SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ____)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Green Street Financial Corp
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1) Title of each class of securities to which transaction applies: common
stock and rights to buy common stock (options)
(2) Aggregate number of securities to which transaction applies: 3,879,269
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid pursuant to Rule 0-11:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0- 11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid: $12,196.33
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(2) Form, Schedule or Registration Statement No.: Preliminary Proxy Statement
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(3) Filing Party: Registrant
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(4) Date Filed: September 10, 1999
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<PAGE>
[Green Street Financial Corp Letterhead]
October 15, 1999
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Green Street
Financial Corp (the "Company"), I cordially invite you to attend the Special
Meeting of Stockholders to be held at the office of the Company, 241 Green
Street, Fayetteville, North Carolina on November 17, 1999, at 5:15 p.m.
local time.
The matter to be considered by stockholders at the meeting is a
proposal to approve the Agreement and Plan of Merger (the "Agreement"), whereby
the Company and Home Federal Savings and Loan Association will be acquired
through a merger with NewSouth Bancorp, Inc.'s subsidiaries. Each stockholder of
Green Street will receive a cash payment of $15.25 for each share of Company
common stock owned as of the date of the merger. The merger is subject to
certain conditions, including regulatory and stockholder approval.
The accompanying Notice of Special Meeting and proxy statement contain
information about the merger and the Agreement. We urge you to carefully review
this information.
The Board of Directors of the Company has unanimously approved the
Agreement and unanimously recommends that the stockholders of the Company vote
"FOR" the approval of the Agreement. A failure to vote, either by not returning
the enclosed proxy or by checking the "Abstain" box on the proxy, will have the
same effect as a vote against approval of the Agreement.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING POSTAGE-PAID RETURN
ENVELOPE AS SOON AS POSSIBLE. This will not prevent you from voting in person at
the meeting, but will assure that your vote is counted if you are unable to
attend the meeting. YOUR VOTE IS VERY IMPORTANT.
Sincerely,
/s/H.D. Reaves, Jr.
--------------------------------
H.D. Reaves, Jr.
President
Please do not send your common stock certificates at this time. You
will be sent instructions regarding the surrender of your stock certificates at
a later date.
<PAGE>
GREEN STREET FINANCIAL CORP
241 GREEN STREET
FAYETTEVILLE, NORTH CAROLINA 28301
(910) 483-3681
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 17, 1999
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NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders (the "Meeting")
of Green Street Financial Corp (the "Company"), will be held at the office of
the Company at 241 Green Street, Fayetteville, North Carolina on November 17,
1999, at 5:15 p.m. local time. A proxy card and a proxy statement for the
Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon the following:
1. To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of August 9, 1999 (the "Agreement"), by and among NewSouth
Bancorp, Inc. ("NewSouth"), NewSouth Bank, and Washington Financial, Inc.
("New Sub"); and the Company and Home Federal Savings and Loan Association
("Home Federal") pursuant to which: (i) NewSouth would cause NewSouth
Bank's wholly owned subsidiary, New Sub, to merge with and into the Company
with the Company surviving (the "Merger"); and (ii) each outstanding share
of the Company's common stock would be converted into the right to receive
a cash payment of $15.25 from NewSouth upon completion of the Merger,
subject to the terms and conditions contained in the Agreement; and
2. The transaction of such other matters as may properly come before the
Meeting or any adjournments thereof. The Board of Directors is not aware of
any other business to come before the Meeting.
Any action may be taken on the foregoing proposal at the Meeting on the date
specified above or on any date or dates to which, by original or later
adjournment, the Meeting may be adjourned. Stockholders of record at the close
of business on October 5, 1999 are the stockholders entitled to vote at the
Meeting and any adjournments thereof.
The stockholders of the Company may be entitled to assert dissenters' rights
under Article 13 of the North Carolina Business Corporation Act.
EACH STOCKHOLDER, WHETHER OR NOT HE PLANS TO ATTEND THE MEETING, IS REQUESTED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE REVOKED BY
FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED
PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING MAY REVOKE
HIS PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING.
HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE
PERSONALLY AT THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Allen Lloyd
----------------------------------
Allen Lloyd
Secretary
Fayetteville, North Carolina
October 15, 1999
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES.
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<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL.................................................................... 1
VOTING AND REVOCABILITY OF PROXIES......................................... 1
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............................ 2
PROPOSAL TO APPROVE AGREEMENT.............................................. 4
THE PARTIES TO THE MERGER.................................................. 4
SUMMARY OF THE AGREEMENT................................................... 4
Reasons for the Merger.................................................. 5
The Structure of the Merger and the Consideration to be Paid............ 5
Vote Required........................................................... 5
Interests of Certain Persons............................................ 5
Dissenters' Rights...................................................... 6
Closing of the Merger................................................... 6
Effective Date.......................................................... 6
Recommendation of the Company's Board of Directors...................... 6
Opinion of the Company's Financial Advisor.............................. 6
Federal Income Tax Consequences......................................... 7
Business Pending Consummation........................................... 7
Regulatory Approvals.................................................... 7
Conditions to the Merger................................................ 7
Expenses................................................................ 7
Accounting Treatment.................................................... 7
SELECTED CONSOLIDATED FINANCIAL DATA....................................... 8
THE MERGER................................................................. 9
General................................................................. 9
Background Of the Merger................................................ 9
Reasons for the Merger and Recommendation............................... 11
Opinion of the Company's Financial Advisor.............................. 12
Federal Income Tax Consequences......................................... 15
THE AGREEMENT.............................................................. 15
Closing of the Merger................................................... 16
Effective Date.......................................................... 16
Interests of Certain Persons............................................ 16
Exchange of Common Stock and Consideration to be Paid................... 17
Payment of Merger Consideration......................................... 18
Post Merger Agreements and Benefits..................................... 19
Dissenters' Rights...................................................... 20
Business Pending Consummation........................................... 20
No Solicitation......................................................... 21
Cooperation of the Parties.............................................. 21
Amendment of Home Federal's Federal Stock Charter....................... 22
Accounting Treatment.................................................... 22
Regulatory Approvals.................................................... 22
Conditions to the Merger................................................ 22
Termination of the Agreement and Abandonment of the Merger.............. 25
Payment of Expenses..................................................... 27
Termination Fee......................................................... 27
Waiver; Amendment....................................................... 28
ACCOUNTANTS................................................................ 28
FINANCIAL INFORMATION...................................................... 28
STOCKHOLDER PROPOSALS...................................................... 28
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 29
PROXY SOLICITATION......................................................... 29
ANNEXES
Annex A - Agreement and Plan of Merger, dated as of August 9, 1999,
by and among NewSouth Bancorp, Inc., NewSouth Bank,
and Washington Financial, Inc. and Green Street Financial Corp
and Home Federal Savings and Loan Association
Annex B - Opinion of Hovde Financial, Inc.
Annex C - North Carolina law regarding dissenters' rights
EXHIBITS
Exhibit 1 - Green Street Financial Corp 1998 Annual Report to Stockholders
Exhibit 2 - Form 10-Q for the Quarter Ended June 30, 1999
<PAGE>
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PROXY STATEMENT
OF
GREEN STREET FINANCIAL CORP
241 GREEN STREET
FAYETTEVILLE, NORTH CAROLINA 28301
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SPECIAL MEETING OF STOCKHOLDERS
NOVEMBER 17, 1999
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GENERAL
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This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Green Street Financial Corp (the
"Company") to be used at the Special Meeting of Stockholders of the Company
which will be held at the office of the Company at 241 Green Street,
Fayetteville, North Carolina, on November 17, 1999, at 5:15 p.m. local time (the
"Meeting"). The accompanying Notice of Special Meeting and this proxy statement
are being first mailed to stockholders on or about October 15, 1999.
At the Meeting, stockholders will consider and vote upon a proposal to
approve the Agreement and Plan of Merger, dated as of August 9, 1999 (the
"Agreement"), by and among NewSouth Bancorp, Inc. ("NewSouth"), NewSouth Bank,
and Washington Financial, Inc. ("New Sub"); and the Company and Home Federal
Savings and Loan Association ("Home Federal") pursuant to which: (i) NewSouth
would cause NewSouth Bank's wholly owned subsidiary, New Sub, to merge with and
into the Company with the Company surviving (the "Merger"); and (ii) each
outstanding share of the Company's common stock ("Common Stock") would be
converted into the right to receive a cash payment of $15.25 ("Merger
Consideration") from NewSouth upon completion of the Merger, subject to the
terms and conditions contained in the Agreement. See "PROPOSAL TO APPROVE
AGREEMENT," "SUMMARY OF THE AGREEMENT," "THE MERGER," and "THE AGREEMENT." A
copy of the Agreement is attached as ANNEX A to this proxy statement.
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VOTING AND REVOCABILITY OF PROXIES
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Stockholders who execute proxies retain the right to revoke them at any
time. Unless so revoked, the shares represented by such proxies will be voted at
the Meeting and all adjournments thereof. Proxies may be revoked by written
notice to the Secretary of the Company at the address above or by the filing of
a later dated proxy prior to a vote being taken on the proposal at the Meeting.
A proxy will not be voted if a stockholder attends the Meeting and votes in
person. Proxies solicited by the Board of Directors of the Company (the "Board"
or the "Board of Directors") will be voted in accordance with the directions
given therein. Where no instructions are indicated, signed proxies will be voted
"FOR" the listed proposal. The proxy confers discretionary authority on the
persons named therein to vote with respect to such other business, if any, that
may properly come before the Meeting or any adjournment thereof.
<PAGE>
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
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Stockholders of record as of the close of business on October 5, 1999
(the "Record Date") are entitled to one vote for each share of the Common Stock
then held. As of the Record Date, the Company had 3,879,269 shares of Common
Stock issued and outstanding.
The articles of incorporation of the Company ("Articles of
Incorporation") provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of Common Stock (the "Limit") be entitled or permitted to any vote with respect
to the shares held in excess of the Limit. Beneficial ownership is determined
pursuant to the definition in the Articles of Incorporation and includes shares
beneficially owned by such person or any of his or her affiliates or associates
(as such terms are defined in the Articles of Incorporation), shares which such
person or his or her affiliates or associates have the right to acquire upon the
exercise of conversion rights or options and shares as to which such person and
his or her affiliates or associates have or share investment or voting power,
but shall not include shares beneficially owned by any employee stock ownership
plan or similar plan of the issuer or any subsidiary.
The presence in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute a
quorum at the Meeting. With respect to any matter, any shares for which a broker
indicates on the proxy that it does not have discretionary authority as to such
shares to vote on such matter (the "Broker Non-Votes") will be considered
present for purposes of determining whether a quorum is present. In the event
there are insufficient votes to approve the Agreement at the time of the
Meeting, the Meeting may be adjourned in order to permit the further
solicitation of proxies.
As to the proposal to approve the Agreement, by checking the
appropriate box, a stockholder may: vote "FOR" the item, (ii) vote "AGAINST" the
item, or (iii) vote to "ABSTAIN" on such item. Approval of the proposal requires
the affirmative vote of the holders of a majority of the shares of Common Stock
outstanding. Broker Non-Votes and Abstentions will be counted as a vote present
but not as a vote cast and therefore will have the affect of a vote against the
proposal.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
AGREEMENT, BELIEVES IT IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS ITS APPROVAL BY THE COMPANY'S
STOCKHOLDERS.
Persons and groups beneficially owning in excess of 5% of the Common
Stock are required to file certain reports regarding such ownership pursuant to
the Securities Exchange Act of 1934, as amended (the "1934 Act"). The following
table sets forth, as of the Record Date, persons or groups who beneficially own
more than 5% of the Common Stock, the shares of Common Stock beneficially owned
by all directors, each named executive officer, and directors and executive
officers as a group. Other than as noted below, management knows of no person or
group that beneficially owns more than 5% of the outstanding shares of Common
Stock at the Record Date.
2
<PAGE>
<TABLE>
<CAPTION>
Percent of Shares of
Amount and Nature of Common Stock
Name of Beneficial Owner Beneficial Ownership* Outstanding
- ------------------------ --------------------- -----------
<S> <C> <C>
Home Federal Savings and Loan Association
Employee Stock Ownership Plan and Trust ("ESOP")
241 Green Street
Fayetteville, North Carolina 260,000(1) 6.7%
Norwood E. Bryan, Jr. 54,614(2) 1.4%
John M. Grantham 47,728(3) 1.2%
Joseph H. Hollinshed 29,959(2) 0.8%
Henry W. Holt 36,779(1)(2) 1.0%
Henry G. Hutaff, Sr. 44,959(1)(2) 1.2%
Robert O. McCoy, Jr. 22,488(1)(2) 0.6%
John C. Pate 78,565(4) 2.0%
Robert G. Ray 19,859(2) 0.5%
H. D. Reaves, Jr. 87,149(4) 2.2%
All directors and executive officers of the
Company as a group (12 persons) 479,468(5) 12.4%
</TABLE>
- ---------------------------------
* As of the Record Date. Includes shares of Common Stock held directly
as well as by spouses or minor children, in trust and other indirect
ownership, over which shares the individuals effectively exercise sole
voting and investment power, unless otherwise indicated.
(1) Robert O. McCoy, Jr., Henry G. Hutaff, Sr. and Henry W. Holt to serve
as the ESOP administrative committee ("ESOP Committee") and the ESOP
trustees ("ESOP Trustee"). The ESOP Committee or the Board instructs
the ESOP Trustee regarding investment of ESOP plan assets. The ESOP
Trustee must vote all shares allocated to participant accounts under
the ESOP as directed by participants. Unallocated shares and shares for
which no timely voting direction is received, will be voted by the ESOP
Trustee as directed by the Board or the ESOP Committee. As of the
Record Date, 84,500 shares have been allocated under the ESOP to
participant accounts.
(2) Includes 12,894 shares of Common Stock which may be acquired through
stock options exercisable within 60 days of the Record Date.
(3) Includes 30,945 shares of Common Stock which may be acquired through
stock options exercisable within 60 days of the Record Date.
(4) Includes 59,313 shares of Common Stock which may be acquired through
stock options exercisable within 60 days of the Record Date.
(5) Includes 257,886 shares of Common Stock which may be acquired through
stock options exercisable within 60 days of the Record Date. Excludes
363,147 shares of Common Stock held by the ESOP over which certain
directors, as trustees to the ESOP and Home Federal's Restricted Stock
Plan ("RSP"), exercise shared voting and investment power. Such
individuals disclaim beneficial ownership with respect to such shares
held by the ESOP and the RSP.
3
<PAGE>
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PROPOSAL TO APPROVE AGREEMENT
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THE PARTIES TO THE MERGER
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Green Street Financial Corp and Home Federal Savings and Loan Association
The Company's and Home Federal's complete mailing address for their
principal executive office is 241 Green Street, Fayetteville, North Carolina
28301 and their telephone number is (910) 483- 3681.
NewSouth Bancorp, Inc., NewSouth Bank, and Washington Financial, Inc.
NewSouth, a Virginia corporation, is the bank holding company for
NewSouth Bank. NewSouth's principal business is overseeing the business of
NewSouth Bank and investing the portion of the proceeds retained in connection
with its common stock offering. NewSouth Bank is a North Carolina-chartered
commercial bank headquartered in Washington, North Carolina and serves eastern
North Carolina. NewSouth Bank intends to change its name after the Effective
Date. NewSouth Bank derives its income principally from interest earned on loans
and investments and, to a lesser extent, loan servicing and other fees and gains
on the sale of loans and investments. New Sub is a newly-formed corporate entity
which was formed solely for the purpose of effectuating the Merger.
The complete mailing address for the principal executive office of
NewSouth, NewSouth Bank, and New Sub is 1311 Carolina Avenue, Washington, North
Carolina 27889 and the telephone number at this address is (252) 946-4178.
At June 30, 1999, NewSouth had consolidated assets of $292.3 million,
deposits of $218.6 million, and shareholders' equity of $50.7 million.
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SUMMARY OF THE AGREEMENT
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THE FOLLOWING SUMMARY PROVIDES CERTAIN INFORMATION RELATING TO THE
MERGER. THIS SUMMARY IS NOT INTENDED TO BE A SUMMARY OF ALL THE INFORMATION
RELATING TO THE MERGER AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE
DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY STATEMENT, INCLUDING THE
ANNEXES AND EXHIBITS HERETO, AND IN THE DOCUMENTS INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT. A COPY OF THE AGREEMENT IS ATTACHED AS ANNEX A TO THIS
PROXY STATEMENT. STOCKHOLDERS ARE URGED TO READ CAREFULLY THE ENTIRE PROXY
STATEMENT, INCLUDING THE ANNEXES AND EXHIBITS. AS USED IN THIS PROXY STATEMENT,
THE TERMS "NEWSOUTH," "THE COMPANY" AND "NEWSOUTH BANK" REFER TO SUCH
ORGANIZATIONS, AND, UNLESS THE CONTEXT OTHERWISE REQUIRES, SUCH ORGANIZATIONS
AND THEIR RESPECTIVE SUBSIDIARIES.
4
<PAGE>
Reasons for the Merger
The factors of the Merger that the Board of Directors of the Company,
in consultation with its legal and financial advisors, considered material in
deciding to approve and recommend the terms of the Merger were (i) the cash to
be received by the Company's stockholders of $15.25 per share of Common Stock
owned, (ii) the taxable nature of a cash transaction versus the pricing risk
associated with taking stock, (iii) information concerning the financial
condition, results of operations, capital levels, asset quality and future
prospects of the Company as an independent institution, (iv) industry and
economic conditions, (v) the impact of the Merger on the depositors, employees,
customers and communities served by the Company through expanded commercial and
consumer loan products and services, (vi) the opinion of the Company's financial
advisor as to the fairness of the consideration to be received by the holders of
the Company's Common Stock from a financial point of view, (vii) the general
structure of the transaction and the compatibility of management and business
philosophy, and (viii) the likelihood of receiving the requisite regulatory
approvals in a timely manner. In making its determination, the Board did not
ascribe relative weights to the factors which it considered.
The Structure of the Merger and the Consideration to be Paid
Under the terms of the Agreement, NewSouth would acquire the Company by
causing New Sub to merge with the Company, dissolving the Company into NewSouth
Bank, and merging the Home Federal with and into NewSouth Bank, with NewSouth
Bank surviving. Upon consummation of the Merger, each outstanding share of the
Common Stock would be converted into the right to receive a cash payment of
$15.25 from NewSouth. Each outstanding stock option to buy Common Stock would be
converted into the right to receive a cash payment of $0.31 per share ($15.25
minus the exercise price of all options). The merger of Home Federal with and
into NewSouth Bank, is expected to occur immediately after the Merger. The high
and low sales prices of the Common Stock on August 6, 1999 (the last trading day
preceding the public announcement of the Merger) were both $13.125.
Vote Required
Approval of the Agreement requires the affirmative vote of the holders
of a majority of the outstanding Common Stock. Each owner of Common Stock on the
Record Date will be entitled to one vote for each share held of record upon each
matter properly submitted at the Meeting or any adjournment or adjournments
thereof. The directors and executive officers of the Company are expected to
vote their Common Stock in favor of the Agreement. Each director has signed a
voting agreement to such effect.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX ON THE PROXY, WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST APPROVAL OF THE AGREEMENT.
Interests of Certain Persons
Directors and executive officers of the Company have interests in the
Merger in addition to their interests as stockholders of the Company generally.
These interests include, among others, provisions in the Agreement relating to
indemnification and maintenance of director and officer liability insurance
coverage. These interests also relate to payments made as a result of a "change
in control" of the Company, such as the Merger. See "PROPOSAL TO APPROVE
AGREEMENT - THE AGREEMENT -Interests of Certain Persons."
5
<PAGE>
Dissenters' Rights
Stockholders of the Company are entitled to dissenters' appraisal
rights in connection with the Merger. See "PROPOSAL TO APPROVE AGREEMENT - THE
AGREEMENT - Dissenters' Rights."
Closing of the Merger
If (i) the Company's stockholders approve the Agreement, and (ii) all
conditions of the Agreement have been satisfied or waived, a closing (the
"Closing") will take place as promptly as practicable thereafter. Such Closing
will take place as soon as practicable as agreed by the parties, provided,
however, that the Closing will be no more than thirty (30) days after the
satisfaction or waiver of all conditions and/or obligations contained in the
Agreement.
Effective Date
As soon as practicable after each of the required conditions set forth
in the Agreement have been satisfied or waived, New Sub and the Company will
file articles of merger with the Secretary of State of North Carolina. The
Merger will 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 and on the same day as the Closing if practicable. It is
currently anticipated that the Closing will take place, and the Merger will
become effective, during the fourth calendar quarter of 1999.
Recommendation of the Company's Board of Directors
The Board of Directors of the Company has approved the Agreement by
unanimous vote, believes it is in the best interests of the Company and its
stockholders and unanimously recommends its approval by the Company's
stockholders.
Opinion of the Company's Financial Advisor
Hovde Financial, Inc. ("Hovde") rendered its written opinion to the
Company's Board of Directors on August 9, 1999, and subsequently rendered an
additional formal written updated opinion dated October 15, 1999 (the "Opinion")
that, as of the respective dates of such opinions and subject to the assumptions
set forth therein, the cash consideration is fair to the holders of the Common
Stock from a financial point of view. For information concerning the matters
reviewed, assumptions made and factors considered by Hovde see "- THE MERGER -
Opinion of the Company's Financial Advisor" and ANNEX B to this Proxy Statement,
which sets forth a copy of Hovde's written fairness opinion dated October 15,
1999. Holders of the Common Stock are urged to, and should, read the Opinion in
its entirety.
Based upon the estimated aggregate purchase price to be paid in
connection with the Merger, Hovde's aggregate fees will be approximately
$619,816. Hovde was paid approximately $10,000 of such fee upon the signing of
its engagement agreement with the Company and the remainder will be paid upon
the closing of this transaction. In addition, the Company has reimbursed Hovde
approximately $3,000 for reasonable out-of-pocket expenses. See "PROPOSAL TO
APPROVE AGREEMENT - SUMMARY OF THE AGREEMENT - Opinion of the Company's
Financial Advisor."
6
<PAGE>
Federal Income Tax Consequences
The receipt of cash by a stockholder of the Company in exchange for
shares of the Common Stock pursuant to the Agreement may be a taxable
transaction to such stockholder for federal income tax purposes. In general, a
stockholder will recognize gain or loss upon the surrender of the stockholder's
Common Stock equal to the difference, if any, between (i) the total amount of
cash received in exchange for Common Stock and (ii) the stockholder's tax basis
in the Common Stock exchanged. Stockholders are urged to consult their own tax
advisors as to the specific consequences to them of the Merger under applicable
tax laws. See "PROPOSAL TO APPROVE AGREEMENT - SUMMARY OF THE AGREEMENT -
Federal Income Tax Consequences."
Business Pending Consummation
The Company has agreed to carry on its business in substantially the
same manner its business was conducted prior to the date of the Agreement, and
has agreed not to take certain actions relating to the operation of the Company
pending consummation of the Merger, without the prior written consent of
NewSouth, except as otherwise permitted by the Agreement.
Regulatory Approvals
The Merger will be subject to the prior approval of the Federal Deposit
Insurance Corporation (the "FDIC") and the North Carolina Office of the
Commissioner of Banks (the "Commission"). In addition, the Board of Governors
Federal Reserve System ("FRB") and the Office of Thrift Supervision ("OTS") must
be notified of the Merger. Necessary applications or waiver requests have been
filed with each of such regulatory authorities for such approvals. There can be
no assurance that the necessary regulatory approvals will be obtained or as to
the timing or conditions of such approvals. See "THE AGREEMENT -- Regulatory
Approvals."
Conditions to the Merger
The obligations of NewSouth, NewSouth Bank, and New Sub and the Company
and Home Federal to complete the Merger will be subject to certain conditions.
See "PROPOSAL TO APPROVE AGREEMENT - SUMMARY OF THE AGREEMENT - Conditions to
the Merger."
Expenses
The Company, the Bank, and NewSouth must generally pay their own
respective legal and accounting fees and all other expenses and fees incurred in
connection with the Merger. If the Agreement is terminated for certain specified
reasons, as set forth in the Agreement, the Company may be required to pay
NewSouth a $2,000,000 termination fee. See "PROPOSAL TO APPROVE AGREEMENT - THE
AGREEMENT - Termination Fee."
Accounting Treatment
NewSouth is expected to use the purchase method of accounting with
respect to its acquisition of the Company in the Merger.
7
<PAGE>
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SELECTED CONSOLIDATED FINANCIAL DATA
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The following selected consolidated financial and other data for the
last five fiscal years are derived from the audited consolidated financial
statements of the Company. The data should be read in conjunction with the
audited consolidated financial statements, related notes and other financial
information incorporated by reference herein.
<TABLE>
<CAPTION>
At September 30,
At June 30, --------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
TOTAL AMOUNTS OF: (Unaudited) (dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Total assets $165,696 $172,705 $177,962 $176,217 $151,028 $150,077
Investments (1) 37,603 39,436 47,203 51,403 32,174 43,605
Loans Receivable, net 126,570 131,698 128,946 123,148 117,201 105,094
Savings Deposits 104,832 110,460 112,642 111,385 127,483 128,334
Stockholders' Equity (2) 58,486 60,333 62,946 62,180 22,230 20,453
Book Value per share 15.08 14.78 14.64 14.47 -- --
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months
Ended June 30, For the Years Ended September 30,
------------------------- -------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Interest and Dividend Income $ 8,926 $ 9,908 $ 13,101 $ 13,017 $ 12,583 $ 11,124 $ 10,325
Interest Expense 3,750 4,221 5,609 5,377 6,232 6,119 5,489
-------- -------- --------- -------- -------- -------- --------
Net Interest Income 5,176 5,687 7,492 7,640 6,351 5,005 4,836
Provision for Loan Losses -- -- -- 20 10 -- 19
Noninterest Income 94 99 132 104 128 106 145
Noninterest Expense (3) 2,125 2,449 3,128 3,231 3,300 2,344 2,117
-------- -------- --------- --------- -------- -------- --------
Income before Income Taxes 3,145 3,337 4,496 4,493 3,169 2,767 2,845
Income Tax Expense 1,171 1,255 1,689 1,716 1,099 990 1,035
-------- -------- --------- --------- -------- --------- --------
Net Income $ 1,974 $ 2,082 $ 2,807 $ 2,777 $ 2,070 $ 1,777 $ 1,810
======= ======== ========= ======== ======== ======== ========
Earnings Per Share, Basic (2) $ 0.52 $ 0.51 $ 0.70 $ 0.68 $ 0.28 $ - $ --
Earnings Per Share, Diluted (2) 0.52 0.50 0.69 0.67 0.28 -- --
Dividends Per Share (2) 0.37 0.34 0.61 0.57 0.35 -- --
Selected other data:
Return on Average Assets (5) 1.56% 1.59% 1.59% 1.58% 1.22% 1.21% 1.16%
Return on Average Equity (5) 4.41% 4.45% 4.48% 4.41% 4.93% 8.29% 9.23%
Interest Rate Spread (5) 2.46% 2.48% 2.47% 2.60% 2.50% 2.66% 2.58%
Net Interest Margin (5) 4.14% 4.31% 4.29% 4.40% 3.78% 3.42% 3.11%
Dividend Payout Ratio (2) 71.00% 68.00% 87.00% 85.00% 125.00% -- --
Average Equity to Average Assets 35.27% 35.62% 35.49% 36.00% 24.76% 14.57% 12.52%
Nonperforming loans to total loans (4) 0.18% 0.07% 0.15% 0.13% .25% .27% .39%
</TABLE>
- ---------------------
(1) Includes interest earning deposits, federal funds, and investment
securities.
(2) On April 3, 1996, Home Federal converted from a federally chartered mutual
savings association to a federally chartered stock savings association and
became a wholly owned subsidiary of the Company. Per share data is not
presented for periods prior to April 3, 1996.
(3) Includes nonrecurring insurance assessment of $792,868 during 1996.
(4) Nonperforming loans is comprised of loans delinquent 90 days or more.
(5) Average balances are derived from month-end balances which are
representative of operations.
8
<PAGE>
- --------------------------------------------------------------------------------
THE MERGER
- --------------------------------------------------------------------------------
A COPY OF THE AGREEMENT IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT AND
REFERENCE IS MADE THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS OF THE MERGER.
STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THE AGREEMENT CAREFULLY.
General
At the Effective Time, New Sub will be merged with and into the
Company. The Merger will be effected in accordance with any and all applicable
provisions of the North Carolina Business Corporation Act (the "NCBCA"). The
Company shall thereafter continue as the surviving corporation under the name of
"Green Street Financial Corp." At and after the Effective Time, the separate
existence of New Sub shall cease, the Articles of Incorporation and the Bylaws
of the Company in effect immediately prior to the Merger shall continue as the
Articles of Incorporation and Bylaws of the surviving corporation after the
Merger. The Company would then be immediately liquidated into NewSouth Bank, and
Home Federal would be merged with and into NewSouth Bank with NewSouth Bank
surviving.
The directors and executive officers of the Company immediately prior
to the Effective Time shall, as of such Effective Time, submit their written
resignation and the directors and executive officers of the Company immediately
following the Merger, until their successors shall be duly elected and
qualified, shall be such persons as are appointed by NewSouth Bank.
The Agreement and the legal relations between the parties will 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.
Background of the Merger
During the normal course of its business, the Company has periodically
received inquiries regarding its willingness to consider an acquisition by, or
affiliation with, larger financial institutions. Consistent with its fiduciary
obligations to its shareholders, the Company has considered and evaluated such
opportunities. Such evaluation included examination of the level and form of
consideration proposed, the seriousness and specificity conveyed to the Company
in terms of consideration, the future operation of the Company, and other
factors deemed relevant by the Company in formulating its business plan with the
intent to provide greater value to its shareholders and exceptional service to
its customers.
During the first half of 1998, the Board of Directors of the Company on
a number of occasions discussed the implementation cost of providing the
increasingly broad array of financial products and alternate delivery channels
it believed necessary to remain competitive in the marketplace. During the
summer of 1998, the Board determined that it was appropriate to expand the scope
of its review of the Company's strategic options to enhance shareholder value.
In June 1998, Hovde was asked to make a presentation to the Board regarding
strategic alternatives available to the Company. On July 20, 1998, the Board met
to consider various strategic alternatives available to the Company as presented
by
9
<PAGE>
Hovde at that meeting. Among the topics presented at this meeting, the Board
considered the potential advantages and disadvantages to the Company of the
following:
* remaining independent and pursuing traditional asset and income growth
through increased deposits and loans;
* expanding the amount and type of financial products available to its
customers;
* pursuing a merger of equals transaction with a similarly sized
institution competitive in the Company's primary market area; and
* pursuing a selected group of potential acquirors for the sale of the
Company through a negotiated transaction.
On July 29, 1998, the Board met and reviewed the materials discussed at
the July 20, 1998 meeting and based on these deliberations, the Board determined
that, given the current market conditions, it should consider in greater detail
a possible strategic alliance with one of a selected group of potential
acquirors. On July 29, 1998 the Company signed an agreement to retain Hovde as
its financial advisor to assist and to advise the Company in exploring strategic
alternatives to enhance shareholder value, including a possible merger with a
larger financial institution. The institutions to be contacted by Hovde were
chosen based upon a number of factors including, but not limited to those
institutions that:
* possessed asset size, equity base and/or market capitalization at
least as great as the Company's; and
* operated in or around the Company's primary market area.
During the period between August 1998 and October 1998, Hovde contacted fourteen
financial institutions which it believed might meet the criteria for such a
merger transaction with the Company. Eleven of the fourteen financial
institutions were provided packages (pursuant to a confidentiality agreement)
containing historical, financial, operating and other information about the
Company.
Various levels of discussions were held with each institution that
received a confidential information package. Thereafter, those institutions that
expressed an interest in entering into a business combination were asked to
convey to the Company and Hovde their interest. The Company received preliminary
indications of interest from three institutions. NewSouth was one of the three
initial candidates, however, after conducting limited due diligence, it withdrew
its expression of interest. Prior to conducting due diligence, another
institution which had expressed interest subsequently withdrew.
The Board authorized representatives of the Company to negotiate with
the remaining institution. The indications of interest of this institution
provided for the consideration to be paid in part stock and part cash. The final
determination as to the form and amount of such consideration and significant
other terms of a proposed transaction were never agreed upon. Because of the
limited liquidity of such stock being offered, the volatility of such stock's
price, and general market conditions related to the stock prices of financial
institutions, it was not possible to determine the value of the consideration or
determine whether it was possible to consummate the transaction at a price
favorable to the Company's stockholders. After negotiations between the Company
and the other institution and
10
<PAGE>
after the Company conducted due diligence, the parties did not reach an
agreement. Further discussions were terminated in January 1999.
In May 1999, NewSouth expressed renewed interest in a possible
acquisition. Furthermore, the Company received an inquiry from another financial
institution regarding a possible merger with the Company in the form of a part
stock and part cash transaction. After considering the proposals from NewSouth
and the other institution, including the amount and form of consideration to be
paid, the tax effects of such consideration to stockholders, the difficulty in
valuing the stock of the potential partner due to such stock's limited liquidity
and volatile price, and the potential for a merger permitting the offering of a
broader array of financial products to the Company's customer base and the
communities it serves, the Board believed its overall objectives were most
likely to be achieved by pursuing a transaction with NewSouth.
In June 1999, Company and NewSouth commenced extensive negotiations.
Throughout the negotiation process, management of the Company informed the Board
as to the status and terms of the negotiations. In evaluating whether to
affiliate with NewSouth, the Company considered the competitive conditions in
the markets served by the Company, the Company's future growth prospects, the
likely future prospects of the local, state-wide and national economies, the
trading characteristics of the Common Stock and the likely future price
appreciation prospects of the Common Stock. The Company also took into account
its belief that affiliating with NewSouth, a larger financial institution with
significantly greater resources and expertise, would offer expansion
opportunities and financial products and services not otherwise available to the
Company and its customers. The Company and its Board of Directors determined
that the Company's competitive position could best be enhanced through
affiliation with NewSouth. The aggregate price to be paid to holders of the
Common Stock resulted from negotiations which considered the historical earnings
and earnings prospects of the Company and its subsidiary bank, potential growth
in the Company's markets, the Company's asset quality and the effect of the
Merger on the shareholders, customers and employees of the Company.
Following (i) a thorough review, with its legal and financial advisors
of the Merger and the terms and conditions in the Agreement, and (ii) a written
presentation by Hovde as to the fairness of the consideration from a financial
point of view, NewSouth and the Company entered into the Agreement on August 9,
1999.
Reasons for the Merger and Recommendation
The factors of the Merger that the Board of Directors of the Company,
in consultation with its legal and financial advisors, considered material in
deciding to approve and recommend the terms of the Merger were (i) the cash to
be received by the Company's stockholders of $15.25 per share of Common Stock
owned, (ii) the taxable nature of a cash transaction versus the pricing risk
associated with taking stock, (iii) information concerning the financial
condition, results of operations, capital levels, asset quality and future
prospects of the Company as an independent institution, (iv) industry and
economic conditions, (v) the impact of the Merger on the depositors, employees,
customers and communities served by the Company through expanded commercial and
consumer loan products and services, (vi) the opinion of the Company's financial
advisor as to the fairness of the consideration to be received by the holders of
the Company's Common Stock from a financial point of view, (vii) the general
structure of the transaction and the compatibility of management and business
philosophy, and (viii) the likelihood of receiving the requisite regulatory
approvals in a timely manner. In making its determination, the Board did not
ascribe relative weights to the factors which it considered.
11
<PAGE>
The Board of Directors of the Company believes that the Merger is in
the best interest of the Company and its shareholders. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
AGREEMENT.
Opinion of the Company's Financial Advisor
The Company retained Hovde to act as its financial advisor in
connection with the Merger in July 1998. Hovde has rendered its written opinion
to the Company, dated October 15, 1999, to the effect that, based upon and
subject to the factors and assumptions set forth in such opinion, and as of the
date of such opinion, the Merger Consideration to be paid by NewSouth was fair,
from a financial point of view, to the shareholders of the Company.
The full text of the Opinion, which sets forth, among other things,
assumptions made, matters considered, and qualifications and limitations on the
review undertaken, is attached to this proxy statement as Annex B. The Company
stockholders are urged to read the Opinion in its entirety. The Opinion, which
was directed to the Board of Directors, addresses only the fairness to the
holders of the Common Stock, from a financial point of view, of the
consideration to be paid by NewSouth for the Common Stock pursuant to the
Agreement, and does not constitute a recommendation to any Company stockholder
as to how such stockholder should vote. The Opinion was rendered to the Board of
Directors for its consideration in determining whether to approve the Agreement.
The following summary of the Opinion is qualified in its entirety by reference
to the full text of the Opinion.
No limitations were imposed by the Company on the scope of Hovde's
investigation or the procedures to be followed by Hovde in rendering the
Opinion. Hovde was not requested to and did not make any recommendation to the
Board of Directors as to the form or amount of consideration to be offered by
NewSouth to the Company in the Merger Consideration, which was determined
through arm's-length negotiations between the parties. In arriving at the
Opinion, Hovde did not ascribe a specific range of values to NewSouth or the
Company, but rather made its determination as to the fairness, from a financial
point of view, of the consideration to be offered by NewSouth to the Company in
the Merger Consideration on the basis of the financial and comparative analyses
described below. Hovde was not requested to opine as to, and the Opinion does
not address, the Company's underlying business decision to proceed with or
effect the Merger.
During the course of the engagement, Hovde reviewed and analyzed
material bearing upon the financial and operating conditions of NewSouth and the
Company and material prepared in connection with the proposed transaction,
including the following: the Agreement; certain publicly available information
concerning the Company, and its subsidiary, including, as applicable,
consolidated financial statements for the Company for the years ended September
30, 1998, 1997 and 1996, and quarterly statements for the periods ended June 30,
1999, March 31, 1999 and December 31, 1998; certain publicly available
information concerning NewSouth, and its subsidiary, including, as applicable,
consolidated financial statements for NewSouth for the years ended September 30,
1998 and 1997, and quarterly statements for the periods ended June 30, 1999,
March 31, 1999 and December 31, 1998; documents filed with federal, state or
regulatory agencies filed by the Company for the aforementioned three year
period and for the quarterly periods ended March 31, 1999, and December 31,
1998; as applicable, recent internal reports and financial projections for the
Company; the nature and terms of recent sale and merger transactions involving
thrifts and thrift holding companies that Hovde considered relevant; and
financial and other information provided to us by the management of the Company
and NewSouth.
12
<PAGE>
In arriving at the Opinion, Hovde assumed and relied upon the accuracy
and completeness of the financial and other information used by it without
assuming any responsibility for independent verification of such information and
further relied upon the assurances of the management of the Company that they
were not aware of any facts or circumstances that would make such information
materially inaccurate or misleading. With respect to any financial projections
reviewed by Hovde, Hovde assumed that such projections were reasonably prepared
on a basis reflecting the best currently available estimates and judgments of
the managements of NewSouth and the Company. Based upon the form of
consideration, Hovde assumed that the Merger will be accounted for using the
purchase method of accounting and would generally be treated as a taxable
transaction to Company stockholders. In arriving at the Opinion, Hovde did not
conduct a physical inspection of the properties and facilities of the Company
and did not make or obtain any evaluations or appraisals of the assets or
liabilities of the Company. In addition, Hovde noted that it is not an expert in
the evaluation of loan portfolios or allowances for loan and real estate owned
losses and it assumed that the allowances for loan and real estate owned losses
(as currently stated or as adjusted as may be requested by NewSouth in
connection with the Merger) provided to it by the Company and used by it in its
analysis and in arriving at the Opinion were in the aggregate adequate to cover
all such losses. The Opinion necessarily was based upon market, economic and
other conditions as they existed on, and could be evaluated as of October 15,
1999.
The following is a summary of the analyses Hovde performed in arriving
at the Opinion dated October 15, 1999, as to the fairness, from a financial
point of view, to the Company of the Merger Consideration. In connection with
the preparation and delivery of the Opinion to the Board of Directors, Hovde
performed a variety of financial and comparative analyses, as described below.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial and comparative analysis and
the application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at the Opinion, Hovde did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, Hovde
believes that its analyses must be considered as a whole and that considering
any portion of such analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
the Opinion. In its analyses, Hovde made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company. Any estimates
contained in these analyses were not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the value
of businesses did not purport to be appraisals or to reflect the prices at which
businesses may actually be sold.
Purchase Price Analysis. Hovde calculated the price-to-tangible book,
price-to-earnings, and price-to-assets multiples, and the premium on core
deposits (defined as the transaction price minus tangible book value, divided by
core deposits) paid in the Merger using June 30, 1999 financial data based upon
an aggregate transaction value of $61.0 million. This analysis yielded a
price-to-tangible book value multiple of 104.3%, a price to last twelve months'
earnings multiple of 22.6x, a price to assets of 36.8%, and a premium on core
deposits of 2.7%.
Comparable Transaction Analysis. Using publicly available information,
Hovde reviewed certain terms and financial characteristics, including historical
price-to-earnings ratio, price-to-tangible book ratio, price-to-assets ratio and
the core deposit premium paid at the time of transaction announcement, of thrift
merger and acquisition transactions.
13
<PAGE>
The first comparable group included nationwide thrift transactions in
which the sellers earned return on assets ("ROAs") between 1.00% and 2.00% with
announce dates after July 1, 1998. This analysis yielded 24 comparable
transactions. The average price to tangible book value for these transactions
was 211.4%, and ranged from 115.1% to 397.9%. The average price to trailing
earnings for these transactions was 22.2x, and ranged from 10.0x to 45.0x. The
average price to assets was 27.8%, and ranged from 17.0% to 50.9%. The average
premium on core deposits was 21.6%, and ranged from 5.3% to 38.3%.
The second comparable group included thrift transactions in which the
sellers earned ROAs between 1.00% and 2.00%, were located in Georgia, South
Carolina, Virginia or North Carolina, and with announce dates after January 1,
1998. This analysis yielded 12 comparable transactions. The average price to
tangible book value for these transactions was 208.1%, and ranged from 103.8% to
401.3%. The average price to trailing earnings for these transactions was 22.2x,
and ranged from 15.3x to 40.0x. The average price to assets was 27.0%, and
ranged from 14.7% to 50.9%. The average premium on core deposits was 18.9%, and
ranged from 1.9% to 38.3%.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences in
the businesses, operations, financial conditions and prospects of the Company,
NewSouth, and the companies included in the comparable group, Hovde believed
that a purely quantitative comparable transaction analysis would not be
particularly meaningful in the context of the evaluation of the fairness of the
Merger Consideration. Hovde believed that the appropriate use of a comparable
transaction analysis in this instance would involve qualitative judgments
concerning the differences between the characteristics of these transactions and
the Merger which would affect the acquisition values of the acquired companies
and the Company.
Discounted Terminal Value Analysis. Hovde estimated the present value
of the Common Stock by assuming a range of discount rates from 11% to 13% and an
8% annual growth rate in earnings through 2004, starting with earnings of $2.74
million in 1999. In arriving at the value of the Common Stock, Hovde assumed an
earnings growth rate of 5% from 2005 into perpetuity. This terminal value was
then discounted, along with yearly cash flows for 1999 through 2004, to arrive
at the present value for the Common Stock. These rates and values were chosen to
reflect different assumptions regarding the required rates of return of holders
or prospective buyers of the Common Stock. This analysis and its underlying
assumptions yielded a range of value for the Company's shares of approximately
$10.36 to $13.42, compared to a total Merger Consideration of $15.25 per share.
Hovde is a nationally recognized investment banking firm. Hovde, as
part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, competitive biddings, private placements and valuations for
corporate and other purposes. The Board of Directors retained Hovde based upon
Hovde's experience and expertise and its familiarity with the Company. Hovde is
acting as financial advisor to the Company in connection with the Merger.
Pursuant to a letter agreement between the Company and Hovde, the Company has
agreed to pay Hovde a fee equal to $619,816, $10,000 of which has been paid to
Hovde. In accordance with the letter agreement with Hovde, the Company has
reimbursed Hovde approximately $3,000 for reasonable out-of-pocket expenses
incurred in connection with the Merger and will indemnify Hovde and certain
related persons and entities against certain liabilities, including liabilities
under securities laws, incurred in connection with its services.
14
<PAGE>
Federal Income Tax Consequences
The following is a discussion of the material federal income tax
consequences of the acquisition. The discussion of the material federal income
tax consequences may not apply to special situations, such as the Company's
stockholders, if any, who received their Common Stock upon the exercise of
employee stock options or otherwise as compensation, and the Company's
stockholders that are insurance companies, securities dealers, financial
institutions or foreign persons.
The receipt of cash by a stockholder of the Company in exchange for
shares of the Common Stock pursuant to the Agreement will constitute a taxable
transaction to such stockholder for federal income tax purposes. In general, a
stockholder will recognize gain or loss upon the surrender of the stockholder's
Common Stock equal to the difference, if any, between (i) the total amount of
cash received in exchange for the shares of Common Stock exchanged and (ii) the
stockholder's tax basis in such Common Stock. Any gain or loss will generally be
treated as capital gain or loss if the Common Stock exchanged was held as a
capital asset in the hands of the stockholder.
The cash payments due to the holders of the Common Stock upon the
exchange thereof pursuant to the Agreement (other than certain exempt entities
and persons) will generally be subject to a 31% backup withholding tax by the
exchange agent under federal income tax law unless certain requirements are met.
Generally, the exchange agent (NewSouth Bank) will be required to deduct and
withhold the tax if (i) the stockholder fails to furnish a taxpayer
identification number ("TIN") to the exchange agent or fails to certify under
penalty of perjury that such TIN is correct, (ii) the Internal Revenue Service
("IRS") notifies the exchange agent that the TIN furnished by the stockholder is
incorrect, (iii) the IRS notifies the exchange agent that the stockholder has
failed to report interest, dividends or original issue discount in the past, or
(iv) there has been a failure by the stockholder to certify under penalty of
perjury that such stockholder is not subject to the 31% backup withholding tax.
No ruling has been or will be requested from the IRS as to any of the
tax effects of any of the transactions discussed in this proxy statement to
stockholders of the Company, and no opinion of counsel has been or will be
rendered to the Company with respect to any of the tax effects of the
Acquisition to the Company's stockholders. There is no assurance that applicable
tax laws will not change, on a current or retroactive basis, prior to the
occurrence of the Merger.
Because the tax consequences of the Merger may vary depending upon the
particular circumstances of each stockholder and other factors, stockholders of
the Company are urged to consult their own tax advisor to determine their
particular tax consequences of the Merger (including but not limited to the
application and effect of state and local income and other tax laws).
- --------------------------------------------------------------------------------
THE AGREEMENT
- --------------------------------------------------------------------------------
THE FOLLOWING IS A BRIEF SUMMARY OF THE PROVISIONS OF THE AGREEMENT.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
AGREEMENT WHICH IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT.
15
<PAGE>
Closing of the Merger
If (i) the Company's stockholders approve the Agreement, and (ii) all
conditions of the Agreement have been satisfied or waived, the Closing will take
place as promptly as practicable thereafter. Such Closing will take place as
soon as practicable as agreed by the parties, provided, however, that the
Closing will be no more than thirty (30) days after the satisfaction or waiver
of all conditions and/or obligations contained in the Agreement.
Effective Date
As soon as practicable after each of the required conditions set forth
in the Agreement have been satisfied or waived, New Sub and the Company will
file articles of merger with the Secretary of State of North Carolina. The
Merger will 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, which shall be immediately following the Closing and
on the same day as the Closing if practicable. It is currently anticipated that
the Closing will take place, and the Merger will become effective, during the
fourth calendar quarter of 1999.
Interests of Certain Persons
Certain members of the Company's management and its Board may be deemed
to have interests in the Merger in addition to their interests, if any, as
stockholders of the Company. These interests are described in more detail below.
Outstanding Stock Options of the Company. Upon the satisfaction of all
conditions in the Agreement, immediately prior to the Effective Time, each
holder of an outstanding stock option, whether or not the option is exercisable,
will receive from the Company in cancellation of such option a cash payment in
an amount determined by multiplying the number of shares of 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. Based
upon the Agreement, there will be an aggregate payout of $133,242 for
cancellation of 429,812 stock options held by executive officers and directors.
Payment for Restricted Stock. As of the Effective Time, there will be
83,888 shares of Common Stock awarded pursuant to the RSP which will not be
deemed earned and non-forfeitable. Each of Messrs. Bryan, Grantham, Hollinshed,
Holt, Hutaff, Lloyd, McCoy, Pate, Ray, Reaves, Robertson, and Strickland
currently have restricted stock equal to 4,297 shares, 10,315 shares, 4,297
shares, 4,297 shares, 4,297 shares, 2,750 shares, 4,297 shares, 19,770 shares,
4,297 shares, 19,770 shares, 3,438 shares, and 2,063 shares, respectively. Upon
the satisfaction of all conditions set forth in the Agreement, such awards will
vest and each participant in the RSP who has agreed to surrender such awards
shall receive a cash payment equal to $15.25 per share of Common Stock
surrendered plus dividend equivalents of $1.68 per share of restricted stock
payable with respect to such shares up to the Effective Time.
Employment Agreements. As of the Effective Time, the existing
employment agreements between Home Federal and each of Messrs. Reaves,
Strickland, and Lloyd will be terminated, and in lieu thereof such individuals
will enter into new employment agreements with NewSouth Bank with base
compensation of $97,800, $58,900, and $61,200, respectively. However, each of
Messrs.
16
<PAGE>
Reaves, Strickland and Lloyd may elect to receive payment for the remainder of
the terms of their respective employment agreements if they decide to terminate
their employment with NewSouth Bank before the terms of their NewSouth Bank
employment agreements expire. Messrs. Reaves's and Strickland's employment
agreements with NewSouth Bank will have a thirty-six month term and Mr. Lloyd's
employment agreement with NewSouth Bank will have a forty-two month term. As a
result of the Merger, Mr. Robertson's employment will be terminated and he will
receive approximately $227,000 pursuant to his employment agreement with Home
Federal.
Addition of Director and Advisory Board of Directors. As of the
Effective Time, Mr. H.D. Reaves, Jr. will become a Director of NewSouth and
NewSouth Bank. All of the non-employee directors of Home Federal as of the
Effective Time will be invited by NewSouth Bank to join a community advisory
board of directors to advise and assist NewSouth Bank with respect to the
communities served by Home Federal. Such appointment will be for a three year
basis and each person agreeing to serve on such advisory board of directors will
receive fees of $400 per month if the advisory board meets monthly or $1,200 per
quarter if the advisory board meets quarterly.
Employee Stock Ownership Plan. Each employee participant in the ESOP
will become fully vested in his or her ESOP account as of the Closing. The ESOP
will be terminated as of the Closing. After payment at the Closing of the ESOP
debt to the Company, the assets of the ESOP will be allocated to participant
accounts. Following the Closing, the estimated payments to be made by the ESOP
to Messrs. Reaves, Pate, Grantham, Robertson, Strickland and Lloyd in connection
with their interest as participants in the ESOP and as a result of the Merger,
are $280,000, $130,000, $155,000, $195,000, $155,000, and $155,000,
respectively.
Director and Officer Indemnification and Insurance. For a period of
five (5) years following the Effective Time NewSouth and NewSouth Bank will
indemnify, and advance expenses in matters that may be subject to
indemnification to, persons who served as directors or officers of the Company
or Home Federal or any 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 NewSouth Bank in effect on August 9, 1999 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 NewSouth Bank.
NewSouth will 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 will NewSouth be required to expend
more than $35,000 to maintain or procure insurance coverage for such five year
period.
Exchange of Common Stock and Consideration to be Paid
At the Effective Time, each share of Common Stock issued and
outstanding immediately prior to the Effective Time (except dissenting shares)
will automatically and without the necessity of any
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action on the part of any stockholder, be canceled and converted into the right
to receive $15.25 in cash. After the Effective Time, the holders of certificates
representing shares of Common Stock will cease to have any rights as
stockholders of the Company, except the right to receive the Merger
Consideration as provided in the Agreement and except with respect to rights
applicable to dissenting shares.
THE COMPANY'S STOCKHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES
UNTIL THEY RECEIVE WRITTEN INSTRUCTIONS.
After the Closing, the stock transfer books of the Company will be
closed and there will be no further transfers on the transfer books of the
Company.
Payment of Merger Consideration
NewSouth Bank will act as the exchange agent (the "Exchange Agent") for
the exchange by the Company stockholders of their shares of Common Stock for the
Merger Consideration. After the Effective Time, holders of certificates
evidencing outstanding shares of Common Stock (other than dissenting shares),
upon surrender of such certificates to the Exchange Agent, will be entitled to
receive the Merger Consideration. 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 stockholder of record at
the Effective Time whose Common Stock will have been converted into the Merger
Consideration advising such stockholder of the effectiveness of the Merger and
the procedure for surrendering to the Exchange Agent outstanding certificates
formerly evidencing Common Stock in exchange for the Merger Consideration. Upon
surrender, each certificate evidencing Common Stock will be canceled. The
Exchange Agent will pay by check to the Company stockholders who submit their
stock certificates pursuant to these instructions an amount equal to $15.25 for
each of their shares within three (3) business days following receipt of the
stock certificate(s). Checks will be sent by first class mail.
The Merger Consideration paid upon the surrender for exchange of Common
Stock in the Merger will be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Common Stock. No interest will be paid
or accrued on the cash payable upon surrender of such certificates.
If payment for the Common Stock is to be made to any person other than
the registered holder of the Common Stock surrendered, 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 the 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 stockholders' rights have been properly perfected will be
treated in the manner provided by the NCBCA.
In the event any certificate for Common Stock has been lost, stolen or
destroyed, the Exchange Agent will issue in exchange for such lost, stolen or
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
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NewSouth, the Company, the Exchange Agent or any other party with respect to the
certificate alleged to have been lost, stolen or destroyed.
Post Merger Agreements and Benefits
Generally, employees of the Company or Home Federal who become
employees of NewSouth or NewSouth Bank after the Effective Time (the "Continuing
Employees") will be eligible to participate in all benefit plans sponsored by
NewSouth or NewSouth Bank to the same extent as other similarly situated
NewSouth or NewSouth Bank employees, recognizing prior service with Home Federal
for purposes of eligibility, participation and vesting; provided that NewSouth
will (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 Home Federal, and (ii)
provide for a carry-over during 1999 or 2000 (as may be applicable) to the
replacement NewSouth or NewSouth 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.
Employees of Home Federal who become employees of NewSouth Bank will be
entitled to carry over to NewSouth Bank up to three days of accrued but unused
vacation time but no unused sick leave. The vacation time for any of Home
Federal employees who become employees of NewSouth Bank will carry over past
December 31, 1999, but must be taken prior to December 31, 2000.
Retention Bonus. Certain employees of Home Federal who continue to be
employed by NewSouth Bank for a period of one year from the Effective Time will
be paid a retention bonus on the one year anniversary date of the Effective
Time. The maximum aggregate amount of the retention bonus is estimated to be
$21,000.
Severance Payment and 1999 Bonus. NewSouth will pay a severance benefit
to any person who was a full time employee of Home Federal immediately prior to
the Effective Time and whose employment with NewSouth or NewSouth Bank is
involuntarily terminated during the one (1) year period commencing as of the
Effective Time. The severance payment obligations of NewSouth will not apply to
(a) any person who has an employment agreement with the Company or Home Federal,
or (b) any employee who is terminated for cause.
If the Effective Time occurs prior to December 10, 1999, on or before
December 20, 1999 NewSouth will pay a 1999 bonus to Home Federal employees 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 maximum aggregate amount of such bonus is approximately $104,000.
Pension Plan. At the Effective Time, Home Federal's pension plan will
be merged with and into NewSouth Bank's pension plan, and thereafter each
Continuing Employee will be entitled to participate in NewSouth Bank's pension
plan to the same extent as other similarly situated NewSouth or NewSouth Bank
employees. Such Continuing Employees will receive credit under NewSouth Bank's
pension plan for their prior periods of service to Company or Home Federal for
purposes of determining eligibility and vesting, and no participant's accrued
benefit under Home Federal's pension plan will be reduced as a result of the
merger of Home Federal's pension plan with and into NewSouth Bank's pension
plan. Continuing Employees will accrue benefits under NewSouth Bank's pension
plan for service with NewSouth and NewSouth Bank after the Effective Time.
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Dissenters' Rights
The stockholders of the Company may be entitled to assert dissenters'
rights under Article 13 of the North Carolina Business Corporation Act, a copy
of which is attached as Annex C to this proxy statement. A stockholder who
wishes to assert dissenters' rights:
1. must give to the Company, and the Company must actually receive,
before a vote on the Agreement is taken, written notice of his intent
to demand payment for his shares if the Merger is effectuated; and
2. the stockholder must not vote his shares in favor of the Agreement.
Dissenters will be notified as to the date the Agreement is approved by
stockholders. A failure to vote against the Agreement will not constitute a
waiver of a stockholder's dissenter rights. A vote against the Agreement will
not satisfy the state law requirements for notice.
Dissenting Shares are any shares of Common Stock held by a holder who
dissents from the Merger and becomes entitled to obtain payment for the value of
such shares of Common Stock pursuant to the NCBCA. Any Dissenting Shares will
not, after the Effective Time, be entitled to vote for any purpose or receive
any dividends or other distributions, will not be entitled to receive the Merger
Consideration and will be entitled only to such rights as are set forth in the
NCBCA; provided however, that shares of 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 will be deemed to be converted into the right to receive the
Merger Consideration. All negotiations with respect to payment for Dissenting
Shares will be handled by NewSouth.
In certain circumstances, NewSouth has the right to terminate the
Agreement if more than 7% of the outstanding shares of Common Stock assert
dissenters' rights. Further, if more than 20% of the outstanding shares of
Common Stock assert dissenters' rights, the Company, in certain circumstances,
may be required to pay NewSouth $2,000,000 if the Agreement is terminated.
Business Pending Consummation
The Company and Home Federal have agreed not to take certain actions
relating to the operation of the Company pending consummation of the Merger,
without the prior written consent of NewSouth, except as otherwise permitted by
the Agreement. These actions include, without limitation:
* The Company and its subsidiaries will 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 governmental
approval of the Merger or (ii) adversely affect the Company's
ability to perform its obligations under the Agreement;
* declare, set aside or pay any dividend or make any other
distribution with respect to Common Stock, except for the
declaration and payment of the regular quarterly cash dividends
in accordance with past practice and in an amount not to exceed
$0.13 per share of Common Stock anticipated to be paid in October
1999;
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* reacquire any of the Company's outstanding shares of capital
stock;
* issue or sell or buy any shares of capital stock of the Company
or any of its subsidiaries, except shares of Common Stock issued
or bought (in accordance with past practice) as contemplated
pursuant to the RSP;
* effect any stock split, stock dividend or other reclassification
of the Common Stock; or
* grant any options or issue any warrants exercisable for or
securities convertible or exchangeable into capital stock of the
Company or any subsidiary or grant any stock appreciation or
other rights with respect to shares of capital stock of Company
or of any subsidiary.
No Solicitation
Until the Effective Time or the termination of the Agreement pursuant
to its terms, 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 the Agreement
prohibits the 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 Board
of Directors concludes in good faith (after consultation with its financial
advisors) that such Takeover Proposal would constitute a superior proposal, (b)
the 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 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 will identify the nature and material terms of the proposal).
"Takeover Proposal" means any proposal, other than as contemplated by
the Agreement, for a merger or other business combination involving the Company
or any of its subsidiaries or for the acquisition of a ten percent (10%) or
greater equity interest in the Company or any subsidiary, or for the purchase,
lease or other acquisition of a substantial portion of the assets of the Company
or any subsidiary (other than loans or securities sold in the ordinary course).
Cooperation of the Parties
Until the Effective Time, NewSouth, the Company and their subsidiaries
will use their best efforts, and take all actions necessary or appropriate, to
consummate the Merger and the other transactions contemplated by the Agreement
at the earliest practicable date. NewSouth, NewSouth
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Bank and New Sub, on one hand, and the Company and Home Federal, on the other
hand, agree not to knowingly take any action that would (i) adversely effect
their respective ability to obtain the necessary governmental approvals or (ii)
adversely affect their respective ability to perform their obligations under the
Agreement. Each of the parties to the Agreement 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 by the
Agreement.
Amendment of Home Federal's Federal Stock Charter
Subject to the Board of Directors' fiduciary duties, the Company and
Home Federal will take all actions necessary to amend Home Federal's federal
stock charter ("Charter Amendment") to allow the transactions contemplated by
the Agreement, provided that the Company and Home Federal may make such
amendment contingent upon consummation of the Merger.
Accounting Treatment
NewSouth is expected to use the purchase method of accounting with
respect to its acquisition of the Company in the Merger.
Regulatory Approvals
The Merger will generally require the approval of the FDIC and the
Commission. The Merger will also be subject to the prior notification of the
FRB, the OTS and other regulatory authorities.
The Regulations of the FDIC provide for the publication of notice of,
and the opportunity of administrative hearings relating to, the respective
applications for approval noted and described above. Interested parties may
intervene in the approval proceedings. If an interested party intervenes, such
intervention could substantially delay the regulatory approvals required for
consummation of the Merger.
An application seeking FDIC approval of the Merger and the required
notice to be filed with the FRB were filed with the appropriate regulatory
authorities on September 7, 1999. The required regulatory approvals had not been
received as of the date of mailing of this proxy statement but the Company,
NewSouth, and NewSouth Bank have no reason to believe that such approvals will
not be received.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. There can be no assurance that such regulatory approvals will be
obtained, and, if the Merger is approved, there can be no assurance as to the
date of any such approvals. There can also be no assurance that any such
approvals will not contain a condition or requirement which causes such
approvals to fail to satisfy the conditions set forth in the Agreement and
described below under "-- Conditions to the Merger." There can likewise be no
assurance that the U.S. Department of Justice or a state Attorney General will
not challenge the Merger or, if such a challenge is made, as to the result
thereof.
Conditions to the Merger
General. The obligations of NewSouth, NewSouth Bank, and New Sub and
the Company and Home Federal to complete the Merger will be subject to the
following conditions:
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1. The holders of the outstanding shares of Common Stock will have
approved the Agreement and the Merger and as otherwise required
by applicable law and the Charter Amendment will be effective
under applicable law.
2. No order, decree or injunction will have been entered and remain
in force restraining or prohibiting the Merger or related
transactions, in any legal, administrative, arbitration,
investigatory or other proceedings.
3. To the extent required by applicable law or regulation, all
approvals of or filings with any governmental authority,
including without limitation those of the OTS, the FDIC, FRB, the
Commission, the Federal Trade Commission, Department of Justice,
the SEC, and any state securities authorities, as applicable,
will have been obtained or made and any waiting periods will have
expired in connection with the consummation of the Merger and
related transactions. All other statutory or regulatory
requirements for the valid consummation of the Merger and related
transactions will have been satisfied.
Conditions to NewSouth's, NewSouth Bank's, and New Sub's Obligations
Under the Agreement. The obligations of NewSouth, NewSouth Bank and New Sub to
effect the Merger and the transactions contemplated in the Agreement will be
subject to the following additional conditions to the extent not waived:
1. NewSouth will have received from Malizia Spidi & Fisch, PC,
special counsel to the Company, an opinion dated as of the
Closing covering the matters set forth in the Agreement.
2. The Company and Home Federal will have obtained all necessary
third party consents or approvals in connection with the Merger
and related transactions, the absence of which would materially
and adversely affect the Company and the Company's subsidiaries,
taken as a whole.
3. Between the date of the Agreement and the date of Closing, there
will not have occurred any material adverse change in the
financial condition, business, results of operations or assets of
the Company or the Company's 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.
4. The representations and warranties of the Company and Home
Federal will 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); the
Company and Home Federal will have performed all obligations and
complied with each covenant, in all material respects, and all
conditions under the Agreement on their parts to be performed or
complied with at or prior to the Effective Time; and the Company
will have delivered to NewSouth a certificate, dated the
Effective Time and signed by its chief executive officer and
chief financial officer, to such effect.
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5. Neither the Company nor any of its subsidiaries will be a party
to any pending litigation, reasonably probable of being
determined adversely to the Company or any subsidiary, which
would have a material adverse effect on the business, financial
condition or results of operations of the Company and its
subsidiaries, taken as a whole.
6. All governmental approvals required to consummate the
transactions contemplated by the Agreement will have been
obtained without the imposition of any conditions which NewSouth,
NewSouth Bank and New Sub reasonably and in good faith determine
to be unduly burdensome upon the conduct of the business of
NewSouth, NewSouth Bank or New Sub and, in the reasonable
judgment of NewSouth, substantially diminish the benefits
expected to be received by NewSouth from the Merger and the
transactions contemplated by the Agreement.
7. All of the outstanding stock options of the Company will have
been terminated or canceled as contemplated by the Agreement.
8. NewSouth will have received, to its reasonable satisfaction, any
Phase II Environmental Reports as is contemplated in the
Agreement.
9. All participants in the RSP, whose awards for shares of Common
Stock will not be deemed earned and non-forfeitable before the
Effective Time, will have entered into a written surrender
agreement.
10. No greater than 7% of the outstanding shares of Common Stock
entitled to vote at the Meeting will have delivered the written
notice of intent to demand payment pursuant to the NCBCA.
11. NewSouth and the Company will have received an opinion of
NewSouth's special counsel substantially to the effect that (i)
NewSouth, NewSouth Bank and New Sub and the Company and Home
Federal will not recognize any gain or loss upon the acquisition
of the Common Stock in the 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, NewSouth
Bank in the liquidation of the Company; (iii) NewSouth and
NewSouth 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 liquidation of the Company; and (iv) NewSouth,
NewSouth Bank, the Company and Home Federal will not recognize
any gain or loss as a result of the merger of Home Federal into
NewSouth Bank, with NewSouth Bank surviving.
12. Each of the persons serving as a director or officer of the
Company and Home Federal or any subsidiary of either will, at the
Closing, submit his/her written resignation, effective as of the
Effective Time.
Conditions to the Company's and Home Federal's Obligations Under the
Agreement. The obligations of the Company and Home Federal to effect the Merger
and the transactions contemplated in the Agreement will be subject to the
following additional conditions to the extent not waived:
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1. Company will have received from NewSouth's counsel, an opinion
dated as of the Closing covering the matters set forth in the
Agreement.
2. The representations and warranties of NewSouth and NewSouth Bank
will 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,
NewSouth Bank and New Sub will have performed all obligations and
complied with each covenant, in all material respects, and all
conditions under the Agreement on their parts to be performed or
complied with at or prior to the Effective Time; and NewSouth
will have delivered to the Company a certificate, dated the
Effective Time and signed by its chief executive officer and
chief financial officer, to such effect.
3. The Exchange Agent in its fiduciary capacity will have certified
receipt of the aggregate Merger Consideration for all shares of
Common Stock to be acquired.
4. In addition to any governmental approvals, NewSouth, NewSouth
Bank and New Sub will have obtained all necessary third party
consents or approvals in connection with the Merger, the absence
of which would materially and adversely affect NewSouth and its
subsidiaries, taken as a whole.
5. There will not be any restriction with respect to the payments
contemplated by the Agreement.
Termination of the Agreement and Abandonment of the Merger
The Agreement and the Merger may generally be terminated after a
Termination Event and at any time before the Effective Time, whether before or
after approval thereof by stockholders of the Company, as provided below:
* By mutual consent of the parties, evidenced by their written
agreement.
* At the election of either party, evidenced by written notice, if
the Closing will not have occurred on or before March 31, 2000,
or such later date as will have been agreed to in writing by the
parties; provided, however, that the right to terminate will not
be available to any party whose failure to perform an obligation
under the Agreement has been the cause of, or has resulted in,
the failure of the Closing to occur on or before such date.
* By NewSouth upon delivery of written notice of termination to the
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, NewSouth Bank and New
Sub to effect the Merger and noncompliance is not waived by
NewSouth, provided, however, that such notice will include a
statement of the grounds thereof and the Company and Home Federal
will have thirty (30) days thereafter to cure the event or
conditions cited in such notice (to the extent curable) and if
the Company or Home Federal cures the events or conditions giving
rise to such grounds to the satisfaction of NewSouth, NewSouth
will not have any right to terminate the Agreement based upon
such specified events or conditions, and provided, however, that
the right to terminate
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will not be available to NewSouth where NewSouth's, NewSouth
Bank's or New Sub's failure to perform an obligation under the
Agreement has been the cause of, or has resulted in, the failure
of the Closing to occur.
* 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 the Company and Home Federal to
effect the Merger and noncompliance is not waived by the Company,
provided, however, that such notice will include a statement of
the grounds thereof and NewSouth, NewSouth Bank, and New Sub will
have thirty (30) days thereafter to cure the events or conditions
cited in such notice (to the extent curable) and if NewSouth,
NewSouth Bank, or New Sub cures the events or conditions giving
rise to such grounds to the satisfaction of the Company, the
Company will not have any right to terminate the Agreement based
upon such specified events or conditions, and provided, however,
that the right to terminate will not be available to the Company
where the Company's or Home Federal's failure to perform an
obligation under the Agreement has been the cause of, or has
resulted in, the failure of the Closing to occur.
* By the Company in connection with entering into a definitive
agreement or letter of intent with any person with respect to a
Takeover Proposal, provided it has complied with all provisions
thereof.
* At any time prior to the Effective Time, by NewSouth, if (i) the
Board of Directors withdraws or modifies its recommendation of
the Agreement or the Merger in a manner materially adverse to
NewSouth or will have resolved or publicly announced or disclosed
to any third party its intention to do any of the foregoing or
the Board of Directors will 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 Common Stock is commenced or a registration
statement with respect thereto will have been filed and the 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.
* By NewSouth at any time within 10 days of receipt of the last
Phase II Report to be delivered as contemplated in the Agreement
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.
In the event of the termination and abandonment of the Agreement , the
Agreement will generally become void and have no effect, except that certain
provisions of the Agreement will survive any such termination and abandonment.
The termination of the Agreement will generally 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.
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Payment of Expenses
Each party to the Agreement will bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
by the Agreement.
Termination Fee
In order to induce NewSouth, NewSouth Bank and New Sub to enter into
the Agreement and as a means of compensating NewSouth, NewSouth Bank and New Sub
for the substantial direct and indirect monetary and other costs incurred and to
be incurred in connection with the Merger and the transactions contemplated by
the Agreement, the Company and Home Federal agree to pay NewSouth $2,000,000 if
the Agreement is terminated after a Termination Event because:
* the Closing does not occur on or before March 31, 2000; provided
that the right to terminate the Agreement is not available to any
party whose failure to perform an obligation under the Agreement
has been the cause of, or has resulted in, the failure of the
Closing to occur on or before March 31, 2000;
* the Company fails to obtain stockholder approval of the
Agreement;
* NewSouth does not receive the required opinion from Malizia Spidi
& Fisch, PC;
* the representations and warranties of the Company and Home
Federal are not true in all material respects at the Effective
Time;
* outstanding stock options of the Company are not terminated or
canceled;
* all participants in the RSP have not entered into a written
surrender agreement;
* 20% of the outstanding shares of Common Stock have delivered the
written notice of intent to demand payment under the NCBCA;
* each director or officer of the Company or any subsidiary has not
submitted his resignation, effective as of the Effective Time;
* the Company enters into a definitive agreement or letter of
intent with any person with respect to a Takeover Proposal; or
* the Board of Directors withdraws or modifies its recommendation
of the Agreement or the Merger in a manner materially adverse to
NewSouth or the Board publically announced or disclosed to any
third party its intention to do any of the foregoing or the Board
recommends to the Company's stockholders any Takeover Proposal,
or the Board fails to recommend against acceptance of a tender
offer or exchange offer (or takes no position with respect to the
acceptance of such tender offer or exchange offer) within 10 days
after it is commenced, provided that prior to such termination a
Termination Event will have occurred.
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Termination Event will mean either of the following:
A. The Company or any subsidiary, without having received NewSouth's
prior written consent, will have entered into a written agreement
to engage in a Takeover Proposal with any person other than
NewSouth or any affiliate of NewSouth or the Board of Directors
will have recommended that the stockholders of the Company
approve or accept any Takeover Proposal with any person other
than NewSouth or any affiliate of NewSouth; or
B. After a bona fide written proposal is made by any person other
than NewSouth or any affiliate of NewSouth to the Company or its
stockholders to engage in a Takeover Proposal, (1) the Company
will have breached any covenant or obligation contained in the
Agreement and such breach would entitle NewSouth to terminate the
Agreement, (2) the stockholders of the Company do not approve the
Agreement at the Meeting or the Board of Directors will have (a)
withdrawn or modified in a manner materially adverse to NewSouth
the recommendation of the Board of Directors with respect to the
Agreement, or announced or disclosed to any third party its
intention to do so or (b) failed to recommend, in the case of a
tender offer or exchange offer for the Common Stock, against
acceptance of such tender offer or exchange offer to its
stockholders or takes no position with respect to acceptance of
such tender offer or exchange offer by its stockholders or (3)
the Board of Directors makes the Company's Articles of
Incorporation inapplicable to such Takeover Proposal.
No such payment will be due or payable to NewSouth under the Agreement
unless, in addition to one of the above-mentioned events, the Company and/or
Home Federal enter 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 outstanding Common Stock.
Waiver; Amendment
Prior to the Closing, any provision of the Agreement may generally be:
(i) waived in writing by the party benefitted by the provision; or (ii) amended
or modified at any time (including the structure of the transaction) only by an
agreement in writing among the parties thereto.
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ACCOUNTANTS
- --------------------------------------------------------------------------------
The Company's independent certified public accountants are expected to
attend the Meeting and therefore will be available to make a statement or
respond to stockholders' questions.
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FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The Company's 1998 Annual Report to Stockholders and Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1999 are included as Exhibits 1 and
2 to this proxy statement.
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STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Meeting other than the matter described above in this proxy statement. However,
execution of a proxy confers on the
28
<PAGE>
designated proxy holder discretionary authority with respect to other matters
that may come before the Meeting or any adjournment of the Meeting. In order to
be eligible for inclusion in the proxy materials for the Company's 2000 Annual
Meeting of Stockholders, any stockholder proposal to take action at such meeting
must have been received at the Company's executive offices at 241 Green Street,
Fayetteville, North Carolina 28301, no later than August 16, 1999. In the event
the Company receives notice of a stockholder proposal to take action at the 2000
Annual Meeting of stockholders that is not submitted for inclusion in the
Company's proxy material, or is submitted for inclusion but is properly excluded
from the proxy material, the persons named in the proxy sent by the Company to
its stockholders may exercise their discretion to vote on the stockholder
proposal in accordance with their best judgment if notice of the proposal is not
received at the Company's executive offices by November 28, 1999.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- --------------------------------------------------------------------------------
The following documents filed by the Company with the Securities and
Exchange Commission (File No. 0-27620) under Section 13(a) or 15(d) of the
Exchange Act are hereby incorporated by reference in this Proxy Statement:
(i) the Company's Annual Report on Form 10-K for the year ended
September 30, 1998;
(ii) the Company's Current Report on Form 8-K, dated August 11, 1999;
and
(iii)the Company's Form 10-Q for the quarters ended December 31,
1998, and March 31, 1999.
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this proxy statement to the
extent that a statement contained herein modifies or supersedes that earlier
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this proxy statement.
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PROXY SOLICITATION
- --------------------------------------------------------------------------------
The Company has retained Regan & Associates to assist in soliciting
proxies and to send proxy materials to brokerage houses and other custodians,
nominees and fiduciaries for transmittal to their principals. Expenses
associated with the retention of Regan & Associates are not anticipated to
exceed $3,500 (plus reimbursement of certain incurred expenses) and will be paid
by the Company. The Company will reimburse brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy materials to the beneficial owners of Common Stock. In addition to
solicitations by mail, directors, officers, and regular employees of the Company
may solicit proxies personally or by telegraph or telephone without additional
compensation.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Allen Lloyd
----------------------------------
Allen Lloyd
Secretary
Fayetteville, North Carolina
October 15, 1999
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<PAGE>
GREEN STREET FINANCIAL CORP
FORM OF PROXY
SPECIAL MEETING OF STOCKHOLDERS
NOVEMBER 17, 1999
The undersigned hereby appoints the Board of Directors of Green Street
Financial Corp (the "Company"), or its designee, with full powers of
substitution, to act as attorneys and proxies for the undersigned, to vote all
shares of Common Stock of the Company which the undersigned is entitled to vote
at the Special Meeting of Stockholders (the "Meeting"), to be held at the office
of the Company 241 Green Street, Fayetteville, North Carolina on November 17,
1999, at 5:15 p.m. and at any and all adjournments thereof, in the following
manner:
FOR AGAINST ABSTAIN
--- ------- -------
1. To consider and vote upon a proposal to approve |_| |_| |_|
the Agreement and Plan of Merger, dated
August 9, 1999 (the "Agreement"), by and among
NewSouth Bancorp, Inc. ("NewSouth"), NewSouth
Bank, Washington Financial, Inc. ("New Sub"), the
Company, and Home Federal Savings and Loan
Association ("Home Federal") pursuant to which,
(i) NewSouth would cause NewSouth Bank's wholly
owned subsidiary, New Sub, to merge with and into
the Company (the "Merger"); and (ii) each
outstanding share of the Company common stock
would be converted into the right, to receive a
cash payment of $15.25 from NewSouth upon
completion of the Merger, subject to the terms
and conditions contained in the Agreement.
Note: Executing this proxy permits such attorneys and proxies to vote, in their
discretion, upon such other business as may properly come before the Meeting or
any adjournments thereof.
The Board of Directors recommends a vote "FOR" the above listed proposition.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS
IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting, or at
any adjournments thereof, and after notification to the Secretary of the Company
at the Meeting of the stockholder's decision to terminate this proxy, the power
of said attorneys and proxies shall be deemed terminated and of no further force
and effect. The undersigned may also revoke this proxy by filing a subsequently
dated proxy or by written notification to the Secretary of the Company of his or
her decision to terminate this proxy.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Special Meeting of Stockholders and a
proxy statement dated October 15, 1999.
Please check here if you
Dated: , 1999 |_| plan to attend the Meeting.
-----------------------
- ------------------------------------ ---------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- ------------------------------------ ---------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this proxy. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
(WITHOUT SCHEDULES)
<PAGE>
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
1
<PAGE>
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.
2
<PAGE>
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
3
<PAGE>
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.
4
<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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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<PAGE>
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.
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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
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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
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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.
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(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
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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
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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
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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
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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).
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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
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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,
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except NewSouth has engaged Ferguson & 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.
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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.
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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
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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
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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
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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,
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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
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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.
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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.
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(e) (i) As of the Effective Time, NewSouth and the Bank agree
that the employment of and the Employment Agreement between Jerry L. Robertson
and Savings (as disclosed in Section 2.12 of Schedule I to this Agreement) shall
be terminated by Savings. In connection with such termination, Mr. Robertson
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.
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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
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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 Malizia Spidi & Fisch, 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
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(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
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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 & Bronstein, 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.
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(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
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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
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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 Section 5.1(a) and
paragraphs (a), (d), (g), (i), (j) (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 1933 Act) 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
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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.
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(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. Reaves, 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. Reaves, Jr., Anthony R.
Strickland and Allen Lloyd 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
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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.
1311 Carolina Avenue
Washington, North Carolina 27889
Attention: Thomas A. Vann, President
with a copy to:
Housley Kantarian & Bronstein, P.C.
Suite 700
1220 19th Street, N.W.
Washington, DC 20036
Attention: Gary R. Bronstein, Esquire
and if to Company or Savings, to
Green Street Financial Corp
241 Green Street
Fayetteville, North Carolina 28301
Attention: H.D. Reaves, Jr., President
with a copy to:
Malizia Spidi & Fisch, PC
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, DC 20005
Attention: Richard Fisch, 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
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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
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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/ Thomas A. Vann /s/ H.D. Reaves, Jr
By: --------------------------------- By: ------------------------------------
Name: Thomas A. Vann Name: H.D. Reaves, Jr.
Title: President Title: President
NEWSOUTH BANK HOME FEDERAL SAVINGS AND
LOAN ASSOCIATION
/s/ Thomas A. Vann /s/ H.D. Reaves, Jr
By: --------------------------------- By: ------------------------------------
Name: Thomas A. Vann Name: H.D. Reaves, Jr.
Title: President Title: President
WASHINGTON FINANCIAL, INC.
/s/ Thomas A. Vann
By: ---------------------------------
Name: Thomas A. Vann
Title: President
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ANNEX B -- FAIRNESS OPINION OF HOVDE FINANCIAL, INC.
<PAGE>
Hovde Financial, Inc.
INVESTMENT BANKERS & FINANCIAL ADVISORS
October 15, 1999
Board of Directors
Green Street Financial Corp
241 Green Street
Fayetteville, NC 28301
Members of the Board:
We have reviewed the Stock Purchase Agreement (the "Agreement") dated
August 9, 1999, by and among NewSouth Bancorp, Inc. ("Buyer"), and Green Street
Financial Corp ("GSFC") and its wholly owned subsidiary, Home Federal Savings
and Loan Association ("Home Federal") pursuant to which, among other things,
GSFC will become a wholly owned subsidiary of Buyer and subsequently be
dissolved, and Home Federal will then be merged with and into Buyer. As is set
forth in the Agreement, all of the issued and outstanding Shares (other than
Dissenting Shares of Common Stock) and Stock Options shall be converted into the
right to receive an aggregate amount of cash equal to $60,981,642.00, subject to
reduction as provided for in the Agreement (the "Purchase Price"). Capitalized
terms used herein shall have the same meaning as in the Agreement, unless
specifically stated otherwise.
Hovde Financial, Inc. ("Hovde") specializes in providing investment
banking and financial advisory services to commercial bank and thrift
institutions. Our principals are experienced in the independent valuation of
securities in connection with negotiated underwritings, subscription and
community offerings, private placements, merger and acquisition transactions and
recapitalizations. Pursuant to a written agreement dated July 27, 1998, between
GSFC and Hovde, Hovde was engaged to assist GSFC in exploring various strategic
options, including a merger or sale of GSFC. Therefore, we are familiar with
GSFC (including its wholly owned subsidiary, Home Federal), having acted as its
financial advisor in connection with the proposed transaction, and having
participated in the negotiations leading to the Agreement.
During the course of our engagement, we reviewed and analyzed material
bearing upon the financial and operating conditions of GSFC, Home Federal and
Buyer, and material prepared in connection with the proposed transaction,
including the following: the Agreement; certain publicly available information
concerning GSFC, including consolidated financial statements for the years ended
September, 1998, 1997 and 1996, and the quarters ended June 30, 1999, March 31,
1999 and December 31, 1998; certain publicly available information concerning
Buyer, including consolidated financial statements for the years ended
September, 1998 and 1997, and the quarters ended June 30, 1999, March 31, 1999
and December 31, 1998; the nature and terms of recent sale and merger
transactions involving thrifts and thrift holding companies that we consider
relevant; historical and current market data for the common stock of GSFC; and,
financial and other information provided to us by the managements of GSFC, Home
Federal and Buyer.
<PAGE>
Board of Directors
Green Street Financial Corp
October 15, 1999
Page Two
In addition, we have conducted meetings with members of the senior
management of GSFC for the purpose of reviewing the future prospects of the
company. In this regard, we considered the net present value of future cash
flows attributable to each share of GSFC and compared this to the per share
value of the Purchase Price. We also took into account our assessment of general
economic, market and financial conditions and our experience in other similar
transactions as well as our overall knowledge of the banking industry and our
general experience in securities valuations. As part of our engagement, we
solicited and reviewed competitive bids from parties which we believed to be
likely acquirers for GSFC.
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the materials provided to us by
GSFC and Buyer, and in the discussions with the management of GSFC.
Based on the foregoing and our experience as investment bankers, we are
of the opinion that, as of the date hereof, the Purchase Price to be received by
the shareholders of GSFC as described in the Agreement is fair from a financial
point of view.
Sincerely,
/s/ HOVDE FINANCIAL, INC.
HOVDE FINANCIAL, INC.
<PAGE>
ANNEX C
NORTH CAROLINA LAW REGARDING DISSENTERS' RIGHTS
<PAGE>
ANNEX C
North Carolina Business Corporation Act
ARTICLE 13.
Dissenters' Rights
Part 1. Right to Dissent and Obtain Payment for Shares
55-13-01 DEFINITIONS.--In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and in
the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under all
the circumstances, giving due consideration to the rate currently paid by the
corporation on its principal bank loans, if any, but not less than the rate
provided by G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
55-13-02 RIGHT TO DISSENT. -- (a) In addition to any rights granted
under Article 9, a shareholder is entitled to dissent from, and obtain payment
of the fair value of his shares in the event of, any of the following corporate
actions:
(1) Consummation of a plan of merger to which the corporation (other
than a parent corporation in a merger under G.S. 55-11-04) is a party unless (i)
approval by the shareholders of that corporation is not required under G.S.
55-11-03(g) or (ii) such shares are then redeemable by the corporation at a
price not greater than the cash to be received in exchange for such shares;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, unless such shares
are then redeemable by the corporation at a price not greater than the cash to
be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than as permitted by G.S. 55-12-01,
including a sale in dissolution, but not including
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a sale pursuant to court order or a sale pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed in cash to
the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates, alters, or
abolishes a right in respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares; (iii) alters or
abolishes a preemptive right of the holder of the shares to acquire shares or
other securities; (iv) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes; (v) reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share so created is to be
acquired for cash under G.S. 55-6-04; or (vi) changes the corporation into a
nonprofit corporation or cooperative organization;
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in exchange
for cash or other property, unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
(c) Notwithstanding any other provision of this Article, there shall be
no right of dissent in favor of holders of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at the meeting at which the plan of merger or share
exchange or the sale or exchange of property is to be acted on, were (i) listed
on a national securities exchange or (ii) held by at least 2,000 record
shareholders, unless in either case:
(1) The articles of incorporation of the corporation issuing the shares
provide otherwise;
(2) In the case of a plan of merger or share exchange, the holders of
the class or series are required under the plan of merger or share exchange to
accept for the shares anything except:
a. Cash;
b. Shares, or shares and cash in lieu of fractional shares of the
surviving or acquiring corporation, or of any other corporation
which, at the record date fixed to determine the shareholders
entitled to receive notice of and vote at the meeting at which
the plan of merger or share exchange is to be acted on, were
either listed subject to notice of issuance on a national
securities exchange or held of record by at least 2,000 record
shareholders; or
c. A combination of cash and shares as set forth in sub-subdivisions
a. and b. of this subdivision. (Last amended by S.L. 97-202, L.
'97. Eff. 10-1-97)
55-13-03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--(a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
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(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the beneficial
shareholder.
Part 2. Procedure for Exercise of Dissenters' Rights
55-13-20 NOTICE OF DISSENTERS' RIGHTS.--(a) If proposed corporate
action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at
a shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this Article and be
accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02
is taken without a vote of shareholders, the corporation shall no later than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this
section, such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years after
the taking of the corporate action creating dissenters' rights under G.S.
55-13-02 unless he voted for such corporate action.
55-13-21 NOTICE OF INTENT TO DEMAND PAYMENT.--(a) If proposed corporate
action creating dissenters' rights under G.S. 55-13-02 submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand payment
for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) is not entitled to payment for his shares under this Article.
55-13-22 DISSENTERS' NOTICE.--(a) If proposed corporate action creating
dissenters' rights under G.S. 55-13-02 is authorized at a shareholders' meeting,
the corporation shall mail by registered or certified mail, return receipt
requested, a written dissenters' notice to all shareholders who satisfied the
requirements of G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after
shareholder approval, or if no shareholder approval is required, after the
approval of the board of directors, of the corporate action creating dissenters'
rights under G.S. 55-13-02, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
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(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the date
the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article. (Last amended by S.L.
97-485, L. '97, eff. 10-1-97.)
55-13-23 DUTY TO DEMAND PAYMENT.--(a) A shareholder sent a dissenters'
notice described in G.S. 55-13-22 must demand payment and deposit his share
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates when required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this Article.
55-13-24 SHARE RESTRICTIONS.--(a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
55-13-25 PAYMENT.--(a) As soon as the proposed corporate action is
taken, or within 30 days after receipt of a payment demand, the corporation
shall pay each dissenter who complied with G.S. 55-13-23 the amount the
corporation estimates to be the fair value of his shares, plus interest accrued
to the date of payment .
(b) The payment shall be accompanied by:
(1) The corporation's most recent available balance sheet as of the end
of a fiscal year ending not more than 16 months before the date of 5 payment, an
income statement for that year, a statement of cash flows for that year, and the
latest available interim financial statements, if any;
(2) An explanation of how the corporation estimated the fair value
of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's rights to demand payment under G.S.
55-13-28; and (5) A copy of this Article. (Last amended by S.L. 97-202,
L. '97, eff. 10-1-97.)
55-13-26 FAILURE TO TAKE ACTION.-(a) If the corporation does not take
the proposed action within 60 days after the date set for demanding payment and
depositing share
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certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure.
55-13-27 [Reserved for future codification purposes.]
55-13-28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S
PAYMENT OR FAILURE TO PERFORM.-(a) A dissenter may notify the corporation in
writing of his own estimate of the fair value of his shares and amount of
interest due, and demand payment of the amount in excess of the payment by the
corporation under G.S. 55-13-25 for the fair value of his shares and interest
due, if:
(1) The dissenter believes that the amount paid under G.S. 55-13-25 is
less than the fair value of his shares or that the interest due is incorrectly
calculated;
(2) The corporation fails to make payment under G.S. 55-13-25; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for demanding
payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing (i) under
subdivision (a)(1) within 30 days after the corporation made payment for his
shares or (ii) under subdivision (a)(2) and (a)(3) within 30 days after the
corporation has failed to perform timely. A dissenter who fails to notify the
corporation of his demand under subsection (a) within such 30-day period shall
be deemed to have withdrawn his dissent and demand for payment. (Last amended by
S.L. 97-202, L. '97, eff. 10-1-97.)
Part 3. Judicial Appraisal of Shares
55-13-30 COURT ACTION.-(a) If a demand for payment under G.S. 55-13-28
remains unsettled, the dissenter may commence a proceeding within 60 days after
the earlier of (i) the date payment is made under G.S. 55-13-25, or (ii) the
date of the dissenter's payment demand under G.S. 55-13-28 by filing a complaint
with the Superior Court Division of the General Court of Justice to determine
the fair value of the shares and accrued interest. A dissenter who takes no
action within the 60-day period shall be deemed to have withdrawn his dissent
and demand for payment.
(a1) (Repealed by S.L. 97-202, L. '97, eff. 10-1-97.)
(b) [Reserved for future codification purposes.]
(c) The court shall have the discretion to make all dissenters (whether
or not residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the complaint. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the superior court in which the proceeding is
commenced under subsection (a) is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the
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powers described in the order appointing them, or in any amendment to it. The
parties are entitled to the same discovery rights as parties in other civil
proceedings. The proceeding shall be tried as in other civil actions. However,
in a proceeding by a dissenter in a corporation that was a public corporation
immediately prior to consummation of the corporation action giving rise to the
right of dissent under G.S. 55-13-02, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds the fair value of his
shares, plus interests, exceeds the amount paid by the corporation. (Last
amended by S.L. 97-202 and S.L. 97-485, L. '97, eff. 10-1-97.)
55-13-31 COURT COSTS AND COUNSEL FEES.-(a) The court in an appraisal
proceeding commenced under G.S. 55-13-30 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court, and shall assess the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either
or any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
C-6
EXHIBIT 1
EXHIBIT 1 - 1998 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
GREEN STREET FINANCIAL CORP
1998 ANNUAL REPORT
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA 1
- --------------------------------------------------------------------------------
REPORT TO STOCKHOLDERS 2
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS 3 - 14
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 15
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS 16 - 39
- --------------------------------------------------------------------------------
COMMON STOCK INFORMATION 40
- --------------------------------------------------------------------------------
CORPORATE INFORMATION 41
- --------------------------------------------------------------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements herein regarding estimated future expense levels and other matters
may constitute forward-looking statements under the federal securities laws.
Such statements are subject to certain risks and uncertainties. Undue reliance
should not be placed on this information. These estimates are based on the
current expectations of management, which may change in the future due to a
large number of potential events, including unanticipated future developments.
EX 1-2
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------
Financial Condition Data: (Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Total assets $ 172,705 $ 177,962 $ 176,217 $ 151,028 $ 150,077
Investments (1) 39,436 47,203 51,403 32,174 43,605
Loans receivable, net 131,698 128,946 123,148 117,201 105,094
Savings deposits 110,460 112,642 111,385 127,483 128,334
Stockholders' equity (2) 60,333 62,946 62,180 22,230 20,453
Book value per share 14.78 14.64 14.47 -- --
</TABLE>
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------
Operating Data: (Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Interest and dividend income $ 13,101 $ 13,017 $ 12,583 $ 11,124 $ 10,325
Interest expense 5,609 5,377 6,232 6,119 5,489
----------------------------------------------------------
Net interest income 7,492 7,640 6,351 5,005 4,836
Provision for loan losses 20 10 -- 19
Noninterest income 132 104 128 106 145
Noninterest expense (3) 3,128 3,231 3,300 2,344 2,117
----------------------------------------------------------
Income before income taxes 4,496 4,493 3,169 2,767 2,845
Income tax expense 1,689 1,716 1,099 990 1,035
----------------------------------------------------------
Net income $ 2,807 $ 2,777 $ 2,070 $ 1,777 $ 1,810
==========================================================
Earnings per share, basic (2) $ 0.70 $ 0.68 $ 0.28 $ -- $ --
Earnings per share, diluted (2) 0.69 0.67 0.28 -- --
Dividends per share 0.61 0.57 0.35 -- --
Selected Other Data:
Return on average assets (5) 1.59% 1.58% 1.22% 1.21% 1.16%
Return on average equity (5) 4.48% 4.41% 4.93% 8.29% 9.23%
Interest rate spread (5) 2.47% 2.60% 2.50% 2.66% 2.58%
Net interest margin (5) 4.29% 4.40% 3.78% 3.42% 3.11%
Dividend payout ratio 87.00% 85.00% 125.00% -- --
Average equity to average assets 35.49% 36.00% 24.76% 14.57% 12.52%
Nonperforming loans to total loans (4) 0.15% 0.13% .25% .27% .39%
</TABLE>
(1) Includes interest earning deposits, federal funds, and investment
securities.
(2) On April 3, 1996, Home Federal Savings and Loan Association converted
from a federally chartered mutual savings association to a federally
chartered stock savings association and became a wholly owned
subsidiary of Green Street Financial Corp. Earnings per share are not
presented for periods prior to April 3, 1996.
(3) Includes nonrecurring insurance assessment of $792,868 during 1996.
(4) Nonperforming loans is comprised of loans delinquent 90 days or more.
(5) Average balances are derived from month-end balances which are
representative of operations.
EX 1-3
<PAGE>
GREEN STREET FINANCIAL CORP
- --------------------------------------------------------------------------------
241 Green Street Telephone (910) 483-3681
P.O. Box 1540 FAX (910) 483-5102
Fayetteville, North Carolina 28302
REPORT TO STOCKHOLDERS
We are pleased to present our third Annual Report of Green Street Financial Corp
(the "Corporation"). For the fiscal year ended September 30, 1998, our earnings
of $2.8 million remained relatively constant as compared to our 1997 fiscal
year. Our asset quality continues to remain high and our capital levels well
exceed the regulatory capital requirements. Additionally, cash dividends to
shareholders increased 5.3% or, $.04, to $0.61 per share in fiscal 1998 from
$0.57 per share in fiscal 1997.
On behalf of the Board of Directors and employees, I wish to thank you for your
support and confidence. The trust that you have placed in us through your
investment is gratifying, and we pledge our efforts to enhance the value of your
stock through the safe and sound operation of the Corporation.
Sincerely,
/s/H. D. Reaves, Jr.
-------------------------------------
H. D. Reaves, Jr.
President
EX 1-4
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
General
Green Street Financial Corp, (the "Corporation"), was incorporated under the
laws of the State of North Carolina for the purpose of becoming the savings and
loan holding company of Home Federal Savings and Loan (the "Association" or
"Home Federal") in connection with the Association's conversion from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan association, pursuant to its Plan of Conversion. The
Corporation was organized in December 1995 to acquire all of the common stock of
Home Federal upon its conversion to stock form. A subscription and community
offering of the Corporation's shares closed on April 3, 1996, at which time the
Corporation acquired all of the shares of the Association and commenced
operations.
The Corporation has no operations and conducts no business of its own other than
owning Home Federal, investing its portion of the net proceeds received in the
Conversion, and lending funds to the Employee Stock Ownership Plan (the "ESOP")
which was formed in connection with the conversion. The principal business of
the Association is accepting deposits from the general public and using those
deposits and other sources of funds to make loans secured by real estate and
other forms of collateral located in the Association's primary market area of
Cumberland and Robeson counties in North Carolina.
Home Federal's results of operations depend primarily on its net interest
income, which is the difference between interest income from interest-earning
assets and interest expense on interest-bearing liabilities. The Association's
operations are also affected by noninterest income, such as miscellaneous income
from loans, customer deposit account service charges, and other sources of
revenue. The Association's principal operating expenses, aside from interest
expense, consist of compensation and associated benefits, federal deposit
insurance premiums, occupancy costs, advertising, and other general and
administrative expenses.
The following discussion and analysis is intended to assist readers in
understanding the results of operations in 1998, 1997 and 1996, and changes in
financial position for the years ended September 30, 1998 and 1997,
respectively.
EX 1-5
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Comparison of Financial Condition
Total consolidated assets decreased by $5.3 million during 1998, from $178.0
million at September 30, 1997 to $172.7 million at September 30, 1998. The
decrease resulted primarily from savings deposit losses of $2.1 million and
repurchases of common stock of $3.5 million.
Loans receivable increased by approximately $2.8 million during 1998 to $131.7
million at September 30, 1998. The markets in which the Association operates
have experienced consistent growth in recent years, and although diversification
of the economic base continues to occur, the local economies remain
substantially dependent on the large military installations situated in the
Association's lending markets.
The Corporation had no outstanding borrowings during 1998 or 1997. However, the
Association has borrowing capacity of approximately $16 million through the
Federal Home Loan Bank of Atlanta.
The Corporation's return of average assets was 1.59% and 1.58%, and its return
on average equity was 4.48% and 4.41% for 1998 and 1997, respectively.
The Association is required to meet certain capital requirements as established
by the OTS. At September 30, 1998, the Association's capital was significantly
in excess of regulatory capital requirements. (See Note 15 to the consolidated
financial statements.)
EX 1-6
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Comparison of Operating Results
Net Income
Net income for the years ended September 30, 1998, 1997 and 1996 was $2.8
million, $2.8 million and $2.1 million, respectively. Net income in 1996 would
have been approximately $500,000 higher than the earnings reported without the
expense associated with the special assessment that occurred as a result of the
Federal legislation to recapitalize the Savings Association Insurance Fund
("SAIF").
Net Interest Income
Net interest income represents the difference between income derived from
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is affected by both (i) the difference between
the rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities outstanding
during the period. See the table on page 13 which details the average balances,
yields and costs of interest earning assets and interest bearing liabilities and
the rate/volume table on page 14 which explains the changes in interest income,
interest expense, and net interest income attributable to changes in volume and
interest rates during 1998, 1997 and 1996.
Net interest income decreased by $148,636 or 1.9% for the year ended September
30, 1998 from $7,640,101 reported in 1997. Net interest income amounted to
$6,350,730 in 1996. The decrease in net interest income during 1998 was
attributable to an increase in the cost of savings.
Interest Income
Total interest income increased slightly to $13,100,625 for 1998 from
$13,017,519 in 1997, an increase of $83,016 or 0.6%. The increase during 1998
was attributable to an increase in the average balance of interest earning
assets over the previous year. The increase in interest income during 1997 was
attributable to a $21.7 million increase in the average balance of interest
earning assets due to proceeds received from the stock issuance. The
Association's overall yield on interest earning assets remained approximately
the same from 1996 through 1998.
Interest Expense
Total interest expense increased to $5,609,160 in 1998 from $5,377,418 in 1997,
an increase of $231,742 or 4.3%. Home Federal's average cost of funds was 5.03%
in 1998 compared to 4.91% in 1997. Competition for savings deposits forced the
Association to pay higher rates than in the previous year.
The Association's provision for loan losses amounted to approximately $0,
$20,000 and $10,000 for the years ended September 30, 1998, 1997 and 1996,
respectively. The provision, which is charged to operations, and the resulting
loan loss allowances are amounts Home Federal's management believes will be
adequate to absorb losses on existing loans that may become uncollectible. Loans
are charged off against the allowance when management believes that
collectibility is unlikely. An evaluation to increase
EX 1-7
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
the provision and resulting allowances is based on factors, such as changes in
the nature and volume of the loan portfolio, overall portfolio quality, and
current economic conditions. However, there can be no assurance that future
losses will not exceed estimated amounts or that additional provisions for loan
losses will not be required in future periods.
The Association's level of nonperforming loans, defined as loans past due 90
days or more, is relatively insignificant as a percentage of total loans
outstanding and amounted to .15%, .13% and .25% at September 30, 1998, 1997 and
1996, respectively. Home Federal had no loans charged off during the three year
period ended September 30, 1998.
Noninterest Income
Noninterest income amounted to $132,400, $103,983 and $127,943 in 1998, 1997 and
1996, respectively. Noninterest income consists primarily of service charges and
fees associated with the Association's loan and savings accounts as well as
income from insurance commissions and rental of office space.
Noninterest Expense
Noninterest expense consists primarily of operating expenses for compensation
and associated benefits, occupancy, federal insurance premiums and operating
assessments, advertising costs, and data processing charges as well as expenses
associated with general administration. Noninterest expenses amounted to
$3,128,157, $3,231,172 and $3,300,001 in 1998, 1997 and 1996, respectively.
During 1996, the Association accrued and expensed $792,868 for a special
assessment required to recapitalize the SAIF of the FDIC. Without such charge,
noninterest expense for 1996 would have been $2,507,133.
Compensation and employee benefits decreased by $36,589 during 1998 from
$2,227,063 in 1997 to $2,190,474 in 1998. Deposit insurance decreased $38,221 in
1998 from 1997 because of the reduction in the rate charged by the FDIC.
Occupancy, advertising and data processing charges did not change significantly
during the three year period ended September 30, 1998. There was a slight
decrease in other general administrative expense during 1998. It is expected
that noninterest expense will remain above pre-conversion levels as a result of
benefit plans and other costs associated with operating as a public company.
Income Taxes
The Corporation's effective income tax rate was 37.56%, 38.20% and 34.68% in
1998, 1997 and 1996, respectively. The differences in rates were due to changes
in the components of permanent tax differences. (See Note 14 to the consolidated
financial statements.)
Year 2000 Issue
The Year 2000 ("Y2K") issue is the result of computer programs using a two-digit
format, as opposed to four digits, to indicate the year. Such computer systems
will be unable to interpret dates beyond the year 1999, which could cause a
system failure or other computer errors, leading to disruptions in the
Association's operation. The Year 2000 date problem is a reality and the date
for completion of this project cannot be changed. The Association identifies
Year 2000 as a challenge in moving into the next
EX 1-8
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
decade. In 1997, the Association developed a three-phase program for Y2K
information systems compliance.
Phase I (Identification)
In this Phase, which was completed in early 1998, the Association
identified those systems with which the Association has its largest
exposure to Y2K issues. The Association performed an inventory of all
services and computer products that involved micro processors in their
operation. The Association identified that their third-party service
bureau was their major provider of financial data processing and the
most vulnerable link to the Y2K event.
Phase II (Development and implementation of action plans)
In this Phase, the Association developed action plans to insure that
the Association is compliant in all areas by late 1998. Financial
software providers have been contacted and new software updates have
been received that are Y2K compliant.
The Association is currently working in this phase.
Phase III (Testing)
The Association is currently scheduled to test PC operation systems,
financial software systems and data processing services provider in
November and December of 1998. This phase will enable the Association
to identify those areas that need further research and testing to
become Y2K compliant. In the financial and information system area, a
number of applications have been identified as being Y2K compliant due
to their recent implementation. The Association's core financial and
reporting systems are not Y2K compliant, but are on schedule to be so
by the end of December.
The Association believes that its expense will be less than $25,000 in making
its core service Y2K compliant due to its contract with its outside service
bureau to provide Y2K compliant services. In addition, the Association is in the
process of updating its computer systems. Capital costs associated with this
upgrade are anticipated to be approximately $150,000. The Association has
reviewed third party relationships and has identified no significant
relationships that will affect its operation. Most relationships are with
consumers and small business operators who stated that they are or will be Y2K
compliant. The Association is currently meeting the time line that the Federal
Financial Institutions Examination Council has mandated and expects that all of
their systems will be verified Year 2000 compliant and will be able to process
without interruption through the next millennium. However, in the event some
unforeseen circumstances arise, the Association has in place a manual posting
system for all of its key financial processing, including loans and deposits.
EX 1-9
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
No assurance can be given that the Y2K project will be completed successfully by
the Year 2000, in which event the Corporation could incur significant costs. If
the Association's third-party service bureau is unable to resolve the potential
problem in time, the Corporation would likely experience significant data
processing delays, mistakes or failures.
Successful and timely completion of the Y2K project is based on management's
best estimates derived from various assumptions of future events. This includes
the progress and results of the Association's third-party service bureau,
testing plans, and all vendors, suppliers and customers readiness.
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying footnotes have been
prepared in accordance with generally accepted accounting principles ("GAAP"),
which require the measurement of financial position and operating results in
terms of historical dollars without consideration for changes in the relative
purchasing power of money over time due to inflation. The assets and liabilities
of the Corporation are primarily monetary in nature and changes in interest
rates have a greater impact on the Corporation's performance than do the effects
of inflation.
Future Reporting Requirements
The Financial Accounting Standards Board has issued SFAS No. 130, Reporting
Comprehensive Income and SFAS No. 132, Employers' Disclosures About Pensions and
Other Postretirement Benefits, both of which the Association has not been
required to adopt as of September 30, 1998.
SFAS No. 130, Reporting Comprehensive Income, established standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Statement does not require a specific format for
that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. The Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. It is not expected that this statement will materially
effect the presentation of the Corporation's comprehensive income.
SFAS No. 132, Employers' Disclosures About Pensions and Other Postretirement
Benefits, revises employers' disclosures about pension and other postretirement
benefit plans. The Statement does not change the measurement or recognition of
those plans, but standardizes the disclosure requirements for pensions and other
postretirement benefits, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis. The Statement suggests combined formats for presentation of
pension and other postretirement benefit disclosures. It is not expected that
this statement will materially effect the presentation of existing disclosures.
EX 1-10
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Capital Resources and Liquidity
During 1998, Green Street Financial Corp paid a regular quarterly dividend of
$.11 a share on January 23, 1998 and April 23, 1998, and a regular quarterly
dividend of $.12 a share on July 23, 1998 and declared a regular quarterly and a
special dividend of $.12 and $.15 a share, respectively on September 28, 1998 to
be paid on October 23, 1998 to stockholders of record as of October 13, 1998.
Although the Corporation anticipates that it will continue to declare cash
dividends on a regular basis, the Board of Directors will continue to review its
policy on the payment of dividends on an ongoing basis, and such payment will be
subject to future earnings, cash flows, capital needs, and regulatory
restrictions.
The objective of the Corporation's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities to enhance stockholders' value. More specifically,
liquidity ensures that adequate funds are available to meet deposit withdrawals,
fund loan and capital expenditure commitments, maintain reserve requirements,
pay operating expenses and dividends to stockholders, and other institutional
commitments. Funds are primarily provided through financial resources from
operating activities, expansion of the deposit base, the maturity of
investments, or the ability to raise equity capital.
During the year ended September 30, 1998, cash and cash equivalents, a
significant source of liquidity, decreased by approximately $3.6 million. Cash
and cash equivalents decreased by $2.4 million during 1997. Cash flow resulting
from internal operating activities provided increases of $2.7 million and $2.6
million in cash during the years ended September 30, 1998 and 1997,
respectively. Deposits decreased by $2.2 million during 1998. For 1998,
financing activities provided sources of funds for asset growth and liquidity.
The Association's ability to generate deposits has historically been sufficient
to fund its loan demand and provide for adequate liquidity without the need to
access other forms of credit availability. In addition, the Association has a
readily available source of credit through its borrowing capacity at the Federal
Home Loan Bank of Atlanta.
Cash provided by operating and financing activities is used to originate loans
to customers, to maintain liquid investment portfolios, and to meet short term
liquidity requirements. During 1998 and 1997, loans outstanding increased by
$2.8 million and $5.8 million, respectively. During 1998 and 1997, the
Corporation purchased investment securities amounting to $21.0 million and $27.0
million, respectively.
As a federally chartered savings association, Home Federal must maintain a daily
average balance of liquid assets equal to at least 4% of withdrawable deposits
and short-term borrowings. The Association's liquidity ratio at September 30,
1998, as computed under OTS regulations, was considerably in excess of such
requirements. Given its excess liquidity and its ability to borrow from the
Federal Home Loan Bank, the Association believes that it will have sufficient
funds available to meet anticipated future loan commitments, unexpected deposit
withdrawals, and other cash requirements.
EX 1-11
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Asset/Liability Management
Home Federal's asset/liability management, or its management of interest rate
risk, is focused primarily on evaluating and managing the Association's net
interest income given various risk criteria. Factors beyond the Association's
control, such as market interest rates and competition, may also have an impact
on the Association's interest income and interest expense. In the absence of
other factors, the Association's overall yield on interest-earning assets will
increase as will its cost of funds on its interest-bearing liabilities when
market rates increase over an extended period of time. Inversely, the
Association's yields and cost of funds will decrease when market rates decline.
The Association is able to manage these swings to some extent by attempting to
control the maturity or rate adjustments of its interest-earning assets and
interest-bearing liabilities over given periods of time.
In order to encourage savings associations to reduce their interest rate risk,
the OTS adopted a rule incorporating an interest rate risk ("IRR") component
into the risk-based capital rules. However, this rule is not yet in effect. The
IRR component is a dollar amount that will be deducted from total capital for
the purpose of calculating an institution's risk-based capital requirement and
is measured in terms of the sensitivity of its net portfolio value ("NPV") to
changes in interest rates. NPV is the difference between incoming and outgoing
discounted cash flows from assets, liabilities, and off-balance-sheet contracts.
An institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis point ("bp") change in market interest rates. A resulting
change in NPV of more than 2% of the estimated present value of total assets
("PV") will require the institution to deduct from its capital 50% of that
excess change. The rules provide that the OTS will calculate the IRR component
quarterly for each institution. The following table presents the Association's
NPV at September 30, 1998, as calculated by the OTS, based on quarterly
information voluntarily provided to the OTS by the Association. Certain
assumptions utilized by the OTS in assessing the interest rate risk of savings
associations were employed in preparing the table. These assumptions relate to
interest rates, loan prepayment rates, deposit decay rates, and the market
values of certain assets under the various interest rate scenarios. It was also
assumed that delinquency rates will not change as a result of changes in
interest rates although there can be no assurance that this will be the case.
Even if interest rates change in the designated amounts, there can be no
assurance that the Association's assets and liabilities would perform as set
forth below.
As a result, certain shortcomings are inherent in the following NPV table
because the data reflects hypothetical changes in NPV based upon assumptions
used by the OTS to evaluate the Association as well as other institutions.
However, based on the data below, net interest income should decline with
instantaneous increases in interest rates while net interest income should
increase with instantaneous declines in interest rates. Generally during periods
of increasing interest rates, the Association's interest rate sensitive
liabilities would reprice faster than its interest rate sensitive assets causing
a decline in the Association's interest rate spread and margin. This would
result from an increase in the Association's cost of funds that would not be
immediately offset by an increase in its yield on earning assets. An increase in
the cost of funds without an equivalent increase in the yield on earning assets
would tend to reduce net interest income. In times of decreasing interest rates,
fixed rate assets could increase in value and the lag in repricing of interest
rate sensitive assets could be expected to have a positive effect on the
Association's net interest income.
EX 1-12
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Portfolio NPV as a % of
Value PV of Assets
------------------------------------------------ --------------------------------
Change in Rates $ Amount $ Change (1) % Change (2) NPV Ratio (3) Change (4)
- ------------------- ------------------------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C>
+400 bp 37,225 (11,611) -24 % 25.34 % -505 bp
+300 bp 40,535 (8,301) -17 % 26.89 % -350 bp
+200 bp 43,794 (5,041) -10 % 28.33 % -205 bp
+100 bp 46,684 (2,152) -4 % 29.55 % -84 bp
0 bp 48,835 - - 30.39 % -
-100 bp 50,381 1,546 +3 % 30.94 +55 bp
-200 bp 52,060 3,225 +7 % 31.52 +114 bp
-300 bp 54,015 5,180 +11 % 32.21 +183 bp
-400 bp 56,138 7,302 +15 % 32.95 +256 bp
</TABLE>
(1) Represents the excess (deficiency) of the estimated NPV assuming the
indicated change in interest rates minus the estimated NPV assuming no
change in interest rates.
(2) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
(3) Calculated as the estimated NPV divided by present value of total
assets.
(4) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio
assuming no change in interest rates.
At September 30, 1998, a change in interest rates of a positive 200 basis points
would have resulted in a 205 basis point decrease in NPV as a percentage of the
present value of the Association's total assets. Utilizing the OTS IRR
measurement described above, at September 30, 1998 the Association would have
been considered by the OTS to have been subject to "above normal" IRR. However
the Association is substantially in excess of its required risk-based capital
requirement at September 30, 1998 and would continue to be so even if the IRR
component rule was implemented by the OTS.
In order to minimize the potential effects of adverse material and prolonged
increases or decreases in market interest rates on the Association's operations,
management has implemented an asset/liability program designed to improve the
Association's interest rate sensitivity. The program emphasizes the origination
of adjustable rate loans, which are held in the portfolio, the investment of
excess cash in short or intermediate term interest earning assets, and the
solicitation of passbook or transaction deposit accounts which are less
sensitive to changes in interest rates and can be repriced rapidly.
EX 1-13
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MARKET RISK ANALYSIS
September 30, 1998
<TABLE>
<CAPTION>
Expected Maturity Date
Year Ended September 30,
1999 2000 2001 2002 2003 Thereafer Total Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans - fixed:
Balance $ 779,402 $ 230,803 $ 381,274 $ 1,398,392 $ 1,387,075 $80,887,214 $ 85,064,160 $ 87,074,676
Interest rate 10.26% 8.82% 9.69% 9.33% 8.84% 7.92% 7.99% -
Loans - variable:
Balance 49,251,324 - - - - - 49,251,324 49,251,324
Interest rate 6.83% - - - - - 6.83% -
Investments (1):
Balance 29,462,356 - - 3,000,000 3,000,000 3,000,000 38,462,356 38,504,548
Interest rate 5.52% - - 6.92% 6.37% 6.38% 5.76% -
Liabilities:
Deposits (2):
Balance 26,219,249 - - - - - 26,219,249 26,219,249
Interest rate 3.49% - - - - - 3.49% -
Deposits -
certificates:
Balance 63,664,757 8,138,135 8,294,930 4,076,922 65,788 - 84,240,531 84,582,000
Interest rate 5.49% 5.82% 6.01% 6.03% 8.00% - 5.60% -
</TABLE>
(1) Includes deposits, federal funds, and held to maturity investment
securities.
(2) Includes Passbook Accounts, NOW Accounts, Super NOW Accounts, Money Market
Funds and accrued interest.
EX 1-14
<PAGE>
Average Balances, Interest, Yields and Costs
The following table sets forth certain information relating to the Corporation's
average balance sheets and reflects the average yield on assets and average cost
of liabilities at and for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from month-end balances. Management believes that the use of month-
end balances are representatives of operations.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------------------------
At September 30,
1998 1998 1997 1996
------------------ ----------------------------- --------------------------- ----------------------------
Actual Average Average Average Average Average Average Average
Balance Yield\Cost Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ---------- ------- -------- ---------- ------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Interest-bearing
deposits $ 29,291 5.53% $ 28,704 $ 1,619 5.64% $ 33,447 $ 1,838 5.50% $ 40,508 $ 2,206 5.45%
Investments, at cost 10,145 6.86% 15,277 1,035 6.77% 14,545 977 6.72% 6,656 480 7.21%
Loans receivable 131,698 7.60% 130,788 10,447 7.99% 125,520 10,202 8.13% 121,024 9,897 8.18%
-------- -------- ------- -------- ------- -------- -------
Total interest-earning
assets 171,134 7.66% 174,769 $13,101 7.50% 173,512 $13,017 7.50% 168,188 $12,583 7.48%
------- ------- -------
Non-interest-earning
assets 1,571 1,692 1,628 1,322
-------- -------- -------- --------
Total $172,705 $176,461 $175,140 $169,510
======== ======== ======== ========
Liabilities and
retained earnings:
Interest-bearing
liabilities:
Passbook accounts $ 13,124 3.05% $ 13,254 $ 399 3.01% $ 14,237 $ 432 3.03% $ 20,068 $ 548 2.73%
MMDA accounts 13,095 4.05% 13,699 562 4.10% 14,175 567 4.00% 14,344 583 4.06%
Certificates of
deposit 84,241 5.60% 84,572 4,648 5.50% 81,205 4,378 5.39% 90,779 5,101 5.62%
-------- -------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 110,460 5.11% 111,525 $ 5,609 5.03% 109,617 $ 5,377 4.91% 125,191 $ 6,232 4.98%
------- ------- -------
Non-interest-bearing
liabilities 1,912 2,312 2,476 2,354
Stockholders' Equity 60,333 62,624 63,047 41,965
------- ------- ------- -------
Total $172,705 $176,461 $175,140 $169,510
======== ======== ======== ========
Net interest income and
interest rate
spread (1) 2.55% $ 7,492 2.47% $ 7,640 2.60% $ 6,351 2.50%
======== ======== =======
Net yield on interest-
earning assets (2) 4.38% 4.29% 4.40% 3.78%
Ratio of interest-
earning assets to
interest-bearing
liabilities 154.93% 156.71% 158.29% 134.35%
</TABLE>
(1) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(2) Net yield on interest-earning assets represents net interest income
divided by average interest-earning assets.
EX 1-15
<PAGE>
Rate/Volume Analysis
The following table analyzes the dollar amount of changes in interest income and
interest expense for major components of the Corporation's interest earning
assets and interest bearing liabilities. The table distinguishes between (1)
changes in net interest income attributable to volume (changes in volume
multiplied by the prior period's interest rate), (ii) changes in net interest
income attributable to rate (changes in interest rates multiplied by the prior
period's volume), and (iii) mixed changes (changes in volume multiplied by
changes in rates).
<TABLE>
<CAPTION>
Year Ended September 30, Year Ended September 30,
1998 vs. 1997 1997 vs. 1996
--------------------------------------- --------------------------------------
Increase (Decrease) Attributable to Increase (Decrease) Attributable to
--------------------------------------- ---------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income on:
Interest earning deposits $ (261) $ 49 $ (7) $ (219) $ (385) $ 20 $ (3) $ (368)
Investments, at cost 49 (8) 0 58 569 (33) (39) 497
Loan receivable 428 (176) (7) 245 368 (60) (2) 305
------- ------- ------- ------- ------- ------- ------- -------
Total interest income on
interest-earning assets 217 (119) (14) 84 552 (73) (45) 434
------- ------- ------- ------- ------- ------- ------- -------
Interest expense on:
Passbook accounts (30) (3) 0 (33) (159) 61 (18) (116)
MMDA accounts (19) 15 (0) (5) (7) (9) 0 (16)
Certificates of deposit 182 85 4 270 (538) (207) 22 (723)
------- ------- ------- ------- ------- ------- ------- -------
Total interest expense on
interest-bearing liabilities 133 96 3 232 (704) (155) 4 (855)
------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net interest
income $ 84 $ (215) $ (17) $ (148) $ 1,256 $ 82 $ (49) $ 1,289
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
EX 1-16
<PAGE>
[LOGO]
McGLADREY & PULLEN, LLP
-----------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Green Street Financial Corp
Fayetteville, North Carolina
We have audited the accompanying consolidated statements of financial condition
of Green Street Financial Corp and subsidiary as of September 30, 1998 and 1997
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three year period ended September 30, 1998.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Green Street Financial Corp and
subsidiary as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three year period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
/s/McGladrey & Pullen, LLP
Raleigh, North Carolina
October 23, 1998
EX 1-17
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents:
Interest-bearing $ 27,817,856 $ 29,414,597
Non-interest bearing 171,500 555,043
Federal funds sold 1,473,000 3,118,000
---------------------------------
29,462,356 33,087,640
---------------------------------
Investment securities: (Note 2)
Held to maturity 9,000,000 13,500,000
Nonmarketable equity securities 1,144,700 1,170,889
Loans receivable, net (Note 3) 131,697,916 128,945,951
Accrued interest receivable, investments 180,301 222,716
Real estate acquired in settlement of loans 34,521 -
Property and equipment, net (Note 4) 349,190 306,794
Prepaid expenses and other assets (Note 12) 835,561 727,688
---------------------------------
Total assets $ 172,704,545 $ 177,961,678
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 5) $ 110,459,780 $ 112,641,893
Advance payments by borrowers for taxes and insurance 208,998 250,662
Accrued expenses and other liabilities 600,722 1,005,927
Dividends payable 1,102,469 1,117,513
---------------------------------
Total liabilities 112,371,969 115,015,995
---------------------------------
Commitments and contingencies (Notes 7, 8, 10, 11 and 16)
Stockholders' Equity (Notes 14, 15 and 16):
Preferred stock, authorized 1,000,000 shares; none issued - -
Common stock, no par value, authorized 10,000,000 shares;
issued and outstanding 4,083,219 shares (4,298,125 in 1997) - -
Additional paid-in capital 38,550,912 41,816,239
Unearned ESOP shares (Note 9) (1,950,000) (2,210,000)
Retained earnings, substantially restricted (Note 15) 23,731,664 23,339,444
---------------------------------
60,332,576 62,945,683
---------------------------------
$ 172,704,545 $ 177,961,678
=================================
</TABLE>
See Notes to Consolidated Financial Statements.
EX 1-18
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Loans $ 10,447,936 $ 10,202,266 $ 9,897,134
Short-term cash investments 1,701,909 1,837,998 2,206,230
Investment securities 950,780 977,255 479,628
--------------------------------------------
Total interest income 13,100,625 13,017,519 12,582,992
Interest on deposits (Note 5) 5,609,160 5,377,418 6,232,262
--------------------------------------------
Net interest income 7,491,465 7,640,101 6,350,730
Provision for loan losses (Note 3) - 20,000 10,073
--------------------------------------------
Net interest income after
provision for loan losses 7,491,465 7,620,101 6,340,657
--------------------------------------------
Noninterest income 132,400 103,983 127,943
--------------------------------------------
Noninterest expense:
Compensation and benefits (Notes 8, 9,10 and 11) 2,190,474 2,227,063 1,458,435
Deposit insurance 116,911 155,132 334,329
Special SAIF assessment (Note 6) - - 792,868
Occupancy expenses 157,334 146,610 161,807
Advertising 142,633 161,431 137,558
Data processing expense 89,774 91,234 97,384
Other 431,031 449,702 317,620
--------------------------------------------
3,128,157 3,231,172 3,300,001
--------------------------------------------
Income before income taxes 4,495,708 4,492,912 3,168,599
--------------------------------------------
Income taxes (credits) (Note 14):
Current 1,661,750 1,567,265 1,348,953
Deferred 27,000 149,000 (250,000)
--------------------------------------------
1,688,750 1,716,265 1,098,953
--------------------------------------------
Net income $ 2,806,958 $ 2,776,647 $ 2,069,646
============================================
Basic earnings per share (Note 16) $ 0.70 $ 0.68 $ 0.28
============================================
Diluted earnings per share (Note 16) $ 0.69 $ 0.67 $ 0.28
============================================
Dividends paid per share $ 0.61 $ 0.57 $ 0.35
============================================
</TABLE>
See Notes to Consolidated Financial Statements.
EX 1-19
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additional Unearned
Paid-in ESOP Retained
Capital Shares Earnings Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1995 $ - $ - $ 22,230,391 $ 22,230,391
Net income - - 2,069,646 2,069,646
Net proceeds from issuance of
common stock (Note 15) 39,126,861 - - 39,126,861
Purchase of common stock
by the ESOP (Note 9) 2,600,000 (2,600,000) - -
ESOP contribution (Note 9) 40,365 130,000 - 170,365
Cash dividends - - (1,417,244) (1,417,244)
-------------------------------------------------------------------
Balance at September 30, 1996 41,767,226 (2,470,000) 22,882,793 62,180,019
Net income - - 2,776,647 2,776,647
ESOP contribution (Note 9) 182,325 260,000 - 442,325
Cash dividends - - (2,319,996) (2,319,996)
RSP awards in excess of
grant price (Note 10 ) (133,312) - - (133,312)
-------------------------------------------------------------------
Balance at September 30, 1997 41,816,239 (2,210,000) 23,339,444 62,945,683
Net income - - 2,806,958 2,806,958
ESOP contribution (Note 9) 174,460 260,000 - 434,460
Cash dividends - - (2,414,738) (2,414,738)
RSP awards below
grant price (Note 10 ) 54,170 - - 54,170
Tax benefit from RSP awards 52,000 - - 52,000
Redemption of 214,906 shares of
outstanding stock at $16.50 per share (3,545,957) - - (3,545,957)
-------------------------------------------------------------------
Balance at September 30, 1998 $ 38,550,912 $ (1,950,000) $ 23,731,664 $ 60,332,576
===================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
EX 1-20
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMETNS OF CASH FLOWS
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 2,806,958 $ 2,776,647 $ 2,069,646
Adjustments to reconcile net income to net
cash provided by operating activities:
ESOP contribution expense credited to
additional paid-in capital 174,460 182,325 40,365
Tax benefit from RSP awards 52,000 - -
Other 34,497 32,479 27,185
Changes in assets and liabilities:
(Increase) decrease in:
Prepaid expenses and other assets (63,384) (52,604) (68,283)
Accrued interest receivable 42,415 32,850 (138,655)
Increase (decrease) in:
Accrued expenses and other liabilities (351,035) 389,775 (195,179)
Accrued special SAIF assessment - (792,868) 792,868
-------------------------------------------------
Net cash provided by operating activities 2,695,911 2,568,604 2,527,947
-------------------------------------------------
Cash Flows From Investing Activities
Purchase of held to maturity investment securities (21,000,000) (27,000,000) (12,000,000)
Purchase of nonmarketable equity securities (18,300) - -
Proceeds from maturity of held to maturity
investment securities 25,500,000 28,500,000 -
Net increase in loans receivable (2,805,023) (5,807,322) (6,174,422)
Proceeds from sale of real estate acquired
in settlement of loans 14,920 46,779 203,013
Purchase of equipment (73,276) (13,038) (20,436)
-------------------------------------------------
Net cash provided by (used in)
investing activities 1,618,321 (4,273,581) (17,991,845)
-------------------------------------------------
</TABLE>
(Continued)
EX 1-21
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1997 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Financing Activities
Net increase (decrease) in deposits $ (2,182,113) $ 1,256,507 $ (16,097,559)
Decrease in advance payments by borrowers
for taxes and insurance (41,664) 71,218 (457,085)
Net proceeds received from issuance of
common stock - - 39,126,861
Redemption of common stock (3,545,957) - -
Principal repayments received on ESOP note 260,000 260,000 130,000
Cash dividends paid (2,429,782) (2,277,014) (404,463)
-------------------------------------------------
Net cash provided by (used in)
financing activities (7,939,516) (689,289) 22,297,754
-------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (3,625,284) (2,394,266) 6,833,856
Cash and cash equivalents:
Beginning 33,087,640 35,481,906 28,648,050
-------------------------------------------------
Ending $ 29,462,356 $ 33,087,640 $ 35,481,906
=================================================
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest $ 5,614,261 $ 5,374,888 $ 6,239,628
=================================================
Income taxes $ 1,997,265 $ 1,349,265 $ 1,147,800
=================================================
Supplemental Disclosure of Noncash Investing
and Financing Activities
Transfer from loans to real estate
acquired in settlement of loans $ 51,749 $ - $ 215,334
=================================================
Dividends declared and accrued $ 1,102,469 $ 1,117,513 $ 1,074,531
=================================================
Stock issued in exchange for note receivable
from ESOP $ - $ - $ 2,600,000
=================================================
</TABLE>
See Notes to Consolidated Financial Statements.
EX 1-22
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Conversion and organization of holding corporation: On April 3, 1996, pursuant
to a Plan of Conversion which was approved by its members and regulators, Home
Federal Savings and Loan Association ("Home Federal" or the "Association")
converted from a federally chartered mutual savings and loan association to a
federally chartered stock savings and loan association, and became a
wholly-owned subsidiary of Green Street Financial Corp (the "Corporation"). The
Corporation was formed in December 1995 to acquire all of the common stock of
the Association upon its conversion to stock form. The Corporation has no
operations and conducts no business of its own other than owning Home Federal,
investing its portion of the net proceeds received in the Conversion, and
lending funds to the Employee Stock Ownership Plan (the "ESOP") which was formed
in connection with the Conversion.
Nature of business: The Association is a federally chartered operating savings
and loan association primarily engaged in the business of obtaining deposits and
providing mortgage credit to the general public. The Association's business is
conducted primarily in Fayetteville, North Carolina in Cumberland County. The
Association's primary regulator is the Office of Thrift Supervision ("OTS") and
its deposits are insured by the Savings Association Insurance Fund ("SAIF") of
the FDIC.
Outlined below are the accounting and reporting policies considered significant
by the Corporation:
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
Principles of consolidation: The consolidated financial statements for the years
ended September 30, 1998, 1997 and 1996 include the accounts of Green Street
Financial Corp and its wholly-owned subsidiary, Home Federal Savings and Loan
Association. Green Street Financial Corp was capitalized on April 3, 1996;
therefore, the consolidated financial statements include the operations of the
Corporation for periods subsequent to April 3, 1996. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents: For purposes of reporting cash flows, cash on hand
and amounts due from depository institutions, interest-bearing deposits, and
federal funds sold are considered to be cash equivalents. At times, deposits are
maintained in correspondent banks in amounts that may be in excess of the FDIC
insurance limit.
Investment securities: Securities classified as held to maturity are those debt
securities the Corporation or the Association has both the intent and the
ability to hold to maturity regardless of changes in market conditions,
liquidity needs or changes in general economic conditions. These securities are
carried at cost adjusted for amortization of premiums or accretion of discounts.
Equity securities, which are nonmarketable, do not require classification and
are carried at cost. Currently there are no securities which are classified as
available for sale or trading. Gain or loss on sale of securities is recognized
when realized and is based upon the specific-identification method.
EX 1-23
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Loans receivable: Loans receivable are stated at unpaid principal balances, less
allowances for loan losses, the undisbursed portion of loans in process, and net
deferred loan origination fees and discounts. The loan portfolio consists
principally of long-term conventional loans collateralized by first deeds of
trust on single-family residences, other residential property and nonresidential
property.
Loan origination fees: Loan origination fees, less certain direct costs, are
deferred as an adjustment to yield of the related loans and are amortized into
income, using the interest method, over the economic life of the related loans,
estimated to be twelve years.
Allowance for loan losses: Provisions for loan losses are charged to operations
based on an evaluation of potential losses in the loan portfolio. Losses are
charged against the allowance when collectibility is unlikely. The allowance is
an amount that management believes will be adequate to absorb losses on existing
loans that may become uncollectible based upon evaluations of the collectibility
of loans, and prior loan loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrowers' ability to pay. While
management uses the best information available to make evaluations, future
adjustments may be necessary, if economic or other conditions differ
substantially from the assumptions used.
Specific loan loss allowances on impaired loans are recorded if it is doubtful
that all principal and interest due according to the loan terms will be
collected. There are no loans outstanding during the years ended September 30,
1998 and 1997 which are considered to be impaired.
Interest income: Interest on loans is recognized over the term of the loans and
is calculated primarily using the simple-interest method on principal amounts
outstanding. Accrual of interest is generally stopped when the loan becomes 90
days past due. Interest on these loans is recognized only when actually paid by
the borrower.
Property, equipment and depreciation: Property and equipment are stated at cost,
less accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the various classes of assets.
Real estate acquired in settlement of loans: Real estate acquired in settlement
of loans is initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of cost or
fair value, minus estimated cost to sell. Costs relating to the development and
improvement of the property are capitalized, while holding costs of the property
are charged to expense in the period incurred.
Advance payments by borrowers for taxes and insurance: Certain borrowers are
required to make monthly payments, in addition to principal and interest, in
order to accumulate funds to pay property taxes and insurance premiums.
EX 1-24
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Earnings per share: The Corporation adopted Statement of Financial Accounting
Standard (SFAS) No. 128, Earnings Per Share. The Statement establishes new
standards for computing and presenting earnings per share, and requires a dual
presentation of basic and diluted earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised. The
Corporation has presented diluted earnings per share due to the dilutive effect
of outstanding stock options. Earnings per share presentations for all prior
periods have been restated to reflect the adoption of SFAS No. 128. See Note 16
for a computation and reconciliation of basic and diluted earnings per share.
Fair value of financial instruments: The estimated fair value of financial
instruments have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment is required
to develop the estimates. Accordingly, the estimates for the fair value of
financial instruments are not necessarily indicative of the amounts that could
be realized in a current market exchange. The use of different market
assumptions or estimation methodologies may have a material effect on the
estimated fair value amounts.
The fair value estimates are based on pertinent information available to
management as of September 30, 1998 and 1997, respectively. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since those dates, and therefore, current
estimates of fair value may differ significantly from the amounts presented
herein. The following methods and assumptions were used in estimating its fair
value disclosures for financial instruments:
Cash and short term cash investments / federal funds sold / accrued interest
receivable: The carrying amounts reported in the statement of financial
condition for cash and short-term cash investments, for federal funds sold,
and for accrued interest receivable approximates those assets' fair values.
Investment securities: Investment securities consists of US Treasury and
agency obligations and Federal Home Loan Bank stock. The fair values of the
US Treasury and agency obligations are determined based on quoted market
values. No ready market exists for the equity securities, and they have no
quoted market value. For disclosure purposes, such securities are assumed to
have a fair value which is equal to its cost or redemption value.
EX 1-25
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair value for remaining loans has been estimated by discounting the
projected future cash flows at September 30, 1998 and 1997, using the rate on
those dates at which similar loans would be made to borrowers with similar
credit ratings and for similar maturities or repricing periods. The discount
rate used has been adjusted by an estimated credit risk factor to approximate
the adjustment that would be applied in the marketplace for any nonperforming
loans. Certain prepayment assumptions have also been made depending upon the
original contractual lives of the loans.
Deposits: The fair value of deposits with no stated maturities, including
transaction accounts and passbook savings accounts is estimated to be equal
to the amount payable on demand as of September 30, 1998 and 1997. The fair
value of certificates of deposit is based upon the discounted value of future
contractual cash flows. The discount rate is estimated using the rates
offered on September 30, 1998 and 1997 for deposits of similar remaining
maturities.
Off-balance-sheet commitments: Commitments, which consist entirely of loan
commitments, are either short-term in nature or subject to immediate
repricing; therefore, no fair value has been assigned to these
off-balance-sheet items.
Future Reporting Requirements: The Financial Accounting Standards Board has
issued SFAS No. 130, Reporting Comprehensive Income and SFAS No. 132,
Employers' Disclosures About Pensions and Other Postretirement Benefits,
both of which the Association has not been required to adopt as of September
30, 1998.
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same
prominence as other financial statements. The Statement does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in
that financial statement. The Statement requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position. It is not expected
that this statement will materially affect the presentation of the
Corporation's comprehensive income.
SFAS No. 132, Employers' Disclosures About Pensions and Other Postretirement
Benefits, revises employers' disclosures about pension and other
postretirement benefit plans. The Statement does not change the measurement
or recognition of those plans, but standardizes the disclosure requirements
for pensions and other postretirement benefits, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis. The Statement suggests
combined formats for presentation of pension and other postretirement benefit
disclosures. It is not expected that this statement will materially effect
the presentation of existing disclosures.
EX 1-26
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Held to Maturity Investment Securities
Held-to-maturity investment securities, which consist of US Agency debt
obligations, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1998 $ 9,000,000 $ 42,192 $ - $ 9,042,192
===========================================================
September 30, 1997 $ 13,500,000 $ 55,316 $ - $ 13,555,316
===========================================================
</TABLE>
The amortized cost and estimated fair value of the held to maturity debt
securities at September 30, 1998 by contractual maturity are as shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
-----------------------------
<S> <C> <C>
Due in one year through five years $ 6,000,000 $ 6,039,378
Due after five years 3,000,000 3,002,814
-----------------------------
$ 9,000,000 $ 9,042,192
=============================
</TABLE>
There were no sales of investment securities during 1998, 1997 or 1996.
Note 3. Loans Receivable
Loans receivable consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
Mortgage loans:
Residential one-to-four family $ 108,738,797 $ 106,083,836
Residential multifamily 7,626,892 7,527,305
Nonresidential real estate 14,455,316 14,172,176
Residential construction 2,844,570 3,444,852
Installment loans 649,909 433,583
----------------------------------
134,315,484 131,661,752
----------------------------------
Less:
Allowance for loan losses 254,763 254,763
Unamortized loan fees 937,250 964,726
Undisbursed portion of loans in process 1,425,555 1,496,312
----------------------------------
2,617,568 2,715,801
----------------------------------
$ 131,697,916 $ 128,945,951
==================================
Weighted average yield for the year 7.99% 8.13%
==================================
</TABLE>
EX 1-27
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Loans Receivable (Continued)
The following sets forth information regarding the allowance for loan losses:
1998 1997 1996
--------------------------------------
Balance, beginning $ 254,763 $ 234,763 $ 224,690
Provisions charged to income - 20,000 10,073
--------------------------------------
Balance, ending $ 254,763 $ 254,763 $ 234,763
======================================
Loans are placed on nonaccrual status when the loan is contractually more than
90 days delinquent by establishing reserves for uncollected interest. When
uncollected interest is subsequently received, the reserve is reduced and the
interest is recorded as income. At September 30, 1998, 1997, and 1996 loans
totaling $195,547, $173,336, and $309,666, respectively, were contractually
delinquent 90 days or more. Interest income on these loans, which would have
been recognized had the loans been amortized as scheduled, has been decreased by
$4,085, $2,776 and $13,626 for the years ended September 30, 1998, 1997 and
1996.
Officers and directors, including their families and companies of which they are
principal owners, are considered to be related parties. These related parties
were loan customers of, and had other transactions in the ordinary course of
business.
Aggregate loan transactions with related parties for the year ended September 30
were as follows:
1998 1997
------------------------------------
Beginning balance $ 431,502 $ 146,874
New loans 23,900 367,000
Repayments (28,196) (82,372)
------------------------------------
Ending balance $ 427,206 $ 431,502
------------------------------------
Maximum balance during the year $ 451,996 $ 442,668
====================================
EX 1-28
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Property and Equipment
Property and equipment are summarized as follows:
1998 1997
----------------------------------
Land $ 150,972 $ 150,972
Buildings 736,215 722,506
Furniture and equipment 323,834 264,266
----------------------------------
1,211,021 1,137,744
Accumulated depreciation (861,831) (830,950)
----------------------------------
$ 349,190 $ 306,794
==================================
Depreciation expense was $30,881, $36,504 and $42,428 for the years ended
September 30, 1998, 1997 and 1996, respectively.
Note 5. Deposits
Deposits consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Passbook accounts, 3.00% (3.00% in 1997) $ 13,095,540 $ 12,991,011
NOW accounts, 2.75% (2.75% in 1997) 114,151 132,743
Super NOW accounts, 4.00% (4.00% in 1997) 52,881 107,637
Money market accounts, 4.00% (4.00% in 1997) 12,927,837 13,984,393
----------------------------------
26,190,409 27,215,784
----------------------------------
Certificates:
3.00% and below -- 1,507,374
3.01% - 5.00% 4,318,545 2,310,535
5.01% - 7.00% 79,496,537 80,782,589
7.01% and above 425,449 791,670
----------------------------------
84,240,531 85,392,168
----------------------------------
Accrued interest on deposits 28,840 33,941
----------------------------------
$ 110,459,780 $ 112,641,893
----------------------------------
Weighted average cost of funds for the year 5.03% 4.91%
==================================
</TABLE>
EX 1-29
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5. Deposits (Continued)
Certificate accounts are summarized by maturity at September 30, 1998 as
follows:
<TABLE>
<CAPTION>
1999 2000 2001 Thereafter Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.00% and below $ - $ - $ - $ - $ -
3.01% - 5.00% 3,384,780 933,765 4,318,545
5.01% - 7.00% 60,227,283 7,000,882 8,259,410 4,008,962 79,496,537
7.01% and above 52,694 203,488 35,520 133,747 425,449
----------------------------------------------------------------------------
$ 63,664,757 $ 8,138,135 $ 8,294,930 $ 4,142,709 $ 84,240,531
============================================================================
</TABLE>
The aggregate amount of certificates of deposit included in the table above with
a balance of $100,000 or more is shown below:
Maturity Amount
- -------------------------------------------------------------------------------
Less than 3 months $ 2,785,520
4 to 12 months 5,346,924
More than 12 months 3,228,381
-----------------
$ 11,360,825
=================
Eligible deposits are insured to $100,000 by the Savings Association Insurance
Fund (SAIF), which is administered by the Federal Deposit Insurance Corporation
(FDIC).
Note 6. Special SAIF Assessment
On September 30, 1996, the "Deposit Insurance Funds Act of 1996" was signed into
law. The legislation included a special assessment to recapitalize the SAIF
insurance fund up to its statutory goal of 1.25% of insured deposits. The
assessment of $792,868 was equal to approximately 65.7 basis points of the SAIF
assessable deposit base as of March 31, 1995 and was accrued as of September 30,
1996.
Note 7. Deferred Compensation
A deferred compensation plan exists for directors, whereby in return for
deferring directors fees for five years, the directors will be paid specified
amounts during a five or ten year period following the date that the director
becomes 65 years of age. Life insurance policies have been purchased, with the
Association named as beneficiary, to fund the benefits. Total expense related to
the Plan was approximately $38,000, $40,000 and $64,000 for 1998, 1997 and 1996,
respectively.
EX 1-30
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8. Employment Agreements
Employment agreements exist with four key executive officers to ensure a stable
and competent management base. The agreements provide for a three-year term, but
upon each anniversary, the agreements, upon approval by the Board of Directors,
may extend so that the remaining term shall be three years. The agreements
provide for benefits as spelled out in the contract and cannot be terminated by
the Board of Directors, except for cause, without prejudicing the officer's
right to receive vested rights, including compensation, for the remaining term
of the agreements. In the event of a change in control of the Association and
termination of the officers, as defined in the agreement, the officers will
receive a lump sum equal to 2.99 times their average salary paid during the
prior five years.
Note 9. Employee Stock Ownership Plan
The Association has established an employee stock ownership plan ("ESOP") to
benefit substantially all employees. The ESOP originally purchased 260,000
shares of common stock in the Conversion with the proceeds of a loan from the
Corporation.
The Corporation's note receivable is repaid based upon one principal installment
of $65,000 on June 30, 1996, nine principal installments of $260,000 on June
30th of each year through June 2005, and one final principal installment of
$195,000 on March 31, 2006. Interest is based upon prime, which will be adjusted
and paid quarterly. The note may be prepaid without penalty. During 1998 and
1997 the ESOP made principal payments of $260,000, respectively. The unallocated
shares of stock held by the ESOP are pledged as collateral for the debt. The
ESOP is funded by contributions made by the Association in amounts sufficient to
retire the debt. At September 30, 1998 and 1997, the outstanding balance of the
note receivable is $1,950,000 and $2,210,000, respectively, and is presented as
a reduction of stockholders' equity.
Shares released as the debt is repaid and earnings from the common stock held by
the ESOP are allocated among participants on the basis of compensation in the
year of allocation. Benefits become 100% vested after five years of credited
service. Forfeitures of nonvested benefits will be reallocated among remaining
participating employees in the same proportion as contributions.
Dividends on unallocated shares may be used by the ESOP to repay the debt to the
Corporation and are not reported as dividends in the financial statements.
Dividends on allocated or committed to be allocated shares are credited to the
accounts of the participants and reported as dividends in the financial
statements.
Expense of $434,460, $442,325 and $170,365 during 1998, 1997 and 1996,
respectively, has been incurred in connection with the ESOP. The expense
includes, in addition to the cash contribution necessary to fund the ESOP,
$174,460, $182,325 and $40,365, which represents the difference between the fair
market value of the shares which have been released or committed to be released
to participants, and the cost of these shares to the ESOP for 1998, 1997 and
1996, respectively. This amount has been credited to paid-in capital.
EX 1-31
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Employee Stock Ownership Plan (Continued)
At September 30, 1998 and 1997, 65,000 and 39,000 shares held by the ESOP have
been released or committed to be released to the plan's participants. The fair
value of the unallocated shares amounted to approximately $2.5 million and $4.5
million at September 30, 1998 and 1997, respectively.
Note 10. Restricted Stock Plan
Under the Restricted Stock Plan ("RSP"), 171,925 shares of common stock are
authorized for grant to directors and key employees and vest evenly over a 5
year period, which commenced in October, 1997. Management intends to provide
funds to the restricted stock plan trust fund in order for the trust to acquire
common stock in open market purchases. For the years ended September 30, 1998
and 1997, expense associated with the RSP was approximately $552,000 and
$530,000, respectively.
Note 11. Stock Option Plan
Under a stock option for directors and key employees, 429,812 options with an
exercise price of $14.94 per share were granted in October, 1996. The options
will become exercisable at the rate of 20% annually for five years during such
periods of service and expire after ten years. The exercise price is equal to
the market value of the stock at the date of the grant. At September 30, 1998,
85,962 options were exercisable under the plan. No options have been exercised
or forfeited.
Grants of options under the plan are accounted for following Accounting
Principles Board (APB) Opinion No. 25 and related interpretations. Accordingly,
no compensation cost has been recorded. However, had compensation cost been
recorded based on the fair value of awards at the grant date ($3.92 per share),
the pro forma impact on net income and basic and diluted earnings per share
would have been approximately $210,000 or $.05 (basic) and $.05 (diluted) per
share for years ended September 30, 1998 and 1997, respectively.
The fair value is estimated at the grant date using the Black-Scholes
option-pricing model with the following assumptions: dividend rate of 3.22%; a
risk-free interest rate of 5.88%; an expected life of 7 years; and price
volatility of 19.1%.
EX 1-32
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12. Pension Plan
A defined benefit pension plan is in effect covering substantially all employees
who qualify under length of service and other requirements. Under the plan,
retirement benefits are based on years of service and average earnings. The
policy is to fund an amount allowable for federal income tax purposes. Plan
assets consist primarily of savings deposits maintained at the Association and
common stock of the Corporation. The following table sets forth the plan's
funded status at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $ (854,279) $ (895,418)
Nonvested (2,386) (1,877)
----------------------------------
Accumulated benefit obligation (856,665) (897,295)
Effect of projected future compensation levels (192,911) (379,435)
----------------------------------
Projected benefit obligation (1,049,576) (1,276,730)
Market value of plan assets 1,132,452 1,211,444
----------------------------------
Projected benefit obligation in (over/under) plan assets 82,876 (65,286)
Unrecognized net transition assets (15,227) (17,764)
Unrecognized prior service cost (55,919) (60,579)
Unrecognized loss 189,348 334,889
----------------------------------
Prepaid pension asset included in other assets $ 201,078 $ 191,260
==================================
</TABLE>
The components of pension costs charged to expense for 1998, 1997 and 1996
consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during period $ 52,143 $ 57,422 $ 53,280
Interest cost on projected benefit obligation 77,624 80,243 86,620
Return on plan assets (88,822) (82,045) (69,639)
Net amortization and deferral (2,190) 9,690 13,754
--------------------------------------------------
Net periodic pension cost $ 38,755 $ 65,310 $ 84,015
==================================================
</TABLE>
In determining the projected benefit obligation at September 30, 1998, 1997 and
1996, the weighted average discount rate was 7%, 8% and 7% respectively, and
expected long-term rate of return on plan assets was 7.5%, 8% and 7%,
respectively. The assumed rate of increase in future compensation levels was
4.0% in 1998, 4.0% in 1997 and 4.5% in 1996 in determining net periodic cost for
all periods presented.
EX 1-33
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 13. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of
financial instruments at September 30, 1998 and 1997. See Note 1 for a
description of accounting policies and the limitations of its disclosures in
reporting on the fair value of its financial instruments.
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term cash
investments $ 27,989,356 $ 27,989,356 $ 29,969,640 $ 29,969,640
Federal funds sold 1,473,000 1,473,000 3,118,000 3,118,000
Investment securities held to
maturity 9,000,000 9,042,192 13,500,000 13,555,316
Nonmarketable equity securities 1,144,700 1,144,700 1,170,889 1,170,889
Loans receivable 131,697,916 136,326,000 128,945,951 131,907,000
Accrued interest receivable 180,301 180,301 222,716 222,716
Financial liabilities:
Deposits 110,459,780 110,801,249 112,641,893 112,688,725
</TABLE>
Note 14. Income Taxes
Under the Internal Revenue Code, a special bad debt deduction is allowed related
to additions to tax bad debt reserves established for the purpose of absorbing
losses. Through 1996, the provisions of the Code permitted the deduction of a
provision for bad debts based on 8% of taxable income before such deduction or
actual loss experience. No bad debt deduction was taken in 1998, 1997 and 1996
due to limitations imposed by the Code. In addition, legislation passed in 1996
eliminated the percentage of taxable income method as an option for computing
bad debt deductions in all future years. Future deductions will be permitted
using an experience method.
The Association will also have to recapture its tax bad debt reserves which have
accumulated since 1987 amounting to approximately $1,078,000 over a six year
period. The tax associated with the recaptured reserves is approximately
$388,000. The recapture was scheduled to begin with the Association's 1997 tax
year, but was delayed until 1999 as a result of the Association originating a
certain level of residential mortgage loans. Deferred income taxes have been
previously established for the taxes associated with the recaptured reserves and
the ultimate payment of the taxes will not result in a charge to earnings.
EX 1-34
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 14. Income Taxes (Continued)
At September 30, 1998 and 1997, retained earnings contain certain historical
additions to bad debt reserves for income tax purposes of $3,631,000 for which
no deferred taxes have been provided, because the Association does not intend to
use these reserves for purposes other than to absorb losses. If amounts which
qualified as bad debt deductions are used for purposes other than to absorb bad
debt losses or adjustments arising from the carryback of net operating losses,
income taxes may be imposed at the then existing rates. The approximate amount
of unrecognized tax liability associated with these historical additions is
$1,307,000. In the future, if the Association does not meet the income tax
requirements necessary to permit the deduction of an allowance for bad debts,
the Association's effective tax rate would be increased to the maximum percent
under existing law.
Deferred income taxes consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Deferred tax assets:
Deferred loan fees $ 74,000 $ 95,000
Deferred compensation 148,000 152,000
Deferred RSP compensation 208,000 208,000
Allowance for loan losses 88,000 88,000
Other 6,000 --
----------------------------------
Total deferred tax assets 524,000 543,000
----------------------------------
Deferred tax liabilities:
Excess accumulated tax depreciation 29,000 25,000
Federal Home Loan Bank stock basis 96,000 96,000
Excess pension plan contribution 65,000 61,000
Tax bad debt reserves 388,000 388,000
----------------------------------
Total deferred tax liabilities 578,000 570,000
----------------------------------
Net deferred tax assets (liabilities) $ (54,000) $ (27,000)
==================================
</TABLE>
Federal income tax expense was different from the amount computed by applying
the federal income tax rate of approximately 34% to income before taxes. The
reasons for the differences were as follows for the years ended September 30,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
Income tax at the federal statutory rate 34.00 % 34.00 % 34.00 %
State income taxes, net of federal benefit 2.24 1.89 2.15
Other 1.32 2.31 (1.47)
---------------------------------------------------
37.56 % 38.20 % 34.68 %
===================================================
</TABLE>
EX 1-35
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 15. Stockholders' Equity
On April 3, 1996, the Corporation completed and closed its stock offering. Gross
proceeds from the sale of 4,038,125 shares (excluding the 260,000 shares
purchased by the ESOP) amounted to $40,381,250 and were reduced by conversion
costs of $1,254,389. The Corporation paid $20,863,430 for all the common stock
of the Association, and retained the remaining net proceeds.
Concurrent with the Conversion, the Association established a liquidation
account in an amount equal to its net worth as reflected in its latest statement
of financial condition used in its final offering circular. The liquidation
account will be maintained for the benefit of eligible deposit account holders
and supplemental eligible deposit account holders who continue to maintain their
deposit accounts in the Association after the Conversion. Only in the event of a
complete liquidation will eligible deposit account holders and supplemental
eligible deposit account holders be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
adjusted sub-account balance for deposit accounts then held before any
liquidation distribution may be made with respect to common stockholders.
Subject to applicable law, the Board of Directors of the Corporation and the
Association may each provide for the payment of dividends. Future declarations
of cash dividends, if any, by the Corporation may depend upon dividend payments
by the Association to the Corporation. Subject to regulations promulgated by the
Office of Thrift Supervisor ("OTS"), the Association will not be permitted to
pay dividends on its common stock, if its stockholders' equity would be reduced
below the amount required for the liquidation account or its capital
requirement.
In addition, as a Tier I institution, or an institution that meets all of its
fully phased-in capital requirements, the Association may pay a cash dividend to
the Corporation with notification, but without prior OTS approval, during a
calendar year an amount not to exceed the greater of (i) 100% of the
Association's net income to date during the calendar year plus the amount that
would reduce by one-half its surplus capital ratio at the beginning of the
calendar year, or (ii) 75% of its net income over the most recent four quarter
period. During 1998, 1997 and 1996, the Association paid $2,082,328, $1,718,574
and $629,819 in dividends to the Corporation, respectively.
EX 1-36
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 15. Stockholders' Equity (Continued)
The OTS promulgates capital regulations which require the Association to meet
three separate capital standards; tangible capital of at least 1.5% of total
assets, core capital of at least 4.0% of total assets and a risk-based capital
requirement currently set at 8.0% of risk-weighted assets. A summary of the
status of the capital requirements at September 30, 1998 is shown below:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital Capital
Requirement Requirement Requirement
--------------------------------------------------
<S> <C> <C> <C>
Stockholders' equity (GAAP) $ 60,332,576 $ 60,332,576 $ 60,332,576
Equity of Green Street Financial Corp (15,071,027) (15,071,027) (15,071,027)
General loan loss allowance - - 254,763
--------------------------------------------------
Regulatory capital 45,261,549 45,261,549 45,516,312
Minimum capital requirement 2,347,966 6,261,242 6,346,880
--------------------------------------------------
Excess regulatory capital $ 42,913,583 $ 39,000,307 $ 39,169,432
--------------------------------------------------
Home Federal's assets at September 30, 1998 $ 156,531,047 $ 156,531,047 $ -
Risk-weighted assets at September 30, 1998 - - 79,336,000
Capital as a percentage of assets:
Actual 28.92% 28.92% 57.37%
Required 1.50% 4.00% 8.00%
--------------------------------------------------
Excess 27.42% 24.92% 49.37%
==================================================
</TABLE>
Under the OTS prompt corrective action regulations, a savings association is
considered to be well capitalized if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of core capital to risk-weighted assets is at
least 6.0%, and its ratio of core capital to total average assets is at least
5.0%. The Association meets all of the above requirements and is considered to
be well capitalized under the prompt corrective action regulations.
Note 16. Earnings Per Share
As required, SFAS No. 128 was adopted during the year ended September 30, 1998.
This statement requires dual presentation of basic and diluted earnings per
share (EPS) with a reconciliation of the numerator and denominator of the EPS
computations. Basic per share amounts are based on the weighted average shares
of common stock outstanding. Diluted earnings per share assume the conversion,
exercise or issuance of all potential common stock instruments such as options,
warrants and convertible securities, unless the effect is to reduce a loss or
increase earnings per share. No adjustments were made to net income (numerator)
for all periods presented.
EX 1-37
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 16. Earnings Per Share (Continued)
Accordingly, this presentation has been adopted for all periods presented. The
basic and diluted weighted average shares outstanding for the years ended
September 30 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding 4,238,604 4,298,125 4,298,125
Less unallocated ESOP shares (208,000) (234,000) (247,000)
------------------------------------------------
Weighted average outstanding shares
used for basic EPS 4,030,604 4,064,125 4,051,125
Plus incremental shares from assumed
issuance of stock options 45,592 52,146 -
------------------------------------------------
Weighted average outstanding shares
used for diluted EPS 4,076,196 4,116,271 4,051,125
================================================
</TABLE>
The earnings per share computation for 1996 is based on net income earned from
the date of Conversion, April 3, 1996, to the end of the fiscal year.
Note 17. Concentration of Credit Risk and Off-Balance-Sheet Risk
The Association originates single-family residential loans generally within its
primary lending areas of Cumberland and Robeson Counties of North Carolina. The
Association's policies require such loans to be made at no greater than 80%
loan-to-value unless private mortgage insurance is obtained. In this instance,
the loan-to-value ratio cannot exceed 90%. The loans are secured by the
underlying properties.
The Association is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, which involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet. The contractual amounts of the
instruments reflect the extent of involvement the Association has in the
particular class of financial instruments.
The Association's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Association uses
the same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
In addition to the undisbursed portion of loans in process, the Association had
outstanding loan origination commitments of $1,852,300 and $2,137,000 at
September 30, 1998 and 1997, respectively, primarily for the origination of
fixed rate loans.
EX 1-38
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 17. Concentration of Credit Risk and Off-Balance-Sheet Risk (Continued)
The Association evaluates each customer's credit worthiness on a case-by-case
basis. Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained if deemed
necessary by the Association upon extension of credit, is based on management's
credit evaluation of the customer. At a minimum, the collateral held is the
underlying real estate.
Note 18. Parent Corporation Financial Data
The following is a summary of the condensed financial statements of Green Street
Financial Corp as of and for the year ended September 30, 1998 and 1997:
Condensed Balance Sheets
September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and short-term cash investments $ 16,114,829 $ 19,203,612
Accounts receivable, other 318,667 217,035
Investment in Home Federal 45,001,549 44,647,749
---------------------------------
$ 61,435,045 $ 64,068,396
=================================
Liabilities and Stockholders' Equity:
Liabilities:
Dividends payable $ 1,102,469 $ 1,117,513
Taxes payable - 5,200
---------------------------------
1,102,469 1,122,713
---------------------------------
Stockholders' equity:
Common stock, no par value, 10,000,000 shares authorized,
issued and outstanding 4,083,219 shares (4,298,125 in 1997) - -
Additional paid-in capital 61,708,564 64,973,891
Unearned ESOP shares (1,950,000) (2,210,000)
Retained earnings 574,012 181,792
---------------------------------
60,332,576 62,945,683
---------------------------------
$ 61,435,045 $ 64,068,396
=================================
</TABLE>
EX 1-39
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 18. Parent Corporation Financial Data (Continued)
Condensed Statements of Income
For the Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 1,176,133 $ 1,215,158 $ 575,914
Equity in earnings of Home Federal 2,125,499 2,088,235 797,447
Administrative expense (148,550) (165,124) (47,376)
Income tax expense (346,124) (361,622) (183,600)
--------------------------------------------------
Net income $ 2,806,958 $ 2,776,647 $ 1,142,385
==================================================
</TABLE>
EX 1-40
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 18. Parent Corporation Financial Data (Continued)
Condensed Statements of Cash Flows
For the Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,806,958 $ 2,776,647 $ 1,142,385
Noncash income items:
Equity in earnings of Home Federal (2,125,499) (2,088,235) (797,447)
Change in assets and liabilities:
Increase in accrued interest receivable - 25,732 (25,732)
(Increase) decrease in accounts receivable other (131,631) (129,935) (25,350)
Increase (decrease) in income taxes payable (5,200) 5,200 -
--------------------------------------------------
Net cash provided by operating activities 544,628 589,409 293,856
--------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from maturity of investments - 6,000,000 -
Purchase of investments - (3,000,000) (3,000,000)
Upstream dividend from Home Federal 2,082,328 1,718,574 629,819
Initial investment in Home Federal - - (20,863,430)
--------------------------------------------------
Net cash provided by (used in)
investing activities 2,082,328 4,718,574 (23,233,611)
--------------------------------------------------
Cash Flows from Financing Activities:
Payments received on note receivable from ESOP 260,000 260,000 130,000
Payment of dividends (2,429,782) (2,277,014) (404,463)
Proceeds received from common stock offering - - 39,126,861
Purchase of common stock (3,545,957) - -
--------------------------------------------------
Net cash provided by (used in)
financing activities (5,715,739) (2,017,014) 38,852,398
--------------------------------------------------
Net increase (decrease) in cash (3,088,783) 3,290,969 15,912,643
Cash, beginning 19,203,612 15,912,643 -
--------------------------------------------------
Cash, ending $ 16,114,829 $ 19,203,612 $ 15,912,643
--------------------------------------------------
Supplemental Disclosure of Noncash
Financing Activities:
Dividends declared and accrued $ 1,102,469 $ 1,117,513 $ 1,074,531
==================================================
</TABLE>
EX 1-41
<PAGE>
COMMON STOCK INFORMATION
The table below reflects the stock trading and dividend payment frequency of the
Corporation for each quarter completed in the period October 1, 1996 through
September 30, 1998. The Corporation's common stock is quoted on the Nasdaq
National Market under the symbol "GSFC". For further information regarding the
Corporation's dividend policy, please refer to Note 15 of the Notes to
Consolidated Financial Statements. Stock price reflects bid prices between
broker-dealers, prior to any markups, markdowns or commissions.
<TABLE>
<CAPTION>
Dividends Stock Price
--------------------------- ---------------------------------
Regular Special High Low
--------------------------- ---------------------------------
1998:
<S> <C> <C> <C> <C>
First Quarter $ 0.11 $ - $ 21 1/8 $ 17 1/4
Second Quarter 0.11 - 19 17
Third Quarter 0.12 - 18 3/4 14 1/2
Fourth Quarter 0.12 0.15 15 11 3/4
1997:
First Quarter $ 0.10 $ - 16 1/8 $ 14 3/4
Second Quarter 0.10 - 19 15 1/4
Third Quarter 0.11 - 18 1/8 17
Fourth Quarter 0.11 0.15 21 1/4 17 1/8
</TABLE>
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------
December 31 March 31 June 30 September 30
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
Interest income $ 3,341,542 $ 3,294,109 $ 3,272,764 $ 3,192,210
Interest expense 1,459,877 1,393,714 1,367,282 1,388,287
Net interest income 1,881,665 1,900,395 1,905,482 1,803,923
Net income 689,041 692,409 700,875 724,633
Basic earnings per share 0.17 0.17 0.17 0.19
Diluted earnings per share 0.17 0.17 0.17 0.19
1997:
Interest income $ 3,255,678 $ 3,204,976 $ 3,247,834 $ 3,309,031
Interest expense 1,368,773 1,311,896 1,315,246 1,381,503
Net interest income 1,886,905 1,893,080 1,932,588 1,927,528
Net income 639,991 685,887 728,044 722,725
Basic earnings per share 0.16 0.17 0.18 0.18
Diluted earnings per share 0.16 0.17 0.18 0.17
</TABLE>
EX 1-42
<PAGE>
CORPORATE INFORMATION
EXECUTIVE OFFICERS
------------------
<TABLE>
<CAPTION>
<S> <C> <C>
H. D. Reaves, Jr. John C. Pate John M. Grantham
President Senior Vice President Senior Vice President
Jerry L. Robertson Anthony R. Strickland Allen Lloyd
Vice President/Treasurer Vice President Vice President/Secretary
DIRECTORS
---------
R. O. McCoy, Jr. Chairman H. D. Reaves, Jr. John C. Pate
Realtor, McLean Real Estate Executive Officer Executive Officer
Norwood E. Bryan, Jr. John M. Grantham Joseph H. Hollinshed
President, Bryan Pontiac-Cadillac Co. Executive Officer Co-owner, Cape Fear Building Supply
Henry Hutaff Henry Holt Robert G. Ray
Executive, Coca-Cola Bottling Co. President, Holt Oil Co. President, Rose, Ray, O'Connor,
Manning & McCauley, PA
STOCK TRANSFER AGENT SPECIAL LEGAL COUNSEL
-------------------- ---------------------
American Stock Transfer & Trust Co. Malizia, Spidi, Sloane & Fisch, PC
40 Wall Street 46th Floor 1301 K Street NW
New York, NY 10005 Washington, DC 20005
LOCAL LEGAL COUNSEL INDEPENDENT AUDITORS
------------------- --------------------
Rose, Ray, O'Connor, McGladrey & Pullen, LLP
Manning & McCauley, PA 2418 Blue Ridge Road
214 Mason Street Raleigh, NC 27605
Fayetteville, NC 28301
CORPORATE OFFICE
241 Green Street
Fayetteville, NC 28301
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FORM 10-K ANNUAL MEETING
A copy of Form 10-K as filed with the Securities The 1999 annual meeting of stockholders of Green
and Exchange Commission will be furnished Street Financial Corp will be held at 5:15 pm on
without charge to the Corporation's stockholders January 27, 1999 at the Corporation's corporate
upon written request to Green Street Financial office at 241 Green Street, Fayetteville, N.C.
Corp P.O. Box 1540, Fayetteville, N.C. 28302.
</TABLE>
EX 1-43
EXHIBIT 2 -- FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1999
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- ---------------
Commission File Number 0-27620
-------
Green Street Financial Corp
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1951478
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
241 Green Street
Fayetteville, North Carolina 28301-5051
---------------------------------------
(Address of principal executive office) (Zip code)
(910)-483-3681
--------------
(Registrant's telephone number)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check X whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of August 10, 1999 there were issued and outstanding 3,879,269 shares of the
Registrant's common stock, no par value.
EX 2-1
<PAGE>
Green Street Financial Corp and Subsidiary
CONTENTS
PART I - FINANCIAL INFORMATION Pages
-----
Item 1. Condensed Consolidated Financial Statements
Statements of financial condition at September 30, 1998
and June 30, 1999 (unaudited) 1-2
Statements of income for the three months ended
June 30, 1998 (unaudited) and
June 30, 1999 (unaudited) 3
Statements of income for the nine months ended
June 30, 1998 (unaudited) and
June 30, 1999 (unaudited) 4
Statements of cash flows for the nine months ended
June 30, 1998 (unaudited) and
June 30, 1999 (unaudited) 5-6
Notes to condensed consolidated financial statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
EX 2-2
<PAGE>
Green Street Financial Corp and subsidiary
CONDENSED Consolidated Statements of Financial Condition
June 30, 1999 and September 30, 1998
June 30, September 30,
Assets 1999 1998
- --------------------------------------------------------------------------------
(Unaudited)
Cash and short-term cash investments:
Interest-earning $ 31,947,835 $ 27,817,856
Noninterest-earning 259,173 171,500
Federal funds sold 4,508,000 1,473,000
Investment securities:
Held to maturity, at amortized cost -- 9,000,000
Nonmarketable equity securities 1,147,500 1,144,700
Loans receivable, net 126,569,597 131,697,916
Accrued interest receivable, investments 35,700 180,301
Real estate acquired in settlement of loans 34,521 34,521
Property and equipment, net 452,308 349,190
Prepaid expenses and other assets 741,190 835,561
----------------------------------
Total Assets $ 165,695,824 $ 172,704,545
==================================
See Notes to Condensed Consolidated Financial Statements.
EX 2-3
<PAGE>
<TABLE>
<CAPTION>
June 30, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- ----------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Liabilities:
Deposits $ 104,832,199 $ 110,459,780
Advance payments by borrowers for taxes and insurance 1,009,713 208,998
Income taxes payable 4,000 --
Accrued expenses and other liabilities 488,862 222,918
Dividends payable 504,305 1,102,469
Deferred compensation 370,833 377,804
---------------------------------
Total liabilities 107,209,912 112,371,969
---------------------------------
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000 shares;
none issued -- --
Common stock, no par value, authorized 10,000,000 shares;
issued and outstanding 3,879,269 shares -- --
Additional paid-in capital 35,927,729 38,550,912
Unearned ESOP shares (1,755,000) (1,950,000)
Retained earnings, substantially restricted 24,313,183 23,731,664
---------------------------------
Total stockholders' equity 58,485,912 60,332,576
---------------------------------
Total liabilities and stockholders' equity $ 165,695,824 $ 172,704,545
=================================
</TABLE>
EX 2-4
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $ 2,414,308 $ 2,631,266
Investment Securities 456,929 641,498
---------------------------------
Total interest income 2,871,237 3,272,764
Interest expense 1,178,019 1,367,282
---------------------------------
Net interest income 1,693,218 1,905,482
Provision for loan losses -- --
---------------------------------
Net interest income after provision for loan losses 1,693,218 1,905,482
---------------------------------
Noninterest income 19,060 25,117
---------------------------------
Noninterest expense:
Compensation and employee benefits 441,277 576,510
Other 216,864 227,314
---------------------------------
658,141 803,824
---------------------------------
Income before income taxes 1,054,137 1,126,775
Income taxes 393,500 425,900
---------------------------------
Net income $ 660,637 $ 700,875
=================================
Basic earnings per share $ 0.18 $ 0.17
=================================
Diluted earnings per share $ 0.18 $ 0.17
=================================
Dividends paid per share $ 0.13 $ 0.12
=================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
EX 2-5
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $ 7,469,476 $ 7,859,248
Investment Securities 1,457,137 2,049,167
-------------------------------
Total interest income 8,926,613 9,908,415
Interest expense 3,750,305 4,220,873
-------------------------------
Net interest income 5,176,308 5,687,542
Provision for loan losses
-------------------------------
Net interest income after provision for loan losses 5,176,308 5,687,542
-------------------------------
Noninterest income 94,339 98,554
-------------------------------
Noninterest expense:
Compensation and employee benefits 1,430,650 1,746,040
Other 694,438 703,081
-------------------------------
2,125,088 2,449,121
-------------------------------
Income before income taxes 3,145,559 3,336,975
Income taxes 1,171,511 1,254,650
-------------------------------
Net income $ 1,974,048 $ 2,082,325
===============================
Basic earnings per share $ 0.52 $ 0.51
===============================
Diluted earnings per share $ 0.52 $ 0.50
===============================
Dividends paid per share $ 0.37 $ 0.34
===============================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
EX 2-6
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,974,048 $ 2,082,325
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 27,000 27,000
Net loss (gain) on disposal of real estate acquired
in settlement of loans -- 2,308
Increase in deferred income taxes -- 17,000
Decrease in deferred compensation (6,971) (8,227)
ESOP compensation credited to paid-in capital 50,635 151,060
Changes in assets and liabilities:
(Increase) decrease in:
Prepaid expenses and other assets 94,371 115,394
Accrued interest receivable 144,601 (22,683)
Increase (decrease) in:
Accrued expenses and other liabilities 265,944 202,405
Income taxes payable 4,000 (196,400)
------------------------------
Net cash provided by operating activities 2,553,628 2,370,182
------------------------------
Cash Flows From Investing Activities
Net decrease (increase) in loans receivable 5,128,319 (2,174,396)
Proceeds from sale of real estate acquired in settlement of loans -- 14,920
Proceeds from maturities of held to maturity investment securities 9,000,000 18,000,000
Purchase of held to maturity investment securities -- (21,000,000)
Purchase of nonmarketable equity securities (2,800) (18,300)
Purchase of property and equipment (130,118) (67,902)
------------------------------
Net cash provided by (used in) investing activities 13,995,401 (5,245,678)
------------------------------
</TABLE>
EX 2-7
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Financing Activities
Net decrease in deposits $ (5,627,581)$ (2,440,751)
Principal payment for ESOP debt 195,000 195,000
Cash dividends paid (1,990,693) (1,992,446)
Redemption of common stock (2,673,818) (3,545,957)
Increase in advance payments by borrowers
for taxes and insurance 800,715 839,094
-------------------------------
Net cash used in financing activities (9,296,377) (6,945,060)
-------------------------------
Net increase in cash and cash equivalents 7,252,652 (9,820,556)
Cash and cash equivalents:
Beginning 29,462,356 33,087,640
-------------------------------
Ending $ 36,715,008 $ 23,267,084
===============================
Cash and cash equivalents:
Cash and short-term investments:
Interest-bearing $ 31,947,835 $ 19,405,018
Noninterest-bearing 259,173 605,066
Federal funds sold 4,508,000 3,257,000
-------------------------------
$ 36,715,008 $ 23,267,084
===============================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 3,753,694 $ 4,220,993
===============================
Income taxes $ 1,167,511 $ 1,451,050
===============================
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Dividends declared and accrued $ 504,305 $ 489,986
===============================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
EX 2-8
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Note 1. Nature of Business
In December 1995, pursuant to a Plan of Conversion, Home Federal Savings and
Loan Association (the "Association" or "Home Federal") amended and restated its
charter to effect its conversion from a federally chartered mutual savings and
loan association to a federally chartered stock savings and loan association,
and became a wholly-owned subsidiary of Green Street Financial Corp (the
"Corporation") a holding company formed in connection with the Conversion. The
Corporation's principal business activities consist solely of the ownership of
Home Federal, a loan to the Employee Stock Ownership Plan (the "ESOP") for its
purchase of common stock and the investment of its portion of the net proceeds
received in the Conversion.
The Association accepts deposits and other sources of funds to enable it to
originate one-to-four family residential loans within its primary lending area
of Cumberland and Robeson counties in North Carolina. These loans are secured by
the underlying properties.
Note 2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (none of which were other than
normal recurring accruals) necessary for a fair presentation of the financial
position and results of operations for the periods presented have been included.
The results of operations for the nine month period ended June 30, 1999 are not
necessarily indicative of the results of operations that may be expected for the
year ended September 30, 1999 or any other interim period.
The accounting policies followed are as set forth in Note 1 of the Notes to
Consolidated Financial Statements in the 1998 annual report of the Corporation.
Note 3. Dividends Declared
On June 28, 1999, the Board of Directors of the Corporation declared a dividend
of $ .13 a share for stockholders of record as of July 12, 1999 and payable on
July 23, 1999. The dividends declared were accrued and reported as other
liabilities in the June 30, 1999 consolidated statement of financial condition.
Note 4. Earnings Per Share
As required, the Corporation adopted statement of Financial Accounting Standards
No. 128 during the quarter ended December 31, 1997. This statement requires dual
presentation of basic and diluted earnings per share (EPS) with a reconciliation
of the numerator and denominator of the EPS computations. Basic per share
amounts are based on the weighted average shares of common stock outstanding.
Diluted earnings per share assume the conversion, exercise or issuance of all
potential
EX 2-9
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Note 4. Earnings Per Share (Continued)
common stock instruments such as options, warrants and convertible securities,
unless the effect is to reduce a loss or increase earnings per share.
Accordingly, this presentation has been adopted for all periods presented. The
basic and diluted weighted average shares outstanding are as follows:
<TABLE>
<CAPTION>
Three months ended June 30, :
1999 1998
---------------------------------
<S> <C> <C>
Weighted average shares outstanding 3,879,269 4,276,654
Less unallocated ESOP shares 178,750 204,750
---------------------------------
Weighted average outstanding shares used for basic EPS 3,700,519 4,071,904
Plus incremental shares from assumed issuance
of stock options -- 47,195
---------------------------------
Weighted average outstanding shares used for diluted EPS 3,700,519 4,119,099
=================================
Net income $ 660,637 $ 700,875
=================================
Basic earnings per share $ 0.18 $ 0.17
=================================
Diluted earnings per share $ 0.18 $ 0.17
=================================
</TABLE>
EX 2-10
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Note 4. Earnings Per Share (Continued)
Nine months ended June 30, :
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Weighted average shares outstanding 3,986,633 4,290,968
Less unallocated ESOP shares 185,250 211,250
---------------------------------
Weighted average outstanding shares used for basic EPS 3,801,383 4,079,718
Plus incremental shares from assumed issuance
of stock options -- 68,104
---------------------------------
Weighted average outstanding shares used for diluted EPS 3,801,383 4,147,822
=================================
Net income $ 1,974,048 $ 2,082,325
=================================
Basic earnings per share $ 0.52 $ 0.51
=================================
Diluted earnings per share $ 0.52 $ 0.50
=================================
</TABLE>
Note 5. Restricted Stock Plan
Under the Restricted Stock Plan ("RSP"), 171,925 shares of common stock were
authorized for grant to directors and key employees and vested over a 5 year
period, which began vesting in October, 1997. Effective March 31, 1999, all
awards previously granted to directors under the RSP that have not as of March
17, 1999, become 100% earned and nonforfeitable, shall thereafter become earned
and nonforfeitable at the rate of one-sixth of the March 17, 1999 unearned
awards until October 17, 2004. This will result in a reduction of the cost of
the plan from approximately $512,000 to $286,000 for the years 1999 through
2001, and to approximately $226,000 for the years 2002 through 2004. In the
event of a change of control of the Company, all shares allocated to the
participants in the RSP will become fully vested (see Note 6).
Note 6. Subsequent Event
On August 9, 1999, the Company entered into a definitive merger agreement with
NewSouth Bancorp, Inc. and its banking subsidiary, NewSouth Bank, a North
Carolina chartered commercial bank, headquartered in Washington, North Carolina
(collectively, the "Acquiror"). Under the terms of the Agreement, the Acquiror
will purchase each outstanding common share of the Company for $15.25.
Consummation of the merger is subject to approval by bank regulatory authorities
and the shareholders of the Company. The merger is expected to be completed in
the fourth calendar quarter of 1999.
EX 2-11
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Overview
On August 9, 1999, the Company entered into a definitive merger agreement with
NewSouth Bancorp, Inc. and its banking subsidiary, NewSouth Bank, a North
Carolina chartered commercial bank, headquartered in Washington, North Carolina
(collectively, the "Acquiror"). Under the terms of the Agreement, the Acquiror
will purchase each outstanding common share of the Company for $15.25.
Consummation of the merger is subject to approval by bank regulatory authorities
and the shareholders of the Company. The merger is expected to be completed in
the fourth calendar quarter of 1999.
Comparison of Financial Condition at June 30, 1999 and September 30, 1998:
Total assets decreased by $7.0 million, or 4.0% to $165.7 million at June 30,
1999 from $172.7 million at September 30, 1998. Net loans receivable decreased
by $5.1 million during the nine month period and amounted to $126.6 million at
June 30, 1999. The Company received $9.0 million in proceeds from maturities of
investment securities held to maturity, the majority of the proceeds were
invested in interest-earning cash and federal funds sold.
At June 30, 1999, the Corporation's stockholders' equity amounted to $58.5
million, which as a percentage of total assets was 35.3%. As a Federally
chartered savings and loan association, the Association is required to meet
three separate capital standards established by the Office of Thrift
Supervision. The Association's stand-alone equity was $45.4 million at June 30,
1999 and was substantially in excess of all such capital requirements.
The Association's level of nonperforming loans, defined as loans past due 90
days or more, as a percentage of loans outstanding, was .21% and .15% at June
30, 1999 and September 30, 1998, respectively. During the quarter ended June 30,
1999, the Association's level of nonperforming loans remained consistently low
in relation to total loans outstanding, and the Association did not incur any
loan losses. Based on management's analysis of the adequacy of its allowances at
June 30, 1999, no additional provision for loan losses was made during the
quarter.
EX 2-12
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Comparison of Operating Results for the Three and Nine Months Ended June 30,
1999 and 1998:
General. Net income for the three and nine months period ended June 30, 1999 was
$661,000 and $1,974,000, respectively, or $40,000 and $108,000 less than the
$701,000 and $2,082,000 earned during the same periods in 1998. The decrease in
net income was primarily attributable to a decrease in net interest income for
the three months period and the nine months period ended June 30, 1999 as
compared to the same periods in 1998.
Interest Income. Interest income decreased by $402,000 from $3.3 million for the
three months ended June 30, 1998 to $2.9 million for the three months ended June
30, 1999. Interest income decreased by $1.0 million from $9.9 million for the
nine months ended June 30, 1998 to $8.9 million for the nine months ended June
30, 1999. These decreases were attributable to the overall decrease in net loans
receivable and cash and investments.
Interest Expense. Interest expense decreased by $189,000 from $1.4 million for
the three months ended June 30, 1998 to $1.2 million for the three months ended
June 30, 1999. Interest expense decreased by $471,000 from $4.2 million for the
nine months ended June 30, 1998 to $3.8 million for the nine months ended June
30, 1999. The Association's savings deposits decreased by $5.6 million during
the nine month period and the cost of funds for the same period decreased from
approximately 5.05% to approximately 4.65%. The Association's cost of funds
which approximated 4.92% for the quarter ended June 30, 1998 decreased to
approximately 4.70% for the quarter ended June 30, 1999.
Noninterest Income. Noninterest income has historically been immaterial in
relation to the Association's overall operations. Noninterest income amounted to
$19,000 and $94,000 for the three and nine months ended June 30, 1999, and
$25,000 and $99,000 for the three and nine months ended June 30, 1998,
respectively.
Noninterest Expense. Noninterest expense decreased by $146,000 to $658,000 for
the three months period ended June 30, 1999 from $804,000 for the comparable
quarter in 1998. For the nine months period ended June 30, 1999, noninterest
expense amounted to $2.1 million, a decrease of $324,000 from the $2.4 million
reported for the nine months ended June 30, 1998. The decrease in noninterest
expense for each period is principally due to a decrease in employee and
director benefits.
Year 2000 Issue. The "Year 2000 Problem" centers on the inability of computer
systems to recognize the Year 2000. Many existing computer programs and systems
were originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the upcoming
change in the century. With the impending millennium, these programs and
computers will recognize "00" as the year 1900 rather than the year 2000. Like
most financial service providers, the Association and its operations may be
affected by the Year 2000 Problem due to the nature of financial information.
Software, hardware, and equipment both within and outside the Association's
direct control and with whom the Association electronically or operationally
interfaces (e.g. third party vendors providing data processing, information
system management, maintenance of computer systems,
EX 2-13
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year 2000 Issue (Continued)
and credit bureau information) are likely to be affected. Furthermore, if
computer systems are not adequately changed to identify the Year 2000, many
computer applications could fail or create erroneous results. As a result, many
calculations which rely on the date field information, such as interest, payment
or due dates and other operating functions, will generate results which could be
significantly misstated, and the Association could experience a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
In addition, non-information technology systems, such as equipment like
telephones and copiers may also contain embedded technology which controls its
operation and which may be affected by the Year 2000 Problem. When the Year 2000
arrives, systems, including some of those with embedded chips, may not work
properly because of the way they store date information. They may not be able to
deal with the date 01/01/00. Thus, even non-information technology systems may
affect the normal operations of the Association upon the arrival of the Year
2000.
Under certain circumstances, failure to adequately address the Year 2000 Problem
could adversely affect the viability of the Association's suppliers and
creditors and the creditworthiness of its borrowers. Thus, if not adequately
addressed, the Year 2000 Problem could result in a significant adverse impact on
the Association's products, services and competitive condition.
In order to address the Year 2000 Issue and to minimize its potential adverse
impact, management has begun a process to identify areas that will be affected
by the Year 2000 Problem, assess its potential impact on the operations of the
Association, monitor the progress of third party software vendors in addressing
the matter, test changes provided by these vendors, and develop contingency
plans for any critical systems which are not effectively reprogrammed. A
committee of senior officers of the Association has been formed to evaluate the
effects that the upcoming Year 2000 could have on computer programs utilized by
the Association. The Association's plan is divided into the five phases:
(1) Awareness. Define the problem, obtain executive level support and
develop an overall strategy. This phase was completed in April 1998.
(2) Assessment. Identify all systems and the criticality of the systems.
This phase was completed June 1998.
(3) Renovation. Program enhancements, hardware and software upgrades,
system replacements, and vendor certifications. This phase was
completed in February 1999.
(4) Validation. Test and verify system changes and coordinate with outside
parties. This phase was completed in April 1999.
EX 2-14
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year 2000 Issue (Continued)
(5) Implementation. Components certified as Year 2000 compliant and moved
to production. This phase was completed in July 1999.
Third party vendors provide the majority of software used by the Association.
All of the Association's vendors are aware of the Year 2000 situation, and each
has assured the Association that it is currently has software that is compliant,
and testing for the critical applications began in April 1998. This will enable
the Association to devote substantial time to the testing to the upgraded
systems prior to the arrival of the millennium. The Association utilizes the
service of a third party vendor to provide the software which is used to process
and maintain most mortgage and deposit customer-related accounts. This vendor
has provided the Company with a software version which has been certified to be
Year 2000 compliant. Testing by the Association has been completed to verify
compliance for its application and usage. The Association presently believes
that with modifications to existing software and conversions to new software
that it is currently undertaking, the Year 2000 Problem will be mitigated
without causing an adverse impact on the operations of the Association. However,
a contingency plan has been developed and approved by the Board of Directors. As
part of that plan, the Association has contracted with its third party vendor,
so that if their usual operational center is not functioning, an individual from
the Association will be able to post transactions in the Orlando center. In the
event this center is also not operational, the Association has obtained the
necessary equipment and supplies to operate by posting transactions manually.
In addition, monitoring and managing the Year 2000 project will result in
additional direct and indirect costs to the Association. Direct costs include
potential charges by third party software vendors for product enhancements,
costs involved in testing software products for Year 2000 compliance, and any
resulting costs for developing and implementing contingency plans for critical
software products which are not enhances. Indirect costs will principally
consist of the time devoted by existing employees in monitoring software vendor
progress, testing enhanced software products and implementing any necessary
contingency plans. The Association has spent approximately $25,000 on Year 2000
related costs to date and estimates that it will spend an additional $2,500 for
Year 2000 compliance. Both direct and indirect costs of addressing the Year 2000
Problem will be charged to earnings as incurred. The Association does not
believe that such costs will have a material effect on results of operations.
However, there can be no guarantee that the systems of other companies on which
the Association's systems rely will be timely converted, or that a failure to
convert by another company or a conversion that is incompatible with the
Association's systems, would not have material adverse effect on the
Association.
The costs of the project and the date on which the Association plans to complete
the Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those plans. Specific factors that
might cause such
EX 2-15
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year 2000 Issue (Continued)
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
Special Note Regarding Forward-Looking Statements
Statements herein regarding estimated future expense levels and other matters
may constitute forward-looking statements under the federal securities laws.
Such statements are subject to certain risks and uncertainties. Undue reliance
should not be placed on this information. These estimates are based on the
current expectations of management, which may change in the future due to a
large number of potential events, including unanticipated developments.
EX 2-16
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
There were no significant changes for the nine months ended June 30, 1999 from
the information presented in the annual report on Form 10-K for the year ended
September 30, 1998, concerning quantitative and qualitative disclosures about
market risk.
EX 2-17
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any legal proceedings at the
present time. From time to time, the Association is a party to
legal proceedings within the normal course of business wherein
it enforces its security interest in loans made by it, and
other matters of a similar nature.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) 27. Financial Data Schedule
(b) No reports on 8-K were filed for the period covered by
this report.
EX 2-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Green Street Financial Corp
Dated August 13, 1999 By: s/s H. D. Reaves, Jr.
---------------------------------
H. D. Reaves, Jr.
President and CEO
Dated August 13, 1999 By: s/s John C. Pate
---------------------------------
John C. Pate
Senior Vice President and CFO
EX 2-19
