents and designated beneficiaries.
"▇▇▇▇▇▇▇ Consulting Agreement" means the consulting agreement to be
entered into at the Closing between the Buyer and the Company's Chief Executive
Officer, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, substantially in the form attached hereto as EXHIBIT
A.
"Business Day" means any day excluding (i) Saturday, (ii) Sunday and (iii)
any day that is a legal holiday in the State of North Carolina.
"Buyer" has the meaning given to it in the introductory paragraph hereof.
"Cash Election Amount" has the meaning given to it in Section 2.4(a).
"Cash Election Shares" has the meaning given to it in Section 2.4(a).
"Cause" means a good faith determination that an employee: (i) is engaging
or has engaged in willful misconduct or in conduct which is detrimental in any
material respect to the Buyer's business or business prospects or likely will
have an adverse effect on the Buyer's business or reputation; (ii) is proved to
have engaged in any act of fraud, embezzlement, or personal dishonesty; (iii)
has failed in any material respect to perform or discharge his or her duties or
responsibilities of employment; (iv) has materially breached any agreement
between such employee and the Buyer or has materially violated the Buyer's codes
and standards of conduct; (v) is convicted of any felony or any criminal offense
involving dishonesty or breach of trust, or any event occurs which disqualifies
the employee, under Section 19 of the Federal Deposit Insurance Act or other
banking laws and regulations, or the Buyer's general policies, from serving as
an employee of the Buyer; (vi) becomes unacceptable to, or is removed,
suspended, or prohibited from participating in the conduct of the Buyer's
affairs by, any Regulatory Authority; or (vii) is excluded by the carrier or
underwriter from coverage under the Buyer's "blanket bond" or other fidelity
bond or insurance policy covering the Buyer's directors, officers, or employees,
or such coverage for that employee is limited as compared to other covered
officers or employees, or the Buyer determines in good faith that these events
probably will occur.
"Closing" means the closing of the Merger, as described more specifically
in ARTICLE III.
2
"Closing Date" has the meaning given to it in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, together with the regulations thereunder,
in each case as in effect from time to time. References to sections of the Code
shall be construed also to refer to any successor sections.
"Company" has the meaning given to it in the introductory paragraph
hereof.
"Company Contracts" has the meaning given to it in Section 4.14.
"Company Filings" has the meaning given to it in Section 4.4(a).
"Company Financial Statements" means, with respect to the Company, the
audited statements of income and stockholder's equity and cash flows for the
years ended December 31, 2006, 2005 and 2004 and audited balance sheets as of
December 31, 2006, 2005 and 2004, as well as the interim unaudited statements of
income and stockholders' equity and cash flows for each of the completed fiscal
quarters since December 31, 2006 and the interim unaudited balance sheet as of
each such quarter.
"Company Option" and "Company Options" have the respective meanings given
to them in Section 2.6(a).
"Company Rule 145 Affiliates" has the meaning given to it in Section
6.1(g).
"Company Shares" has the meaning given to it in Section 2.2(a).
"Company's Disclosure Schedule" has the meaning given to it in the
preamble to ARTICLE IV.
"Confidentiality Agreement" has the meaning given to it in Section 6.1(c).
"Confidential Information" has the meaning given to it in Section 7.4(b).
"Consent" means any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person given or granted with
respect to any Contract, Law, Order, or Permit.
"Contract" means any agreement, warranty, indenture, mortgage, guaranty,
lease, license or other contract, agreement, arrangement, commitment or
understanding, written or oral, to which a Person is a party.
"Control" means possession, directly or indirectly, of the power to direct
or cause the direction of management and policies, whether through the ownership
of a substantial amount of voting securities, by contract or otherwise.
"Default" means (i) any breach or violation of or default under any
Contract, Order or Permit (including any noncompliance with restrictions on
assignment, that include the transactions contemplated in this Agreement), (ii)
any occurrence of any event that with the passage of time or the giving of
notice or both would constitute such a breach or violation of or default under
any Contract, Order or Permit, or (iii) any occurrence of any event that with or
without the passage of time or the giving of notice would give rise to a right
to terminate or revoke, change the current terms of, or renegotiate, or to
accelerate, increase, or impose any Liability under, any Contract, Order or
Permit.
"Determination Date" has the meaning given to it in Section 9.1(g).
3
"Determination Date Average Closing Price" has the meaning given to it in
Section 9.1(g).
"Dissenting Shares" has the meaning given to it in Section 2.7.
"Effective Time" has the meaning given to it in Section 2.1(e).
"Election Deadline" has the meaning given to it in Section 2.4(a).
"Election Form" has the meaning given to it in Section 2.4(a).
"Environmental Laws" means any federal, state or local law, statute,
ordinance, rule, regulation, permit, directive, license, approval, guidance,
interpretation, order or other legal requirement relating to the protection of
human health or the environment, including but not limited to any requirement
pertaining to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation, handling, reporting, licensing, permitting,
investigation or remediation of materials that are or may constitute a threat to
human health or the environment. Without limiting the foregoing, each of the
following is an Environmental Law: the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ▇▇.▇▇. 9601 et seq.), the Hazardous
Material Transportation Act (49 U.S.C. ▇▇.▇▇. 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ▇▇.▇▇. 6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ▇▇.▇▇. 1251 et seq.), the Clean Air Act (42
U.S.C. ▇▇.▇▇. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ▇▇.▇▇.
2601 et seq.), the Safe Drinking Water Act (42 U.S.C. ▇▇.▇▇. 300 et seq.) and
the Occupational Safety and Health Act (29 U.S.C. ▇▇.▇▇. 651 et seq.), as such
laws and regulations have been or are in the future amended or supplemented, and
each similar federal, state or local statute, and each rule and regulation
promulgated under such federal, state and local laws.
"Environmental Survey" has the meaning given to it in Section 7.3.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed also to refer to any successor sections.
"ERISA Plan" means any Benefit Plan that is an "employee welfare benefit
plan," as that term is defined in Section 3(l) of ERISA, or an "employee pension
benefit plan," as that term is defined in Section 3(2) of ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" has the meaning given to it in Section 2.5(a).
"Exchange Ratio" means, subject to Section 9.1(g), an amount equal to
$16.50 divided by the Average Closing Price, rounded to the seventh decimal
place.
"Farrah Employment Agreement" means the employment agreement to be entered
into at the Closing between the Buyer and the Company's Chief Operating Officer,
▇▇▇▇▇ ▇. "▇▇▇▇▇" ▇▇▇▇▇▇ III, substantially in the form attached hereto as
EXHIBIT B.
"FDIC" means the Federal Deposit Insurance Corporation.
"Force Majeure" means, with respect to any Person, (i) such Person's
inability to procure sufficient supplies or (ii) any fire, flood, extreme
weather, natural calamity, act of God, strike, work stoppage, labor difficulty,
war, national emergency, insurrection, riot, civil unrest, law, order or act of
any Governmental Authority, or any other event not within such Person's control.
4
"Generally Accepted Accounting Principles" or "GAAP" means accounting
principles generally accepted in the United States, as in effect from time to
time, consistently applied and maintained on a consistent basis for a Person
throughout the period indicated and consistent with such Person's prior
financial practice.
"Governmental Authority" means any nation, province or state, or any
political subdivision thereof, and any agency, department, natural person or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including Regulatory
Authorities.
"Hazardous Material" means any substance or material that either is or
contains a substance designated as a hazardous waste, hazardous substance,
hazardous material, pollutant, contaminant or toxic substance under any
Environmental Law or is otherwise regulated under any Environmental Law, or the
presence of which in some quantity requires investigation, notification or
remediation under any Environmental Law.
"Informing Party" has the meaning given to it in Section 7.4(b).
"Intellectual Property" means all copyrights, patents, trademarks, service
marks, service names, trade names, applications therefor, technology rights and
licenses, computer software (including any source or object codes and
documentation relating thereto), trade secrets, franchises, inventions, and
other intellectual property rights.
"Knowledge of the Company" means the knowledge of any of the Company's
directors and the Company's Chief Executive Officer, Chief Financial Officer,
Chief Operating Officer, and Chief Credit Officer, and, solely after the date of
this Agreement, also the Company's Controller and Corporate Secretary, in each
case including facts of which such directors and officers, in the reasonably
prudent exercise of their duties, should be aware.
"Knowledge of the Parent and the Buyer" means the knowledge of any of the
Parent's and the Buyer's directors and the Parent's Chief Executive Officer,
Chief Financial Officer, Chief Operating Officer, Controller, and General
Auditor, including facts of which such directors and officers, in the reasonably
prudent exercise of their duties, should be aware.
"Law" means any code, law, ordinance, rule, regulation, reporting or
licensing requirement, or statute applicable to a Person or its Assets,
Liabilities, business or operations promulgated, interpreted or enforced by any
Governmental Authority.
"Liability" means any liability, indebtedness, obligation, penalty, cost
or expense (including costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person (other than endorsements
of notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether direct or indirect, primary or
secondary, accrued, absolute or contingent, liquidated or unliquidated, matured
or unmatured or otherwise.
"Lien" means, whether contractual or statutory, any conditional sale
agreement, participation or repurchase agreement, assignment, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge or claim
of any nature whatsoever of, on, or with respect to any property or property
interest, other than (i) liens for current property Taxes not yet due and
payable, (ii) easements, restrictions of record and title exceptions that could
not reasonably be expected to have a Material Adverse Effect, and (iii) pledges
to secure deposits and other liens incurred in the ordinary course of the
banking business.
5
"Litigation" means any action, arbitration, cause of action, complaint,
criminal prosecution, governmental investigation, hearing, or administrative or
other proceeding, but shall not include regular examinations of depository
institutions and their Affiliates by Regulatory Authorities.
"Loan Collateral" means all of the assets, properties, businesses and
rights of every kind, nature, character and description, whether real, personal,
or mixed, tangible or intangible, accrued or contingent, owned by whomever and
wherever located, in which any Person has taken a security interest with respect
to, on which any Person has placed a Lien with respect to, or which is otherwise
used to secure, any loan made by any Person or any note, account, or other
receivable payable to any Person.
"Mailing Date" has the meaning given to it in Section 2.4(a).
"Material" means having meaningful consequences, and for purposes of this
Agreement shall be determined reasonably in light of the facts and circumstances
of the matter in question; provided that any specific monetary amount stated in
this Agreement shall determine materiality in that instance.
"Material Adverse Effect" on a Person shall mean an event, occurrence or
circumstance that, individually or together with any other event, occurrence or
circumstance, has a Material adverse impact on (i) the financial condition,
results of operations, or business of such Person and its subsidiaries, taken as
a whole, or (ii) the ability of such Person to perform its obligations under
this Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement, provided that "Material Adverse Effect" shall
not be deemed to include the impact of (a) changes in banking and similar Laws
of general applicability or interpretations thereof by courts or governmental
authorities, (b) changes in market interest rates, real estate markets,
securities markets or other market conditions applicable to banks or thrift
institutions generally, (c) changes in GAAP or regulatory accounting principles
generally applicable to banks and their holding companies, (d) actions and
omissions of a party hereto (or any of its Affiliates) taken with the consent of
the other parties hereto, and (e) the Merger (and the reasonable expenses
incurred in connection therewith) and compliance with the provisions of this
Agreement.
"Maximum Total Cash Merger Consideration" has the meaning given to it in
Section 2.3(b).
"Maximum Total Stock Merger Consideration" has the meaning given to it in
Section 2.3(b).
"Merger" has the meaning given to it in the Background Statement hereof.
"Merger Consideration" has the meaning given to it in Section 2.3(a).
"Minimum Total Cash Merger Consideration" has the meaning given to it in
Section 2.3(b).
"Minimum Total Stock Merger Consideration" has the meaning given to it in
Section 2.3(b).
"Mixed Cash Consideration Election Amount" has the meaning given to it in
Section 2.4(a).
"Mixed Election Shares" has the meaning given to it in Section 2.4(a).
6
"Mixed Stock Consideration Election Amount" has the meaning given to it in
Section 2.4(a).
"OFAC" means the Office of Foreign Assets Control of the United States
Department of the Treasury.
"Order" means any decision or award, decree, injunction, judgment, order,
ruling, or writ of any arbitrator or Governmental Authority.
"Parent" has the meaning given to it in the introductory paragraph hereof.
"Parent Financial Statements" means, with respect to the Parent and its
Subsidiaries, the consolidated audited statements of income and stockholder's
equity and cash flows for the years ended December 31, 2006, 2005 and 2004 and
consolidated audited balance sheets as of December 31, 2006, 2005 and 2004, as
well as the interim consolidated unaudited statements of income and
stockholders' equity and cash flows for each of the completed fiscal quarters
since December 31, 2006 and the interim consolidated unaudited balance sheet as
of each such quarter.
"Parent SEC Reports" has the meaning given to it in Section 5.4(a).
"Parent's and Buyer's Disclosure Schedule" has the meaning given to it in
the preamble to ARTICLE V.
"Parent's Stock" means the common stock of the Parent, par value One
Dollar ($1.00) per share, as traded on the OTC Bulletin Board.
"Pension Plan" means any ERISA Plan that also is a "defined benefit plan"
(as defined in Section 414(j) of the Code or Section 3(35) of ERISA).
"Permit" means any approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right given by a Governmental Authority
to which any Person is a party or that is or may be binding upon or inure to the
benefit of any Person or its securities, Assets or business.
"Person" means a corporation, a company, an association, a joint venture,
a partnership, an organization, a business, an individual, a trust, a
Governmental Authority or any other legal entity.
"Per Share Cash Consideration" has the meaning given to it in Section
2.3(a).
"Per Share Mixed Consideration" has the meaning given to it in Section
2.3(a).
"Per Share Stock Consideration" has the meaning given to it in Section
2.3(a).
"Plan of Merger" means the plan for completing the Merger set forth in
ARTICLE II of this Agreement.
"Proxy Statement" has the meaning given to it in Section 6.1(j).
"Real Property" means all of the land, buildings, premises, or other real
property in which a Person has ownership or possessory rights, whether by title,
lease or otherwise (including banking facilities and any foreclosed properties).
Notwithstanding the foregoing, "Real Property", as used with respect to any
Person, does not include any Loan Collateral not yet foreclosed and conveyed to
the Person as of the date with respect to which the term "Real Property" is
being used.
7
"Receiving Party" has the meaning given to it in Section 7.4(b).
"Registration Statement" has the meaning given to it in Section 6.1(j).
"Regulatory Authorities" means, collectively, the United States Department
of Justice, the Federal Reserve Board and the Federal Reserve Bank of Richmond,
the FDIC, the North Carolina Banking Commission, the North Carolina Commissioner
of Banks, the Financial Industry Regulatory Authority, the SEC, and any other
regulatory agencies having primary regulatory authority over the parties hereto,
their respective Affiliates, and the Merger and other transactions contemplated
by this Agreement.
"Rights" shall mean all arrangements, calls, commitments, Contracts,
options, rights to subscribe to, scrip, understandings, warrants, or other
binding obligations of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of its
capital stock or other Rights.
"▇▇▇▇▇▇▇▇-▇▇▇▇▇" has the meaning given it in Section 4.4(d).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Laws" means the Securities Act, the Exchange Act, the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the Trust
Indenture Act of 1939, each as amended, and the rules and regulations of any
Governmental Authority promulgated under each.
"Shareholder Meeting" has the meaning given to it in Section 6.1(d).
"Stock Adjustment" has the meaning given to it in Section 2.3(d).
"Stock Election Amount" has the meaning given to it in Section 2.4(a).
"Stock Election Shares" has the meaning given to it in Section 2.4(a).
"Subsidiary" means, with respect to any Person that is an entity, each of
the other entities that directly or indirectly is under the Control of such
Person through that Person's direct or indirect ownership of voting stock in the
entity.
"Superior Proposal" means a bona fide, written and unsolicited proposal or
offer (including a new proposal received by the Company after execution of this
Agreement from a person whose initial contact with the Company may have been
solicited by the Company or its representatives prior to the execution of this
Agreement) made by any person or group (other than the Parent or any of its
Subsidiaries) with respect to an Acquisition Proposal on terms which the Board
of Directors of the Company determines in good faith, in the exercise of
reasonable judgment (based on the advice of the Company's financial advisors and
outside legal counsel), and based on the written opinion, with only customary
qualifications, of the Company's financial advisor, to be reasonably capable of
being consummated and to be superior from a financial point of view to the
holders of Company Shares than the transactions contemplated hereby, taking into
consideration all elements of the transactions contemplated hereby including,
without limitation, the non-taxable element of such transactions.
"Surviving Bank" has the meaning given to it in Section 2.1(a).
8
"Tax" or "Taxes" means any and all taxes, charges, fees, levies or other
assessments (whether federal, state, local or foreign), including without
limitation income, gross receipts, excise, property, estate, sales, use, value
added, transfer, license, payroll, franchise, ad valorem, withholding, Social
Security and unemployment taxes, as well as any interest, penalties and other
additions to such taxes, charges, fees, levies or other assessments.
"Tax Return" means any report, return or other information required to be
supplied to a taxing authority in connection with Taxes.
"Taxable Period" shall mean any period prescribed by any Governmental
Authority, including the United States or any state, local, or foreign
government or subdivision or agency thereof, for which a Tax Return is required
to be filed or Tax is required to be paid.
"Technology Systems" has the meaning given to it in Section 4.28.
"Voting Agreement" has the meaning given to it in Section 4.26.
ARTICLE IV. ARTICLE II
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THE MERGER; CONVERSION AND EXCHANGE OF COMPANY SHARES
2.1. THE MERGER.
(a) The Merger. On the terms and subject to the conditions of this
Agreement, including the Plan of Merger set forth in this ARTICLE II, and North
Carolina Law, the Company shall merge into the Buyer, the separate existence of
the Company shall cease, and the Buyer shall be the surviving corporation (the
"Surviving Bank") and shall continue its corporate existence under the laws of
the State of North Carolina .
(b) Governing Documents. The articles of incorporation of the Buyer in
effect at the Effective Time of the Merger shall be the articles of
incorporation of the Surviving Bank until further amended in accordance with
applicable Law. The bylaws of the Buyer in effect at such Effective Time shall
be the bylaws of the Surviving Bank until further amended in accordance with
applicable Law.
(c) Directors and Officers. From and after the Effective Time of the
Merger, until successors or additional directors are duly elected or appointed
in accordance with applicable law, (i) the directors of the Buyer at the
Effective Time shall be the directors of the Surviving Bank and (ii) the
officers of the Buyer at the Effective Time shall be the officers of the
Surviving Bank.
(d) Approval. Subject to Section 6.1(c), the parties hereto shall use
their best efforts to take and cause to be taken all action necessary to approve
and authorize (i) this Agreement and the other documents contemplated hereby and
(ii) the Merger and the other transactions contemplated hereby.
(e) Effective Time. The Merger shall become effective on the date and at
the time of filing of the related Articles of Merger, in the form required by
and executed in accordance with North Carolina Law, or at such other time as is
specified therein. The date and time when the Merger shall become effective is
herein referred to as the "Effective Time."
(f) Filing of Articles of Merger. At the Closing, the Buyer and the
Company shall cause the Articles of Merger in respect of the Merger to be
executed and filed with the Secretary of State of North Carolina as required by
North Carolina Law and shall take any and all other actions and do any and all
other things to cause the Merger to become effective as contemplated hereby.
9
2.2 COMPANY SHARES.
(a) Each share of the Company's capital stock (the "Company Shares"), Five
Dollars ($5.00) par value per share, issued and outstanding immediately prior to
the Effective Time (other than Company Shares to be canceled pursuant to
Sections 2.2(c) and 2.2(d) and Dissenting Shares) shall, by virtue of the Merger
and without any action on the part of the holders thereof, be canceled and
converted at the Effective Time into the right to receive the Merger
Consideration in accordance with this ARTICLE II.
(b) Each such Company Share, by virtue of the Merger and without any
action on the part of the holder thereof, shall at the Effective Time no longer
be outstanding, shall be canceled and retired and shall cease to exist, and each
holder of certificates representing any such Company Shares shall thereafter
cease to have any rights with respect to such shares, except for the right to
receive the Merger Consideration.
(c) Notwithstanding anything contained in this Section 2.2 to the
contrary, any Company Shares held in the treasury of the Company immediately
prior to the Effective Time shall be canceled without any conversion thereof,
and no payment shall be made with respect thereto.
(d) From and after the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Bank of Company Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates representing Company Shares are presented to the Surviving
Bank, they shall be canceled and exchanged for the Merger Consideration as
provided for herein.
2.3 MERGER CONSIDERATION.
(a) Subject to Sections 2.2, 2.3(c), 2.3(d), 2.4, 2.5 and 2.7, at the
Effective Time, the holders of Company Shares outstanding at the Effective Time,
other than the Parent and its Affiliates, shall be entitled to receive, and the
Buyer shall pay or issue and deliver, for each Company Share held by such
Person: (i) 0.60 shares of the Parent's Stock multiplied by the Exchange Ratio
plus an amount equal to $6.60 in cash (the "Per Share Mixed Consideration"),
(ii) 1.0 share of the Parent's Stock multiplied by the Exchange Ratio (the "Per
Share Stock Consideration"), or (iii) an amount equal to $16.50 in cash (the
"Per Share Cash Consideration"). The foregoing consideration, collectively and
in the aggregate, shall be referred to herein as the "Merger Consideration."
(b) Subject to the allocation provisions of Section 2.4, each holder of a
Company Share may elect, for all Company Shares beneficially owned by such
holder, to receive the Per Share Mixed Consideration, the Per Share Stock
Consideration or the Per Share Cash Consideration; provided, (i) that the
aggregate number of shares of the Parent's Stock with respect to which the Per
Share Mixed Consideration and the Per Share Stock Consideration (excluding
fractions of Company Shares issued or not issued pursuant to Section 2.3(c) as a
result of rounding) shall be paid as Merger Consideration shall be not less than
an amount equal to (A) the product of $8.25 and the number of Company Shares
validly issued and outstanding at the Effective Time divided by (B) the Average
Closing Price, and not more than an amount equal to (C) the product of $11.55
and the number of Company Shares validly issued and outstanding at the Effective
Time divided by (D) the Average Closing Price (in each case subject to equitable
adjustment for any stock dividend, stock split or other stock payment by the
Company after the date hereof but prior to the Effective Time) (the "Minimum
Total Stock Merger Consideration" and the "Maximum Total Stock Merger
Consideration," respectively), subject to adjustment so that the Minimum Total
10
Stock Merger Consideration shall not be less than the amount necessary to
qualify the Merger as a tax-free reorganization under Section 368 of the Code,
as determined reasonably by the Parent at or immediately after the Effective
Time upon consultation with its independent accountants and counsel; and (ii)
that the aggregate amount of cash with respect to which the Per Share Mixed
Consideration and the Per Share Cash Consideration shall be paid as Merger
Consideration shall be not less than an amount equal to (E) the product of $4.95
and the number of Company Shares validly issued and outstanding at the Effective
Time, and not more than (F) the product of $8.25 and the number of Company
Shares validly issued and outstanding at the Effective Time (the "Minimum Total
Cash Merger Consideration" and the "Maximum Total Cash Merger Consideration,"
respectively); provided, however, that, if the Minimum Total Stock Merger
Consideration is adjusted as provided in Section 2.3(b)(i) above to qualify the
Merger as a tax-free reorganization under Section 368 of the Code, the Maximum
Total Cash Merger Consideration shall be adjusted reciprocally so that the
aggregate value of the Merger Consideration paid after such adjustments is equal
to the aggregate value of the Merger Consideration which would have been paid in
the absence of such adjustments.
(c) No fractional shares of the Parent's Stock shall be issued or
delivered in connection with the Merger. Instead, the number of shares of the
Parent's Stock which a holder of the Company Shares is entitled to receive
pursuant to this ARTICLE II shall be rounded to the nearest whole share (with
0.5 share rounded up to the nearest whole share).
(d) In the event the Parent changes the number of shares of the Parent's
Stock, or the Company changes the number of shares of the Company Stock, issued
and outstanding prior to the Effective Time as a result of a stock split, stock
dividend or similar recapitalization with respect to such stock (each a "Stock
Adjustment") and the record date therefor (in the case of a stock dividend) or
the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the Per Share Mixed Consideration and the Per Share Stock
Consideration shall each be equitably adjusted to reflect such change.
2.4 ELECTION AND ALLOCATION PROCEDURES.
(a) Election.
(i) An election form ("Election Form"), together with the other
transmittal materials described in Section 2.5, shall be mailed as soon as
reasonably practicable after the Effective Time to each holder of Company
Shares of record at the Effective Time. Such date of mailing shall be
referred to hereinafter as the "Mailing Date." Each Election Form shall
provide that a holder (or the beneficial owner through appropriate and
customary documentation and instruction) of Company Shares will receive
the Per Share Mixed Consideration with respect to all of such holder's
Company Shares, unless such holder (or the beneficial owner through
appropriate and customary documentation and instruction) elects to receive
the Per Share Cash Consideration or the Per Share Stock Consideration with
respect to all of such holder's Company Shares. Company Shares as to which
no election of Per Share Stock Consideration or Per Share Cash
Consideration is made shall be herein referred to as the "Mixed Election
Shares"; Company Shares as to which the Per Share Cash Consideration
election is made shall be referred to as the "Cash Election Shares"; and
Company Shares as to which the Per Share Stock Consideration election is
made shall be referred to as the "Stock Election Shares". In addition, all
Dissenting Shares shall be deemed Cash Election Shares. The "Cash Election
Amount" shall be equal to (x) the Per Share Cash Consideration multiplied
by the total number of Cash Election Shares (the "All Cash Consideration
Election Amount") plus (y) the amount of the Per Share Mixed Consideration
consisting of cash multiplied by the total number of Mixed Election Shares
(the "Mixed Cash Consideration Election Amount"). The "Stock Election
Amount" shall be equal to (x) the Per Share Stock Consideration multiplied
by the total number of Stock Election Shares (the "All Stock Consideration
Election Amount") plus (y) the amount of the Per Share Mixed Consideration
consisting of the Parent's Stock multiplied by the total number of Mixed
Election Shares (the "Mixed Stock Consideration Election Amount").
11
(ii) Any Company Share with respect to which the holder (or the
beneficial owner, as the case may be) shall not have submitted to the
Exchange Agent an effective, properly completed Election Form on or before
a date after the Effective Date to be agreed upon by the parties hereto
(which date shall be set forth on the Election Form), but in any event not
earlier than the twentieth (20th) Business Day after the Mailing Date
(such deadline, the "Election Deadline"), shall be converted into the Per
Share Mixed Consideration as set forth in Section 2.4(b) and shall be
deemed to be a Mixed Election Share.
(iii) The Parent shall make available one or more Election Forms as
may be reasonably requested by all Persons who become holders (or
beneficial owners) of Company Shares between the Mailing Date and the
close of business on the Business Day prior to the Election Deadline, and
the Parent shall provide to the Exchange Agent all information reasonably
necessary for it to perform as specified herein.
(iv) Any election shall have been properly made only if the Exchange
Agent shall have actually received a properly completed Election Form by
the Election Deadline. An Election Form shall be deemed properly completed
only if accompanied by one or more certificates (or customary affidavits
and indemnification regarding the loss or destruction of such certificates
or the guaranteed delivery of such certificates) representing all Company
Shares covered by such Election Form, together with duly executed
transmittal materials included with the Election Form. Any Election Form
may be revoked or changed by the person submitting such Election Form (or
the beneficial owner of the shares covered by such Election Form through
appropriate and customary documentation and instruction) at or prior to
the Election Deadline. In the event an Election Form is revoked prior to
the Election Deadline and no other valid election is made by the Election
Deadline, the Company Shares represented by such Election Form shall be
Mixed Election Shares. Subject to the terms of this Agreement and of the
Election Form, the Exchange Agent shall have reasonable discretion to
determine whether any election, revocation or change has been properly or
timely made and to disregard immaterial defects in the Election Forms, and
any good faith decisions of the Exchange Agent regarding such matters
shall be binding and conclusive. None of the Parent, the Buyer or the
Exchange Agent shall be under any obligation to notify any person of any
defect in an Election Form.
(b) Allocation. As soon as reasonably practicable after the Effective
Time, the Parent shall cause the Exchange Agent to allocate the Merger
Consideration among the holders of Company Shares, which shall be effected by
the Exchange Agent as provided in clause (i), (ii), (iii), (iv) or (v) below:
(i) If the Stock Election Amount does not exceed the Maximum Total
Stock Merger Consideration and the Cash Election Amount does not exceed
the Maximum Total Cash Merger Consideration, then:
12
(A) each Stock Election Share shall be converted into the
right to receive the Per Share Stock Consideration;
(B) each Cash Election Share shall be converted into the right
to receive the Per Share Cash Consideration; and
(C) each Mixed Election Share shall be converted into the
right to receive a number of shares of the Parent's Stock and an
amount of cash equal to the Per Share Mixed Consideration.
(ii) If (A) the Stock Election Amount exceeds the Maximum Total
Stock Merger Consideration, (B) the All Stock Consideration Election
Amount does not exceed the Maximum Total Stock Merger Consideration and
(C) the number of shares of the Parent's Stock described in clause (3)(x)
below is greater than or equal to 50.0% of the Per Share Stock
Consideration, then:
(1) each Stock Election Share shall be converted into the
right to receive the Per Share Stock Consideration;
(2) each Cash Election Share shall be converted into the right
to receive the Per Share Cash Consideration; and
(3) each Mixed Election Share shall be converted into the
right to receive (x) a number of shares of the Parent's Stock equal
to (i) the Maximum Total Stock Merger Consideration less the All
Stock Consideration Election Amount divided by (ii) the total number
of Mixed Election Shares, and (y) an amount in cash equal to (i) the
Minimum Total Cash Merger Consideration less the All Cash
Consideration Election Amount divided by (ii) the total number of
Mixed Election Shares.
(iii) If the Stock Election Amount exceeds the Maximum Total Stock
Merger Consideration but preceding clause (ii) does not apply, then:
(A) each Stock Election Share shall be converted into the
right to receive (1) a number of shares of the Parent's Stock equal
to (x) the Maximum Total Stock Merger Consideration less the
aggregate number of shares of the Parent's Stock allocated pursuant
to clause (C)(1) below divided by (y) the total number of Stock
Election Shares, and (2) an amount of cash equal to (x) the Minimum
Total Cash Merger Consideration less the aggregate amount of cash
allocated pursuant to clauses (B) and (C)(2) below divided by (y)
the total number of Stock Election Shares;
(B) each Cash Election Share shall be converted into the right
to receive the Per Share Cash Consideration; and
(C) each Mixed Election Share shall be converted into the
right to receive (1) a number of shares of the Parent's Stock equal
to 50.0% of the Per Share Stock Consideration, and (2) an amount of
cash equal to 50.0% of the Per Share Cash Consideration.
(iv) If (A) the Cash Election Amount exceeds the Maximum Total Cash
Merger Consideration, (B) the All Cash Consideration Election Amount does
not exceed the Maximum Total Cash Merger Consideration and (C) the amount
of cash described in clause (3)(y) below is greater than or equal to 30.0%
of the Per Share Cash Consideration, then:
13
(1) each Stock Election Share shall be converted into the
right to receive the Per Share Stock Consideration;
(2) each Cash Election Share shall be converted into the right
to receive the Per Share Cash Consideration; and
(3) each Mixed Election Share shall be converted into the
right to receive (x) a number of shares of the Parent's Stock equal
to (i) the Minimum Total Stock Merger Consideration less the All
Stock Consideration Election Amount divided by (ii) the total number
of Mixed Election Shares, and (y) an amount in cash equal to (i) the
Maximum Total Cash Merger Consideration less the All Cash
Consideration Election Amount divided by (ii) the total number of
Mixed Election Shares.
(v) If the Cash Election Amount exceeds the Maximum Total Stock
Merger Consideration but preceding clause (iv) does not apply, then:
(A) each Stock Election Share shall be converted into the
right to receive the Per Share Stock Consideration;
(B) each Cash Election Share shall be converted into the right
to receive (1) a number of shares of the Parent's Stock equal to (x)
the Minimum Total Stock Merger Consideration less the aggregate
number of shares of the Parent's Stock allocated pursuant to clause
(A) above and clause (C)(1) below divided by (y) the total number of
Cash Election Shares, and (2) an amount of cash equal to (x) the
Maximum Total Cash Merger Consideration less the aggregate amount of
cash allocated pursuant to clause (C)(2) below divided by (y) the
total number of Cash Election Shares; and
(C) each Mixed Election Share shall be converted into the
right to receive (1) a number of shares of the Parent's Stock equal
to 70.0% of the Per Share Stock Consideration, and (2) an amount of
cash equal to 30.0% of the Per Share Cash Consideration.
2.5 EXCHANGE PROCEDURES.
(a) As soon as reasonably practicable after the Effective Time, and in any
event within ten (10) Business Days after the Effective Time, unless such
mailing is prevented by Force Majeure, the Parent shall cause an exchange agent
selected by the Parent (the "Exchange Agent") to mail to the record holders of
Company Shares at the Effective Time the Election Form, as required under
Section 2.4, and other appropriate transmittal materials (which shall specify
that delivery shall be effected, and risk of loss and title to the certificates
representing Company Shares prior to such Effective Time shall pass, only upon
proper delivery of such certificates to the Exchange Agent, and shall include
written instructions and forms for use in surrendering certificates evidencing
Company Shares to the Exchange Agent, including a form of lost certificate
affidavit (with indemnity) satisfactory to the Parent). Upon a holder's delivery
of a properly completed Election Form and either an appropriately endorsed
certificate or certificates representing all such holder's Company Shares or a
completed and notarized lost certificate affidavit in substantially the form
provided, and in exchange therefor, the Parent shall as soon as reasonably
practicable issue and deliver to such holder the Merger Consideration to which
such holder's Company Shares were converted. None of the Parent, the Buyer or
the Exchange Agent shall be obligated to deliver any Merger Consideration to a
holder until that holder delivers the documents specified in the preceding
sentence. Surrendered certificates shall be duly endorsed as the Exchange Agent
may reasonably require. Any other provision of this Agreement notwithstanding,
none of the Parent, the Buyer or the Exchange Agent shall be liable to any
holder of Company Shares for any amounts paid or properly delivered in good
faith to a public official pursuant to any applicable abandoned property Law.
14
(b) To the extent permitted by applicable Law, former record holders of
Company Shares shall be entitled to vote shares of Parent's Stock allocated to
them pursuant to this ARTICLE II (and not previously disposed of by them) at any
meeting of the Parent's shareholders held after the Effective Time, regardless
of whether such holders have exchanged their certificates representing such
Company Shares for certificates representing the Parent's Stock in accordance
with the provisions of this Agreement. Whenever a dividend or other distribution
is declared by the Parent on the Parent's Stock, the record date for which is at
or after the Effective Time, the declaration shall include dividends or other
distributions on all shares of the Parent's Stock issuable pursuant to this
Agreement, but beginning at the Effective Time no dividend or other distribution
payable to the holders of record of the Parent's Stock as of any time subsequent
to the Effective Time shall be delivered to the holder of any certificate
representing any of the Company Shares issued and outstanding at such Effective
Time until such holder delivers the documents specified in Section 2.5(a).
However, upon delivery of the documents specified in Section 2.5(a), both the
certificate(s) representing the shares of the Parent's Stock to which such
holder is entitled and any such undelivered dividends (without any interest)
shall be delivered and paid with respect to each share represented by such
certificates.
2.6 COMPANY STOCK OPTIONS.
(a) At the Effective Time, Parent shall cause each option or other right
to purchase Company Shares (each, a "Company Option" and collectively, the
"Company Options") that is outstanding and unexercised immediately prior to the
Effective Time, whether or not vested and whether or not the exercise price of
such Company Option is in excess of the Per Share Cash Consideration, to become
an option to purchase the Parent's Stock by assuming such Company Option in
accordance with, and to the extent permitted by, the terms (as in effect as of
the date of this Agreement) of the stock incentive plan under which such Company
Option was issued and the terms of the stock option agreement by which such
Company Option is evidenced. From and after the Effective Time, (i) each Company
Option assumed by the Parent may be exercised solely for shares of Parent's
Stock, (ii) the number of shares of Parent's Stock subject to each Company
Option assumed by the Parent shall be equal to the number of Company Shares
subject to such Company Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounding down to the nearest whole share,
(iii) the per share exercise price under each Company Option assumed by the
Parent shall be adjusted by dividing the per share exercise price under such
Company Option by the Exchange Ratio and rounding up to the nearest whole cent,
(iv) except as provided in clauses (v) and (vi), any restriction on the exercise
of any Company Option assumed by the Parent shall continue in full force and
effect and the term, exercisability and other provisions of such Company Option
shall otherwise remain unchanged (subject to any change in such Company Option
triggered by the transactions contemplated by this Agreement under the express
terms (as in effect on the date of this Agreement) of the stock incentive plan
under which such Company Option was issued and the terms of the stock option
agreement by which such Company Option is evidenced), (v) each Company Option
assumed by the Parent shall fully vest at the Effective Time, and (vi) each
Company Option assumed by the Parent and issued to (x) any director of the
Company who has accepted a position with the Advisory Board as of the Effective
Time shall expire on the fourth (4th) anniversary of the Closing Date, (y) any
15
director of the Company who has not accepted a position on the Advisory Board as
of the Effective Time shall expire on the first (1st) anniversary of the Closing
Date, and (z) any employee of the Company (other than ▇▇▇▇ ▇. ▇▇▇▇▇▇▇) who is
not retained by the Buyer shall expire on the first (1st) anniversary of the
Closing Date; provided, however, that each Company Option assumed by the Parent
in accordance with this Section 2.6(a) shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split,
division or subdivision of shares, stock dividend, reverse stock split,
consolidation of shares, reclassification, recapitalization or other similar
transaction subsequent to the Effective Time. The Parent shall file with the
SEC, no later than ninety (90) days after the Effective Time, a registration
statement on Form S-8 relating to the shares of Parent's Stock issuable with
respect to the Company Options assumed by the Parent in accordance with this
Section 2.6(a). If the assumption of any Company Option in the manner described
in this Section 2.6(a) is not permitted under the terms of the stock incentive
plan under which such Company Option was issued as construed by the plan
administrator prior to the Effective Time, then the Parent shall not be required
to assume such Company Option in the manner described in this Section 2.6(a),
and the Parent shall instead be entitled to cause such Company Option to be
treated in a manner permitted by the terms of such stock incentive plan.
Notwithstanding anything to the contrary contained in this Section 2.6, in lieu
of assuming an outstanding Company Option in accordance with this Section
2.6(a), the Parent may, at its election, cause such Company Option to be
replaced by issuing a reasonably equivalent replacement stock option in
substitution therefor.
(b) Prior to the Effective Time, the Company shall take all action
reasonably required by the Parent prior to the Effective Time that may be
necessary (under each plan pursuant to which any Company Option is outstanding
and otherwise) for the Parent to effectuate the provisions of this Section 2.6
at the Effective Time and to ensure that, from and after the Effective Time, any
holder of a Company Option has no rights with respect thereto other than those
specifically provided in this Section 2.6. Each Company Option, by virtue of the
Merger and without any action on the part of the holder thereof, shall at the
Effective Time no longer be outstanding, shall be canceled and retired and shall
cease to exist, and each holder of Company Options shall thereafter cease to
have any rights with respect to such Company Options, except as provided in
Section 2.6(a).
2.7 DISSENTING SHARES. Notwithstanding any other provision of this
Agreement to the contrary, Company Shares that are outstanding immediately prior
to the Effective Time and that are held by shareholders who shall have not voted
in favor of the Merger or consented thereto in writing and who properly shall
have exercised dissenter's rights with respect to such shares in accordance with
Article 13 of the North Carolina Business Corporation Act (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such shareholders instead shall be entitled to
receive payment of the appraised value of such shares held by them in accordance
with the provisions of the North Carolina Business Corporation Act, except that
all Dissenting Shares held by shareholders who shall have failed to perfect or
who effectively shall have withdrawn or otherwise lost their dissenter's rights
under Article 13 shall cease to be Dissenting Shares and shall be deemed to have
been converted into and to have become exchangeable, as of the Effective Time,
for the right to receive, without any interest thereon, the Merger Consideration
upon delivery of the documents specified in Section 2.5(a) with respect to such
Company Shares. Prior to the Effective Time, the Company shall give the Parent
(a) prompt notice of any written dissenter's notices it receives relating to any
Company Shares or purported withdrawals of such notices, or any other documents
it receives relating to the exercise of dissenters' rights as to Company Shares,
and (b) the opportunity to participate in all negotiations and proceedings with
respect to demands under the North Carolina Business Corporation Act consistent
with the obligations of the Company thereunder. The Company shall not, except
with the prior written consent of the Parent, (x) make any payment with respect
to such demand, (y) offer to settle or settle any demand for appraisal or (z)
waive any failure to timely deliver a written demand for appraisal or timely
take any other action to perfect appraisal rights in accordance with North
Carolina Law.
16
ARTICLE III
THE CLOSING
3.1 CLOSING. The Closing of the Merger shall take place at the offices of
Smith, Anderson, Blount, Dorsett, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, L.L.P. in Raleigh, North
Carolina as soon as reasonably practical after all conditions to Closing have
been met, or on such other date or at such other location as the Parent, the
Buyer and the Company may mutually agree (such date, the "Closing Date"). At the
Closing, the parties will execute, deliver and file all documents necessary to
effect the transactions contemplated with respect to the Merger, including the
Articles of Merger in respect of the Merger.
3.2 DELIVERIES BY THE COMPANY. At or by the Closing, the Company shall
have caused the following documents to be executed and delivered:
(a) the agreements, opinions, certificates, instruments and other
documents contemplated in Section 8.3;
(b) the Farrah Employment Agreement and the ▇▇▇▇▇▇▇ Consulting Agreement;
and
(c) all other documents, certificates and instruments required hereunder
to be delivered to the Parent or the Buyer, or as may reasonably be requested by
the Parent or the Buyer at or prior to the Closing.
3.3 DELIVERIES BY THE PARENT AND THE BUYER. At or by the Closing, the
Parent and the Buyer shall have caused the following documents to be executed
and delivered:
(a) the agreements, opinions, certificates, instruments and other
documents contemplated in Section 8.2;
(b) the Farrah Employment Agreement and the ▇▇▇▇▇▇▇ Consulting Agreement;
and
(c) all other documents, certificates and instruments required hereunder
to be delivered to the Company, or as may reasonably be requested by the Company
at or prior to the Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Company's Disclosure Schedule (the "Company's
Disclosure Schedule"), the Company represents and warrants to the Parent and the
Buyer that the statements contained in this ARTICLE IV are correct as of the
date of this Agreement.
17
4.1 ORGANIZATION, STANDING AND POWER. The Company is a banking
corporation, duly organized, validly existing and in good standing under North
Carolina Law. The Company is an "insured depository institution" as defined in
the Federal Deposit Insurance Act and, subject to dollar limits under such Act,
all deposits with the Company are fully insured by the FDIC to the extent
permitted by Law. The Company has the corporate power and authority to carry on,
in all Material respects, its businesses as now conducted and to own, lease and
operate its Assets. The Company is duly qualified or licensed to transact
business as a foreign corporation in good standing in the States of the United
States and foreign jurisdictions where the character of its Assets or the nature
or conduct of its business requires it to be so qualified or licensed, except
where the failure to be so qualified or licensed could not reasonably be
expected to have a Material Adverse Effect on the Company.
4.2 AUTHORITY; NO CONFLICTS.
(a) Subject to required regulatory and shareholder approvals, the Company
has the corporate power and authority necessary to execute, deliver and perform
its obligations under this Agreement and to consummate the transactions
contemplated hereby. Subject to required shareholder approval, the execution,
delivery and performance of the Company's obligations under this Agreement and
the other documents contemplated hereby and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of the Company.
This Agreement represents a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms (except in all
cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar Laws affecting the enforcement
of creditors' rights generally and except that the availability of specific
performance, injunctive relief and other equitable remedies is subject to the
discretion of the court before which any proceeding may be brought). To the
Knowledge of the Company, there is no fact or condition relating to the Company
that would prevent all regulatory approvals required for the consummation of the
transactions contemplated hereby from being obtained.
(b) Neither the execution and delivery of this Agreement by the Company,
nor the consummation by the Company of the transactions contemplated hereby, nor
compliance by the Company with any of the provisions hereof, will (i) conflict
with or result in a breach of any provision of the Company's articles of
incorporation or bylaws, (ii) constitute or result in a Default, require any
Consent, or result in the creation of any Lien on any Asset of the Company,
under any Contract or Permit of the Company, except as could not reasonably be
expected to have a Material Adverse Effect on the Company, or (iii) subject to
obtaining the requisite Consents referred to in Section 8.1, violate any Law or
Order applicable to the Company or any of its Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws and Law administered by banking Regulatory Authorities, no
notice to, filing with, or Consent of, any Governmental Authority is necessary
for the consummation by the Company of the Merger and the other transactions
contemplated in this Agreement.
4.3 CAPITAL STOCK; SUBSIDIARIES.
(a) The authorized capital stock of the Company consists of Ten Million
(10,000,000) shares of common stock, Five Dollars ($5.00) par value per share,
of which 786,731 shares are issued and outstanding as of the date of this
Agreement. Except for the 786,731 shares of common stock referenced in the
preceding sentence, there are no shares of capital stock or other equity
securities of the Company outstanding. There are options to purchase 107,600
shares of common stock of the Company outstanding as of the date of this
Agreement, and except for such options covering 107,600 shares of common stock
of the Company, there are no options, Company Options, Rights or Contracts
requiring the Company to issue additional shares of its capital stock. There are
145,226 shares of capital stock reserved with respect to such options. The
Company has no Subsidiaries, and no Affiliates that are not directors or
officers of the Company.
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(b) All of the issued and outstanding shares of capital stock of the
Company are duly and validly issued and outstanding and are fully paid and,
except to the extent otherwise required by North Carolina General Statutes
Section 53-42, nonassessable. None of the outstanding shares of capital stock of
the Company has been issued in violation of any preemptive rights of the
Company's current or past shareholders. Except as set forth in Section 4.3(a)
above, there are no Contracts by which the Company is bound to issue additional
shares of its capital stock.
4.4 COMPANY FILINGS, FINANCIAL STATEMENTS, AND BOOKS AND RECORD.
(a) The Company has timely filed and made available to the Parent and the
Buyer all forms, reports and documents required to be filed by it with the FDIC
pursuant to the Securities Laws since December 31, 2003, provided that such
forms, reports and documents shall not include Forms 3, Forms 4, or any other
filings and reports required to be made by shareholders, officers, or directors
of the Company under the Exchange Act. The Company has made available to the
Parent copies of (i) the Company's audited statements of income and
stockholders' equity and cash flows for each fiscal year of the Company
beginning since December 31, 2003, and audited balance sheets as of the last day
of each such fiscal year; (ii) interim unaudited statements of income and
stockholders' equity and cash flows for each of the first three (3) fiscal
quarters in each of the fiscal years of the Company referred to in clause (i)
above, and interim unaudited balance sheets as of the last day of each such
fiscal quarter, and (iii) all proxy statements relating to meetings of the
Company's shareholders (whether annual or special) held, and all information
statements relating to stockholder consents since the beginning of the first
(1st) fiscal year referred to in clause (i) above (the forms, reports,
registration statements and other documents referred to in clauses (i), (ii),
and (iii) above are, collectively, the "Company Filings"). The Company Filings,
to the extent required to be filed with any Regulatory Authority pursuant to the
Securities Laws, (i) complied in all Material respects with the applicable
requirements of the Securities Laws and other applicable Law at the time filed,
and (ii) did not at the time filed (or if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing) contain
any untrue statement of a Material fact or omit to state a Material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. The Company has not identified any material weaknesses or
significant deficiencies (each as defined in Rule 12b-2 under the Exchange Act)
in the design or operation of internal control over financial reporting (as
defined in Rule 13a-15 or 15d-15 under the Exchange Act).
(b) Each of the Company Financial Statements (including, in each case, any
related notes) contained in the Company Filings, including any Company Filings
filed after the date of this Agreement until the Effective Time, complied as to
form in all Material respects with the applicable published rules and
regulations of the FDIC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements, or, in the case of
unaudited statements, as permitted by applicable Law), and fairly presented the
financial position of the Company as of the respective dates and the results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments that were not or are not expected to be Material
in amount or effect (except as may be indicated in such financial statements or
notes thereto).
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(c) The Company maintains books and records that in reasonable detail
reflect fairly and with Material accuracy its assets, liabilities, transactions
and dispositions of assets and maintains proper and adequate internal accounting
controls which provide reasonable assurance that (i) transactions are executed
with management's authorization, (ii) transactions are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
GAAP and to maintain accountability for the Company's assets, (iii) access to
the Company's assets is permitted only in accordance with management's
authorization, (iv) the reporting of the Company's assets is compared with
existing assets at regular intervals and (v) accounts, notes and other
receivables and inventory are recorded accurately, and proper and adequate
procedures are implemented to effect the collection thereof on a current and
timely basis.
(d) The Chief Executive Officer and the Chief Financial Officer of the
Company have signed, and the Company has furnished to the FDIC, all
certifications required by Section 906 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, as
amended ("▇▇▇▇▇▇▇▇-▇▇▇▇▇"); such certifications contain no qualifications or
exceptions to the matters certified therein and have not been modified or
withdrawn; and neither the Company nor any of its officers has received notice
from any Governmental Authority questioning or challenging the accuracy,
completeness, form or manner of filing or submission of such certifications.
4.5 ABSENCE OF UNDISCLOSED LIABILITIES. As of the date of this Agreement,
the Company has no Material Liabilities, except (a) Liabilities that are accrued
or reserved against in the balance sheet of the Company as of September 30,
2007, included in the Company Financial Statements or reflected in the notes
thereto; (b) increases in deposit accounts in the ordinary course of business
since September 30, 2007, (c) unfunded commitments to make, issue or extend
loans, lines of credit or other extensions of credit which do not exceed
$250,000 in the case of any one commitment, or (d) Federal Home Loan Bank
advances. The Company has not incurred or paid any Liability since September 30,
2007, except for (a) Liabilities incurred or paid in the ordinary course of
business consistent with past business practice and (b) Liabilities that could
not reasonably be expected to have a Material Adverse Effect on the Company. To
the Knowledge of the Company, no facts or circumstances exist that could
reasonably be expected to serve as the basis for any other Liabilities of the
Company, except as could not reasonably be expected to have a Material Adverse
Effect on the Company. No securitization transactions or "off-balance sheet
arrangements" (as defined in Item 303(a)(4)(ii) of Regulation S-K of the
Exchange Act) have been effected by the Company other than letters of credit and
unfunded loan commitments or credit lines.
4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 2007 and as
of the date of this Agreement, (a) there have been no events, changes, or
occurrences that have had, or could reasonably be expected to have, a Material
Adverse Effect on the Company, (b) the Company has conducted in all Material
respects its business in the ordinary and usual course (excluding the incurrence
of expenses in connection with this Agreement and the transactions contemplated
hereby), (c) the Company has not declared, set aside for payment or paid any
dividend to holders of, or declared or made any distribution on, any Company
Shares, and (d) the Company has not taken any action, or failed to take any
action, prior to the date of this Agreement, which action or failure, if taken
after the date of this Agreement, would represent or result in a material breach
or violation of any of the covenants and agreements of the Company provided in
ARTICLE VI. Except as may result from the transactions contemplated by this
Agreement, the Company has not, since September 30, 2007 and as of the date of
this Agreement:
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(i) (w) borrowed any money other than deposits or overnight federal
funds or entered into any capital lease, (x) lent any money or pledged any
of its credit in connection with any aspect of its business, whether as a
guarantor, surety, issuer of a letter of credit or otherwise, outside the
ordinary course of business or in excess of $250,000 in the case of any
one transaction, (y) mortgaged or otherwise subjected to any Lien any of
its Assets, sold, assigned or transferred any of its Assets in excess of
$25,000 in the aggregate except in the ordinary course of business and
consistent with past practices or (z) incurred any other Liability
representing, individually or in the aggregate, over $25,000 except in the
ordinary course of business and consistent with past practices and except
for undisclosed Liabilities described in Section 4.5;
(ii) suffered over $25,000 in damage, destruction or loss to
immovable or movable property, whether or not covered by insurance;
(iii) experienced any Material adverse change in Asset
concentrations as to customers or industries or in the nature and source
of its Liabilities or in the mix of interest-bearing versus
non-interest-bearing deposits;
(iv) had any customer with a loan or deposit balance of more than
$150,000 terminate, or, to the Knowledge of the Company, received written
notice of such customer's intent to terminate, its relationship with the
Company;
(v) failed to operate its business in the ordinary course consistent
with past practices, or failed to use reasonable efforts to preserve its
business or to preserve the goodwill of its customers and others with whom
it has business relations;
(vi) forgiven any debt owed to it in excess of $25,000, or canceled
any of its claims, except in the ordinary course of debt collection
consistent with past practice;
(vii) made any capital expenditure or capital addition or betterment
in excess of $25,000;
(viii) except as required in accordance with GAAP, changed any
accounting practice followed or employed in preparing the Company
Financial Statements;
(ix) authorized or issued any additional Company Shares, preferred
stock, or other equity rights, other than upon the exercise of Company
Options; or
(x) entered into any agreement, contract or commitment that would
result in any of the acts or omissions listed in clauses (i) and (iii)
through (ix) above.
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4.7 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the Company
have been timely filed, or requests for extensions have been timely filed,
granted, and have not expired for periods ended on or before December 31, 2006,
and all Tax Returns filed are complete and accurate in all Material respects.
All Tax Returns for periods ending on or before the date of the most recent
fiscal year end immediately preceding the Effective Time will be timely filed or
requests for extensions will be timely filed. All Taxes shown on filed Tax
Returns have been paid. There is no pending or, to the Knowledge of the Company,
threatened audit examination, deficiency, or refund Litigation with respect to
any Taxes that could have a Material Adverse Effect on the Company, except to
the extent reserved against in the Company Financial Statements dated prior to
the date of this Agreement. All Taxes and other Liabilities due with respect to
completed and settled examinations or concluded Litigation have been paid.
(b) The Company has not executed an extension or waiver of any statute of
limitations on the assessment or collection of any Tax due (excluding such
statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
(c) Adequate provision for any Material Taxes due or to become due for the
Company for the period or periods through and including the date of the
respective Company Financial Statements has been made and is reflected on such
Company Financial Statements.
(d) The Company is in compliance with, and its records contain all
information and documents (including properly completed IRS Forms W-9) necessary
to comply with, all applicable information reporting and Tax withholding
requirements under federal, state, and local Tax Laws, and such records identify
with specificity all accounts subject to backup withholding under Section 3406
of the Code, except where any failure could not reasonably be expected to have a
Material Adverse Effect on the Company.
(e) The Company has not made any payments, is not obligated to make any
payments, and is not a party to any contract, agreement, or other arrangement
that could obligate it to make any payments that would be disallowed as a
deduction under Section 280G or 162(m) of the Code.
(f) There are no Material Liens with respect to Taxes upon any of the
Assets of the Company.
(g) There has not been an ownership change, as defined in Code Section
382(g), of the Company and its Subsidiaries that occurred during any Taxable
Period in which the Company has incurred a net operating loss that carries over
to another Taxable Period ending after December 31, 2006.
(h) The Company has not filed any consent under Section 341(f) of the Code
concerning collapsible corporations.
(i) The Company does not have and has not had any permanent establishment
in any foreign country, as defined in any applicable tax treaty or convention
between the United States and such foreign country.
4.8 ASSETS; INSURANCE.
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(a) The Company has good and marketable title, free and clear of all
Liens, to all of its Assets. All tangible properties used in the businesses of
the Company are in good condition, reasonable wear and tear excepted, and are
usable in the ordinary course of business consistent with past practice. All
Material Assets held under leases or subleases by the Company are held under
valid Contracts enforceable in accordance with their respective terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of specific
performance, injunctive relief and other equitable remedies is subject to the
discretion of the court before which any proceeding may be brought), and each
such Contract is in full force and effect.
(b) The Company maintains insurance policies that provide coverage in such
amounts and against such liabilities, casualties, losses or risks as is
customary or reasonable for entities engaged in the Company's business and, in
the reasonable opinion of the Company's management, the insurance coverage
provided under these insurance policies is reasonable and adequate in light of
the Company's operations. The Company has not received notice of cancellation or
nonrenewal of or any Material premium increase on, and has not failed to pay any
premium on, any of its insurance policies.
4.9 SECURITIES PORTFOLIO AND INVESTMENTS. All securities owned by the
Company (whether owned of record or beneficially) are held free and clear of all
Liens that would impair the Company's ability to dispose freely of any such
security and/or otherwise to realize the benefits of ownership thereof at any
time. There are no voting trusts or other agreements or undertakings to which
the Company is a party with respect to the voting of any such securities. Except
for fluctuations in the market values of United States Treasury and agency or
municipal securities, since September 30, 2007 and as of the date of this
Agreement, there has been no Material deterioration in the quality of the
Company's securities portfolio and no Materially disproportionate decrease,
relative to fluctuations in market values, in the value of the Company's
securities portfolio.
4.10 ENVIRONMENTAL MATTERS.
(a) Each of the Company and its Real Property is in compliance with all
Environmental Laws, except where noncompliance could not reasonably be expected
to have a Material Adverse Effect on the Company.
(b) There is no Litigation pending or, to the Knowledge of the Company,
threatened before any Governmental Authority in which the Company is or, with
respect to threatened Litigation, may be expected to be, named as a respondent
(i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release into the environment of any
Hazardous Material, whether or not occurring at, on, under, or involving the
Company's Real Property or a site owned, leased, or operated by the Company,
except such Litigation as could not reasonably be expected to have a Material
Adverse Effect.
(c) There is no Litigation pending or, to the Knowledge of the Company,
threatened before any court, governmental agency or authority or other forum in
which any of its Loan Collateral (or the Company in respect of such Loan
Collateral) has been or, with respect to threatened Litigation, may reasonably
be expected to be named as a defendant or potentially responsible party (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release into the environment of any Hazardous Material,
whether or not occurring at, on, under, or involving Loan Collateral, except
such Litigation as could not reasonably be expected to have a Material Adverse
Effect.
(d) To the Knowledge of the Company, no facts exist that provide a
reasonable basis for any Litigation of a type described in subsections (b) or
(c).
23
(e) To the Knowledge of the Company, during and prior to the period of (i)
the Company's ownership or operation of the Real Property, or (ii) the Company's
participation in the management of any facility or property, there have been no
releases of Hazardous Material in, on, under, or affecting (or potentially
affecting) such properties.
(f) To the Knowledge of the Company, there is no asbestos or
asbestos-containing material at its Real Property that is friable, readily
crumbled, capable of becoming airborne, or in any state or condition which would
render the site or building in noncompliance with applicable Laws.
(g) To the Knowledge of the Company, there are no aboveground or
underground storage tanks or related equipment (including without limitation
pipes and lines) at, on or under any of its Real Property.
4.11 COMPLIANCE WITH LAWS.
(a) The Company has in effect all Permits necessary for it to own, lease,
or operate its Material Assets and to carry on its business as now conducted,
except for those Permits the absence of which could not reasonably be expected
to have a Material Adverse Effect on the Company, and there has occurred no
Default under any such Permit, other than Defaults that could not reasonably be
expected to have a Material Adverse Effect on the Company. Except as to
Environmental Laws (covered in Section 4.10 above) the Company: (i) is not in
violation of any Laws, Orders, or Permits applicable to its business or
employees conducting its business (including without limitation the USA PATRIOT
Act, the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act and all other federal, state or
foreign lending, consumer credit or consumer privacy laws) or any applicable
privacy policies or any Contract or generally accepted banking standard relating
to privacy, except for violations that could not reasonably be expected to have
a Material Adverse Effect on the Company, and (ii) has not received any
notification or communication from any Governmental Authority or any Regulatory
Authority (A) asserting that any of the Company is not in compliance with any of
the Laws or Orders that such Governmental Authority or Regulatory Authority
enforces, except where such noncompliance could not reasonably be expected to
have a Material Adverse Effect on the Company, (B) threatening to revoke any
Permits, except where the revocation of which could not reasonably be expected
to have a Material Adverse Effect on the Company, or (C) requiring the Company
(1) to enter into or consent to the issuance of a cease and desist order, formal
agreement, directive, commitment, or memorandum of understanding, or (2) to
adopt any board or directors resolution or similar undertaking that restricts
the conduct of its business, or in any manner relates to its capital adequacy,
its credit or reserve policies, its management, or the payment of dividends.
(b) There are no pending or, to the Knowledge of the Company, threatened
actions against any director or officer of the Company pursuant to Section 8A or
20(b) of the Securities Act, 15 U.S.C. ▇▇.▇▇. 77h-1 or 77t(b), or Section 21(d)
or 21C of the Exchange Act, 15 U.S.C. ▇▇.▇▇. 78u(d) or 78u-3. The Company has
not received any communication from counsel relating to any Material failure to
comply with the Securities Laws.
4.12 LABOR RELATIONS. The Company is not the subject of any Litigation
asserting that it has committed an unfair labor practice (within the meaning of
the National Labor Relations Act or comparable state Law) or seeking to compel
it to bargain with any labor organization as to wages or conditions of
employment, nor is it a party to or bound by any collective bargaining Contract
or other agreement or understanding with a labor union or labor organization,
nor is any strike or other labor dispute involving the Company pending or, to
the Knowledge of the Company, threatened. To the Knowledge of the Company, there
is not currently any activity involving any of the Company's employees seeking
to certify a collective bargaining unit or engaging in any other organization
activity.
24
4.13 EMPLOYEE BENEFIT PLANS.
(a) The Company has made available to the Parent and the Buyer prior to
the execution of this Agreement correct and complete copies of the governing
documents of all Company Benefits Plans.
(b) All Company Benefit Plans are in Material compliance with the
applicable terms of ERISA, the Code, and any other applicable Laws. There is no
Litigation pending or, to the Knowledge of the Company, threatened relating to
any Company Benefit Plan.
(c) The Company does not have an "obligation to contribute" (as defined in
ERISA Section 4212) to a "multiemployer plan" (as defined in ERISA Sections
4001(a)(3) and 3(37)(A)). Each Benefit Plan ever maintained by the Company
(including any Benefit Plan that was intended to qualify under Section 401(a) of
the Code) is identified in Section 4.13 of the Company's Disclosure Schedule.
(d) The Company has made available to the Parent and the Buyer prior to
the execution of this Agreement correct and complete copies of the following
documents for the Company Benefit Plans: (i) all trust agreements or other
funding arrangements for such Company Benefit Plans (including insurance
contracts), and all amendments thereto; (ii) all determination letters, rulings,
opinion letters, information letters, or advisory opinions issued by the
Internal Revenue Service, the United States Department of Labor, or the Pension
Benefit Guaranty Corporation after December 31, 1994; (iii) annual reports or
returns, audited or unaudited financial statements, actuarial valuations and
reports, and summary annual reports prepared for any Company Benefit Plan with
respect to the three (3) most recent plan years; and (iv) the most recent
summary plan descriptions and any modifications thereto.
(e) Each Company Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service, and, to the Knowledge of the Company, there is no
circumstance that will or could reasonably be expected to result in revocation
of any such favorable determination letter or in such Plan's failure to be so
qualified. With respect to each such Company Benefit Plan: (i) each trust
created under such Company Benefit Plan has been determined to be exempt from
Tax under Section 501(a) of the Code and the Company is not aware of any
circumstance that will or could be expected to result in revocation of such
exemption; and (ii) to the Knowledge of the Company, no event has occurred that
will or could be expected to give rise to a loss of any intended Tax
consequences under the Code or to any Tax under Section 511 of the Code.
(f) The Company has not engaged in a transaction with respect to any
Company Benefit Plan that, assuming the Taxable Period of such transaction
expired as of the date of this Agreement, would subject the Company to a
Material Tax imposed under either Section 4975 of the Code or Section 502(i) of
ERISA. Neither the Company nor, to the Knowledge of the Company, any
administrator or fiduciary of any Company Benefit Plan (or any agent of any of
the foregoing) has engaged in any transaction, or acted or failed to act in any
manner, that could subject the Company to any direct or indirect Liability (by
indemnity or otherwise) for breach of any fiduciary, co-fiduciary, or other duty
under ERISA. No written representation or recorded communication with respect to
any aspect of the Company Benefit Plans has been made to employees of the
Company that is not in substantial accordance with the written or otherwise
preexisting terms and provisions of such plans.
(g) The Company does not maintain and never has maintained or otherwise
had any obligation to contribute to a "Multiemployer Plan," as defined in
Section 3(37) of ERISA, or a multiple employer welfare arrangement (MEWA) as
defined in Section 3(40) of ERISA.
(h) The Company has no obligation for retiree health and retiree life
benefits under any of the Company Benefit Plans other than with respect to
benefit coverage mandated by applicable Law.
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(i) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will, by themselves, (i)
result in any payment (including without limitation severance, unemployment
compensation, golden parachute, or otherwise) becoming due to any director or
any employee of the Company from the Company under any Company Benefit Plan or
otherwise, (ii) increase any benefit otherwise payable under any Company Benefit
Plan, or (iii) result in any acceleration of the time of any payment or vesting
of any benefit.
(j) To the Knowledge of the Company, each Company Benefit Plan that is a
nonqualified deferred compensation plan subject to Code ss. 409A has been
operated and administered in good faith compliance with Code ss. 409A from the
period beginning January 1, 2005 through the date hereof. To the Knowledge of
the Company, the Company has not made any payments or provided any benefits to
any "service provider" (within the meaning of Code ss. 409A) subject to
additional income tax under Code ss. 409A(a)(1)(B) or any other taxes or
penalties imposed under Code ss. 409A, and the Company intends to take such
timely action as may be necessary or appropriate to prevent the application of
any such taxes to any payments or benefits which may become payable or may be
provided in the future to any such "service provider."
(k) All Company Options have been granted in compliance in all material
respects with applicable Law and the terms of the Company stock incentive plan
and have (or, with respect to Company Options which have been exercised as of
the date of this Agreement, had) a per share exercise price that is (or, with
respect to Company Options which have been exercised as of the date of this
Agreement, was) at least equal to the fair market value of a share of the
underlying stock as of the date the Company Option was granted (determined in
accordance with applicable Law, including, to the extent applicable, Code
Section 409A).
4.14 MATERIAL CONTRACTS. The Company is not a party to, and is not bound
or affected by, or entitled to benefits under, (a) any employment, severance,
termination, consulting, or retirement Contract other than those between the
Company and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, (b) any Contract relating to
the borrowing of money by the Company or the guarantee by the Company of any
such obligation (other than Contracts made in the ordinary course of business
relating to deposit liabilities, purchases of federal funds, fully-secured
repurchase agreements, Federal Reserve or Federal Home Loan Bank advances, trade
payables, and borrowings and guarantees), or (c) any other Contract or amendment
thereto required to be filed as an exhibit to an Annual Report on Form 10-K
filed by the Company with the FDIC that, as of the date of this Agreement, has
not been filed with or incorporated by reference as an exhibit to a Company
Filing and identified to the Parent (together with all Contracts referred to in
Sections 4.8 and 4.13(a) of this Agreement, the "Company Contracts"). With
respect to each Company Contract: (i) the Contract is in full force and effect;
(ii) the Company is not in Default thereunder; (iii) the Company has not
repudiated or waived any Material provision of any such Contract; and (iv) no
other party to any such Contract is, to the Knowledge of the Company, in Default
in any respect, or has repudiated or waived any provision thereunder. All of the
indebtedness of the Company for money borrowed (not including deposit
Liabilities and Federal Home Loan Bank advances) is prepayable at any time
without penalty or premium.
4.15 LEGAL PROCEEDINGS. There is no Litigation instituted or pending, or,
to the Knowledge of the Company, threatened against the Company, except as could
not reasonably be expected to have a Material Adverse Effect on the Company, nor
are there any Orders of any Regulatory Authorities, other Governmental
Authorities, or arbitrators outstanding against any of the Company, except as
could not reasonably be expected to have a Material Adverse Effect on the
Company. There is no Litigation to which the Company is a party that names the
Company as a defendant, counterclaim defendant, or cross-claim defendant in
which the maximum exposure is reasonably estimated to be $25,000 or more.
26
4.16 REPORTS. (a) Since the date of its organization, the Company has
timely filed all Material reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with any
Regulatory Authorities; and (b) as of their respective dates, all such reports
and documents, including the financial statements, exhibits, and schedules
thereto, complied with all applicable Laws in all Material respects.
4.17 ACCOUNTING, TAX, AND REGULATORY MATTERS. To the Knowledge of the
Company, the Company has neither taken nor agreed to take any action that could
(a) prevent the transactions contemplated hereby, including the Merger, from
qualifying as a reorganization within the meaning of Section 368(a) of the Code,
or (b) impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 8.1 of this Agreement.
4.18 ORGANIZATIONAL DOCUMENTS. Complete and accurate copies of the
articles of incorporation and bylaws of the Company have been made available to
the Parent. Entering into this Agreement and consummating the Merger and the
other transactions contemplated by this Agreement do not and will not grant any
Rights to any Person under the Company's articles of incorporation, bylaws or
Contracts.
4.19 STOCK RECORDS. The stock books of the Company are complete and
accurate records of the record share ownership of the issued and outstanding
shares of stock thereof.
4.20 INVESTMENT COMPANY. The Company is not an "investment company" as
defined in the Investment Company Act of 1940, as amended.
4.21 LOANS; ALLOWANCE FOR LOAN LOSSES
(a) All of the loans, leases, installment sales contracts and other credit
transactions on the books of the Company are valid and properly documented and
were made in the ordinary course of business, and the security therefor, if any,
is valid and properly perfected. Neither the terms of such loans, leases,
installment sales contracts and other credit transactions, nor any of the
documentation evidencing such transactions, nor the manner in which such loans,
leases, installment sales contracts and other credit transactions have been
administered and serviced, nor the Company's procedures and practices of
approving or rejecting applications for such transactions, violates any federal,
state or local law, rule, regulation or ordinance applicable thereto, including
without limitation the Truth in Lending Act, Regulations O and Z of the Federal
Reserve Board, the Equal Credit Opportunity Act, and state laws, rules and
regulations relating to consumer protection, installment sales and usury.
(b) The allowances for losses respecting loans, leases, installment sales
contracts and other credit transactions reflected on the balance sheets included
in the Company Financial Statements are adequate in the reasonable opinion of
the Company's management as of their respective dates under the requirements of
GAAP and applicable regulatory requirements and guidelines. Except as could not
reasonably be expected to have a Material Adverse Effect on the Company, the
methodology employed to calculate such allowances was in accordance with GAAP as
of the respective dates of calculation.
4.22 REPURCHASE AGREEMENTS; DERIVATIVES
(a) With respect to all agreements currently outstanding pursuant to which
the Company has purchased securities subject to an agreement to resell, the
Company has a valid, perfected first Lien or security interest in the securities
or other collateral securing such agreement, and the value of such collateral
equals or exceeds the amount of the debt secured thereby. With respect to all
agreements currently outstanding pursuant to which the Company has sold
securities subject to an agreement to repurchase, the Company has not pledged
collateral having a value at the time of entering into such pledge that exceeds
the amount of the debt secured thereby.
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(b) All interest rate swaps, caps, floors, option agreements, futures and
forward contracts, and other similar risk management arrangements, whether
entered into for the account of the Company or its customers, were entered into
(i) in accordance with prudent business practices and in Material compliance
with all applicable Laws, and (ii) with counterparties believed to be
financially responsible. The Company is not a party to and has not agreed to
enter into an exchange-traded or over-the-counter swap, forward, future, option,
cap, floor, or collar financial contract, or any other interest rate or foreign
currency protection arrangement that is not included on its balance sheets in
the Company Financial Statements, which is a financial derivative contract
(including various combinations thereof), except for options and forwards
entered into in the ordinary course of its mortgage lending business consistent
with past practice and current policy. The Company has not pledged collateral
having a value at the time of entering into a pledge in connection with any such
arrangement that Materially exceeds the amount required under any interest rate
swap or other similar agreement currently outstanding.
4.23 DEPOSIT ACCOUNTS. The deposit accounts of the Company are insured by
the FDIC to the maximum extent permitted by federal law, and the Company has
paid all premiums and assessments and filed all reports required to have been
paid or filed under all rules and regulations applicable to the FDIC and is in
Material compliance with all other Law applicable to the deposit accounts of the
Company.
4.24 RELATED PARTY TRANSACTIONS. The Company has disclosed in the Company
Filings all existing transactions, investments and loans, including loan
guarantees existing as of the date hereof, to which the Company is a party with
any director, executive officer or five percent (5%) shareholder of the Company,
any present or former spouse or family member of any the foregoing, or any
person, corporation, or enterprise controlling, controlled by or under common
control with any of the foregoing, in each case to the extent required to be so
disclosed. All such transactions, investments and loans were negotiated at arm's
length and are on terms and conditions that are substantially the same as those
prevailing for comparable transactions with other persons and do not involve
more than the normal risk of repayment or present other unfavorable features.
4.25 COMMISSIONS. Except for its arrangements with ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇, Inc., no broker, finder or other Person is entitled to any brokerage
fees, commissions or finder's fees in connection with the transactions
contemplated hereby by reason of any action taken by the Company or any of the
Company's shareholders.
4.26 VOTING AGREEMENTS. Concurrently with the execution and delivery of
this Agreement, ▇▇▇▇ ▇▇▇▇ Investments, LLC, and, except as set forth in Section
4.26 of the Company's Disclosure Schedule, each Company director and executive
officer has executed and delivered to the Parent a Voting Agreement
substantially in the form of EXHIBIT C (each, a "Voting Agreement").
4.27 INTELLECTUAL PROPERTY. The Company owns or has a license to use all
Intellectual Property used by Company in its business. The Company owns or has a
license to any Intellectual Property sold or licensed to a third party by the
Company in connection with the Company's business operations, and the Company
has the right to convey by sale or license any Intellectual Property so
conveyed. The Company has not received notice of breach or default under any of
its Intellectual Property licenses. No proceedings have been instituted, or are
pending or overtly threatened, that challenge the rights of the Company with
respect to Intellectual Property used, sold or licensed by the Company in its
business, nor has any Person claimed or alleged any rights to such Intellectual
Property. The conduct of the Company's business does not infringe any
Intellectual Property of any other Person. The Company is not obligated to pay
any recurring royalties to any Person with respect to any such Intellectual
Property.
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4.28 TECHNOLOGY SYSTEMS. Since January 1, 2005, the electronic data
processing, information, record keeping, communications, telecommunications,
hardware, third party software, networks, peripherals, portfolio trading and
computer systems, including any outsourced systems and processes, and related
Intellectual Property (collectively, the "Technology Systems") that are used by
the Company have not suffered unplanned disruption causing a Material Adverse
Effect with respect to the Company. Except for ongoing obligations under
agreements with providers of the Technology Systems, the Company's use of the
Technology Systems is free from any Liens. Access to business critical parts of
the Technology Systems is not shared with any third party.
4.29 BANK SECRECY ACT COMPLIANCE; USA PATRIOT ACT. The Company is in
compliance in all Material respects with the provisions of the USA PATRIOT Act
and the Bank Secrecy Act of 1970, and all regulations promulgated thereunder,
including those provisions of the Bank Secrecy Act that address suspicious
activity reports and compliance programs. The Company has implemented a Bank
Secrecy Act compliance program that adequately covers all of the required
program elements as required by 12 C.F.R. ss.21.21.
4.30 OFAC. The Company is not, nor would it reasonably be expected to
become, a person or entity with whom a United States person or entity is
restricted from doing business under regulation of OFAC (including those named
on OFAC's Specially Designated and Blocked Persons List) or under any statute,
executive order (including, without limitation, the September 24, 2001,
Executive Order Blocking Property and Prohibiting Transactions with Persons Who
Commit, Threaten to Commit, or Support Terrorism), or other governmental action,
and to the Knowledge of the Company it is not engaging and has not engaged in
any dealings or transactions with, and it is not and has not been otherwise
associated with, such persons or entities.
4.31 NONCOMPETES. No director or executive officer of the Company is, and,
to the Knowledge of the Company, no other officer or employee of the Company is,
a party to any Contract that restricts or prohibits such officer, director or
employee from engaging in activities competitive with any Person, including the
Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE BUYER
Except as set forth on the Parent's and Buyer's Disclosure Schedule (the
"Parent's and Buyer's Disclosure Schedule"), each of the Parent and the Buyer
represents and warrants to the Company that the statements contained in this
ARTICLE V are correct as of the date of this Agreement.
5.1 ORGANIZATION, STANDING AND POWER.
(a) The Parent is a bank holding company registered with the Board of
Governors of the Federal Reserve System under the Bank Holding Company Act of
1956, as amended, and a North Carolina bank holding company. The Buyer is a
North Carolina banking corporation and an "insured depository institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder and, subject to dollar limits under such Act, all deposits with the
Buyer are fully insured by the FDIC to the extent permitted by Law.
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(b) Each of the Parent and the Buyer is either a business corporation or a
banking corporation duly organized, validly existing and in good standing under
North Carolina Law, and has the corporate power and authority to carry on, in
all Material respects, its businesses as now conducted and to own, lease and
operate its Assets. Each of the Parent and the Buyer is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed except where the failure to be so qualified or licensed could not
reasonably be expected to have a Material Adverse Effect on the Parent. The
Parent has no Affiliates that are not Subsidiaries, directors or officers of the
Parent.
5.2 AUTHORITY; NO CONFLICTS.
(a) Subject to required regulatory and shareholder approvals, each of the
Parent and the Buyer has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. Subject to required shareholder approval, the
execution and delivery of and performance of its obligations under this
Agreement and the other documents contemplated hereby, and the consummation of
the transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of each of the Parent and the Buyer. This Agreement represents a legal,
valid, and binding obligation of each of the Parent and the Buyer, enforceable
against it in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of specific
performance, injunctive relief and other equitable remedies is subject to the
discretion of the court before which any proceeding may be brought). To the
Knowledge of the Parent and the Buyer, there is no fact or condition relating to
the Parent or any of its Subsidiaries that would prevent all regulatory
approvals required for the consummation of the transactions contemplated hereby
from being obtained.
(b) Neither the execution and delivery of this Agreement by the Parent or
the Buyer, nor the consummation by the Parent or the Buyer of the transactions
contemplated hereby, nor compliance by the Parent or the Buyer with any of the
provisions hereof will (i) conflict with or result in a breach of any provision
of such Person's articles of incorporation or bylaws, (ii) constitute or result
in a Default under, or require any Consent pursuant to, or result in the
creation of any Lien on any Asset of such Person under, any Contract or Permit
of such Person, except as could not reasonably be expected to have a Material
Adverse Effect on such Person, or (iii) subject to obtaining the requisite
Consents referred to in Section 8.1, violate any Law or Order applicable to such
Person or any of its Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws and Law administered by banking Regulatory Authorities, no
notice to, filing with, or Consent of, any Governmental Authority is necessary
for the consummation by the Parent or the Buyer of the Merger and the other
transactions contemplated in this Agreement.
5.3 PARENT'S STOCK.
(a) The authorized capital stock of the Parent consists of Ten Million
(10,000,000) shares of common stock, One Dollar ($1.00) par value per share, of
which 6,185,607 shares are issued and outstanding as of the date of this
Agreement, and except for such shares, there are no shares of capital stock of
the Parent outstanding. There are outstanding options to purchase 167,316 shares
of the Parent's Stock outstanding as of the date of this Agreement, and except
for such options there are no options, Rights or Contracts requiring the Parent
to issue additional shares of the Parent's Stock. There are 419,271 shares of
the Parent's Stock reserved with respect to such options. All of the issued and
outstanding shares of the Buyer's capital stock are owned by the Parent.
30
(b) All of the issued and outstanding shares of capital stock of the
Parent and each of its Subsidiaries are duly and validly issued and outstanding
and are fully paid and nonassessable, except, in the case of the Buyer, to the
extent otherwise required by North Carolina General Statutes Section 53-42 and
none are subject to preemptive rights. Shares of the Parent's Stock to be issued
in connection with the Merger have been duly authorized and, when so issued,
will be fully paid and nonassessable, and will not be subject to preemptive
rights. None of the outstanding shares of capital stock of the Parent or any of
its Subsidiaries has been issued in violation of any preemptive rights of the
current or past shareholders of the Parent or any of its Subsidiaries.
5.4 SEC FILINGS; PARENT FINANCIAL STATEMENTS.
(a) The Parent has on a timely basis filed all forms, reports, and
documents required to be filed by the Parent with the SEC since December 31,
2005 (collectively, the "Parent SEC Reports", provided that the Parent SEC
Reports shall not include Forms 3, Forms 4, or any other filings and reports
required to be made by shareholders, officers, or directors of the Parent under
the Exchange Act). The Parent SEC Reports (i) at the time filed with the SEC,
complied in all Material respects with the applicable requirements of the
Securities Laws, as the case may be, and (ii) did not at the time filed with the
SEC (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
Material fact or omit to state a Material fact required to be stated in such
Parent SEC Reports or necessary in order to make the statements in such Parent
SEC Reports, in light of the circumstances under which they were made, not
misleading. The Parent SEC Reports (i) complied in all Material respects with
the applicable requirements of the Securities Laws and other applicable Law at
the time filed, and (ii) did not at the time filed (or if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
filing) contain any untrue statement of a Material fact or omit to state a
Material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. None of the Parent's Subsidiaries is required to file any
forms, reports, or other documents with the SEC.
(b) Each of the Parent Financial Statements (including, in each case, any
related notes) contained in the Parent SEC Reports, including any Parent SEC
Reports filed after the date of this Agreement until the Effective Time,
complied as to form in all Material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements, or, in the case of
unaudited statements, as permitted by the rules and regulations governing
Quarterly Reports on Form 10-Q), and fairly presented the consolidated financial
position of the Parent and its Subsidiaries as at the respective dates and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments that were not or are not expected to
be Material in amount or effect (except as may be indicated in such financial
statements or notes thereto).
(c) The Chief Executive Officer and the Chief Financial Officer of the
Parent have signed, and the Parent has furnished to the SEC, all certifications
required by Section 906 of ▇▇▇▇▇▇▇▇-▇▇▇▇▇; such certifications contain no
qualifications or exceptions to the matters certified therein and have not been
modified or withdrawn; and neither the Parent nor any of its officers has
received notice from any Governmental Authority questioning or challenging the
accuracy, completeness, form or manner of filing or submission of such
certifications.
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5.5 REGISTRATION STATEMENT; PROXY STATEMENT. Subject to the Company's
compliance with the covenants contained in Section 6.1(j), the information
supplied by the Parent and the Buyer for inclusion in the Registration Statement
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a Material fact or omit to state any Material fact required to be
stated therein or necessary to make the statements therein not misleading. The
information supplied by the Parent and the Buyer for inclusion in the Proxy
Statement will not, on the date the Proxy Statement is first mailed to
shareholders, at the time of the Shareholder Meeting and at the Effective Time,
contain any untrue statement of a Material fact or omit to state any Material
fact necessary to make the statements therein, in light of circumstances under
which they were made, not misleading. If at any time prior to the Effective Time
any event relating to the Parent or the Buyer or any of their Affiliates,
officers or directors should be discovered by the Parent or the Buyer that
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, the Parent and the Buyer will promptly inform
the Company. The Proxy Statement shall comply in all Material respects with the
requirements of the Securities Laws. Notwithstanding the foregoing, neither the
Parent nor the Borrower makes any representation or warranty with respect to any
information supplied by the Company that is contained or incorporated by
reference in, or furnished in connection with the preparation of, the
Registration Statement or the Proxy Statement.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. As of the date of this Agreement,
the Parent, the Buyer and their Subsidiaries have no Liabilities, except (a)
Liabilities that are accrued or reserved against in the consolidated balance
sheet of the Parent as of September 30, 2007, included in the Parent Financial
Statements or reflected in the notes thereto; (b) increases in deposit accounts
in the ordinary course of business since September 30, 2007, or (c) unfunded
commitments to make, issue or extend loans, lines of credit, letters of credit
or other extensions of credit which do not exceed $2,500,000 in the case of any
one commitment. The Parent, the Buyer and their Subsidiaries have not incurred
or paid any Liability since September 30, 2007, except for (a) Liabilities
incurred or paid in the ordinary course of business consistent with past
business practice and (b) Liabilities that could not reasonably be expected to
have a Material Adverse Effect on the Parent. To the Knowledge of the Parent and
the Buyer, no facts or circumstances exist that could reasonably be expected to
serve as the basis for any other Liabilities of the Parent or the Buyer, except
as could not reasonably be expected to have a Material Adverse Effect on the
Parent. No securitization transactions or "off-balance sheet arrangements" (as
defined in Item 303(a)(4)(ii) of Regulation S-K of the Exchange Act) have been
effected by the Parent or its Subsidiaries other than letters of credit and
unfunded loan commitments or credit lines.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 2007 and as
of the date of this Agreement, (a) there have been no events, changes, or
occurrences that have had, or could reasonably be expected to have, a Material
Adverse Effect on the Parent, (b) the Parent and the Buyer have conducted in all
Material respects their businesses in the ordinary and usual course (excluding
the incurrence of expenses in connection with this Agreement and the
transactions contemplated hereby), (c) the Parent has not declared, set aside
for payment or paid any dividend to holders of, or declared or made any
distribution on, any shares of the Parent's Stock, except in the ordinary course
consistent with past practice, and (d) the Parent and the Buyer have not taken
any action, or failed to take any action, prior to the date of this Agreement,
which action or failure, if taken after the date of this Agreement, would
represent or result in a material breach or violation of any of the covenants
and agreements of the Parent and the Buyer provided in ARTICLE VI.
5.8 TAX MATTERS.
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(a) All Tax Returns required to be filed by or on behalf of the Parent and
its Subsidiaries have been timely filed, or requests for extensions have been
timely filed, granted, and have not expired for periods ended on or before
December 31, 2006, and all Tax Returns filed are complete and accurate in all
Material respects. All Tax Returns for periods ending on or before the date of
the most recent fiscal year end immediately preceding the Effective Time will be
timely filed or requests for extensions will be timely filed. All Taxes shown on
filed Tax Returns have been paid. There is no pending or, to the Knowledge of
the Parent and the Buyer, threatened, audit examination, deficiency, or refund
Litigation with respect to any Taxes that could have a Material Adverse Effect
on the Parent, except to the extent reserved against in the Parent SEC Reports
dated prior to the date of this Agreement. All Taxes and other Liabilities due
with respect to completed and settled examinations or concluded Litigation have
been paid.
(b) Adequate provision for any Material Taxes due or to become due for the
Parent or any of its Subsidiaries for the period or periods through and
including the date of the respective Parent SEC Reports has been made and is
reflected on such Parent SEC Reports.
5.9 COMPLIANCE WITH LAWS.
(a) Each of the Parent and its Subsidiaries has in effect all Permits
necessary for it to own, lease, or operate its Material Assets and to carry on
its business as now conducted, except for those Permits the absence of which
could not reasonably be expected to have a Material Adverse Effect on the
Parent, and there has occurred no Default under any such Permit, other than
Defaults that could not reasonably be expected to have a Material Adverse Effect
on the Parent. Except as to Environmental Laws, neither the Parent nor any of
its Subsidiaries: (i) is in violation of any Laws, Orders, or Permits applicable
to their businesses or employees conducting their businesses (including without
limitation the USA PATRIOT Act, the Truth in Lending Act, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, and any other federal or state
lending, consumer credit or consumer privacy law), except for violations that
could not reasonably be expected to have a Material Adverse Effect on the
Parent, or (ii) has received any notification or communication from any
Governmental Authority or any Regulatory Authority (A) asserting that any of the
Parent or its Subsidiaries is not in compliance with any of the Laws or Orders
that such Governmental Authority or Regulatory Authority enforces, except where
such noncompliance could not reasonably be expected to have a Material Adverse
Effect on the Parent, (B) threatening to revoke any Permits, except where the
revocation of which could not reasonably be expected to have a Material Adverse
Effect on the Parent, or (C) requiring the Parent or the Buyer (1) to enter into
or consent to the issuance of a cease and desist order, formal agreement,
directive, commitment, or memorandum of understanding, or (2) to adopt any board
or directors resolution or similar undertaking that restricts the conduct of its
business, or in any manner relates to its capital adequacy, its credit or
reserve policies, its management, or the payment of dividends.
(b) There are no pending or, to the Knowledge of the Parent and the Buyer,
threatened actions against any director or officer of the Parent pursuant to
Section 8A or 20(b) of the Securities Act, 15 U.S.C. ▇▇.▇▇. 77h-1 or 77t(b), or
Section 21(d) or 21C of the Exchange Act, 15 U.S.C. ▇▇.▇▇. 78u(d) or 78u-3.
5.10 LEGAL PROCEEDINGS. There is no Litigation instituted or pending, or,
to the Knowledge of the Parent and the Buyer, threatened against the Parent or
any of its Subsidiaries, except as could not reasonably be expected to have a
Material Adverse Effect on the Parent, nor are there any Orders of any
Regulatory Authorities, other Governmental Authorities, or arbitrators
outstanding against the Parent or any of its Subsidiaries, except as could not
reasonably be expected to have a Material Adverse Effect on the Parent.
33
5.11 REPORTS. Except as could not reasonably be expected to have a
Material Adverse Effect on the Parent: (a) since December 31, 2003, the Parent
and its Subsidiaries have timely filed all reports and statements, together with
any amendments required to be made with respect thereto, that they were required
to file with any Regulatory Authorities; (b) as of their respective dates, all
such reports and documents, including the financial statements, exhibits, and
schedules thereto, complied with all applicable Laws in all Material respects.
5.12 ACCOUNTING, TAX, AND REGULATORY MATTERS . To the Knowledge of the
Parent and the Buyer, neither the Parent nor any of its Subsidiaries has taken
or agreed to take any action that could (a) prevent the transactions
contemplated hereby, including the Merger, from qualifying as a reorganization
within the meaning of Section 368(a) of the Code, or (b) impede or delay receipt
of any Consents of Regulatory Authorities referred to in Section 8.1 of this
Agreement. Assuming payment of the Maximum Total Cash Merger Consideration as of
the date of this Agreement, the Parent and the Buyer have a sufficient amount of
cash available to them in order to consummate the Merger, and consummation of
the Merger will not cause either the Buyer or the Parent to fail to be
classified as "well capitalized" under the regulatory capital guidelines of
their respective Regulatory Authorities.
5.13 ORGANIZATIONAL DOCUMENTS. Neither the Parent's articles of
incorporation nor its bylaws contain any provisions that would (a) prevent the
transactions contemplated hereby, including the Merger, from qualifying as a
reorganization within the meaning of Section 368(a) of the Code, or (b) impede
or delay receipt of any Consents of Regulatory Authorities referred to in
Section 8.1 of this Agreement.
5.14 INVESTMENT COMPANY. Neither the Parent nor any of its Subsidiaries is
an "investment company" as defined in the Investment Company Act of 1940, as
amended.
5.15 DEPOSIT ACCOUNTS . The deposit accounts of the Buyer are insured by
the FDIC to the maximum extent permitted by federal law.
5.16 COMMISSIONS. Except for its arrangements with Equity Research
Services, Inc., no broker, finder or other Person is entitled to any brokerage
fees, commissions or finder's fees in connection with the transactions
contemplated hereby by reason of any action taken by the Parent, any of its
Subsidiaries or any of the Parent's shareholders.
5.17 OFAC. Neither the Parent nor the Buyer is, nor would either
reasonably be expected to become, a person or entity with whom a United States
person or entity is restricted from doing business under regulation of OFAC
(including those named on OFAC's Specially Designated and Blocked Persons List)
or under any statute, executive order (including, without limitation, the
September 24, 2001, Executive Order Blocking Property and Prohibiting
Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism),
or other governmental action, and to the Knowledge of the Parent and the Buyer
neither is engaging or has engaged in any dealings or transactions with, and
neither is or has been otherwise associated with, such persons or entities.
ARTICLE VI
ARTICLE V. COVENANTS
---------
6.1 COVENANTS OF THE COMPANY.
(a) Ordinary Conduct of Business. Except as otherwise expressly permitted
or contemplated by this Agreement, the Company will, from the date of this
Agreement to the Closing, conduct its business in the ordinary course in
substantially the same manner as presently conducted and make reasonable
commercial efforts consistent with past practices to preserve its relationships
with other Persons. Additionally, except as otherwise contemplated by this
Agreement the Company will not do any of the following without the prior written
consent of the Parent, which consent will not be withheld unreasonably:
34
(i) amend its articles of incorporation or bylaws;
(ii) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver any stock or stock options or other equity
equivalents of any class or any other of its securities (other than the
issuance of any Company Shares pursuant to the exercise of Company Options
described in Section 4.3), or amend any of the terms of any Company
Shares;
(iii) (A) split, combine or reclassify any Company Shares, (B)
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of Company
Shares, or (C) redeem or otherwise acquire any Company Shares;
(iv) (A) incur or assume any long-term debt or issue any debt
securities or, except under existing lines of credit and in amounts not
Material to it, incur or assume any short-term debt other than in the
ordinary course of business, (B) other than in the ordinary course of
business consistent with past practice assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person, (C) make any loans,
advances or capital contributions to, or investments in, any other Person,
other than in the ordinary course of business consistent with past
practice, (D) make any loan to finance or refinance the purchase of a
single-family, owner-occupied residence located within ▇▇▇▇▇ County, North
Carolina, in excess of $400,000, or make any other loan in excess of
$250,000, or (E) mortgage or pledge any of its assets, tangible or
intangible, or create or suffer to exist any Lien thereupon, other than
Liens created or existing in the ordinary course of business consistent
with past practice;
(v) except as required by Law or as contemplated herein, adopt or
amend any Benefit Plan;
(vi) grant to any director, officer or employee (A) any options to
purchase Company Shares or (B) an increase in his or her compensation
(except in the ordinary course of business consistent with past practice),
or pay or agree to pay to any such person other than in the ordinary
course of business any bonus, severance or termination payment,
specifically including any such payment that becomes payable upon the
termination of such person by it or the Parent after the Closing;
(vii) enter into or amend any employment Contract (including any
termination agreement), except for any automatic renewals contained in
currently existing Contracts and increases in compensation payable under
employment Contracts in the ordinary course of business consistent with
past practice;
(viii) acquire, sell, lease or dispose of any assets outside the
ordinary course of business, or any other assets that in the aggregate are
Material to it, or acquire any Person (or division thereof), any equity
interest therein or the assets thereof outside the ordinary course of
business;
35
(ix) make any Material change in its accounting or tax policies or
procedures, except as required by applicable Law or to comply with GAAP,
or revalue in any Material respect any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business
consistent with past practices or as required by GAAP, applicable Law or
any Regulatory Authority;
(x) (A) enter into, cancel or modify any Contract (other than loans,
advances, capital contributions or investments permitted by subclause
(iv)(C) of this Section 6.1(a)) other than (in the case of cancellation)
any Contract which may be cancelled without penalty and (in all cases) in
the ordinary course of business consistent with past practices; or (B)
with the prior written approval of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, authorize or make any
capital expenditure that is in excess of $25,000, or without the prior
written approval of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, authorize or make any capital
expenditure that is in excess of $10,000, or enter into or amend any
Contract with respect to any of the foregoing;
(xi) except in the ordinary course of business consistent with past
practice, pay, discharge or satisfy, cancel, waive or modify any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) not reflected or reserved against in or
contemplated by the Company Financial Statements;
(xii) settle or compromise any pending or threatened suit, action or
claim relating to the transactions contemplated hereby;
(xiii) merge, combine or consolidate with another Person;
(xiv) create or acquire any Subsidiary; or
(xv) agree, whether in writing or otherwise, to do any of the
foregoing.
(b) Consents. The Company will exercise its best efforts to obtain such
Consents as may be necessary or desirable for the consummation of the
transactions contemplated hereby from the appropriate parties to those Contracts
listed on Section 4.2 of the Company's Disclosure Schedule such that such
Contracts shall survive the Merger and not be breached thereby.
(c) No Solicitation.
(i) The Company shall not, and shall not permit any of its officers,
directors, employees, affiliates, agents, investment bankers, attorneys,
other advisors or other representatives to, directly or indirectly, (A)
take any action to solicit, initiate or encourage (including by way of
furnishing or disclosing non-public information) any inquiries or the
making of any offer or proposal by any Person or group concerning any
tender or exchange offer, proposal for a merger, share exchange,
recapitalization, consolidation or other business combination involving
the Company, or any proposal or offer to acquire in any manner, directly
or indirectly, an equity interest in, or a portion of the assets of, the
Company, other than pursuant to the transactions contemplated by this
Agreement (each such offer or proposal, an "Acquisition Proposal"), or (B)
participate in any discussions or negotiations with or encourage any
effort or attempt by any Person (other than the Parent, the Buyer and
their respective representatives) or take any other action to facilitate
an Acquisition Proposal, or (C) enter into any Contract or understanding
36
with respect to any Acquisition Proposal or which would require it to
abandon, terminate or fail to consummate the Merger or any other
transaction contemplated hereby by the shareholders of the Company;
provided, however, that the Company may, to the extent required by the
fiduciary obligations of the Company's Board of Directors, as determined
in good faith by it based on the advice of outside counsel, in response to
any such Acquisition Proposal that was not solicited by the Company and
that did not otherwise result from a breach or a deemed breach of this
Section 6.1(c), and subject to compliance with Section 6.1(c)(iii), (x)
furnish information with respect to the Company to the Person making such
proposal pursuant to a confidentiality agreement not less restrictive of
the other party than the confidentiality agreement among the Parent, the
Buyer and the Company dated August 30, 2007, as the same may be amended
from time to time (the "Confidentiality Agreement"), and (y) participate
in negotiations regarding such proposal. Without limiting the foregoing,
it is agreed that any violation of the restrictions set forth in the
preceding sentence by any executive officer of the Company or any
director, investment banker, attorney or other advisor or representative
of the Company, whether or not such person is purporting to act on behalf
of the Company or otherwise, shall be deemed to be a breach of this
Section 6.1(c) by the Company.
(ii) Neither the Company's Board of Directors nor any committee
thereof shall (A) withdraw or modify, in a manner adverse to the Parent or
the Buyer, the approval or recommendation by the Company's Board of
Directors or any such committee of this Agreement or the Merger, (B)
approve any letter of intent, agreement in principle, acquisition
agreement or similar agreement relating to any Acquisition Proposal or (C)
approve or recommend any Acquisition Proposal; provided, however, that the
Company's Board of Directors may take any action specified in (A), (B) or
(C) in the event that (x) the Company's Board of Directors determines in
good faith, after it has received a Superior Proposal and after it has
received advice from outside counsel that the failure to do so would
result in a reasonable possibility that the Company's Board of Directors
would breach its fiduciary duty under applicable law, (y) the Company has
notified the Parent and the Buyer in writing of the determination set
forth in clause (x) above, and (z) at least five (5) Business Days
following receipt by the Parent and the Buyer of the notice referred to in
clause (y) such Superior Proposal remains a Superior Proposal and the
Company's Board of Directors has again made the determination in clause
(x) above; and further provided that neither the Company, its Board of
Directors, nor any committee thereof shall take any action specified in
clause (A), (B) or (C) of this Section 6.1(c)(ii) without first
terminating this Agreement pursuant to Section 9.1(g).
(iii) The Company agrees that, as of the date hereof, it and its
directors, officers, employees, agents and representatives shall
immediately cease and cause to be terminated any existing activities,
discussions and negotiations with any Person (other than the Parent, the
Buyer and their respective representatives) conducted heretofore with
respect to any Acquisition Proposal. The Company agrees to advise the
Parent, promptly orally and in writing of any inquiries or proposals
received by, any such information requested from, and any requests for
negotiations or discussions sought to be initiated or continued with, the
Company or its Affiliates, directors, officers, employees, agents or
representatives from a Person (other than the Parent, the Buyer and their
respective representatives) with respect to an Acquisition Proposal or
that reasonably could be expected to lead to any Acquisition Proposal, and
the identity of the Person making such Acquisition Proposal or inquiry.
The Company shall keep the Parent reasonably informed of the status
including any change to the material terms of any such Acquisition
Proposal or inquiry.
(iv) Notwithstanding any provision of this Agreement to the
contrary, the Company and its Board of Directors may comply with
applicable Securities Laws, including Exchange Act Rules 14d-9 and Rule
14e-2, with regard to an Acquisation Proposal, provided that the Company's
Board of Directors shall not withdraw or modify in a manner adverse to the
Parent and the Buyer its recommendation except as set forth in Section
6.1(c)(ii).
37
(v) During the period from the date of this Agreement through the
Effective Time, the Company shall not terminate, amend, modify or waive
any provision of any confidentiality or standstill agreement to which it
is a party.
(d) Shareholder Approval.
(i) The Company agrees to cause a special meeting of shareholders of
the Company (the "Shareholder Meeting") to be duly called and held as soon
as practicable after the date of this Agreement for the purpose of voting
by holders of Company Shares on the approval of the Merger. In connection
with the call and conduct of, and all other matters relating to, the
Shareholder Meeting (including the solicitation of appointments of
proxies), the Company will comply in all Material respects with all
provisions of applicable Law and with its articles of incorporation and
bylaws.
(ii) The Company will solicit appointments of proxies from its
shareholders for use at the Shareholder Meeting and, in connection with
that solicitation, it will distribute the Proxy Statement and other proxy
solicitation materials. The Company will mail the Proxy Statement and
other proxy solicitation materials to holders of Company Shares as of a
date mutually agreed upon by the Company, the Parent and the Buyer;
provided, however, that no such materials shall be mailed unless and until
the Proxy Statement has been filed with the FDIC, the review period under
applicable Law has expired, and the Company has satisfactorily resolved
any comments of the FDIC on the Proxy solicitation.
(iii) Except in the circumstances described in Section 6.1(c), and
provided that the Parent and the Buyer are then in compliance with their
obligations under this Agreement, the Company covenants that its
directors, individually and collectively as the Company's Board of
Directors, will recommend to holders of Company Shares that they vote
their Company Shares at the Shareholder Meeting in favor of ratification
and approval of this Agreement and the Merger, and the Proxy Statement
will so indicate and state that the Company's Board of Directors considers
the Merger to be advisable and in the best interests of the Company and
holders of Company Shares.
(e) Voting Agreements. The Company shall use its best efforts to cause
each shareholder and director of the Company listed on Section 6.1(e) of the
Company's Disclosure Schedule to execute and deliver a Voting Agreement to the
Parent as soon as reasonably practicable after the date of this Agreement.
(f) Expenses Prior to Effective Time. The Company shall establish
accruals, or make payments for fees, costs and other expenses incurred in
connection with the Merger and other expenses and fees incurred by the Company
prior to the Effective Time of the Merger.
(g) Affiliates. Prior to the mailing date of the Proxy Statement, the
Company shall cause to be prepared and delivered to the Parent and the Buyer a
list (reasonably satisfactory to counsel for the Parent) identifying each Person
who, at the time of the Shareholder Meeting, may be deemed to be an "affiliate"
of the Company, as such term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act (the "Company Rule 145 Affiliates"). If required by Law in
order to avoid presumptive underwriter status pursuant to Rule 145, the Company
shall use reasonable efforts to cause each Person who is identified as a Company
Rule 145 Affiliate in such list to deliver to the Parent as soon as possible,
and not later than the mailing date for the Proxy Statement, a written letter
agreement, substantially in the form of EXHIBIT D hereto.
38
(h) Accruals for Loan Loss Reserve, Expenses and Other Accounting Matters.
The Company will make such appropriate accounting entries in its books and
records, and take such other actions as the Parent and the Buyer deem to be
required by GAAP or otherwise necessary, appropriate or desirable in
anticipation of the Merger, including without limitation additional provisions
to the Company's loan loss reserves or accruals or the creation of reserves for
employee benefit and Merger-related expenses; provided, however, that
notwithstanding any provision of this Agreement to the contrary, and except as
otherwise agreed to by the Company, the Parent and the Buyer, the Company shall
not be required to make any such accounting entries until immediately prior to
the Closing; and provided, further, that any such entry made as a result of such
a request shall not itself constitute a breach by the Company of any
representation, warranty or covenant made by or required of it in this
Agreement.
(i) Loan Charge-Offs. The Company will make such appropriate accounting
entries in its books and records and take such other actions as the Parent and
the Buyer deem to be necessary, appropriate or desirable to charge off any loans
on its books, or any portions thereof, that the Parent and the Buyer consider to
be losses or otherwise believe, in good faith, are required to be charged off
pursuant to applicable banking regulations, GAAP or otherwise, or that otherwise
would be charged off by the Buyer after the Effective Time in accordance with
its loan administration and charge-off policies and procedures; provided,
however, that notwithstanding any provision of this Agreement to the contrary,
and except as otherwise agreed to by the Company, the Parent and the Buyer, the
Company shall not be required to make any such accounting entries or take any
such actions until immediately prior to the Closing; and provided, further, that
any such entry made as a result of such a request shall not itself constitute a
breach by the Company of any representation, warranty or covenant made by or
required of it in this Agreement.
(j) Registration Statement; Proxy Statement.
(i) The Company will supply, as promptly as reasonably practicable
upon the Parent's request, information for inclusion in the registration
statement covering the shares of the Parent's Stock to be issued pursuant
to this Agreement (including any amendments or supplements thereto, the
"Registration Statement") and in the proxy statement to be sent to the
shareholders of the Company to consider the Merger (as amended or
supplemented, the "Proxy Statement") at the Shareholder Meeting which
shall not contain any untrue statement of a Material fact or omit to state
any Material fact required to be stated therein or necessary to make the
statements therein not misleading.
(ii) If at any time prior to the Effective Time any event relating
to the Company or any of its executive officers or directors is discovered
by the Company that is set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, the Company will
promptly inform the Parent and the Buyer of same.
(iii) Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by the
Parent, the Buyer and their respective Subsidiaries that is contained or
incorporated by reference in, or furnished in connection with the
preparation of, the Registration Statement or the Proxy Statement.
39
(k) ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Compliance. On or prior to the Closing Date, (i) the
Company's management shall complete its assessment of the effectiveness of the
Company's internal control over financial reporting in compliance with the
requirements of Section 404 of ▇▇▇▇▇▇▇▇-▇▇▇▇▇ for the year ended December 31,
2007, regardless of whether the Company is or will be subject to such
requirements; (ii) the Company shall establish and maintain effective disclosure
controls and procedures (as defined in Rule 13a-15 or 15d-15 under the Exchange
Act) and internal control over financial reporting (regardless of whether the
Company is subject to Rule 13a-15 or 15d-15), including remediating any material
weaknesses or significant deficiencies in such controls, and (iii) such controls
and procedures shall be effective to ensure that all material information (as
such term has been interpreted pursuant to the Securities Laws) concerning the
Company is (and to the extent that the Company is not subject to such
requirements, would be) made known on a timely basis to the individuals
responsible for the preparation of the Company's filings with Regulatory
Authorities and other public disclosure documents. Prior to the Closing Date,
the Company shall deliver to the Parent (i) the disclosure specified in Items
307 and 308 of SEC Regulation S-K (other than the disclosure specified in Item
308(b)) as if the Company were subject to such items (including all appropriate
documentation supporting such disclosure) and (ii) copies of all written
descriptions of, and all policies, manuals and other documents promulgating,
such disclosure controls and procedures and internal control over financial
reporting.
(l) Loan Renewals. The Company shall not extend, renew, or refinance the
loans set forth on Section 6.1(l) of the Company's Disclosure Schedule, or agree
to do so, except on commercially reasonable terms reasonably acceptable to the
Parent, including without limitation as to interest rate, real property
security, and perfection of security interests.
(m) Tax Elections. After the date of this Agreement, the Company shall not
make any Material election with respect to Taxes without the prior written
consent of the Parent (not to be unreasonably withheld).
6.2 COVENANTS OF THE PARENT AND THE BUYER.
(a) Reservation of Shares of the Parent's Stock. The Parent shall reserve
for issuance a sufficient number of shares of the Parent's Stock to cover the
issuances of such stock required hereby.
(b) Directors.
(i) As soon as reasonably practicable after the later of (A) the
Effective Time or (B) the first annual meeting of the Parent's
shareholders following the date of this Agreement, the Parent and the
Buyer shall cause ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ to be elected or appointed to the Boards
of Directors of the Parent and the Buyer, conditional upon ▇▇▇▇ ▇.
▇▇▇▇▇▇▇'▇ consent thereto and upon obtaining any necessary regulatory
approvals. Beginning with the first annual shareholder meeting after such
election or appointment and thereafter, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall be subject
to the same nomination and election procedures as the other directors on
the Parent's and the Buyer's Boards of Directors.
(ii) As soon as reasonably practicable after the Effective Time, the
Buyer shall create an advisory board for Richmond County and ▇▇▇▇▇ County
market (the "Advisory Board"), appoint ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D., as
Chairman of the Advisory Board and offer to each other director of the
Company serving at the Effective Time a seat on the Advisory Board. Former
directors of the Company shall be compensated for service on the Advisory
Board (including in the capacity of Chairman) at the rate of $225 per
month until the second (2nd) anniversary of the Effective Time, at which
time compensation for further service on the Advisory Board shall be
determined by the Parent.
40
(c) Employees and Benefits.
(i) Except as may be provided in the Farrah Employment Agreement and
any employment agreement between ▇▇▇▇▇ ▇. English and the Company, any
and all of the Company's employees will be employed by the Buyer if it so
desires on an "at-will" basis, and nothing in this Agreement shall be
deemed to constitute an employment agreement with any such employee to
obligate the Parent, the Buyer or any Affiliate thereof to employ any
such person for any specific period of time after the Effective Time or
in any specific position, or to restrict the Buyer's right to terminate
the employment of any such employee at any time and for any reason
satisfactory to it. Any Company employees not hired by the Buyer shall,
however, be entitled to apply for any open position with the Buyer.
(ii) The Buyer may amend or otherwise modify its Benefit Plans in
accordance with the terms thereof at any time before or after the
Effective Time with a view to adopting any aspect of the Company's
Benefit Plans deemed to be in the Buyer's best interest. Any Company
employees hired by the Buyer will be eligible for benefits consistent
with those of existing employees of the Buyer, with credit for past
service with the Company for purposes of participation, eligibility and
vesting (including with respect to accrual of vacation and sick leave,
but not including the calculation of any other benefit accrual);
provided, however, that any such continuing employee will not be subject
to any exclusion or penalty for pre-existing conditions that were covered
under the Company's medical plans as of the Effective Time or any waiting
period relating to coverage under the Buyer's medical plans. Any such
Company employees shall be subject to the applicable terms of such
Benefit Plans, including payment of deductibles, provided that there
shall be no waiting periods applicable to any such Company employees to
participate in such benefits (including applicable insurance benefits).
(iii) Each employee of the Company hired by the Buyer shall receive
from the Buyer, as of the Effective Time, credit for vacation and sick
leave, each in the amount that an employee of the Buyer (having the same
length of service with the Buyer as the hired employee has with the
Company) would have accrued in the current benefit year through the
Effective Time, less the amount of vacation and sick leave, respectively,
used by the hired employee in such period. Each employee of the Company
who is not hired by the Buyer shall be paid by the Buyer for all accrued
but unused vacation as of the date of termination of employment in a lump
sum at the end of the Company's first full pay period commencing after
the Effective Time.
(iv) Each employee of the Company at the Effective Time who does not
become an employee of the Buyer, or who becomes an employee of the Buyer
and is terminated within twelve (12) months after the Effective Time, for
any reason other than Cause, death or disability, shall receive severance
pay from the Buyer equal to twelve (12) weeks' pay (less applicable taxes
and withholdings) at his or her current salary, payable in a lump sum
within thirty (30) days following the date of termination of the
employee's employment.
(v) At or prior to the Effective Time, the current employment
agreements between the Company and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
shall be terminated by the Company without Cause (as defined in such
employment agreements). The Parent or the Buyer shall (A) pay to ▇▇▇▇ ▇.
▇▇▇▇▇▇▇ an amount equal to the amount payable as severance pursuant to
Paragraph 8 of his current employment agreement, such amount to be paid
in 36 equal monthly installments on the last Business Day of each
calendar month, commencing with the first full calendar month following
the Closing Date, (B) make a lump sum payment to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ in the
amount of $72,900, representing one-half of the amount payable pursuant
to Section 8 of his existing employment agreement upon a change in
control and (C) enter into the Farrah Employment Agreement and the
▇▇▇▇▇▇▇ Consulting Agreement.
41
(vi) If ▇▇▇▇▇ ▇. English so elects, the Buyer shall use commercially
reasonable efforts to enter into an employment agreement with Mr. English
on terms mutually agreeable to the Buyer and Mr. English.
(vii) Notwithstanding anything in this Agreement to the contrary,
(i) no provision of this Agreement (A) shall constitute or be interpreted
to constitute a Benefit Plan or other arrangement, or a provision of,
amendment of, or commit to amend any Benefit Plan or other arrangement,
or (B) shall otherwise provide any employee or other service provider any
rights or entitlements under this Agreement, including, without
limitation, in respect of any Benefit Plan, and (ii) no employee, service
provider or other third party shall be entitled to claim any right,
entitlement or other benefit under or in relation to this Agreement.
(d) Directors' and Officers' Insurance and Indemnification. The Parent
shall obtain and maintain, or cause the Buyer to obtain and maintain, in effect
for six (6) years from the Closing Date, the current directors' and officers'
liability insurance policies maintained by the Company, or substitute policies
providing not Materially less coverage than the current policies, with respect
to matters occurring prior to the Effective Time. Such insurance shall cover all
persons and entities who are covered by the director's and officers' liability
policy maintained by the Company and in existence on the date hereof (including
all existing directors and officers of the Company).
(e) Consents. The Parent and the Buyer will exercise their best efforts to
obtain such Consents as may be necessary or desirable for the consummation of
the transactions contemplated hereby from the appropriate parties to their
respective Contracts such that such Contracts shall survive the Merger and not
be breached thereby.
(f) Shareholder Approval. Subject to satisfaction of all other conditions
to consummation of the Merger, the Parent, as sole shareholder of the Buyer,
will take all necessary action to approve the Merger.
(g) Registration Statement; Proxy Statement.
(i) The Parent and the Buyer will supply information for inclusion
in the Registration Statement and the Proxy Statement which shall not
contain any untrue statement of a Material fact or omit to state any
Material fact required to be stated therein or necessary to make the
statements therein not misleading.
(ii) If at any time prior to the Effective Time any event relating
to the Parent, its Subsidiaries, or any of their respective executive
officers or directors is discovered by the Parent or the Buyer that should
be set forth in an amendment to the Registration Statement or a supplement
to the Proxy Statement, the Parent or the Buyer will promptly inform the
Company of same and will, in consultation with the Company, promptly take
action reasonably necessary to amend and correct the Registration
Statement and the Proxy Statement to the Company's reasonable
satisfaction.
(iii) The Registration Statement and the Proxy Statement shall
comply in all Material respects with the requirements of the Securities
Laws and the rules and regulations thereunder.
42
(iv) Notwithstanding the foregoing, the Parent and the Buyer make no
representations or warranties with respect to any information supplied by
the Company that is contained or incorporated by reference in, or
furnished in connection with the preparation of, the Registration
Statement or the Proxy Statement.
(h) The Parent and the Buyer will make all necessary arrangements to
prepare the Company's final federal and state income tax returns for the year in
which the Closing occurs.
(i) The Parent will not cause or permit the articles of incorporation and
bylaws of the Parent or the Buyer to be amended in a manner that would prevent
the transactions contemplated hereby, including the Merger, from qualifying as a
reorganization within the meaning of Section 368(a) of the Code or that would
prevent the consummation of such transactions.
6.3 COVENANTS OF ALL PARTIES TO THE AGREEMENT.
(a) Reorganization for Tax Purposes. Each of the parties hereto undertakes
and agrees to use its reasonable efforts to cause the Merger to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code and that it
will not intentionally take any action that would cause the Merger to fail to so
qualify.
(b) Notification. Each of the parties hereto agrees to notify promptly the
other parties hereto of any event, fact, or other circumstance arising after the
date hereof that would have caused any representation or warranty herein,
including, in the case of the Company, any information on any schedule hereto,
to be untrue or misleading had such event, fact, or circumstance arisen prior to
the execution of this Agreement. The parties hereto will exercise their
reasonable best efforts to ensure that no such events, facts, or other
circumstances occur, come to pass, or become true.
(c) Consummation of Agreement. Subject to Section 6.1(c), the parties
hereto each agree to use their reasonable efforts to perform or fulfill all
conditions and obligations to be performed or fulfilled by them under this
Agreement so that the transactions contemplated hereby shall be consummated.
Except for events that are the subject of specific provisions of this Agreement,
if any event should occur, either within or outside the control of the Company,
the Parent or the Buyer, that would Materially delay or prevent fulfillment of
the conditions upon the obligations of any party hereto to consummate the
transactions contemplated by this Agreement, each party will notify the others
of any such event and, subject to Section 6.1(c), the parties will use their
reasonable, diligent and good faith efforts to cure or minimize the same as
expeditiously as possible. Subject to Section 6.1(c), each party hereto shall
use its reasonable efforts to obtain all Consents necessary or desirable for the
consummation of the transactions contemplated by this Agreement and to assist in
the procuring or providing of all documents that must be procured or provided
pursuant to the provisions hereof. Notwithstanding anything to the contrary
contained in this Agreement, but subject to Section 6.1(c), none of the parties
hereto will take any action that would (i) Materially affect or delay receipt of
the approvals contemplated in Section 8.1 from the Regulatory Authorities, or
(ii) Materially and adversely affect or delay its ability to perform its
covenants and agreements made pursuant to this Agreement.
(d) Maintenance of Corporate Existence. Each of the parties hereto shall
maintain in full force and effect their respective corporate or legal
existences.
(e) Applications and Reports. The Parent and the Buyer shall prepare and
file as soon as reasonably practical after the date of this Agreement, and the
Company shall cooperate reasonably in the preparation and, where appropriate,
filing, of all applications, reports and statements with all Regulatory
Authorities having jurisdiction over the transactions contemplated by this
Agreement seeking the requisite Consents necessary to consummate the
transactions contemplated by this Agreement.
43
(f) Registration Statement and Proxy Statement. As promptly as reasonably
practicable after the execution of the Agreement and after the furnishing by the
Company of all information required to be contained therein, the Parent and the
Buyer shall (i) file with the SEC the Registration Statement on Form S-4 (or on
such other form as shall be appropriate), which shall contain the Proxy
Statement, and (ii) take all actions, if any, required by applicable state
securities or "blue sky" laws (A) to cause the Parent's Stock to be, at the time
of issuance thereof, duly qualified or registered (unless exempt) under such
laws, or to cause all conditions to any exemptions from qualification or
registration thereof under such laws to have been satisfied, and (B) to obtain
any and all other approvals or consents to the issuance of the Parent's Stock
that are required under applicable state law. The Parent, the Buyer and the
Company shall each use their reasonable best efforts to cause the Proxy
Statement to comply in all Material respects with the requirements of the
Securities Laws and the rules and regulations thereunder. The Parent, the Buyer
and the Company shall each use their reasonable best efforts to cause the
Registration Statement to become effective as soon thereafter as practicable.
Subject to Section 6.1(c), the Proxy Statement shall include the recommendation
of the Board of Directors of the Company in favor of the Merger. The Company
shall cause the definitive Proxy Statement to be mailed to its shareholders as
soon as practicable following the date on which the Proxy Statement is cleared
by the FDIC and the Registration Statement is declared effective; provided,
however, that all mailings to the Company's shareholders in connection with the
Merger, including without limitation the Proxy Statement, shall be subject to
the prior review, comment and written approval of the Parent and the Buyer, not
to be unreasonably withheld or delayed.
(g) To the extent that Rule 145 under the Securities Act applies, the
Parent will give stop transfer instructions to its transfer agent with respect
to any Parent Stock issued to Company Rule 145 Affiliates in connection with the
Merger, and there will be placed on the certificates representing such Parent
Stock, or any substitution therefor, a legend stating in substance:
"The shares represented by this certificate may not be sold,
transferred or otherwise disposed of except or unless (1) covered by
an effective registration statement under the Securities Act of
1933, as amended, or an exemption therefrom, (2) in accordance with
(i) Rule 145(d) (in the case of shares issued to an individual who
is not an affiliate of the issuer) or (ii) Rule 144 (in the case of
shares issued to an individual who is an affiliate of the issuer) of
the Rules and Regulations of such Act, or (3) in accordance with a
legal opinion satisfactory to counsel for the issuer that such sale
or transfer is otherwise exempt from the registration requirements
of such Act. For avoidance of doubt, it is understood that a legal
opinion is neither required by law nor this legend, and it shall be
in the issuer's sole discretion whether or not to require that a
legal opinion be delivered to it prior to any such transfer or other
disposition."
(h) Closing. Subject to the terms and conditions hereof (including Section
6.1(c)), the parties hereto shall use their reasonable best efforts to
consummate the Closing within thirty (30) days after all conditions to the
Closing have been satisfied.
ARTICLE VII
DISCLOSURE OF ADDITIONAL INFORMATION
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7.1 ACCESS TO INFORMATION. Prior to the Closing Date, the Parent,
the Buyer and the Company shall:
(a) give the others and their authorized representatives reasonable
access, during normal business hours and upon reasonable notice, to its books,
records, offices and other facilities and properties; and
(b) furnish the others with such financial and operating data and other
information with respect to its business, condition (financial or otherwise) and
properties, as they may reasonably request.
7.2 ACCESS TO PREMISES. Prior to Closing, the Company shall give the
Parent, the Buyer and their authorized representatives reasonable access to all
of the Company's Real Property for the purpose of inspecting such property.
7.3 ENVIRONMENTAL SURVEY. At its option, the Parent may cause to be
conducted Phase I environmental assessments of the Real Property of the Company,
whether owned or leased, or any portion thereof, together with such other
studies, testing and intrusive sampling and analyses as the Parent shall deem
necessary or desirable (collectively, the "Environmental Survey"). The Parent
shall complete all such Phase I environmental assessments within sixty (60) days
following the date of this Agreement and thereafter conduct and complete any
such additional studies, testing, sampling and analyses within sixty (60) days
following completion of all Phase I environmental assessments. Subject to the
breach of any representation or warranty contained herein, the costs of the
Environmental Survey shall be paid by the Parent.
7.4 ANNOUNCEMENTS; CONFIDENTIAL INFORMATION.
(a) The Company, the Parent and the Buyer each agree that no Persons other
than the parties to this Agreement are authorized to make any public
announcements or statements about this Agreement or any of the transactions
described herein, and that, without the prior review and consent of the other
parties (which consent shall not unreasonably be withheld or delayed), it will
not make any public announcement, statement or disclosure as to the terms and
conditions of this Agreement or the transactions described herein, except for
such disclosures as may be required incidental to obtaining the required
approval of any Regulatory Authority to the consummation of the transactions
described herein.
(b) For purposes of this Section 7.4, "Confidential Information" refers to
any information (including business and financial information) that a party to
whom the information pertains (an "Informing Party") provides or makes
available, in connection with this Agreement, to a party for whose benefit the
information is provided, or to that party's affiliates, directors, officers,
employees, attorneys, advisors, consultants, representatives and agents (a
"Receiving Party"), or which a Receiving Party otherwise obtains from any
examination of an Informing Party's documents, books, records, files or other
written materials or from any discussions with any of the Informing Party's
directors, officers, employees, attorneys, advisors, consultants,
representatives and agents, and shall be deemed to include, without limitation,
(i) all such documents, books, records, files or other written materials
themselves and all information contained therein (whether maintained in writing,
electronically, on microfiche or otherwise), (ii) all corporate minutes,
acquisition or other expansion analyses or plans, pro forma financial data,
capital spending budgets and plans, market studies and business plans, (iii) all
information relative to financial results and condition, operations, policies
and procedures, computer systems and software, shareholders, employees,
officers, and directors, and (iv) all information relative to customers and
former or prospective customers.
45
(c) Prior to the Effective Time, all Confidential Information of an
Informing Party is proprietary to the Informing Party and constitutes either
trade secrets or confidential information of the Informing Party. Without the
Informing Party's express written consent, the Receiving Party shall not remove
any Confidential Information of the Informing Party in written or other recorded
form from the Informing Party's premises.
(d) Prior to the Effective Time, all Confidential Information of an
Informing Party is to be held in strict confidence by a Receiving Party and,
except as otherwise provided herein, may not be disclosed by a Receiving Party
to any person or entity not a party to this Confidentiality Agreement, unless
the Receiving Party:
(i) can demonstrate that the same information as the Confidential
Information to be disclosed already was in its possession prior to such
Confidential Information being obtained;
(ii) can demonstrate that the same information as the Confidential
Information to be disclosed is already publicly available or, at that
time, has become publicly available through no fault of, or violation of
this Section 7.4 by, the Receiving Party or any other person that the
Receiving Party knows, or has reason to know, is obligated to protect such
Confidential Information; or
(iii) demonstrates that the same information as the Confidential
Information to be disclosed was developed independently by or for the
Receiving Party, without the use of the Confidential Information disclosed
to or obtained by the Receiving Party.
(e) Prior to the Effective Time, the Receiving Party (i) may disclose
Confidential Information of the Informing Party to the Receiving Party's
affiliates, directors, officers, employees, agents, attorneys, advisors and
consultants who are directly involved in discussions of a potential transaction,
only on a need to know basis and only if such persons or entities agree for the
benefit of the other party to be bound by the restrictions and obligations of
this Section 7.4; and (ii) will enforce its obligations under this Section 7.4
against all persons to whom it discloses Confidential Information and shall be
responsible and liable to the Informing Party for any disclosure of Confidential
Information by such persons or entities in violation of such restrictions and
obligations.
(f) Upon termination of this Agreement the Receiving Party will deliver or
cause to be delivered to the Informing Party all written Confidential
Information of the Informing Party in the possession of the Receiving Party, or
provide an officer's affidavit as to the destruction of all copies of such
Confidential Information.
(g) Prior to the Effective Time, the Receiving Party shall not use any
Confidential Information of the Informing Party in an unlawful manner, to
interfere with or attempt to terminate or otherwise adversely affect any actual
or proposed contractual or business relationship of the Informing Party, or for
any other purposes other than in conjunction with the transactions described
herein. Without limiting the generality of the foregoing, in no event shall the
Receiving Party use any Confidential Information of the Informing Party,
directly or indirectly, for the purpose of competing against the Informing
Party.
(h) Notwithstanding anything contained in this Section 7.4 to the
contrary, neither the Company nor the Parent and the Buyer shall be required to
obtain the prior consent of the other party for any such disclosure which it, in
good faith and upon the advice of its legal counsel, believes is required by
law; provided, however, that before any such disclosure may be made by a
Receiving Party upon the advice of its legal counsel, it shall, except where
such notice is prohibited by law, give the Informing Party reasonable notice of
its intent to make such disclosure, the form of content of that disclosure, and
the basis upon which its legal counsel has advised it that such disclosure is
required by law, so that the Informing Party may seek a protective order or
other similar or appropriate relief, and the Receiving Party also shall
undertake in good faith to have the Confidential Information to be disclosed
treated confidentially by the party to whom the disclosure is made.
46
(i) As of the date of this Agreement, the Confidentiality
Agreement is amended by being superseded in its entirety and
replaced by the provisions of this Section 7.4.
ARTICLE VI.
ARTICLE VII. ARTICLE VIII
------------
CONDITIONS TO CLOSING
8.1 MUTUAL CONDITIONS. The respective obligations of each party hereto to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by all parties hereto pursuant to Section 10.4 of this Agreement:
(a) Adverse Proceedings. None of the Company, the Parent, the Buyer, or
any shareholder of any of the foregoing shall be subject to any Order that
enjoins or prohibits the consummation of this Agreement or the Merger, and no
Governmental Authority shall have instituted a suit or proceeding that is then
pending and seeks to enjoin or prohibit the transactions contemplated hereby.
Any party who is subject to any such Order or the subject of any such suit or
proceeding shall take any reasonable steps within that party's control to cause
any such Order to be modified so as to permit the Closing and to cause any such
suit or proceeding to be dismissed.
(b) Regulatory Approvals. All Consents of, filings and registrations with,
and notifications to, all Regulatory Authorities required for consummation of
the Merger shall have been obtained or made and shall be in full force and
effect and all waiting periods required by Law shall have expired. Without
limiting the generality of the foregoing, the Consent of each of (i) the Board
of Governors of the Federal Reserve System pursuant to the Bank Merger Act of
1966, 12.U.S.C. ss.1828(c)(2)(B), and (ii) the North Carolina Banking Commission
shall have been obtained and shall be in full force and effect. No such Consent
obtained from any Regulatory Authority shall be conditioned or restricted in a
manner (including requirements relating to the raising of additional capital or
the disposition of Assets) not reasonably anticipated as of the date of this
Agreement that in the reasonable judgment of the Board of Directors of the
Parent or the Company hereto would so Materially and adversely affect the
economic or business assumptions of the transactions contemplated by this
Agreement that had such condition or requirement been known, such party would
not, in its reasonable judgment, have entered into this Agreement.
(c) Consents and Approvals. Each party hereto shall have obtained any and
all Consents required for consummation of the Merger or for the preventing of
any Default under any Contract or Permit of such Person, including those
Consents listed on Section 4.2 of the Company's Disclosure Schedule, except to
the extent that the failure to obtain any such Consents could not, individually
or in the aggregate result in a Material Adverse Effect on such Person.
47
(d) Effectiveness of Registration Statement. The Registration Statement
filed with the SEC covering the shares of the Parent's Stock to be issued
pursuant hereto shall have been declared effective by the SEC, and no stop order
suspending such effectiveness shall have been initiated or, to the Knowledge of
the Parent and the Buyer, threatened by the SEC, and the Parent's Stock shall
be, at the time of the issuance thereof, duly qualified or registered, or
determined to be exempt from qualification or registration, under applicable
state securities or "blue sky" laws.
(e) Approval. The Company's shareholders shall have approved this
Agreement and the transactions contemplated hereby (including without
limitation, the Merger) in accordance with applicable Law.
8.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to effect the transactions contemplated hereby shall be further subject
to the fulfillment of the following conditions, unless waived by the parties
pursuant to Section 10.4 of this Agreement:
(a) For the purpose of this Section 8.2 only, all representations and
warranties of the Parent and the Buyer contained in this Agreement and the
Parent's and Buyer's Disclosure Schedule shall be accurate in all respects as of
the Closing Date as if made on the Closing Date, except for representations and
warranties that are made as of a specific date and except for inaccuracies of
representations and warranties the circumstances giving rise to which,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect (it being understood that, for purposes of determining
the accuracy of such representations and warranties, all qualifications by
reference to Material Adverse Effect or Materiality contained in such
representations and warranties shall be disregarded). Each of the Parent and the
Buyer shall have performed and complied in all Material respects with all
covenants and agreements contained in this Agreement required to be performed
and complied with by it at or prior to the Closing.
(b) All documents required to have been executed and delivered by the
Parent and the Buyer to the Company at or prior to the Closing shall have been
so executed and delivered, whether or not such documents have been or will be
executed and delivered by the other parties contemplated thereby.
(c) The Company shall have received from ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
Inc., a bringdown of its opinion dated December 10, 2007, to the effect that, as
of a date within ten (10) Business Days prior to the mailing of the Proxy
Statement to the Company's shareholders, the Merger Consideration is fair, from
a financial point of view, to the holders of Company Shares.
(d) The Company shall have received an opinion of Smith, Anderson, Blount,
Dorsett, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, L.L.P., counsel to the Parent and the Buyer, dated
as of the Closing Date, reasonably satisfactory to the Company in form and
substance, concerning matters relating to the Parent and the Buyer.
(e) The Company shall have received an opinion of ▇▇▇▇▇ ▇▇▇▇▇▇ PLLC,
certified public accountants, dated as of the Closing Date, to the effect that
the Merger will qualify as a reorganization within the meaning of Section 368 of
the Code. The issuance of such opinion may be conditioned on the receipt of
representation letters from the Company, the Parent and the Buyer, in each case,
in form and substance reasonably satisfactory to ▇▇▇▇▇ ▇▇▇▇▇▇ PLLC. The specific
provisions of each such representation letter shall be in form and substance
reasonably satisfactory to such counsel, and each such representation letter
shall be dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect.
(f) As of the Closing Date, the Company shall have received the following
documents with respect to each of the Parent and (except in the case of clause
(vii)) the Buyer:
48
(i) a true and complete copy of its articles of incorporation and
all amendments thereto, certified by the North Carolina Secretary of State
as of a recent date;
(ii) a true and complete copy of its bylaws, certified by its
Secretary or an Assistant Secretary;
(iii) a certificate from its Chief Executive Officer or Chief
Financial Officer (unless both are reasonably available on the Closing
Date, in which case from both such officers) certifying that (A) its
articles of incorporation have not been amended since the date of the
certificate described in subsection (i) above, and that nothing has
occurred since the date of issuance of the certificate of existence
specified in subsection (iv) below that would adversely affect its
existence, and (B) it has complied with the conditions set forth in this
Section 8.2 as may be reasonably required by the Company, including
without limitation a certificate as to the matters set forth in Section
8.2(a);
(iv) a certificate of its corporate existence issued by the North
Carolina Secretary of State;
(v) true and complete copies of the resolutions of its board of
directors and of the Buyer's shareholder authorizing the execution,
delivery and performance of this Agreement, and all instruments and
documents to be delivered in connection herewith, and the transactions
contemplated hereby, certified by its Secretary or an Assistant Secretary;
(vi) a certificate from its Chief Executive Officer, Chief Financial
Officer, Secretary or an Assistant Secretary certifying the incumbency and
signatures of its officers who will execute documents at the Closing or
who have executed this Agreement; and
(vii) a certificate of The Federal Reserve Bank of Richmond with
respect to the Parent.
(g) There shall have been (i) no Material Adverse Effect with respect to
the Parent or the Buyer and (ii) no event, occurrence or circumstance that,
individually or taken together with any other events, occurrences, or
circumstances, has had a Material adverse impact on the ability of the Parent or
the Buyer to perform its obligations under this Agreement or to consummate the
Merger or the other transactions contemplated by this Agreement.
(h) The Exchange Agent shall have delivered to the Company a certificate,
dated as of the Closing Date, to the effect that the Exchange Agent has received
from the Parent appropriate instructions and authorization for the Exchange
Agent to issue the Maximum Total Stock Merger Consideration, to the extent
required by this Agreement, and to the effect that the Exchange Agent has
received from the Parent the Maximum Total Cash Merger Consideration and
appropriate instructions and authorization to deliver such Merger Consideration,
all to the extent required by this Agreement.
(i) The Buyer shall have executed and delivered (i) the ▇▇▇▇▇▇▇ Consulting
Agreement to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and (ii) the Farrah Employment Agreement to ▇▇▇▇▇
▇. ▇▇▇▇▇▇.
49
(j) The Company, acting reasonably, shall be satisfied that the
transactions described in Section 2.6(a) will not subject the holders of Company
Options to additional income tax under Code ss. 409A.
8.3 CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND THE BUYER. The
obligations of each of the Parent and the Buyer to effect the transactions
contemplated hereby shall be further subject to the fulfillment of the following
conditions, unless waived by the Parent pursuant to Section 10.4 of this
Agreement:
(a) For the purpose of this Section 8.3 only, all representations and
warranties of the Company contained in this Agreement and the Company's
Disclosure Schedule shall be accurate in all respects as of the Closing Date as
if made on the Closing Date, except for representations and warranties that are
made as of a specific date and except for inaccuracies of representations and
warranties the circumstances giving rise to which, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect (it being understood that, for purposes of determining the accuracy of
such representations and warranties, all qualifications by reference to Material
Adverse Effect or Materiality contained in such representations and warranties
shall be disregarded). The Company shall have performed and complied in all
Material respects with all covenants and agreements contained in this Agreement
required to be performed and complied with by them at or prior to the Closing.
(b) Holders of Company Shares representing no more than ten percent (10%)
of the issued and outstanding Company Shares immediately prior to the Effective
Time shall have exercised dissenters' or similar rights with respect to the
Merger.
(c) All documents required to have been executed and delivered by the
Company or any third party to the Parent or the Buyer at or prior to the Closing
shall have been so executed and delivered, whether or not such documents have
been or will be executed and delivered by the other parties contemplated
thereby.
(d) The Parent and the Buyer shall have received an opinion of ▇▇▇▇ and
▇▇▇▇▇, P.A., counsel to the Company, dated as of the Closing Date and addressed
to the Parent and the Buyer, reasonably satisfactory to the Parent in form and
substance, concerning matters relating to the Company.
(e) The Parent shall have received a legal opinion from ▇▇▇▇▇ ▇▇▇▇▇▇ PLLC,
certified public accountants, dated as of the Closing Date and addressed to the
Parent and the Buyer, to the effect that the Merger will qualify as a
reorganization within the meaning of Section 368 of the Code. The issuance of
such opinion may be conditioned on the receipt of representation letters from
the Company, the Parent and the Buyer, in each case, in form and substance
reasonably satisfactory to ▇▇▇▇▇ ▇▇▇▇▇▇ PLLC. The specific provisions of each
such representation letter shall be in form and substance reasonably
satisfactory to such counsel, and each such representation letter shall be dated
on or before the date of such opinion and shall not have been withdrawn or
modified in any material respect.
(f) The Parent shall have received from Equity Research Services, Inc., a
bringdown of its opinion dated December 7, 2007 and addressed to the Parent and
the Buyer, to the effect that, as of a date within ten (10) Business Days prior
to the mailing of the Proxy Statement to the Company's shareholders, the
aggregate Merger Consideration to be paid by the Parent and the Buyer pursuant
to this Agreement is fair from a financial point of view to the Parent and the
Buyer.
(g) As of the Closing Date, the Parent and the Buyer shall have received
the following documents with respect to the Company:
50
(i) a true and complete copy of its articles of incorporation and
all amendments thereto, certified by the North Carolina Secretary of State
as of a recent date;
(ii) a true and complete copy of its bylaws, certified by its
Secretary or an Assistant Secretary;
(iii) a certificate from its Chief Executive Officer or Chief
Financial Officer (unless both are reasonably available on the Closing
Date, in which case from both such officers) certifying that (A) its
articles of incorporation have not been amended since the date of the
certificate described in subsection (i) above, and that nothing has
occurred since the date of issuance of the certificate of existence
specified in subsection (iv) below that would adversely affect its
existence, and (B) the Company has complied with the conditions set forth
in this Section 8.3 as may be reasonably required by the Parent and the
Buyer, including without limitation a certificate as to the matters set
forth in Section 8.3(a);
(iv) a certificate of its corporate existence issued by the North
Carolina Secretary of State as of a recent date;
(v) true and complete copies of the resolutions of its board of
directors and shareholders authorizing the execution, delivery and
performance of this Agreement, and all instruments and documents to be
delivered in connection herewith, and the transactions contemplated
hereby, certified by its Secretary or an Assistant Secretary; and
(vi) a certificate from its Chief Executive Officer, Chief Financial
Officer, Secretary or an Assistant Secretary certifying the incumbency and
signatures of its officers who will execute documents at the Closing or
who have executed this Agreement.
(h) The Parent and the Buyer shall have received the written agreements,
substantially in the form of EXHIBIT D hereto, from the Company Rule 145
Affiliates described in Section 6.1(g).
(i) ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have executed and delivered to the Buyer the
Farrah Employment Agreement and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall have executed and
delivered to the Buyer the ▇▇▇▇▇▇▇ Consulting Agreement.
(j) Each of the Voting Agreements described in Section 4.26 shall have
been executed and delivered to the Parent.
(k) The Company shall have received from ▇▇▇▇▇ ▇▇▇▇▇▇ PLLC, and shall have
delivered to the Parent a copy of, a report expressing an unqualified opinion on
the Company's statements of income and stockholders' equity and cash flows for
the fiscal year of the Company ending December 31, 2007, and on the Company's
balance sheet as of December 31, 2007.
(l) There shall have been (i) no Material Adverse Effect with respect to
the Company and (ii) no event, occurrence or circumstance that, individually or
taken together with any other events, occurrences, or circumstances, has had a
Material adverse impact on the ability of the Company to perform its obligations
under this Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement.
ARTICLE VIII.
ARTICLE IX. ARTICLE IX
----------
51
TERMINATION
9.1 TERMINATION. The obligations of the parties hereunder may be
terminated and the transactions contemplated hereby abandoned at any time prior
to the Closing Date:
(a) By mutual written consent of the Company, the Parent and the Buyer;
(b) By either the Parent and the Buyer, on the one hand, or the Company,
on the other hand, if there shall be any Law or regulation that makes
consummation of this Agreement illegal or otherwise prohibited or if any Order
enjoining the Company or its shareholders, on the one hand, or the Buyer, the
Parent or its shareholders, on the other hand, from consummating this Agreement
is entered and such judgment, injunction, order or decree shall become final and
nonappealable;
(c) By the Parent and the Buyer, on the one hand, or the Company, on the
other hand, if the conditions to the obligation to effect the transactions
contemplated hereby of the party or parties seeking termination shall not have
been fulfilled or waived by September 30, 2008, and if the party or parties
seeking termination is or are in Material compliance with all obligations under
this Agreement;
(d) By any party hereto, if a condition to the obligation to effect the
transactions contemplated hereby of the party seeking termination shall have
become incapable of fulfillment (notwithstanding the efforts of the party
seeking to terminate as set forth in Section 6.3(c)), and has not been waived;
(e) At any time on or prior to the Closing Date, by the Parent and Buyer
in writing, if the Company has, or by the Company, if the Parent or the Buyer
has, (i) in any Material respect, breached any covenant or agreement contained
herein and such breach has not been cured by the earlier of thirty (30) days
after the date on which written notice of such breach is given by the party
claiming the breach to the party committing such breach or the Closing Date or
(ii) breached in any respect any representation or warranty contained herein or
in such Person's Disclosure Schedule, except for such breaches the circumstances
giving rise to which, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect (it being understood that, for
purposes of determining the accuracy of such representations and warranties, all
qualifications by reference to Material Adverse Effect or Materiality contained
in such representations and warranties shall be disregarded), and such Material
Adverse Effect continues to exist on the earlier of thirty (30) days after the
date on which written notice of such breach is given by the party claiming the
breach to the party committing such breach or the Closing Date;
(f) By the Company, if (i) the Board of Directors of the Company shall,
after compliance with the provisions of Section 6.1(c), take one of the actions
specified in Section 6.1(c)(ii)(A), Section 6.1(c)(ii)(B) or Section
6.1(c)(ii)(C) and (ii) the Company pays the fee due under Section 9.3(a) as a
condition precedent to such termination.
(g) By the Company, in accordance with the following procedures: If on the
date ten (10) days prior to the anticipated Closing Date (as mutually agreed by
the parties) (the "Determination Date"), the volume weighted average of the
daily closing sales price per share of the Parent's Stock as quoted on the OTC
Bulletin Board during the twenty (20) consecutive trading days ending three (3)
Business Days prior to the Determination Date (the "Determination Date Average
Closing Price") is less than $12.6128773, then during the three (3)-day period
commencing on the Determination Date the Company's Board of Directors may, upon
approval by a vote of a majority of all of its members, give written notice to
the Parent and the Buyer that it intends to terminate the Agreement unless the
Parent and the Buyer agree that the Exchange Ratio will be $14.5588235 divided
52
by the Determination Date Average Closing Price, rounded to the seventh decimal
place. During the three (3)-day period commencing with its receipt of such
notice, the Parent and the Buyer may decide whether to so agree and give written
notice to the Company of their decision. If the Parent and the Buyer notify the
Company that they do so agree, then the Exchange Ratio shall be adjusted as so
agreed and no termination shall occur pursuant to this Section 9.1(g). If the
Parent and the Buyer fail to notify the Company that they so agree, this
Agreement shall terminate unless the Company, within the three (3)-day period
commencing after delivery of such notice from the Parent and the Buyer, notifies
the Parent and the Buyer that the Company's Board of Directors has determined,
by a vote of a majority of all of its members, not to terminate this Agreement.
9.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of a termination
contemplated hereby by any party pursuant to Section 9.1, the party seeking to
terminate this Agreement shall give prompt written notice thereof to the other
party, and the transactions contemplated hereby shall be abandoned, without
further action by any party hereto. In such event:
(a) The parties hereto shall continue to be bound by (i) their obligations
of confidentiality set forth herein, and all copies of the information provided
by the Company hereunder will be returned to the Company or destroyed
immediately upon its request therefor, (ii) the provisions set forth in Section
7.4 relating to publicity and (iii) the provisions set forth in Section 10.1
relating to expenses.
(b) All filings, applications and other submissions relating to the
transactions contemplated hereby shall, to the extent practicable, be withdrawn
from the Person to which made.
(c) The termination of this Agreement pursuant to this ARTICLE IX shall be
the sole and exclusive remedy for any violation or breach of any agreement,
covenant, representation or warranty contained in this Agreement, except in the
case of intentional misrepresentation, intentional breach of covenant or other
agreement, willful misconduct, or fraud, in which case, in addition to any
remedies provided in this Agreement, the party afforded a right of termination
pursuant to this ARTICLE IX shall also be entitled to seek any remedy to which
such party may be entitled at law or in equity.
9.3 TERMINATION EXPENSES AND FEES.
(a) If the Company elects to terminate this Agreement pursuant to Section
9.1(f), then the Company shall be obligated to pay the Buyer a termination fee
in the amount of $350,000 prior to such termination as a condition precedent
thereto.
(b) If transactions substantially similar to the transactions contemplated
in an Acquisition Proposal are consummated within twelve (12) months after such
termination, then the Company shall be obligated to pay the Buyer, immediately
prior to consummation of such transactions, an additional termination fee in the
amount of $350,000.
(c) All such payments shall be made immediately when due by wire transfer
of immediately available funds to an account designated by the Buyer.
ARTICLE X
MISCELLANEOUS PROVISIONS
53
10.1 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, each party hereto shall pay all costs and expenses incurred by it
in connection with this Agreement and the transactions contemplated hereby.
10.2 NO SURVIVAL OF REPRESENTATIONS. The representations and warranties
made by the parties hereto will not survive the Closing, and no party shall make
or be entitled to make any claim based upon such representations and warranties
after the Closing Date. No warranty or representation shall be deemed to be
waived or otherwise diminished as a result of any due diligence investigation by
the party to whom the warranty or representation was made or as a result of any
actual or constructive knowledge by such party with respect to any facts,
circumstances or claims or by the actual or constructive knowledge of such
person that any warranty or representation is false at the time of signing or
Closing.
10.3 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified
or supplemented only by written agreement signed by the Chief Executive Officer
or the Chief Financial Officer of each party hereto.
10.4 WAIVER OF COMPLIANCE; CONSENTS. Except as otherwise provided in this
Agreement, any failure of the Parent or the Buyer, on one hand, and the Company,
on the other, to comply with any obligation, representation, warranty, covenant,
agreement or condition herein may be waived by the other party or parties only
by a written instrument signed by the Chief Executive Officer or the Chief
Financial Officer of each party granting such waiver, but such waiver or failure
to insist upon strict compliance with such obligation, representation, warranty,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. Whenever this Agreement
requires or permits consent by or on behalf of any party hereto, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 10.4.
10.5 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered by hand or by facsimile
transmission, one (1) Business Day after sending by a reputable national
over-night courier service or three (3) Business Days after mailing when mailed
by registered or certified mail (return receipt requested), postage prepaid, to
the other party in the manner provided below:
(a) Any notice to any of the Company shall be delivered to the following
addresses:
Longleaf Community Bank
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ and ▇▇▇▇▇, P.A.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇. ▇▇▇▇ ▇▇▇▇▇▇▇ V
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
54
(b) Any notice to the Parent or the Buyer shall be delivered to the
following addresses:
Four Oaks Fincorp, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Smith, Anderson, Blount, Dorsett, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may change the address to which notice is to be given by notice given
in the manner set forth above.
10.6 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any party hereto without the prior written consent of the other
parties.
10.7 SEPARABLE PROVISIONS. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
10.8 GOVERNING LAW. The execution, interpretation and performance of this
Agreement shall be governed by the internal laws and judicial decisions of the
State of North Carolina, without regard to principles of conflicts of laws.
10.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10 INTERPRETATION. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
10.11 ENTIRE AGREEMENT. This Agreement, including the agreements and
documents that are Schedules and Exhibits hereto, embodies the entire agreement
and understanding of the parties with respect of the subject matter of this
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to the transactions contemplated hereby and
subject matter hereof.
55
[signature page follows]
56
[Signature Page to Merger Agreement]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
LONGLEAF COMMUNITY BANK
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and Chief Executive
Officer
PARENT:
FOUR OAKS FINCORP, INC.
By: /s/ Ayden ▇. ▇▇▇, ▇▇.
-----------------------------------
Name: Ayden R., ▇▇▇, Jr.
Title: Chairman, Chief Executive
Officer and President
BUYER:
FOUR OAKS BANK & TRUST COMPANY
By: /s/ Ayden ▇. ▇▇▇, ▇▇.
-----------------------------------
Name: Ayden R., ▇▇▇, Jr.
Title: Chairman, Chief Executive
Officer and President
EXHIBIT A
FORM OF ▇▇▇▇▇▇▇ CONSULTING AGREEMENT
[attached]
CONSULTING AGREEMENT
BETWEEN
FOUR OAKS BANK & TRUST COMPANY
AND
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
THIS CONSULTING AGREEMENT ("Agreement") is made and entered into by and
between ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("Consultant") and FOUR OAKS BANK & TRUST COMPANY
("Bank").
The Bank, Four Oaks Fincorp., Inc. and Longleaf Community Bank are parties
to a Merger Agreement dated December 10, 2007 (the "Merger Agreement").
Consultant's entry into this Agreement is a condition of the Merger Agreement.
Additionally, Consultant has experience beneficial to the Bank's business.
The Bank desires to retain Consultant's consulting services on the terms and
conditions set forth herein, and Consultant desires to provide such consulting
services as an independent contractor and is willing to do so on the terms and
conditions set forth herein.
In consideration of the above and the mutual promises set forth below,
Consultant and the Bank agree as follows:
1. Consulting Services. During the term of this Agreement, Consultant
shall provide to the Bank such consulting services as may be reasonably
requested by the Bank upon reasonable notice to Consultant.
2. Termination of Prior Agreement. The Bank and Consultant acknowledge and
agree that: (i) the Employment Agreement between Consultant and Longleaf
Community Bank dated August 4, 2003 has been involuntarily terminated without
Cause; (ii) the Bank is not obligated to pay Consultant any "Base Salary" under
that Employment Agreement; and, (iii) the "Restriction Period" under that
Employment Agreement has expired.
3. Term. The term of this Agreement shall be for a period of three (3)
years, beginning on the Closing, as defined in the Merger Agreement, and ending
on the third anniversary of that date unless terminated earlier as provided
herein.
4. Consulting Retainer, Fee and Expenses. The Bank shall pay Consultant a
retainer in the amount of Fifty Thousand and No/100 Dollars ($50,000.00) per
year for services rendered and obligations under this Agreement. Said retainer
shall be paid in substantially equal monthly installments on the first business
day of each month of the term of this Agreement. The Bank shall also pay
expenses reasonably incurred by Consultant in rendering such services.
Consultant shall submit monthly invoices for his expenses incurred in rendering
consulting services to the Bank, and the Bank shall pay such invoices within
thirty (30) days of receipt of the same.
5. Independent Contractor Status. The parties hereby acknowledge and agree
that Consultant's consulting services for the Bank shall be provided strictly as
an independent contractor. Nothing in this Agreement shall be construed to
render him an employee, co-venturer, agent, or other representative of the Bank.
Consultant understands that he must comply with all tax laws applicable to a
self-employed individual, including the filing of any necessary tax returns and
the payment of all income and self-employment taxes. The Bank shall not be
required to withhold from the consulting fee any state or federal income taxes
or to make payments for Social Security ("FICA") tax, unemployment insurance, or
any other payroll taxes. The Bank shall not be responsible for, and shall not
obtain, worker's compensation, disability benefits insurance, or unemployment
security insurance coverage for Consultant. Consultant is not eligible for, nor
entitled to, and shall not participate in, any of the Bank's pension, health, or
other benefit plans, if any such plans exist. Consistent with his duties and
obligations under this Agreement, Consultant shall, at all times, maintain sole
and exclusive control over the manner and method by which he performs his
consulting services.
6. Trade Secrets, Confidential Information, Bank Property and Competitive
Business Activities. Consultant acknowledges that by virtue of his position as a
consultant with the Bank, he (i) has or will have access to trade secrets and
Confidential Information (as defined in Section 6.1.5) of the Bank including
valuable information about its business operations and entities with whom it
does business in various locations, and (ii) has developed or will develop
relationships with parties with whom it does business in various locations.
Consultant also acknowledges that the Trade Secrets, Confidential Information
and Competitive Business Activities provisions set forth in this Agreement are
reasonably necessary to protect the Bank's legitimate business interests, are
reasonable as to the time, territory and scope of activities which are
restricted, do not interfere with public policy or public interest and are
described with sufficient accuracy and definiteness to enable him to understand
the scope of the restrictions imposed on him.
6.1. Trade Secrets and Confidential Information. Consultant
acknowledges that: (i) the Bank will disclose to him certain trade secrets and
Confidential Information; (ii) trade secrets and Confidential Information are
the sole and exclusive property of the Bank and the Bank owns all rights therein
under patent, copyright, trade secret, confidential information, or other
property right; and (iii) the disclosure of trade secrets and Confidential
Information to Consultant does not confer upon him any license, interest or
rights of any kind in or to the trade secrets or Confidential Information.
6.1.1. Consultant may use the trade secrets and Confidential
Information only in accordance with applicable Bank policies and procedures and
solely for the Bank's benefit while he is retained by the Bank. Except as
authorized in the performance of services for the Bank, Consultant will hold in
confidence and not directly or indirectly, in any form, by any means, or for any
purpose, disclose, reproduce, distribute, transmit, reverse engineer, decompile,
disassemble, or transfer trade secrets or Confidential Information or any
portion thereof. Upon the Bank's request, Consultant shall return to the Bank
all trade secrets and Confidential Information and all related materials in his
possession, custody or control.
6.1.2. If Consultant becomes subject to a court order or other
government process that could reasonably be expected to require him to disclose
trade secrets or Confidential Information or such disclosure is necessary to
comply with applicable law or defend against claims, he shall: (i) notify the
Bank promptly before any such disclosure is made; (ii) at the Bank's request and
expense cooperate reasonably with steps the Bank takes to defend against such
disclosure, including defending against the enforcement of the court order,
other government process or claims; and (iii) permit the Bank to participate
with counsel of its choice in any proceeding relating to any such court order,
other government process or claims.
6.1.3. Consultant's obligations with regard to trade secrets
shall remain in effect for as long as such information shall remain a trade
secret under applicable law.
6.1.4. Consultant's obligations with regard to Confidential
Information shall remain in effect while he is retained by the Bank and for
three (3) years thereafter.
6.1.5. As used in this Agreement, "Confidential Information"
means information other than trade secrets, that is of value to the Bank and is
treated by the Bank as confidential, including, but not limited to, such
information about the Bank's lending and deposit operations, regulatory
examinations, customer identities, future business plans, pricing, sales
manuals, training manuals, selling and pricing procedures, financing methods,
financial statements, techniques for designing, developing, manufacturing,
testing or marketing advertising campaigns, and information regarding executives
and employees; provided, however, Confidential Information shall not include
information which is in the public domain or becomes public knowledge through no
fault of Consultant.
6.2. Bank Property. Upon the termination of his retention as a
consultant, Consultant shall: (i) deliver to the Bank all records, memoranda,
data, documents and other property of any description which refer or relate in
any way to trade secrets or Confidential Information, including all copies
thereof, which are in his possession, custody or control; (ii) deliver to the
Bank all Bank property (including, but not limited to, keys, credit cards,
client files, contracts, proposals, work in process, manuals, forms, computer
stored work in process and other computer data, research materials, other items
of business information concerning any Bank customers, or business or business
methods, including all copies thereof) which is in his possession, custody or
control; (iii) cooperate reasonably with the Bank to bring all such records,
files and other materials up to date, wind up his work, and transfer that work
to other individuals designated by the Bank.
6.3. Competitive Business Activities. For a period of three (3)
years from the Closing, as defined in the Merger Agreement, regardless of
whether this Agreement may have been terminated earlier than the end of that
period, Consultant will not engage in the following activities:
(a) on his own or on another's behalf, whether as an officer,
director, stockholder, partner, associate, owner, employee, consultant or
otherwise, directly or indirectly compete with the Bank within the geographical
areas set forth in Section 6.3.1;
(b) within the geographical areas set forth in Section 6.3.1,
be retained, employed, or otherwise engaged, in (i) a management capacity, (ii)
other capacity providing the same or similar services which Consultant provided
to the Bank, or (iii) any capacity connected with competitive business
activities by any person or entity that engages in competition with the Bank,
provided, Consultant's services as an independent contractor providing appraisal
or appraisal review services for lending institutions shall not be prohibited by
this Agreement; or
(c) hire, offer employment to, or otherwise solicit for
employment any person who is employed by the Bank at any time during the three
(3) year period following the Closing, as defined in the Merger Agreement, or
who was employed by the Bank as of that date.
6.3.1. The restrictions set forth in Sections 6.3(a) and (b)
apply to Richmond County, North Carolina; any county of North or South Carolina
contiguous thereto; any other county in which the Bank maintains a business
office on the date of termination of this Agreement.
6.3.2. Notwithstanding the foregoing, Consultant's ownership,
directly or indirectly, of not more than one percent of the issued and
outstanding stock of any bank or company the shares of which are regularly
traded on a national securities exchange or in the over-the-counter market shall
not violate Section 5.3.
6.4. Remedies. Consultant acknowledges that his failure to abide by
the Trade Secrets, Confidential Information, Bank Property or Competitive
Business Activities provisions of this Agreement would cause irreparable harm to
the Bank for which legal remedies would be inadequate. Therefore, in addition to
any legal or other relief to which the Bank may be entitled by virtue of
Consultant's failure to abide by these provisions: (i) the Bank may seek legal
and equitable relief, including but not limited to preliminary and permanent
injunctive relief, for Consultant's actual or threatened failure to abide by
these provisions; and (ii) Consultant will indemnify the Bank for all expenses
including attorneys' fees in seeking to enforce these provisions.
6.5. Tolling. The period during which Consultant must refrain from
the activities set forth in Sections 6.1 and 6.3 shall be tolled during any
period in which he fails to abide by these provisions.
6.6. Other Agreements. Nothing in this Agreement shall terminate,
revoke or diminish Consultant's obligations to the Bank or the Bank's rights and
remedies under law or any agreements relating to trade secrets, confidential
information, non-competition and intellectual property which Consultant has
executed in the past or may execute in the future or contemporaneously with this
Agreement.
7. Severability. If a court of competent jurisdiction holds that any
provision or sub-part thereof contained in this Agreement is invalid, illegal or
unenforceable, that invalidity, illegality or unenforceability shall not affect
any other provision in this Agreement. Additionally, if any of the provisions,
clauses or phrases in the Trade Secrets, Confidential Information, Bank
Property, and Competitive Business Activities provisions set forth in this
Agreement are held unenforceable by a court of competent jurisdiction, then the
parties desire that such provisions, clauses, or phrases be "blue-penciled" or
rewritten by the court to the extent necessary to render them enforceable.
8. Termination. Consultant may terminate this Agreement upon thirty (30)
days' written notice to the Bank. The Bank may terminate this Agreement only if
Consultant (i) materially breaches this Agreement; such a breach would include,
but not be limited to, unreasonably refusing, failing to accept, or failing to
complete consulting assignments, provided that the Bank first has given
reasonable notice to Consultant and an opportunity to cure the breach; or (ii)
engages in dishonesty, fraud, felonious conduct or other conduct which is
materially injurious to the Bank. In the event of termination of this Agreement,
regardless of the reason for such termination, Consultant shall be entitled to
receive payment of the monthly retainer amount, prorated through the last date
he performs services, and reimbursement of any then outstanding expenses;
Consultant shall not be entitled to any other payments from the Bank upon
termination.
9. Entire Agreement. This Agreement and any applicable provisions of the
Merger Agreement: (i) supersede all other understandings and agreements, oral or
written, between the parties with respect to its subject matter; and (ii)
constitute the sole agreement between the parties with respect to its subject
matter. Each party acknowledges that with respect to the matters herein: (i) no
representations, inducements, promises or agreements, oral or written, have been
made by any party or by anyone acting on behalf of any party, which are not
embodied in this Agreement; and (ii) no agreement, statement or promise not
contained in this Agreement shall be valid. No change or modification of this
Agreement shall be valid or binding upon the parties unless such change or
modification is in writing and is signed by the parties.
10. Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of North Carolina.
[signature page follows]
IN WITNESS WHEREOF, the parties have entered into this Agreement this the
day of , 2008.
CONSULTANT:
----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
FOUR OAKS BANK & TRUST COMPANY:
By:
------------------------------------
Name:
-------------------------
Title:
-------------------------
EXHIBIT B
FORM OF FARRAH EMPLOYMENT AGREEMENT
[attached]
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is entered into as of
this day of , 2008 by and between FOUR OAKS BANK & TRUST COMPANY, a North
Carolina banking corporation (the "Bank"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III ("Employee").
W I T N E S S E T H
WHEREAS, the Bank, Longleaf Community Bank and Four Oaks Fincorp., Inc.
are parties to a Merger Agreement dated December 10, 2007 (the "Merger
Agreement");
WHEREAS, Employee has been an employee of Longleaf Community Bank pursuant
to an employment agreement dated August 4, 2003 (the "Longleaf Agreement");
WHEREAS, the termination of the Longleaf Agreement and Employee's and the
Bank's entry into this Agreement are conditions of the Merger Agreement; and
WHEREAS, Employee desires to become an employee of the Bank and the Bank
desires to employ Employee on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants contained in this Agreement, the Bank and Employee agree as follows:
1. Employment. Employee shall serve the Bank as head of the Bank's
Richmond County operations with such duties, responsibilities and authorities of
such office as may be assigned to him and as are customarily associated with
such office.
2. Termination of Prior Employment Agreement. Employee acknowledges that
the Longleaf Agreement has been terminated and that he has no further
obligations or entitlements and neither the Bank nor Longleaf Community Bank has
any obligations or entitlements under the Longleaf Agreement.
3. Term. The term of this Agreement shall be for the three year period
commencing on the date of Closing, as defined in the Merger Agreement, and
terminating three years thereafter, unless earlier terminated as set forth in
this Agreement.
4. Compensation and Benefits. In consideration of his services during the
term of this Agreement, Employee shall be paid compensation by and receive
benefits from the Bank as follows:
(a) Base Salary. Employee will receive an annual base salary of
Ninety-Seven Thousand Two Hundred and 00/100 Dollars ($97,200) payable in
monthly installments. Employee will be entitled to receive such increases in his
annual base salary as may be approved by the Board of Directors of the Bank,
with each such increase being included in his annual base salary for all
purposes.
(b) Benefits. Employee shall be entitled to receive and to
participate, subject to any eligibility requirements, in all benefits generally
made available to the Bank's officers and also those generally made available to
all salaried employees of the Bank including, but not limited to, any bonus
plans, stock options, insurance benefits, vacation, sick leave, and
reimbursement of expenses incurred on behalf of the Bank in the course of
performing duties under this Agreement. Employee's participation in any such
benefit plans or programs is subject to the applicable terms, conditions and
eligibility requirements of those plans and programs, some of which are in the
plan administrator's discretion, as they may exist from time to time.
Notwithstanding the foregoing, Employee shall be entitled to a minimum of four
(4) weeks of vacation each year.
(c) Family Health Insurance Coverage. During the term of this
Agreement, the Bank shall pay, or reimburse Employee for, the cost of family
coverage for Employee and his eligible dependents under the Bank's group health
insurance plan.
5. Termination and Compensation Upon Termination. This Agreement and
Employee's employment under this Agreement shall terminate:
(a) upon written notice from the Bank to Employee in the event of
Employee's physical or mental inability to perform the essential functions of
his duties for a period of six (6) months as determined by the Chief Executive
Officer of the Bank, the Board of Directors of the Bank, or a committee of the
Board in his or its reasonable discretion and in accordance with applicable law,
and subject to the vacation leave, disability leave, sick leave and any other
leave policies of the Bank.
(b) immediately for any of the following reasons which shall
constitute "Cause:"
(i) the willful and continued failure by Employee to perform
his duties with the Bank;
(ii) the willful engaging by Employee in gross misconduct
materially and demonstratively injurious to the Bank;
(iii) the conviction of Employee of any crime involving fraud
or dishonesty;
(c) upon thirty (30) days written notice from the Bank to Employee,
the Bank may terminate Employee's employment without Cause; or
(d) immediately upon Employee's death.
If Employee's employment is terminated pursuant to Section 5(a)
(disability), then Employee shall be entitled to receive an amount equal to his
then current monthly salary (less any applicable taxes and withholdings) for the
lesser of six (6) months or the then remaining term of this Agreement, payable
in a lump sum within thirty (30) days of the date of termination of employment.
If Employee's employment is terminated pursuant to Section 5(c) (without
Cause) prior to a change in Control, as defined herein, above, then Employee
shall be entitled to receive an amount (less any applicable taxes and
withholdings) equal to his then current monthly salary for twelve (12) months,
2
payable in substantially equal installments on the last business day of each
month. Additionally, for twelve (12) months following the termination of
Employee's employment pursuant to Section 5(c), the Bank shall reimburse
Employee for premiums he pays to continue health insurance coverage under the
Bank's health insurance plan pursuant to the Consolidated Omnibus Budget
Reconciliation Act ("COBRA"). All such reimbursements shall be paid as soon as
practicable following Employee's submission to the Bank of reasonable proof of
premium payments; provided, however, that all such claims for reimbursement
shall be submitted by Employee no later than fifteen (15) months following
termination of Employee's employment.
For purposes of Section 409A of the Internal Revenue Code of 1986, as
amended (the "Code") ("Section 409A"), as applicable, any installment payment
made hereunder shall be considered a separate payment. And, in the event that
the total amount of payments due Employee in the event of a termination pursuant
to Section 5(c) shall exceed the maximum amount permitted to be paid under a
separation pay plan exempt from regulation under Section 409A pursuant to
Treasury Regulations Section 1.409A-1(b)(9)(iii), then the entire amount in
excess of such maximum amount shall be paid to Employee no later than two and
one-half (2 1/2) months following the end of the calendar year in which
Employee's employment terminated.
6. Change in Control.
(a) Definition of Change in Control. For purposes of this Agreement,
a "Change in Control" means one or more of the following occurrences:
(i) A corporation, person or group acting in concert as
described in Section 14(d)(2) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), holds or acquires beneficial ownership within the meaning of
Rule 13d-3 promulgated under the Exchange Act of a number of shares of voting
capital stock of Four Oaks Fincorp, Inc., the holding company of the Bank
("FOF"), which constitutes more than thirty-three percent (33%) of FOF's then
outstanding shares entitled to vote.
(ii) The consummation of a merger, share exchange,
consolidation, or other reorganization involving FOF and any other corporation
or other entity as a result of which less than fifty percent (50%) of the
combined voting power of FOF or of the surviving or resulting corporation or
entity after such transaction is held in the aggregate by the holders of the
combined voting power of the outstanding securities of FOF immediately prior to
such transaction.
(iii) All or substantially all of the assets of the Bank or
FOF are sold, leased, or disposed of in one transaction or a series of related
transactions.
(b) Termination Following Change in Control.
(i) Employee shall be entitled to receive payments and
benefits pursuant to Section 6(c) if Employee's employment is terminated by the
Bank without Cause, as such term is defined in Section 5 hereof, within eighteen
(18) months following a Change in Control.
(ii) Employee shall be entitled to receive payments and
benefits pursuant to Section 6(c) if Employee terminates his employment with the
Bank for "Good Reason" within eighteen (18) months following a Change in Control
and after having given the Bank written notice of the existence of the condition
constituting "Good Reason" within ninety (90) days of its initial existence and
providing the Bank with a period of at least thirty (30) days to remedy the Good
Reason condition. For purposes of this Agreement, a condition constituting "Good
Reason" shall mean the occurrence after a Change in Control of any of the
following events or conditions without Employee's consent:
3
(x) a change in Employee's authority, duties or
responsibilities (including reporting responsibilities) which represents a
material adverse change from his authority, duties or responsibilities in effect
immediately prior thereto;
(y) a material reduction in Employee's then-current
base salary or the benefits being provided to Employee are reduced in their
level, scope or coverage, or any such benefits are eliminated without being
replaced with substantially similar plans or benefits, unless such reduction or
elimination applies proportionately to all salaried employees of the Bank who
participated in such plans or benefits prior to such Change in Control; or
(z) the Bank's requiring Employee to be based at any
place outside a thirty (30) mile radius from Employee's current principal place
of work, except for reasonably required travel on the Bank's business which is
not greater than such travel requirements prior to the Change in Control.
(c) Severance Pay and Benefits. If Employee's employment with the
Bank terminates under the circumstances described in Section 6(b) above,
Employee shall be entitled to receive all of the following in lieu of any
payments and benefits pursuant to Section 5:
(i) all accrued compensation through the termination date,
plus any bonus for which Employee otherwise would be eligible in the year of
termination, prorated through the termination date, and payable in a lump sum no
later than thirty (30) days following the date of termination of employment;
(ii) a severance payment equal to one and one-half (1 1/2)
times the amount of (i) Employee's then-current base salary, plus (ii)
Employee's most recent bonus (annualized if paid on less than an annual basis).
The severance amount shall be paid in eighteen (18) equal monthly installments
commencing one (1) month after the termination date and being paid on the last
business day of each applicable month. For purposes of Section 409A, as
applicable, each installment payment made hereunder shall be considered a
separate payment. And, in the event that the total amount of payments due
Employee under this Section 6 shall exceed the maximum amount permitted to be
paid under a separation pay plan exempt from regulation under Section 409A
pursuant to Treasury Regulations Section 1.409A-1(b)(9)(iii), then the entire
amount in excess of such maximum amount shall be paid to Employee no later than
two and one-half (2 1/2) months following the end of the calendar year in which
Employee's employment terminated.
(iii) For eighteen (18) months following the termination of
Employee's employment, the Bank shall reimburse Employee for premiums he pays to
continue health insurance coverage under the Bank's health insurance plan
pursuant to COBRA. All such reimbursements shall be paid as soon as practicable
following Employee's submission to the Bank of proof of timely premium payments;
provided, however, that all such claims for reimbursement shall be submitted by
Employee no later than twenty-one (21) months following termination of
Employee's employment.
4
(d) For purposes of this Paragraph 6, all references to the Bank
shall include any "Successor" (as defined below) to the Bank which shall have
assumed and become liable for the Bank's obligations hereunder (whether such
assumption is by agreement, operation of law or otherwise). "Successor" refers
to any Person or entity (corporate or otherwise) into which the Bank (or any
such Successor) shall be merged or consolidated or to which all or substantially
all the Bank's (or any such Successor's) assets shall be transferred in any
manner.
7. Trade Secrets, Confidential Information, Bank Property and Competitive
Business Activities. Employee acknowledges that by virtue of his position with
the Bank, he (i) has or will have access to trade secrets and Confidential
Information (as defined in Section 7.1.5) of the Bank including valuable
information about its business operations and entities with whom it does
business in various locations, and (ii) has developed or will develop
relationships with parties with whom it does business in various locations.
Employee also acknowledges that the Trade Secrets, Confidential Information and
Competitive Business Activities provisions set forth in this Agreement are
reasonably necessary to protect the Bank's legitimate business interests, are
reasonable as to the time, territory and scope of activities which are
restricted, do not interfere with public policy or public interest and are
described with sufficient accuracy and definiteness to enable him to understand
the scope of the restrictions imposed on him.
7.1. Trade Secrets and Confidential Information. Employee
acknowledges that: (i) the Bank will disclose to him certain trade secrets and
Confidential Information; (ii) trade secrets and Confidential Information are
the sole and exclusive property of the Bank and the Bank owns all rights therein
under patent, copyright, trade secret, confidential information, or other
property right; and (iii) the disclosure of trade secrets and Confidential
Information to Employee does not confer upon him any license, interest or rights
of any kind in or to the trade secrets or Confidential Information.
7.1.1. Employee may use the trade secrets and Confidential
Information only in accordance with applicable Bank policies and procedures and
solely for the Bank's benefit while he is retained by the Bank. Except as
authorized in the performance of services for the Bank, Employee will hold in
confidence and not directly or indirectly, in any form, by any means, or for any
purpose, disclose, reproduce, distribute, transmit, reverse engineer, decompile,
disassemble, or transfer trade secrets or Confidential Information or any
portion thereof. Upon the Bank's request, Employee shall return to the Bank all
trade secrets and Confidential Information and all related materials in his
possession, custody or control.
7.1.2. If Employee becomes subject to a court order or other
government process that could reasonably be expected to require him to disclose
trade secrets or Confidential Information or such disclosure is necessary to
comply with applicable law or defend against claims, he shall: (i) notify the
Bank promptly before any such disclosure is made; (ii) at the Bank's request and
expense cooperate reasonably with steps the Bank takes to defend against such
disclosure, including defending against the enforcement of the court order,
other government process or claims; and (iii) permit the Bank to participate
with counsel of its choice in any proceeding relating to any such court order,
other government process or claims.
7.1.3. Employee's obligations with regard to trade secrets
shall remain in effect for as long as such information shall remain a trade
secret under applicable law.
7.1.4. Employee's obligations with regard to Confidential
Information shall remain in effect while he is retained by the Bank and for
three (3) years thereafter.
5
7.1.5. As used in this Agreement, "Confidential Information"
means information other than trade secrets, that is of value to the Bank and is
treated by the Bank as confidential, including, but not limited to, such
information about the Bank's lending and deposit operations, regulatory
examinations, customer identities, future business plans, pricing, sales
manuals, training manuals, selling and pricing procedures, financing methods,
financial statements, techniques for designing, developing, manufacturing,
testing or marketing advertising campaigns, and information regarding executives
and employees; provided, however, Confidential Information shall not include
information which is in the public domain or becomes public knowledge through no
fault of Employee.
7.2. Bank Property. Upon the termination of his employment
hereunder, Employee shall: (i) deliver to the Bank all records, memoranda, data,
documents and other property of any description which refer or relate in any way
to trade secrets or Confidential Information, including all copies thereof,
which are in his possession, custody or control; (ii) deliver to the Bank all
Bank property (including, but not limited to, keys, credit cards, client files,
contracts, proposals, work in process, manuals, forms, computer stored work in
process and other computer data, research materials, other items of business
information concerning any Bank customers, or business or business methods,
including all copies thereof) which is in his possession, custody or control;
(iii) cooperate reasonably with the Bank to bring all such records, files and
other materials up to date, wind up his work, and transfer that work to other
individuals designated by the Bank.
7.3. Competitive Business Activities. During his employment
hereunder and for six (6) months following the termination of this employment,
regardless of the reason for such termination, Employee will not engage in the
following activities:
(a) on his own or on another's behalf, whether as an officer,
director, stockholder, partner, associate, owner, employee, consultant or
otherwise, directly or indirectly compete with the Bank within the geographical
areas set forth in Section 7.3.1;
(b) within the geographical areas set forth in Section 7.3.1,
be retained, employed, or otherwise engaged, in (i) a management capacity, (ii)
other capacity providing the same or similar services which Employee provided to
the Bank, or (iii) any capacity connected with competitive business activities
by any person or entity that engages in competition with the Bank; or
(c) hire, offer employment to, or otherwise solicit for
employment any person who is employed by the Bank at any time during the one (1)
year period prior to the termination of his employment.
10.3.1. The restrictions set forth in Sections 7.3(a) and (b)
apply to Richmond County, North Carolina; any county of North or South Carolina
contiguous thereto; any other county in which the Bank maintains a business
office on the date of termination of his employment hereunder.
10.3.2. Notwithstanding the foregoing, Employee's ownership,
directly or indirectly, of not more than one percent (1%) of the issued and
outstanding stock of any bank or company the shares of which are regularly
traded on a national securities exchange or in the over-the-counter market shall
not violate Section 7.3.
10.4. Remedies. Employee acknowledges that his failure to abide by
the Trade Secrets, Confidential Information, Bank Property or Competitive
Business Activities provisions of this Agreement would cause irreparable harm to
the Bank for which legal remedies would be inadequate. Therefore, in addition to
any legal or other relief to which the Bank may be entitled by virtue of
Employee's failure to abide by these provisions: (i) the Bank may seek legal and
equitable relief, including but not limited to preliminary and permanent
injunctive relief, for Employee's actual or threatened failure to abide by these
provisions; and (ii) Employee will indemnify the Bank for all expenses including
attorneys' fees in seeking to enforce these provisions.
6
10.5. Tolling. The period during which Employee must refrain from
the activities set forth in Sections 7.1 and 7.3 shall be tolled during any
period in which he fails to abide by these provisions.
10.6. Other Agreements. Nothing in this Agreement shall terminate,
revoke or diminish Employee's obligations or the Bank's rights and remedies
under law or any agreements relating to trade secrets, confidential information,
non-competition and intellectual property which Employee has executed in the
past or may execute in the future or contemporaneously with this Agreement.
8. Delayed Distribution to Key Employees. If the Bank reasonably
determines, in accordance with Sections 409A and 416(i) of the Code and the
regulations promulgated thereunder that Employee is a Key Employee of the Bank
on the date his employment with the Bank terminates and that a delay in
severance pay and benefits provided under this Agreement is necessary for
compliance with Section 409A(a)(2)(B)(i), then any severance payments and any
continuation of benefits or reimbursement of benefit costs provided under this
Agreement and not otherwise exempt from Section 409A shall be delayed for a
period of six (6) months (the "409A Delay Period"). In such event, any such
severance payments and the cost of any such continuation of benefits provided
under this Agreement that would otherwise be due and payable to Employee during
the 409A Delay Period shall be paid to Employee in a lump sum cash amount in the
month following the end of the 409A Delay Period. For purposes of this
Agreement, "Key Employee" shall mean an employee who, on an Identification Date
("Identification Date" shall mean each December 31) is a key employee as defined
in Section 416(i) of the Code without regard to paragraph (5) of that section.
If Employee is identified as a Key Employee on an Identification Date, then
Employee shall be considered a Key Employee for purposes of this Agreement
during the period beginning on the first April 1 following the Identification
Date and ending on the following March 31.
9. Non-Assignability. This Agreement shall not be assignable by Employee.
This Agreement shall not be assignable by the Bank without the prior written
consent of Employee except to a corporation which is the surviving entity in any
merger involving the Bank or to a corporation which acquires all or
substantially all of the stock or assets of the Bank.
10. Modification. This Agreement sets forth all the terms and conditions
of the employment agreement between the Employee and the Bank and can be
modified only by a writing signed by both parties. No waiver by either party to
this Agreement at any time of a breach of the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
11. Counterparts; Construction. This Agreement may be executed in several
identical counterparts, each of which when so executed shall be deemed an
original, but all such counterparts shall constitute one and the same
instrument. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of North Carolina.
7
12. Severability. If a court of competent jurisdiction holds that any
provision or sub-part thereof contained in this Agreement is invalid, illegal or
unenforceable, that invalidity, illegality or unenforceability shall not affect
any other provision in this Agreement. Additionally, if any of the provisions,
clauses or phrases in the Trade Secrets, Confidential Information, Bank
Property, and Competitive Business Activities provisions set forth in this
Agreement are held unenforceable by a court of competent jurisdiction, then the
parties desire that such provisions, clauses, or phrases be "blue-penciled" or
rewritten by the court to the extent necessary to render them enforceable.
13. Notice. All necessary notices, demands, and requests required or
permitted under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered in person or mailed by certified mail, postage
prepaid, address as follows:
If to Employee: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
▇▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
If to Bank: Four Oaks Bank & Trust Company
▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇
Post ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
or to such other address as shall be furnished by either party.
8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
FOUR OAKS BANK & TRUST COMPANY
By:
------------------------------------
Authorized Officer
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
9
EXHIBIT C
FORM OF VOTING AGREEMENT
[attached]
STOCK VOTING AGREEMENT
STOCK VOTING AGREEMENT, dated as of December 10, 2007 (the "Agreement"),
by and among the holders of capital stock of LONGLEAF COMMUNITY BANK, a North
Carolina bank (the "Company"), listed on Schedule A attached hereto (each, a
"Shareholder," and collectively, the "Shareholders"), FOUR OAKS FINCORP, INC., a
North Carolina corporation and a bank holding company registered with the Board
of Governors of the Federal Reserve System under the Bank Holding Company Act of
1956, as amended, and a North Carolina bank holding company (the "Parent"); and
FOUR OAKS BANK & TRUST COMPANY, a North Carolina bank and a state chartered
member of the Federal Reserve System (the "Buyer").
WHEREAS, concurrently herewith, the Parent, the Buyer, and the Company are
entering into a Merger Agreement of even date herewith (as amended from time to
time, the "Merger Agreement"), pursuant to which the Company will merge into the
Buyer, with the Buyer being the surviving corporation (the "Merger"); and
WHEREAS, each Shareholder owns as of the date hereof the number of shares
of capital stock of the Company, Five Dollars ($5.00) par value per share (the
"Company Shares"), listed next to such Shareholder's name on Schedule A attached
hereto (all such shares of Company Shares, together with any Company Shares
acquired after the date hereof and prior to the termination hereof, but
excluding any Company Shares sold by such Shareholder after the date hereof,
constituting such Shareholder's "Shares"); and
WHEREAS, the Buyer and the Parent have entered into the Merger Agreement
in reliance on and in consideration of, among other things, each Shareholder's
representations, warranties, covenants and agreements hereunder.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, and intending to be
legally bound hereby, the parties agree as follows:
1. VOTING. Each Shareholder hereby revokes any and all previous proxies
with respect to such Shareholder's Shares and irrevocably agrees to vote and
otherwise act (including pursuant to written consent), with respect to all of
such Shareholder's Shares, for the approval and the adoption of the Merger
Agreement and all transactions contemplated thereby, including without
limitation all agreements related to the Merger and any actions related thereto,
and against any proposal or transaction which could prevent or delay the
consummation of the transactions contemplated by this Agreement or the Merger
Agreement, at any meeting or meetings of the shareholders of the Company, and
any adjournment, postponement or continuation thereof, at which the Merger
Agreement and other related agreements (or any amended version or versions
thereof) or such other actions are submitted for the consideration and vote of
the shareholders of the Company. The foregoing shall remain in effect with
respect to such Shareholder's Shares until the termination of this Agreement.
Each Shareholder agrees to execute such additional documents as the Buyer and/or
the Parent may reasonably request to effectuate the foregoing.
2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each Shareholder
severally represents and warrants to the Buyer and the Parent as follows:
(a) Ownership of Shares. On the date hereof, such Shareholder's Shares
specified on Schedule A are the only shares of Company Shares owned by such
Shareholder. Such Shareholder currently has, good, valid and marketable title to
such Shareholder's Shares, free and clear of all restrictions, options,
warrants, rights to purchase and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable federal and state securities laws and other than pledges of the
Shareholder's Shares as collateral).
(b) Authority; Binding Agreement. Such Shareholder has the full legal
right, power and authority to enter into and perform all of such Shareholder's
obligations under this Agreement. The execution and delivery of this Agreement
by such Shareholder will not violate any other agreement to which such
Shareholder is a party, including, without limitation, any voting agreement,
shareholders' agreement or voting trust. This Agreement has been duly executed
and delivered by such Shareholder and constitutes a legal, valid and binding
agreement of such Shareholder, enforceable against such Shareholder in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect affecting the enforcement of creditors' rights
generally and except that the availability of specific performance, injunctive
relief and other equitable remedies is subject to the discretion of the court
before which any proceeding may be brought). Neither the execution and delivery
of this Agreement by such Shareholder nor the consummation by such Shareholder
of the transactions contemplated hereby nor the compliance by such Shareholder
with any of the provisions hereof will (i) violate, or require any consent,
approval or notice under any provision of any judgment, order, decree, statute,
law, rule or regulation applicable to such Shareholder or such Shareholder's
Shares or (ii) constitute a violation of, conflict with or constitute a default
under, any contract, commitment, agreement, understanding, arrangement or other
restriction of any kind to which such Shareholder is a party or by which such
Shareholder is bound.
(c) Reliance on Agreement. Such Shareholder understands and acknowledges
that the Buyer and the Parent are entering into the Merger Agreement in reliance
upon such Shareholder's execution, delivery and performance of this Agreement.
Such Shareholder acknowledges that the agreement set forth in Section 1 is
granted in consideration for the execution and delivery of the Merger Agreement
by the Buyer and the Parent.
3. DELIVERY OF AFFILIATE LETTER. Contemporaneously with the execution of
this Agreement, each Shareholder shall execute and deliver to the Buyer and the
Parent on the date hereof an Affiliate Letter substantially in the form attached
hereto as EXHIBIT A.
4. TERMINATION. This Agreement shall terminate on the earlier of (i) the
Effective Time or (ii) immediately upon the termination of the Merger Agreement
in accordance with its terms.
5. ACTION IN SHAREHOLDER CAPACITY ONLY. No Shareholder makes any agreement
or understanding herein as a director or officer of the Company; rather, each
Shareholder signs solely in such Shareholder's capacity as a record holder and
beneficial owner of such Shareholder's Shares, and nothing herein shall limit or
affect any actions taken in such Shareholder's capacity as an officer or
director of the Company, including without limitation any action taken in such
Shareholder's capacity as a director or executive officer of the Company
consistent with the provisions in Section 6.1(c) of the Merger Agreement.
6. MISCELLANEOUS.
(a) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered by hand or by facsimile
transmission, one (1) Business Day after sending by a reputable national
over-night courier service or three (3) Business Days after mailing when mailed
by registered or certified mail (return receipt requested), postage prepaid, to
the other party in the manner provided below:
2
If to the Buyer or the Parent:
Four Oaks Bank & Trust Company
▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇
Post ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Ayden ▇. ▇▇▇, ▇▇.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Smith, Anderson, Blount, Dorsett, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to a Shareholder:
to the address provided for such Shareholder on Schedule A
----------
(b) Entire Agreement. This Agreement, including the agreements and
documents that are Schedules and Exhibits hereto, embodies the entire agreement
and understanding of the parties with respect of the subject matter of this
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to the transactions contemplated hereby and
subject matter hereof.
(c) Amendments. This Agreement may be amended, modified or supplemented
only by written agreement of all parties hereto.
(d) Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any party hereto without the prior written consent of the other
parties.
(e) Governing Law. The execution, interpretation and performance of this
Agreement shall be governed by the internal laws and judicial decisions of the
State of North Carolina, without regard to principles of conflicts of laws.
(f) Injunctive Relief; Jurisdiction. Each Shareholder agrees that
irreparable damage would occur and that the Buyer would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the Buyer and/or the Parent shall be entitled to an
injunction or injunctions to prevent breaches by any Shareholder of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in any court of the United States located in the State of North Carolina or in
any North Carolina state court (collectively, the "Courts"), this being in
addition to any other remedy to which the Buyer and/or the Parent may be
entitled at law or in equity. In addition, each of the parties hereto (i)
irrevocably consents to the submission of such party to the personal
jurisdiction of the Courts in the event that any dispute arises out of this
Agreement or any of the transactions contemplated hereby, (ii) agrees that such
party will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any of the Courts and (iii) agrees that such party
will not bring any action relating to this Agreement or any of the transactions
contemplated hereby in any court other the Courts.
3
(g) Counterparts. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
4
[signature page to Stock Voting Agreement]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PARENT:
FOUR OAKS FINCORP, INC.
By:
-------------------------------------
Name:
Title:
BUYER:
FOUR OAKS BANK & TRUST COMPANY
By:
-------------------------------------
Name:
Title:
[signature page to Stock Voting Agreement]
SHAREHOLDERS
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
W. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ Investments, LLC
By:
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇:
Member/Manager
SCHEDULE A TO STOCK VOTING AGREEMENT
List of Shareholders
--------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 6,780 shares
W. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 11,749 shares
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 19,759 shares
▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 4,167 shares
▇▇▇▇▇ ▇. ▇▇▇▇ 3,500 shares
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III 3,190 shares
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ 2,200 shares
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III 10,690 shares
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 6,425 shares
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 4,211 shares
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 10,654 shares
▇▇▇▇ ▇▇▇▇ Investments 35,005 shares
EXHIBIT A TO STOCK VOTING AGREEMENT
Form of Affiliate Letter
------------------------
December 10, ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Trust Company
▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇
Post ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Affiliate's Agreement
Ladies and Gentlemen:
The undersigned is a shareholder of Longleaf Community Bank, a North
Carolina bank (the "Company"), and may become a shareholder of Four Oaks
Fincorp, Inc., a North Carolina corporation and a bank holding company
registered with the Board of Governors of the Federal Reserve System under the
Bank Holding Company Act of 1956, as amended, and a North Carolina bank holding
company (the "Parent"), pursuant to the transactions described in the Merger
Agreement, dated as of December 10, 2007, by and among the Parent, Four Oaks
Bank & Trust Company, a North Carolina bank and a state chartered member of the
Federal Reserve System (the "Buyer"), and the Company (the "Merger Agreement").
Under the terms of the Merger Agreement, the Company's outstanding common stock
(the "Company Shares") will be exchanged for shares of the Parent's common stock
("Parent's Stock") and/or cash consideration. This Affiliate's Agreement
represents an agreement between the undersigned and the Buyer and the Parent
regarding certain rights and obligations of the undersigned in connection with
(i) the Company Shares beneficially owned by the undersigned and (ii) the
Parent's Stock for which such Company Shares may be exchanged as a result of the
merger of the Company with and into the Buyer (the "Merger").
The execution and delivery of this Affiliate's Agreement by the
undersigned is a material inducement to the Buyer and the Parent to consummate
the Merger (as such term is defined in the Merger Agreement). In consideration
of the Merger and the mutual covenants contained herein, the undersigned and the
Parent hereby agree as follows:
1. AFFILIATE STATUS. The undersigned understands and agrees that as to the
Company the undersigned may be deemed an "affiliate" as that term is used in
Rule 145 of the rules and regulations of the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended (the "1933 Act").
2. COVENANTS AND WARRANTIES OF UNDERSIGNED. The undersigned represents,
warrants and agrees that:
(a) The Buyer and the Parent have informed the undersigned that the
issuance of shares of the Parent's Stock will be registered under the 1933 Act
on a Registration Statement on Form S-4, and that any distribution by the
undersigned of the Parent's Stock has not been registered under the 1933 Act,
and that the Parent's Stock received pursuant to the Merger can only be sold by
the undersigned (i) following registration under the 1933 Act, or (ii) in
conformity with the volume and other applicable requirements of Rules 144 or
145(d) promulgated by the SEC as the same now exist or may hereafter be amended,
or (iii) to the extent some other exemption from registration under the 1933 Act
might be available.
(b) The undersigned is aware that the Company, the Parent and the
Buyer intend to treat the Merger as a tax-free reorganization under Section 368
of the Internal Revenue Code, as amended (the "Code"), for federal income tax
purposes. The undersigned agrees to treat the transaction in the same manner as
the Company, the Parent and the Buyer for federal income tax purposes. The
undersigned acknowledges that Section 1.368-1(b) of the U.S. federal income tax
regulations requires "continuity of interest" in order for the Merger to be
treated as a tax-free reorganization under Section 368 of the Code. Continuity
of interest may not be preserved if stock of an acquired company is disposed of
before an acquisition to the acquired or acquiring company or to persons related
to either the acquired or acquiring companies for consideration other than stock
of the acquiring company, if a shareholder of the acquired company received
certain distributions from the acquired company with respect to such
shareholder's stock in connection with the acquisition, or if stock of the
acquiring company issued in the Merger is disposed of in connection with the
Merger to the acquiring company or to persons related to the acquiring company.
Accordingly, the undersigned declares that in connection with the Merger (i) the
undersigned has not and will not dispose of any of the stock of either the
Company, the Parent or the Buyer to either the Company, the Parent or the Buyer
(other than in exchange for the Merger Consideration), to a person related to
the Company (within the meaning of Section 1.368-1(e)(1)(i)(sixth sentence) of
the U.S. federal income tax regulations) or to a person related to the Buyer
(within the meaning of Section 1.368-1(e)(3) of such regulations), (ii) the
undersigned has not and will not receive any dividend or other distribution with
respect to the stock of the Company attributable directly or indirectly to funds
provided by the Parent or the Buyer, and (iii) the undersigned will not dispose
of any stock of the Parent or the Buyer received in the Merger to the Parent or
the Buyer or to a person related to the Parent or the Buyer within the meaning
of Section 1.368-1(e)(3) of the U.S. federal income tax regulations.
3. RESTRICTIONS ON TRANSFER. The undersigned understands and agrees that
stop transfer instructions with respect to the Parent's Stock received by the
undersigned pursuant to the Merger may be given to the Buyer's transfer agent
and that there may be placed on the certificates for such shares, or shares
issued in substitution thereof, a legend stating substantially as follows:
"The shares represented by this certificate may not be sold,
transferred or otherwise disposed of except or unless (1) covered by
an effective registration statement under the Securities Act of
1933, as amended, or an exemption therefrom, (2) in accordance with
(i) Rule 145(d) (in the case of shares issued to an individual who
is not an affiliate of the issuer) or (ii) Rule 144 (in the case of
shares issued to an individual who is an affiliate of the issuer) of
the Rules and Regulations of such Act, or (3) in accordance with a
legal opinion satisfactory to counsel for the issuer that such sale
or transfer is otherwise exempt from the registration requirements
of such Act. For avoidance of doubt, it is understood that a legal
opinion is neither required by law nor this legend, and it shall be
in the issuer's sole discretion whether or not to require that a
legal opinion be delivered to it prior to any such transfer or other
disposition."
Such legend would also be placed on any certificate representing the Parent's
Stock issued subsequent to the original issuance of the Parent's Stock pursuant
to the Merger as a result of any stock dividend, stock split, or other
recapitalization as long as the Parent's Stock issued to the undersigned
pursuant to the Merger has not been transferred in such manner to justify the
removal of the legend therefrom. If the provisions of Rules 144 and 145 are
amended to eliminate restrictions applicable to the Parent's Stock received by
the undersigned pursuant to the Merger, or, at the expiration of the restrictive
period set forth in Rule 145(d), the Parent, upon the request of the
undersigned, will cancel the stop transfer instructions described above and
cause the certificates representing the shares of Parent's Stock issued to the
undersigned in connection with the Merger to be reissued free of any legend
relating to the restrictions set forth in Rules 144 or 145(d) upon receipt by
the Parent of an opinion of its counsel to the effect that such instructions may
be canceled and such legend may be removed.
4. UNDERSTANDING OF RESTRICTIONS ON DISPOSITIONS. The undersigned has
carefully read the Merger Agreement and this Affiliate's Agreement and discussed
their requirements and impact upon the ability to sell, transfer, or otherwise
dispose of the shares of Parent's Stock received by the undersigned, to the
extent the undersigned believes necessary, with the undersigned's counsel.
2
5. TRANSFER UNDER RULE 145(D). If the undersigned desires to sell or
otherwise transfer the shares of Parent's Stock received by the undersigned in
connection with the Merger at any time during the restrictive period set forth
in Rule 145(d), the undersigned will provide the necessary representation letter
to the transfer agent for Parent's Stock, together with such additional
information as the transfer agent may reasonably request.
6. ACKNOWLEDGMENTS. The undersigned recognizes and agrees that the
foregoing provisions also may apply to (i) the undersigned's spouse, if that
spouse has the same home as the undersigned, (ii) any relative of the
undersigned who has the same home as the undersigned, (iii) any trust or estate
in which the undersigned, such spouse, and any such relative collectively own at
least a ten percent (10%) beneficial interest or of which any of the foregoing
serves as trustee, executor, or in any similar capacity, and (iv) any
corporation or other organization in which the undersigned, such spouse, and any
such relative collectively own at least ten percent (10%) of any class of equity
securities or of the equity interest. The undersigned further recognizes that,
under certain circumstances, any sale of Parent's Stock by the undersigned
within a period of less than six (6) months following the effective time of the
Merger may subject the undersigned to liability pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended.
7. INJUNCTIVE RELIEF. Each of the parties acknowledges that (i) the
covenants and the restrictions contained in this Affiliate's Agreement are
necessary, fundamental, and required for the protection of the Parent and to
preserve for the Parent the benefits of the Merger; (ii) such covenants relate
to matters which are of a special, unique, and extraordinary character that
gives each of such covenants a special, unique, and extraordinary value; and
(iii) a breach of any such covenants or any other provision of this Affiliate's
Agreement shall result in irreparable harm and damages to the Parent which
cannot be adequately compensated by a monetary award. Accordingly, it is
expressly agreed that in addition to all other remedies available at law or in
equity, the Parent shall be entitled to the immediate remedy of a temporary
restraining order, preliminary injunction, or such other form of injunctive or
equitable relief as may be used by any court of competent jurisdiction to
restrain or enjoin any of the parties hereto from breaching any such covenant or
provision or to specifically enforce the provisions hereof.
8. MISCELLANEOUS. This Affiliate's Agreement is the complete agreement
among the Parent and the undersigned concerning the subject matter hereof. Any
notice required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
Affiliate's Agreement shall be governed by the laws of the State of North
Carolina, without regard to principles of conflicts of laws.
This Affiliate's Agreement is executed as of the 10th day of December,
2007.
Very truly yours,
-------------------------------
Signature
AGREED TO AND ACCEPTED as of
_______________________________, 200_
3
FOUR OAKS FINCORP, INC.
By:
----------------------------------------
Name:
Title:
4
EXHIBIT D
FORM OF AFFILIATE LETTER
[attached]
December 10, ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Trust Company
▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇
Post ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Affiliate's Agreement
Ladies and Gentlemen:
The undersigned is a shareholder of Longleaf Community Bank, a North
Carolina bank (the "Company"), and may become a shareholder of Four Oaks
Fincorp, Inc., a North Carolina corporation and a bank holding company
registered with the Board of Governors of the Federal Reserve System under the
Bank Holding Company Act of 1956, as amended, and a North Carolina bank holding
company (the "Parent"), pursuant to the transactions described in the Merger
Agreement, dated as of December 10, 2007, by and among the Parent, Four Oaks
Bank & Trust Company, a North Carolina bank and a state chartered member of the
Federal Reserve System (the "Buyer"), and the Company (the "Merger Agreement").
Under the terms of the Merger Agreement, the Company's outstanding common stock
(the "Company Shares") will be exchanged for shares of the Parent's common stock
("Parent's Stock") and/or cash consideration. This Affiliate's Agreement
represents an agreement between the undersigned and the Buyer and the Parent
regarding certain rights and obligations of the undersigned in connection with
(i) the Company Shares beneficially owned by the undersigned and (ii) the
Parent's Stock for which such Company Shares may be exchanged as a result of the
merger of the Company with and into the Buyer (the "Merger").
The execution and delivery of this Affiliate's Agreement by the
undersigned is a material inducement to the Buyer and the Parent to consummate
the Merger (as such term is defined in the Merger Agreement). In consideration
of the Merger and the mutual covenants contained herein, the undersigned and the
Parent hereby agree as follows:
1. AFFILIATE STATUS. The undersigned understands and agrees that as to the
Company the undersigned may be deemed an "affiliate" as that term is used in
Rule 145 of the rules and regulations of the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended (the "1933 Act").
2. COVENANTS AND WARRANTIES OF UNDERSIGNED. The undersigned represents,
warrants and agrees that:
(a) The Buyer and the Parent have informed the undersigned that the
issuance of shares of the Parent's Stock will be registered under the 1933 Act
on a Registration Statement on Form S-4, and that any distribution by the
undersigned of the Parent's Stock has not been registered under the 1933 Act,
and that the Parent's Stock received pursuant to the Merger can only be sold by
the undersigned (i) following registration under the 1933 Act, or (ii) in
conformity with the volume and other applicable requirements of Rules 144 or
145(d) promulgated by the SEC as the same now exist or may hereafter be amended,
or (iii) to the extent some other exemption from registration under the 1933 Act
might be available.
6
(b) The undersigned is aware that the Company, the Parent and the
Buyer intend to treat the Merger as a tax-free reorganization under Section 368
of the Internal Revenue Code, as amended (the "Code"), for federal income tax
purposes. The undersigned agrees to treat the transaction in the same manner as
the Company, the Parent and the Buyer for federal income tax purposes. The
undersigned acknowledges that Section 1.368-1(b) of the U.S. federal income tax
regulations requires "continuity of interest" in order for the Merger to be
treated as a tax-free reorganization under Section 368 of the Code. Continuity
of interest may not be preserved if stock of an acquired company is disposed of
before an acquisition to the acquired or acquiring company or to persons related
to either the acquired or acquiring companies for consideration other than stock
of the acquiring company, if a shareholder of the acquired company received
certain distributions from the acquired company with respect to such
shareholder's stock in connection with the acquisition, or if stock of the
acquiring company issued in the Merger is disposed of in connection with the
Merger to the acquiring company or to persons related to the acquiring company.
Accordingly, the undersigned declares that in connection with the Merger (i) the
undersigned has not and will not dispose of any of the stock of either the
Company, the Parent or the Buyer to either the Company, the Parent or the Buyer
(other than in exchange for the Merger Consideration), to a person related to
the Company (within the meaning of Section 1.368-1(e)(1)(i)(sixth sentence) of
the U.S. federal income tax regulations) or to a person related to the Buyer
(within the meaning of Section 1.368-1(e)(3) of such regulations), (ii) the
undersigned has not and will not receive any dividend or other distribution with
respect to the stock of the Company attributable directly or indirectly to funds
provided by the Parent or the Buyer, and (iii) the undersigned will not dispose
of any stock of the Parent or the Buyer received in the Merger to the Parent or
the Buyer or to a person related to the Parent or the Buyer within the meaning
of Section 1.368-1(e)(3) of the U.S. federal income tax regulations.
3. RESTRICTIONS ON TRANSFER. The undersigned understands and agrees that
stop transfer instructions with respect to the Parent's Stock received by the
undersigned pursuant to the Merger may be given to the Buyer's transfer agent
and that there may be placed on the certificates for such shares, or shares
issued in substitution thereof, a legend stating substantially as follows:
"The shares represented by this certificate may not be sold,
transferred or otherwise disposed of except or unless (1) covered by
an effective registration statement under the Securities Act of
1933, as amended, or an exemption therefrom, (2) in accordance with
(i) Rule 145(d) (in the case of shares issued to an individual who
is not an affiliate of the issuer) or (ii) Rule 144 (in the case of
shares issued to an individual who is an affiliate of the issuer) of
the Rules and Regulations of such Act, or (3) in accordance with a
legal opinion satisfactory to counsel for the issuer that such sale
or transfer is otherwise exempt from the registration requirements
of such Act. For avoidance of doubt, it is understood that a legal
opinion is neither required by law nor this legend, and it shall be
in the issuer's sole discretion whether or not to require that a
legal opinion be delivered to it prior to any such transfer or other
disposition."
Such legend would also be placed on any certificate representing the Parent's
Stock issued subsequent to the original issuance of the Parent's Stock pursuant
to the Merger as a result of any stock dividend, stock split, or other
recapitalization as long as the Parent's Stock issued to the undersigned
pursuant to the Merger has not been transferred in such manner to justify the
removal of the legend therefrom. If the provisions of Rules 144 and 145 are
amended to eliminate restrictions applicable to the Parent's Stock received by
the undersigned pursuant to the Merger, or, at the expiration of the restrictive
period set forth in Rule 145(d), the Parent, upon the request of the
undersigned, will cancel the stop transfer instructions described above and
cause the certificates representing the shares of Parent's Stock issued to the
undersigned in connection with the Merger to be reissued free of any legend
relating to the restrictions set forth in Rules 144 or 145(d) upon receipt by
the Parent of an opinion of its counsel to the effect that such instructions may
be canceled and such legend may be removed.
4. UNDERSTANDING OF RESTRICTIONS ON DISPOSITIONS. The undersigned has
carefully read the Merger Agreement and this Affiliate's Agreement and discussed
their requirements and impact upon the ability to sell, transfer, or otherwise
dispose of the shares of Parent's Stock received by the undersigned, to the
extent the undersigned believes necessary, with the undersigned's counsel.
7
5. TRANSFER UNDER RULE 145(D). If the undersigned desires to sell or
otherwise transfer the shares of Parent's Stock received by the undersigned in
connection with the Merger at any time during the restrictive period set forth
in Rule 145(d), the undersigned will provide the necessary representation letter
to the transfer agent for Parent's Stock, together with such additional
information as the transfer agent may reasonably request.
6. ACKNOWLEDGMENTS. The undersigned recognizes and agrees that the
foregoing provisions also may apply to (i) the undersigned's spouse, if that
spouse has the same home as the undersigned, (ii) any relative of the
undersigned who has the same home as the undersigned, (iii) any trust or estate
in which the undersigned, such spouse, and any such relative collectively own at
least a ten percent (10%) beneficial interest or of which any of the foregoing
serves as trustee, executor, or in any similar capacity, and (iv) any
corporation or other organization in which the undersigned, such spouse, and any
such relative collectively own at least ten percent (10%) of any class of equity
securities or of the equity interest. The undersigned further recognizes that,
under certain circumstances, any sale of Parent's Stock by the undersigned
within a period of less than six (6) months following the effective time of the
Merger may subject the undersigned to liability pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended.
7. INJUNCTIVE RELIEF. Each of the parties acknowledges that (i) the
covenants and the restrictions contained in this Affiliate's Agreement are
necessary, fundamental, and required for the protection of the Parent and to
preserve for the Parent the benefits of the Merger; (ii) such covenants relate
to matters which are of a special, unique, and extraordinary character that
gives each of such covenants a special, unique, and extraordinary value; and
(iii) a breach of any such covenants or any other provision of this Affiliate's
Agreement shall result in irreparable harm and damages to the Parent which
cannot be adequately compensated by a monetary award. Accordingly, it is
expressly agreed that in addition to all other remedies available at law or in
equity, the Parent shall be entitled to the immediate remedy of a temporary
restraining order, preliminary injunction, or such other form of injunctive or
equitable relief as may be used by any court of competent jurisdiction to
restrain or enjoin any of the parties hereto from breaching any such covenant or
provision or to specifically enforce the provisions hereof.
8. MISCELLANEOUS. This Affiliate's Agreement is the complete agreement
among the Parent and the undersigned concerning the subject matter hereof. Any
notice required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
Affiliate's Agreement shall be governed by the laws of the State of North
Carolina, without regard to principles of conflicts of laws.
8
This Affiliate's Agreement is executed as of the 10th day of December,
2007.
Very truly yours,
-------------------------------
Signature
AGREED TO AND ACCEPTED as of
_______________________________, 200_
FOUR OAKS FINCORP, INC.
By:
----------------------------------------
Name:
Title:
9