iii
EXHIBIT NO. 2.1
AGREEMENT AND PLAN OF MERGER
By and Among
▇▇▇▇▇▇ FEDERAL HOLDINGS, MHC
▇▇▇▇▇▇ FEDERAL BANCORP, INC.
▇▇▇▇▇▇ MERGER SUBSIDIARY, INC.
▇▇▇▇▇▇ FEDERAL BANK
And
INNES STREET FINANCIAL CORPORATION
And
CITIZENS BANK, INC.
Dated as of July 16, 2001
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
Page
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Definitions......................................................2
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01 Effects of Merger; Surviving Corporation.........................7
Section 2.02 Conversion of Shares.............................................8
Section 2.03 Exchange Procedures..............................................9
Section 2.04 Stock Options...................................................10
Section 2.05 Restricted Stock................................................10
Section 2.06 Depositors......................................................10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INNES STREET AND CITIZENS BANK
Section 3.01 Organization....................................................11
Section 3.02 Capitalization..................................................12
Section 3.03 Authority; No Violation.........................................12
Section 3.04 Consents........................................................13
Section 3.05 Financial Statements............................................14
Section 3.06 Taxes...........................................................14
Section 3.07 No Material Adverse Effect......................................15
Section 3.08 Material Contracts; Leases; Defaults............................15
Section 3.09 Ownership of Property; Insurance Coverage.......................16
Section 3.10 Legal Proceedings...............................................17
Section 3.11 Compliance With Applicable Law..................................17
Section 3.12 Employee Benefit Plans..........................................18
Section 3.13 Brokers, Finders and Financial Advisors.........................21
Section 3.14 Environmental Matters...........................................21
Section 3.15 Loan Portfolio..................................................22
Section 3.16 Securities Documents............................................23
Section 3.17 Related Party Transactions......................................24
Section 3.18 Schedule of Termination Benefits................................24
Section 3.19 Deposits.........................................................24
Section 3.20 Antitakeover Provisions Inapplicable.............................24
Section 3.21 Registration Obligations.........................................24
Section 3.22 Risk Management Instruments......................................25
Section 3.23 Fairness Opinion.................................................25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇▇ FEDERAL
AND ▇▇▇▇▇▇ BANCORP
Section 4.01 Organization....................................................25
Section 4.02 Authority; No Violation.........................................26
Section 4.03 Consents........................................................27
Section 4.04 Financial Statements............................................28
Section 4.05 Compliance With Applicable Law..................................28
Section 4.06 Financing.......................................................29
Section 4.07 Regulatory Approvals............................................29
Section 4.08 Legal Proceedings...............................................29
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.01 Conduct of Innes Street's Business..............................29
Section 5.02 Access; Confidentiality.........................................33
Section 5.03 Regulatory Matters and Consents.................................34
Section 5.04 Taking of Necessary Action......................................35
Section 5.05 Certain Agreements..............................................36
Section 5.06 No Other Bids and Related Matters...............................37
Section 5.07 Duty to Advise; Duty to Update Innes Street's Disclosure
Schedules.....................................................38
Section 5.08 Conduct of ▇▇▇▇▇▇ Bancorp's Business............................38
Section 5.09 Board and Committee Minutes.....................................39
Section 5.10 Undertakings by Innes Street and ▇▇▇▇▇▇ Bancorp.................39
Section 5.11 Employee and Termination Benefits; Directors and Management.....42
Section 5.12 Duty to Advise; Duty to Update ▇▇▇▇▇▇ Bancorp's Disclosure
Schedules.....................................................44
Section 5.13 Bank and Related Merger Transactions............................44
ARTICLE VI
CONDITIONS
Section 6.01 Conditions to Innes Street's Obligations under this Agreement...45
Section 6.02 Conditions to ▇▇▇▇▇▇ Bancorp's Obligations under this Agreement.46
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
Section 7.01 Termination.....................................................47
Section 7.02 Effect of Termination...........................................48
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Expenses........................................................48
Section 8.02 Non-Survival of Representations and Warranties..................49
Section 8.03 Amendment, Extension and Waiver.................................49
Section 8.04 Entire Agreement................................................50
Section 8.05 No Assignment...................................................50
Section 8.06 Notices.........................................................50
Section 8.07 Captions........................................................51
Section 8.08 Counterparts....................................................51
Section 8.09 Severability....................................................51
Section 8.10 Governing Law...................................................51
Section 8.11 Specific Performance............................................51
Exhibits:
Exhibit A Form of Bank Merger Agreement
Exhibit B Form of Innes Street Voting Agreement
Exhibit C Form of Opinion of Counsel
47
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of July
16, 2001, is by and among ▇▇▇▇▇▇ Federal Holdings, MHC, a Federal mutual holding
company ("▇▇▇▇▇▇ MHC"), ▇▇▇▇▇▇ Federal Bancorp, Inc., a Federal corporation
("▇▇▇▇▇▇ Bancorp"), ▇▇▇▇▇▇ Merger Subsidiary, Inc., a wholly owned subsidiary of
▇▇▇▇▇▇ Bancorp incorporated under the laws of the State of North Carolina
("▇▇▇▇▇▇ Merger Subsidiary"), ▇▇▇▇▇▇ Federal Bank, a Federal savings bank
("▇▇▇▇▇▇ Federal"), and Innes Street Financial Corporation, a North Carolina
corporation ("Innes Street") and Citizens Bank, Inc. a North Carolina savings
bank ("Citizens Bank"). Each of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Merger Subsidiary, ▇▇▇▇▇▇
Federal, Innes Street and Citizens Bank is sometimes individually referred to
herein as a "party," and all of them are sometimes collectively referred to
herein as the "parties."
RECITALS
WHEREAS, ▇▇▇▇▇▇ MHC, a registered savings and loan holding company,
with principal offices in Gastonia, North Carolina, owns a majority of the
issued and outstanding capital stock of ▇▇▇▇▇▇ Bancorp, with principal offices
in Gastonia, North Carolina.
WHEREAS, ▇▇▇▇▇▇ Bancorp, a registered savings and loan holding company,
with principal offices in Gastonia, North Carolina, owns all of the issued and
outstanding capital stock of ▇▇▇▇▇▇ Federal, with principal offices in Gastonia,
North Carolina.
WHEREAS, Innes Street, a registered bank holding company, with
principal offices in Salisbury, North Carolina, owns all of the issued and
outstanding capital stock of Citizens Bank, with principal offices in Salisbury,
North Carolina.
WHEREAS, the Board of Directors of Innes Street deems it advisable and
in the best interests of Innes Street shareholders and the Board of Directors of
▇▇▇▇▇▇ Bancorp deems it advisable and in the best interests of ▇▇▇▇▇▇ Bancorp
shareholders to consummate the business combination transaction contemplated
herein in which: (i) ▇▇▇▇▇▇ Merger Subsidiary, subject to the terms and
conditions set forth herein, shall be merged with and into Innes Street, with
Innes Street surviving the merger (the "Merger"), (ii) to be followed by the
merger or liquidation of Innes Street with and into ▇▇▇▇▇▇ Bancorp, with ▇▇▇▇▇▇
Bancorp as the surviving entity (the "Company Merger"), with the result that
Citizens Bank shall be a wholly-owned subsidiary of ▇▇▇▇▇▇ Bancorp, and (iii)
Citizens Bank shall be merged with and into ▇▇▇▇▇▇ Federal, with ▇▇▇▇▇▇ Federal
being the surviving corporation (the "Bank Merger") (the Merger, Company Merger
and the Bank Merger are sometimes collectively referred to as the "Mergers");
and
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
Merger, and the other transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Definitions. Except as otherwise provided herein, as used
in this Agreement, the following terms shall have the indicated meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Affiliate" means, with respect to any Person, any Person who
directly, or indirectly, through one or more intermediaries, controls,
or is controlled by, or is under common control with, such Person and,
without limiting the generality of the foregoing, includes any
executive officer or director of such Person and any Affiliate of such
executive officer or director.
"Agreement" means this agreement, and any amendment or
supplement hereto, which constitutes a "plan of merger" between ▇▇▇▇▇▇
Bancorp, ▇▇▇▇▇▇ Merger Subsidiary and Innes Street.
"Applications" means the applications for all Regulatory
Approvals that are required by the transactions contemplated hereby.
"Banking Commission" means the North Carolina Office of the
Commissioner of Banks.
"Bank Merger" means the merger of Citizens Bank with and into
▇▇▇▇▇▇ Federal, with ▇▇▇▇▇▇ Federal as the surviving institution.
"Business Day" means any day other than a Saturday, Sunday or
Federal holiday.
"Closing Date" means the Business Day determined by ▇▇▇▇▇▇
Bancorp, in its sole discretion, upon five (5) days prior written
notice to Innes Street, but in no event later than fifteen (15)
Business Days after the last condition precedent (other than the
delivery of certificates or other instruments and documents to be
delivered at closing) pursuant to this Agreement has been fulfilled or
waived (including the expiration of any applicable waiting period), or
such other date as to which ▇▇▇▇▇▇ Bancorp and Innes Street shall
mutually agree.
"Closing Expense Statement" has the meaning given to that term
in Section 5.10(c) of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commissioner" means the Commissioner of Banks, of the State
of North Carolina.
"Company Merger" means the merger or liquidation of Innes
Street, as a wholly owned subsidiary of ▇▇▇▇▇▇ Bancorp, with and into
▇▇▇▇▇▇ Bancorp, with ▇▇▇▇▇▇ Bancorp being the surviving corporation.
"Compensation and Benefit Plans" has the meaning given to that
term in Section 3.12 of this Agreement.
"Dissenters' Shares" means shares of Innes Street Common Stock
that have not been voted in favor of approval of the Merger and with
respect to which dissenters' rights have been perfected in accordance
with the NCBCA.
"DOL" means the U.S. Department of Labor.
"Environmental Law" means any federal, state, or local
statute, regulation, or ordinance for the protection of human health,
natural resources, or the environment, including without limitation (a)
the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, 42 U.S.C.ss.ss.9601 et seq.; (b) the Hazardous Materials
Transportation Act, 49 U.S.C.ss.1801 et seq.; (c) the Clean Water Act,
33 U.S.C.ss.ss.1251 et seq.; (d) the Resource Conservation and
Recovery Act, 42 U.S.C.ss.ss.6901 et seq.; (e) the Toxic Substances
Control Act 15 U.S.C.ss.ss.2601 et seq.; (f) the Insecticide,
Fungicide, and Rodenticide Act, 7 U.S.C.ss.ss.136 et seq.; (g) the
Clean Air Act, 42 U.S.C.ss.ss.7401 et seq.; (h) Subtitle I of the
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C.ss.ss.6991 et
seq.; (i) the North Carolina Oil Pollution and Hazardous Substances
Control Act, N.C.G.S. ss.ss.143-215.75 et seq.; (j) any regulations
promulgated under or pursuant to (a) through (i); (k) any amendments
now existing or hereafter enacted to 9a) through (j); and (l) any
statutes subsequently enacted and regulations subsequently adopted that
address, govern, or affect the subjects regulated by (a) through (j).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated from time to time
thereunder.
"Exchange Agent" means Registrar and Transfer Company, the
transfer agent for ▇▇▇▇▇▇ Bancorp, or such other entity selected by
▇▇▇▇▇▇ Bancorp and agreed to by Innes Street.
"FDIA" means the Federal Deposit Insurance Act, as amended.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHLB" means a Federal Home Loan Bank.
"FRB" means the Board of Governors of the Federal Reserve
System.
"GAAP" means generally accepted accounting principles as in
effect at the relevant date and consistently applied.
"▇▇▇▇▇▇ Bancorp Disclosure Schedules" means the Disclosure
Schedules delivered by ▇▇▇▇▇▇ Bancorp to Innes Street pursuant to
Article IV of this Agreement.
"▇▇▇▇▇▇ Bancorp Financials" means (i) the audited consolidated
financial statements of ▇▇▇▇▇▇ Bancorp as of September 30 2000 and 1999
and for the three years ended September 30, 2000, including the notes
thereto and (ii) the unaudited interim consolidated financial
statements of ▇▇▇▇▇▇ Bancorp as of each calendar quarter thereafter.
"▇▇▇▇▇▇ Bancorp Regulatory Reports" means the Thrift Financial
Reports of ▇▇▇▇▇▇ Federal and accompanying schedules, as filed with the
OTS, for each calendar quarter beginning with the quarter ended June
30, 2000, through the Closing Date, and all Annual, Quarterly and
Current Reports filed on Form H-(b)11 with the OTS by ▇▇▇▇▇▇ Bancorp
from June 30, 2000 through the Closing Date.
"▇▇▇▇▇▇ Bancorp Subsidiary" means any corporation, 50% or more
of the capital stock of which is owned, either directly or indirectly,
by ▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal, except any corporation the stock
of which is held as security by ▇▇▇▇▇▇ Federal in the ordinary course
of its lending activities.
"Hazardous Material" means any chemical, element, compound,
substance, byproduct, or waste of any nature or composition that is
defined as hazardous or toxic by, or is regulated or restricted under,
any Environmental Laws. However, for the purpose of this Agreement the
following are considered "Hazardous materials" whether or not
specifically defined as hazardous or toxic by the Environmental Laws:
petroleum distillates, asbestos containing material, polychlorinated
biphenyls, concentrations of radon in excess of background conditions,
and any source deemed a high-level radioactive waste.
"HOLA" means the Home Owners' Loan Act, as amended.
"Innes Street Common Stock" means the common stock of Innes
Street described in Section 3.02(a).
"Innes Street Disclosure Schedules" means the Disclosure
Schedules delivered by Innes Street to ▇▇▇▇▇▇ Bancorp pursuant to
Article III of this Agreement.
"Innes Street Financials" means (i) the audited consolidated
financial statements of Innes Street as of September 30, 2000 and 1999
and for the three years ended September 30, 2000, including the notes
thereto, and (ii) the unaudited interim consolidated financial
statements of Innes Street as of each calendar quarter thereafter
included in Securities Documents filed by Innes Street.
"Innes Street Option" means issued and outstanding options
granted by Innes Street to purchase shares of Innes Street Common Stock
pursuant to the Innes Street Stock Option Plan.
"Innes Street Regulatory Reports" means the Thrift Financial
Reports and FDIC Call Reports of Citizens Bank and accompanying
schedules, as filed with the OTS and FDIC, for each appropriate
calendar quarter beginning with the quarter ended September 30, 2000,
through the Closing Date, and all Annual, Quarterly and Current Reports
filed with the OTS and/or the FRB, as appropriate, by Innes Street from
September 30, 2000 through the Closing Date.
"Innes Street Restricted Stock Plan" means the Citizens Bank,
Inc. Management Recognition Plan and Trust.
"Innes Street Stock Option Plan" means the Innes Street
Financial Corporation Stock Option Plan.
"IRS" means the Internal Revenue Service.
"Knowledge" as used with respect to a Person (including
references to such Person being aware of a particular matter) means
those facts that are known, or should have been known, by the senior
officers and directors of such Person, and includes any facts, matters
or circumstances set forth in any written notice from any Regulatory
Authority or any other material written notice received by that Person.
"Loan Property" shall have the meaning given to such term in
Section 3.14(b) of this Agreement.
"Material Adverse Effect" shall mean, with respect to a
Person, any adverse effect on its assets, financial condition or
results of operations which is material to its assets, financial
condition or results of operations on a consolidated basis, except for
any such effect caused by (i) any change in the value of such Person's
assets resulting from a change in interest rates generally, (ii) any
change or combination of changes occurring after the date hereof in any
federal or state law, rule or regulation or in GAAP, which change(s) or
affect(s) financial institutions generally, (iii) compliance with this
Agreement, or (iv) expenses incurred in connection with this Agreement
and the transactions contemplated thereby.
"Merger" means the merger of ▇▇▇▇▇▇ Merger Subsidiary with and
into Innes Street, with Innes Street as the surviving corporation.
"Merger Effective Date" means that date upon which the
articles of merger as to the Merger are accepted for filing by the
Office of the North Carolina Secretary of State, or such other date as
otherwise stated in such filed articles of merger, in accordance with
the NCBCA.
"Merger Consideration" has the meaning given to that term in
Section 2.02(a)(i) of this Agreement.
"NCBCA" means the North Carolina Business Corporation Act, as
from time to time amended, and any successor thereto.
"OTS" means the Office of Thrift Supervision.
"Participation Facility" shall have the meaning given to such
term in Section 3.14(b) of this Agreement.
"Pension Plan" has the meaning given to that term in Section
3.12 of this Agreement.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, trust or "group"
(as that term is defined in Section 13(d)(3) of the Exchange Act).
"Proxy Statement" means the proxy statement, together with any
supplements thereto, to be transmitted to holders of Innes Street
Common Stock in connection with the transactions contemplated by this
Agreement.
"Regulatory Agreement" has the meaning given to that term in
Section 3.11(c) of this Agreement.
"Regulatory Approvals" means all consents, waivers, approvals,
nonobjections and clearances required to be obtained from or issued by
the OTS, the FRB, the FDIC, the Banking Commission, the Commissioner,
the SEC or the respective staffs thereof in order to complete the
transactions contemplated hereby.
"Regulatory Authority" means any agency or department of any
federal, state or local government, including without limitation the
OTS, the FRB, the FDIC, the Banking Commission, the Commissioner, the
SEC or the respective staffs thereof.
"Rights" means warrants, options, rights, convertible
securities and other capital stock equivalents that obligate an entity
to issue its securities or to make payments of cash in lieu of issuing
such securities or in respect to such securities.
"SAIF" means the Savings Association Insurance Fund of the
FDIC.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated from time to time thereunder.
"Securities Documents" means all registration statements,
schedules, statements, forms, reports, proxy material, and other
documents required to be filed under the Securities Laws.
"Securities Laws" means the Securities Act and the Exchange
Act.
"Subsidiary" means any corporation, 50% or more of the capital
stock of which is owned, either directly or indirectly, by another
entity, except any corporation the stock of which is held as security
by either ▇▇▇▇▇▇ Federal or Citizens Bank, as the case may be, in the
ordinary course of its lending activities.
"Surviving Corporation" has the meaning given to that term in
Section 2.01(a)(i) of this Agreement.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Effects of Merger; Surviving Corporation.
(a) As of the Merger Effective Date, the following shall occur:
(i) ▇▇▇▇▇▇ Merger Subsidiary shall merge with and into Innes
Street; the separate existence of ▇▇▇▇▇▇ Merger Subsidiary shall cease; Innes
Street shall be the surviving corporation in the Merger (the "Surviving
Corporation") and a wholly owned subsidiary of ▇▇▇▇▇▇ Bancorp; and all of the
property (real, personal and mixed), rights, powers and duties and obligations
of ▇▇▇▇▇▇ Merger Subsidiary shall be taken and deemed to be transferred to and
vested in Innes Street, as the Surviving Corporation in the Merger, without
further act or deed; all in accordance with the NCBCA.
(ii) the Articles of Incorporation of the Surviving
Corporation shall be amended and restated to read in their entirety as the
Articles of Incorporation of ▇▇▇▇▇▇ Merger Subsidiary, in effect immediately
prior to the Merger Effective Date; and the Bylaws of the Surviving Corporation
shall be amended and restated to read in their entirety as the Bylaws of ▇▇▇▇▇▇
Merger Subsidiary, in effect immediately prior to the Merger Effective Date,
until thereafter altered, amended or repealed in accordance with applicable law.
(iii) the directors of ▇▇▇▇▇▇ Merger Subsidiary duly elected
and holding office immediately prior to the Merger Effective Date shall be the
directors of the Surviving Corporation, each to hold office until his or her
successor is elected and qualified or otherwise in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation.
(iv) the officers of ▇▇▇▇▇▇ Merger Subsidiary duly elected and
holding office immediately prior to the Merger Effective Date shall be the
officers of the Surviving Corporation, each to hold office until his or her
successor is elected and qualified or otherwise in accordance with the Articles
of Incorporation and the Bylaws of the Surviving Corporation.
(b) Notwithstanding any provision of this Agreement to the contrary,
▇▇▇▇▇▇ Bancorp may elect, subject to the filing of all Applications and the
receipt of all Regulatory Approvals, to modify the structure of the transactions
contemplated hereby, and the parties shall enter into such alternative
transactions, so long as (i) there are no adverse tax consequences to any of the
shareholders of Innes Street as a result of such modification, (ii) the Merger
Consideration is not thereby changed in kind or reduced in amount because of
such modification, and (iii) such modification will not be likely to delay or
jeopardize receipt of any Regulatory Approvals or of the tax opinion required
under Sections 6.02(h).
Section 2.02. Conversion of Shares. At the Merger Effective Date, by
virtue of the Merger and without any action on the part of Innes Street or the
holders of shares of Innes Street Common Stock:
(i) Each outstanding share of Innes Street Common Stock issued and
outstanding at the Merger Effective Date, except as provided in clauses (ii) and
(iii) of this Section, shall cease to be outstanding, and shall be converted
into the right to receive $18.50 in cash (the "Merger Consideration").
(ii) Any shares of Innes Street Common Stock which are owned or held by
any party hereto or any of their respective Subsidiaries (other than in a
fiduciary capacity or in connection with debts previously contracted) at the
Merger Effective Date shall be deemed cancelled and the certificates for such
shares shall be deemed retired, such shares shall not be converted into the
Merger Consideration, and no cash or shares of capital stock of ▇▇▇▇▇▇ Bancorp
shall be issued or exchanged therefor.
(iii) The Surviving Corporation shall pay for any Dissenters' Shares in
accordance with the NCBCA, and the holders thereof shall not be entitled to
receive any Merger Consideration; provided, that if dissenters' rights under the
NCBCA with respect to any Dissenters' Shares shall have been effectively
withdrawn or lost, such shares will thereupon cease to be treated as Dissenters'
Shares and shall be converted into the right to receive the Merger Consideration
pursuant to Section 2.02(i).
(iv) Each share of ▇▇▇▇▇▇ Merger Subsidiary common stock issued and
outstanding immediately before the Merger Effective Date shall be converted into
and become an outstanding share of common stock of the Surviving Corporation.
(v) The holders of certificates representing shares of Innes Street Common Stock
(any such certificate being hereinafter referred to as a "Certificate") shall
cease to have any rights as shareholders of Innes Street, except such rights, if
any, as they may have pursuant to applicable law and this Agreement.
Section 2.03. Exchange Procedures.
(a) As promptly as practicable after the Merger Effective Date, and in
any event within five (5) Business Days thereafter, the Exchange Agent shall
mail to each holder of record of outstanding shares of Innes Street Common Stock
a letter of transmittal in form and substance reasonably acceptable to Innes
Street ("Letter of Transmittal") containing instructions for the surrender of
the Certificate(s) held by such holder for payment therefore. Upon a holder's
surrender of the Certificate(s) to the Exchange Agent in accordance with the
instructions set forth in the Letter of Transmittal, such holder shall promptly
receive in exchange therefor the Merger Consideration, without interest thereon.
Approval of this Agreement by the shareholders of Innes Street shall constitute
authorization for ▇▇▇▇▇▇ Bancorp to designate and appoint the Exchange Agent.
Neither ▇▇▇▇▇▇ Bancorp nor the Exchange Agent shall be obligated to deliver the
Merger Consideration to a former shareholder of Innes Street until such former
shareholder surrenders his Certificate(s).
(b) If payment of the Merger Consideration is to be made to a Person
other than the Person in whose name a Certificate surrendered in exchange
therefore is registered, it shall be a condition of payment that the Certificate
so surrendered shall be properly endorsed (or accompanied by an appropriate
instrument of transfer) and otherwise in proper form for transfer, and that the
Person requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a Person other than the registered holder of the
Certificate surrendered, or required for any other reason, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(c) On or prior to the day following the Merger Effective Date, ▇▇▇▇▇▇
Bancorp and/or ▇▇▇▇▇▇ Federal shall deposit or cause to be deposited, in trust
with the Exchange Agent, an amount of cash equal to the aggregate Merger
Consideration that the Innes Street shareholders shall be entitled to receive on
the Merger Effective Date pursuant to Section 2.02 hereof.
(d) The payment of the Merger Consideration upon the exchange of Innes
Street Common Stock in accordance with the terms and conditions hereof shall
constitute full satisfaction of all rights pertaining to such Innes Street
Common Stock.
(e) Promptly following the date which is twelve (12) months after the
Merger Effective Date, the Exchange Agent shall deliver to ▇▇▇▇▇▇ Bancorp all
cash, Certificates and other documents in its possession relating to the
transactions described in this Agreement, and the Exchange Agent's duties shall
terminate. Thereafter, each holder of a Certificate formerly representing shares
of Innes Street Common Stock may surrender such Certificate to ▇▇▇▇▇▇ Bancorp
and (subject to applicable abandoned property, escheat and similar laws) receive
in consideration therefore the Merger Consideration multiplied by the number of
shares of Innes Street Common Stock formerly represented by such Certificate,
without any interest or dividends thereon.
(f) As of the close of business on the Merger Effective Date, there
shall be no transfers on the stock transfer books of Innes Street of the shares
of Innes Street Common Stock which are outstanding immediately prior to the
Merger Effective Date, and the stock transfer books of Innes Street shall be
closed with respect to such shares. If, after the Merger Effective Date,
Certificates representing such shares are presented for transfer to the Exchange
Agent, they shall be canceled and exchanged for the Merger Consideration as
provided in this Article II.
(g) In the event any Certificate for Innes Street Common Stock shall
have been lost, stolen or destroyed, the Exchange Agent shall deliver (except as
otherwise provided in Section 2.02(iii)) in exchange for such lost, stolen or
destroyed certificate, upon the making of an affidavit of the fact by the holder
thereof, the cash to be paid in the Merger as provided for herein; provided,
however, that ▇▇▇▇▇▇ Bancorp may, in its sole discretion and as a condition
precedent to the delivery thereof, require the owner of such lost, stolen or
destroyed Certificate to deliver a bond in such reasonable sum as ▇▇▇▇▇▇ Bancorp
may determine as indemnity against any claim that may be made against Innes
Street, ▇▇▇▇▇▇ Bancorp or any other party with respect to the Certificate
alleged to have been lost, stolen or destroyed.
Section 2.04. Stock Options. At the Merger Effective Date, each Innes
Street Option, whether or not such option is exercisable as of the Merger
Effective Date, shall, by reason of the Merger, cease to be outstanding and be
converted into the right to receive in cash an amount equal to (i) the
difference (if a positive number) between (A) the Merger Consideration and (B)
the exercise price of each such Innes Street Option multiplied by (ii) the
number of shares of Innes Street Common Stock subject to the Innes Street
Option.
Section 2.05. Restricted Stock. At the Merger Effective Date, each
unvested share of restricted stock awarded pursuant to the Innes Street
Restricted Stock Plan shall automatically vest and the holder thereof shall be
entitled to receive the Merger Consideration.
Section 2.06. Depositors. As a result of the Bank Merger, each holder
of a deposit account at Citizens Bank shall become a holder of a deposit account
at ▇▇▇▇▇▇ Federal with the same rights, privileges and obligations as a member
of ▇▇▇▇▇▇ MHC as a holder of a deposit account at ▇▇▇▇▇▇ Federal at the
effective time of the Bank Merger. In any mutual-to-stock conversion of ▇▇▇▇▇▇
MHC, to the extent permitted by Regulatory Authorities, all deposit accounts
established at Citizens Bank prior to the effective time of the Bank Merger
shall be deemed to have been established at ▇▇▇▇▇▇ Federal on the date that they
were established at Citizens Bank.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INNES STREET AND CITIZENS BANK
Innes Street and Citizens Bank represent and warrant to ▇▇▇▇▇▇ Bancorp
and ▇▇▇▇▇▇ Federal that the statements contained in this Article III are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article III), except
as set forth in the Innes Street Disclosure Schedules delivered by Innes Street
to ▇▇▇▇▇▇ Bancorp on the date hereof, and except as to any representation or
warranty which specifically relates to an earlier date. Innes Street and
Citizens Bank have made a good faith effort to ensure that the disclosure on
each schedule of the Innes Street Disclosure Schedules corresponds to the
section reference herein. However, for purposes of the Innes Street Disclosure
Schedules, any item disclosed on any schedule therein is deemed to be fully
disclosed with respect to all schedules under which such item may be relevant.
Section 3.01 Organization.
(a) Innes Street is a corporation duly organized, validly existing and
in good standing under the NCBCA, and is duly registered as a bank holding
company under the Bank Holding Company Act of ▇▇▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇ has full
corporate power and authority to carry on its business as now conducted and is
duly licensed or qualified to do business in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or the conduct
of its business requires such qualification, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Innes Street.
(b) Citizens Bank is a savings bank organized, validly existing and in
good standing under the laws of the State of North Carolina. Citizens Bank is
the only Subsidiary of Innes Street. The deposits of Citizens Bank are insured
by the FDIC through the SAIF to the fullest extent permitted by law, and all
premiums and assessments required to be paid in connection therewith have been
paid by Citizens Bank when due. Citizens Bank has no Subsidiary.
(c) Citizens Bank is a member in good standing of the FHLB of Atlanta
and owns the requisite amount of stock therein.
(d) The respective minute books of Innes Street and Citizens Bank
accurately records, in all material respects, all material corporate actions of
their respective shareholders and boards of directors (including committees)
through the date of this Agreement.
(e) Prior to the date of this Agreement, Innes Street has made
available to ▇▇▇▇▇▇ Bancorp true and correct copies of the articles or
certificate of incorporation and bylaws of Innes Street and Citizens Bank.
Section 3.02 Capitalization.
(a) The authorized capital stock of Innes Street consists of 20,000,000
shares of common stock, no par value ("Innes Street Common Stock"), of which
1,974,325 shares are outstanding, validly issued, fully paid and nonassessable
and free of preemptive rights, and 5,000,000 shares of preferred stock, no par
value ("Innes Street Preferred Stock"), none of which are outstanding. There are
no shares of Innes Street Common Stock held by Innes Street as treasury stock.
Neither Innes Street nor Citizens Bank has or is bound by any Rights or other
agreements of any character relating to the purchase, sale or issuance or voting
of, or right to receive dividends or other distributions on any shares of Innes
Street Common Stock, or any other security of Innes Street or any securities
representing the right to vote, purchase or otherwise receive any shares of
Innes Street Common Stock or any other security of Innes Street, other than
shares issuable under the Innes Street Stock Option Plan. Innes Street
DISCLOSURE SCHEDULE 3.02(a) sets forth the name of each holder of awards under
the Innes Street Restricted Stock Plan and Innes Street Stock Options under the
Innes Street Stock Option Plan, the number of shares each such individual may
acquire pursuant to the exercise of Innes Street Stock Options, the number of
shares of restricted stock held by each such individual under the Innes Street
Restricted Stock Plan, the vesting dates, and the exercise price relating to the
Innes Street Stock Options.
(b) Innes Street owns all of the capital stock of Citizens Bank, free
and clear of any lien or encumbrance. Except for Citizens Bank, Innes Street
does not possess, directly or indirectly, any material equity interest in any
corporate entity, except for equity interests held in the investment portfolios
of Citizens Bank, equity interests held by Citizens Bank in a fiduciary
capacity, and equity interests held in connection with the lending activities of
Citizens Bank, including stock in the FHLB of Atlanta.
(c) To Innes Street's Knowledge, no Person, is the beneficial owner (as
defined in Section 13(d) of the Exchange Act) of 5% or more of the outstanding
shares of Innes Street Common Stock.
Section 3.03 Authority; No Violation.
(a) Innes Street and Citizens Bank each has full corporate power and
authority to execute and deliver this Agreement and, subject to a favorable vote
of the Innes Street shareholders and receipt of all Regulatory Approvals, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Innes Street and Citizens Bank and the completion by Innes
Street and Citizens Bank of the transactions contemplated hereby, up to and
including the Merger, have been duly and validly approved by the Boards of
Directors of Innes Street and Citizens Bank, and, except for approval of the
shareholders of Innes Street, no other corporate proceedings on the part of
Innes Street or Citizens Bank are necessary to complete the transactions
contemplated hereby, up to and including the Merger. This Agreement has been
duly and validly executed and delivered by Innes Street and Citizens Bank, and
the Bank Merger has been duly and validly approved by the Board of Directors of
Citizens Bank, and by Innes Street in its capacity as sole shareholder of
Citizens Bank, and subject to approval by the shareholders of Innes Street and
receipt of the Regulatory Approvals, constitutes the valid and binding
obligations of Innes Street and Citizens Bank, enforceable against Innes Street
and Citizens Bank in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally,
and as to Citizens Bank, the conservatorship or receivership provisions of the
FDIA, and subject, as to enforceability, to general principles of equity.
(b) (A) The execution and delivery of this Agreement by Innes Street
and Citizens Bank, (B) subject to receipt of all Regulatory Approvals, and the
compliance by Innes Street and ▇▇▇▇▇▇ Bancorp with any conditions contained
therein, and subject to the receipt of the approval of shareholders of Innes
Street, the consummation of the transactions contemplated hereby, and (C)
compliance by Innes Street and Citizens Bank with all of the terms or provisions
hereof will not (i) conflict with or result in a breach of any provision of the
articles of incorporation or bylaws of Innes Street or the charter and bylaws of
Citizens Bank; (ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Innes Street or
Citizens Bank or any of their respective properties or assets; or (iii) violate,
conflict with, result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration or the creation
of any lien, security interest, charge or other encumbrance upon any of the
properties or assets of Innes Street or Citizens Bank under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other investment or obligation to which Innes
Street or Citizens Bank is a party, or by which they or any of their respective
properties or assets may be bound or affected, except for such violations,
conflicts, breaches or defaults under clause (ii) or (iii) hereof which, either
individually or in the aggregate, will not have a Material Adverse Effect on
Innes Street and Citizens Bank taken as a whole.
Section 3.04 Consents. Except for the receipt of the Regulatory
Approvals and compliance with any conditions contained therein, the approval of
this Agreement by the shareholders of Innes Street, the filing of articles of
merger with the Office of the North Carolina Secretary of State pursuant to the
NCBCA, and the filing of articles of combination with the OTS, no consents or
approvals of, or filings or registrations with, any public body or authority are
necessary, and no consents or approvals of any Persons are necessary, or will
be, in connection with (a) the execution and delivery of this Agreement by Innes
Street and Citizens Bank, and (b) the completion by Innes Street and Citizens
Bank of the transactions contemplated hereby. Innes Street and Citizens Bank
have no reason to believe that (i) any Regulatory Approvals will not be received
or that (ii) any public body or authority, the consent or approval of which is
not required or to which a filing is not required, will object to the completion
of the transactions contemplated by this Agreement.
Section 3.05 Financial Statements.
(a) Innes Street has previously made available to ▇▇▇▇▇▇ Bancorp the
Innes Street Regulatory Reports. The Innes Street Regulatory Reports have been
prepared in all material respects in accordance with applicable regulatory
accounting principles and practices throughout the periods covered by such
statements, and fairly present in all material respects, the consolidated
financial position, results of operations and changes in shareholders' equity of
Innes Street as of and for the periods ended on the dates thereof, in accordance
with applicable regulatory accounting principles applied on a consistent basis.
(b) Innes Street has previously made available to ▇▇▇▇▇▇ Bancorp the
Innes Street Financials. The Innes Street Financials have been prepared in
accordance with GAAP, and (including the related notes where applicable) fairly
present in each case in all material respects (subject in the case of the
unaudited interim statements to normal year-end adjustments), the consolidated
financial position, results of operations and cash flows of Innes Street and
Citizens Bank on a consolidated basis as of and for the respective periods
ending on the dates thereof, in accordance with GAAP applied on a consistent
basis during the periods involved, except as indicated in the notes thereto, or
in the case of unaudited statements, as permitted by Form 10-Q.
(c) At the date of each balance sheet included in the Innes Street
Financials or the Innes Street Regulatory Reports, Innes Street did not have any
liabilities, obligations or loss contingencies of any nature (whether absolute,
accrued, contingent or otherwise) of a type required to be reflected in such
Innes Street Financials or Innes Street Regulatory Reports or in the footnotes
thereto which are not fully reflected or reserved against therein or fully
disclosed in a footnote thereto, except for liabilities, obligations and loss
contingencies which are not material individually or in the aggregate or which
are incurred in the ordinary course of business, consistent with past practice,
and except for liabilities, obligations and loss contingencies which are within
the subject matter of a specific representation and warranty herein and subject,
in the case of any unaudited statements, to normal, recurring audit adjustments
and the absence of footnotes.
Section 3.06 Taxes. Innes Street and Citizens Bank are members of the
same affiliated group within the meaning of Code Section 1504(a). Innes Street
has duly filed all federal, state and material local tax returns required to be
filed by or with respect to Innes Street and Citizens Bank on or prior to the
Merger Effective Date (all such returns being accurate and correct in all
material respects) and has duly paid or made provisions for the payment of all
material federal, state and local taxes which have been incurred by or are due
or claimed to be due from Innes Street and Citizens Bank by any taxing authority
or pursuant to any written tax sharing agreement on or prior to the Closing Date
other than taxes or other charges which (i) are not delinquent, (ii) are being
contested in good faith, or (iii) have not yet been fully determined. As of the
date of this Agreement, there is no audit examination, deficiency assessment,
tax investigation or refund litigation with respect to any taxes of Innes Street
or any of its Subsidiaries, and no claim has been made by any authority in a
jurisdiction where Innes Street or any of its Subsidiaries do not file tax
returns that Innes Street or any such Subsidiary is subject to taxation in that
jurisdiction. Innes Street and its Subsidiaries have not executed an extension
or waiver of any statute of limitations on the assessment or collection of any
material tax due that is currently in effect. Innes Street and each of its
Subsidiaries has withheld and paid all taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, shareholder or other third party, and Innes Street and
each of its Subsidiaries has timely complied with all applicable information
reporting requirements under Part III, Subchapter A of Chapter 61 of the Code
and similar applicable state and local information reporting requirements.
Section 3.07. No Material Adverse Effect. Innes Street has not suffered
any Material Adverse Effect since September 30, 2000.
Section 3.08. Material Contracts; Leases; Defaults.
(a) Except for this Agreement, and those agreements and other documents
filed as exhibits to Innes Street's Securities Documents, neither Innes Street
nor Citizens Bank is a party to, bound by or subject to (i) agreement, contract,
arrangement, commitment or understanding (whether written or oral) that is a
"material contract" within the meaning of Item 601(b)(10) of the SEC's
Regulation S-K (ii) any collective bargaining agreement with any labor union
relating to employees of Innes Street or Citizens Bank; (iii) any agreement
which by its terms limits the payment of dividends by Innes Street or Citizens
Bank; (iv) any instrument evidencing or related to material indebtedness for
borrowed money whether directly or indirectly, by way of purchase money
obligation, conditional sale, lease purchase, guaranty or otherwise, in respect
of which Innes Street or Citizens Bank is an obligor to any Person, which
instrument evidences or relates to indebtedness other than deposits, repurchase
agreements, FHLB of Atlanta advances, bankers' acceptances, "treasury tax and
loan" accounts established in the ordinary course of business and transactions
in "federal funds" or which contains financial covenants or other restrictions
(other than those relating to the payment of principal and interest when due)
which would be applicable on or after the Merger Effective Date to ▇▇▇▇▇▇
Bancorp or any ▇▇▇▇▇▇ Bancorp Subsidiary; (v) any contract (other than this
Agreement) limiting the freedom, in any material respect, of Innes Street or
Citizens Bank to engage in any type of banking or bank-related business which
Innes Street or Citizens Bank is permitted to engage in under applicable law as
of the date of this Agreement or (vi) any agreement, contract, arrangement,
commitment or understanding (whether written or oral) that restricts or limits
in any material way the conduct of business by Innes Street or Citizens Bank (it
being understood that any non-compete or similar provision shall be deemed
material).
(b) Each real estate lease that may require the consent of the lessor
or its agent resulting from the Company Merger or the Bank Merger by virtue of a
prohibition or restriction relating to assignment, by operation of law or
otherwise, or change in control, is listed in Innes Street DISCLOSURE SCHEDULE
3.08(b) identifying the section of the lease that contains such prohibition or
restriction. Neither Innes Street nor Citizens Bank is in default in any
material respect under any material contract, agreement, commitment,
arrangement, lease, insurance policy or other instrument to which it is a party,
by which its assets, business, or operations may be bound or affected, or under
which it or its assets, business, or operations receive benefits, and there has
not occurred any event that, with the lapse of time or the giving of notice or
both, would constitute such a default.
(c) True and correct copies of agreements, plans, contracts,
arrangements and instruments referred to in Section 3.08(a) and (b), have been
made available to ▇▇▇▇▇▇ Bancorp on or before the date hereof, are listed on
Innes Street DISCLOSURE SCHEDULE 3.08(a) and are in full force and effect on the
date hereof and neither Innes Street nor Citizens Bank (nor, to the Knowledge of
Innes Street, any other party to any such contract, plan, arrangement or
instrument) has materially breached any provision of, or is in default in any
respect under any term of, any such contract, plan, arrangement or instrument.
No party to any material contract, plan, arrangement or instrument will have the
right to terminate any or all of the provisions of any such contract, plan,
arrangement or instrument as a result of the execution of, and the transactions
contemplated by, this Agreement, or require the payment of an early termination
fee or penalty. No plan, contract, or similar agreement or arrangement to which
Innes Street or Citizens Bank is a party or under which Innes Street or Citizens
Bank may be liable contains provisions which permit an independent contractor to
terminate it without cause and continue to accrue future benefits thereunder.
Section 3.09. Ownership of Property; Insurance Coverage.
(a) Innes Street and the Citizens Bank each has good and, as to real
property, marketable title to all material assets and properties owned by Innes
Street or Citizens Bank in the conduct of their business, whether such assets
and properties are real or personal, tangible or intangible, including assets
and property reflected in the balance sheets contained in the Innes Street
Regulatory Reports and in the Innes Street Financials or acquired subsequent
thereto (except to the extent that such assets and properties have been disposed
of in the ordinary course of business, since the date of such balance sheets),
subject to no material liens, mortgages, security interests or pledges, or to
the knowledge of Innes Street, encumbrances, except (i) those items which secure
liabilities for public or statutory obligations or any discount with, borrowing
from or other obligations to FHLB of Atlanta, inter-bank credit facilities, or
any transaction by Citizens Bank acting in a fiduciary capacity, and (ii)
statutory liens for amounts not yet delinquent or which are being contested in
good faith. Innes Street and Citizens Bank, as lessee, have the right under
valid and subsisting leases of real and personal properties used by Innes Street
and Citizens Bank in the conduct of their business to occupy or use all such
properties as presently occupied and used by each of them. Such existing leases
and commitments to lease constitute or will constitute operating leases for both
tax and financial accounting purposes and the lease expense and minimum rental
commitments with respect to such leases and lease commitments are as disclosed
in the notes to the Innes Street Financials.
(b) With respect to all material agreements pursuant to which Innes
Street or Citizens Bank has purchased securities subject to an agreement to
resell, if any, Innes Street or Citizens Bank has a lien or security interest
(which to Innes Street's Knowledge is a valid, perfected first lien) in the
securities or other collateral securing the repurchase agreement, and the value
of such collateral equals or exceeds the amount of the debt secured thereby.
(c) Innes Street and Citizens Bank each currently maintains insurance
considered by Innes Street to be reasonable for their respective operations.
Innes Street has not received notice from any insurance carrier that (i) such
insurance will be canceled or that coverage thereunder will be reduced or
eliminated, or (ii) premium costs with respect to such policies of insurance
will be substantially increased. There are presently no material claims pending
under such policies of insurance and no notices have been given by Innes Street
under such policies. All such insurance is valid and enforceable and in full
force and effect, and within the last three (3) years Innes Street has received
each type of insurance coverage for which it has applied and during such periods
has not been denied indemnification for any material claims submitted under any
of its insurance policies. Innes Street DISCLOSURE SCHEDULE 3.09 identifies all
policies of insurance maintained by Innes Street and Citizens Bank.
Section 3.10. Legal Proceedings. Neither Innes Street nor Citizens Bank
is a party to any, and there are no pending or, to Innes Street's Knowledge,
threatened legal, administrative, arbitration or other proceedings, claims
(whether asserted or unasserted), actions or governmental investigations or
inquiries of any nature (i) against Innes Street or Citizens Bank (other than
routine bank regulatory examinations), (ii) to which Innes Street or Citizens
Bank's assets are or may be subject, (iii) challenging the validity or propriety
of any of the transactions contemplated by this Agreement, or (iv) which could
adversely affect the ability of Innes Street or Citizens Bank to perform under
this Agreement, except for any proceedings, claims, actions, investigations or
inquiries referred to in clauses (i) or (ii) which, if adversely determined,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on Innes Street and Citizens Bank, taken as a whole.
Section 3.11 Compliance With Applicable Law.
(a) Since January 1, ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ and Citizens Bank each was, and
is, in substantial compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable to it, its properties, assets and deposits, its business, and
its conduct of business and its relationship with its employees, including,
without limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act of 1977, the Home Mortgage Disclosure Act and all
other applicable fair lending laws and other laws relating to discriminatory
business practices.
(b) Innes Street and Citizens Bank each has all material permits,
licenses, authorizations, orders and approvals of, and has made all filings,
applications and registrations with, all Regulatory Authorities that are
required in order to permit it to own or lease its properties and to conduct its
business as presently conducted; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect and, to the
Knowledge of Innes Street, no suspension or cancellation of any such permit,
license, certificate, order or approval is threatened or will result from the
consummation of the transactions contemplated by this Agreement.
(c) Neither Innes Street nor Citizens Bank has received any
notification or communication from any Regulatory Authority (i) asserting that
Innes Street or Citizens Bank is not in material compliance with any of the
statutes, regulations or ordinances that such Regulatory Authority enforces;
(ii) threatening to revoke any license, franchise, permit or governmental
authorization that is material to Innes Street or Citizens Bank; (iii) requiring
or threatening to require Innes Street or Citizens Bank, or indicating that
Innes Street or Citizens Bank may be required, to enter into a cease and desist
order, agreement or memorandum of understanding or any other agreement with any
federal or state governmental agency or authority that is charged with the
supervision or regulation of banks or engages in the insurance of bank deposits
restricting or limiting, or purporting to restrict or limit, in any material
respect the operations of Innes Street or Citizens Bank, including without
limitation any restriction on the payment of dividends; or (iv) directing,
restricting or limiting, or purporting to direct, restrict or limit, in any
manner the operations of Innes Street or Citizens Bank, including without
limitation any restriction on the payment of dividends (any such notice,
communication, memorandum, agreement or order described in this sentence is
hereinafter referred to as a "Regulatory Agreement"). Neither Innes Street nor
Citizens Bank has consented to or entered into any currently effective
Regulatory Agreement. The most recent regulatory rating given to Citizens Bank
as to compliance with the Community Reinvestment Act ("CRA") is satisfactory or
better.
Section 3.12 Employee Benefit Plans.
(a) Innes Street DISCLOSURE SCHEDULE 3.12 includes a list of all
existing bonus, incentive, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, stock appreciation, phantom stock,
severance, welfare and fringe benefit plans, employment, severance and change in
control agreements and all other benefit practices, policies and arrangements
maintained by Innes Street or Citizens Bank in which any employee or former
employee, consultant or former consultant or director or former director of
Innes Street or Citizens Bank participates or to which any such employee,
consultant or director is a party or is otherwise entitled to receive benefits
other than plans and programs involving immaterial obligations (the
"Compensation and Benefit Plans"). Neither Innes Street nor Citizens Bank has
any commitment to create any additional Compensation and Benefit Plan or to
modify, change or renew any existing Compensation and Benefit Plan, except as
required to maintain the qualified status thereof. Innes Street has made
available to ▇▇▇▇▇▇ Bancorp true and correct copies of the Compensation and
Benefit Plans.
(b) Each Compensation and Benefit Plan has been operated and
administered in all material respects in accordance with its terms and with
applicable law, including, but not limited to, ERISA, the Code, the Securities
Act, the Exchange Act, the Age Discrimination in Employment Act, and any
regulations or rules promulgated thereunder, and all material filings,
disclosures and notices required by ERISA, the Code, the Securities Act, the
Exchange Act, the Age Discrimination in Employment Act and any other applicable
law have been timely made. Each Compensation and Benefit Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA (a
"Pension Plan") and which is intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the IRS, or uses a
regional prototype document that has received a favorable determination letter,
and Innes Street is not aware of any circumstances which are reasonably likely
to result in revocation of any such favorable determination letter. There is no
material pending or, to the Knowledge of Innes Street, threatened action, suit
or claim relating to any of the Compensation and Benefit Plans (other than
routine claims for benefits). Neither Innes Street nor Citizens Bank has engaged
in a transaction, or omitted to take any action, with respect to any
Compensation and Benefit Plan that would reasonably be expected to subject Innes
Street or Citizens Bank to a tax or penalty imposed by either Section 4975 of
the Code or Section 502 of ERISA, assuming for purposes of Section 4975 of the
Code that the taxable period of any such transaction expired as of the date
hereof and subsequently expires as of the day next preceding the Merger
Effective Date.
(c) Neither Innes Street, Citizens Bank nor any entity which is
considered one employer with Innes Street under Section 4001(a)(14) of ERISA or
Section 414(b) or (c) of the Code (an "ERISA Affiliate") is a sponsor of or
maintains a defined benefit Pension Plan or any Compensation and Benefit Plan
subject to Title IV of ERISA, or has any liability under any such plan that was
previously sponsored or maintained by it. No notice of a "reportable event",
within the meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any
Compensation and Benefit Plan or by any single employer plan of an ERISA
Affiliate (an "ERISA Affiliate Plan") within the twelve (12) months ending on
the date hereof. To the Knowledge of Innes Street, there is no pending
investigation or enforcement action by any Regulatory Authority with respect to
any Compensation and Benefit Plan or any ERISA Affiliate Plan.
(d) All material contributions required to be made under the terms of
any Compensation and Benefit Plan or ERISA Affiliate Plan or any employee
benefit arrangements to which Innes Street or Citizens Bank is a party or a
sponsor have been timely made, and all anticipated contributions and funding
obligations are accrued monthly on Innes Street's consolidated financial
statements. Innes Street and its Subsidiaries have expensed and accrued as a
liability the present value of future benefits under each applicable
Compensation and Benefit Plan in accordance with GAAP consistently applied.
Neither any Pension Plan nor any ERISA Affiliate Plan has an "accumulated
funding deficiency" (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA. None of Innes Street, Citizens Bank nor any
ERISA Affiliate (x) has provided, or would reasonably be expected to be required
to provide, security to any Pension Plan or to any ERISA Affiliate Plan pursuant
to Section 401(a)(29) of the Code, or (y) has taken any action, or omitted to
take any action, that has resulted, or would reasonably be expected to result,
in the imposition of a Lien under Section 412(n) of the Code or pursuant to
ERISA.
(e) Neither Innes Street nor Citizens Bank has any obligations to
provide retiree health, life insurance, disability insurance, or other retiree
death benefits under any Compensation and Benefit Plan, other than benefits
mandated by Section 4980B of the Code. There has been no communication to
employees by Innes Street or Citizens Bank that would reasonably be expected to
promise or guarantee such employees retiree health, life insurance, disability
insurance, or other retiree death benefits.
(f) Innes Street and Citizens Bank do not maintain any Compensation and
Benefit Plans covering employees who are not United States residents.
(g) With respect to each Compensation and Benefit Plan, if applicable,
Innes Street has provided or made available to ▇▇▇▇▇▇ Bancorp copies of the: (A)
trust instruments and insurance contracts; (B) most recent Form 5500 filed with
the IRS; (C) most recent actuarial report and financial statement; (D) the most
recent summary plan description; (E) most recent determination letter issued by
the IRS; (F) any Form 5310 or Form 5330 filed with the IRS; and (G) most recent
nondiscrimination tests performed under ERISA and the Code (including 401(k) and
401(m) tests).
(h) The consummation of the Merger will not, directly or indirectly
(including, without limitation, as a result of any termination of employment or
service at any time prior to or following the Merger Effective Date) (A) entitle
any employee, consultant or director to any payment or benefit (including
severance pay, change in control benefit, or similar compensation) or any
increase in compensation, (B) result in the vesting or acceleration of any
benefits under any Compensation and Benefit Plan or (C) result in any material
increase in benefits payable under any Compensation and Benefit Plan.
(i) Neither Innes Street nor Citizens Bank maintains any compensation
plans, programs or arrangements under which any payment is reasonably likely to
become non-deductible, in whole or in part, for tax reporting purposes as a
result of the limitations under Section 162(m) of the Code and the regulations
issued thereunder.
(j) The consummation of the Merger will not, directly or indirectly
(including without limitation, as a result of any termination of employment or
service at any time prior to or following the Merger Effective Date), entitle
any current or former employee, director or independent contractor of Innes
Street or Citizens Bank to any actual or deemed payment (or benefit) which would
constitute a "parachute payment" (as such term is defined in Section 280G of the
Code).
(k) There are no stock appreciation or similar rights, earned dividends
or dividend equivalents, or shares of restricted stock, outstanding under any of
the Compensation and Benefit Plan or otherwise as of the date hereof and none
will be granted, awarded, or credited after the date hereof.
Section 3.13 Brokers, Finders and Financial Advisors. Except for the
engagement of Trident Securities, a division of McDonald Investments, Inc.
("Trident") in connection with the transactions contemplated by this agreement,
neither Innes Street nor Citizens Bank, nor any of their respective officers,
directors, employees or agents, has employed any broker, finder or financial
advisor in connection with the transactions contemplated by this Agreement, or
incurred any liability or commitment for any fees or commissions to any such
Person in connection with the transactions contemplated by this Agreement, which
has not been reflected in the Innes Street Financials.
Section 3.14. Environmental Matters.
(a) With respect to Innes Street and Citizens Bank:
(i) Each of Innes Street and Citizens Bank, the Participation
Facilities, and, to Innes Street's Knowledge, the Loan Properties are, and have
been, in substantial compliance with, and are not liable under, any
Environmental Laws;
(ii) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or, to
Innes Street's Knowledge, threatened, before any court, governmental agency or
board or other forum against it or Citizens Bank or any Participation Facility
(x) for alleged noncompliance (including by any predecessor) with, or liability
under, any Environmental Law or (y) relating to the presence of or release (as
defined herein) into the environment of any Hazardous Material (as defined
herein), whether or not occurring at or on a site owned, leased or operated by
it or Citizens Bank or any Participation Facility;
(iii) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or, to
Innes Street's Knowledge threatened, before any court, governmental agency or
board or other forum relating to or against any Loan Property (or Innes Street
or Citizens Bank in respect of such Loan Property) (x) relating to alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the presence of or release into the
environment of any Hazardous Material, whether or not occurring at or on a site
owned, leased or operated by a Loan Property;
(iv) To Innes Street's Knowledge, the properties currently
owned or operated by Innes Street or Citizens Bank (including, without
limitation, soil, groundwater or surface water on, under or adjacent to the
properties, and buildings thereon) are not contaminated with and do not
otherwise contain any Hazardous Material other than as permitted under
applicable Environmental Law;
(v) Neither Innes Street nor Citizens Bank has received any
notice, demand letter, executive or administrative order, directive or request
for information from any federal, state, local or foreign governmental entity or
any other Person indicating that it may be in violation of, or liable under, any
Environmental Law;
(vi) To Innes Street's Knowledge, there are no underground
storage tanks on, in or under any properties owned or operated by Innes Street
or Citizens Bank or any Participation Facility, and no underground storage tanks
have been closed or removed from any properties owned or operated by Innes
Street or Citizens Bank or any Participation Facility; and
(vii) To Innes Street's Knowledge, during the period of (s)
Innes Street's or Citizens Bank's ownership or operation of any of their
respective current properties or (t) Innes Street's or Citizens Bank's
participation in the management of any Participation Facility, there has been no
contamination by or release of Hazardous Materials in, on, under or affecting
such properties. To Innes Street's Knowledge, prior to the period of (x) Innes
Street's or Citizens Bank's ownership or operation of any of their respective
current properties or (y) Innes Street's or Citizens Bank's participation in the
management of any Participation Facility, there was no contamination by or
release of Hazardous Material in, on, under or affecting such properties.
(b) "Loan Property" means any property in which the applicable party
(or a Subsidiary of it) holds a security interest, and, where required by the
context, includes the owner or operator of such property, but only with respect
to such property. "Participation Facility" means any facility in which the
applicable party (or a Subsidiary of it) participates in the management
(including all property held as trustee or in any other fiduciary capacity) and,
where required by the context, includes the owner or operator of such property,
but only with respect to such property.
Section 3.15. Loan Portfolio.
(a) The allowance for possible losses reflected in the consolidated
balance sheet contained in the Innes Street Financials as of September 30, 2000
was, and the allowance for possible losses shown on the consolidated balance
sheets contained in the Innes Street Financials for periods ending after
September 30, 2000 were and will be, adequate, as of the dates thereof, under
GAAP.
(b) Innes Street DISCLOSURE SCHEDULE 3.15 sets forth a listing, as of
the last Business Day prior to the date of this Agreement, by account, of: (A)
all loans (including loan participations) of Innes Street or Citizens Bank that
have been accelerated during the past twelve (12) months; (B) all loan
commitments or lines of credit of Innes Street or Citizens Bank that have been
terminated by Innes Street or Citizens Bank during the past twelve (12) months
by reason of a default or adverse developments in the condition of the borrower
or other events or circumstances affecting the credit of the borrower; (C) all
loans, lines of credit and loan commitments as to which Innes Street or Citizens
Bank has given written notice of its intent to terminate during the past twelve
(12) months; (D) with respect to all commercial loans (including commercial real
estate loans), all notification letters and other written communications from
Innes Street or Citizens Bank to any of their respective borrowers, customers or
other parties during the past twelve (12) months wherein Innes Street or
Citizens Bank has requested or demanded that actions be taken to correct
existing defaults or facts or circumstances which may become defaults; (E) each
borrower, customer or other party which has notified Innes Street or Citizens
Bank during the past twelve (12) months of, or has asserted against Innes Street
or Citizens Bank, in each case in writing, any "lender liability" or similar
claim, and, to the Knowledge of Innes Street, each borrower, customer or other
party which has given Innes Street or Citizens Bank any oral notification of, or
orally asserted to or against Innes Street or Citizens Bank, any such claim; (F)
all loans, (1) that are contractually past due 90 days or more in the payment of
principal and/or interest, (2) that are on non-accrual status, (3) that as of
the date of this Agreement are classified as "Other Loans Specially Mentioned",
"Special Mention", "Substandard", "Doubtful", "Loss", "Classified",
"Criticized", "Watch list" or words of similar import, together with the
principal amount of and accrued and unpaid interest on each such Loan and the
identity of the obligor thereunder, (4) where a reasonable doubt exists as to
the timely future collectibility of principal and/or interest, whether or not
interest is still accruing or the loans are less than 90 days past due, (5)
where the interest rate terms have been reduced and/or the maturity dates have
been extended subsequent to the agreement under which the loan was originally
created due to concerns regarding the borrower's ability to pay in accordance
with such initial terms, or (6) where a specific reserve allocation exists in
connection therewith, and (G) all assets classified by Innes Street or Citizens
Bank as real estate acquired through foreclosure or in lieu of foreclosure,
including in-substance foreclosures, and all other assets currently held that
were acquired through foreclosure or in lieu of foreclosure.
(c) All loans receivable (including discounts) and accrued interest
entered on the books of Innes Street and Citizens Bank arose out of bona fide
arm's-length transactions, were made for good and valuable consideration in the
ordinary course of Innes Street's or Citizens Bank's respective business, and
the notes or other evidences of indebtedness with respect to such loans
(including discounts) are true and genuine and are what they purport to be. To
the Knowledge of Innes Street, the loans, discounts and the accrued interest
reflected on the books of Innes Street and Citizens Bank are subject to no
defenses, set-offs or counterclaims (including, without limitation, those
afforded by usury or truth-in-lending laws), except as may be provided by
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
by general principles of equity. All such loans are owned by Innes Street or
Citizens Bank free and clear of any Liens.
(d) The notes and other evidences of indebtedness evidencing the loans
described in Section 3.15(c) above, and all pledges, mortgages, deeds of trust
and other collateral documents or security instruments relating thereto are, in
all material respects, valid, true and genuine, and what they purport to be.
Section 3.16. Securities Documents. Innes Street has made available to
▇▇▇▇▇▇ Bancorp copies of its (i) annual reports on Form 10-K for the years ended
September 30, 2000, 1999 and 1998, (ii) quarterly reports on Form 10-Q for the
quarters ended December 31, 2000 and March 31, 2001 and (iii) proxy materials
used or for use in connection with its meetings of shareholders held in 2001,
2000 and 1999. Such reports and such proxy materials complied, at the time filed
with the SEC, in all material respects, with the Securities Laws.
Section 3.17. Related Party Transactions. Except as described in Innes
Street's Proxy Statement distributed in connection with the 2001 annual meeting
of shareholders, neither Innes Street nor Citizens Bank is a party to any
transaction (including any loan or other credit accommodation) with any
Affiliate of Innes Street. All such transactions (a) were made in the ordinary
course of business, (b) were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other Persons, and (c) did not involve more than the normal
risk of collectability or present other unfavorable features. No loan or credit
accommodation to any Affiliate of Innes Street or Citizens Bank is presently in
default or, during the three (3) year period prior to the date of this
Agreement, has been in default or has been restructured, modified or extended.
Neither Innes Street nor Citizens Bank has been notified that principal and
interest with respect to any such loan or other credit accommodation will not be
paid when due or that the loan grade classification accorded such loan or credit
accommodation by Innes Street is inappropriate.
Section 3.18. Schedule of Termination Benefits. Innes Street DISCLOSURE
SCHEDULE 3.18 includes a schedule of all termination benefits and related
payments that would be payable to the individuals identified thereon, excluding
any Innes Street Options granted to such individuals, under any and all
employment agreements, special termination agreements, change in control
agreements, supplemental executive retirement plans, deferred bonus plans,
deferred compensation plans, salary continuation plans, or any compensation
arrangement, or other pension benefit or welfare benefit plan maintained by
Innes Street or Citizens Bank for the benefit of officers or directors of Innes
Street or Citizens Bank (the "Benefits Schedule"), assuming their employment or
service is terminated as of January 1, 2002 and the Closing Date occurs prior to
such termination. No other individuals are entitled to benefits under any such
plans.
Section 3.19. Deposits. None of the deposits of Innes Street or
Citizens Bank is a "brokered deposit" as defined in 12 CFR Section 337.6(a)(2).
Section 3.20. Antitakeover Provisions Inapplicable. The transactions
contemplated by this Agreement are not subject to the requirements of any
"moratorium," "control share," "fair price," "affiliate transactions," "business
combination" or other antitakeover or laws and regulations of any state,
including the provisions of Sections 55-9-1 et. seq. and 55-9A-1 et. seq. of the
NCBCA ("Takeover Laws") applicable to Innes Street or Citizens Bank. The
shareholder voting restrictions contained in Section 7.2 of Innes Street's
articles of incorporation do not apply to the Merger. The affirmative vote of a
majority of the issued and outstanding shares of Innes Street Common Stock is
required to approve this Agreement under Innes Street's articles of
incorporation and the NCBCA.
Section 3.21. Registration Obligations. Neither Innes Street nor
Citizens Bank is under any obligation, contingent or otherwise, that will
survive the Merger Effective Date by reason of any agreement to register any
transaction involving any of its securities under the Securities Act.
Section 3.22 Risk Management Instruments. All material interest rate
swaps, caps, floors, option agreements, futures and forward contracts and other
similar risk management arrangements, whether entered into for the account of
Innes Street or Citizens Bank or their customers (all of which are set forth in
Innes Street DISCLOSURE SCHEDULE 3.23), were entered into in accordance with
prudent business practices and in all material respects in compliance with all
applicable laws, rules, regulations and regulatory policies and with
counterparties believed to be financially responsible at the time; and each of
them constitutes the valid and legally binding obligation of Innes Street or
Citizens Bank, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles), and is in full force and effect. Neither Innes Street, Citizens
Bank, nor to the Knowledge of Innes Street any other party thereto, is in breach
of any of its obligations under any such agreement or arrangement in any
material respect.
Section 3.23. Fairness Opinion. Innes Street has received a written
opinion from Trident dated as of the date of this Agreement and updated as of
the date of the mailing of the Proxy Statement, to the effect that, subject to
the terms, conditions and qualifications set forth therein, as of the date
thereof, the Merger Consideration to be received by the shareholders of Innes
Street pursuant to this Agreement is fair to such shareholders from a financial
point of view.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇▇ FEDERAL AND ▇▇▇▇▇▇ BANCORP
▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal represent and warrant to Innes Street
and Citizens Bank that the statements contained in this Article IV are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article IV), except
as set forth in the ▇▇▇▇▇▇ Bancorp Disclosure Schedules delivered by ▇▇▇▇▇▇
Bancorp to Innes Street on the date hereof and except as to any representation
or warranty which specifically relates to an earlier date. ▇▇▇▇▇▇ Bancorp and
▇▇▇▇▇▇ Federal have made a good faith effort to ensure that the disclosure on
each schedule of the ▇▇▇▇▇▇ Bancorp Disclosure Schedules corresponds to the
Section referenced herein. However, for purposes of the ▇▇▇▇▇▇ Bancorp
Disclosure Schedules, any item disclosed on any schedule therein is deemed to be
fully disclosed with respect to all schedules under which such item may be
relevant.
Section 4.01. Organization.
(a) ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ MHC are corporations duly organized,
validly existing and in good standing under the laws of the United States, and
are duly registered as savings association holding companies under the HOLA.
▇▇▇▇▇▇ Bancorp has full corporate power and authority to carry on its business
as now conducted and is duly licensed or qualified to do business in the states
of the United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such qualification, except
where the failure to be so licensed or qualified would not have a Material
Adverse Effect on ▇▇▇▇▇▇ Bancorp.
(b) ▇▇▇▇▇▇ Federal is a stock savings bank duly organized, validly
existing and in good standing under the laws of the United States. The deposits
of ▇▇▇▇▇▇ Federal are insured by the FDIC through the SAIF to the fullest extent
permitted by law, and all premiums and assessments required to be paid in
connection therewith have been paid when due by ▇▇▇▇▇▇ Federal. Each other
▇▇▇▇▇▇ Bancorp Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation or
organization.
(c) ▇▇▇▇▇▇ Federal is a member in good standing of the FHLB of Atlanta
and owns the requisite amount of stock therein.
(d) Prior to the date of this Agreement, ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇
Federal have delivered to Innes Street true and correct copies of their charters
and bylaws.
(e) ▇▇▇▇▇▇ Merger Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of North Carolina,
with its principal executive offices in Gastonia, North Carolina. ▇▇▇▇▇▇ Merger
Subsidiary is a wholly owned subsidiary of ▇▇▇▇▇▇ Bancorp.
Section 4.02 Authority; No Violation.
(a) ▇▇▇▇▇▇ MHC, ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger
Subsidiary have full corporate power and authority to execute and deliver this
Agreement and ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary have
full corporate power and authority to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇
Federal and ▇▇▇▇▇▇ Merger Subsidiary and the completion by ▇▇▇▇▇▇ Bancorp,
▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary of the transactions contemplated
hereby have been duly and validly approved by the Boards of Directors of ▇▇▇▇▇▇
MHC, ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary and no other
corporate proceedings on the part of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal or ▇▇▇▇▇▇
Merger Subsidiary are necessary to complete the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary and, subject to
receipt of the Regulatory Approvals, constitutes the valid and binding
obligation of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary,
enforceable against ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary
in accordance with its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally.
(b) (A) The execution and delivery of this Agreement by ▇▇▇▇▇▇ Bancorp,
▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary, (B) subject to receipt of approvals
from the Regulatory Authorities referred to in Section 4.03 hereof and Innes
Street's and ▇▇▇▇▇▇ Bancorp's and ▇▇▇▇▇▇ Merger Subsidiary's compliance with any
conditions contained therein, the consummation of the transactions contemplated
hereby, and (C) compliance by ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger
Subsidiary with any of the terms or provisions hereof, will not (i) conflict
with or result in a breach of any provision of the charter or bylaws of ▇▇▇▇▇▇
Bancorp or ▇▇▇▇▇▇ Federal, or the certificate of incorporation or bylaws of any
▇▇▇▇▇▇ Bancorp Subsidiary; (ii) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to ▇▇▇▇▇▇
Bancorp or any ▇▇▇▇▇▇ Bancorp Subsidiary or any of their respective properties
or assets; or (iii) violate, conflict with, result in a breach of any provisions
of, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default), under, result in the termination of,
accelerate the performance required by, or result in a right of termination or
acceleration or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇
Merger Subsidiary or ▇▇▇▇▇▇ Federal under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other investment or obligation to which ▇▇▇▇▇▇ Bancorp,
▇▇▇▇▇▇ Merger Subsidiary or ▇▇▇▇▇▇ Federal is a party, or by which they or any
of their respective properties or assets may be bound or affected, except for
such violations, conflicts, breaches or defaults under clause (ii) or (iii)
hereof which, either individually or in the aggregate, will not have a Material
Adverse Effect on ▇▇▇▇▇▇ Bancorp.
Section 4.03. Consents. Except for the receipt of the Regulatory
Approvals and compliance with any conditions contained therein, the approval of
this Agreement by the shareholders of Innes Street, the filing of articles of
merger with the Office of the North Carolina Secretary of State pursuant to the
NCBCA, and the filing of articles of combination with the OTS, no consents or
approvals of, or filings or registrations with, any public body or authority are
necessary, and no consents or approvals of any Persons are necessary, or will
be, in connection with (a) the execution and delivery of this Agreement by
▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary, and (b) the
completion by ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary of the
transactions contemplated hereby. ▇▇▇▇▇▇ Bancorp has no reason to believe that
(i) any Regulatory Approvals will not be received or will be received with
conditions, limitations or restrictions unacceptable to it or that would
adversely impact the ability of ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Bancorp to complete
the transactions contemplated by this Agreement or that (ii) any public body or
authority, the consent or approval of which is not required or to which a filing
is not required, will object to the completion of the transactions contemplated
by this Agreement.
Section 4.04. Financial Statements.
(a) ▇▇▇▇▇▇ Bancorp has made available to Innes Street the ▇▇▇▇▇▇
Bancorp Financials. The ▇▇▇▇▇▇ Bancorp Financials have been prepared in
accordance with GAAP and practices applied on a consistent basis throughout the
periods covered by such statements, and (including the related notes where
applicable) fairly present the consolidated financial position, results of
operations and cash flows of ▇▇▇▇▇▇ Bancorp and the ▇▇▇▇▇▇ Bancorp Subsidiaries
as of and for the respective periods ending on the dates thereof, in accordance
with GAAP applied on a consistent basis during the periods involved, except as
indicated in the notes thereto.
Section 4.05. Compliance With Applicable Law.
(a) Each of ▇▇▇▇▇▇ Bancorp and each ▇▇▇▇▇▇ Bancorp Subsidiary is in
substantial compliance with all applicable federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees
applicable to it, its properties, assets and deposits, its business, its conduct
of business and its relationship with its employees, including, without
limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act of 1977, the Home Mortgage Disclosure Act and all
other applicable fair lending laws and other laws relating to discriminatory
business practices.
(b) Each of ▇▇▇▇▇▇ Bancorp and each ▇▇▇▇▇▇ Bancorp Subsidiary has all
material permits, licenses, authorizations, orders and approvals of, and has
made all filings, applications and registrations with, all Regulatory
Authorities that are required in order to permit it to own or lease its
properties and to conduct its business as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect and, to the best Knowledge of ▇▇▇▇▇▇ Bancorp, no suspension or
cancellation of any such permit, license, certificate, order or approval is
threatened or will result from the consummation of the transactions contemplated
by this Agreement.
(c) Except as disclosed in ▇▇▇▇▇▇ Bancorp DISCLOSURE SCHEDULE 4.05(c),
neither ▇▇▇▇▇▇ Bancorp nor any ▇▇▇▇▇▇ Bancorp Subsidiary has received any
notification or communication from any Regulatory Authority (i) asserting that
▇▇▇▇▇▇ Bancorp or any ▇▇▇▇▇▇ Bancorp Subsidiary is not in material compliance
with any of the statutes, regulations or ordinances which such Regulatory
Authority enforces; (ii) threatening to revoke any license, franchise, permit or
governmental authorization which is material to ▇▇▇▇▇▇ Bancorp or any ▇▇▇▇▇▇
Bancorp Subsidiary; (iii) requiring or threatening to require ▇▇▇▇▇▇ Bancorp or
any ▇▇▇▇▇▇ Bancorp Subsidiary, or indicating that ▇▇▇▇▇▇ Bancorp or any ▇▇▇▇▇▇
Bancorp Subsidiary may be required, to enter into a cease and desist order,
agreement or memorandum of understanding or any other agreement with any federal
or state governmental agency or authority which is charged with the supervision
or regulation of banks or engages in the insurance of bank deposits restricting
or limiting, or purporting to restrict or limit, in any material respect the
operations of ▇▇▇▇▇▇ Bancorp or any ▇▇▇▇▇▇ Bancorp Subsidiary, including without
limitation any restriction on the payment of dividends; or (iv) directing,
restricting or limiting, or purporting to direct, restrict or limit, in any
manner the operations of ▇▇▇▇▇▇ Bancorp or any ▇▇▇▇▇▇ Bancorp Subsidiary,
including without limitation any restriction on the payment of dividends (any
such notice, communication, memorandum, agreement or order described in this
sentence is hereinafter referred to as a "Regulatory Agreement"). Neither ▇▇▇▇▇▇
Bancorp nor any ▇▇▇▇▇▇ Bancorp Subsidiary has consented to or entered into any
currently effective Regulatory Agreement, except as set forth in ▇▇▇▇▇▇ Bancorp
DISCLOSURE SCHEDULE 4.05(c). The most recent regulatory rating given to ▇▇▇▇▇▇
Federal as to compliance with the CRA is satisfactory or better.
Section 4.06. Financing. As of the Merger Effective Date and giving
effect to the Mergers, ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal together will have
funds that are sufficient and available to meet their obligations under this
Agreement.
Section 4.07. Regulatory Approvals. ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal
are not aware of any reason that they cannot obtain the Regulatory Approvals,
and neither ▇▇▇▇▇▇ Bancorp nor ▇▇▇▇▇▇ Federal has received any advice or
information from any Regulatory Authority indicating that any such approval will
be denied or are doubtful.
Section 4.08. Legal Proceedings. As of the date of this Agreement,
neither ▇▇▇▇▇▇ Bancorp, nor any ▇▇▇▇▇▇ Bancorp Subsidiary, is a party to any,
and there are no pending or, to ▇▇▇▇▇▇ Bancorp's Knowledge, threatened legal,
administrative, arbitration or other proceedings, claims (whether asserted or
unasserted), actions or governmental investigations or inquiries of any nature
challenging the validity or propriety of any of the transactions contemplated by
this Agreement, or that could adversely affect the ability of ▇▇▇▇▇▇ Bancorp to
perform under this Agreement.
Section 4.09. Tax Opinion. ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal are not
aware of any reason that they cannot obtain the tax opinion referenced in
Section 6.02(h).
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.01. Conduct of Innes Street's Business.
(a) From the date of this Agreement to the Closing Date, Innes Street
and Citizens Bank each will conduct its business and engage in transactions,
including extensions of credit, only in the ordinary course and consistent with
past practice and policies, except as otherwise required or contemplated by this
Agreement or with the written consent of ▇▇▇▇▇▇ Bancorp. Innes Street and
Citizens Bank will use their reasonable good faith efforts, to (i) preserve
their business organizations intact, (ii) maintain good relationships with
employees, and (iii) preserve for themselves the goodwill of their customers and
others with whom business relationships exist. From the date hereof to the
Closing Date, except as otherwise consented to or approved by ▇▇▇▇▇▇ Bancorp in
writing (which approval will not be unreasonably delayed or withheld) or as
contemplated or required by this Agreement, Innes Street will not, and Innes
Street will not permit Citizens Bank to:
(i) amend any provision of its articles of incorporation,
charter or other chartering documents or bylaws, impose, or suffer the
imposition, on any share of stock held by Innes Street in Citizens Bank of any
material lien, charge or encumbrance or permit any such lien to exist, or waive
or release any material right or cancel or compromise any material debt or claim
except as set forth in Innes Street DISCLOSURE SCHEDULE 5.01(a)(i);
(ii) change the number of shares of its authorized capital stock or issue or
grant any option, warrant, call, commitment, subscription, right to purchase or
agreement of any character relating to its authorized or issued capital stock,
or any securities convertible into shares of such capital stock, or split,
combine or reclassify any shares of its capital stock, redeem or otherwise
acquire any shares of such capital stock, or sell or issue any shares of capital
stock (except pursuant to the exercise of Innes Street Options);
(iii) declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, except that Citizens Bank may pay cash dividends to Innes Street, and
except that Innes Street may declare and pay a quarterly cash dividend not in
excess of $0.05 per share. The Board of Directors of Innes Street shall cause
its last quarterly dividend record date to occur on the day immediately
preceding the Merger Effective Date with the dividend amount to be calculated on
a pro-rata basis from the previous dividend record date on a daily basis,
rounded up to the nearest $0.005;
(iv) grant or agree to pay any bonus, severance or
termination to, or enter into, extend or amend any employment agreement,
severance agreement and/or supplemental executive agreement with, or increase in
any manner the compensation or fringe benefits of, any employee, officer or
director, except for legally binding commitments existing on the date hereof and
set forth in Innes Street DISCLOSURE SCHEDULE 3.12, except for normal increases
in the ordinary course of business consistent with past practice and except as
otherwise provided in Section 5.11(e) hereof, or hiring any new employee without
consulting with ▇▇▇▇▇▇ Bancorp prior to such hiring;
(v) enter into or, except as may be required by law to
maintain the qualified status thereof, modify any pension, retirement, stock
option, stock purchase, stock appreciation right, stock grant, savings, profit
sharing, deferred compensation, supplemental retirement, consulting, bonus,
group insurance or other employee benefit, incentive or welfare contract, plan
or arrangement, or any trust agreement related thereto, in respect of any of its
directors, officers or employees, or former directors, officers or employees; or
make any contributions to any defined contribution or defined benefit plan not
in the ordinary course of business consistent with past practice;
(vi) merge or consolidate with any other corporation; sell or
lease all or any substantial portion of its assets or business; make any
acquisition of all or any substantial portion of the business or assets of any
other Person, firm, association, corporation or business organization other than
in connection with foreclosures, settlements in lieu of foreclosure, troubled
loan or debt restructuring, or the collection of any loan or credit arrangement
between Innes Street, or Citizens Bank, and any other Person; enter into a
purchase and assumption transaction with respect to deposits and liabilities;
permit the revocation or surrender of its certificate of authority to maintain,
or file an application for the relocation of, any existing branch office, or
file an application for a certificate of authority to establish a new branch
office;
(vii) sell or otherwise dispose of the capital stock of
Citizens Bank, or sell or otherwise dispose of any asset other than in the
ordinary course of business consistent with past practice; subject any asset to
a lien, pledge, security interest or other encumbrance (other than in connection
with deposits, repurchase agreements, bankers acceptances, "treasury tax and
loan" accounts established in the ordinary course of business and transactions
in "federal funds" and the satisfaction of legal requirements in the exercise of
trust powers) other than in the ordinary course of business consistent with past
practice; incur any liability or indebtedness for borrowed money (or guarantee
any indebtedness for borrowed money), except in the ordinary course of business
consistent with past practice;
(viii) make any change in policies with regard to: the
extension of credit, or the establishment of reserves with respect to the
possible loss thereon or the charge off of losses incurred thereon; investments;
asset/liability management; or other material banking policies in any material
respect except as may be required by changes in applicable law or regulations,
or GAAP;
(ix) acquire any new loan participation or loan servicing
rights;
(x) except for any commitments disclosed on the Innes Street
DISCLOSURE SCHEDULE 5.01(a)(x): make any new loan or other credit facility
commitment (including without limitation, lines of credit and letters of credit)
in excess of $300,000; or increase, compromise, extend, renew or modify any
existing loan or commitment outstanding in excess of $300,000; or make any new
loan or other credit facility commitment (including without limitation, lines of
credit and letters of credit) in any amount if thereafter the exposure to any
one borrower or group of affiliated borrowers (including obligors under loan
participations) in the aggregate would exceed $750,000;
(xi) except for automatically renewing leases, renew or
extend any lease, or by any act, or omission to act, allow any lease to renew or
be extended;
(xii) make any capital expenditures in excess of $10,000
individually or $50,000 in the aggregate, other than pursuant to binding
commitments existing on the date hereof;
(xiii) except for the execution of, and as otherwise provided or
contemplated in, this Agreement, the Schedules, and the Exhibits hereto, take
any action that would give rise to a right of payment to any individual under
any employment agreement, or take any action that would give rise to a right of
payment to any individual under any Compensation and Benefit Plan;
(xiv) purchase any security for its investment portfolio not
rated "A" or higher by either Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investor
Services, Inc, or with a remaining term to maturity of more than five (5) years;
(xv) engage in any new loan transaction with an officer or
director;
(xvi) materially change the pricing strategies of Citizens
Bank with respect to its deposit or loan accounts;
(xvii) enter into any agreement, arrangement or commitment
not made in the ordinary course of business;
(xviii) change its method of accounting in effect prior to
the Merger Effective Date, except as required by changes in laws or regulations,
by Regulatory Authorities having jurisdiction over Innes Street or Citizens
Bank, or by GAAP concurred in by Innes Street's independent certified public
accountants;
(xix) enter into any futures contract, option, interest rate
caps, interest rate floors, interest rate exchange agreement or other agreement
or take any other action for purposes of hedging the exposure of its
interest-earning assets and interest-bearing liabilities to changes in market
rates of interest;
(xx) invest in "high risk" mortgage derivative investments as
defined by the Federal Financial Institutions Examination Council;
(xxi) discharge or satisfy any lien or encumbrance or pay any
material obligation or liability (absolute or contingent) other than at
scheduled maturity or in the ordinary course of business;
(xxii) enter or agree to enter into any agreement or
arrangement granting any preferential right to purchase any of its assets or
rights or requiring the consent of any party to the transfer and assignment of
any such assets or rights;
(xxiii) take any action that would result in any of the
representations or warranties of Innes Street or Citizens Bank contained in this
Agreement not to be true and correct in any material respect as of the Merger
Effective Date or that could reasonably result in a material delay in
consummation of the transactions contemplated hereby;
(xxiv) foreclose upon or otherwise take title to or
possession or control of any real property without first obtaining a phase one
environmental report thereon indicating that there is no apparent violation of
or liability under the Environmental Laws, provided, however, that it shall not
be required to obtain such a report with respect to one- to four-family,
non-agricultural residential property of five (5) acres or less to be foreclosed
upon unless it has reason to believe that such property might be in violation of
or require remediation under Environmental Laws;
(xxv) except in the ordinary course of business consistent
with past practice and involving an amount not in excess of $50,000, settle any
claim, action or proceeding; provided that no settlement shall be made if it
involves a precedent for other similar claims, which in the aggregate, could be
material to Innes Street and Citizens Bank, taken as a whole; or
(xxvi) agree to do any of the foregoing.
For purposes of this Section 5.01, unless provided for in a business
plan, budget or similar document delivered to ▇▇▇▇▇▇ Bancorp prior to the date
of this Agreement, it shall not be considered in the ordinary course of business
for Innes Street or Citizens Bank to do any of the following: (i) make any sale,
assignment, transfer, pledge, hypothecation or other disposition of any assets
having a book or market value, whichever is greater, in the aggregate in excess
of $100,000, other than pledges of assets to secure government deposits, to
exercise trust powers, sales of assets received in satisfaction of debts
previously contracted in the ordinary course of business, issuance of loans,
sales of previously purchased government guaranteed loans, or transactions in
the investment securities portfolio by Innes Street or a Citizens Bank or
repurchase agreements made, in each case, in the ordinary course of business; or
(ii) undertake or enter any lease, contract or other commitment for its account,
other than in the ordinary course of providing credit to customers as part of
its banking business, involving a payment by Innes Street or Citizens Bank of
more than $10,000 annually, or containing a material financial commitment and
extending beyond twelve (12) months from the date hereof.
Section 5.02. Access; Confidentiality.
(a) Each of Innes Street and Citizens Bank shall permit ▇▇▇▇▇▇ Bancorp
and its representatives reasonable access to its properties, and shall disclose
and make available to them all books, papers and records relating to the assets,
properties, operations, obligations and liabilities of Innes Street and Citizens
Bank, including, but not limited to, all books of account (including the general
ledger), tax records, minute books of meetings of boards of directors (and any
committees thereof) (other than minutes of any confidential discussion of this
Agreement and the transactions contemplated hereby), and shareholders,
organizational documents, bylaws, material contracts and agreements, filings
with any regulatory authority, accountants' work papers, litigation files, plans
affecting employees, and any other business activities or prospects in which
▇▇▇▇▇▇ Bancorp may have a reasonable interest (provided that Innes Street shall
not be required to provide access to any information that would violate its, or
Citizens Bank's, attorney-client privilege or would violate applicable law or
regulation). Innes Street and Citizens Bank shall make their respective
officers, employees and agents and authorized representatives (including counsel
and independent public accountants) available to confer with ▇▇▇▇▇▇ Bancorp and
its representatives. In addition, from the date of this Agreement through the
Closing Date, Innes Street and Citizens Bank shall permit employees of ▇▇▇▇▇▇
Bancorp reasonable access to information relating to problem loans, loan
restructurings and loan workouts of Innes Street and Citizens Bank. The parties
will hold all such information delivered in confidence to the extent required
by, and in accordance with, the provisions of the confidentiality agreement,
dated May 24, 2001, between Innes Street and ▇▇▇▇▇▇ Bancorp (the
"Confidentiality Agreement").
(b) ▇▇▇▇▇▇ Bancorp agrees to conduct such investigations and
discussions hereunder in a manner so as not to interfere unreasonably with
normal operations and customer and employee relationships of Innes Street and
Citizens Bank.
(c) If the transactions contemplated by this Agreement shall not be
consummated, Innes Street and ▇▇▇▇▇▇ Bancorp will each destroy or return all
documents and records obtained from the other party or its representatives,
during the course of its investigation and will cause all information with
respect to the other party obtained pursuant to this Agreement or preliminarily
thereto to be kept confidential, except to the extent such information becomes
public through no fault of the party to whom the information was provided or any
of its representatives or agents and except to the extent disclosure of any such
information is legally required. Innes Street and ▇▇▇▇▇▇ Bancorp shall each give
prompt written notice to the other party of any contemplated disclosure where
such disclosure is so legally required.
Section 5.03. Regulatory Matters and Consents.
(a) ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal will prepare all Applications and
make all filings for, and use their best efforts to obtain as promptly as
practicable after the date hereof, all Regulatory Approvals necessary or
advisable to consummate the transactions contemplated by this Agreement. The
information supplied, or to be supplied, by ▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal for
inclusion in the Applications will, at the time such documents are filed with
any Regulatory Authority, be accurate in all material aspects.
(b) Innes Street will furnish Gaston Bancorp with all information
concerning Innes Street and Citizens Bank as may be necessary or advisable in
connection with any Application or filing made by or on behalf of ▇▇▇▇▇▇ Bancorp
to any Regulatory Authority in connection with the transactions contemplated by
this Agreement. The information supplied, or to be supplied, by Innes Street for
inclusion in the Applications will, at the time such documents are filed with
any Regulatory Authority, be accurate in all material respects.
(c) ▇▇▇▇▇▇ Bancorp and Innes Street will promptly furnish each other
with copies of all material written communications to, or received by them from
any Regulatory Authority, and notice of material oral communications with the
Regulatory Authorities, in respect of the transactions contemplated hereby,
except information that is filed by either party which is designated as
confidential.
(d) The parties hereto agree that they will consult with each other
with respect to the obtaining of all Regulatory Approvals and other necessary
permits, consents, approvals and authorizations of Regulatory Authorities.
▇▇▇▇▇▇ Bancorp will furnish Innes Street with (i) copies of all Applications
prior to filing with any Regulatory Authority and provide Innes Street a
reasonable opportunity to provide changes to such Applications, (ii) copies of
all Applications filed by ▇▇▇▇▇▇ Bancorp and (iii) copies of all Regulatory
Reports filed by ▇▇▇▇▇▇ Bancorp after the date hereof.
(e) Innes Street and Citizens Bank, and ▇▇▇▇▇▇ Bancorp, will cooperate with each
other in the foregoing matters and will furnish the responsible party with all
information concerning it as may be necessary or advisable in connection with
any Application or filing (including the Proxy Statement and any report filed
with the SEC) made by or on behalf of ▇▇▇▇▇▇ Bancorp or Innes Street to any
Regulatory Authority in connection with the transactions contemplated by this
Agreement, and such information will be accurate and complete in all material
respects. In connection therewith, each party will provide certificates and
other documents reasonably requested by the other.
Section 5.04. Taking of Necessary Action.
(a) ▇▇▇▇▇▇ Bancorp and Innes Street shall each use its best efforts in
good faith, and each of them shall cause its Subsidiaries to use their best
efforts in good faith, to (i) furnish such information as may be required in
connection with the preparation of the documents referred to in Section 5.03 of
this Agreement, and (ii) take or cause to be taken all action necessary or
desirable on its part using its best efforts so as to permit completion of the
Mergers and the other transactions contemplated by this Agreement, including,
without limitation, (A) obtaining the consent or approval of each Person whose
consent or approval is required or desirable for consummation of the
transactions contemplated hereby (including assignment of leases without any
change in terms), provided that neither Innes Street nor Citizens Bank shall
agree to make any payments or modifications to agreements in connection
therewith without the prior written consent of ▇▇▇▇▇▇ Bancorp, and (B)
requesting the delivery of appropriate opinions, consents and letters from its
counsel and independent auditors. No party hereto shall take, or cause, or to
the best of its ability permit to be taken, any action that would substantially
impair the prospects of completing the Merger pursuant to this Agreement;
provided that nothing herein contained shall preclude ▇▇▇▇▇▇ Bancorp or Innes
Street from exercising its rights under this Agreement.
(b) Innes Street shall prepare, subject to the review and consent of
▇▇▇▇▇▇ Bancorp with respect to matters relating to ▇▇▇▇▇▇ Bancorp and the
transactions contemplated by this Agreement, a Proxy Statement to be filed by
Innes Street with the SEC and to be mailed to the shareholders of Innes Street
in connection with the meeting of its shareholders and transactions contemplated
hereby, which Proxy Statement shall conform to all applicable legal
requirements. The parties shall cooperate with each other with respect to the
preparation of the Proxy Statement. Innes Street shall, as promptly as
practicable following the preparation thereof, file the Proxy Statement with the
SEC and Innes Street shall use all reasonable efforts to have the Proxy
Statement mailed to shareholders as promptly as practicable after such filing.
Innes Street will promptly advise ▇▇▇▇▇▇ Bancorp of the time when the Proxy
Statement has been filed and mailed, or of any comments from the SEC or any
request by the SEC for additional information. The information to be supplied by
▇▇▇▇▇▇ Bancorp for inclusion in the Proxy Statement will not, at the time the
Proxy Statement is mailed to Innes Street shareholders, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein not misleading.
Section 5.05. Certain Agreements.
(a) From and after the Merger Effective Date, ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇
Federal, jointly and severally, agree to indemnify, defend and hold harmless
each present and former director and officer of Innes Street and Citizens Bank
as of the Merger Effective Date (the "Indemnified Parties") against all losses,
claims, damages, costs, expenses (including reasonable attorneys' fees and
expenses), liabilities, judgments or amounts paid in settlement (with the
approval of ▇▇▇▇▇▇ Bancorp, which approval shall not be unreasonably withheld)
or in connection with any claim, action, suit, proceeding or investigation
arising out of matters existing or occurring at or prior to the Merger Effective
Date (a "Claim") in which an Indemnified Party is, or is threatened to be made,
a party or a witness based in whole or in part on, or arising in whole or in
part out of, the fact that such Indemnified Party is or was a director or
officer of Innes Street or Citizens Bank, regardless of whether such Claim is
asserted or claimed prior to, at or after the Merger Effective Date, to the
fullest extent to which directors and officers of Innes Street are entitled
under the NCBCA, Innes Street's articles of incorporation and bylaws, or other
applicable law as in effect on the date hereof (and ▇▇▇▇▇▇ Bancorp shall pay
expenses in advance of the final disposition of any such action or proceeding to
each Indemnified Party to the extent permissible to a North Carolina corporation
under the NCBCA and Innes Street's articles of incorporation and bylaws as in
effect on the date hereof; provided, that the Indemnified Party to whom expenses
are advanced provides an undertaking to repay such expenses if it is ultimately
determined that such Indemnified Party is not entitled to indemnification). All
rights to indemnification in respect of a Claim shall continue until the final
disposition of such Claim. No indemnification shall be required under this
Section 5.05(a) if prohibited by applicable law.
(b) Any Indemnified Party wishing to claim indemnification under
Section 5.05(a), upon learning of any Claim, shall promptly notify ▇▇▇▇▇▇
Bancorp, but the failure to so notify shall not relieve ▇▇▇▇▇▇ Bancorp of any
liability it may have to such Indemnified Party except to the extent that such
failure materially prejudices ▇▇▇▇▇▇ Bancorp. In the event of any Claim, (1)
▇▇▇▇▇▇ Bancorp shall have the right to assume the defense thereof (with counsel
reasonably satisfactory to the Indemnified Party) and shall not be liable to
such Indemnified Party for any legal expenses of other legal counsel or any
other expenses subsequently incurred by such Indemnified Party in connection
with the defense thereof, except that, if ▇▇▇▇▇▇ Bancorp elects not to assume
such defense or counsel for the Indemnified Party advises that there are issues
which raise conflicts of interest between ▇▇▇▇▇▇ Bancorp and the Indemnified
Party, the Indemnified Party may retain counsel satisfactory to him, and ▇▇▇▇▇▇
Bancorp shall pay all reasonable fees and expenses of such counsel for the
Indemnified Party promptly as statements therefore are received, provided
further that ▇▇▇▇▇▇ Bancorp shall in all Claims be obligated pursuant to this
Section 5.05(b) to pay for only one firm of counsel for all Indemnified Parties,
(2) the Indemnified Party will cooperate in the defense of any such Claim and
(3) ▇▇▇▇▇▇ Bancorp shall not be liable for any settlement effected without its
prior written consent (which consent shall not unreasonably be withheld).
(c) In the event ▇▇▇▇▇▇ Bancorp or any of is successors or assigns (1)
consolidates with or merges into any other Person and shall not continue or
survive such consolidation or merger, or (2) transfers or conveys all or
substantially all of its properties and assets to any Person, then, and in each
such case, to the extent necessary, proper provision shall be made so that the
successors and assigns of ▇▇▇▇▇▇ Bancorp assume the obligations set forth in
this Section 5.05.
(d) ▇▇▇▇▇▇ Bancorp shall maintain in effect for three (3) years from
the Merger Effective Date, if available, the current directors' and officers'
liability insurance policy maintained by Innes Street (provided that ▇▇▇▇▇▇
Bancorp may substitute therefor policies of at least the same coverage
containing terms and conditions which are not materially less favorable) with
respect to matters occurring at or prior to the Merger Effective Date; provided,
however, that in no event shall ▇▇▇▇▇▇ Bancorp be required to expend pursuant to
this Section 5.05(d) more than the amount equal to 125% of the current annual
amount expended by Innes Street to maintain or procure its current insurance
coverage. In connection with the foregoing, Innes Street agrees to provide such
insurer or substitute insurer with such representations as such insurer may
reasonably request with respect to the reporting of any prior claims.
(e) The provisions of this Section 5.05 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
Section 5.06. No Other Bids and Related Matters. From and after the
date hereof until the termination of this Agreement, neither Innes Street, nor
Citizens Bank, nor any of their respective officers, directors, employees,
representatives, agents or affiliates (including, without limitation, any
investment banker, attorney or accountant retained by Innes Street or Citizens
Bank), will, directly or indirectly, initiate, solicit or knowingly encourage
(including by way of furnishing non-public information or assistance), or
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any Person in furtherance of such inquiries or to obtain an
Acquisition Proposal or agree to or endorse any Acquisition Proposal, or
authorize or permit any of its officers, directors, employees, investment
bankers, financial advisors, attorneys, accountants or other representatives to
take any such action, and Innes Street shall notify ▇▇▇▇▇▇ Bancorp orally
(within one Business Day) and in writing (as promptly as practicable) of all of
the relevant details relating to all inquiries and proposals that it or Citizens
Bank or any such officer, director employee, investment banker, financial
advisor, attorney, accountant or other representative may receive relating to
any of such matters. Provided, however, that nothing contained in this Section
5.06 shall prohibit the Board of Directors of Innes Street from (i) furnishing
information to, or entering into discussions or negotiations with any Person
that makes an unsolicited written, bona fide proposal, to acquire Innes Street
or Citizens Bank pursuant to a merger, consolidation, share exchange, business
combination, tender or exchange offer or other similar transaction, if, and only
to the extent that, (A) the Board of Directors of Innes Street receives a
written opinion from its independent financial advisor that such proposal may be
superior to the Merger from a financial point-of-view to Innes Street's
shareholders, (B) the Board of Directors of Innes Street, after consultation
with and based upon the advice of independent legal counsel, determines in good
faith that such action is necessary for the Board of Directors of Innes Street
to comply with its fiduciary duties to shareholders under applicable law (such
proposal that satisfies (A) and (B) being referred to herein as a "Superior
Proposal"), (C) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, Innes Street (x)
provides reasonable notice to ▇▇▇▇▇▇ Bancorp to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity (identifying such person or entity) and (y) receives from such person
or entity an executed confidentiality agreement substantially identical in all
material respects to the Confidentiality Agreement, and (D) the Innes Street
meeting of shareholders convened to approve this Agreement has not occurred,
(ii) complying with Rule 14e-2 promulgated under the Exchange Act with regard to
a tender or exchange offer, or (iii) prior to the Innes Street Special Meeting
of Shareholders convened to approve this Agreement, failing to make or
withdrawing or modifying its recommendation to shareholders, after consultation
with and based upon the advice of independent legal counsel, determined in good
faith that such action is necessary for such Board of Directors to comply with
its fiduciary duties under applicable law. For purposes of this Agreement,
"Acquisition Proposal" shall mean any of the following (other than the
transactions contemplated hereunder) involving Innes Street or any of its
subsidiaries: (i) any merger, consolidation, share exchange, business
combination, or other similar transactions; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 20% or more of the assets of
Innes Street, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 20% or more of the
outstanding shares of capital stock of Innes Street or the filing of a
registration statement under the Securities Act in connection therewith; or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
Section 5.07. Duty to Advise; Duty to Update Innes Street's Disclosure
Schedules. Innes Street shall promptly advise ▇▇▇▇▇▇ Bancorp of any change or
event having a Material Adverse Effect on it or on Citizens Bank or that it
believes would or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants set forth herein.
Innes Street shall update Innes Street's DISCLOSURE SCHEDULES as promptly as
practicable after the occurrence of an event or fact that, if such event or fact
had occurred prior to the date of this Agreement, would have been disclosed in
the Innes Street DISCLOSURE SCHEDULES. The delivery of such updated Schedule
shall not relieve Innes Street from any breach or violation of this Agreement
and shall not have any effect for the purposes of determining the satisfaction
of the condition set forth in Section 6.02(c) hereof.
Section 5.08. Conduct of ▇▇▇▇▇▇ Bancorp's and ▇▇▇▇▇▇ Federal's
Business. From the date of this Agreement to the Closing Date, ▇▇▇▇▇▇ Bancorp
and ▇▇▇▇▇▇ Federal each will use its best efforts to (x) preserve its business
organizations intact, (y) maintain good relationships with its employees, and
(z) preserve for itself the goodwill of its customers. From the date of this
Agreement to the Merger Effective Date, neither ▇▇▇▇▇▇ Bancorp nor ▇▇▇▇▇▇
Federal will (i) amend its charter or bylaws in any manner inconsistent with the
prompt and timely consummation of the transactions contemplated by this
Agreement; (ii) take any action that would result in any of the representations
and warranties of ▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal set forth in this Agreement
becoming untrue as of any date after the date hereof or in any of the conditions
set forth in Article VI hereof not being satisfied, except in each case as may
be required by applicable law; (iii) take any action which would or is
reasonably likely to adversely effect or materially delay the receipt of the
Regulatory Approvals or other necessary approvals; (iv) take action which would
or is reasonably likely to materially and adversely affect ▇▇▇▇▇▇ Bancorp's or
▇▇▇▇▇▇ Federal's ability to perform its covenants and agreements under this
Agreement; (v) take any action that would result in any of the conditions to the
Merger not being satisfied; or (vi) agree to do any of the foregoing.
Section 5.09. Board and Committee Minutes. Innes Street and Citizens
Bank shall each provide to ▇▇▇▇▇▇ Bancorp, within thirty (30) days after any
meeting of their respective Board of Directors, or any committee thereof, or any
senior management committee, a copy of the minutes of such meeting, except for
information relating to the transactions contemplated by this agreement and
deemed confidential by the Board of Directors or subject to the attorney-client
privilege, except that with respect to any meeting held within thirty (30) days
of the Closing Date, such minutes shall be provided to each party prior to the
Closing Date.
Section 5.10. Undertakings by Innes Street and ▇▇▇▇▇▇ Bancorp.
(a) From and after the date of this Agreement:
(i) Voting by Directors. Simultaneous with the execution of
this Agreement, Innes Street's directors shall each enter into the agreement set
forth as Exhibit B to this Agreement;
(ii) Proxy Solicitor. Innes Street shall retain a proxy
solicitor in connection with the solicitation of shareholder approval of this
Agreement;
(iii) Outside Service Bureau Contracts. If requested to do so
by ▇▇▇▇▇▇ Bancorp, Innes Street shall use its best efforts to obtain an
extension of any contract with an outside service bureau or other vendor of
services to Innes Street, on terms and conditions mutually acceptable to Innes
Street and ▇▇▇▇▇▇ Bancorp;
(iv) Board Meetings. Innes Street and Citizens Bank shall
permit a representative of ▇▇▇▇▇▇ Bancorp to attend any meeting of Innes Street
and/or Citizens Bank's Board of Directors or the Executive Committees thereof
(provided that neither Innes Street nor Citizens Bank shall be required to
permit the ▇▇▇▇▇▇ Bancorp representative to remain present during any
confidential discussion);
(v) List of Nonperforming Assets. Innes Street shall provide
▇▇▇▇▇▇ Bancorp, within ten (10) days of the end of each calendar month, a
written list of nonperforming assets (the term "nonperforming assets," for
purposes of this Section 5.10(a)(v), means (i) loans that are "Troubled debt
restructurings" as defined in Statement of Financial Accounting Standards No.
15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring," (ii)
loans on nonaccrual, (iii) real estate owned, (iv) all loans ninety (90) days or
more past due as of the end of such month and (iv) impaired loans;
(vi) Reserves and Merger Related Costs. On or before the
Merger Effective Date, and at the request of ▇▇▇▇▇▇ Bancorp, Innes Street shall
establish such additional accruals and reserves as may be necessary to conform
the accounting reserve practices and methods (including credit loss practices
and methods) of Innes Street to those of ▇▇▇▇▇▇ Bancorp (as such practices and
methods are to be applied to Innes Street from and after the Merger Effective
Date) and ▇▇▇▇▇▇ Bancorp's plans with respect to the conduct of the business of
Innes Street following the Merger Effective Date and otherwise to reflect Merger
related expenses and costs incurred by Innes Street; provided, however, that
Innes Street shall not be required to take such action unless ▇▇▇▇▇▇ Bancorp
agrees in writing that all conditions to closing set forth in Section 6.02 have
been satisfied or waived (except for the expiration of any applicable waiting
periods); prior to the delivery by ▇▇▇▇▇▇ Bancorp of the writing referred to in
the preceding clause, Innes Street shall provide ▇▇▇▇▇▇ Bancorp a written
statement, certified without personal liability by the chief executive officer
of Innes Street and dated the date of such writing, that the representation made
in Section 3.15 hereof is true as of such date or, alternatively, setting forth
in detail the circumstances that prevent such representation from being true as
of such date; and no accrual or reserve made by Innes Street or Citizens Bank
pursuant to this Section 5.10(a)(vi), or any litigation or regulatory proceeding
arising out of any such accrual or reserve, shall constitute or be deemed to be
a breach or violation of any representation, warranty, covenant, condition or
other provision of this Agreement or to constitute a termination event within
the meaning of Section 7.01(b) hereof. No action shall be required to be taken
by Innes Street pursuant to this Section 5.10(vii) if, in the opinion of Innes
Street's independent auditors, such action would contravene GAAP;
(vii) Shareholders' Meeting. Innes Street shall submit this
Agreement to its shareholders for approval at a special meeting to be held as
soon as practicable, and, subject to the next sentence, its Boards of Director
shall recommend approval of this Agreement to the Innes Street shareholders. The
Board of Directors of Innes Street may fail to make such a recommendation, or
withdraw, modify or change any such recommendation only in connection with a
Superior Proposal, as set forth in Section 5.06 of this Agreement, and only if
such Board of Directors, after having consulted with and considered the advice
of outside counsel to such Board, has determined that the making of such
recommendation, or the failure so to withdraw, modify or change its
recommendation, would constitute a breach of the fiduciary duties of such
directors under North Carolina law. Innes Street shall take all steps necessary
in order to hold a special meeting of shareholders for the purpose of approving
this Agreement within three (3) months of the date of this Agreement, or as soon
thereafter as is practicable. Innes Street shall promptly inform ▇▇▇▇▇▇ Bancorp
of any shareholder from whom Innes Street receives notice of intent to assert
dissenters' rights under the NCBCA in connection with the Merger. The Proxy
Statement will not, at the time it is mailed to Innes Street shareholders,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein not misleading; except
the Innes Street assumes no responsibility for any statement of a material fact,
or failure to state a material fact necessary in order to make the statements
therein not misleading, concerning ▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal that is
included in the Proxy Statement and that is provided in writing by ▇▇▇▇▇▇
Bancorp or ▇▇▇▇▇▇ Federal; and
(b) From and after the date of this Agreement, ▇▇▇▇▇▇ Bancorp and
Innes Street shall each:
(i) Filings and Approvals. Cooperate with the other in the
preparation and filing, as soon as practicable, of (A) the Applications, (B) the
Proxy Statement, (C) all other documents necessary to obtain any other
approvals, consents, waivers and authorizations required to effect the
completion of the Merger and the other transactions contemplated by this
Agreement, and (D) all other documents contemplated by this Agreement;
(ii) Public Announcements. Cooperate and cause their
respective officers, directors, employees and agents to cooperate in good faith,
consistent with their respective legal obligations, in the preparation and
distribution of, and agree upon the form and substance of, any press release
related to this Agreement and the transactions contemplated hereby, and any
other public disclosures related thereto, including without limitation
communications to shareholders, internal announcements and customer disclosures,
but nothing contained herein shall prohibit any party from making any disclosure
that its counsel deems necessary, provided that the disclosing party notifies
the other party reasonably in advance of the timing and contents of such
disclosure;
(iiii) Maintenance of Insurance. Maintain, and cause their
respective Subsidiaries to maintain, insurance in such amounts as are reasonable
to cover such risks as are customary in relation to the character and location
of its properties and the nature of its business;
(iv) Maintenance of Books and Records. Maintain, and cause
their respective Subsidiaries to maintain, books of account and records in
accordance with GAAP applied on a basis consistent with those principles used in
preparing the financial statements heretofore delivered;
(v) Delivery of Securities Documents. Deliver to the other,
copies of all Securities Documents and Regulatory Reports simultaneously with
the filing thereof; and
(vi) Taxes. File all federal, state, and local tax returns
required to be filed by them or their respective Subsidiaries on or before the
date such returns are due (including any extensions) and pay all taxes shown to
be due on such returns on or before the date such payment is due, except those
being contested in good faith.
(c) Innes Street DISCLOSURE SCHEDULE 5.10(c) sets forth a good faith
estimate of Innes Street's budget of Merger-related expenses (the "Budget") to
be incurred and payable by Innes Street in connection with this Agreement and
the transactions contemplated hereby, including the fee and expenses of counsel,
accountants, investment bankers and other professionals. Innes Street shall
promptly notify ▇▇▇▇▇▇ Bancorp if or when it determines that it expects to
exceed its Budget. Promptly, but in any event within 30 days, after the
execution of this Agreement, Innes Street shall ask all of its attorneys and
other professionals to render current and correct invoices for all unbilled time
and disbursements. Innes Street shall accrue and/or pay all of such amounts as
soon as possible. Innes Street shall request that its professionals render
monthly invoices within 30 days after the end of each month. Innes Street shall
notify ▇▇▇▇▇▇ Bancorp monthly of all out-of-pocket expenses, which Innes Street
has incurred in connection with this Agreement. No later than three (3) business
days prior to the Closing Date, Innes Street shall provide ▇▇▇▇▇▇ Bancorp with a
statement of all Merger-related expenses incurred and payable, and to be
incurred and payable, including the fees and expenses of counsel, accountants,
investment bankers and other professionals, and all costs and expenses
associated with any legal proceedings relating to this Agreement and the
transactions contemplated hereunder, through the merger Effective Date (the
"Closing Expense Statement").
Section 5.11. Employee and Termination Benefits; Directors and
Management.
(a) Employee Benefits. Except as otherwise provided in Section 5.11(d) of this
Agreement, as of or after the Merger Effective Date, and at ▇▇▇▇▇▇ Bancorp's
election and subject to the requirements of the Code, the Compensation and
Benefit Plans may continue to be maintained separately, consolidated, or
terminated. If requested by ▇▇▇▇▇▇ Bancorp in writing not later than ten (10)
days before the Merger Effective Date, Innes Street shall take such steps within
its power to effectuate a termination of any Compensation and Benefit Plan as of
the Merger Effective Date, provided that the Compensation and Benefit Plan can
be terminated within such period. In the event of a consolidation of any or all
of such plans or in the event of termination of any Innes Street Compensation
and Benefit Plan, except as specifically noted in this Section 5.11, employees
of Innes Street or Citizens Bank who continue as employees of ▇▇▇▇▇▇ Bancorp or
▇▇▇▇▇▇ Federal after the Merger Effective Date ("Continuing Employees") shall
receive credit for service with Innes Street or Citizens Bank (for purposes of
eligibility and vesting determination but not for benefit accrual purposes)
under any similar existing ▇▇▇▇▇▇ Bancorp benefit plan except the ▇▇▇▇▇▇ Federal
Employee Stock Ownership Plan (in which Continuing Employees shall be treated as
new employees), or new ▇▇▇▇▇▇ Bancorp benefit plan in which such employees or
their dependents would be eligible to enroll, subject to any pre-existing
conditions or other exclusions to which such person were subject under the Innes
Street Compensation and Benefit Plans. Such service shall also apply for
purposes of satisfying any waiting periods, actively-at-work requirements and
evidence of insurability requirements.
(b) In the event of the termination or consolidation of any Innes Street health
plan with any ▇▇▇▇▇▇ Bancorp health plan, ▇▇▇▇▇▇ Bancorp shall make available to
Continuing Employees and their dependents employer-provided health coverage on
the same basis as it provides such coverage to employees of ▇▇▇▇▇▇ Bancorp or
▇▇▇▇▇▇ Federal. Unless a Continuing Employee affirmatively terminates coverage
under a Innes Street health plan prior to the time that such Continuing Employee
becomes eligible to participate in the ▇▇▇▇▇▇ Bancorp health plan, no coverage
of any of the Continuing Employees or their dependents shall terminate under any
of the Innes Street health plans prior to the time such Continuing Employees and
their dependents become eligible to participate in the health plans, programs
and benefits common to all employees of ▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal and
their dependents. Terminated Innes Street and Citizens Bank employees and
qualified beneficiaries will have the right to continue coverage under group
health plans of ▇▇▇▇▇▇ Bancorp and/or ▇▇▇▇▇▇ Bancorp Subsidiaries in accordance
with Code Section 4980B(f). Continuing Employees who become covered under a
▇▇▇▇▇▇ Bancorp health plan shall be required to satisfy the deductible
limitations of the ▇▇▇▇▇▇ Bancorp health plan for the plan year in which the
coverage commences, without offset for deductibles satisfied under the Innes
Street health plan.
(c) If, after the Merger Effective Date, ▇▇▇▇▇▇ Federal continues in
effect the 401(k) plan previously maintained by Citizens Bank, ▇▇▇▇▇▇ Federal
shall not be required to cause employees who are covered by such plan to
participate in any other 401(k) plan with respect to any period for which ▇▇▇▇▇▇
Federal makes contributions to such Citizens Bank 401(k) plan, and nothing in
this Section 5.11 shall be construed to require any duplication of benefits.
(d) The Citizens Bank Employee Stock Ownership Plan (the "Citizens Bank
ESOP") shall be terminated as of the Merger Effective Date (all shares held by
the Citizens Bank ESOP shall be converted into the right to receive the Merger
Consideration), all outstanding Citizens Bank ESOP indebtedness shall be repaid,
and the remaining balance shall be allocated to Citizens Bank employees, as
provided for in the Citizens Bank ESOP, subject to the Code, ERISA, and rules
and regulations promulgated thereunder. In connection with the termination of
the Citizens Bank ESOP, Citizens Bank shall promptly apply to the IRS for a
favorable determination letter on the tax-qualified status of the Citizens Bank
ESOP on termination and any amendments made to the Citizens Bank ESOP in
connection with its termination or otherwise, if such amendments have not
previously received a favorable determination letter from the IRS with respect
to their qualification under Code Section 401(a). Any and all distributions from
the Citizens Bank ESOP after its termination shall be made consistent with the
aforementioned determination letter.
(e) ▇▇▇▇▇▇ Bancorp shall honor the existing employment, change of
control and severance contracts or plans set forth in Innes Street DISCLOSURE
SCHEDULE 3.12(a); provided that notwithstanding anything contained in any
existing employment or severance agreement, as of the Merger Effective Date,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall execute an amendment and release to his employment
agreement in the form set forth in Innes Street DISCLOSURE SCHEDULE 5.11(e)(1),
to provide that such employment agreement shall terminate as of the Merger
Effective Date and, in lieu of any payments due under such employment agreement,
shall be entitled to receive a payment equal to the payment that he would
receive under such employment agreement upon termination following a change in
control as of the Merger Effective Date, and provided further that no payment
shall be made under any of the aforesaid agreements which would constitute a
"parachute payment" (as such term is defined in Section 280G of the Code). ▇▇.
▇▇▇▇▇▇▇ shall be offered an employment agreement the form of which is set forth
in SCHEDULE 5.11(e)(2).
(f) ▇▇▇▇▇▇ Bancorp shall honor the existing, as modified, deferred compensation
plans and rabbi trusts established by Innes Street or Citizens Bank for existing
officers and directors as set forth in Innes Street DISCLOSURE SCHEDULE 5.11(f).
From and after the Merger Effective Date, ▇▇▇▇▇▇ Bancorp shall pay for the
adminstration of said rabbi trusts as modified.
(g) As of the Merger Effective Date, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Bancorp
may designate for appointment to the Board of Directors of ▇▇▇▇▇▇ Federal and
▇▇▇▇▇▇ Bancorp one person who currently serves on the Innes Street Board of
Directors.
(h) ▇▇▇▇▇▇ Bancorp shall establish an Innes Street Advisory Board of
Directors to consist of those persons who currently serve on the Innes Street
Board of Directors, and such persons shall commence service on the Advisory
Board of Directors immediately following the Merger Effective Date. The Advisory
Board shall be maintained for at least one (1) year following the Merger
Effective Date and each of its members shall be compensated at a rate of $1,000
per meeting attended. Meetings of the Advisory Board will be held monthly.
Section 5.12. Duty to Advise; Duty to Update ▇▇▇▇▇▇ Bancorp's
Disclosure Schedules. ▇▇▇▇▇▇ Bancorp shall promptly advise Innes Street of any
change or event having a Material Adverse Effect on it or on any ▇▇▇▇▇▇ Bancorp
Subsidiary or that it believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations, warranties or
covenants set forth herein. ▇▇▇▇▇▇ Bancorp shall update the ▇▇▇▇▇▇ Bancorp
DISCLOSURE SCHEDULES as promptly as practicable after the occurrence of an event
or fact that, if such event or fact had occurred prior to the date of this
Agreement, would have been disclosed in the ▇▇▇▇▇▇ Bancorp DISCLOSURE SCHEDULE.
The delivery of such updated Schedules shall not relieve ▇▇▇▇▇▇ Bancorp from any
breach or violation of this Agreement and shall not have any effect for the
purposes of determining the satisfaction of the condition set forth in Section
6.01(c) hereof.
Section 5.13. Bank and Related Merger Transactions.
(a) As soon as practicable following the Merger Effective Date, ▇▇▇▇▇▇
Bancorp shall, and it shall cause Innes Street (as the Surviving Corporation in
the Merger) to, effect the Company Merger by executing a merger agreement and
filing articles of merger or a certificate of complete liquidation with the
Office of the North Carolina Secretary of State pursuant to the NCBCA, and
articles of combination with the OTS. The Company Merger shall become effective
at the time (the "Subsequent Effective Time") specified in the articles of
merger or certificate of complete liquidation and/or articles of combination. As
a result of the Company Merger, the separate corporate existence of Innes Street
shall cease and ▇▇▇▇▇▇ Bancorp shall be the surviving corporation and continue
its corporate existence under the laws of the United States.
(b) As soon as practicable after consummation of the Company Merger,
▇▇▇▇▇▇ Federal and Citizens Bank shall take all actions necessary and
appropriate, including entering into an appropriate merger agreement in the form
attached to this Agreement as Exhibit A (the "Bank Merger Agreement"), to cause
Citizens Bank to effect the Bank Merger in accordance with applicable laws and
regulations and the terms of the Bank Merger Agreement. As a result of the Bank
Merger, the separate corporate existence of Citizens Bank shall cease and ▇▇▇▇▇▇
Federal shall be the surviving corporation and continue its corporate existence
under the laws of the United States.
ARTICLE VI
CONDITIONS
Section 6.01. Conditions to Innes Street's Obligations under this
Agreement. The obligations of Innes Street and Citizens Bank hereunder shall be
subject to satisfaction as of or prior to the Merger Effective Date of each of
the following conditions, unless waived by Innes Street pursuant to Section 8.03
hereof:
(a) Corporate Proceedings. All action required to be taken by, or on
the part of, ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the Merger, shall have been duly and validly taken by ▇▇▇▇▇▇
Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary, and Innes Street shall
have received certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇
Federal and ▇▇▇▇▇▇ Merger Subsidiary required by this Agreement to be performed
by ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal and ▇▇▇▇▇▇ Merger Subsidiary as of or prior to
the Merger Effective Date shall have been duly performed and complied with in
all material respects;
(c) Representations and Warranties. Each of the representations and
warranties of ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal in this Agreement that is
qualified as to materiality shall be true and correct, and each such
representation or warranty that is not so qualified shall be true and correct in
all material respects, in each case as of the date of this Agreement, and (other
than Section 4.08 and except to the extent such representations and warranties
speak as of an earlier date) as of the Merger Effective Date;
(d) Approvals of Regulatory Authorities. ▇▇▇▇▇▇ Bancorp shall have
received all Regulatory Approvals and other approvals necessary to effect the
Merger; and all notice and waiting periods required thereunder shall have
expired or been terminated;
(e) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction that enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) Officer's Certificate. ▇▇▇▇▇▇ Bancorp shall have delivered to Innes
Street a certificate, dated the Closing Date and signed, without personal
liability, by its chairman of the board or president, to the effect that the
conditions set forth in subsections (a) through (e) of this Section 6.01 have
been satisfied, to the Knowledge of the officer executing the same; and
(g) Approval of Innes Street's Shareholders. This Agreement shall have been
approved by the shareholders of Innes Street by such vote as is required under
the NCBCA, Innes Street's certificate of incorporation and bylaws, and under
Nasdaq requirements applicable to it.
(h) Innes Street shall have received the update of the written opinion of
Trident dated as of the date of the mailing of the Proxy Statement as referenced
in Section 3.23.
Section 6.02. Conditions to ▇▇▇▇▇▇ Bancorp's Obligations under this
Agreement. The obligations of ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal hereunder shall
be subject to satisfaction as of or prior to the Merger Effective Date of each
of the following conditions, unless waived by ▇▇▇▇▇▇ Bancorp pursuant to Section
8.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on
the part of, Innes Street and Citizens Bank to authorize the execution, delivery
and performance of this Agreement, and the consummation of the Merger, shall
have been duly and validly taken by Innes Street and Citizens Bank, and ▇▇▇▇▇▇
Bancorp shall have received certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of Innes Street and
Citizens Bank required by this Agreement to be performed as of or prior to the
Merger Effective Date shall have been duly performed and complied with in all
material respects;
(c) Representations and Warranties. Each of the representations and
warranties of Innes Street and Citizens Bank in this Agreement which is
qualified as to materiality shall be true and correct, and each such
representation or warranty that is not so qualified shall be true and correct in
all material respects, in each case as of the date of this Agreement, and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Merger Effective Date;
(d) Approvals of Regulatory Authorities. ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇
Federal shall have received all Regulatory Approvals and other approvals
necessary to effect the Merger (without the imposition of any condition that is
in ▇▇▇▇▇▇ Bancorp's reasonable judgment unduly burdensome, excluding standard
conditions that are normally imposed by the Regulatory Authorities in bank
merger transactions); and all notice and waiting periods required thereunder
shall have expired or been terminated;
(e) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction that enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) No Material Adverse Effect. Since September 30, 2000, there shall
not have occurred any Material Adverse Effect with respect to Innes Street; and
(g) Officer's Certificate. Innes Street shall have delivered to ▇▇▇▇▇▇
Bancorp a certificate, dated the Closing Date and signed, without personal
liability, by its chairman of the board or president, to the effect that the
conditions set forth in subsections (a) through (f) (but excluding (d)) of this
Section 6.02 have been satisfied, to the Knowledge of the officer executing the
same.
(h) Tax Opinion. ▇▇▇▇▇▇ Bancorp shall have received an opinion or
opinions of ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C., counsel to ▇▇▇▇▇▇
Bancorp, substantially to the effect set forth on Exhibit C.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
Section 7.01 Termination. This Agreement may be terminated at any time
prior to the Merger Effective Date, whether before or after approval of the
shareholders of Innes Street referred to in Section 5.10(a)(viii) hereof:
(a) by mutual written consent of the parties authorized by their
respective boards of directors;
(b) by ▇▇▇▇▇▇ Bancorp or Innes Street (i) if the Merger Effective Date
shall not have occurred on or prior to ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇) if a vote of the
shareholders of Innes Street is taken and such shareholders fail to approve this
Agreement at the special meeting of shareholders (or any adjournment thereof) of
Innes Street contemplated by Section 5.10(a)(viii) hereof, or (iii) any
Regulatory Authority formally disapproves the issuance of any Regulatory
Approval or other necessary approval, unless in the case of clause (ii) of this
Section 7.01(b) such failure is due to the failure of the party seeking to
terminate this Agreement to perform or observe its agreements set forth herein
to be performed or observed by such party on or before such special meeting of
shareholders, and in the case of clause (i) of this Section 7.01(b), the right
to terminate shall not be available to any party whose failure to perform an
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Merger and the other transactions contemplated hereby to be
consummated by April 30, 2002.
(c) by ▇▇▇▇▇▇ Bancorp if (i) at the time of such termination any of the
representations and warranties of Innes Street or Citizens Bank contained in
this Agreement shall not be true and correct to the extent that the condition
set forth in Section 6.02(b) or (c) hereof cannot be satisfied, (ii) there shall
have been any material breach of any covenant, agreement or obligation of Innes
Street or Citizens Bank hereunder and such breach shall have not been remedied
by Innes Street, Citizens Bank or any other Person within fifteen (15) Business
Days after receipt by Innes Street of notice in writing from ▇▇▇▇▇▇ Bancorp
specifying the nature of such breach and requesting that it be remedied, (iii)
any Regulatory Authority approves the transactions contemplated but with
conditions attached such that the requirements of Section 6.02(d) are not
satisfied, or (iv) Innes Street has received a Superior Proposal, and in
accordance with Section 5.06 of this Agreement, the Board of Directors of Innes
Street has entered into an acquisition agreement with respect to the Superior
Proposal or withdraws its recommendation of this Agreement, fails to make such
recommendation or modifies or qualifies its recommendation in a manner adverse
to ▇▇▇▇▇▇ Bancorp.
(d) by Innes Street if (i) at the time of such termination any of the
representations and warranties of ▇▇▇▇▇▇ Bancorp and ▇▇▇▇▇▇ Federal contained in
this Agreement shall not be true and correct to the extent that the condition
set forth in Section 6.01(b) and/or (c) hereof cannot be satisfied, (ii) there
shall have been any material breach of any covenant, agreement or obligation of
▇▇▇▇▇▇ Bancorp or ▇▇▇▇▇▇ Federal hereunder and such breach shall not have been
remedied by ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal or any other Person within fifteen
(15) Business Days after receipt by ▇▇▇▇▇▇ Bancorp of notice in writing from
Innes Street specifying the nature of such breach and requesting that it be
remedied, (iii) any event occurs such that a condition set forth in Sections
6.01 hereof which must be fulfilled before Innes Street is obligated to
consummate the Merger cannot be fulfilled and non-fulfillment is not waived by
Innes Street, or (iv) Innes Street has received a Superior Proposal, and in
accordance with Section 5.06 of this Agreement, the Board of Directors of Innes
Street has made a determination to accept such Superior Proposal subject to
approval thereof by the Innes Street's shareholders, and simultaneously with the
termination of this Agreement pursuant to this Section 7.01(d)(iv) Innes Street
enters into an acquisition agreement with respect to the Superior Proposal.
Section 7.02. Effect of Termination. Except as otherwise provided in
this Agreement, if this Agreement is terminated pursuant to Section 7.01 hereof,
this Agreement shall forthwith become void (other than Section 5.02 and Section
8.01 hereof, which shall remain in full force and effect), and there shall be no
further liability on the part of ▇▇▇▇▇▇ Bancorp or Innes Street to the other,
except that no party shall be relieved or released from any liabilities or
damages arising out of its willful breach of any provision of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Expenses. (a) Except as otherwise provided in this
Agreement, each party hereto shall bear and pay all costs and expenses ("Costs
and Expenses") incurred by it in connection with the transactions contemplated
by this Agreement, including fees and expenses of its own financial advisors,
consultants, accountants and counsel, and other costs and expenses ("Costs and
Expenses"). Notwithstanding anything in this Section 8.01(a) to the contrary, if
the failure to consummate the Merger shall be due to the willful breach of a
representation or warranty by one of the parties hereto or to the willful
failure of one of the parties hereto to perform or observe its covenants,
agreements or obligations set forth herein to be performed or observed by it at
or before the Merger Effective Date, then such party shall pay the other parties
all of their Costs and Expenses in addition to any remedies at law or in equity
which may be available to the other parties for breach of this Agreement.
(b) As a condition of ▇▇▇▇▇▇ Bancorp's willingness, and in order to
induce ▇▇▇▇▇▇ Bancorp to enter into this Agreement and to reimburse ▇▇▇▇▇▇
Bancorp for incurring the costs and expenses related to entering into this
Agreement and consummating the transactions contemplated by this Agreement,
Innes Street hereby agrees to pay ▇▇▇▇▇▇ Bancorp, and ▇▇▇▇▇▇ Bancorp shall be
entitled to payment of a fee of $1.5 million (the "Fee"), within five (5)
Business Days after written demand for payment is made by ▇▇▇▇▇▇ Bancorp,
following the occurrence of any of the events set forth below:
(i) Innes Street terminates this Agreement pursuant to
Section 7.01(d)(iv) or ▇▇▇▇▇▇ Bancorp terminates this Agreement pursuant to
Section 7.01(c)(iv); or
(ii) the entering into a definitive agreement by Innes Street
or Citizens Bank relating to a Superior Proposal or the consummation of a
Superior Proposal involving Innes Street or Citizens Bank within twelve (12)
months after the occurrence of any of the following: (i) the termination of the
Agreement by ▇▇▇▇▇▇ Bancorp pursuant to Section 7.01(c)(ii) following a willful
breach of any covenant, agreement or obligation of Innes Street or Citizens
Bank; (ii) the failure of the shareholders of Innes Street to approve this
Agreement after the occurrence of an Acquisition Proposal, or (iii) April 30,
2002 if prior thereto the Innes Street shareholders have not adopted of this
Agreement.
If demand for payment of the Fee is made pursuant to this Section
8.01(b) and payment is timely made, then ▇▇▇▇▇▇ Bancorp will not have any other
rights or claims against Innes Street, Citizens Bank, and their respective
officers, directors, attorneys and financial advisors under this Agreement, it
being agreed that the acceptance of the Fee under this Section 8.01(b) will
constitute the sole and exclusive remedy of ▇▇▇▇▇▇ Bancorp against Innes Street,
Citizens Bank, and their respective officers, directors, attorneys and financial
advisors.
Section 8.02. Non-Survival of Representations and Warranties. All
representations, warranties and, except to the extent specifically provided
otherwise herein, agreements and covenants, other than those agreements in
Article II and covenants set forth in Sections 502(a), 5.05 and 5.11, which will
survive the Merger, shall terminate on the Merger Effective Date.
Section 8.03. Amendment, Extension and Waiver. Subject to applicable
law, at any time prior to the consummation of the transactions contemplated by
this Agreement, the parties may (a) amend this Agreement, (b) extend the time
for the performance of any of the obligations or other acts of either party
hereto, (c) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (d) waive
compliance with any of the agreements or conditions contained in Articles V and
VI hereof or otherwise; provided, however, that after any approval of the
transactions contemplated by this Agreement by Innes Street's shareholders,
there may not be, without further approval of such shareholders, any amendment
of this Agreement which reduces the amount or changes the form of the
consideration to be delivered to Innes Street shareholders hereunder other than
as contemplated by this Agreement. This Agreement may not be amended except by
an instrument in writing authorized by the respective Boards of Directors and
signed, by duly authorized officers, on behalf of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed by a duly authorized
officer on behalf of such party, but such waiver or failure to insist on strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
Section 8.04. Entire Agreement. This Agreement, including the documents
and other writings referred to herein or delivered pursuant hereto, contains the
entire agreement and understanding of the parties with respect to its subject
matter. This Agreement supersedes all prior arrangements and understandings
between the parties, both written or oral with respect to its subject matter.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors; provided, however, that nothing in this
Agreement, expressed or implied, is intended to confer upon any Person, other
than the parties hereto and their respective successors, any rights, remedies,
obligations or liabilities other than pursuant to Article II and Sections
5.02(a), 5.05 and, with respect only to executive officers and directors and
their respective successors, Section 5.11.
Section 8.05. No Assignment. Neither party hereto may assign any
of its rights or obligations hereunder to any other person, without the prior
written consent of the other party hereto.
Section 8.06. Notices. All notices or other communications hereunder
shall be in writing and shall be deemed given if delivered personally, or mailed
by prepaid registered or certified mail (return receipt requested), addressed as
follows:
(a) If to ▇▇▇▇▇▇ Federal Bancorp, Inc. to:
▇▇▇▇▇▇ Federal Bancorp, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
P.O. Box 2249
Gastonia, North Carolina 28053-2249
Attn: ▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
with a copy to:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, PC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(b) If to Innes Street, to:
Innes Street Financial Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive Officer
with a copy to:
Brooks, Pierce, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Section 8.07. Captions. The captions contained in this Agreement are
for reference purposes only and are not part of this Agreement.
Section 8.08. Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
Section 8.09. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
Section 8.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic internal law (including the law of
conflicts of law) of the State of North Carolina, except to the extent federal
law and regulations applicable to financial institutions shall be controlling.
Section 8.11. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in
this Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions thereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
▇▇▇▇▇▇ FEDERAL BANCORP, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
▇▇▇▇▇▇ MERGER SUBSIDIARY, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
▇▇▇▇▇▇ FEDERAL BANK
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
▇▇▇▇▇▇ FEDERAL HOLDINGS, MHC
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
INNES STREET FINANCIAL CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive Officer
CITIZENS BANK, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive Officer
A-4
EXHIBIT A
A-1
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Agreement") is dated as of ________,
2001, by and between ▇▇▇▇▇▇ Federal Bank ("▇▇▇▇▇▇ Federal"), a Federal savings
association, and Citizens Bank, Inc. ("Citizens Bank"), a North Carolina savings
bank.
WHEREAS, pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated as of July ___, 2001, by and among ▇▇▇▇▇▇ Federal Holdings, MHC, ▇▇▇▇▇▇
Federal Bancorp, Inc. ("▇▇▇▇▇▇ Bancorp"), a Federal corporation, ▇▇▇▇▇▇ Merger
Subsidiary, Inc. ("▇▇▇▇▇▇ Merger Subsidiary"), a North Carolina corporation and
wholly-owned subsidiary of ▇▇▇▇▇▇ Bancorp, ▇▇▇▇▇▇ Federal, and Innes Street
Financial Corporation ("Innes Street"), a North Carolina corporation, and
Citizens Bank, ▇▇▇▇▇▇ Merger Subsidiary will be merged with and into ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ as the surviving entity will be merged with and into
▇▇▇▇▇▇ Bancorp, with ▇▇▇▇▇▇ Bancorp surviving this merger, with the result that
Citizens Bank will become a wholly owned subsidiary of ▇▇▇▇▇▇ Bancorp (the
"Company Merger"); and
WHEREAS, the Merger Agreement provides that as soon as practicable after the
merger of ▇▇▇▇▇▇ Merger Subsidiary with and into Innes Street, and the merger of
Innes Street with and into ▇▇▇▇▇▇ Bancorp, Citizens Bank shall be merged with
and into ▇▇▇▇▇▇ Federal (the "Merger");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Merger Agreement and for
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Citizens Bank and ▇▇▇▇▇▇ Federal hereby agree that, subject to the
terms and conditions hereinafter set forth, and in accordance with all
applicable laws and regulations, Citizens Bank shall be merged with and into
▇▇▇▇▇▇ Federal on even date herewith (the "Merger"). The parties hereto do
hereby agree and covenant as follows:
ARTICLE I
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
1.1 "Effective Time" shall mean the date and time at which the merger
contemplated by this Agreement of Merger becomes effective as provided in
Section 2.2 of this Agreement of Merger.
1.2 "Merger" shall refer to the merger of Citizens Bank with and into
▇▇▇▇▇▇ Federal as provided in Section 2.1 of this Agreement of Merger.
1.3 "Merging Banks" shall collectively refer to Citizens Bank and
▇▇▇▇▇▇ Federal.
1.4 "Thrift Regulations" shall mean the rules and regulations
promulgated under the Home Owners Loan Act.
1.5 "OTS" shall mean the Office of Thrift Supervision.
1.6 "Surviving Bank" shall refer to ▇▇▇▇▇▇ Federal as the
surviving bank of the Merger.
ARTICLE II
TERMS OF THE MERGER
2.1 The Merger.
(a) Subject to the terms and conditions set forth in the Merger
Agreement, at the Effective Time, Citizens Bank shall be merged with and into
▇▇▇▇▇▇ Federal pursuant to Section 552.13 of the Thrift Regulations. ▇▇▇▇▇▇
Federal shall be the surviving bank of the Merger and shall continue to be
governed by the Home Owners Loan Act and the Thrift Regulations.
(b) As a result of the Merger, (i) each share of common stock, par
value $_______ per share, of Citizens Bank issued and outstanding immediately
prior to the Effective Time shall be canceled and (ii) each share of common
stock, par value $1.00 per share, of ▇▇▇▇▇▇ Federal issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding and
shall constitute the only shares of capital stock of the Surviving Bank issued
and outstanding immediately after the Effective Time.
(c) At the Effective Time, the Surviving Bank shall be considered the
same business and corporate entity as each of the Merging Banks and thereupon
and thereafter all the property, rights, powers and franchises of each of the
Merging Banks shall vest in the Surviving Bank and the Surviving Bank shall be
subject to and be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of the Merging Banks and shall have succeeded to
all of each of their relationships, fiduciary or otherwise, as fully and to the
same extent as if such property, rights, privileges, powers, franchises, debts,
obligations, duties and relationship had been originally acquired, incurred or
entered into by the Surviving Bank. The deposit taking offices of Citizens Bank
shall be operated by the Surviving Bank. In addition, any reference to either of
the Merging Banks in any contract, will or document, whether executed or taking
effect before or after the Effective Time, shall be considered a reference to
the Surviving Bank if not inconsistent with the other provisions of the
contract, will or document; and any pending, action or other judicial proceeding
to which either of the Merging Banks is a party shall not be deemed to have
abated or to have been discontinued by reason of the Merger, but may be
prosecuted to final judgment, order or decree in the same manner as if the
Merger had not been made or the Surviving Bank may be substituted as a party to
such action or proceeding, and any judgment, order or decree may be rendered for
or against it that might have been rendered for or against either of the Merging
Banks if the Merger had not occurred.
2.2 Effective Time. The Merger shall become effective on the date and
at the time the Articles of Combination for such merger are endorsed by the OTS
pursuant to Section 552.13(k) of the Thrift Regulations.
2.3 Name of Surviving Bank. The name of the Surviving Bank shall be
"▇▇▇▇▇▇ Federal Bank."
2.4 Charter. On and after the Effective Time, the Charter of ▇▇▇▇▇▇
Federal shall be the Charter of the Surviving Bank until amended in accordance
with applicable law.
2.5 Bylaws. On and after the Effective Time, the Bylaws of ▇▇▇▇▇▇
Federal shall be the Bylaws of the Surviving Bank until amended in accordance
with applicable law.
2.5 Directors and Officers. Except as otherwise provided in the Merger
Agreement, on and after the Effective Time, until changed in accordance with the
Charter and Bylaws of the Surviving Bank, (i) the directors of the Surviving
Bank shall be the directors of ▇▇▇▇▇▇ Federal immediately prior to the Effective
Time and (ii) the officers of the Surviving Bank shall be the officers of ▇▇▇▇▇▇
Federal immediately prior to the Effective Time. The directors and officers of
the Surviving Bank shall hold office in accordance with the Charter and Bylaws
of the Surviving Bank.
ARTICLE III
MISCELLANEOUS
3.1 Conditions Precedent. The respective obligations of each party
under this Agreement of Merger shall be subject to (i) the satisfaction, or
waiver by the party permitted to do so, of the conditions set forth in Article
VI of the Merger Agreement and (ii) the approval of this Agreement of Merger by
▇▇▇▇▇▇ Bancorp as sole stockholder of Citizens Bank.
3.2 Termination. This Agreement of Merger shall be terminated
automatically without further act or deed of either of the parties hereto in the
event of the termination of the Merger Agreement in accordance with Section 7.01
thereof.
3.3 Amendments. To the extent permitted by the Thrift Regulations, this
Agreement of Merger may be amended by a subsequent writing signed by the parties
hereto upon the approval of the board of directors of each of the parties
hereto.
3.4 Successors. This Agreement of Merger shall be binding on the
successors of Citizens Bank and ▇▇▇▇▇▇ Federal.
IN WITNESS WHEREOF, Citizens Bank and ▇▇▇▇▇▇ Federal have caused this
Agreement of Merger to be executed by their duly authorized officers as of the
day and year first above written.
▇▇▇▇▇▇ Federal Bank
ATTEST:
By:
▇▇▇▇ ▇. ▇▇▇▇, ▇▇. ▇▇▇ ▇. ▇▇▇▇▇
Secretary President and Chief Executive Officer
Citizens Bank, Inc.
ATTEST:
By:
Ralphelle ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Secretary President and Chief Executive Officer
B-2
EXHIBIT B
B-1
July ___, 2001
▇▇▇▇▇▇ Federal Bancorp, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Ladies and Gentlemen:
▇▇▇▇▇▇ Federal Bancorp, Inc. ("▇▇▇▇▇▇ Bancorp"), ▇▇▇▇▇▇ Federal Bank
("▇▇▇▇▇▇ Federal"), ▇▇▇▇▇▇ Merger Subsidiary ("▇▇▇▇▇▇ Merger Subsidiary"), and
Innes Street Financial Corporation ("Innes Street") and Citizens Bank, Inc.
("Citizens Bank") have entered into an Agreement and Plan of Merger dated as of
July ___, 2001 (the "Merger Agreement"), pursuant to which, subject to the terms
and conditions set forth therein, (a) ▇▇▇▇▇▇ Merger Subsidiary will merge with
and into Innes Street, with Innes Street surviving the merger, to be followed by
the merger of Innes Street with and into ▇▇▇▇▇▇ Bancorp, with ▇▇▇▇▇▇ Bancorp
surviving the merger; (b) shareholders of Innes Street will receive $18.50 in
cash in exchange for each share of Innes Street Common Stock; and (c) thereafter
Citizens Bank will be merged with and into ▇▇▇▇▇▇ Federal, with ▇▇▇▇▇▇ Federal
being the surviving institution.
▇▇▇▇▇▇ Bancorp has requested, as a condition to its execution and
delivery to Innes Street of the Merger Agreement, that the undersigned, being
directors and executive officers of Innes Street, execute and deliver to ▇▇▇▇▇▇
Bancorp this Letter Agreement.
Each of the undersigned, in order to induce ▇▇▇▇▇▇ Bancorp to execute
and deliver to Innes Street the Merger Agreement, hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at all meetings of
shareholders of Innes Street called to vote for approval of the Merger Agreement
so that all shares of common stock of Innes Street then beneficially owned by
the undersigned, and as to which the undersigned has voting power, will be
counted for the purpose of determining the presence of a quorum at such meetings
and to vote all such shares (i) in favor of approval and adoption of the Merger
Agreement and the transactions contemplated thereby (including any amendments or
modifications of the terms thereof approved by the Board of Directors of Innes
Street), and (ii) against approval or adoption of any other merger, business
combination, recapitalization, partial liquidation or similar transaction
involving Innes Street;
(b) Agrees not to vote or execute any written consent to rescind or
amend in any manner any prior vote or written consent, as a shareholder of Innes
Street, to approve or adopt the Merger Agreement;
(c) Agrees not to sell, transfer or otherwise dispose of any common
stock of Innes Street on or prior to the date of the meeting of Innes Street
shareholders to vote on the Merger Agreement, except for transfers effected in
the undersigned's capacity as a fiduciary, and except for transfers to a lineal
descendant or a spouse of the undersigned, or to a trust for the benefit of one
or more of the foregoing persons, providing that in each such case the
transferee agrees in writing to be bound by the terms of this Letter Agreement;
and
(d) Represents that the undersigned has the capacity to enter into this
Letter Agreement and that it is a valid and binding obligation enforceable
against the undersigned in accordance with its terms, subject to bankruptcy,
insolvency and other laws affecting creditors' rights and general equitable
principles.
The obligations set forth herein shall terminate concurrently with any
termination of the Merger Agreement.
----------------------------
This Letter Agreement may be executed in two or more counterparts, each
of which shall be deemed to constitute an original, but all of which together
shall constitute one and the same Letter Agreement.
----------------------------
The undersigned intends to be legally bound hereby.
Sincerely,
Name
Title
C-2
EXHIBIT C
C-1
[Matters to be covered in Opinion of Counsel to be delivered to ▇▇▇▇▇▇ Bancorp
pursuant to Section 6.02(h) of the Agreement]
1. The formation of ▇▇▇▇▇▇ Merger Subsidiary and its merger with and into
Innes Street will be disregarded for federal income tax purposes, and the
transaction will be treated as a purchase by ▇▇▇▇▇▇ Bancorp of the outstanding
shares of Innes Street Common Stock. See 90-95, 1990-2 C.B. 67; Rev. Rul.
73~27, 1973-2 C.B. 301. The purchase will be treated as a qualified stock
purchase within the meaning of Section 338(d)(3) of the Code.
2. For federal income tax purposes, no gain or loss will be recognized by ▇▇▇▇▇▇
Bancorp, ▇▇▇▇▇▇ Merger Subsidiary or Innes Street as a result of the Merger.
3. For federal income tax purposes, the statutory merger of Innes Street into
▇▇▇▇▇▇ Bancorp pursuant to applicable law (the "Company Merger") will be treated
as a distribution by Innes Street in complete liquidation within the meaning of
Section 332 of the Code. See Section 1.332-2(d) of the Treasury Regulations.
4. For federal income tax purposes, no gain or loss will be recognized by ▇▇▇▇▇▇
Bancorp on its receipt of the assets of Innes Street distributed in the Company
Merger. See Section 332(a) of the Code.
5. For federal income tax purposes, no gain or loss will be recognized by Innes
Street on the distribution of its assets to ▇▇▇▇▇▇ Bancorp in the Company
Merger. See Section 337(a) of the Code.
6. For federal income tax purposes, the basis of the assets of Innes Street in
the hands of ▇▇▇▇▇▇ Bancorp will be the same as the basis of those assets in the
hands of Innes Street immediately preceding the Company Merger. See Section
334(b)(1) of the Code.
7. The holding period of the assets received by ▇▇▇▇▇▇ Bancorp in the Company
Merger will include the period during which such property was held by Innes
Street. See Section 1223(2) of the Code.
8. As provided in Section 381(c)(2) of the Code and Section 1.381(c)(2)-1 of the
Treasury Regulations, ▇▇▇▇▇▇ Bancorp will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of Innes Street as of
the date of the Company Merger, subject to the limitations of Sections 382 and
383 of the Code.
9. For federal income tax purposes, the statutory merger of Citizens Bank into
▇▇▇▇▇▇ Federal pursuant to applicable law (the "Bank Merger") will be treated as
tax-free reorganization within the meaning of Section 368(a) of the Code.
10. For federal income tax purposes, no gain or loss will be recognized by
▇▇▇▇▇▇ Federal on its receipt of the assets of Citizens Bank in constructive
exchange for ▇▇▇▇▇▇ Federal common stock in the Bank Merger. See Code. Section
1032(a).
11. For federal income tax purposes, no gain or loss will be recognized by
Citizens Bank on the distribution of its assets to ▇▇▇▇▇▇ Federal in
constructive exchange for ▇▇▇▇▇▇ Federal common stock and the assumption by
▇▇▇▇▇▇ Federal of the liabilities of Citizens Bank in the Bank Merger. Code
Sections 361(a) and 357(a).
12. For federal income tax purposes, the basis of the assets of Citizens Bank in
the hands of ▇▇▇▇▇▇ Federal will be the same as the basis of those assets in the
hands of Citizens Bank immediately preceding the Bank Merger. See Section 362(b)
of the Code.
13. The holding period of the assets received by ▇▇▇▇▇▇ Federal in the Bank
Merger will include the period during which such property was held by Citizens
Bank. See Section 1223(2) of the Code.
14. As provided in Section 381(c)(2) of the Code and Section 1.381(c)(2)-1 of
the Treasury Regulations, ▇▇▇▇▇▇ Federal will succeed to and take into account
the earnings and profits, or deficit in earnings and profits, of Citizens Bank
as of the date of the Bank Merger, subject to the limitations of Sections 382
and 383 of the Code.
