EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
By And Among
NEWSOUTH BANCORP, INC.,
NEWSOUTH BANK
AND
WASHINGTON FINANCIAL, INC.
And
GREEN STREET FINANCIAL CORP
AND
HOME FEDERAL SAVINGS AND LOAN ASSOCIATION
Dated as of August 9, 1999
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is dated as of August
9, 1999, by and among NEWSOUTH BANCORP, INC., a Virginia corporation
("NewSouth"), NEWSOUTH BANK, a North Carolina commercial bank and wholly owned
subsidiary of NewSouth ("Bank"), and WASHINGTON FINANCIAL, INC., a North
Carolina corporation and wholly owned subsidiary of Bank ("New Sub"); and GREEN
STREET FINANCIAL CORP, a North Carolina corporation ("Company"), and HOME
FEDERAL SAVINGS AND LOAN ASSOCIATION, a Federally chartered savings association
and wholly owned subsidiary of Company ("Savings").
WHEREAS, NewSouth, a bank holding company, with principal offices in
Washington, North Carolina, owns all of the issued and outstanding capital stock
of Bank, with its principal offices in Washington, North Carolina, and Bank owns
all the issued and outstanding capital stock of New Sub.
WHEREAS, Company, a non-diversified, unitary savings and loan holding
company, with principal offices in Fayetteville, North Carolina, owns all of the
issued and outstanding capital stock of Savings, with its principal offices in
Fayetteville, North Carolina.
WHEREAS, NewSouth and Company desire to combine their respective
holding companies and bank subsidiaries;
WHEREAS, the parties have determined that it would be desirable and in
their respective best interests, including the best interests of their
respective shareholders, for (i) New Sub to merge with and into Company (the
"Company Merger"), pursuant to which each of the issued and outstanding shares
of common stock of Company ("Company Common Stock") shall be automatically by
operation of law converted into the right to receive $15.25 in cash (the "Merger
Consideration") and the issued and outstanding shares of New Sub common stock
shall be converted by operation of law into an equal number of newly issued
shares of Company Common Stock all of which shall be owned by Bank, (ii)
immediately following the Company Merger, the Company shall be liquidated into
the Bank (the "Liquidation") and (iii) immediately following the Liquidation,
Savings shall be merged with and into the Bank (the "Bank Merger").
WHEREAS, the Boards of Directors of NewSouth and the Company (at
meetings duly called and held) have determined that this Agreement and the
transactions contemplated hereby are in the best interests of NewSouth and the
Company, respectively, and their respective stockholders and have approved this
Agreement.
WHEREAS, as a condition and inducement to NewSouth's, the Bank's and
New Sub's willingness to enter into this Agreement, NewSouth has entered into a
separate Voting Agreement (attached as Exhibit A) with each of the directors and
executive officers of the Company providing
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that each such person shall vote, or cause to be voted, all shares of Company
Common Stock which such person beneficially owns for approval of the Company
Merger as contemplated herein.
NOW THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, do hereby agree as follows:
ARTICLE I
THE COMPANY MERGER AND RELATED MATTERS
1.1 The Company Merger. At the Effective Time (as defined in Section
1.2 hereof), New Sub shall be merged with and into Company pursuant to the
provisions herein. The Company Merger shall be effected in accordance with any
and all applicable provisions of the North Carolina Business Corporation Act
(the "NCBCA"). Company shall thereafter continue as the surviving corporation
under the name of "Green Street Financial Corp". Company after the Effective
Time is sometimes referred to in this Agreement as the "Surviving Corporation."
At and after the Effective Time:
(1) The separate existence of New Sub shall cease.
(2) The Articles of Incorporation and the Bylaws of Company in effect
immediately prior to the Company Merger shall continue as the
Articles of Incorporation and Bylaws of the Surviving Corporation
after the Company Merger.
(3) The directors and executive officers of the Company immediately
prior to the Effective Time shall, as of the such Effective Time,
submit their written resignation and the directors and executive
officers of the Company immediately following the Company Merger,
until their successors shall be duly elected and qualified, shall
be such persons as are appointed by the Bank.
(4) From and after the Effective Time, the Company Merger shall have
the effects as set forth in Section 55-11-06 of the NCBCA.
1.2 Effective Time of the Company Merger. As soon as practicable after
each of the conditions set forth in Article V hereof have been satisfied or
waived, New Sub and Company will file, or cause to be filed, articles of merger
with the Secretary of State of North Carolina, which articles of merger shall be
in the form required by and executed in accordance with the applicable
provisions of the NCBCA. The Company Merger shall become effective at the time
the articles of merger are filed with the Secretary of State of North Carolina
or at such later time as is set forth in the articles of merger (the "Effective
Time"), which shall be immediately following the Closing (as defined in Section
1.11) and on the same day as the Closing if practicable.
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1.3 Conversion of Shares. The manner and basis of the conversion of the
respective outstanding shares of capital stock of Company and New Sub and the
consideration which the respective record holders thereof shall be entitled to
receive pursuant to the Company Merger shall be as follows:
(a) Company Common Stock.
(i) At the Effective Time each share of Company
Common Stock issued and outstanding immediately prior to the Effective
Time (except Dissenting Shares (as defined in Section 1.4) and shares
referred to in subparagraph (ii) of this Section 1.3(a)), shall
automatically by virtue of the effectiveness of the Company Merger and
without the necessity of any action on the part of the holder thereof,
be canceled and converted into the right to receive the Merger
Consideration of $15.25 in cash. After the Effective Time, the holders
of certificates representing shares of Company Common Stock shall cease
to have any rights as stockholders of the Company, except the right to
receive the Merger Consideration as provided herein and except with
respect to rights applicable to Dissenting Shares.
(ii) Any shares of Company Common Stock which are
owned or held by Company or any of its subsidiaries (except shares held
in any 401(k) plan or employee stock ownership plan of the Company or
any of its subsidiaries or other shares held in a fiduciary capacity or
shares held by Savings' Restricted Stock Plan) including any shares
held in a grantor trust associated with any of Company's or Savings'
Employee Plans or Benefit Arrangements (as such terms are defined in
Section 2.13 hereof) or by NewSouth or any of NewSouth's subsidiaries
(other than in a fiduciary capacity) at the Effective Time shall cease
to exist, and the certificates for such shares shall as promptly as
practicable be canceled and no Merger Consideration shall be issued or
exchanged therefor.
(b) New Sub Common Stock. Each share of common stock of New
Sub issued and outstanding immediately prior to the Effective Time shall,
automatically by virtue of the effectiveness of the Company Merger and without
necessity of any action on the part of the holder thereof, be canceled and
converted into an equal number of newly issued shares of common stock of the
Surviving Corporation.
(c) Company Stock Options. Upon the satisfaction of all
conditions set forth in Article V of this Agreement, immediately prior to the
Effective Time, each holder of an option outstanding under the Company's 1996
Stock Option Plan, as amended on January 28, 1998 (the "Company Option Plan"),
whether or not the option is then exercisable, shall receive from the Company in
cancellation of such option (such cancellation to be reflected in a written
agreement) a cash payment in an amount determined by multiplying the number of
shares of Company Common Stock subject to option by such holder by an amount
equal to the difference between the Merger Consideration and the per share
exercise price of such option, net of any cash which must be withheld under
federal and state income tax requirements. Immediately thereafter, Company
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shall cancel each such option. No cash payment for cancellation of existing
stock options shall be payable without the prior review of NewSouth.
(d) Restricted Stock Plan. With respect to Savings' Restricted
Stock Plan and awards for 83,888 shares of Company Common Stock pursuant
thereto, which as of immediately prior to the Effective Time will not be deemed
earned and non-forfeitable, upon the satisfaction of all conditions set forth in
Article V of this Agreement, Savings shall immediately prior to the Effective
Time pay, to each participant in such Restricted Stock Plan who has agreed to
surrender such awards for a cash payment, for each share subject to award which
is not then earned and non-forfeitable, cash in an amount equal to $15.25 plus
any dividend equivalents payable with respect to such shares up to the Effective
Time.
1.4 Dissenting Shares. Any shares of Company Common Stock held by a
holder who dissents from the Company Merger and becomes entitled to obtain
payment for the value of such shares of Company Common Stock pursuant to the
applicable provisions of the NCBCA shall be herein called "Dissenting Shares."
Any Dissenting Shares shall not, after the Effective Time, be entitled to vote
for any purpose or receive any dividends or other distributions, shall not be
entitled to receive the Company Merger Consideration and shall be entitled only
to such rights as are set forth in the NCBCA; provided however, that shares of
Company Common Stock held by a dissenting stockholder who subsequently withdraws
a demand for payment, fails to comply fully with the requirements of the NCBCA,
or otherwise fails to establish the right of such stockholder to be paid the
value of such stockholders' shares under the NCBCA shall be deemed to be
converted into the right to receive the Merger Consideration pursuant to the
terms and conditions referred to above. All negotiations with respect to payment
for Dissenting Shares shall be handled by NewSouth.
1.5 Right to Revise the Structure of the Transaction. NewSouth, Bank
and New Sub shall, in their reasonable discretion, have the unilateral right to
revise the structure of the corporate reorganization contemplated by this
Agreement in order to achieve tax benefits or for any other reason which they
may deem advisable; provided, however, that NewSouth, Bank and New Sub shall not
have the right to make any revision to the structure of the reorganization which
(i) changes the form or amount of the consideration payable hereunder, (ii)
would unreasonably impede or delay consummation of the transactions contemplated
herein or (iii) would result in treatment for Federal income tax purposes of
receipt by a shareholder of Company of the Merger Consideration set forth herein
as a taxable dividend. NewSouth, Bank and New Sub may exercise this right of
revision by giving written notice to Company and Savings in the manner provided
in Section 8.4 of this Agreement, which notice shall be in the form of an
amendment to this Agreement.
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1.6 Exchange of Shares for Cash
(a) The parties hereto agree that the Bank will act as the
exchange agent (the "Exchange Agent") for the exchange by Company stockholders
of their shares of Company Common Stock for the Merger Consideration, pursuant
to the terms of the letter agreement between the Bank and the Company attached
hereto as Exhibit B.
(b) After the Effective Time, holders of certificates
theretofore evidencing outstanding shares of Company Common Stock (other than
Dissenting Shares or as provided in Section 1.3(a)(ii)), upon surrender of such
certificates to the Exchange Agent, shall be entitled to receive cash payable
for the Merger Consideration, all as provided in Section 1.3 hereof. As soon as
practicable after the Effective Time, but not more than three (3) business days
thereafter, the Exchange Agent will send a notice and transmittal form to each
Company shareholder of record at the Effective Time whose Company Common Stock
shall have been converted into the Merger Consideration advising such
shareholder of the effectiveness of the Company Merger and the procedure for
surrendering to the Exchange Agent outstanding certificates formerly evidencing
Company Common Stock in exchange for the Merger Consideration. Upon surrender,
each certificate evidencing Company Common Stock shall be canceled. The Exchange
Agent shall pay by check to the Company shareholders who submit their stock
certificates pursuant to these instructions an amount equal to 100% of the
Merger Consideration for each of their shares within three (3) business days
following receipt of the stock certificate(s). Such checks shall be sent by
first class mail.
(c) All payments to Company shareholders pursuant to clause
(b) of this Section 1.6 shall be sent to the shareholder's address as shown on
the stock records of the Company, or to such other address as a shareholder may
specify in a written instruction submitted with the shareholder's stock
certificates.
(d) The Merger Consideration paid upon the surrender for
exchange of Company Common Stock in accordance with the above terms and
conditions shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock. No interest will be
paid or accrued on the cash payable upon surrender of such certificates.
(e) If payment for Company Common Stock is to be made to any
person other than the registered holder of Company Common Stock surrendered as
aforesaid, the amount of any stock transfer or similar taxes (whether imposed on
the registered holder or such person) payable on account of the transfer of
Company Common Stock will be deducted from the amount to be paid by the Exchange
Agent or the Exchange Agent may refuse to make such payment unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted to
the Exchange Agent. Shares as to which dissenting shareholders' rights have been
properly perfected shall be treated in the manner provided by Section 1.4.
(f) In the event any certificate for Company Common Stock
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or
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destroyed certificate, upon the making of an affidavit of that fact by the
holder thereof, the Merger Consideration as may be required pursuant hereto;
provided, however, that NewSouth may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against NewSouth, the Company,
the Exchange Agent or any other party with respect to the certificate alleged to
have been lost, stolen or destroyed.
1.7 Status of Certificates. At and after the Effective Time, each
outstanding certificate which previously represented shares of Company Common
Stock (except any Dissenting Shares, which Dissenting Shares will evidence only
the rights specified in Section 1.4 hereof, and as set forth in Section
1.3(a)(ii) hereof), shall until surrendered for exchange pursuant to this
Article I be deemed for all purposes to evidence only the right to receive cash
in accordance with the provisions of this Agreement and shall not be deemed to
confer upon the holder thereof any voting, dividend or other rights of a
shareholder of the Surviving Corporation. After the Effective Time, there shall
be no further registration or transfer on the records of the Surviving
Corporation of shares of Company Common Stock (except the shares of common stock
of the Surviving Corporation issued pursuant to Section 1.3(b) hereof), and if a
certificate formerly representing such shares is presented to NewSouth, it shall
be forwarded to the Exchange Agent for cancellation and exchange for the Merger
Consideration.
1.8 Shareholders' Meeting. The Company shall, at the earliest
practicable date, hold a meeting of its shareholders (the "Company Shareholders'
Meeting") to submit for shareholder approval this Agreement and the Company
Merger and all related matters necessary to the consummation of the transactions
contemplated hereby.
1.9 Proxy Statement.
(a) For the purpose of holding the Company Shareholders'
Meeting, the parties hereto shall cooperate in the preparation of an appropriate
proxy statement satisfying all applicable requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and the rules and regulations
thereunder (the "Proxy Statement").
(b) NewSouth shall furnish such information concerning
NewSouth and the NewSouth Subsidiaries (as defined in Section 3.1 hereof) as is
necessary in order to cause the Proxy Statement, insofar as it relates to such
corporations, to comply with Section 1.9(a) hereof. NewSouth agrees promptly to
advise the Company if at any time prior to the Company Shareholders' Meeting any
information provided by NewSouth in the Proxy Statement becomes incorrect or
incomplete in any material respect and to provide the information needed to
correct such inaccuracy or omission.
(c) NewSouth shall have the right to review and comment on the
form of Proxy Statement prior to its filing with the SEC and prior to its
mailing to Company shareholders.
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1.10 Cooperation; Regulatory Approvals. The parties shall cooperate and
use reasonable best efforts to complete the transactions contemplated hereunder
at the earliest practicable date. Each party shall cause each of their
affiliates and subsidiaries to cooperate in the preparation and submission by
them, as promptly as reasonably practicable, of such applications, petitions,
and other documents and materials as any of them may reasonably deem necessary
or desirable to the Office of Thrift Supervision ("OTS"), Federal Deposit
Insurance Corporation ("FDIC"), Federal Reserve Board ("FRB"), the North
Carolina Office of the Commissioner of Banks ("Commission"), Federal Trade
Commission ("FTC"), Department of Justice ("DOJ"), SEC, applicable Secretary of
State, other regulatory authorities, holders of the voting shares of common
stock of NewSouth and the Company, and any other persons for the purpose of
obtaining any approvals or consents necessary to consummate the transactions
contemplated by this Agreement. At the date hereof, none of the parties is aware
of any reason that the Governmental Approvals (as such term is defined in
Section 5.1(c) herein) required to be obtained by it would not be obtained in a
timely manner.
1.11 Closing. If (i) Company shareholder approvals have been received,
and (ii) all conditions of this Agreement have been satisfied or waived, a
closing (the "Closing") shall take place as promptly as practicable thereafter
at the principal office of NewSouth or at such other place as the parties hereto
may mutually agree at which the parties hereto will exchange certificates,
opinions, letters and other documents as required hereby and will make the
filings described in Section 1.2 hereof. Such Closing will take place as soon as
practicable as agreed by the parties, provided, however, that the Closing shall
be no more than thirty (30) days after the satisfaction or waiver of all
conditions and/or obligations contained in Article V of this Agreement.
1.12 Closing of Transfer Books. At the Effective Time, the transfer
books for Company Common Stock shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on such books.
1.13 Liquidation Account. The liquidation account established by
Savings pursuant to the plan of conversion adopted by it in connection with its
conversion from a mutual federal savings and loan association to a stock savings
and loan association shall, to the extent required by applicable law, be
maintained by Bank after the Bank Merger for the benefit of those persons and
entities who were savings account holders of Savings on the eligibility and
supplemental eligibility record dates for such conversion and who continue, from
time to time, to have rights therein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SAVINGS
Company and Savings represent and warrant to NewSouth, the Bank and New
Sub that, except as disclosed in Schedule I attached hereto and except that
Savings does not make any representation or warranty regarding the Company:
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2.1 Organization, Good Standing, Authority, Insurance, Etc. The Company
is a corporation organized, validly existing and in good standing under the laws
of the State of North Carolina. Section 2.1 of Schedule I lists each
"subsidiary" of the Company and Savings within the meaning of Section
10(a)(1)(G) of HOLA, (individually a "Company Subsidiary" and collectively the
"Company Subsidiaries") (unless otherwise noted herein all references to a
"Company Subsidiary" or to the "Company Subsidiaries" shall include Savings).
Each of the Company Subsidiaries is organized, validly existing, and in good
standing under the laws of the respective jurisdiction under which it is
organized, as set forth in Section 2.1 of Schedule I. The Company and each
Company Subsidiary has all requisite power and authority and is duly qualified
and licensed to own, lease and operate its properties and conduct its business
as it is now being conducted. The Company has delivered to NewSouth a true,
complete and correct copy of the certificate of incorporation, charter, or other
organizing document and of the bylaws, as in effect on the date of this
Agreement, of Company and each Company Subsidiary. The Company and each Company
Subsidiary is qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which qualification is necessary under
applicable law, except to the extent that any failures to so qualify would not,
in the aggregate, have a material adverse effect on the business, financial
condition or results of operations of the Company and the Company Subsidiaries,
taken as a whole. Savings is a member in good standing of the Federal Home Loan
Bank of Atlanta and all eligible accounts issued by Savings are insured by the
Savings Association Insurance Fund ("SAIF") to the maximum extent permitted
under applicable law. Savings is a "domestic building and loan association" as
defined in Section 7701(a)(19) of the Code and is a "qualified thrift lender" as
defined in Section 10(m) of the HOLA and the Thrift Regulations. The Company is
registered as a savings and loan holding company under the HOLA.
The minute books of the Company and the Company's Subsidiaries contain
complete and accurate records of all meetings and other corporate actions held
or taken by their respective shareholders and Boards of Directors (including the
committees of such Boards).
2.2 Capitalization. The authorized capital stock of the Company
consists of (i) 10,000,000 shares of common stock, no par value, of which
3,879,269 shares were issued and outstanding as of the date of this Agreement,
and (ii) 1,000,000 shares of Preferred Stock, no par value, of which no shares
were outstanding as of the date of this Agreement. All outstanding shares of
Company Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except for outstanding options to
purchase 429,812 shares of Company Common Stock under the Company Option Plan
and awards for 103,147 shares of Company Common Stock under the Savings
Restricted Stock Plan, which awards as of the date hereof are not deemed earned
and non-forfeitable, as of the date of this Agreement, there are no options,
convertible securities, warrants, or other rights (preemptive or otherwise) to
purchase or acquire any of the Company's capital stock from the Company and no
oral or written agreement, contract, arrangement, understanding, plan or
instrument of any kind (collectively, "Stock Contract") to which the Company or
any of its affiliates is subject with respect to the issuance, voting (other
than the Voting Agreement contemplated herein) or sale of issued or unissued
shares of the Company's capital stock. A true and complete copy of the Company
Option Plan, as in effect on the date of this Agreement, is attached as Section
2.2 of Schedule I.
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2.3 Ownership of Subsidiaries. All the outstanding shares of the
capital stock of the Company Subsidiaries are validly issued, fully paid,
nonassessable and owned beneficially and of record by the Company or a Company
Subsidiary free and clear of any lien, claim, charge, restriction or encumbrance
(collectively, "Encumbrance"). Except as set forth in Section 2.3 of Schedule I,
there are no options, convertible securities, warrants, or other rights
(preemptive or otherwise) to purchase or acquire any capital stock of any
Company Subsidiary and no contracts to which the Company or any of its
affiliates is subject with respect to the issuance, voting or sale of issued or
unissued shares of the capital stock of any of the Company Subsidiaries. Neither
the Company nor any Company Subsidiary owns any material investment of the
capital stock or other equity securities (including securities convertible or
exchangeable into such securities) of or profit participations in any "company"
(as defined in Section 10(a)(1)(C) of the HOLA) other than the Federal Home Loan
Bank of Atlanta except as set forth in Section 2.3 of Schedule I.
2.4 Financial Statements and Reports.
(a) No registration statement, proxy statement, schedule or
report filed by the Company with the SEC under the 1933 Act or the 1934 Act
("SEC Reports"), on the date of effectiveness in the case of such registration
statements, or on the date of filing in the case of such reports or schedules,
or on the date of mailing in the case of such proxy statements, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Company and
the Company Subsidiaries have timely filed all reports and documents required to
be filed by them with the SEC, the OTS, or the FDIC under various securities and
banking laws and regulations for the last five years (or such shorter period as
they may have been subject to such filing requirements), except to the extent
that all failures to so file, in the aggregate, would not have a material
adverse effect on the business, financial condition or results of operations of
the Company and the Company Subsidiaries, taken as a whole. All such documents,
as finally amended, complied in all material respects with applicable
requirements of law and, as of their respective date or the date as amended,
with respect to the SEC Reports, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading and, with respect to reports and documents
filed with banking regulatory agencies, were accurate in all material respects.
Except to the extent stated therein, all financial statements and schedules
included in the documents referred to in the preceding sentences (or to be
included in similar documents to be filed after the date hereof) (i) are or will
be (with respect to financial statements in respect of periods ending after
March 31, 1999) in accordance with the Company's books and records and those of
any of the Company Subsidiaries, and (ii) present (and in the case of financial
statements in respect of periods ending after March 31, 1999, will present)
fairly the consolidated statement of financial condition and the consolidated
statements of income, stockholders' equity and cash flows of the Company and the
Company Subsidiaries as of the dates and for the periods indicated in accordance
with generally accepted accounting principles applied on a basis consistent with
prior periods (except for the omission of notes to unaudited statements, year
end adjustments to interim results and changes to generally accepted accounting
principles). The consolidated financial statements of the Company
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at September 30, 1998 and for the three years then ended and the consolidated
financial statements for all periods thereafter up to the Closing reflect or
will reflect, as the case may be, all liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due and
regardless of when asserted), as of their respective dates, of the Company and
the Company Subsidiaries required to be reflected in such financial statements
according to generally accepted accounting principles and in the opinion of
Company management contain or will contain adequate reserves for losses on loans
and properties acquired in settlement of loans, taxes and all other material
accrued liabilities and for all reasonably anticipated material losses, if any
as of such date. There exists no set of circumstances that could reasonably be
expected to result in any liability or obligation material to the Company or the
Company Subsidiaries, taken as a whole, except as disclosed in such consolidated
financial statements at September 30, 1998 or for transactions effected or
actions occurring or omitted to be taken after September 30, 1998 (i) in the
ordinary course of business, or (ii) as permitted by this Agreement.
(b) The Company has delivered to NewSouth each SEC Report
filed, used or circulated by it with respect to periods since November 1996
through the date of this Agreement and will promptly deliver each such SEC
Report filed, used or circulated after the date hereof, each in the form
(including exhibits and any amendments thereto) filed with the SEC (or, if not
so filed, in the form used or circulated), including, without limitation, its
Annual Reports on Form 10-K and its Quarterly Reports on Form 10-Q.
(c) Except (i) as disclosed in Section 2.4 of Schedule I, (ii)
as reflected, noted or adequately reserved against in the financial statements
referred to in this Section 2.4, or (iii) for deposits incurred in the ordinary
course of business consistent with past practice, Company and the Company
Subsidiaries do not have any material liabilities (whether accrued, absolute,
contingent or otherwise).
2.5 Absence of Changes.
(a) Except as disclosed in Section 2.4 of Schedule I, since
September 30, 1998 and through the date hereof, there has been no material
adverse change in the business, properties, financial condition, results of
operations or assets of the Company and the Company Subsidiaries, taken as a
whole. Except as disclosed in Section 2.4 of Schedule I, since September 30,
1998 and through the date hereof, there is no occurrence, event or development
of any nature existing or, to the best knowledge of the Company, threatened,
which may reasonably be expected to have a material adverse effect upon the
business, properties, financial condition, operations or assets of the Company
or any Company Subsidiary, taken as a whole.
(b) Since September 30, 1998, each of the Company and the
Company Subsidiaries has owned and operated their respective assets, properties
and businesses in the ordinary course of business and consistent with past
practice.
2.6 Proxy Statement. At the time the Proxy Statement is mailed to the
shareholders of the Company for the solicitation of proxies for the approvals
referred to in Section 1.8 hereof and
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at all times subsequent to such mailings up to and including the times of such
approval, such Proxy Statement (including any supplements thereto), with respect
to all information set forth therein relating to the Company (including the
Company Subsidiaries), its shareholders and representatives, Company Common
Stock and all other transactions contemplated hereby, will:
(a) Comply in all material respects with applicable provisions
of the 1934 Act and the rules and regulations under such Act; and
(b) Not contain any statement which, at the time and in light
of the circumstances under which it is made, is false or misleading with respect
to any material fact or which omits to state any material fact necessary in
order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of a proxy for the Company Shareholders' Meeting which has become
false or misleading.
2.7 No Broker's or Finder's Fees. Except as set forth in Section 2.7 of
Schedule I (which shall also include a copy of any engagement agreement), no
agent, broker, investment banker, person or firm acting on behalf or under
authority of the Company or any of the Company Subsidiaries is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly in connection with the Company Merger or any other
transaction contemplated hereby.
2.8 Litigation and Other Proceedings. Except as set forth in Section
2.8 of Schedule I and except for matters which would not have a material adverse
effect on the business, financial condition or results of operations of the
Company and the Company Subsidiaries taken as a whole, neither the Company nor
any Company Subsidiary is a defendant in, nor is any of its property subject to,
any pending, or, to the best knowledge of the management of the Company,
threatened, claim, action, suit, investigation, or proceeding, or subject to any
judicial order, judgment or decree.
2.9 Compliance with Law.
(a) The Company and the Company Subsidiaries are in compliance
in all material respects with all material laws and regulations applicable to
their respective business or operations or with respect to which compliance is a
condition of engaging in the business thereof, and neither the Company nor any
Company Subsidiary has received notice from any federal, state or local
government or governmental agency of any material violation of, and does not
know of any material violations of, any of the above.
(b) The Company and each of its Subsidiaries have all material
permits, licenses, certificates of authority, orders and approvals of, and have
made all material filings, applications and registrations with, all federal,
state and local governmental or regulatory bodies that are required in order to
permit them to carry on their respective business as they are presently
conducted.
11
2.10 Corporate Actions.
(a) The Boards of Directors of the Company and Savings have
duly authorized their respective officers to execute and deliver this Agreement
and to take all action necessary to consummate the Company Merger and the other
transactions contemplated hereby. The Board of Directors of the Company has by
appropriate resolutions made the provisions of Article XIII of the Company's
Articles of Incorporation inapplicable to this Agreement and the Company Merger
and has authorized and directed the submission for shareholders' approval of
this Agreement, together with the Company Merger and any other action requiring
such approvals. All corporate authorization by the Board of Directors of the
Company required for the consummation of the Company Merger has been obtained or
will be given when required by applicable law. Savings has taken, or shall take
prior to the Effective Time, all necessary actions to approve and effectuate an
amendment to Section 9 of its Federal Stock Charter to make its provisions
inapplicable to NewSouth and the Company Merger and the Bank Merger (the
"Charter Amendment").
(b) The Company's Board of Directors has taken or will take
all necessary action to exempt this Agreement, the Company Merger, the Bank
Merger and the transactions contemplated hereby and thereby from, (i) any
applicable state takeover laws, (ii) any North Carolina laws limiting or
restricting the voting rights of shareholders, (iii) any North Carolina laws
requiring a shareholder approval vote in excess of the vote normally required in
transactions of similar type not involving a "related person," "interested
shareholder" or person or entity of similar type, and (iv) any provision in its
or any of the Company Subsidiaries' articles/certificate of incorporation,
charter or bylaws requiring a shareholder approval vote in excess of the vote
normally required in transactions of similar type not involving a "related
person," interested shareholder" or person or entity of similar type. Without
limiting the above, the Company's Board of Directors has made inapplicable to
the Company Merger the higher shareholder vote requirement set forth in Article
XIV of the Company's Articles of Incorporation.
2.11 Authority. Except as disclosed in Section 2.11 of Schedule I, the
execution, delivery and performance of their obligations under this Agreement by
the Company and Savings and the Bank Merger by Savings does not violate or
conflict with any of the provisions of, or constitute a breach or default under
or give any person the right to terminate, cancel or accelerate payment or
performance under or result in the creation of any Encumbrance upon (i) subject
to the Charter Amendment, the articles of incorporation or bylaws of the Company
or the certificate of incorporation, charter or bylaws of any Company
Subsidiary, (ii) any law, rule, ordinance, or regulation or judgment, decree,
order, award or governmental or non-governmental permit or license to which it
or any of the Company Subsidiaries is subject, (iii) any other material
agreement, material lease, material contract, note, mortgage, indenture,
arrangement or other obligation or instrument ("Contract") to which the Company
or any of the Company Subsidiaries is a party or is subject or by which any of
their properties or assets is bound or (iv) any property or asset of Company or
Savings pursuant to any note, bond, mortgage, indenture, license agreement or
other instrument or obligation. The parties acknowledge that the consummation of
the Company Merger and the other transactions contemplated hereby is subject to
various regulatory approvals. Subject to the approval and effectiveness of the
Charter Amendment, the
12
Company and Savings, as applicable, have all requisite corporate power and
authority to enter into this Agreement and to perform their respective
obligations hereunder and thereunder, except, with respect to this Agreement and
the Company Merger, the approval of the Company's shareholders of this Agreement
required under applicable law. Other than the receipt of Governmental Approvals
(as defined in Section 5.1(c)), the approval of shareholders of this Agreement,
and the consents specified in Schedule I with respect to the Contracts, no
consents or approvals are required on behalf of Company in connection with the
consummation of the transactions contemplated by this Agreement and the Bank
Merger. This Agreement constitutes the valid and binding obligation of the
Company and Savings, as applicable, and each is enforceable in accordance with
its terms, except as enforceability may be limited by applicable laws relating
to bankruptcy, insolvency or creditors rights generally and general principles
of equity.
2.12 Employment Arrangements. Except as disclosed in Section 2.12 of
Schedule I, there are no employment, severance or other agreements, plans or
arrangements with any current or former directors, officers or employees of
Company or any Company Subsidiary which may not be terminated without penalty
(including any augmentation or acceleration of benefits) on 30 days or less
notice to such person. Except as disclosed in Section 2.12 of Schedule I, no
payments to directors, officers or employees of the Company or the Company
Subsidiaries resulting from the transactions contemplated hereby will cause the
imposition of excise taxes under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") or the disallowance of a deduction to the Company
or any Company Subsidiary pursuant to Sections 162 or 280G of the Code.
2.13 Employee Benefits.
(a) Neither the Company nor any of the Company Subsidiaries
maintains any funded deferred compensation plans (including profit sharing,
pension, savings or stock bonus plans), unfunded deferred compensation
arrangements or employee benefit plans as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), other
than any plans ("Employee Plans") set forth in Section 2.13 of Schedule I (true
and correct copies of which have been delivered to NewSouth). None of Company or
any of the Company Subsidiaries has incurred or reasonably expects to incur any
liability to the Pension Benefit Guaranty Corporation except for required
premium payments which, to the extent due and payable, have been paid. The
Employee Plans intended to be qualified under Section 401(a) of the Code are so
qualified, and Company is not aware of any fact which would adversely affect the
qualified status of such plans. Except as set forth in Section 2.13 of Schedule
I, neither the Company nor any of the Company Subsidiaries (a) provides health,
medical, death or survivor benefits to any former employee or beneficiary
thereof, or (b) maintains any form of current (exclusive of base salary and base
wages) or deferred compensation, bonus, stock option, stock appreciation right,
benefit, severance pay, retirement, incentive, group or individual health
insurance, welfare or similar plan or arrangement for the benefit of any single
or class of directors, officers or employees, whether active or retired
(collectively "Benefit Arrangements"). With respect to each Employee Plan and
Benefit Arrangement of the Company or any Company Subsidiary, Section 2.13 of
Schedule I sets forth as of the date of this Agreement: (i) any and all payments
more than 30 days past due, (ii) the actuarial present value, determined and
prepared
13
in accordance with GAAP (based, where applicable, on the same actuarial
assumptions as those previously used for funding purposes, other than turnover
assumptions, and computed on the basis of a terminated plan), of any accrued
benefits or other obligations not listed elsewhere in this schedule, including
without limitation, premiums and contributions for which the Company or any
Company Subsidiary is or may be directly or indirectly liable to present or
former employees, officers, directors, and their beneficiaries, (iii) the net
fair market value of the assets held in any fund, policy, or other arrangement,
and (iv) the amount of any contribution or other obligation paid, accrued, or
payable, or reasonably expected to be payable, between the date of this
Agreement and the Closing, including but not limited to contributions by Savings
to its Employee Stock Ownership Plan (the "Savings ESOP") to repay its loan in
accordance with past practices (pro rated through the Closing), subject to
applicable tax law limitations.
(b) Except as set forth in Section 2.13 of Schedule I, all
Employee Plans and Benefit Arrangements which presently are in effect were in
effect for substantially all of calendar year 1998 to date and there has been no
material amendment thereof (other than amendments required to comply with
applicable law) or no material increase in the cost thereof or benefits payable
thereunder on or after October 1, 1998.
(c) Each Company and Company Subsidiary Employee Plan and
Benefit Arrangement has been administered to date, and will be administered
until the Closing, in accordance with their terms and in compliance with the
Code, ERISA, and all other applicable rules and regulations. With respect to
each Employee Plan and Benefit Arrangement, Company and the Company Subsidiary,
as applicable (i) have, in a timely, accurate, and proper manner, both filed all
required government reports and made all required employee communications, and
(ii) between the date of this Agreement and the Closing, will complete and file
all such required reports. No condition exists that could constitute grounds for
the termination of any Employee Plan under Section 4042 of ERISA; no "prohibited
transaction," as defined in Section 406 of ERISA and Section 4975 of the Code,
has occurred with respect to any Employee Plan, or any other employee benefit
plan maintained by Company or any Company Subsidiary which is covered by Title I
of ERISA, which could subject any person to liability under Title I of ERISA or
to the imposition of any tax under Section 4975 of the Code nor has any Employee
Plan subject to Part III of Subtitle B of Title I of ERISA or Section 412 of the
Code, or both, incurred any "accumulated funding deficiency," as defined in
Section 412 of the Code, whether or not waived; nor has Company or any Company
Subsidiary failed to make any contribution or pay any amount due and owing as
required by the terms of any Employee Plan or Benefit Arrangement. Neither
Company nor any Company Subsidiary has incurred or expects to incur, directly or
indirectly, any liability under Title IV of ERISA or otherwise arising in
connection with the termination of, or a complete or partial withdrawal from,
any plan covered or previously covered by Title IV of ERISA which could
constitute a liability of NewSouth, or any of its affiliates at or after the
Effective Time.
(d) Except as set forth in Section 2.13 of Schedule I, the
assets of Savings' defined benefit pension plan do not include equity
securities.
14
(e) Awards for 171,925 shares of Company Common Stock have
previously been awarded to employees and directors of Savings pursuant to
Savings Restricted Stock Plan, of which awards for 68,778 shares of Company
Common Stock became earned and non-forfeitable prior to the date of this
Agreement. Awards for the remaining 103,147 shares of Company Common Stock,
including dividend equivalents payable with respect to such shares up to the
Effective Time pursuant to such Restricted Stock Plan, will become earned and
non-forfeitable in accordance with the schedule set forth in Section 2.13 of
Schedule I.
2.14 Information Furnished. No statement contained in any schedule,
certificate or other document furnished (whether prior to or subsequent to the
date of this Agreement) or to be furnished in writing by or on behalf of Company
to NewSouth pursuant to this Agreement contains or will contain any untrue
statement of a material fact or any material omission. No information material
to the Company Merger or the Bank Merger and which is necessary to make the
representations and warranties not misleading has been withheld from NewSouth.
2.15 Property and Assets. The Company and the Company Subsidiaries have
marketable title to all of their real property reflected in the Company's
consolidated financial statements at September 30, 1998, referred to in Section
2.4 hereof, or acquired subsequent thereto, free and clear of all Encumbrances,
except for (a) such items shown in such financial statements or in the notes
thereto, (b) liens for current real estate taxes not yet delinquent, (c)
customary title exceptions that have no material adverse effect upon the value
of such property, (d) property sold or transferred in the ordinary course of
business since the date of such financial statements, and (e) pledges or liens
incurred in the ordinary course of business. Neither the Company nor any Company
Subsidiary leases as either lessor or lessee any interest in real property
except as set forth in Exhibit 2.15 of Schedule I. No consent of the lessor of
any material personal property lease is required for consummation of the Company
Merger except as set forth in Section 2.15 of Schedule I. There has been no
material physical loss, damage or destruction, whether or not covered by
insurance, affecting the real properties of Company and the Company Subsidiaries
since September 30, 1998, except such loss, damage or destruction which does not
have a material adverse effect on the Company and the Company Subsidiaries,
taken as a whole. All property and assets material to their business and
currently used by Company and the Company Subsidiaries are, in all material
respects, in good operating condition and repair, normal wear and tear excepted.
2.16 Agreements and Instruments. Except as set forth in Section 2.16 of
Schedule I, neither the Company nor any Company Subsidiary is a party to (a) any
material agreement, arrangement or commitment not made in the ordinary course of
business, (b) any agreement which involves annual payments in excess of $10,000
or has a remaining term of one year or more, in each case whether or not in the
ordinary course, (c) any agreement, indenture or other instrument relating to
the borrowing of money by the Company or any Company Subsidiary or the guarantee
by the Company or any Company Subsidiary of any such obligation (other than
Federal Home Loan Bank advances with a maturity of one year or less from the
date hereof), (d) any agreements to make loans or for the provision, purchase or
sale of goods, services or property between Company or any Company Subsidiary
and any director or officer of Company or Savings, or any
15
member of the immediate family or affiliate of any of the foregoing, (e) any
agreements with or concerning any labor or employee organization to which
Company or any Company Subsidiary is a party, (f) any agreements between Company
or any Company Subsidiary and any five percent or more shareholder of Company,
and (g) any agreements, directives, orders, or similar arrangements between or
involving the Company or any Company Subsidiary and any state or federal savings
institution regulatory authority.
2.17 Material Contract Defaults. Neither the Company nor any Company
Subsidiary nor, to the best knowledge of the Company and Savings, the other
party thereto is in default in any respect under any contract, agreement,
commitment, arrangement, lease, insurance policy, or other instrument to which
the Company or a Company Subsidiary is a party or by which its respective
assets, business, or operations may be bound or affected or under which it or
its respective assets, business, or operations receives benefits, and which
default is reasonably expected to have either individually or in the aggregate a
material adverse effect on the Company and any Company Subsidiary, taken as a
whole, 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.
2.18 Tax Matters.
(a) The Company and each of the Company Subsidiaries have duly
and properly filed all federal, state, local and other tax returns required to
be filed by them and have made timely payments of all taxes due and payable,
whether disputed or not; the current status of audits of such returns by the
Internal Revenue Service ("IRS") and other applicable agencies is as set forth
in Section 2.18 of Schedule I; and there is no agreement by the Company or any
Company Subsidiary for the extension of time or for the assessment or payment of
any taxes payable. Neither the IRS nor any other taxing authority is now
asserting or, to the best knowledge of Company, threatening to assert any
deficiency or claim for additional taxes (or interest thereon or penalties in
connection therewith), nor is the Company aware of any basis for any such asser
tion or claim. The Company and each of the Company Subsidiaries have complied in
all material respects with applicable IRS backup withholding requirements and
have filed all appropriate information reporting returns for all tax years for
which the statute of limitations has not closed. The Company and each Company
Subsidiary have complied in all material respects with all applicable state law
sales and use tax collection and reporting requirements.
(b) Adequate provision for any federal, state or local taxes
due or to become due for the Company or any of the Company Subsidiaries for any
period or periods through and including September 30, 1998, has been made and is
reflected on the September 30, 1998 audited Company consolidated financial
statements and has been or will be made in accordance with generally accepted
accounting principles with respect to periods ending after September 30, 1998.
2.19 Environmental Matters. Except as set forth in Section 2.19 of
Schedule I, neither the Company nor any Company Subsidiary owns or leases any
properties affected by toxic waste, radon gas or other hazardous conditions or
constructed in part with the use of asbestos. Neither the Company nor any
Company Subsidiary has knowledge of, nor has the Company or any
16
Company Subsidiary received written notice from any governmental or regulatory
body of, any conditions, activities, practices or incidents which is reasonably
likely to interfere with or prevent compliance or continued compliance with
hazardous substance laws or any regulation, order, decree, judgment or
injunction, issued, entered, promulgated or approved thereunder, or which may
give rise to any common law or legal liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant or
chemical, or industrial, toxic or hazardous substance or waste. There is no
civil, criminal or administrative claim, action, suit, proceeding, hearing or
investigation pending or, to Company's knowledge, threatened against Company or
any Company Subsidiary relating in any way to such hazardous substance laws or
any regulation, order, decree, judgment or injunction issued, entered,
promulgated or approved thereunder.
2.20 Loan Portfolio: Portfolio Management.
(a) All evidences of indebtedness reflected as assets in the
consolidated statement of financial condition of Company as of September 30,
1998, or acquired since such date, are (except with respect to those assets
which are no longer assets of the Company or any Company Subsidiary) binding
obligations of the respective obligors named therein except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors rights generally, and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding may be brought, and the payment of no
material amount thereof (either individually or in the aggregate with other
evidences of indebtedness) is subject to any defenses which have been threatened
or asserted against the Company or any Company Subsidiary. All such indebtedness
which is secured by an interest in real property is secured by a valid and
perfected mortgage lien having the priority specified in the loan documents. All
loans originated or purchased by Savings were at the time entered into and at
all times since have been in compliance in all material respects with all
applicable laws (including, without limitation, all consumer protection laws)
and regulations. Savings administers its loan and investment portfolios
(including, but not limited to, adjustments to adjustable mortgage loans) in all
material respects in accordance with all applicable laws and regulations and the
terms of applicable instruments. The records of Savings regarding all loans
outstanding on its books are accurate in all material respects and the risk
classification system has been established in accordance with the requirements
of the OTS.
(b) Section 2.20 of Schedule I sets forth a list, accurate and
complete in all material respects, of the aggregate amounts of loans, extensions
of credit and other assets of Savings and its subsidiaries that have been
adversely designated, criticized or classified by it as of March 31, 1999,
separated by category of classification or criticism (the "Asset
Classification"); and no amounts of loans, extensions of credit or other assets
that have been adversely designated, classified or criticized as of the date
hereof by any representative of any government entity as "Special Mention,"
"Substandard," "Doubtful," "Loss" or words of similar
17
import are excluded from the amounts disclosed in the Asset Classification,
other than amounts of loans, extensions of credit or other assets that were
charged off by it or any of the Company Subsidiaries before the date hereof.
2.21 Real Estate Loans and Investments. Except for properties acquired
in settlement of loans, there are no facts, circumstances or contingencies known
to the Company or any Company Subsidiary which exist which would require a
material reduction under generally accepted accounting principles in the present
carrying value of any of the real estate investments, joint ventures,
construction loans, other investments or other loans of the Company or any
Company Subsidiary (either individually or in the aggregate with other loans and
investments).
2.22 Derivatives Contracts. Neither the Company nor any of its
Subsidiaries is a party to or has agreed to enter into an exchange-traded or
over-the-counter swap, forward, future, option, cap, floor or collar financial
contract or any other contract not included on its Balance Sheet which is a
derivatives contract (including various combinations thereof) (each, a
"Derivatives Contract") or owns securities that are identified in Thrift
Bulletin No. 65 or otherwise referred to as structured notes (each, a
"Structured Note"), except for those Derivatives Contracts and Structured Notes
set forth in Section 2.22 of Schedule I, including a list, as applicable, of any
of its or any of its Subsidiaries' assets pledged as security for a Derivatives
Contract.
2.23 Insurance. The Company and the Company Subsidiaries have in effect
insurance coverage which, in respect to amounts, types and risks insured, is
reasonably adequate for the business in which the Company and the Company
Subsidiaries are engaged. A schedule of all insurance policies in effect as to
the Company and the Company Subsidiaries (the "Insurance Policies") is as set
forth on Section 2.23 of Schedule I (other than policies pertaining to mortgage
loans made in the ordinary course of business). All Insurance Policies are in
full force and effect, all premiums with respect thereto covering all periods up
to and including the date of this Agreement have been paid, such premiums
covering all periods from the date hereof up to and including the Effective Date
shall have been paid on or before the Effective Date, to the extent then due and
payable (other than retrospective premiums which may be payable with respect to
worker's compensation insurance policies, adequate reserves for which are
reflected in the Company's financial statements). The Insurance Policies are
valid, outstanding and enforceable in accordance with their respective terms and
will not in any way be affected by, or terminated or lapsed solely by reason of,
the transactions contemplated by this Agreement. Neither the Company nor any
Company Subsidiary has been refused any insurance with respect to any material
properties, assets or operations, nor has any coverage been limited or
terminated by any insurance carrier to which it has applied for any such
insurance or with which it has carried insurance during the last three years.
2.24 Year 2000. (a) Company and Savings' computer hardware and software
systems used for the storage and processing of data (as used in this Section
2.24, "Systems") are or will be, Millennium Compliant as required by all FFIEC
Year 2000 compliance guidelines, specifically including all FFIEC-mandated
interim deadlines for testing and other Year 2000 compliance activities; (b) to
the Company's knowledge, none of Company's or any Company Subsidiary's Systems,
operations or business functions will be materially adversely affected by the
failure of any third party with whom Company or Savings has consistent dealings
to be Millennium
18
Compliant; (c) to the best of Company's and Savings' knowledge after due
inquiry, all of its suppliers, customers and third party providers are
Millennium Compliant; and (d) Company and Savings' have taken all necessary and
appropriate action to address and remedy any known deficiencies in Company's and
Savings' Systems from becoming Millennium Compliant. As used herein "Millennium
Compliant" shall mean the ability of Systems to provide the following functions,
without human intervention, individually and in combination with other products
or systems: (i) consistently handle data information before, during and after
January 1, 2000, including but not limited to accepting data input, providing
data output and performing calculations on dates or portions of dates; (ii)
function accurately and without interruption before, during and after January 1,
2000 (including leap year computations), without any change in operations
associated with the advent of a new century; (iii) respond to two-digit input in
a way that resolves any ambiguity as to century in a disclosed, defined and
predetermined manner; and (iv) store and provide output of date information in
ways that are unambiguous as to century.
2.25 Delays. The Company is not aware of any matter that could cause a
delay in receiving the approval required by the Company Merger, including
without limitation, non-compliance with the Truth in Lending Act, capital
compliance, or any provisions of the Community Reinvestment Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NEWSOUTH, THE BANK AND NEW SUB
NewSouth, the Bank and New Sub represent and warrant to Company and
Savings that, except as disclosed in Schedule II attached hereto and except that
the Bank and New Sub do not make any representation or warranty regarding
NewSouth:
3.1 Organization, Good Standing, Authority, Insurance, Etc. NewSouth is
a corporation duly organized, validly existing, and in good standing under the
laws of the Commonwealth of Virginia. Each of the subsidiaries of NewSouth
within the meaning of Section 2(d) of the Bank Holding Company Act of 1956, as
amended (the "BHCA") (individually a "NewSouth Subsidiary" and collectively the
"NewSouth Subsidiaries") is duly organized, validly existing, and in good
standing under the laws of the respective jurisdiction under which it is
organized. NewSouth and each NewSouth Subsidiary has all requisite power and
authority and is duly qualified and licensed to own, lease and operate its
properties and conduct its business as it is now being conducted. NewSouth and
each NewSouth Subsidiary is qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which qualification is necessary
under applicable law, except to the extent that any failures to so qualify would
not, in the aggregate, have a material adverse effect on the business, financial
condition or results of operations of NewSouth and the NewSouth Subsidiaries,
taken as a whole. The Bank is a member in good standing of the Federal Home Loan
Bank of Atlanta, and all eligible accounts issued by the Bank are insured by the
SAIF to the maximum extent permitted under applicable law. NewSouth is duly
registered as a bank holding company under the BHCA.
The minute books of NewSouth and the NewSouth Subsidiaries contain
complete and accurate records of all meetings and other corporate actions held
or taken by their respective shareholders and Boards of Directors (including the
committees of such Boards).
19
3.2 Capitalization. The authorized capital stock of NewSouth consists
of 8,000,000 shares of NewSouth common stock, par value $.01 per share, of which
3,720,501 shares, excluding 643,543 treasury shares, were issued and outstanding
as of the date of this Agreement and 1,000,000 shares of preferred stock, par
value of $.01 per share, of which no shares were outstanding as of the date of
this Agreement. All outstanding shares of NewSouth common stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights.
3.3 Financial Statements and Reports.
(a) No registration statement, proxy statement, schedule or
report filed by NewSouth or any NewSouth Subsidiary with the SEC under the 1933
Act, or the 1934 Act, on the date of effectiveness in the case of such
registration statements, or on the date of filing in the case of such reports or
schedules, or on the date of mailing in the case of such proxy statements,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. For
the past five years (or such shorter period as they may have been subject to
such filing requirements), NewSouth and the NewSouth Subsidiaries have timely
filed all documents required to be filed by them with the SEC, the FRB, the
Commission, or the FDIC under various securities and financial institution laws
and regulations, except to the extent that all failures to so file, in the
aggregate, would not have a material adverse effect on the business, financial
condition or results of operations of NewSouth and the NewSouth Subsidiaries,
taken as a whole; and all such documents, as finally amended, complied in all
material respects with applicable requirements of law and, as of their
respective date or the date as amended, with respect to the SEC Reports, did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and, with
respect to reports and documents filed with banking regulatory agencies, were
accurate in all material respects. Except to the extent stated therein, all
financial statements and schedules included in the documents referred to in the
preceding sentences (or to be included in similar documents to be filed after
the date hereof) (i) are or will be (with respect to financial statements in
respect of periods ending after March 31, 1999) in accordance with NewSouth's
books and records and those of any of its Subsidiaries, and (ii) present (and in
the case of financial statements in respect of periods ending after March 31,
1999 will present) fairly the consolidated statement of financial condition and
the consolidated statements of operations, stockholders' equity and cash flows
of NewSouth and the NewSouth Subsidiaries as of the dates and for the periods
indicated in accordance with generally accepted accounting principles (except
for the omission of notes to unaudited statements, year end adjustments to
interim results and changes in generally accepted accounting principles). The
consolidated financial statements of NewSouth as of September 30, 1998 and for
the three years then ended and the consolidated financial statements for all
periods thereafter up to the Closing disclose or will disclose, as the case may
be, all liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise, whether due or due to become due and regardless of when asserted), as
of their respective dates, of NewSouth and the NewSouth Subsidiaries required to
be reflected in such financial statements according to generally accepted
accounting principles, other than liabilities which are not, in the aggregate,
material to NewSouth
20
and the NewSouth Subsidiaries, taken as a whole, and contain or will contain in
the opinion of management adequate reserves for losses on loans and properties
acquired in settlement of loans, taxes and all other material accrued
liabilities and for all reasonably anticipated material losses, if any as of
such date. There exists no set of circumstances that could reasonably be
expected to result in any liability or obligation material to NewSouth or the
NewSouth Subsidiaries, taken as a whole, except as disclosed in such
consolidated financial statements at September 30, 1998, or for transactions
effected or actions occurring or omitted to be taken after September 30, 1998,
(i) in the ordinary course of business, or (ii) as permitted by this Agreement.
(b) NewSouth has made available to the Company all periodic
reports filed with the SEC under the 1934 Act for periods since December 31,
1996 through the date hereof and will through Closing upon written request
promptly deliver copies of 1934 Act reports for future periods.
(c) Except (i) as disclosed in Section 3.4 of Schedule II,
(ii) as reflected, noted or adequately reserved against in the financial
statements referred to in this Section 3.4, or (iii) for deposits incurred in
the ordinary course of business consistent with past practice, NewSouth and the
NewSouth Subsidiaries do not have any material liabilities (whether accrued,
absolute, contingent or otherwise).
3.4 Absence of Changes. Since September 30, 1998, there has been no
material adverse change in the business, properties, financial condition,
results of operations or assets of NewSouth and the NewSouth Subsidiaries, taken
as a whole. Since September 30, 1998 and through the date hereof, there is no
occurrence, event or development of any nature existing or, to the best
knowledge of NewSouth, threatened which may reasonably be expected to have a
material adverse effect upon the business, properties, financial condition,
operations or assets of NewSouth or any NewSouth Subsidiary, taken as a whole.
3.5 Proxy Statement. At the time the Proxy Statement is mailed to the
shareholders of the Company for the solicitation of proxies for the approvals
referred to in Section 1.8 hereof and at all times subsequent to such mailings
up to and including the times of such approval, such Proxy Statement (including
any amendments or supplements thereto), with respect to all information set
forth therein provided by NewSouth for inclusion therein, will not contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact or which omits to
state any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the Company
Shareholders' Meeting which has become false or misleading.
3.6 No Broker's or Finder's Fees. No agent, broker, investment banker,
person or firm acting on behalf or under authority of NewSouth or any of the
NewSouth Subsidiaries is or will be entitled to any broker's or finder's fee or
any other commission or similar fee directly or indirectly in connection with
the Company Merger or any other transaction contemplated hereby,
21
except NewSouth has engaged ▇▇▇▇▇▇▇▇ & Company, an investment banking firm, to
provide financial advisory services to NewSouth.
3.7 Compliance With Law. NewSouth and the NewSouth Subsidiaries are in
compliance in all material respects with all material laws and regulations
applicable to their respective business or operations or with respect to which
compliance is a condition of engaging in the business thereof, and neither
NewSouth nor any NewSouth Subsidiary has received notice from any federal, state
or local government or governmental agency of any material violation of, and
does not know of any material violations of, any of the above.
3.8 Corporate Actions. The Boards of Directors of NewSouth, the Bank
and New Sub have duly authorized their respective officers to execute and
deliver this Agreement and to take all action necessary to consummate the
Company Merger and the other transactions contemplated hereby. All corporate
authorizations by the Board of Directors of NewSouth, the Bank and New Sub
required for the consummation of the Company Merger have been obtained. The
shareholders of NewSouth are not required to approve either the Company Merger
or the other transactions contemplated hereby in accordance with Virginia and
North Carolina corporate law. In its capacity as sole shareholder of New Sub,
the Bank has approved the Company Merger.
3.9 Authority. The execution, delivery and performance of this
Agreement by NewSouth, the Bank and New Sub and the Bank Merger by Bank does not
violate or conflict with any of the provisions of, or constitute a breach or
default under or give any person the right to terminate, cancel or accelerate
payment or performance under or result in the creation of any Encumbrance upon
(i) the articles of incorporation or bylaws of NewSouth, the Bank or New Sub or
the articles of incorporation or bylaws of any other NewSouth Subsidiary, (ii)
any law, rule, ordinance or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which NewSouth or any of
the NewSouth Subsidiaries is subject, (iii) any material Contract to which
NewSouth or any of the NewSouth Subsidiaries is a party or is subject to or by
which any of their properties or assets is bound or (iv) any property or asset
of NewSouth or Bank pursuant to any note, bond, mortgage, indenture, license
agreement or other instrument or obligation which breach, default, termination,
cancellation or acceleration would have a material adverse effect on the
financial condition, business or results of operations of NewSouth and the
NewSouth Subsidiaries, taken as a whole. The parties acknowledge that the
consummation of the Company Merger and the other transactions contemplated
hereby is subject to various regulatory approvals. NewSouth, New Sub and the
Bank have all requisite corporate power and authority to enter into this
Agreement and to perform their obligations hereunder. Other than the receipt of
Governmental Approvals, no consents or approvals are required on behalf of
NewSouth or any NewSouth Subsidiary in connection with the consummation of the
transactions contemplated by this Agreement or the Company Merger. This
Agreement constitutes the valid and binding obligation of NewSouth, New Sub and
the Bank, as applicable, and is enforceable in accordance with its terms, except
as enforceability may be limited by applicable laws relating to bankruptcy,
insolvency or creditors' rights generally and general principles of equity.
22
3.10 Information Furnished. No statement contained in any schedule,
certificate or other document furnished (whether prior to or subsequent to the
date of this Agreement) or to be furnished in writing by or on behalf of
NewSouth to Company pursuant to this Agreement contains or will contain any
untrue statement of a material fact or any material omission. No information
material to the Company Merger and which is necessary to make the
representations and warranties not misleading, to the best knowledge of
NewSouth, has been withheld from the Company.
3.11 Agreements and Instruments. As of the date of this Agreement,
there are no agreements, directives, orders or similar arrangements between or
involving NewSouth or any NewSouth Subsidiary and any state or federal savings
institution regulatory authority.
3.12 Year 2000. NewSouth's and the Bank's computer hardware and
software systems used for the storage and processing of data (as used in this
Section 3.12, "Systems") are or will be Millennium Compliant as required by all
FFIEC Year 2000 compliance guidelines, specifically including all FFIEC-mandated
interim deadlines for testing and other Year 2000 compliance activities; (b) to
NewSouth's knowledge, none of NewSouth's or any NewSouth Subsidiary's Systems,
operations or business functions will be materially adversely affected by the
failure of any third party with whom NewSouth or the Bank has consistent
dealings to be Millennium Compliant; (c) to the best of NewSouth's and the
Bank's knowledge, all of its suppliers, customers and third party providers are
Millennium Compliant; and (d) NewSouth and the Bank have taken all necessary and
appropriate action to address and remedy any known deficiencies in NewSouth's
and the Bank's Systems from becoming Millennium Compliant. As used herein
"Millennium Compliant" shall mean the ability of NewSouth's and the Bank's
Systems to provide the following functions, without human intervention,
individually and in combination with other products or systems: (i) consistently
handle data information before, during and after January 1, 2000, including but
not limited to accepting data input, providing data output and performing
calculations on dates or portions of dates; (ii) function accurately and without
interruption before, during and after January 1, 2000 (including leap year
computations), without any change in operations associated with the advent of a
new century; (iii) respond to two-digit input in a way that resolves any
ambiguity as to century in a disclosed, defined and predetermined manner; and
(iv) store and provide output of date information in ways that are unambiguous
as to century.
3.13 Funding. The Bank shall have no later than one day prior to the
Effective Time sufficient cash on hand to fund the aggregate Merger
Consideration payable hereunder.
3.14 Delays. NewSouth is not aware of any matter that could cause a
delay in receiving the approval required by the Company Merger, including
without limitation, non-compliance with the Truth in Lending Act, capital
compliance, or any provisions of the Community Reinvestment Act.
23
ARTICLE IV
COVENANTS
4.1 Investigations; Access and Copies. Between the date of this
Agreement and the Effective Time, each party agrees to give to the other party
and its respective representatives and agents full access (to the extent lawful)
to all of the premises, books, records and employees of it and its subsidiaries
at all reasonable times, upon not less than three days' prior notice to the
chief executive officer of the other party, and to furnish and cause its
subsidiaries to furnish to the other party and its respective agents or
representatives access to and true and complete copies of such financial and
operating data, all documents with respect to matters to which reference is made
in Articles II or III of this Agreement or on any list, schedule or certificate
delivered or to be delivered in connection herewith, and such other documents,
records, or information with respect to the business and properties of it and
its subsidiaries as the other party or its respective agents or representative
shall from time to time reasonably request; provided, however, that any such
inspection (a) shall be conducted in such manner as not to interfere
unreasonably with the operation of the business of the entity inspected and (b)
shall not affect any of the representations and warranties hereunder. Each party
will also give prompt written notice to the other party of any event or
development (x) which, had it existed or been known on the date of this
Agreement, would have been required to be disclosed under this Agreement, (y)
which would cause any of its representations and warranties contained herein to
be inaccurate or otherwise materially misleading, or (z) which materially relate
to the satisfaction of the conditions set forth in Article V of this Agreement.
4.2 Conduct of Business of the Company and the Company Subsidiaries.
Between the date of this Agreement and the earlier of the Effective Time or the
date this Agreement is terminated in accordance with its terms, the Company and
Savings agree:
(a) That the Company and the Company Subsidiaries shall
conduct their business only in the ordinary course, and maintain their books and
records in accordance with past practices and not to take any action that would
(i) adversely affect the ability to obtain the Governmental Approvals or (ii)
adversely affect the Company's ability to perform its obligations under this
Agreement;
(b) That the Company shall not, without the prior written
consent of NewSouth: (i) declare, set aside or pay any dividend or make any
other distribution with respect to Company's capital stock, except for the
declaration and payment of regular quarterly cash dividends in accordance with
past practice and in an amount not to exceed $0.13 per share of Company Common
Stock with respect to any full calender quarter after the date hereof; (ii)
reacquire any of Company's outstanding shares of capital stock; (iii) issue or
sell or buy any shares of capital stock of the Company or any Company
Subsidiary, except shares of Company Common Stock issued or bought (in
accordance with past practice) as contemplated pursuant to Savings' Restricted
Stock Plan; (iv) effect any stock split, stock dividend or other
reclassification of Company's Common Stock; or (v) grant any options or issue
any warrants exercisable for or securities convertible or exchangeable into
capital stock of Company or any Company Subsidiary or grant
24
any stock appreciation or other rights with respect to shares of capital stock
of Company or of any Company Subsidiary;
(c) That Company and the Company Subsidiaries shall not,
without the prior written consent of NewSouth: (i) sell or dispose of any
significant assets of the Company or of any Company Subsidiary other than in the
ordinary course of business consistent with past practices; (ii) merge or
consolidate the Company or any Company Subsidiary with or otherwise acquire any
other entity, or file any applications or make any contract with respect to
branching by Savings (whether de novo, purchase, sale or relocation) or acquire
or construct, or enter into any agreement to acquire or construct, any interest
in real property (other than with respect to security interests in properties
securing loans and properties acquired in settlement of loans in the ordinary
course) or improvements to real property except as provided in this Agreement;
(iii) change the articles or certificate of incorporation, charter documents or
other governing instruments of the Company or any Company Subsidiary, except as
provided in this Agreement; (iv) except as set forth in Section 4.2(c) of
Schedule I grant to any executive officer, director or employee of the Company
or any Company Subsidiary any increase in annual compensation, any award under
any Employee Plan or Benefit Arrangement or any bonus type payment, except that
Savings may continue its 1999 bonus plan as set forth in Section 2.13 of
Schedule I for the benefit of its employees and continue to make accruals
thereunder for each month through the month in which the Effective Time occurs
in a manner consistent with such schedule, and if the Effective Time does not
occur before December 10, 1999, Savings may pay the 1999 bonus amounts specified
in Section 2.13 of Schedule I to the specified employees at any time between
December 10, 1999 and December 31, 1999; (v) adopt any new or amend (except for
any amendments required by law) or terminate any existing Employee Plans or
Benefit Arrangements of any type except as contemplated herein or make any
payment or contribution to any Employee Plans or Benefit Arrangements except as
set forth in Section 2.13 of Schedule I; (vi) authorize severance pay or other
benefits for any officer, director or employee of Company or any Company
Subsidiary; (vii) incur any material indebtedness or obligation or enter into or
extend or amend any material agreement or lease, which cannot be canceled upon
one month notice or which involves annual payments in excess of $10,000; (viii)
engage in any lending activities other than in the ordinary course of business
consistent with past practices; (ix) form any new subsidiary or cause or permit
a material change in the activities presently conducted by any Company
Subsidiary or make additional investments in subsidiaries; (x) purchase any
investments or debt securities, except that Company and the Company Subsidiaries
may purchase federal funds or make overnight deposits with the Federal Home Loan
Bank of Atlanta and may purchase securities pursuant to any contractual
obligation in existence as of the date of this Agreement, all of which
contractual obligations are set forth in Section 2.13 of Schedule I; (xi)
purchase any equity securities other than Federal Home Loan Bank stock; (xii)
make any investment which would cause Savings not to be a qualified thrift
lender under Section 10(m) of the HOLA, or not to be a "domestic building and
loan association" as defined in Section 7701(a)(19) of the Code; (xiii) make any
loan with a principal balance of $500,000 or more; (xiv) authorize capital
expenditures other than in the ordinary course of business; (xv) adopt or
implement any change in its accounting principles, practices or methods other
than as may be required by generally accepted accounting principles or by a
regulatory authority or adopt or implement any change in its methods of
accounting for
25
Federal income tax purposes; or (xvi) make any loan in which participation
interests therein are to be sold to other persons or entities or acquire a
participation interest in a loan originated by another person or entity. The
limitations contained in this Section 4.2(c) shall also be deemed to constitute
limitations as to the making of any commitment with respect to any of the
matters set forth in this Section 4.2(c). Notwithstanding the foregoing, Savings
may engage in any of the foregoing activities exclusively with the Bank.
(d) From and after the date of this Agreement, the Company and
Savings, on the one hand, and NewSouth and the Bank, on the other hand, shall
coordinate policies with respect to their investment securities portfolios.
(e) Prior to the Effective Time, neither Company nor Savings
shall take any action to contact holders of stock certificates evidencing
outstanding shares of Company Common Stock for the purpose of permitting those
stockholders to submit their stock certificates to the Company for cancellation
upon the Effective Time in exchange for the Merger Consideration.
4.3 No Solicitation. From the date of this Agreement until the
Effective Time or the termination of this Agreement pursuant to its terms,
whichever occurs earlier, the Company agrees that it will not authorize, and
will not authorize any of its Subsidiaries, or any of its or their officers,
directors, employees, agents or other representatives ("Representatives") to,
directly or indirectly, (A) initiate, solicit, encourage or otherwise facilitate
(including by way of furnishing information), any inquiries or the making of any
proposal or offer that constitutes, or may reasonably be expected to lead to, a
Takeover Proposal, or (B) enter into or maintain or continue discussions or
negotiate with any person in furtherance of such inquiries or to obtain a
Takeover Proposal, or (C) agree to, approve, recommend, or endorse any Takeover
Proposal, or authorize or permit any of its or their Subsidiaries or
Representatives to take any such action; provided, however, that nothing
contained in this Agreement shall prohibit the Company Board of Directors from
(i) furnishing information to, or engaging in discussions or negotiations with,
any person in response to an unsolicited bona fide written Takeover Proposal,
(ii) recommending such an unsolicited bona fide written Takeover Proposal to the
stockholders of the Company or (iii) entering into any agreement or letter of
intent with any person with respect to a Takeover Proposal, if and only to the
extent in each case that (a) the Company Board of Directors concludes in good
faith (after consultation with its financial advisors) that such Takeover
Proposal would constitute a Superior Proposal, (b) the Company Board of
Directors determines in good faith (after consultation with outside legal
counsel) that the failure to take such action would result in a breach by the
Company Board of Directors of its fiduciary duties to the Company's stockholders
under applicable law, and (c) prior to furnishing such information to, or
entering into discussions or negotiations with, such person, the Company
provides prompt written notice to NewSouth to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
(which notice shall identify the nature and material terms of the proposal). The
Company agrees that it will immediately cease and cause to be terminated any
activities, discussions, or negotiations with any parties regarding any Takeover
Proposal existing as of the date of this Agreement. The Company agrees to keep
NewSouth fully and timely informed of the status of any inquiries, proposals,
discussions, negotiations, furnishing of non-public information, or other
26
activities relating to a Takeover Proposal. As used in this Agreement with
respect to the Company, (i) "Takeover Proposal" shall mean any proposal, other
than as contemplated by this Agreement, for a merger or other business
combination involving the Company or any Company Subsidiary or for the
acquisition of a ten percent (10%) or greater equity interest in Company or any
Company Subsidiary, or for the purchase, lease or other acquisition of a
substantial portion of the assets of Company or any Company Subsidiary (other
than loans or securities sold in the ordinary course), and (ii) "Superior
Proposal" means a bona fide Takeover Proposal made by a third party that the
Company Board of Directors determines in its good faith judgment to be more
favorable to the Company's stockholders than the Company Merger (following
consultation with the Company's independent financial advisor) and for which
financing, to the extent required, is then committed or which, in the good faith
judgment of the Company Board of Directors (following consultation with the
Company's independent financial advisor), is reasonably capable of being
obtained by such third person.
4.4 Shareholder Approvals. Subject to Sections 1.8 and 4.3 herein and
the fiduciary duties of the Company's Board of Directors (including
consideration, among other things, of whether or not an updated fairness opinion
has been received by the Company from its financial advisor), the Company shall
call the meeting of its shareholders to be held for the purpose of voting upon
the Company Merger and related matters, as referred to in Section 1.8 hereof, as
soon as practicable, but in no event later than sixty (60) days after the SEC
has completed its review of the Company's proxy soliciting materials; provided,
that Company shall receive an opinion dated within five (5) days of mailing the
Proxy Statement that the Company Merger is fair to Company shareholders from a
financial point of view. The Company agrees that it will file such proxy
soliciting materials with the SEC within 60 days from the date hereof. In
connection with such meeting, the Company Board of Directors shall recommend
approval of the Company Merger, except as the fiduciary duties of the Company's
Board of Directors may otherwise require. The Company shall use its best efforts
to solicit from its shareholders proxies in favor of approval and to take all
other action necessary or helpful to secure a vote of the holders of the shares
of Company Common Stock in favor of the Company Merger, except as the fiduciary
duties of the Boards of Directors may otherwise require.
4.5 Filing of Applications for the Governmental Approvals. NewSouth
shall use its best efforts to promptly prepare, submit and file within 45 days
after the date hereof all applications necessary to receive the Governmental
Approvals in connection with the transactions contemplated by this Agreement.
4.6 Consents. Company and Savings will use their best efforts to obtain
the consent or approval of each person whose consent or approval shall be
required in order to permit Company or Savings, as the case may be, to
consummate the Company Merger and the Bank Merger.
4.7 Publicity. Between the date of this Agreement and the Effective
Time, neither NewSouth, Company or any of their subsidiaries shall, without the
prior approval of the other, issue or make, or authorize any of its directors,
employees, officers or agents to issue or make,
27
any press release, disclosure or statement to the press or any third party with
respect to the Company Merger or the transactions contemplated hereto, except as
required by law. The parties shall cooperate when issuing or making any press
release, disclosure or statement with respect to Company Merger or the
transactions contemplated hereby, except as required by law.
4.8 Cooperation Generally. Between the date of this Agreement and the
Effective Time, NewSouth, Company and their subsidiaries shall use their best
efforts, and take all actions necessary or appropriate, to consummate the
Company Merger and the other transactions contemplated by this Agreement at the
earliest practicable date. NewSouth, the Bank and New Sub, on one hand, and the
Company and Savings, on the other hand, agree not to knowingly take any action
that would (i) adversely effect their respective ability to obtain the
Governmental Approvals or (ii) adversely affect their respective ability to
perform their obligations under this Agreement. Each of the parties will
promptly furnish each other with copies of written communications received by
them or any of their respective subsidiaries from, or delivered by any of the
foregoing to any governmental entity in respect of the transactions contemplated
hereby.
4.9 Additional Financial Statements and Reports. As soon as reasonably
practicable after they become publicly available, each party shall furnish to
the other its statement of financial condition and related statements of
operations, cash flows and stockholders' equity for all periods prior to the
Closing. Such financial statements will be prepared in conformity with generally
accepted accounting principles applied on a consistent basis and fairly present
the financial condition, results of operations and cash flows of the party
(subject, in the case of unaudited financial statements, to (a) normal year-end
audit adjustments, (b) any other adjustments described therein and (c) the
absence of notes which, if presented, would not differ materially from those
included in its most recent audited consolidated balance sheet), and all of such
financial statements will be prepared in conformity with the requirements of
Form 10-Q or Form 10-K, as the case may be, under the 1934 Act. Each party shall
also furnish to the other within two days after the meeting at which they are
distributed to that party's directors, such internal monthly financial
statements as are furnished to the directors and executive officers of that
party.
4.10 Allowance for Loan and Real Estate Owned Losses. At the request of
NewSouth, immediately prior to the Effective Time, the Company and Savings shall
in an amount specified by NewSouth, establish such additional provisions for
loan and real estate owned losses as may be necessary in the sole determination
of NewSouth to conform the Company's and Savings' loan and real estate owned
allowance practices and methods to those of NewSouth and the Bank (as such
practices and methods are to be applied to Company and Savings from and after
the Effective Time); provided, however, that Company and Savings shall not be
required to take such action until: (i) Company and Savings provide to NewSouth
a written statement certified by the Chairman of the Board, the President and
the Chief Financial Officer of the Company and Savings, that the conditions in
Sections 5.1 and 5.2 to be satisfied by the Company or Savings or both of them
have been satisfied by either or both of them or, alternatively, setting forth
in detail the circumstances that have prevented such conditions from being
satisfied (the "Reliance Certificate") and NewSouth and the Bank provide to the
Company and Savings a Reliance Certificate relating to satisfaction of the
conditions in Section 5.1 and 5.3; (ii) NewSouth, the Bank and New Sub, after
28
reviewing the Reliance Certificate, provide the Company and Savings a written
waiver of any right any entity may have to terminate the Agreement, which waiver
shall contain an express condition precedent that Company and Savings have
established such additional provisions for loan and real estate losses as
requested by NewSouth pursuant to this Section 4.10; and (iii) in no event until
the day prior to the date of the Closing. No additional provision for loan and
real estate owned losses taken by Savings pursuant to this Section 4.10 shall be
deemed in and of itself to be a breach or violation of any representation,
warranty, covenant, condition or other provision of this Agreement.
4.11 D&O Indemnification and Insurance. For a period of five (5) years
following the Effective Time NewSouth and Bank shall indemnify, and advance
expenses in matters that may be subject to indemnification to, persons who
served as directors or officers of Company or Savings or any Company
Subsidiaries on or before the Effective Time ("Indemnities") with respect to
liabilities and claims (and related expenses, including fees and disbursements
of counsel) made against them resulting from their service as such prior to the
Effective Time in accordance with and subject to the requirements and other
provisions of the Articles of Incorporation and Bylaws of NewSouth and Bank in
effect on the date of this Agreement and applicable provisions of law to the
same extent as NewSouth is obligated thereunder to indemnify and advance
expenses to its own directors and officers with respect to liabilities and
claims made against them resulting from their service for NewSouth and Bank.
NewSouth shall cause the persons serving as officers or directors of the Company
immediately prior to the Effective Time to be covered for a period of five (5)
years from the Effective Time by the directors' and officers' liability
insurance policy maintained by the Company (provided that NewSouth may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not materially less advantageous than
such policy) with respect to acts or omissions occurring prior to the Effective
Time which were committed by such officers and directors in their capacity as
such; provided, however, that in no event shall NewSouth be required to expend
more than $35,000 to maintain or procure insurance coverage for such five years
period pursuant hereto. This Section 4.11 shall be construed as an agreement as
to which the directors and officers of Company and Savings referred to herein
are intended to be third party beneficiaries and shall be enforceable by such
persons and their heirs and representatives.
4.12 Update Disclosure. From and after the date hereof until the
Effective Time, the Company shall promptly, but not less frequently than
monthly, update Schedule I hereto by notice to NewSouth to reflect any matters
which have occurred from and after the date hereof which, if existing on the
date hereof, would have been required to be described therein and which, in the
case of all such updates other than the last such update prior to the Effective
Time, reflect a material change from the information provided in Schedule I as
of the date hereof; provided, however, that no such update shall affect the
conditions to the obligation of Company and Savings to consummate the
transactions contemplated hereby, and any and all changes reflected in any such
update shall be considered in determining whether such conditions have been
satisfied.
29
4.13 Company's Employee Plans and Benefit Arrangements.
(a) Between the date of this Agreement and the Effective Time,
neither the Company nor any Company Subsidiary will make any contribution, or
undertake any obligation to contribute any amount to any Employee Plan or
Benefit Arrangement other than as set forth in Section 2.13 of Schedule I to
this Agreement.
(b) On or before 15 days after execution hereof, the Company
will provide NewSouth with true and complete copies of the following documents
where applicable to any Employee Plan or Benefit Arrangement: (i) each plan
document or agreement, and any amendments thereto, and related trust agreements,
insurance contracts and policies, annuity contracts, and any other funding
arrangement; (ii) the most recent summary plan description and summary of
material modifications, along with disclosure of the date of their distribution
to participants and filing with the Department of Labor; (iii) for the three
most recent plan years, Form 5500 Annual Return/Report and all actuarial and
financial reports and appraisals; (iv) the most recent determination letter
received from the Internal Revenue Service, plus any open requests and all other
rulings received from any governmental agency; and (v) with respect to any
action taken within the current and three preceding plan years, a certified copy
of all Board of Directors resolutions. Within 75 days of the date hereof, the
Company or Savings shall provide NewSouth with documentation, reasonably
satisfactory to NewSouth, demonstrating that for the last three completed Plan
years the requirements of Sections 404, 410, 412, 415, and 416 of the Code have
been satisfied by each Employee Plan that is intended to qualify under Section
401 of the Code.
(c) Except as otherwise provided in this Section, if NewSouth
so requests, the Company and any Company Subsidiary shall develop a plan and
timetable for terminating each Employee Plan and Benefit Arrangement as of the
date of Closing or the immediately preceding day and, with the advance written
consent of NewSouth, which consent shall not be unreasonably withheld, shall
proceed with the implementation of said termination plan and timetable. The
Company shall be solely responsible for all costs, expenses, and other
obligations whatsoever arising out of or resulting from termination of any
Employee Plan or Benefit Arrangement. Neither the Company nor any Company
Subsidiary nor any trust in their direct or indirect control will establish any
new benefit plan or arrangement for directors, officers, or employees, or amend
or commit to distribute any assets from any Employee Plan or Benefit Arrangement
without NewSouth's prior written approval, except that the Company or a Company
Subsidiary may make such distribution as may be required under the terms of any
existing Employee Plan or Benefit Arrangement in connection with the retirement
or other termination of an employee.
(d) With respect to any benefit plan that provides for vesting
of benefits, there shall be no discretionary acceleration of vesting, provided
that vesting shall accelerate as of the Effective Time in accordance with the
terms of any Employee Plan or Benefit Arrangement that provides for an automatic
acceleration of vesting upon a change in control transaction such as the one
contemplated hereby.
30
(e) (i) As of the Effective Time, NewSouth and the Bank agree
that the employment of and the Employment Agreement between ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
and Savings (as disclosed in Section 2.12 of Schedule I to this Agreement) shall
be terminated by Savings. In connection with such termination, ▇▇. ▇▇▇▇▇▇▇▇▇
shall be entitled to receive payment as contemplated in Section 12(a) of such
Employment Agreement, subject to the limitations set forth therein to be paid by
Savings.
(ii) Employees of Savings who become employees of the Bank
shall be entitled to carry over to Bank up to three days of accrued but unused
vacation time but no unused sick leave. The vacation time for any of Savings
employees who become employees of Bank will carry over past December 31, 1999,
but must be taken prior to December 31, 2000. Employees of Savings who become
employees of Bank will not be permitted to take any vacation during the first 15
days of January 2000.
(f) Savings' ESOP shall be terminated in accordance with its
terms. Savings shall develop a written description and timetable within 60 days
of the date hereof which shall be provided to and approved by NewSouth and its
counsel, which approval shall not be unreasonably withheld, setting forth all
actions necessary to terminate Savings' ESOP and submit Savings' ESOP to the IRS
for a determination letter that the Savings' ESOP, as so amended and terminated,
continues to be a qualified retirement plan and employee stock ownership plan
under Sections 401(a) and 4975(e)(7) of the Code. Upon development and approval
by NewSouth of said written description and timetable, Savings shall take such
actions as described therein as are approved by NewSouth. Distribution of the
shares and any other asset of the ESOP shall (i) not occur until after the
receipt of the foregoing IRS determination letter and (ii) occur prior to the
Effective Time only with the express written consent of NewSouth not to be
unreasonably denied.
(g) The Company and Savings shall use their best efforts to
cause each participant in Savings' Restricted Stock Plan to agree in writing to
surrender any of their outstanding awards for shares of Company Common Stock
which will not as of or immediately prior to the Effective Time be earned and
non-forfeitable in exchange for the consideration set forth in Section 1.3
herein, provided that no payment may be made to any participant in Savings'
Restricted Stock Plan without the prior written authorization of NewSouth. The
Company and Savings shall use their best efforts to cause each holder of an
option under the Company Option Plan to agree in writing to cancel any of their
outstanding options to acquire shares of Company Common Stock in exchange for
the consideration set forth in Section 1.3 herein, provided that no payment may
be made to any option holder without the prior written authorization of
NewSouth.
(h) Between the date of this Agreement and the Effective Time,
the parties shall cooperate to take steps necessary to permit Savings' pension
plan to be merged into Bank's pension plan at the Effective Time, including
making any necessary or desirable plan amendments and filings with the IRS as
determined by Bank with the approval of Savings, which approval shall not be
unreasonably withheld.
31
4.14 Amendment of Savings' Federal Stock Charter. Subject to the Board
of Directors' fiduciary duties, Company and Savings will take all actions
necessary to effectuate the Charter Amendment, provided that Company and Savings
may make such amendment contingent upon consummation of the Company Merger.
4.15 Payments. No later than thirty (30) days prior to consummation of
the Company Merger, the Company shall furnish NewSouth for its review (i) a
computation of the amounts expected to be payable under the employment
agreements disclosed in Section 2.12 of Schedule I as a result of the Company
Merger, and (ii) a schedule reasonably satisfactory to NewSouth demonstrating
that no "disqualified individual" within the meaning of Section 280G of the Code
will be receiving payments in contravention of the representation set forth in
the second sentence to Section 2.12 herein.
4.16 Environmental Reports. The Company shall undertake within 15 days
of the date hereof to order, and shall use its best efforts to receive within 40
days (subject to extension with the consent of NewSouth) after ordering a Phase
I Environmental Risk Report (as contemplated in OTS Thrift Bulletin #16)
("Report") on (i) all commercial real estate owned by, (ii) all offices and
premises used as facilities by, and (iii) all properties which serve as security
for any commercial real estate loan having an original principal balance of $1
million or more of the Company or Savings. In the event that NewSouth believes
in good faith that such Reports indicate a reasonable likelihood there will be
material costs associated with bringing any such property or properties into
material compliance with applicable environmental laws, NewSouth shall, within
15 days of its receipt of such Reports, provide Company with written notice to
that effect. Failure of NewSouth to provide such written notice with respect to
a property within such 15 days period shall constitute waiver of its right to
terminate this Agreement pursuant to Section 5.4(h) herein with respect to such
property only. The Company shall thereafter undertake to order a Phase II
Environmental Risk Report (as contemplated in OTS Thrift Bulletin #16) on any
property as directed by NewSouth. NewSouth and the Bank agree that they shall
pay fifty (50) percent of the expenses incurred with respect to procuring the
Phase I Reports and NewSouth will pay all of the expenses incurred with respect
to procuring the Phase II Reports. NewSouth and the Bank agree to keep
confidential the contents and results of these Phase I and Phase II
Environmental Risk Reports.
ARTICLE V
CONDITIONS TO THE COMPANY MERGER; TERMINATION OF AGREEMENT
5.1 General Conditions. The obligations of NewSouth, the Bank and New
Sub and the Company and Savings to effect the Company Merger and the Bank Merger
shall be subject to the following conditions:
(a) Stockholder Approval and Effectiveness of Charter
Amendment. The holders of the outstanding shares of Company Common Stock shall
have approved this Agreement
32
and the Company Merger as specified in Section 1.8 hereof and as otherwise
required by applicable law and the Charter Amendment shall be effective under
applicable law.
(b) No Proceedings. No order, decree or injunction shall have
been entered and remain in force restraining or prohibiting the Company Merger,
in the Liquidation or the Bank Merger in any legal, administrative, arbitration,
investigatory or other proceedings (collectively, "Proceedings").
(c) Government Approvals. To the extent required by applicable
law or regulation, all approvals of or filings with any governmental authority
(collectively, "Governmental Approvals"), including without limitation those of
the OTS, the FDIC, FRB, the Commission, the Federal Trade Commission, DOJ, the
SEC, and any state securities or Blue Sky authorities, as applicable, shall have
been obtained or made and any waiting periods shall have expired in connection
with the consummation of the Company Merger, the Liquidation and the Bank
Merger. All other statutory or regulatory requirements for the valid
consummation of the Company Merger, the Liquidation and the Bank Merger and
related transactions shall have been satisfied.
5.2 Conditions to Obligations of NewSouth, Bank and New Sub. The
obligations of NewSouth, Bank and New Sub to effect the Company Merger, the
Liquidation, the Bank Merger and the transactions contemplated herein shall be
subject to the following additional conditions to the extent not waived:
(a) Opinion of Counsel for Company. NewSouth shall have
received from ▇▇▇▇▇▇▇ Spidi & ▇▇▇▇▇, PC, special counsel to the Company, an
opinion dated as of the Closing covering the matters set forth in Exhibit
5.2(a).
(b) Required Consents. In addition to Governmental Approvals,
Company and Savings shall have obtained all necessary third party consents or
approvals in connection with the Company Merger, the Liquidation and the Bank
Merger, the absence of which would materially and adversely affect Company and
the Company Subsidiaries, taken as a whole.
(c) No Material Adverse Change. Between the date of this
Agreement and the date of Closing, there shall not have occurred any material
adverse change in the financial condition, business, results of operations or
assets of Company and the Company Subsidiaries, taken as a whole other than any
such change attributable to or resulting from year 2000 compliance, changes in
economic conditions applicable to depository institutions generally or in
general levels of interest rates affecting both the Company and NewSouth to a
similar extent and in a similar manner. No payments made or expenses incurred in
accordance with Section 4.13 herein shall be deemed to constitute a material
adverse change under this Section 5.2(c).
(d) Representations and Warranties to be True; Fulfillment of
Covenants and Conditions. The representations and warranties of the Company and
Savings shall be true in all material respects at the Effective Time with the
same effect as though made at the Effective Time
33
(or on the date when made in the case of any representation or warranty which
specifically relates to an earlier date); Company and Savings shall have
performed all obligations and complied with each covenant, in all material
respects, and all conditions under this Agreement on their parts to be performed
or complied with at or prior to the Effective Time; and Company shall have
delivered to NewSouth a certificate, dated the Effective Time and signed by its
chief executive officer and chief financial officer, to such effect.
(e) No Litigation. Neither the Company nor any Company
Subsidiary shall be a party to any pending litigation, reasonably probable of
being determined adversely to the Company or any Company Subsidiary, which would
have a material adverse effect on the business, financial condition or results
of operations of the Company and the Company Subsidiaries, taken as a whole.
(f) Governmental Approval. All Governmental Approvals required
hereunder to consummate the transactions contemplated hereby shall have been
obtained without the imposition of any conditions which NewSouth, the Bank and
New Sub reasonably and in good faith determine to be unduly burdensome upon the
conduct of the business of NewSouth, the Bank or New Sub and, in the reasonable
judgment of NewSouth, substantially diminish the benefits expected to be
received by NewSouth from the transactions contemplated hereby.
(g) Stock Options. All of the outstanding Company Stock
Options shall have been terminated or canceled as contemplated in Section 1.3(c)
herein.
(h) Environmental Reports. NewSouth shall have received, to
its reasonable satisfaction, any Phase II Environmental Reports as is
contemplated in Section 4.16 herein subject to Section 5.4(g) herein.
(i) Restricted Stock Agreements. All participants in Savings
Restricted Stock Plan whose awards for shares of Company Common Stock pursuant
thereto which as of immediately prior to the Effective Time shall not be deemed
earned and non-forfeitable shall have entered into the written surrender
agreement contemplated in Section 4.13(g) hereto.
(j) Dissenting Shares. No greater than 7% of the outstanding
shares of Company Common Stock entitled to vote at the meeting of Company's
shareholders as is contemplated in Section 1.8 herein shall have delivered the
written notice of intent to demand payment pursuant to Article 13 of the NCBCA.
(k) Tax Opinion. NewSouth and the Company shall have received
an opinion of NewSouth's tax counsel or tax accountants substantially to the
effect that (i) NewSouth, the Bank and New Sub and the Company and Savings will
not recognize any gain or loss upon the acquisition of the Company Common Stock
in the Company Merger, (ii) the Company will not recognize any gain or loss upon
its distribution of all its assets to, and the assumption of all its liabilities
by, the Bank in the Liquidation; (iii) NewSouth and the Bank will not recognize
any gain or loss upon receipt of all the assets and assumption of all the
liabilities of the Company in the
34
Liquidation; and (iv) NewSouth, the Bank, the Company and Savings will not
recognize any gain or loss as a result of the Bank Merger.
(l) Resignation of Directors and Officers. Each of the persons
serving as a director or officer of Company and Savings or any subsidiary of
either shall, at the Closing, submit his/her written resignation, effective as
of the Effective Time.
5.3 Conditions to Obligations of Company and Savings. The obligations
of Company and Savings to effect the Company Merger and the transactions
contemplated herein shall be subject to the following additional conditions to
the extent not waived.
(a) Opinion of Counsel for NewSouth. Company shall have
received from Housley Kantarian & ▇▇▇▇▇▇▇▇▇, P.C., special counsel to NewSouth,
an opinion dated as of the Closing covering the matters set forth in Exhibit
5.3(a).
(b) Representations and Warranties to be True; Fulfillment of
Covenants and Conditions. The representations and warranties of NewSouth and the
Bank shall be true in all material respects at the Effective Time with the same
effect as though made at the Effective Time (or on the date when made in the
case of any representation or warranty which specifically relates to an earlier
date); NewSouth, the Bank and New Sub shall have performed all obligations and
complied with each covenant, in all material respects, and all conditions under
this Agreement on their parts to be performed or complied with at or prior to
the Effective Time; and NewSouth shall have delivered to Company a certificate,
dated the Effective Time and signed by its chief executive officer and chief
financial officer, to such effect.
(c) Receipt of Merger Consideration. The Exchange Agent in its
fiduciary capacity shall have certified receipt of the aggregate Merger
Consideration for all shares of Company Common Stock to be acquired hereunder.
(d) Required Consents. In addition to Governmental Approvals,
NewSouth, the Bank and New Sub shall have obtained all necessary third party
consents or approvals in connection with the Company Merger, the absence of
which would materially and adversely affect NewSouth and the NewSouth
Subsidiaries, taken as a whole.
(e) No Restriction on Payment. There shall not be any
restriction with respect to the payments contemplated in Section 1.3 herein.
5.4 Termination of Agreement and Abandonment of Company Merger. This
Agreement and the Company Merger and the Bank Merger may be terminated at any
time before the Effective Time, whether before or after approval thereof by
shareholders of the Company, as provided below:
(a) Mutual Consent. By mutual consent of the parties,
evidenced by their written agreement.
35
(b) Closing Delay. At the election of either party, evidenced
by written notice, if the Closing shall not have occurred on or before March 31,
2000, or such later date as shall have been agreed to in writing by the parties;
provided, however, that the right to terminate under this Section 5.4(b) shall
not be available to any party whose failure to perform an obligation hereunder
has been the cause of, or has resulted in, the failure of the Closing to occur
on or before such date.
(c) Conditions to NewSouth Performance Not Met. By NewSouth
upon delivery of written notice of termination to Company if any event occurs
which renders impossible the satisfaction in any material respect one or more of
the conditions to the obligations of NewSouth, the Bank and New Sub to effect
the Company Merger or the Bank Merger set forth in Sections 5.1 and 5.2 and
noncompliance is not waived by NewSouth, provided, however, that such notice
shall include a statement of the grounds thereof and the Company and Savings
shall have thirty (30) days thereafter to cure the event or conditions cited in
such notice (to the extent curable) and if the Company or Savings cures the
events or conditions giving the rise to such grounds to the satisfaction of
NewSouth, NewSouth shall not have any right to terminate this Agreement based
upon such specified events or conditions, and provided, however, that the right
to terminate under this Section 5.4(c) shall not be available to NewSouth where
NewSouth's, Bank's or New Sub's failure to perform an obligation hereunder has
been the cause of, or has resulted in, the failure of the Closing to occur on or
before such date.
(d) Conditions to Company Performance Not Met. By the Company
upon delivery of written notice of termination to NewSouth if any event occurs
which renders impossible of satisfaction in any material respect one or more of
the conditions to the obligations of Company and Savings to effect the Company
Merger set forth in Sections 5.1 and 5.3 and noncompliance is not waived by
Company, provided, however, that such notice shall include a statement of the
grounds thereof and NewSouth, the Bank, and NewSub shall have thirty (30) days
thereafter to cure the events or conditions cited in such notice (to the extent
curable) and if NewSouth, the Bank, or NewSub cures the events or conditions
giving the rise to such grounds to the satisfaction of the Company, the Company
shall not have any right to terminate this Agreement based upon such specified
events or conditions, and provided, however, that the right to terminate under
this Section 5.4(d) shall not be available to the Company where the Company's or
Savings' failure to perform an obligation hereunder has been the cause of, or
has resulted in, the failure of the Closing to occur on or before such date.
(e) Other Agreements. By Company in connection with entering
into a definitive agreement or letter of intent with any person with respect to
a Takeover Proposal in accordance with Section 4.3 herein, provided it has
complied with all provisions thereof, in which case NewSouth shall be entitled
to the fee specified in Section 6.2(b) hereof.
(f) NewSouth Board. At any time prior to the Effective Time,
by NewSouth, if (i) the Company Board of Directors withdraws or modifies its
recommendation of this Agreement or the Company Merger in a manner materially
adverse to NewSouth or shall have resolved or publicly announced or disclosed to
any third party its intention to do any of the
36
foregoing or the Company Board of Directors shall have recommended to the
stockholders of the Company any Takeover Proposal or resolved to do so; (ii) a
tender offer or exchange offer for 25 percent or more of the outstanding shares
of Company Common Stock is commenced or a registration statement with respect
thereto shall have been filed and the Company Board of Directors, within 10 days
after such tender offer or exchange offer is so commenced, either fails to
recommend against acceptance of such tender or exchange offer by its
stockholders or takes no position with respect to the acceptance of such tender
or exchange offer by its stockholders; or (iii) the Company enters into a
definitive agreement with respect to a Takeover Proposal.
(g) Environmental Reports. By NewSouth at any time within 10
days of receipt of the last Phase II Report to be delivered as contemplated in
Section 4.16 herein if the costs to bring the properties (either singularly or
together with other properties) which are the subject of such Phase II Reports
into material compliance with applicable environmental laws is projected to
exceed $350,000.
ARTICLE VI
TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES
6.1 Termination; Lack of Survival of Representations and Warranties. In
the event of the termination and abandonment of this Agreement pursuant to
Section 5.4 of this Agreement, this Agreement shall become void and have no
effect, except that (i) the provisions of Sections 2.7 and 3.6 (Brokers and
Finders), 4.7 (Publicity), 6.2 (Expenses), 4.16 (Environmental) and 8.2
(Confidentiality) of this Agreement shall survive any such termination and
abandonment, and (ii) a termination pursuant to Sections 5.4 (c) or (d) of this
Agreement shall not relieve the breaching party from liability for an uncured
intentional and willful breach of a representation, warranty, covenant, or
agreement giving rise to such termination.
The representations, warranties and agreements of the parties set forth
in this Agreement shall not survive the Effective Time, and shall be terminated
and extinguished at the Effective Time, and from and after the Effective Time
none of the parties hereto shall have any liability to the other on account of
any breach or failure of any of those representations, warranties and agreement;
provided, however, that the foregoing clause shall not (i) apply to agreements
of the parties which by their terms are intended to be performed after the
Effective Time, and (ii) shall not relieve any person for liability for fraud,
deception or intentional misrepresentation.
6.2 Payment of Expenses.
(a) Each of the parties hereto shall bear and pay all costs
and expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder.
(b) In order to induce NewSouth, the Bank and New Sub to enter
into this Agreement and as a means of compensating NewSouth, the Bank and New
Sub for the substantial direct and indirect monetary and other costs incurred
and to be incurred in connection with this Agreement and the transactions
contemplated hereby, the Company and Savings agree that if this
37
Agreement is terminated in accordance with Sections 5.4(b), 5.4(c) (but only on
account of failure of any of the conditions set forth in ▇▇▇▇▇▇▇ ▇.▇(▇) ▇▇▇
▇▇▇▇▇▇▇▇▇▇ (▇), (▇), (▇), (▇), (▇) (except that for the $2,000,000 payment to be
owed following failure solely of the condition set forth in Section 5.2(j) then
at least 20% of the outstanding shares of Company Common stock entitled to vote
shall have delivered notice pursuant to Article 13 of the NCBA) and (l) of
Section 5.2 herein), 5.4(e) or 5.4(f) hereof and prior to such termination a
Termination Event, as defined in paragraph (c) of this Section 6.2, shall have
occurred, the Company or Savings will upon demand pay to NewSouth or the Bank in
immediately available funds $2,000,000, inclusive of any other amounts that may
otherwise be due and payable in accordance with Section 6.2 hereunder; provided
however, no such payment shall be due or payable hereunder prior to Company and
Savings entering into a written definitive agreement with a third party with
respect to a Takeover Proposal within 15 months after termination of the
Agreement or within such 15 month period any third-party person or entity
acquires 25% or more of the Company's outstanding Common Stock
(c) For purposes of this Agreement, a Termination Event shall
mean either of the following:
(i) The Company or any Company Subsidiary, without having
received NewSouth's prior written consent, shall have entered into a written
agreement to engage in a Takeover Proposal with any person (the term "person"
for purposes of this Agreement having the meaning assigned thereto in Sections
3(a)((9) and 13(d)(3) of the 1934 Act, and the rules and regulations thereunder)
other than NewSouth or any affiliate of NewSouth (the term "affiliate" for
purposes of this Agreement having the meaning assigned thereto in Rule 405 under
the ▇▇▇▇ ▇▇▇) or the Board of Directors of the Company shall have recommended
that the shareholders of the Company approve or accept any Takeover Proposal
with any person other than NewSouth or any affiliate of NewSouth; or
(ii) After a bona fide written proposal is made by any
person other than NewSouth or any affiliate of NewSouth to the Company or its
shareholders to engage in a Takeover Proposal, either (A) the Company shall have
breached any covenant or obligation contained in this Agreement and such breach
would entitle NewSouth to terminate this Agreement, (B) the holders of Company
Common Stock shall not have approved this Agreement at the meeting of such
shareholders held for the purpose of voting on this Agreement, a proxy statement
has not been mailed to the holders of Company Common Stock as a result of the
Board of Directors' exercise of its fiduciary duties as set forth in Section 4.4
of this Agreement, such meeting shall not have been held in a timely manner or
shall have been postponed, delayed or enjoined prior to termination of this
Agreement except as a result of a judicial or administrative proceeding or the
Company's Board of Directors shall have (i) withdrawn or modified in a manner
materially adverse to NewSouth the recommendation of the Company's Board of
Directors with respect to this Agreement, or announced or disclosed to any third
party its intention to do so or (ii) failed to recommend, in the case of a
tender offer or exchange offer for the Company Common Stock, against acceptance
of such tender offer or exchange offer to its shareholders or takes no position
with respect to acceptance of such tender offer or exchange offer by its
stockholders or (C) the
38
Company Board of Directors makes the provisions of Article XIII or Article XIV
of the Company's Articles of Incorporation inapplicable to such Takeover
Proposal.
ARTICLE VII
CERTAIN POST-MERGER AGREEMENTS
7.1 Employees. (i) Except as set forth in paragraphs (vi) and (vii) of
this Section 7.1, employees of the Company or Savings who become employees of
NewSouth or the Bank after the Effective Time (the "Continuing Employees") shall
be eligible to participate in all benefit plans sponsored by NewSouth or the
Bank to the same extent as other similarly situated NewSouth or Bank employees,
recognizing prior service with Savings for purposes of eligibility,
participation and vesting; provided that NewSouth shall (i) not subject the
Continuing Employees to any uninsured waiting period or exclusion for
pre-existing conditions that was not in effect on the Effective Time under the
medical plan maintained by the Company or Savings, and (ii) provide for a
carry-over during 1999 or 2000 (as may be applicable) to the replacement
NewSouth or Bank medical plan of all deductibles and annual out of pocket
contributions incurred during the period beginning January 1, 1999 or January 1,
2000 (as be may be applicable) through the Effective Time.
(ii) Salaries for employees of Savings who are to become
employees of the Bank immediately following the Effective Time are set forth in
Exhibit 7.1 hereto. The Bank shall also honor the existing agreements set forth
in Exhibit 7.1 hereto.
(iii) With respect to those employees of Savings identified in
Exhibit 7.1 hereto who continue to be employed by the Bank for a period of one
year from the Effective Time, such employees will be paid a retention bonus in
the amount set forth in Exhibit 7.1 on the one year anniversary date of the
Effective Time.
(iv) NewSouth shall pay (or cause to be paid) a severance
benefit in accordance with Exhibit 7.1 hereto to any person who was a full time
employee of Savings immediately prior to the Effective Time and whose employment
with NewSouth or the Bank is involuntarily terminated during the one (1) year
period commencing as of the Effective Time. The severance payment obligations
under this Section 7.1 shall not apply to (a) any person who has an Employment
Agreement with Company or Savings, or (b) any employee who is terminated for
cause.
(v) In the event the Effective Time occurs prior to December
10, 1999, on or before December 20, 1999 NewSouth will pay to the Savings
employees listed on Exhibit 7.1 who continue to be employees of NewSouth on
December 20, 1999 or who are terminated by NewSouth without cause after the
Effective Time and prior to December 20, 1999 the 1999 bonus amounts set forth
in Exhibit 7.1.
39
(vi) The Continuing Employees shall be eligible to participate
in NewSouth's Employee Stock Ownership Plan ("NewSouth ESOP") no later than
October 1, 2001. In connection with their participation in the NewSouth ESOP,
such employees shall receive credit for prior years of service with Savings or
the Company, as well as service with NewSouth or Bank, for purposes of
determining eligibility to participate, and vesting, if applicable.
(vii) At the Effective Time, Saving's pension plan shall be
merged with and into Bank's pension plan, and thereafter each Continuing
Employee shall be entitled to participate in Bank's pension plan to the same
extent as other similarly situated NewSouth or Bank employees. Such Continuing
Employees shall receive credit under Bank's pension plan for their prior periods
of service to Company or Savings for purposes of determining eligibility and
vesting, and no participant's accrued benefit under Savings' pension plan shall
be reduced as a result of the merger of Savings' pension plan with and into
Bank's pension plan. Continuing Employees will accrue benefits under Bank's
pension plan for service with NewSouth and Bank after the Effective Time.
7.2 Directors. As of the Effective Time, Mr. H.D. ▇▇▇▇▇▇, Jr. shall
become a Director of NewSouth and the Bank. All of the non-employee directors of
Savings as of the Effective Time shall be invited by the Bank to join a
community advisory board of directors to advise and assist the Bank with respect
to the communities served by Savings. Such appointment shall be for a three year
basis and each person agreeing to serve on such advisory board of directors
shall receive fees of $400 per month if the advisory board meets monthly or
$1,200 per quarter if the advisory board meets quarterly.
7.3 Employment Agreements. As of the Effective Time, the existing
employment agreements between Savings and each of H.D. ▇▇▇▇▇▇, Jr., ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ will be terminated, and in lieu thereof such
individuals will enter into new employment agreements with the Bank in the form
attached at Exhibit 7.3 hereto.
ARTICLE VIII
GENERAL
8.1 Amendments. Subject to applicable law, this Agreement may be
amended, whether before or after any relevant approval of shareholders, by an
agreement in writing executed in the same manner as this Agreement and
authorized or ratified by the Boards of Directors of the parties hereto,
provided that, after the adoption of the Agreement by the shareholders of the
Company, no such amendment without further shareholder approval may reduce the
amount or change the form of the consideration to be received by the Company
shareholders in the Company Merger.
8.2 Confidentiality. All information disclosed hereafter by any party
to this Agreement to any other party to this Agreement, including, without
limitation, any information obtained pursuant to Section 4.1 hereof, shall be
kept confidential by such other party and shall not be used by such other party
otherwise than as herein contemplated except to the extent that (i) it was known
by such other party when received, (ii) it is or hereafter becomes lawfully
obtainable from other sources, (iii) it is necessary or appropriate to disclose
to the OTS, the FDIC, the FRB, the Commission or any other regulatory authority
having jurisdiction over the parties or their
40
subsidiaries or as may otherwise be required by law, or (iv) to the extent such
duty as to confidentiality is waived by the other party. In the event of the
termination of this Agreement, each party shall use all reasonable efforts to
return upon request to the other parties all documents (and reproductions
thereof) received from such other parties (and, in the case of reproductions,
all such reproductions made by the receiving party) that include information not
within the exceptions contained in the first sentence of this Section 8.2.
8.3 Governing Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of North Carolina without taking into account a provision regarding choice
of law, except to the extent certain matters may be governed by federal law by
reason of preemption.
8.4 Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if sent by registered mail or certified
mail, postage prepaid, addressed, if to NewSouth or Bank, to
NewSouth Bancorp, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, President
with a copy to:
Housley Kantarian & ▇▇▇▇▇▇▇▇▇, P.C.
Suite 700
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esquire
and if to Company or Savings, to
Green Street Financial Corp
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: H.D. ▇▇▇▇▇▇, Jr., President
with a copy to:
▇▇▇▇▇▇▇ Spidi & ▇▇▇▇▇, PC
One Franklin Square
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esquire
or such other address as shall be furnished in writing by any such party, and
any such notice or communication shall be deemed to have been given two business
days after the date of such mailing (except that the notice of change of address
shall not be deemed to have been given until
41
received by the addressee). Notices may also be sent by telegram, telex,
facsimile transmission or hand delivery and in such event shall be deemed to
have been given as of the date received.
8.5 No Assignment. This Agreement may not be assigned by any of the
parties hereto, by operation of law or otherwise, without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
8.6 Headings. The description heading of the several Articles and
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
8.7 Counterparts. This Agreement may be extended in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.
8.8 Construction and Interpretation. Except as the context otherwise
requires, (a) all references herein to any state or federal regulatory agency
shall also be deemed to refer to any predecessor or successor agency, and (b)
all references to state and federal statutes or regulations shall also be deemed
to refer to any successor statute or regulation.
8.9 Entire Agreement. This Agreement, together with the schedules,
lists, exhibits and certificates required to be delivered hereunder, and any
amendment hereafter executed and delivered in accordance with Section 8.1,
constitutes the entire agreement of the parties, and supersedes any prior
written or oral agreement or understanding among any of the parties hereto
pertaining to the Company Merger, except for the Confidentiality Agreement
between the Company and NewSouth dated October 5, 1998, attached at Exhibit 8.9,
which shall remain in full force and effect. This Agreement is not intended to
confer upon any other persons any rights or remedies hereunder except as
expressly set forth herein.
8.10 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of the Agreement.
8.11 No Third Party Beneficiaries. Nothing in this Agreement shall
entitle any person (other than the Company, Savings, NewSouth, the Bank or New
Sub and their respective successors and assigns permitted hereby) to any claim,
cause of action, remedy or right of any kind, except as otherwise expressly
provided herein, including the Indemnities described in Section 4.11 of this
Agreement.
8.12 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall
42
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof 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;
except that no such rights shall attach in circumstances where the Company and
Savings shall have paid NewSouth, Bank or NewSub the $2,000,000 payment set
forth in Section 6.2(b) herein.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunder duly authorized, all as of the
date set forth above.
NEWSOUTH BANCORP, INC. GREEN STREET FINANCIAL CORP
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇ /s/ H.D. ▇▇▇▇▇▇, Jr
By: --------------------------------- By: ------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇ Name: H.D. ▇▇▇▇▇▇, Jr.
Title: President Title: President
NEWSOUTH BANK HOME FEDERAL SAVINGS AND
LOAN ASSOCIATION
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇ /s/ H.D. ▇▇▇▇▇▇, Jr
By: --------------------------------- By: ------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇ Name: H.D. ▇▇▇▇▇▇, Jr.
Title: President Title: President
WASHINGTON FINANCIAL, INC.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
By: ---------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: President
44
