<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 14, 2000
SOUTHBANC SHARES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 0-23751 58-2361245
-------- ------- ----------
(State or other Jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification No.)
907 N. Main Street, Anderson, South Carolina 29621
---------------------------------------------------
(Address of principal executive offices)
(864) 225-0241
---------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. Other Events.
-------------
On February 14, 2000, SouthBanc Shares, Inc. ("SouthBanc") and Heritage
Bancorp, Inc. ("Heritage"), entered into an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which Heritage will merge with and into
SouthBanc. As a result of the merger, Heritage Federal Bank will become a
wholly owned subsidiary of SouthBanc. The Merger Agreement is filed as Exhibit
2.1 hereto and is incorporated herein by reference.
Pursuant to the terms of the Merger Agreement, each share of Heritage
common stock, $0.01 par value per share, issued and outstanding at the effective
time of the merger, will become and be converted into the right to receive, at
the election of the holder, either shares of SouthBanc common stock, par value
$.01 per share, or $17.65 in cash. The elections of Heritage shareholders will
be subject to the requirement that 50% of Heritage shares be exchanged for cash
and 50% be exchanged for SouthBanc common stock. The number of shares of
SouthBanc common stock into which each Heritage share will be exchanged will be
based on the price of SouthBanc common stock over a measurement period prior to
the closing, as follows: if the average closing price of SouthBanc common stock
during the measurement period is $15.92 or less, the exchange ratio will be
1.109; if the average price of SouthBanc common stock is between $15.92 and
$20.60, the exchange ratio will be $17.65 divided by average closing price; if
the average price of SouthBanc common stock is $20.60 or more and less than
$23.41, the exchange ratio will be 0.857; and if the average price of SouthBanc
common stock is more than $23.41, the exchange ratio will be $20.06 divided by
average closing price.
If the average closing price of SouthBanc common stock during the
measurement period is less than $14.05, Heritage may elect to terminate the
agreement unless SouthBanc elects to increase the exchange ratio. In that case,
the exchange ratio will equal $15.57 divided by the average closing price of
SouthBanc common stock.
The merger will be structured as a tax-free reorganization and will be
accounted under the purchase method of accounting. Consummation of the merger
is subject to various conditions, including the approval of the shareholders of
SouthBanc and Heritage and the receipt of all requisite regulatory approvals.
In connection with the Merger Agreement, SouthBanc granted to Heritage a
stock option pursuant to a Stock Option Agreement, dated as of February 14,
1999, which, under certain defined circumstances, would enable Heritage to
purchase up to 19.9% of SouthBanc's issued and outstanding shares of common
stock at a price of $17.50 per share. The Stock Option Agreement provides that
the total profit receivable thereunder may not exceed $2.0 million plus
reasonable out-of-pocket expenses. A copy of the Stock Option Agreement is
attached hereto as Exhibit 4.1. In addition, Heritage granted to SouthBanc an
identical option to acquire up to 19.9% of Heritage's common stock at a price of
$13.25 per share. A copy of the Stock Option Agreement is attached hereto as
Exhibit 10.1.
2
<PAGE>
Following consummation of the merger, the Board of Directors of SouthBanc
will have eight members and will be composed of five members of SouthBanc's
current Board of Directors and three members of Heritage's current Board of
Directors.
The summary of the Merger Agreement is not complete and is qualified in its
entirety by reference to the complete text of such documents filed as an exhibit
herewith and incorporated herein by reference.
ITEM 7. Financial Statements and Other Exhibits.
---------------------------------------
Exhibit 2.1 Agreement and Plan of Merger, dated as of February 14, 2000, by
and between SouthBanc Shares, Inc. and Heritage Bancorp, Inc.
Exhibit 4.1 Stock Option Agreement dated as of February 14, 2000 by and
between SouthBanc Shares, Inc. and Heritage Bancorp, Inc.
Exhibit 10.1 Stock Option Agreement dated February 14, 2000 by and between
Heritage Bancorp, Inc. and SouthBanc Shares, Inc.
3
<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 hereunto duly authorized.
SouthBanc Shares, Inc.
Dated: February 18, 2000 By: /s/ Robert W. Orr
-------------------------------------
Robert W. Orr
President and Chief Executive Officer
4
<PAGE>
Exhibit 2.1
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 14, 2000
BY AND BETWEEN
SOUTHBANC SHARES, INC.
AND
HERITAGE BANCORP, INC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
Introductory Statement.................................................................................... 4
ARTICLE I The Merger...................................................................................... 5
Section 1.1. Structure of the Merger............................................................... 5
Section 1.2. Effect on Outstanding Shares of Heritage Common Stock................................. 5
Section 1.3. Election and Proration Procedures..................................................... 6
Section 1.4. Exchange Procedures................................................................... 9
Section 1.5. Effect on Outstanding Shares of SouthBanc Common Stock................................ 11
Section 1.6. Directors of SouthBanc after Effective Time........................................... 11
Section 1.7. Certificate of Incorporation and Bylaws of the Surviving Corporation.................. 11
Section 1.8. Heritage Stock Options and Restricted Stock........................................... 12
Section 1.9. Dissenters' Rights.................................................................... 12
ARTICLE II Representations and Warranties................................................................. 13
Section 2.1. Representations and Warranties of Heritage............................................ 13
Section 2.2. Representations and Warranties of SouthBanc .......................................... 27
ARTICLE III Conduct Pending the Merger.................................................................... 41
Section 3.1. Conduct of Business Prior to the Effective Time....................................... 41
Section 3.2. Forbearances.......................................................................... 42
ARTICLE IV Covenants...................................................................................... 44
Section 4.1. Acquisition Proposals................................................................. 44
Section 4.2. Access and Information................................................................ 46
Section 4.3. Applications; Consents................................................................ 46
Section 4.4. Antitakeover Provisions............................................................... 47
Section 4.5. Additional Agreements................................................................. 47
Section 4.6. Publicity............................................................................. 47
Section 4.7. Stockholders Meetings................................................................. 47
Section 4.8. Registration of SouthBanc Common Stock................................................ 48
Section 4.9. Affiliate Letters..................................................................... 49
Section 4.10. Notification of Certain Matters....................................................... 49
Section 4.11. Employees, Directors and Officers..................................................... 49
Section 4.12. Indemnification....................................................................... 51
Section 4.13. Dividends............................................................................. 53
Section 4.14. Section 16 Matters.................................................................... 53
ARTICLE V Conditions to Consummation...................................................................... 53
Section 5.1. Conditions to Each Party?s Obligations................................................ 53
Section 5.2. Conditions to the Obligations of SouthBanc ........................................... 55
Section 5.3. Conditions to the Obligations of Heritage............................................. 56
ARTICLE VI Termination.................................................................................... 56
Section 6.1. Termination........................................................................... 56
Section 6.2. Effect of Termination................................................................. 58
ARTICLE VII Closing, Effective Date and Effective Time.................................................... 58
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Section 7.1. Effective Date and Effective Time..................................................... 58
Section 7.2. Deliveries at the Closing............................................................. 59
ARTICLE VIII Certain Other Matters........................................................................ 59
Section 8.1. Certain Definitions; Interpretation................................................... 59
Section 8.2. Survival.............................................................................. 63
Section 8.3. Waiver; Amendment..................................................................... 63
Section 8.4. Counterparts.......................................................................... 63
Section 8.5. Governing Law......................................................................... 63
Section 8.6. Expenses.............................................................................. 63
Section 8.7. Notices............................................................................... 63
Section 8.8. Entire Agreement; etc................................................................. 64
Section 8.9. Successors and Assigns; Assignment.................................................... 65
</TABLE>
3
<PAGE>
EXHIBITS
Exhibit A Heritage Stock Option Agreement
Exhibit B SouthBanc Stock Option Agreement
Exhibit C Form of Affiliate Letter
Exhibit D Form of Employment Agreement between SouthBanc and J. Edward
Wells
Exhibit E Form of Employment Agreement between Heritage Federal and J.
Edward Wells
Exhibit F Form of Change in Control Agreement
SCHEDULES
Schedule 2.1(b) Subsidiaries of Heritage
Schedule 2.1(c) Heritage Stock Options
Schedule 2.1(f) Consents and Approvals of Heritage
Schedule 2.1(l) Material Contracts of Heritage
Schedule 2.1(n) Employee Benefit Plan of Heritage
Schedule 2.1(s) Problem Assets of Heritage
Schedule 2.2(b) Subsidiaries of SouthBanc
Schedule 2.2(f) Consents and Approvals of SouthBanc
Schedule 2.2(l) Material Contracts of SouthBanc
Schedule 2.2(n) Employee Benefit Plans of SouthBanc
Schedule 2.2(s) Problem Assets of SouthBanc
Schedule 3.2 Permitted Activities
4
<PAGE>
Agreement and Plan of Merger
----------------------------
This is an Agreement and Plan of Merger, dated as of the 14th day of
February, 2000 ("Agreement"), by and between SouthBanc Shares, Inc., a Delaware
corporation ("SouthBanc"), and Heritage Bancorp, Inc., a Delaware corporation
("Heritage").
Introductory Statement
----------------------
The Board of Directors of each of SouthBanc and Heritage (i) has
determined that this Agreement and the business combination and related
transactions contemplated hereby are advisable and in the best interests of
SouthBanc and Heritage, respectively, and in the best long-term interests of
their respective stockholders, (ii) has determined that this Agreement and the
transactions contemplated hereby are consistent with, and in furtherance of, its
respective business strategies and (iii) has approved, at meetings of each of
such Boards of Directors, this Agreement.
The parties hereto intend that the Merger as defined herein shall
qualify as a reorganization under the provisions of Section 368(a) of the IRC
(as defined in Section 8.1) for federal income tax purposes, and that the Merger
shall be accounted for as a purchase transaction for accounting purposes.
SouthBanc and Heritage desire to make certain representations,
warranties and agreements in connection with the business combination and
related transactions provided for herein and to prescribe various conditions to
such transactions.
As a condition and inducement to SouthBanc"s willingness to enter into
this Agreement and the SouthBanc Stock Option Agreement referred to below,
SouthBanc and Heritage are entering into a Stock Option Agreement dated as of
the date hereof in the form of Exhibit A (the "Heritage Stock Option
---------
Agreement"), pursuant to which Heritage is granting to SouthBanc an option to
purchase shares of Heritage Common Stock (as defined in Section 8.1), and as a
condition and inducement to Heritage"s willingness to enter into this Agreement
and the Heritage Stock Option Agreement, Heritage and SouthBanc are entering
into a Stock Option Agreement dated as of the date hereof in the form of Exhibit
-------
B (the "SouthBanc Stock Option Agreement"), pursuant to which SouthBanc is
- -
granting to Heritage an option to purchase shares of SouthBanc Common Stock (as
defined in Section 8.1).
In consideration of their mutual promises and obligations hereunder,
the parties hereto adopt and make this Agreement and prescribe the terms and
conditions hereof and the manner and basis of carrying it into effect, which
shall be as follows:
ARTICLE I
The Merger
----------
5
<PAGE>
Section 1.1. Structure of the Merger. On the Effective Date (as
-----------------------
defined in Section 7.1), Heritage will merge with and into SouthBanc ("Merger")
pursuant to the provisions of, and with the effect provided for in, Delaware Law
(as defined in Section 8.1). Upon consummation of the Merger, the separate
corporate existence of Heritage shall cease. SouthBanc shall be the surviving
corporation (hereinafter sometimes referred to in such capacity as the
"Surviving Corporation") in the Merger and shall continue to be governed by the
laws of the State of Delaware and its name and separate corporate existence,
with all of its rights, privileges, immunities, powers and franchises, shall
continue unaffected by the Merger. From and after the Effective Time (as defined
in Section 7.1), SouthBanc shall possess all of the properties and rights and be
subject to all of the liabilities and obligations of Heritage, all as more fully
described under Delaware Law.
Section 1.2. Effect on Outstanding Shares of Heritage Common Stock.
-----------------------------------------------------
(a) By virtue of the Merger, automatically and without any action on
the part of the holder thereof, each share of Heritage Common Stock issued and
outstanding at the Effective Time, other than Excluded Shares (as defined in
Section 8.1), shall become and be converted into, at the election of the holder
as provided in and subject to the limitations set forth in this Agreement,
either (i) the right to receive $17.65 in cash without interest (the "Cash
Consideration") or (ii) the number of shares of SouthBanc common stock equal to
the Exchange Ratio (as defined below) (the "Stock Consideration"). The Cash
Consideration and the Stock Consideration are sometimes referred to herein
collectively as the "Merger Consideration." The Exchange Ratio shall be equal
(rounded to the nearest one-thousandth) to (w) 1.109 if the SouthBanc Price (as
defined in Section 8.1) is $15.92 or less, (x) the result obtained by dividing
$17.65 by the SouthBanc Price if the SouthBanc Price is greater than $15.92 and
less than $20.60, (y) 0.857 if the SouthBanc Price is $20.60 or more and less
than $23.41 or (z) the result obtained by dividing $20.06 by the SouthBanc Price
if the SouthBanc Price is $23.41 or more; provided, however, that if a
Triggering Event (as defined in Section 8.1) has occurred and the SouthBanc
Price is greater than $23.41, then the Exchange Ratio shall be equal to 0.857.
(b) Notwithstanding any other provision of this Agreement, no
fraction of a share of SouthBanc Common Stock and no certificates or scrip
therefor will be issued in the Merger; instead, SouthBanc shall pay to each
holder of Heritage Common Stock who would otherwise be entitled to a fraction of
a share of SouthBanc Common Stock an amount in cash, rounded to the nearest
cent, determined by multiplying such fraction by the SouthBanc Price.
(c) If, between the date of this Agreement and the Effective Time
(and as permitted by Section 3.2), the outstanding shares of SouthBanc Common
Stock or the outstanding shares of Heritage Common Stock shall have been changed
into a different number of shares or into a different class by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Merger Consideration shall be adjusted
appropriately to provide the holders of Heritage Common Stock the same economic
effect as contemplated by this Agreement prior to such event.
6
<PAGE>
(d) As of the Effective Time, each Excluded Share, other than
Dissenters" Shares (as defined in Section 1.9), shall be canceled and retired
and shall cease to exist, and no exchange or payment shall be made with respect
thereto. All shares of SouthBanc Common Stock that are held by Heritage, if any,
other than shares held in a fiduciary capacity or in satisfaction of a debt
previously contracted, shall be canceled and shall constitute authorized but
unissued shares. In addition, no Dissenters" Shares shall be converted into the
Merger Consideration pursuant to this Section 1.2 but instead shall be treated
in accordance with the provisions set forth in Section 1.9 of this Agreement.
Section 1.3. Election and Proration Procedures.
---------------------------------
(a) An election form (an "Election Form") and other appropriate and
customary transmittal materials, which shall specify that delivery shall be
effected, and risk of loss and title to the certificates theretofore
representing Heritage Common Stock ("Certificates") shall pass, only upon proper
delivery of such Certificates to a bank or trust company designated by SouthBanc
and reasonably satisfactory to Heritage (the "Exchange Agent") in such form as
Heritage and SouthBanc shall mutually agree shall be mailed on the Mailing Date
(as defined below) to each holder of record of shares of Heritage Common Stock
(other than holders of Dissenters" Shares or shares of Heritage Common Stock to
be canceled as provided in Section 1.2(d)) as of a record date which shall be
the same date as the record date for eligibility to vote on the Merger. The
"Mailing Date" shall be the date on which proxy materials relating to the Merger
are mailed to holders of shares of Heritage Common Stock.
(b) Each Election Form shall entitle the holder of shares of Heritage
Common Stock (or the beneficial owner through appropriate and customary
documentation and instructions) to (i) elect to receive the Cash Consideration
for all of such holder's shares (a "Cash Election"), (ii) elect to receive the
Stock Consideration for all of such holder's shares (a "Stock Election"), (iii)
elect to receive the Cash Consideration with respect to some of such holder's
shares and the Stock Consideration with respect to such holder's remaining
shares (a "Mixed Election"), or (iv) make no election or to indicate that such
holder has no preference as to the receipt of the Cash Consideration or the
Stock Consideration (a "Non-Election"). Holders of record of shares of Heritage
Common Stock who hold such shares as nominees, trustees or in other
representative capacities (a "Representative") may submit multiple Election
Forms, provided that such Representative certifies that each such Election Form
covers all the shares of Heritage Common Stock held by that Representative for a
particular beneficial owner. Shares of Heritage Common Stock as to which a Cash
Election has been made (including pursuant to a Mixed Election) are referred to
herein as "Cash Election Shares." Shares of Heritage Common Stock as to which a
Stock Election has been made (including pursuant to a Mixed Election) are
referred to herein as "Stock Election Shares." Shares of Heritage Common Stock
as to which no election has been made are referred to as "Non-Election Shares."
The aggregate number of shares of Heritage Common Stock with respect to which a
Stock Election has been made is referred to herein as the "Stock Election
Number."
7
<PAGE>
(c) To be effective, a properly completed Election Form shall be
submitted to the Exchange Agent on or before 5:00 p.m. New York City time on the
20th calendar day following the Mailing Date (or such other time and date as
Heritage and SouthBanc may mutually agree) (the "Election Deadline"). An
election shall have been properly made only if the Exchange Agent shall have
actually received a properly completed Election Form by the Election Deadline.
An Election Form shall be deemed properly completed only if accompanied by one
or more Certificates (or customary affidavits and, if required by SouthBanc
pursuant to Section 1.4(i), indemnification regarding the loss or destruction of
such Certificates or the guaranteed delivery of such Certificates) representing
all shares of Heritage Common Stock covered by such Election Form, together with
duly executed transmittal materials included with the Election Form. Any
Heritage stockholder may at any time prior to the Election Deadline change his
or her election by written notice received by the Exchange Agent prior to the
Election Deadline accompanied by a properly completed and signed revised
Election Form. Any Heritage stockholder may, at any time prior to the Election
Deadline, revoke his or her election by written notice received by the Exchange
Agent prior to the Election Deadline or by withdrawal prior to the Election
Deadline of his or her Certificates, or of the guarantee of delivery of such
Certificates, previously deposited with the Exchange Agent. All elections shall
be revoked automatically if the Exchange Agent is notified in writing by
SouthBanc and Heritage that this Agreement has been terminated. If a stockholder
either (i) does not submit a properly completed Election Form by the Election
Deadline, or (ii) revokes its Election Form prior to the Election Deadline, the
shares of Heritage Common Stock held by such stockholder shall be designated
Non-Election Shares. SouthBanc shall cause the Certificates representing
Heritage Common Stock described in (ii) to be promptly returned without charge
to the person submitting the Election Form upon written request to that effect
from the person who submitted the Election Form. Subject to the terms of this
Agreement and of the Election Form, the Exchange Agent shall have reasonable
discretion to determine whether any election, revocation or change has been
properly or timely made and to disregard immaterial defects in any Election
Form, and any good faith decisions of the Exchange Agent regarding such matters
shall be binding and conclusive.
(d) Notwithstanding any other provision contained in this Agreement,
50% of the total number of shares of Heritage Common Stock outstanding at the
Effective Time, less 50% of the aggregate number of shares of Heritage Common
Stock acquired by SouthBanc prior to the Effective Time (the "Stock Conversion
Number"), shall be converted into the Stock Consideration and the remaining
outstanding shares of Heritage Common Stock shall be converted into the Cash
Consideration (in each case, excluding (i) shares of Heritage Common Stock to be
canceled as provided in Section 1.2(d) and (ii) Dissenters" Shares (the shares
remaining outstanding after such exclusion constituting, for purposes of this
Agreement, the "Outstanding Heritage Shares")); provided, however, that for
federal income tax purposes, it is intended that the Merger will qualify as a
reorganization under the provisions of Section 368(a) of the IRC and,
notwithstanding anything to the contrary contained herein, in order that the
Merger will not fail to satisfy continuity of interest requirements under
applicable federal
8
<PAGE>
income tax principles relating to reorganizations under Section 368(a) of the
IRC, as reasonably determined by counsel to SouthBanc and Heritage, SouthBanc
shall increase the number of outstanding Heritage shares that will be converted
into the Stock Consideration and reduce the number of outstanding Heritage
shares that will be converted into the right to receive the Cash Consideration.
(e) Within five business days after the later to occur of the
Election Deadline or the Effective Time, SouthBanc shall cause the Exchange
Agent to effect the allocation among holders of Heritage Common Stock of rights
to receive the Cash Consideration and the Stock Consideration as follows:
(i) If the Stock Election Number exceeds the Stock Conversion
Number, then all Cash Election Shares and all Non-Election Shares shall be
converted into the right to receive the Cash Consideration, and each holder of
Stock Election Shares will be entitled to receive the Stock Consideration in
respect of that number of Stock Election Shares equal to the product obtained by
multiplying (x) the number of Stock Election Shares held by such holder by (y) a
fraction, the numerator of which is the Stock Conversion Number and the
denominator of which is the Stock Election Number, with the remaining number of
such holder's Stock Election Shares being converted into the right to receive
the Cash Consideration;
(ii) If the Stock Election Number is less than the Stock
Conversion Number (the amount by which the Stock Conversion Number exceeds the
Stock Election Number being referred to herein as the "Shortfall Number"), then
all Stock Election Shares shall be converted into the right to receive the Stock
Consideration and the Non-Election Shares and Cash Election Shares shall be
treated in the following manner:
(A) if the Shortfall Number is less than or equal to the
number of Non-Election Shares, then all Cash Election Shares shall be converted
into the right to receive the Cash Consideration and each holder of Non-Election
Shares shall receive the Stock Consideration in respect of that number of Non-
Election Shares equal to the product obtained by multiplying (x) the number of
Non-Election Shares held by such holder by (y) a fraction, the numerator of
which is the Shortfall Number and the denominator of which is the total number
of Non-Election Shares, with the remaining number of such holder's Non-Election
Shares being converted into the right to receive the Cash Consideration; or
(B) if the Shortfall Number exceeds the number of Non-
Election Shares, then all Non-Election Shares shall be converted into the right
to receive the Stock Consideration, and each holder of Cash Election Shares
shall receive the Stock Consideration in respect of that number of Cash Election
Shares equal to the product obtained by multiplying (x) the number of Cash
Election Shares held by such holder by (y) a fraction, the numerator of which is
the amount by which (1) the Shortfall Number exceeds (2) the total number of
Non-Election Shares and the denominator of which is the total number of Cash
9
<PAGE>
Election Shares, with the remaining number of such holder's Cash Election Shares
being converted into the right to receive the Cash Consideration.
For purposes of this Section 1.3(e), if SouthBanc is obligated to
increase the number of Outstanding Heritage Shares to be converted into shares
of SouthBanc Common Stock as a result of the application of the last clause of
Section 1.3(d) above, then the higher number shall be substituted for the Stock
Conversion Number in the calculations set forth in this Section 1.3(e).
Section 1.4. Exchange Procedures.
-------------------
(a) Appropriate transmittal materials ("Letter of Transmittal") in a
form satisfactory to SouthBanc and Heritage shall be mailed as soon as
practicable after the Effective Time to each holder of record of Heritage Common
Stock as of the Effective Time who did not previously submit a completed
Election Form. A Letter of Transmittal will be deemed properly completed only if
accompanied by certificates representing all shares of Heritage Common Stock to
be converted thereby.
(b) At and after the Effective Time, each Certificate (except as
specifically set forth in Section 1.2) shall represent only the right to receive
the Merger Consideration.
(c) Prior to the Effective Time, SouthBanc shall deposit, or shall
cause to be deposited, with the Exchange Agent, for the benefit of the holders
of shares of Heritage Common Stock, for exchange in accordance with this Section
1.4, an amount of cash sufficient to pay the aggregate Cash Consideration and
the aggregate amount of cash in lieu of fractional shares to be paid pursuant to
Section 1.2, and SouthBanc shall reserve for issuance with its transfer agent
and registrar a sufficient number of shares of SouthBanc Common Stock to provide
for payment of the aggregate Stock Consideration.
(d) The Letter of Transmittal shall (i) specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent, (ii) be in a form and
contain any other provisions as SouthBanc may reasonably determine and (iii)
include instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon the proper surrender of the
Certificates to the Exchange Agent, together with a properly completed and duly
executed Letter of Transmittal, the holder of such Certificates shall be
entitled to receive in exchange therefor (m) a certificate representing that
number of whole shares of SouthBanc Common Stock that such holder has the right
to receive pursuant to Section 1.2, if any, and (n) a check in the amount equal
to the cash that such holder has the right to receive pursuant to Section 1.2,
if any, (including any cash in lieu of fractional shares, if any, that such
holder has the right to receive pursuant to Section 1.2) and any dividends or
other distributions to which such holder is entitled pursuant to this Section
1.4. Certificates so surrendered shall forthwith be canceled. As soon as
practicable following receipt of the properly completed Letter of Transmittal
and any necessary accompanying documentation, the Exchange Agent shall
distribute SouthBanc Common Stock and cash as
10
<PAGE>
provided herein. The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to the shares of SouthBanc Common Stock
held by it from time to time hereunder, except that it shall receive and hold
all dividends or other distributions paid or distributed with respect to such
shares for the account of the persons entitled thereto. If there is a transfer
of ownership of any shares of Heritage Common Stock not registered in the
transfer records of Heritage, the Merger Consideration shall be issued to the
transferee thereof if the Certificates representing such Heritage Common Stock
are presented to the Exchange Agent, accompanied by all documents required, in
the reasonable judgment of SouthBanc and the Exchange Agent, (x) to evidence and
effect such transfer and (y) to evidence that any applicable stock transfer
taxes have been paid.
(e) No dividends or other distributions declared or made after the
Effective Time with respect to SouthBanc Common Stock shall be remitted to any
person entitled to receive shares of SouthBanc Common Stock hereunder until such
person surrenders his or her Certificates in accordance with this Section 1.4.
Upon the surrender of such person"s Certificates, such person shall be entitled
to receive any dividends or other distributions, without interest thereon, which
theretofore had become payable with respect to shares of SouthBanc Common Stock
represented by such person"s Certificates.
(f) The stock transfer books of Heritage shall be closed immediately
upon the Effective Time and from and after the Effective Time there shall be no
transfers on the stock transfer records of Heritage of any shares of Heritage
Common Stock. If, after the Effective Time, Certificates are presented to
SouthBanc, they shall be canceled and exchanged for the Merger Consideration
deliverable in respect thereof pursuant to this Agreement in accordance with the
procedures set forth in this Section 1.4.
(g) Any portion of the aggregate amount of cash to be paid pursuant
to Section 1.2, any dividends or other distributions to be paid pursuant to this
Section 1.4 or any proceeds from any investments thereof that remains unclaimed
by the stockholders of Heritage for six months after the Effective Time shall be
repaid by the Exchange Agent to SouthBanc upon the written request of SouthBanc.
After such request is made, any stockholders of Heritage who have not
theretofore complied with this Section 1.4 shall look only to SouthBanc for the
Merger Consideration deliverable in respect of each share of Heritage Common
Stock such stockholder holds, as determined pursuant to Section 1.2 of this
Agreement, without any interest thereon. If outstanding Certificates are not
surrendered prior to the date on which such payments would otherwise escheat to
or become the property of any governmental unit or agency, the unclaimed items
shall, to the extent permitted by any abandoned property, escheat or other
applicable laws, become the property of SouthBanc (and, to the extent not in its
possession, shall be paid over to it), free and clear of all claims or interest
of any person previously entitled to such claims. Notwithstanding the foregoing,
neither the Exchange Agent nor any party to this Agreement (or any affiliate
thereof) shall be liable to any former holder of Heritage Common Stock for any
amount delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
11
<PAGE>
(h) SouthBanc and the Exchange Agent shall be entitled to rely upon
Heritage"s stock transfer books to establish the identity of those persons
entitled to receive the Merger Consideration, which books shall be conclusive
with respect thereto. In the event of a dispute with respect to ownership of
stock represented by any Certificate, SouthBanc and the Exchange Agent shall be
entitled to deposit any Merger Consideration represented thereby in escrow with
an independent third party and thereafter be relieved with respect to any claims
thereto.
(i) If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Exchange
Agent, the posting by such person of a bond in such amount as the Exchange Agent
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration deliverable in
respect thereof pursuant to Section 1.2.
Section 1.5. Effect on Outstanding Shares of SouthBanc Common Stock.
------------------------------------------------------
At and after the Effective Time, each share of SouthBanc Common Stock issued and
outstanding immediately prior to the Effective Time shall remain an issued and
outstanding share of common stock of the Surviving Corporation and shall not be
affected by the Merger.
Section 1.6. Directors of SouthBanc after Effective Time. From and
-------------------------------------------
after the Effective Time, until duly changed in compliance with applicable law,
the Board of Directors of SouthBanc shall consist of (i) Robert W. Orr and four
directors designated by SouthBanc and (ii) J. Edward Wells and two directors
designated by Heritage.
Section 1.7. Certificate of Incorporation and Bylaws of the Surviving
--------------------------------------------------------
Corporation. The certificate of incorporation and bylaws of SouthBanc in effect
- -----------
immediately prior to the Effective Time shall be the certificate of
incorporation and bylaws of the Surviving Corporation until thereafter amended
in accordance with applicable law.
Section 1.8. Heritage Stock Options and Restricted Stock.
-------------------------------------------
(a) At the Effective Time, each option to acquire shares of Heritage
Common Stock ("Heritage Option") granted pursuant to Heritage"s 1998 Stock
Option Plan (the "Heritage Option Plan") that is then outstanding and
unexercised, whether or not vested, shall be canceled, and in lieu thereof the
holders of such options shall be paid in cash an amount equal to the product of
(i) the number of shares of Heritage Common Stock subject to such option at the
Effective Time and (ii) an amount by which the $17.65 exceeds the exercise price
per share of such option, net of any cash which must be withheld under federal
and state income and employment tax requirements. In the event that the exercise
price of a Heritage Option is greater than $17.65, then at the Effective Time
such Heritage Option shall be canceled without any payment made in exchange
therefor. At the Effective Time the Heritage Option Plan shall be deemed
terminated.
12
<PAGE>
(b) Each restricted share of Heritage Common Stock granted pursuant
to the Heritage Bancorp, Inc. Management Recognition and Development Plan (each
such share, a "Heritage Restricted Share") that is outstanding immediately prior
to the Effective Time shall vest and become free of restrictions to the extent
provided by the terms thereof. Each award of Heritage Restricted Shares shall be
converted, as of the Effective Time, into the Merger Consideration and the
aggregate Merger Consideration, net of any cash which must be withheld under
federal and state income and employment tax requirements, shall be delivered to
the respective holders of Heritage Restricted Shares as soon as practicable
following the Effective Time.
Section 1.9. Dissenters" Rights. Notwithstanding any other provision
------------------
of this Agreement to the contrary, shares of Heritage Common Stock that are
outstanding immediately prior to the Effective Time and which are held by
stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who properly shall have demanded appraisal for such
shares in accordance with Delaware Law (collectively, the "Dissenters" Shares")
shall not be converted into or represent the right to receive the Merger
Consideration. Such stockholders instead shall be entitled to receive payment of
the appraised value of such shares held by them in accordance with the
provisions of Delaware Law, except that all Dissenters" Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or otherwise lost their rights to appraisal of such shares under
Delaware Law shall thereupon be deemed to have been converted into and to have
become exchangeable, as of the Effective Time, for the right to receive, without
any interest thereon, the Merger Consideration upon surrender in the manner
provided in Section 1.4 of the Heritage Certificate or Heritage Certificates
that, immediately prior to the Effective Time, evidenced such shares. Heritage
shall give SouthBanc (i) prompt notice of any written demands for appraisal of
any shares of Heritage Common Stock, attempted withdrawals of such demands and
any other instruments served pursuant to Delaware Law and received by Heritage
relating to stockholders" rights of appraisal, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands under
Delaware Law consistent with the obligations of Heritage thereunder. Heritage
shall not, except with the prior written consent of SouthBanc, (x) make any
payment with respect to such demand, (y) offer to settle or settle any demand
for appraisal or (z) waive any failure to timely deliver a written demand for
appraisal or timely take any other action to perfect appraisal rights in
accordance with Delaware Law.
ARTICLE II
Representations and Warranties
------------------------------
Section 2.1. Representations and Warranties of Heritage.
------------------------------------------
Heritage represents and warrants to SouthBanc that:
(a) Organization.
------------
13
<PAGE>
(i) Heritage is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and is registered
as a savings and loan holding company.
(ii) Heritage Federal Bank ("Heritage Federal") is a federally
chartered savings bank duly organized and validly existing under the laws of the
United States of America. The deposits of Heritage Federal are insured by the
Savings Association Insurance Fund of the FDIC (as defined in Section 8.1) to
the extent provided in the FDIA (as defined in Section 8.1).
(iii) Heritage and Heritage Federal each has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct the business currently being conducted by it. Heritage and Heritage
Federal are each duly qualified or licensed as a foreign corporation to transact
business and are in good standing in each jurisdiction in which the character of
the properties owned or leased by it or the nature of the business conducted by
it makes such qualification or licensing necessary, except where the failure to
be so qualified or licensed and in good standing would not have a Material
Adverse Effect (as defined in Section 8.1) on Heritage.
(b) Subsidiaries.
------------
(i) Schedule 2.1(b) sets forth (A) the name, percentage
---------------
ownership and number of shares of stock owned or controlled by Heritage of each
Subsidiary (as defined in Section 8.1); and (B) the jurisdiction of
incorporation, capitalization and ownership of each Subsidiary. All such
Subsidiaries and ownership interests are in compliance with all applicable laws,
rules and regulations relating to investments in equity ownership interests by
savings and loan holding companies or federally chartered savings associations.
(ii) Heritage owns of record and beneficially all the capital
stock of each of its Subsidiaries free and clear of any claims, liens,
encumbrances or restrictions and there are no agreements or understandings with
respect to the voting or disposition of any such shares. The outstanding shares
of capital stock of each Subsidiary have been validly authorized and are validly
issued, fully paid and nonassessable. Each of Heritage"s Subsidiaries is a
corporation duly organized and validly existing under the laws of its
jurisdiction of incorporation, has all requisite corporate power and authority
to own, lease and operate its properties and to conduct the business currently
being conducted by it and is duly qualified or licensed as a foreign corporation
to transact business and is in good standing in each jurisdiction in which the
character of the properties owned or leased by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so qualified or licensed and in good standing would not have a
Material Adverse Effect on Heritage.
(iii) None of Heritage"s Subsidiaries holds shares of its capital
stock in its treasury, and there are not, and on the Closing Date there will not
be, outstanding (A) any options, warrants or other rights with respect to the
capital stock of any Subsidiary, (B) any securities convertible into or
exchangeable for shares of such capital stock or any other debt or
14
<PAGE>
equity security of any Subsidiary or (C) any other commitments of any kind for
the issuance of additional shares of capital stock or other debt or equity
security of any Subsidiary or options, warrants or other rights with respect to
such securities.
(iv) No Subsidiary of Heritage other than Heritage Federal is an
"insured depository institution" as defined in the FDIA and the applicable
regulations thereunder.
(c) Capital Structure.
-----------------
(i) The authorized capital stock of Heritage consists of:
(A) 10,000,000 shares of Heritage Common Stock; and
(B) 500,000 shares of preferred stock, par value $.01 per
share.
(ii) As of the date of this Agreement:
(A) 4,301,089 shares of Heritage Common Stock are issued
and outstanding, all of which are validly issued,
fully paid and nonassessable;
(B) no shares of Heritage preferred stock are issued and
outstanding or held in Heritage"s treasury;
(C) 416,588 share of Heritage Common Stock are reserved
for issuance pursuant to outstanding Heritage Options
under the Heritage Option Plan; and
(D) 512,811 shares of Heritage Common Stock are held by
Heritage in its treasury or by its Subsidiaries.
(iii) Set forth on Schedule 2.1(c) is a complete and accurate
---------------
list of all outstanding Heritage Options, including the names of the optionees,
dates of grant, exercise prices, dates of vesting, dates of termination and
shares subject to each grant. Following the Effective Time, no holder of
Heritage Options will have any right to receive shares of SouthBanc Common Stock
upon the exercise of Heritage Options.
(iv) No bonds, debentures, notes or other indebtedness having
the right to vote on any matters on which stockholders of Heritage may vote are
issued or outstanding.
(v) Except as set forth in this Section 2.1(c) or on Schedule
--------
2.1(c), as of the date of this Agreement, (A) no shares of capital stock or
- ------
other voting securities of Heritage are issued, reserved for issuance or
outstanding and (B) neither Heritage nor any of its Subsidiaries has or is bound
by any outstanding subscriptions, options, warrants, calls, rights,
15
<PAGE>
convertible securities, commitments or agreements of any character obligating
Heritage or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, any additional shares of capital stock of Heritage or
obligating Heritage or any of its Subsidiaries to grant, extend or enter into
any such option, warrant, call, right, convertible security, commitment or
agreement. As of the date hereof, there are no outstanding contractual
obligations of Heritage or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of Heritage or any of its
Subsidiaries.
(d) Authority. Heritage has all requisite corporate power and
---------
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate actions
on the part of Heritage"s Board of Directors, and no other corporate proceedings
on the part of Heritage are necessary to authorize this Agreement or to
consummate the transactions contemplated by this Agreement other than the
approval and adoption of this Agreement by the affirmative vote of the holders
of a majority of the outstanding shares of Heritage Common Stock. This Agreement
has been duly and validly executed and delivered by Heritage and constitutes a
valid and binding obligation of Heritage, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar laws affecting
creditors" rights and remedies generally and subject, as to enforceability, to
general principles of equity, whether applied in a court of law or a court of
equity.
(e) Fairness Opinion. Heritage has received the opinion of Trident
----------------
Securities to the effect that, as of the date hereof, the Merger Consideration
to be received by Heritage"s stockholders is fair, from a financial point of
view, to such stockholders.
(f) No Violations; Consents.
-----------------------
(i) The execution, delivery and performance of this Agreement
by Heritage do not, and the consummation of the transactions contemplated by
this Agreement will not, (A) assuming that the consents and approvals referred
to in Section 2.1(f)(ii) are obtained, violate of any law, rule or regulation or
any judgment, decree, order, governmental permit or license to which Heritage or
any of its Subsidiaries (or any of their respective properties) is subject, (B)
violate the certificate of incorporation or bylaws of Heritage or the similar
organizational documents of any of its Subsidiaries or (C) constitute a breach
or violation of, or a default under (or an event which, with due notice or lapse
of time or both, would constitute a default under), or result in the termination
of, accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
properties or assets of Heritage or any of its Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, indenture, deed of trust,
loan agreement or other agreement, instrument or obligation to which Heritage or
any of its Subsidiaries is a party, or to which any of their respective
properties or assets may be subject, except, in the case of (C), for any such
breaches, violations or defaults that would not, individually or in the
aggregate, have a Material Adverse Effect on Heritage.
16
<PAGE>
(ii) Except for (A) the filing of an application with the OTS
(as defined in Section 8.1) under the HOLA (as defined in Section 8.1) and
approval of such application, (B) the filing of a certificate of merger with the
Delaware Secretary of State pursuant to Delaware Law, (C) the registration under
the Securities Act (as defined in Section 8.1) of the shares of SouthBanc Common
Stock to be issued in exchange for shares of Heritage Common Stock, (D) the
registration or qualification of the shares of SouthBanc Common Stock to be
issued in exchange for shares of Heritage Common Stock under state securities or
"blue sky" laws, and (E) such filings, authorizations or approvals as may be set
forth in Schedule 2.1(f), no consents or approvals of or filings or
---------------
registrations with any Governmental Entity (as defined in Section 8.1) or with
any third party are necessary in connection with the execution and delivery by
Heritage of this Agreement or the consummation by Heritage of the Merger and the
other transactions contemplated by this Agreement. As of the date hereof,
Heritage knows of no reason pertaining to Heritage why any of the approvals
referred to in this Section 2.1(f) should not be obtained without the imposition
of any material condition or restriction described in Section 5.1(b).
(g) Reports and Financial Statements.
--------------------------------
(i) Heritage and each of its Subsidiaries have each timely
filed all material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since December 31, 1997 with (A) the FDIC, (B) the OTS, (C) the NASD (as
defined in Section 8.1) and (D) the SEC (as defined in Section 8.1)
(collectively, "Heritage"s Reports") and have paid all fees and assessments due
and payable in connection therewith. As of their respective dates, none of
Heritage"s Reports 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 made therein, in light of the circumstances under which they were
made, not misleading. All of Heritage"s Reports filed with the SEC complied in
all material respects with the applicable requirements of the Exchange Act (as
defined in Section 8.1) and the rules and regulations of the SEC promulgated
thereunder.
(ii) Each of the financial statements of Heritage included in
Heritage"s Reports filed with the SEC complied as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto. The financial statements included in Heritage"s
Reports were prepared from the books and records of Heritage and its
Subsidiaries, fairly present the consolidated financial position of Heritage and
its Subsidiaries in each case at and as of the dates indicated and the
consolidated results of operations, retained earnings and cash flows of Heritage
and its Subsidiaries for the periods indicated, and, except as otherwise set
forth in the notes thereto, were prepared in accordance with GAAP (as defined in
Section 8.1) consistently applied throughout the periods covered thereby;
provided, however, that the unaudited financial statements for interim periods
are subject to normal year-end adjustments (which will not be material
individually or in the aggregate) and lack a statement of cash flows and
footnotes.
17
<PAGE>
(h) Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
Heritage"s Reports filed with the SEC prior to the date of this Agreement, since
September 30, 1999, (i) Heritage and its Subsidiaries have not incurred any
liability, except in the ordinary course of their business consistent with past
practice, (ii) Heritage and its Subsidiaries have conducted their respective
businesses only in the ordinary and usual course of such businesses consistent
with their past practices, (iii) there has not been any Material Adverse Effect
with respect to Heritage, (iv) there has been no increase in the salary,
compensation, pension or other benefits payable or to become payable by Heritage
or any of its Subsidiaries to any of their respective directors, officers or
employees, other than in conformity with the policies and practices of such
entity in the usual and ordinary course of its business, (v) neither Heritage
nor any of its Subsidiaries has paid or made any accrual or arrangement for
payment of bonuses or special compensation of any kind or any severance or
termination pay to any of their directors, officers or employees, and (vi) there
has been no change in any accounting principles, practices or methods of
Heritage or any of its Subsidiaries other than as required by GAAP.
(i) Absence of Claims. There are no suits, actions or proceedings
-----------------
pending or, to the knowledge of Heritage, threatened against or affecting
Heritage or any of its Subsidiaries or any property or asset of Heritage or any
of its Subsidiaries which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on Heritage, nor are there any
judgments, decrees, injunctions, rules or orders of any Governmental Entity or
arbitrator outstanding against Heritage which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect on Heritage.
(j) Absence of Regulatory Actions. Since December 31, 1997, neither
-----------------------------
Heritage nor any of its Subsidiaries has been a party to any cease and desist
order, written agreement or memorandum of understanding with, or any commitment
letter or similar undertaking to, or has been subject to any action, proceeding,
order or directive by, or has been a recipient of any extraordinary supervisory
letter from any Government Regulator (as defined in Section 8.1), or has adopted
any board resolutions at the request of any Government Regulator, or has been
advised by any Government Regulator that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such action, proceeding, order, directive, written agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking.
(k) Taxes. All federal, state, local and foreign tax returns required
-----
to be filed by or on behalf of Heritage or any of its Subsidiaries have been
timely filed or requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and all such filed
returns are complete and accurate in all material respects. All taxes shown on
such returns, all taxes required to be shown on returns for which extensions
have been granted and all other taxes required to be paid by Heritage or any of
its Subsidiaries have been paid in full or adequate provision has been made for
any such taxes on Heritage"s balance sheet (in accordance with GAAP). As of the
date of this Agreement, there is no audit examination, deficiency assessment,
tax investigation or refund litigation with respect to any taxes of Heritage or
any of its Subsidiaries, and no claim has been made by any authority in a
jurisdiction where Heritage or any of its Subsidiaries do not file tax returns
that Heritage or any such Subsidiary is
18
<PAGE>
subject to taxation in that jurisdiction. All taxes, interest, additions and
penalties due with respect to completed and settled examinations or concluded
litigation relating to Heritage or any of its Subsidiaries have been paid in
full or adequate provision has been made for any such taxes on Heritage"s
balance sheet (in accordance with GAAP). Heritage and its Subsidiaries have not
executed an extension or waiver of any statute of limitations on the assessment
or collection of any material tax due that is currently in effect. Heritage and
each of its Subsidiaries has withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party, and Heritage
and each of its Subsidiaries has timely complied with all applicable information
reporting requirements under Part III, Subchapter A of Chapter 61 of the IRC and
similar applicable state and local information reporting requirements.
(l) Agreements.
----------
(i) Heritage and its Subsidiaries are not bound by any material
contract (as defined in Item 601(b)(10) of Regulation S-K promulgated by the
SEC), to be performed after the date hereof that has not been filed with or
incorporated by reference in Heritage"s Reports.
(ii) Schedule 2.1(l) lists any contract, arrangement,
---------------
commitment or understanding (whether written or oral) to which Heritage or any
of its Subsidiaries is a party or is bound:
(A) with any executive officer or other key employee of
Heritage or any of its Subsidiaries the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving Heritage or any of its Subsidiaries of the nature contemplated by this
Agreement;
(B) with respect to the employment of any directors,
officers employees or consultants;
(C) (including any stock option plan, phantom stock or
stock appreciation rights plan, restricted stock plan or stock purchase plan)
any of the benefits of which will be increased, or the vesting or payment of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement;
(D) containing covenants that limit the ability of
Heritage or any of its Subsidiaries to compete in any line of business or with
any person, or that involve any restriction on the geographic area in which, or
method by which, Heritage (including any successor thereof) or any of its
Subsidiaries may carry on its business (other than as may be required by law or
any regulatory agency);
19
<PAGE>
(E) pursuant to which Heritage or any of its Subsidiaries may
become obligated to invest in or contribute capital to any entity;
(F) not fully disclosed in Heritage"s Reports that relates to
borrowings of money (or guarantees thereof) by Heritage or any of its
Subsidiaries, other than in the ordinary course of business; or
(G) which is a lease or license with respect to any property,
real or personal, whether as landlord, tenant, licensor or licensee, involving a
liability or obligation as obligor in excess of $25,000 on an annual basis.
To the knowledge of Heritage, each of the agreements and other documents
referenced in Schedule 2.1(l) is a valid, binding and enforceable obligation of
---------------
the parties sought to be bound thereby, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors" rights and remedies generally
and subject, as to enforceability, to general principles of equity, whether
applied in a court of law or a court of equity. Heritage has previously
delivered to SouthBanc true and complete copies of each agreement and other
documents referenced in Schedule 2.1(l).
---------------
(iii) Neither Heritage nor any of its Subsidiaries is in default under
(and no event has occurred which, with due notice or lapse of time or both,
would constitute a default under) or is in violation of any provision of any
note, bond, indenture, mortgage, deed of trust, loan agreement, lease or other
agreement to which it is a party or by which it is bound or to which any of its
respective properties or assets is subject and, to the knowledge of Heritage, no
other party to any such agreement (excluding any loan or extension of credit
made by Heritage or any of its Subsidiaries) is in default in any respect
thereunder, except for such defaults or violations that would not, individually
or in the aggregate, have a Material Adverse Effect on Heritage.
(iv) Heritage and each of its Subsidiaries owns or possesses valid
and binding licenses and other rights to use without payment all patents,
copyrights, trade secrets, trade names, service marks and trademarks used in its
businesses, and neither Heritage nor any of its Subsidiaries has received any
notice of conflict with respect thereto that asserts the right of others. Each
of Heritage and its Subsidiaries has performed all the obligations required to
be performed by it and are not in default under any contact, agreement,
arrangement or commitment relating to any of the foregoing.
(m) Labor Matters. Heritage and its Subsidiaries are in material
-------------
compliance with all applicable laws respecting employment, retention of
independent contractors and employment practices, terms and conditions of
employment and wages and hours. Neither Heritage nor any of its Subsidiaries is
or has ever been a party to, or is or has ever been bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization with respect to its employees, nor is Heritage or
any of its Subsidiaries the subject of any proceeding asserting that it has
committed an unfair labor practice or seeking to compel it or any such
Subsidiary to bargain with any labor organization as to wages and conditions of
employment nor has any such proceeding been threatened, nor is there any
20
<PAGE>
strike, other labor dispute or organizational effort involving Heritage or any
of its Subsidiaries pending or threatened.
(n) Employee Benefit Plans.
----------------------
(i) Schedule 2.1(n) contains a complete and accurate list of all
---------------
pension, retirement, stock option, stock purchase, stock ownership, savings,
stock appreciation right, profit sharing, deferred compensation, consulting,
bonus, group insurance, severance and other benefit plans, contracts, agreements
and arrangements, including, but not limited to, "employee benefit plans," as
defined in Section 3(3) of ERISA (as defined in Section 8.1), incentive and
welfare policies, contracts, plans and arrangements and all trust agreements
related thereto with respect to any present or former directors, officers or
other employees of Heritage or any of its Subsidiaries (hereinafter referred to
collectively as the "Heritage Employee Plans"). Heritage has previously
delivered or made available to SouthBanc true and complete copies of each
agreement, plan and other documents referenced in Schedule 2.1(n). There has
---------------
been no announcement or commitment by Heritage or any of its Subsidiaries to
create an additional Heritage Employee Plan, or to amend any Heritage Employee
Plan, except for amendments required by applicable law which do not materially
increase the cost of such Heritage Employee Plan.
(ii) There is no pending or threatened litigation, administrative
action or proceeding relating to any Heritage Employee Plan. All of the Heritage
Employee Plans comply in all material respects with all applicable requirements
of ERISA, the IRC and other applicable laws. There has occurred no "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the IRC)
with respect to the Heritage Employee Plans which is likely to result in the
imposition of any penalties or taxes upon Heritage or any of its Subsidiaries
under Section 502(i) of ERISA or Section 4975 of the IRC.
(iii) No liability to the Pension Benefit Guarantee Corporation has
been or is expected by Heritage or any of its Subsidiaries to be incurred with
respect to any Heritage Employee Plan which is subject to Title IV of ERISA
("Heritage Pension Plan"), or with respect to any "single-employer plan" (as
defined in Section 4001(a) of ERISA) currently or formerly maintained by
Heritage or any ERISA Affiliate (as defined in Section 8.1). No Heritage Pension
Plan had an "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, as of the last day of the end of the most recent
plan year ending prior to the date hereof; the fair market value of the assets
of each Heritage Pension Plan exceeds the present value of the "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA) under such Heritage
Pension Plan as of the end of the most recent plan year with respect to the
respective Heritage Pension Plan ending prior to the date hereof, calculated on
the basis of the actuarial assumptions used in the most recent actuarial
valuation for such Heritage Pension Plan as of the date hereof; and no notice of
a "reportable event" (as defined in Section 4043 of ERISA) for which the 30-day
reporting requirement has not been waived has been required to be filed for any
Heritage Pension Plan within the 12-month period ending on the date hereof.
Neither Heritage nor any of its Subsidiaries has provided, or is required to
provide, security to any Heritage Pension Plan or to any single-employer plan of
an ERISA Affiliate pursuant to Section
21
<PAGE>
401(a)(29) of the IRC. Neither Heritage, its Subsidiaries, nor any ERISA
Affiliate has contributed to any "multiemployer plan," as defined in Section
3(37) of ERISA, on or after September 26, 1980.
(iv) Except as disclosed on Schedule 2.1(n), each Heritage Employee
---------------
Plan that is an "employee pension benefit plan" (as defined in Section 3(2) of
ERISA) and which is intended to be qualified under Section 401(a) of the IRC (a
"Heritage Qualified Plan") has received a favorable determination letter from
the IRS (as defined in Section 8.1), and Heritage and its Subsidiaries are not
aware of any circumstances likely to result in revocation of any such favorable
determination letter. Each Heritage Qualified Plan that is an "employee stock
ownership plan" (as defined in Section 4975(e)(7) of the IRC) has satisfied all
of the applicable requirements of Sections 409 and 4975(e)(7) of the IRC and the
regulations thereunder in all respects and any assets of any such Heritage
Qualified Plan that, as of the end of the plan year, are not allocated to
participants" individual accounts are pledged as security for, and may be
applied to satisfy, any securities acquisition indebtedness.
(v) Heritage and its Subsidiaries do not have any obligations for
post-retirement or post-employment benefits under any Heritage Employee Plan
that cannot be amended or terminated upon 60 days" notice or less without
incurring any liability thereunder, except for coverage required by Part 6 of
Title I of ERISA or Section 4980B of the IRC, or similar state laws, the cost of
which is borne by the insured individuals. With respect to Heritage or any of
its Subsidiaries, for the Heritage Employee Plans listed in Schedule 2.1(n), the
---------------
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in any payment or series of
payments by Heritage or any of its Subsidiaries to any person which is an
"excess parachute payment" (as defined in Section 280G of the IRC) or is a
nondeductible payment under Section 162(m) of the IRC, increase or secure (by
way of a trust or other vehicle) any benefits payable under any Heritage
Employee Plan or accelerate the time of payment or vesting of any such benefit.
(o) Title to Assets. Heritage and each of its Subsidiaries has good and
---------------
insurable title to its properties and assets (including any intellectual
property asset such as any trademark, service mark, trade name or copyright) and
property acquired in a judicial foreclosure proceeding or by way of a deed in
lieu of foreclosure or similar transfer whether real or personal, tangible or
intangible, in each case free and clear of any liens, security interests,
encumbrances, mortgages, pledges, restrictions, charges or rights or interests
of others, except pledges to secure deposits and other liens incurred in the
ordinary course of business. Each lease pursuant to which Heritage or any of its
Subsidiaries is lessee or lessor is valid and in full force and effect and
neither Heritage nor any of its Subsidiaries, nor any other party to any such
lease is in default or in violation of any provisions of any such lease. All
material tangible properties of Heritage and each of its Subsidiaries are in a
good state of maintenance and repair, conform with all applicable ordinances,
regulations and zoning laws and are considered by Heritage to be adequate for
the current business of Heritage and its Subsidiaries. To the knowledge of
Heritage, none of the buildings, structures or other improvements located on its
real property encroaches upon or over any adjoining parcel or real estate or any
easement or right-of-way.
22
<PAGE>
(p) Compliance with Laws. Heritage and each of its Subsidiaries has all
--------------------
permits, licenses, certificates of authority, orders and approvals of, and has
made all filings, applications and registrations with, all Governmental Entities
that are required in order to permit it to carry on its business as it is
presently conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect, and no suspension or
cancellation of any of them is threatened. Neither Heritage nor any of its
Subsidiaries is in violation of, and Heritage and its Subsidiaries have not been
given notice or been charged with any violation of, any law, ordinance,
regulation, order, writ, rule, decree or condition to approval of any
Governmental Entity which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on Heritage.
(q) Fees. Other than financial advisory services performed for Heritage by
----
Trident Securities pursuant to an agreement dated February 9, 2000, a true and
complete copy of which has been previously delivered to SouthBanc, neither
Heritage nor any of its Subsidiaries, nor any of their respective officers,
directors, employees or agents, has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
Heritage or any of its Subsidiaries in connection with this Agreement or the
transactions contemplated hereby.
(r) Environmental Matters. There is no suit, claim, action, demand,
---------------------
executive or administrative order, directive, investigation or proceeding
pending or, to the knowledge of Heritage, threatened before any court,
governmental agency or board or other forum against Heritage or any of its
Subsidiaries for alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law (as defined in Section 8.1) or relating
to the presence of or release into the environment of any Hazardous Material (as
defined in Section 8.1), whether or not occurring at or on a site owned, leased
or operated by it or any of its Subsidiaries. To Heritage"s knowledge, the
properties currently owned or operated by Heritage or any of its Subsidiaries
(including, without limitation, soil, groundwater or surface water on, under or
adjacent to the properties, and buildings thereon) are not contaminated with and
do not otherwise contain any Hazardous Material other than as permitted under
applicable Environmental Law. Neither Heritage nor any of its Subsidiaries has
received any notice, demand letter, executive or administrative order,
directive, request or other communication (written or oral) for information from
any federal, state, local or foreign governmental entity or any third party
indicating that it may be in violation of, or liable under, any Environmental
Law. To Heritage"s knowledge, there are no underground storage tanks on, in or
under any properties owned or operated by Heritage or any of its Subsidiaries
and no underground storage tanks have been closed or removed from any properties
owned or operated by Heritage or any of its Subsidiaries. To Heritage"s
knowledge, during the period of Heritage"s or any of its Subsidiaries" ownership
or operation of any of their respective current properties, there has been no
contamination by or release of Hazardous Materials in, on, under or affecting
such properties. To Heritage"s knowledge, prior to the period of Heritage"s or
any of its Subsidiaries" ownership or operation of any of their respective
current properties, there was no contamination by or release of Hazardous
Material in, on, under or affecting such properties.
(s) Loan Portfolio; Allowance; Asset Quality.
----------------------------------------
23
<PAGE>
(i) With respect to each Loan (as defined in Section 8.1) owned by
Heritage or its Subsidiaries in whole or in part:
(A) to the knowledge of Heritage, the note and the related
security documents are each legal, valid and binding obligations of the maker or
obligor thereof, enforceable against such maker or obligor in accordance with
their terms;
(B) neither Heritage nor any of its Subsidiaries, nor any prior
holder of a loan, has modified the note or any of the related security documents
in any material respect or satisfied, canceled or subordinated the note or any
of the related security documents except as otherwise disclosed by documents in
the applicable loan file;
(C) Heritage or a Subsidiary of Heritage is the sole holder of
legal and beneficial title to each loan (or Heritage"s or its Subsidiary"s
applicable participation interest, as applicable), except as otherwise
referenced on the books and records of Heritage or a Subsidiary of Heritage;
(D) the note and the related security documents, copies of
which are included in the loan files, are true and correct copies of the
documents they purport to be and have not been suspended, amended, modified,
canceled or otherwise changed except as otherwise disclosed by documents in the
applicable loan file;
(E) there is no pending or threatened condemnation proceeding
or similar proceeding affecting the property that serves as security for a loan,
except as otherwise referenced on the books and records of Heritage;
(F) to the knowledge of Heritage, there is no litigation or
proceeding pending or threatened relating to the property that serves as
security for a loan that would have a Material Adverse Effect upon the related
loan; and
(G) with respect to a loan held in the form of a participation,
the participation documentation is legal, valid, binding and enforceable in
accordance with its terms.
(ii) The allowance for possible loan losses reflected in Heritage"s
audited balance sheet at September 30, 1999 was, and the allowance for possible
losses shown on the balance sheets in Heritage"s Reports for periods ending
after September 30, 1999, in the opinion of management, was or will be adequate,
as of the dates thereof, under GAAP.
(iii) Schedule 2.1(s) sets forth a true and complete listing, as of
---------------
December 31, 1999, of:
(A) all Loans that have been classified (whether regulatory or
internal) as "Special Mention," "Substandard," "Doubtful," "Loss" or words of
similar import listed by category, including the amounts thereof; and
24
<PAGE>
(B) Loans (1) that are contractually past due 90 days or more
in the payment of principal and/or interest, (2) that are on a non-accrual
status, (3) where the interest rate terms have been reduced and/or the maturity
dates have been extended subsequent to the agreement under which the Loan was
originally created due to concerns regarding the borrower"s ability to pay in
accordance with such initial terms, or (4) where a specific reserve allocation
exists in connection therewith, listed by category, including the amounts
thereof.
(iv) To the knowledge of Heritage, neither Heritage nor any of its
Subsidiaries is a party to any Loan that is in violation of any law, regulation
or rule of any Governmental Entity. Any asset of Heritage or any of its
Subsidiaries that is classified as "Real Estate Owned" or words of similar
import that is included in any non-performing assets of Heritage or any of its
Subsidiaries is listed on Schedule 2.1(s) and is carried net of reserves at the
---------------
lower of cost or fair value, less estimated selling costs, based on current
independent appraisals or evaluations or current management appraisals or
evaluations; provided, however, that "current" shall mean within the past 12
months.
(t) Deposits. None of the deposits of Heritage or any of its
--------
Subsidiaries is a "brokered" deposit.
(u) Anti-takeover Provisions Inapplicable. Heritage and its Subsidiaries
-------------------------------------
have taken all actions required to exempt SouthBanc, the Agreement, and the
Merger from any provisions of an antitakeover nature contained in their
organizational documents, and the provisions of any federal or state "anti-
takeover," "fair price," "moratorium," "control share acquisition" or similar
laws or regulations.
(v) Insurance. In the opinion of management, Heritage and its Subsidiaries
---------
are presently insured for amounts deemed reasonable by management against such
risks as companies engaged in a similar business would, in accordance with good
business practice, customarily be insured. All of the insurance policies and
bonds maintained by Heritage and its Subsidiaries are in full force and effect,
Heritage and its Subsidiaries are not in default thereunder and all material
claims thereunder have been filed in due and timely fashion.
(w) Investment Securities; Derivatives.
----------------------------------
(i) Except for restrictions that exist for securities to be
classified as "held to maturity," none of the investment securities held by
Heritage or any of its Subsidiaries, is subject to any restriction (contractual
or statutory) that would materially impair the ability of the entity holding
such investment freely to dispose of such investment at any time.
(ii) Neither Heritage nor any of its Subsidiaries is a party to or
has agreed to enter into an exchange-traded or over-the-counter equity, interest
rate, foreign exchange or other swap, forward, future, option, cap, floor or
collar or any other contract that is a derivative contract (including various
combinations thereof) or owns securities that (A) are referred to generically as
"structured notes," "high risk mortgage derivatives," "capped floating rate
notes" or "capped floating rate mortgage derivatives" or (B) are likely to have
changes in
25
<PAGE>
value as a result of interest or exchange rate changes that significantly exceed
normal changes in value attributable to interest or exchange rate changes.
(x) Indemnification. Except as provided in the certificate of
---------------
incorporation or bylaws of Heritage and the similar organizational documents of
its Subsidiaries, neither Heritage nor any Subsidiary is a party to any
agreement that provides for the indemnification of any of its present or former
directors, officers or employees, or other persons who serve or served as a
director, officer or employee of another corporation, partnership or other
enterprise at the request of Heritage and, to the knowledge of Heritage, there
are no claims for which any such person would be entitled to indemnification
under the certificate of incorporation or bylaws of Heritage or the similar
organizational documents of any of its Subsidiaries, under any applicable law or
regulation or under any indemnification agreement.
(y) Books and Records. The books and records of Heritage and its
-----------------
Subsidiaries on a consolidated basis have been, and are being, maintained in
accordance with applicable legal and accounting requirements and reflect in all
material respects the substance of events and transactions that should be
included therein.
(z) Corporate Documents. Heritage has previously furnished or made
-------------------
available to SouthBanc a complete and correct copy of the certificate of
incorporation, bylaws and similar organizational documents of Heritage and each
of Heritage"s Subsidiaries, as in effect as of the date of this Agreement.
Neither Heritage nor any of Heritage"s Subsidiaries is in violation of its
certificate of incorporation, bylaws or similar organizational documents. The
minute books of Heritage and each of Heritage"s Subsidiaries constitute a
complete and correct record of all actions taken by their respective boards of
directors (and each committee thereof) and their stockholders.
(aa) Registration Statement. The information regarding Heritage and its
----------------------
Subsidiaries to be supplied by Heritage for inclusion in the Registration
Statement (as defined in Section 4.8) will not, at the time the Registration
Statement becomes effective, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
(bb) Community Reinvestment Act Compliance. Heritage Federal is in material
-------------------------------------
compliance with the applicable provisions of the CRA (as defined in Section 8.1)
and the regulations promulgated thereunder, and Heritage Federal currently has a
CRA rating of satisfactory or better. To the knowledge of Heritage, there is no
fact or circumstance or set of facts or circumstances that would cause Heritage
Federal to fail to comply with such provisions or cause the CRA rating of
Heritage Federal to fall below satisfactory.
(cc) Undisclosed Liabilities. As of the date hereof, Heritage and its
-----------------------
Subsidiaries have not incurred any debt, liability or obligation of any nature
whatsoever (whether accrued, contingent, absolute or otherwise and whether due
or to become due) except for (i) liabilities reflected on or reserved against in
the consolidated financial statements of Heritage as
26
<PAGE>
of September 30, 1999, (ii) liabilities incurred since September 30, 1999 in the
ordinary course of business consistent with past practice that, either alone or
when combined with all similar liabilities, have not had, and would not
reasonably be expected to have, a Material Adverse Effect on Heritage and (iii)
liabilities incurred for legal, accounting, financial advising fees and out-of-
pocket expenses in connection with the transactions contemplated by this
Agreement.
(dd) Year 2000 Matters. Heritage and its Subsidiaries have not experienced
-----------------
any data processing or other computer malfunctions related to processing date
information on and after January 1, 2000 and none of the third party service
providers or customers of Heritage or its Subsidiaries have reported year 2000
data processing problems to Heritage that, individually or in the aggregate,
would have a Material Adverse Effect on Heritage.
(ee) Tax Treatment of the Merger. Heritage has no knowledge of any fact or
---------------------------
circumstance relating to it that would prevent the transactions contemplated by
this Agreement from qualifying as a reorganization under the IRC.
Section 2.2. Representations and Warranties of SouthBanc. SouthBanc
-------------------------------------------
represents and warrants to Heritage that:
(a) Organization.
------------
(i) SouthBanc is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is registered as a
savings and loan holding company.
(ii) Perpetual Bank, a Federal Savings Bank ("Perpetual Bank") is a
federally chartered savings bank duly organized and validly existing under the
laws of the United States of America. The deposits of Perpetual Bank are insured
by the Savings Association Insurance Fund of FDIC to the extent provided in the
FDIA.
(iii) SouthBanc and Perpetual Bank each has all requisite corporate
power and authority to own, lease and operate its properties and to conduct the
business currently being conducted by it. SouthBanc and Perpetual Bank are each
duly qualified or licensed as a foreign corporation to transact business and are
in good standing in each jurisdiction in which the character of the properties
owned or leased by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed and in good standing would not have a Material Adverse
Effect on SouthBanc.
(b) Subsidiaries.
------------
(i) Schedule 2.2(b) sets forth (A) the name, percentage ownership
---------------
and number of shares of stock owned or controlled by SouthBanc of each
Subsidiary; and (B) the jurisdiction of incorporation, capitalization and
ownership of each Subsidiary. All such Subsidiaries and ownership interests are
in compliance with all applicable laws, rules and
27
<PAGE>
regulations relating to investments in equity ownership interests by savings and
loan holding companies or federally chartered savings associations.
(ii) SouthBanc owns of record and beneficially all the capital stock
of each of its Subsidiaries free and clear of any claims, liens, encumbrances or
restrictions and there are no agreements or understandings with respect to the
voting or disposition of any such shares. The outstanding shares of capital
stock of each Subsidiary have been validly authorized and are validly issued,
fully paid and nonassessable. Each of SouthBanc"s Subsidiaries is a corporation
duly organized and validly existing under the laws of its jurisdiction of
incorporation, has all requisite corporate power and authority to own, lease and
operate its properties and to conduct the business currently being conducted by
it and is duly qualified or licensed as a foreign corporation to transact
business and is in good standing in each jurisdiction in which the character of
the properties owned or leased by it or the nature of the business conducted by
it makes such qualification or licensing necessary, except where the failure to
be so qualified or licensed and in good standing would not have a Material
Adverse Effect on SouthBanc.
(iii) None of SouthBanc"s Subsidiaries holds shares of its capital
stock in its treasury, and there are not, and on the Closing Date there will not
be, outstanding (A) any options, warrants or other rights with respect to the
capital stock of any Subsidiary, (B) any securities convertible into or
exchangeable for shares of such capital stock or any other debt or equity
security of any Subsidiary or (C) any other commitments of any kind for the
issuance of additional shares of capital stock or other debt or equity security
of any Subsidiary or options, warrants or other rights with respect to such
securities.
(iv) No Subsidiary of SouthBanc other than Perpetual Bank is an
"insured depository institution" as defined in the FDIA and the applicable
regulations thereunder.
(c) Capital Structure.
-----------------
(i) The authorized capital stock of SouthBanc consists of:
(A) 7,500,000 shares of SouthBanc Common Stock; and
(B) 250,000 of preferred stock, par value $.01 per share.
(ii) As of the date of this Agreement:
(A) 3,089,113 shares of SouthBanc Common Stock are issued and
outstanding, all of which are validly issued, fully paid
and nonassessable;
(B) no shares of SouthBanc preferred stock are issued and
outstanding or held in SouthBanc"s treasury;
28
<PAGE>
(C) 388,701 shares of SouthBanc Common Stock are reserved for
issuance pursuant to outstanding grants or awards under
SouthBanc"s stock option plans;
(D) 250,000 shares of SouthBanc Common Stock are reserved for
issuance pursuant to SouthBanc"s Dividend Reinvestment
Plan; and
(E) 1,232,917 shares of SouthBanc Common Stock are held by
SouthBanc in its treasury or by its Subsidiaries.
(iii) No bonds, debentures, notes or other indebtedness having the
right to vote on any matters on which stockholders of SouthBanc may vote are
issued or outstanding.
(iv) Except as set forth in this Section 2.2(c), as of the date of
this Agreement, (A) no shares of capital stock or other voting securities of
SouthBanc are issued, reserved for issuance or outstanding and (B) neither
SouthBanc nor any of its Subsidiaries has or is bound by any outstanding
subscriptions, options, warrants, calls, rights, convertible securities,
commitments or agreements of any character obligating SouthBanc or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, any additional shares of capital stock of SouthBanc or obligating
SouthBanc or any of its Subsidiaries to grant, extend or enter into any such
option, warrant, call, right, convertible security, commitment or agreement. As
of the date hereof, there are no outstanding contractual obligations of
SouthBanc or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of SouthBanc or any of its Subsidiaries.
(v) The shares of SouthBanc Common Stock to be issued in exchange
for shares of Heritage Common Stock upon consummation of the Merger in
accordance with this Agreement have been duly authorized and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable and subject to no preemptive rights.
(d) Authority. SouthBanc has all requisite corporate power and authority
---------
to enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate actions
on the part of SouthBanc"s Board of Directors, and no other corporate
proceedings on the part of SouthBanc are necessary to authorize this Agreement
or to consummate the transactions contemplated by this Agreement other than the
approval and adoption of this Agreement by the affirmative vote of the holders
of a majority of the outstanding shares of SouthBanc Common Stock. This
Agreement has been duly and validly executed and delivered by SouthBanc and
constitutes a valid and binding obligation of SouthBanc, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors" rights and remedies generally and subject, as
to enforceability, to general principles of equity, whether applied in a court
of law or a court of equity.
29
<PAGE>
(e) Fairness Opinion. SouthBanc has received the opinion of Sandler
----------------
O'Neill & Partners, L.P. to the effect that, as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to SouthBanc"s
stockholders.
(f) No Violations; Consents.
-----------------------
(i) The execution, delivery and performance of this Agreement by
SouthBanc do not, and the consummation of the transactions contemplated by this
Agreement will not, (A) assuming that the consents and approvals referred to in
Section 2.2(f)(ii) are obtained, violate any law, rule or regulation or any
judgment, decree, order, governmental permit or license to which SouthBanc or
any of its Subsidiaries (or any of their respective properties) is subject, (B)
violate the certificate of incorporation or bylaws of SouthBanc or the similar
organizational documents of any of its Subsidiaries or (C) constitute a breach
or violation of, or a default under (or an event which, with due notice or lapse
of time or both, would constitute a default under), or result in the termination
of, accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
properties or assets of SouthBanc or any of its Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, indenture, deed of trust,
loan agreement or other agreement, instrument or obligation to which SouthBanc
or any of its Subsidiaries is a party, or to which any of their respective
properties or assets may be subject, except, in the case of (C), for any such
breaches, violations or defaults that would not, individually or in the
aggregate, have a Material Adverse Effect on SouthBanc.
(ii) Except for (A) the filing of an application with the OTS under
the HOLA and approval of such application, (B) the filing of a certificate of
merger with the Delaware Secretary of State pursuant to Delaware Law, (C) the
registration under the Securities Act of the shares of SouthBanc Common Stock to
be issued in exchange for shares of Heritage Common Stock, (D) the registration
or qualification of the shares of SouthBanc Common Stock to be issued in
exchange for shares of Heritage Common Stock under state securities or "blue
sky" laws, and (E) such filings, authorizations or approvals as may be set forth
in Schedule 2.2(f), no consents or approvals of or filings or registrations with
any Governmental Entity or with any third party are necessary in connection with
the execution and delivery by SouthBanc of this Agreement or the consummation by
SouthBanc of the Merger and the other transactions contemplated by this
Agreement. As of the date hereof, SouthBanc knows of no reason pertaining to
SouthBanc why any of the approvals referred to in this Section 2.2(f) should not
be obtained without the imposition of any material condition or restriction
described in Section 5.1(b).
(g) Reports and Financial Statements.
--------------------------------
(i) SouthBanc and each of its Subsidiaries have each timely filed
all material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 1997 with (A) the FDIC, (B) the OTS, (C) the NASD and (D) the SEC
(collectively, "SouthBanc"s Reports") and have paid all fees and assessments due
and payable in connection therewith. As of their respective
30
<PAGE>
dates, none of SouthBanc"s Reports 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 made therein, in light of the circumstances
under which they were made, not misleading. All of SouthBanc"s Reports filed
with the SEC complied in all material respects with the applicable requirements
of the Exchange Act and the rules and regulations of the SEC promulgated
thereunder.
(ii) Each of the financial statements of SouthBanc included in
SouthBanc"s Reports filed with the SEC complied as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto. The financial statements included in
SouthBanc"s Reports were prepared from the books and records of SouthBanc and
its Subsidiaries, fairly present the consolidated financial position of
SouthBanc and its Subsidiaries in each case at and as of the dates indicated and
the consolidated results of operations, retained earnings and cash flows of
SouthBanc and its Subsidiaries for the periods indicated, and, except as
otherwise set forth in the notes thereto, were prepared in accordance with GAAP
consistently applied throughout the periods covered thereby; provided, however,
that the unaudited financial statements for interim periods are subject to
normal year-end adjustments (which will not be material individually or in the
aggregate) and lack a statement of cash flows and footnotes.
(h) Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
SouthBanc"s Reports filed with the SEC prior to the date of this Agreement,
since September 30, 1999, (i) SouthBanc and its Subsidiaries have not incurred
any liability, except in the ordinary course of their business consistent with
past practice, (ii) SouthBanc and its Subsidiaries have conducted their
respective businesses only in the ordinary and usual course of such businesses
consistent with their past practices, (iii) there has not been any Material
Adverse Effect with respect to SouthBanc, (iv) there has been no increase in the
salary, compensation, pension or other benefits payable or to become payable by
SouthBanc or any of its Subsidiaries to any of their respective directors,
officers or employees, other than in conformity with the policies and practices
of such entity in the usual and ordinary course of its business, (v) neither
SouthBanc nor any of its Subsidiaries has paid or made any accrual or
arrangement for payment of bonuses or special compensation of any kind or any
severance or termination pay to any of their directors, officers or employees,
and (vi) there has been no change in any accounting principles, practices or
methods of SouthBanc or any of its Subsidiaries other than as required by GAAP.
(i) Absence of Claims. There are no suits, actions or proceedings pending
-----------------
or, to the knowledge of SouthBanc, threatened against or affecting SouthBanc or
any of its Subsidiaries or any property or asset of SouthBanc or any of its
Subsidiaries which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on SouthBanc, nor are there any
judgments, decrees, injunctions, rules or orders of any Governmental Entity or
arbitrator outstanding against SouthBanc which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
SouthBanc.
(j) Absence of Regulatory Actions. Since December 31, 1997, neither
-----------------------------
SouthBanc nor any of its Subsidiaries has been a party to any cease and desist
order, written agreement or memorandum of understanding with, or any commitment
letter or similar
31
<PAGE>
undertaking to, or has been subject to any action, proceeding, order or
directive by, or has been a recipient of any extraordinary supervisory letter
from Government Regulator, or has adopted any board resolutions at the request
of any Government Regulator, or has been advised by any Government Regulator
that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such action, proceeding, order,
directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
(k) Taxes. All federal, state, local and foreign tax returns required to
-----
be filed by or on behalf of SouthBanc or any of its Subsidiaries have been
timely filed or requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and all such filed
returns are complete and accurate in all material respects. All taxes shown on
such returns, all taxes required to be shown on returns for which extensions
have been granted and all other taxes required to be paid by SouthBanc or any of
its Subsidiaries have been paid in full or adequate provision has been made for
any such taxes on SouthBanc"s balance sheet (in accordance with GAAP). As of the
date of this Agreement, there is no audit examination, deficiency assessment,
tax investigation or refund litigation with respect to any taxes of SouthBanc or
any of its Subsidiaries, and no claim has been made by any authority in a
jurisdiction where SouthBanc or any of its Subsidiaries do not file tax returns
that SouthBanc or any such Subsidiary is subject to taxation in that
jurisdiction. All taxes, interest, additions and penalties due with respect to
completed and settled examinations or concluded litigation relating to SouthBanc
or any of its Subsidiaries have been paid in full or adequate provision has been
made for any such taxes on SouthBanc"s balance sheet (in accordance with GAAP).
SouthBanc and its Subsidiaries have not executed an extension or waiver of any
statute of limitations on the assessment or collection of any material tax due
that is currently in effect. SouthBanc and each of its Subsidiaries has withheld
and paid all taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other third party, and SouthBanc and each of its Subsidiaries has
timely complied with all applicable information reporting requirements under
Part III, Subchapter A of Chapter 61 of the IRC and similar applicable state and
local information reporting requirements.
(l) Agreements.
----------
(i) SouthBanc and its Subsidiaries are not bound by any material
contract (as defined in Item 601(b)(10) of Regulation S-K promulgated by the
SEC), to be performed after the date hereof that has not been filed with or
incorporated by reference in SouthBanc"s Reports.
(ii) Schedule 2.2(l) lists any contract, arrangement, commitment or
---------------
understanding (whether written or oral) to which SouthBanc or any of its
Subsidiaries is a party or is bound:
(A) with any executive officer or other key employee of
SouthBanc or any of its Subsidiaries the benefits of which are contingent, or
the terms of which
32
<PAGE>
are materially altered, upon the occurrence of a transaction involving SouthBanc
or any of its Subsidiaries of the nature contemplated by this Agreement;
(B) with respect to the employment of any directors, officers
employees or consultants;
(C) (including any stock option plan, phantom stock or stock
appreciation rights plan, restricted stock plan or stock purchase plan) any of
the benefits of which will be increased, or the vesting or payment of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement;
(D) containing covenants that limit the ability of SouthBanc or
any of its Subsidiaries to compete in any line of business or with any person,
or that involve any restriction on the geographic area in which, or method by
which, SouthBanc (including any successor thereof) or any of its Subsidiaries
may carry on its business (other than as may be required by law or any
regulatory agency);
(E) pursuant to which SouthBanc or any of its Subsidiaries may
become obligated to invest in or contribute capital to any entity;
(F) not fully disclosed in SouthBanc"s Reports that relates to
borrowings of money (or guarantees thereof) by SouthBanc or any of its
Subsidiaries, other than in the ordinary course of business; or
(G) which is a lease or license with respect to any property,
real or personal, whether as landlord, tenant, licensor or licensee, involving a
liability or obligation as obligor in excess of $25,000 on an annual basis.
To the knowledge of SouthBanc, each of the agreements and other documents
referenced in Schedule 2.2(l) is a valid, binding and enforceable obligation of
---------------
the parties sought to be bound thereby, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors" rights and remedies generally
and subject, as to enforceability, to general principles of equity, whether
applied in a court of law or a court of equity. SouthBanc has previously
delivered to Heritage true and complete copies of each agreement and other
documents referenced in Schedule 2.2(l).
---------------
(iii) Neither SouthBanc nor any of its Subsidiaries is in default
under (and no event has occurred which, with due notice or lapse of time or
both, would constitute a default under) or is in violation of any provision of
any note, bond, indenture, mortgage, deed of trust, loan agreement, lease or
other agreement to which it is a party or by which it is bound or to which any
of its respective properties or assets is subject and, to the knowledge of
SouthBanc, no other party to any such agreement (excluding any loan or extension
of credit made by SouthBanc or any of its Subsidiaries) is in default in any
respect thereunder, except for such defaults or
33
<PAGE>
violations that would not, individually or in the aggregate, have a Material
Adverse Effect on SouthBanc.
(iv) SouthBanc and each of its Subsidiaries owns or possesses valid
and binding licenses and other rights to use without payment all patents,
copyrights, trade secrets, trade names, service marks and trademarks used in its
businesses, and neither SouthBanc nor any of its Subsidiaries has received any
notice of conflict with respect thereto that asserts the right of others. Each
of SouthBanc and its Subsidiaries has performed all the obligations required to
be performed by it and are not in default under any contact, agreement,
arrangement or commitment relating to any of the foregoing.
(m) Labor Matters. SouthBanc and its Subsidiaries are in material
-------------
compliance with all applicable laws respecting employment, retention of
independent contractors and employment practices, terms and conditions of
employment and wages and hours. Neither SouthBanc nor any of its Subsidiaries is
or has ever been a party to, or is or has ever been bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization with respect to its employees, nor is SouthBanc or
any of its Subsidiaries the subject of any proceeding asserting that it has
committed an unfair labor practice or seeking to compel it or any such
Subsidiary to bargain with any labor organization as to wages and conditions of
employment nor has any such proceeding been threatened, nor is there any strike,
other labor dispute or organizational effort involving SouthBanc or any of its
Subsidiaries pending or threatened.
(n) Employee Benefit Plans.
----------------------
(i) Schedule 2.2(n) contains a complete and accurate list of all
---------------
pension, retirement, stock option, stock purchase, stock ownership, savings,
stock appreciation right, profit sharing, deferred compensation, consulting,
bonus, group insurance, severance and other benefit plans, contracts, agreements
and arrangements, including, but not limited to, "employee benefit plans," as
defined in Section 3(3) of ERISA, incentive and welfare policies, contracts,
plans and arrangements and all trust agreements related thereto with respect to
any present or former directors, officers or other employees of SouthBanc or any
of its Subsidiaries (hereinafter referred to collectively as the "SouthBanc
Employee Plans"). SouthBanc has previously delivered or made available to
Heritage true and complete copies of each agreement, plan and other agreements
referenced in Schedule 2.2(n). There has been no announcement or commitment by
---------------
SouthBanc or any of its Subsidiaries to create an additional SouthBanc Employee
Plan, or to amend any SouthBanc Employee Plan, except for amendments required by
applicable law which do not materially increase the cost of such SouthBanc
Employee Plan.
(ii) There is no pending or threatened litigation, administrative
action or proceeding relating to any SouthBanc Employee Plan. All of the
SouthBanc Employee Plans comply in all material respects with all applicable
requirements of ERISA, the IRC and other applicable laws. There has occurred no
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the IRC) with respect to the SouthBanc Employee Plans which is
34
<PAGE>
likely to result in the imposition of any penalties or taxes upon SouthBanc or
any of its Subsidiaries under Section 502(i) of ERISA or Section 4975 of the
IRC.
(iii) No liability to the Pension Benefit Guarantee Corporation
has been or is expected by SouthBanc or any of its Subsidiaries to be incurred
with respect to any SouthBanc Employee Plan which is subject to Title IV of
ERISA ("SouthBanc Pension Plan"), or with respect to any "single-employer plan"
(as defined in Section 4001(a) of ERISA) currently or formerly maintained by
SouthBanc or any ERISA Affiliate. No SouthBanc Pension Plan had an "accumulated
funding deficiency" (as defined in Section 302 of ERISA), whether or not waived,
as of the last day of the end of the most recent plan year ending prior to the
date hereof; the fair market value of the assets of each SouthBanc Pension Plan
exceeds the present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under such SouthBanc Pension Plan as of the end of the
most recent plan year with respect to the respective SouthBanc Pension Plan
ending prior to the date hereof, calculated on the basis of the actuarial
assumptions used in the most recent actuarial valuation for such SouthBanc
Pension Plan as of the date hereof; and no notice of a "reportable event" (as
defined in Section 4043 of ERISA) for which the 30-day reporting requirement has
not been waived has been required to be filed for any SouthBanc Pension Plan
within the 12-month period ending on the date hereof. Neither SouthBanc nor any
of its Subsidiaries has provided, or is required to provide, security to any
SouthBanc Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the IRC. Neither SouthBanc, its Subsidiaries,
nor any ERISA Affiliate has contributed to any "multiemployer plan," as defined
in Section 3(37) of ERISA, on or after September 26, 1980.
(iv) Each SouthBanc Employee Plan that is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) and which is intended to be
qualified under Section 401(a) of the IRC (a "SouthBanc Qualified Plan") has
received a favorable determination letter from the IRS, and SouthBanc and its
Subsidiaries are not aware of any circumstances likely to result in revocation
of any such favorable determination letter. Each SouthBanc Qualified Plan that
is an "employee stock ownership plan" (as defined in Section 4975(e)(7) of the
IRC) has satisfied all of the applicable requirements of Sections 409 and
4975(e)(7) of the IRC and the regulations thereunder in all respects and any
assets of any such SouthBanc Qualified Plan that, as of the end of the plan
year, are not allocated to participants' individual accounts are pledged as
security for, and may be applied to satisfy, any securities acquisition
indebtedness.
(v) SouthBanc and its Subsidiaries do not have any obligations
for post-retirement or post-employment benefits under any SouthBanc Employee
Plan that cannot be amended or terminated upon 60 days' notice or less without
incurring any liability thereunder, except for coverage required by Part 6 of
Title I of ERISA or Section 4980B of the IRC, or similar state laws, the cost of
which is borne by the insured individuals. With respect to SouthBanc or any of
its Subsidiaries, for the SouthBanc Employee Plans listed in Schedule 2.2(n),
---------------
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in any payment or series of
payments by SouthBanc or any
35
<PAGE>
of its Subsidiaries to any person which is an "excess parachute payment" (as
defined in Section 280G of the IRC) or is a nondeductible payment under Section
162(m) of the IRC, increase or secure (by way of a trust or other vehicle) any
benefits payable under any SouthBanc Employee Plan or accelerate the time of
payment or vesting of any such benefit.
(o) Title to Assets. SouthBanc and each of its Subsidiaries has good
---------------
and insurable title to its properties and assets (including any intellectual
property asset such as any trademark, service mark, trade name or copyright) and
property acquired in a judicial foreclosure proceeding or by way of a deed in
lieu of foreclosure or similar transfer whether real or personal, tangible or
intangible, in each case free and clear of any liens, security interests,
encumbrances, mortgages, pledges, restrictions, charges or rights or interests
of others, except pledges to secure deposits and other liens incurred in the
ordinary course of business. Each lease pursuant to which SouthBanc or any of
its Subsidiaries is lessee or lessor is valid and in full force and effect and
neither SouthBanc nor any of its Subsidiaries, nor any other party to any such
lease is in default or in violation of any provisions of any such lease. All
material tangible properties of SouthBanc and each of its Subsidiaries are in a
good state of maintenance and repair, conform with all applicable ordinances,
regulations and zoning laws and are considered by SouthBanc to be adequate for
the current business of SouthBanc and its Subsidiaries. To the knowledge of
SouthBanc, none of the buildings, structures or other improvements located on
its real property encroaches upon or over any adjoining parcel or real estate or
any easement or right-of-way.
(p) Compliance with Laws. SouthBanc and each of its Subsidiaries has
--------------------
all permits, licenses, certificates of authority, orders and approvals of, and
has made all filings, applications and registrations with, all Governmental
Entities that are required in order to permit it to carry on its business as it
is presently conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect, and no suspension or
cancellation of any of them is threatened. Neither SouthBanc nor any of its
Subsidiaries is in violation of, and SouthBanc and its Subsidiaries have not
been given notice or been charged with any violation of, any law, ordinance,
regulation, order, writ, rule, decree or condition to approval of any
Governmental Entity which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on SouthBanc.
(q) Fees. Other than financial advisory services performed for
----
SouthBanc by RP Financial, LC. pursuant to an agreement dated January 11, 2000
and Sandler O'Neill & Partners, L.P. pursuant to an agreement dated February 2,
2000, true and complete copies of which have been previously delivered to
Heritage, neither SouthBanc nor any of its Subsidiaries, nor any of their
respective officers, directors, employees or agents, has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for SouthBanc or any of its Subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
(r) Environmental Matters. There is no suit, claim, action, demand,
---------------------
executive or administrative order, directive, investigation or proceeding
pending or, to the knowledge of SouthBanc, threatened before any court,
governmental agency or board or other forum against SouthBanc or any of its
Subsidiaries for alleged noncompliance (including by any predecessor)
36
<PAGE>
with, or liability under, any Environmental Law or relating to the presence of
or release into the environment of any Hazardous Material, whether or not
occurring at or on a site owned, leased or operated by it or any of its
Subsidiaries. To SouthBanc's knowledge, the properties currently owned or
operated by SouthBanc or any of its Subsidiaries (including, without limitation,
soil, groundwater or surface water on, under or adjacent to the properties, and
buildings thereon) are not contaminated with and do not otherwise contain any
Hazardous Material other than as permitted under applicable Environmental Law.
Neither SouthBanc nor any of its Subsidiaries has received any notice, demand
letter, executive or administrative order, directive, request or other
communication (written or oral) for information from any federal, state, local
or foreign governmental entity or any third party indicating that it may be in
violation of, or liable under, any Environmental Law. To SouthBanc's knowledge,
there are no underground storage tanks on, in or under any properties owned or
operated by SouthBanc or any of its Subsidiaries and no underground storage
tanks have been closed or removed from any properties owned or operated by
SouthBanc or any of its Subsidiaries. To SouthBanc's knowledge, during the
period of SouthBanc's or any of its Subsidiaries' ownership or operation of any
of their respective current properties, there has been no contamination by or
release of Hazardous Materials in, on, under or affecting such properties. To
SouthBanc's knowledge, prior to the period of SouthBanc's or any of its
Subsidiaries' ownership or operation of any of their respective current
properties, there was no contamination by or release of Hazardous Material in,
on, under or affecting such properties.
(s) Loan Portfolio; Allowance; Asset Quality.
----------------------------------------
(i) With respect to each Loan owned by SouthBanc or its
Subsidiaries in whole or in part:
(A) to the knowledge of SouthBanc, the note and the
related security documents are each legal, valid and binding obligations of the
maker or obligor thereof, enforceable against such maker or obligor in
accordance with their terms;
(B) neither SouthBanc nor any of its Subsidiaries, nor any
prior holder of a loan, has modified the note or any of the related security
documents in any material respect or satisfied, canceled or subordinated the
note or any of the related security documents except as otherwise disclosed by
documents in the applicable loan file;
(C) SouthBanc or a Subsidiary of SouthBanc is the sole
holder of legal and beneficial title to each loan (or SouthBanc's or its
Subsidiary's applicable participation interest, as applicable), except as
otherwise referenced on the books and records of SouthBanc or a Subsidiary of
SouthBanc;
(D) the note and the related security documents, copies of
which are included in the loan files, are true and correct copies of the
documents they purport to be and have not been suspended, amended, modified,
canceled or otherwise changed except as otherwise disclosed by documents in the
applicable loan file;
37
<PAGE>
(E) there is no pending or threatened condemnation
proceeding or similar proceeding affecting the property that serves as security
for a loan, except as otherwise referenced on the books and records of
SouthBanc;
(F) to the knowledge of SouthBanc, there is no litigation
or proceeding pending or threatened relating to the property that serves as
security for a loan that would have a Material Adverse Effect upon the related
loan; and
(G) with respect to a loan held in the form of a
participation, the participation documentation is legal, valid, binding and
enforceable in accordance with its terms.
(ii) The allowance for possible loan losses reflected in
SouthBanc's audited balance sheet at September 30, 1999 was, and the allowance
for possible losses shown on the balance sheets in SouthBanc's Reports for
periods ending after September 30, 1999, in the opinion of management, was or
will be adequate, as of the dates thereof, under GAAP.
(iii) Schedule 2.2(s) sets forth a true and complete listing, as
---------------
of December 31, 1999, of:
(A) all Loans that have been classified (whether regulatory
or internal) as "Special Mention," "Substandard," "Doubtful," "Loss" or words of
similar import listed by category, including the amounts thereof; and
(B) Loans (1) that are contractually past due 90 days or
more in the payment of principal and/or interest, (2) that are on a non-accrual
status, (3) where the interest rate terms have been reduced and/or the maturity
dates have been extended subsequent to the agreement under which the Loan was
originally created due to concerns regarding the borrower's ability to pay in
accordance with such initial terms, or (4) where a specific reserve allocation
exists in connection therewith, listed by category, including the amounts
thereof.
(iv) To the knowledge of SouthBanc, neither SouthBanc nor any of
its Subsidiaries is a party to any Loan that is in violation of any law,
regulation or rule of any Governmental Entity. Any asset of SouthBanc or any of
its Subsidiaries that is classified as "Real Estate Owned" or words of similar
import that is included in any non-performing assets of SouthBanc or any of its
Subsidiaries is listed on Schedule 2.2(s) and is carried net of reserves at the
---------------
lower of cost or fair value, less estimated selling costs, based on current
independent appraisals or evaluations or current management appraisals or
evaluations; provided, however, that "current" shall mean within the past 12
months.
(t) Deposits. None of the deposits of SouthBanc or any of its
--------
Subsidiaries is a "brokered" deposit.
(u) Anti-takeover Provisions Inapplicable. SouthBanc and its
-------------------------------------
Subsidiaries have taken all actions required to exempt Heritage, the Agreement,
and the Merger from any provisions of an antitakeover nature contained in their
organizational documents, and the
38
<PAGE>
provisions of any federal or state "anti-takeover," "fair price," "moratorium,"
"control share acquisition" or similar laws or regulations.
(v) Insurance. In the opinion of management, SouthBanc and its
---------
Subsidiaries are presently insured for amounts deemed reasonable by management
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured. All of the
insurance policies and bonds maintained by SouthBanc and its Subsidiaries are in
full force and effect, SouthBanc and its Subsidiaries are not in default
thereunder and all material claims thereunder have been filed in due and timely
fashion.
(w) Investment Securities; Derivatives.
----------------------------------
(i) Except for restrictions that exist for securities to be
classified as "held to maturity," none of the investment securities held by
SouthBanc or any of its Subsidiaries, is subject to any restriction (contractual
or statutory) that would materially impair the ability of the entity holding
such investment freely to dispose of such investment at any time.
(ii) Neither SouthBanc nor any of its Subsidiaries is a party to
or has agreed to enter into an exchange-traded or over-the-counter equity,
interest rate, foreign exchange or other swap, forward, future, option, cap,
floor or collar or any other contract that is a derivative contract (including
various combinations thereof) or owns securities that (A) are referred to
generically as "structured notes," "high risk mortgage derivatives," "capped
floating rate notes" or "capped floating rate mortgage derivatives" or (B) are
likely to have changes in value as a result of interest or exchange rate changes
that significantly exceed normal changes in value attributable to interest or
exchange rate changes.
(x) Indemnification. Except as provided in the certificate of
---------------
incorporation or bylaws of SouthBanc and the similar organizational documents of
its Subsidiaries, neither SouthBanc nor any Subsidiary is a party to any
agreement that provides for the indemnification of any of its present or former
directors, officers or employees or other persons who serve or served as a
director, officer or employee of another corporation, partnership or other
enterprise at the request of SouthBanc and, to the knowledge of SouthBanc, there
are no claims for which any such person would be entitled to indemnification
under the certificate of incorporation or bylaws of SouthBanc or the similar
organizational documents of any of its Subsidiaries, under any applicable law or
regulation or under any indemnification agreement.
(y) Books and Records. The books and records of SouthBanc and its
-----------------
Subsidiaries on a consolidated basis have been, and are being, maintained in
accordance with applicable legal and accounting requirements and reflect in all
material respects the substance of events and transactions that should be
included therein.
(z) Corporate Documents. SouthBanc has previously furnished or made
-------------------
available to Heritage a complete and correct copy of the certificate of
incorporation, bylaws and similar organizational documents of SouthBanc and each
of SouthBanc's Subsidiaries, as in effect as of the date of this Agreement.
Neither SouthBanc nor any of SouthBanc's Subsidiaries
39
<PAGE>
is in violation of its certificate of incorporation, bylaws or similar
organizational documents. The minute books of SouthBanc and each of SouthBanc's
Subsidiaries constitute a complete and correct record of all actions taken by
their respective boards of directors (and each committee thereof) and their
stockholders.
(aa) Registration Statement. The information regarding SouthBanc and
----------------------
its Subsidiaries to be supplied by SouthBanc for inclusion in the Registration
Statement will not, at the time the Registration Statement becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(bb) Community Reinvestment Act Compliance. Perpetual Bank is in
-------------------------------------
material compliance with the applicable provisions of the CRA and the
regulations promulgated thereunder, and Perpetual Bank currently has a CRA
rating of satisfactory or better. To the knowledge of SouthBanc, there is no
fact or circumstance or set of facts or circumstances that would cause Perpetual
Bank to fail to comply with such provisions or cause the CRA rating of Perpetual
Bank to fall below satisfactory.
(cc) Undisclosed Liabilities. As of the date hereof, SouthBanc and its
-----------------------
Subsidiaries have not incurred any debt, liability or obligation of any nature
whatsoever (whether accrued, contingent, absolute or otherwise and whether due
or to become due) except for (i) liabilities reflected on or reserved against in
the consolidated financial statements of SouthBanc as of September 30, 1999,
(ii) liabilities incurred since September 30, 1999 in the ordinary course of
business consistent with past practice that, either alone or when combined with
all similar liabilities, have not had, and would not reasonably be expected to
have, a Material Adverse Effect on SouthBanc and (iii) liabilities incurred for
legal, accounting, financial advising fees and out-of-pocket expenses in
connection with the transactions contemplated by this Agreement.
(dd) Year 2000 Matters. SouthBanc and its Subsidiaries have not
-----------------
experienced any data processing or other computer malfunctions related to
processing date information on and after January 1, 2000 and none of the third
party service providers or customers of SouthBanc or its Subsidiaries have
reported year 2000 data processing problems to SouthBanc that, individually or
in the aggregate, would have a Material Adverse Effect on SouthBanc.
(ee) Tax Treatment of the Merger. SouthBanc has no knowledge of any
---------------------------
fact or circumstance relating to it that would prevent the transactions
contemplated by this Agreement from qualifying as a reorganization under the
IRC.
40
<PAGE>
ARTICLE III
Conduct Pending the Merger
--------------------------
Section 3.1. Conduct of Business Prior to the Effective Time. Except
-----------------------------------------------
as expressly provided in this Agreement, during the period from the date of this
Agreement to the Effective Time, each of SouthBanc and Heritage shall, and shall
cause each of their respective Subsidiaries to, use commercially reasonable
efforts to (i) conduct its business in the regular, ordinary and usual course
consistent with past practice, (ii) maintain and preserve intact its business
organization, properties, leases, employees and advantageous business
relationships and retain the services of its officers and key employees, (iii)
take no action that would adversely affect or delay the ability of Heritage or
SouthBanc to perform their respective covenants and agreements on a timely basis
under this Agreement and (iv) take no action that would adversely affect or
delay the ability of Heritage or SouthBanc to obtain any necessary approvals,
consents or waivers of any governmental authority required for the transactions
contemplated hereby or which would reasonably be expected to result in any such
approvals, consents or waivers containing any material condition or restriction.
Section 3.2. Forbearances. Without limiting the covenants set forth in
------------
Section 3.1 hereof, except as expressly contemplated or permitted by this
Agreement or as set forth on Schedule 3.2 and except to the extent required by
law or regulation or any Governmental Entity, during the period from the date of
this Agreement to the Effective Time, neither SouthBanc nor Heritage shall, and
neither SouthBanc nor Heritage shall permit any of their respective Subsidiaries
to, without the prior written consent of the other party:
(a) other than in the ordinary course of business, incur any
indebtedness for borrowed money, assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other individual,
corporation or other entity, or make any loan or advance (it being understood
and agreed that incurrence of indebtedness in the ordinary course of business
shall include, without limitation, the creation of deposit liabilities,
borrowings from the Federal Home Loan Bank, sales of certificates of deposit and
entering into repurchase agreements);
(b) (i) adjust, split, combine or reclassify any capital stock;
(ii) make, declare or pay any dividend, or make any other
distribution on its capital stock (except (A) in the case
of SouthBanc, for regular quarterly cash dividends at a
rate not in excess of $.15 per share of SouthBanc Common
Stock, (B) in the case of Heritage, for regular quarterly
cash dividends at a rate not in excess of $.075 per share
of Heritage Common Stock and (C) dividends paid by any of
the Subsidiaries of each of SouthBanc and Heritage for
the purpose of enabling SouthBanc or Heritage to pay the
dividends specified in (A) and (B));
41
<PAGE>
(iii) grant any stock appreciation rights or grant any
individual, corporation or other entity any right to
acquire any shares of its capital stock; or
(iv) issue any additional shares of capital stock or any
securities or obligations convertible or exercisable for
any shares of its capital stock except pursuant to (A) the
exercise of stock options, outstanding as of the date
hereof, (B) in the case of SouthBanc, its Dividend
Reinvestment Plan or (C) the Heritage Stock Option
Agreement or the SouthBanc Stock Option Agreement;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of
its material properties or assets to any individual, corporation or other entity
other than a Subsidiary, or cancel, release or assign any indebtedness to any
such person or any claims held by any such person, except in the ordinary course
of business or pursuant to contracts or agreements in force at the date of this
Agreement;
(d) except pursuant to contracts or agreements in force at the date
of or permitted by this Agreement, make any equity investment in excess of
$100,000, either by purchase of stock or securities, contributions to capital,
property transfers, or purchase of any property or assets of any other
individual, corporation or other entity;
(e) enter into, renew, amend or terminate any contract or agreement,
or make any change in any of its leases or contracts, other than with respect to
those involving aggregate payments of less than, or the provision of goods or
services with a market value of less than, $100,000 per annum and other than
contracts or agreements covered by Section 3.2(f);
(f) make, renegotiate, renew, increase, extend, modify or purchase
any loan, lease (credit equivalent), advance, credit enhancement or other
extension of credit, or make any commitment in respect of any of the foregoing,
except in conformity with existing lending practices;
(g) (i) increase in any manner the compensation or fringe benefits
of any of its employees or directors except in the ordinary
course of business consistent with past practices, or pay
any pension, retirement allowance or contribution not
required by any existing plan or agreement to any such
employees or directors;
(ii) become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or
agreement or employment agreement with or for the benefit
of any employee or director;
42
<PAGE>
(iii) accelerate the vesting of, or the lapsing of restrictions
with respect to, any stock options or other stock-based
compensation; or
(iv) elect to any senior executive office any person who is not
a member of its senior executive officer team as of the
date of this Agreement or elect to its Board of Directors
any person who is not a member of its Board of Directors as
of the date of this Agreement, or hire any employee with an
annual total compensation payment in excess of $100,000;
(h) settle any claim, action or proceeding involving payment by it of
money damages in excess of $25,000 or impose any material restriction on its
operations or the operations of any of its Subsidiaries;
(i) amend its certificate of incorporation or its bylaws;
(j) restructure or materially change its investment securities
portfolio or its gap position, through purchases, sales or otherwise, or the
manner in which the portfolio is classified or reported;
(k) make any capital expenditures in excess of $100,000 per
expenditure other than pursuant to binding commitments existing on the date
hereof and other than expenditures necessary to maintain existing assets in good
repair or to make payment of necessary taxes;
(l) establish or commit to the establishment of any new branch or
other office facilities or file any application to relocate or terminate the
operation of any banking office;
(m) take any action that is intended or expected to result in any of
its representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time prior to the Effective Time, or in
any of the conditions to the Merger set forth in Article V not being satisfied
or in a violation of any provision of this Agreement;
(n) engage in any transaction that is not in the usual and ordinary
course of business and consistent with past practices;
(o) implement or adopt any change in its accounting principles,
practices or methods, other than as may be required by GAAP or regulatory
guidelines;
(p) knowingly take any action that would prevent or impede the Merger
from qualifying as a reorganization within the meaning of Section 368 of the
IRC; or
43
<PAGE>
(q) agree to take, make any commitment to take, or adopt any
resolutions of its board of directors in support of, any of the actions
prohibited by this Section 3.2.
Any request by either party or response thereto by the other party shall be
made in accordance with the notice provisions of Section 8.7 and shall note that
it is a request pursuant to this Section 3.2.
ARTICLE IV
Covenants
---------
Section 4.1. Acquisition Proposals. From and after the date hereof
---------------------
until the termination of this Agreement, Heritage agrees that neither it nor any
of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall use its reasonable best efforts to cause
its and its Subsidiaries' employees, representatives, agents or affiliates
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly,
initiate, solicit or knowingly encourage (including by way of furnishing non-
public information or assistance), or facilitate knowingly, any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal (as defined in Section 8.1), or enter into or
maintain or continue discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain an Acquisition Proposal or agree to
or endorse any Acquisition Proposal, or authorize or permit any of its officers,
directors or employees or any of its Subsidiaries or any investment banker,
financial advisor, attorney, accountant or other representative retained by any
of its Subsidiaries to take any such action, and that it shall notify the other
party orally (within 1 business day) and in writing (as promptly as practicable,
but in no event later than 2 calendar days) of such inquiries and proposals
which it or any of its Subsidiaries or any such officer, director, employee,
investment banker, financial advisor, attorney, accountant or other
representative may receive relating to any of such matters and, if such inquiry
or proposal is in writing, it shall deliver to the other party a copy of such
inquiry or proposal promptly; provided, however, that nothing contained in this
Section 4.1 shall prohibit the Board of Directors of Heritage from:
(i) furnishing information to, or entering into discussions or
negotiations with any person or entity that makes an unsolicited
written, bona fide proposal to acquire Heritage pursuant to a
merger, consolidation, share exchange, business combination,
tender or exchange offer or other similar transaction, if, and
only to the extent that:
(A) the Board of Directors receives a written opinion from its
independent financial advisor that such proposal may be
superior to the Merger from a financial point-of-view to
Heritage's stockholders;
(B) the Board of Directors determines in good faith that such
action is necessary for the Board of Directors to comply
with its fiduciary
44
<PAGE>
duties to stockholders under applicable law (such proposal
that satisfies (A) and (B) being referred to herein as a
"Superior Proposal"); and
(C) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity,
it:
(1) provides reasonable notice to SouthBanc to the effect
that it is furnishing information to, or entering into
discussions or negotiations with, another party; and
(2) receives from such person or entity an executed
confidentiality agreement in reasonably customary
form;
(ii) complying with Rule 14e-2 promulgated under the Exchange
Act with regard to a tender or exchange offer; or
(iii) failing to make or withdrawing or modifying its
recommendation and entering into a Superior Proposal if
there exists a Superior Proposal and the Board of Directors
determines in good faith that such action is necessary for
the Board of Directors to comply with its fiduciary duties
to stockholders under applicable law.
Section 4.2. Access and Information. Upon reasonable notice,
----------------------
Heritage and SouthBanc shall (and shall cause their respective Subsidiaries to)
afford to the other and their respective representatives (including, without
limitation, directors, officers and employees of such party and its affiliates
and counsel, accountants and other professionals retained by such party) such
reasonable access during normal business hours throughout the period prior to
the Effective Time to the books, records (including, without limitation, tax
returns and work papers of independent auditors), properties, personnel and to
such other information as either party may reasonably request and during such
period, each of Heritage and SouthBanc shall, and shall cause their respective
Subsidiaries to, make available to the other party a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws or
federal or state banking laws; provided, however, that no investigation pursuant
to this Section 4.2 shall affect or be deemed to modify any representation or
warranty made herein. SouthBanc and Heritage will not, and will use their best
efforts to cause their respective representatives not to, use any information
obtained pursuant to this Section 4.2 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement. Subject to the
requirements of applicable law, each of SouthBanc and Heritage will keep
confidential, and will use their best efforts to cause their respective
representatives to keep confidential, all information and documents obtained
pursuant to this Section 4.2 unless such information (i) was already known to
such party or an affiliate of such party, other than pursuant to a
confidentiality agreement or other confidential relationship, (ii) becomes
available to such party or an affiliate of such party from other sources not
known by such party to be bound by a confidentiality agreement or other
obligation of secrecy, (iii) is
45
<PAGE>
disclosed with the prior written approval of the other party or (iv) is or
becomes readily ascertainable from published information or trade sources. In
the event that this Agreement is terminated or the transactions contemplated by
this Agreement shall otherwise fail to be consummated, each party shall promptly
cause all copies of documents or extracts thereof containing information and
data as to the other party hereto (or an affiliate of any party hereto) to be
returned to the party that furnished the same.
Section 4.3. Applications; Consents. As soon as practicable after
----------------------
the date hereof, SouthBanc and Heritage shall cooperate with each other and use
their reasonable best efforts to prepare and file all necessary applications,
notices and filings to obtain all permits, consents, approvals and
authorizations of all third parties and Governmental Entities that are necessary
or advisable to consummate the transactions contemplated by this Agreement.
SouthBanc and Heritage shall have the right to review in advance, and will
consult with each other on, all the information relating to Heritage and
SouthBanc, as the case may be, and any of their respective Subsidiaries, which
appear in any filing made with, or written materials submitted to, any third
party or Governmental Entity in connection with the transactions contemplated by
this Agreement. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein.
Section 4.4. Antitakeover Provisions. SouthBanc, Heritage and
-----------------------
their respective Subsidiaries shall take all steps required by any relevant
federal or state law or regulation or under any relevant agreement or other
document to exempt or continue to exempt the other party, the Agreement and the
Merger from any provisions of an antitakeover nature in SouthBanc's, Heritage's
or their respective Subsidiaries' certificates of incorporation and bylaws, or
similar organizational documents, and the provisions of any federal or state
antitakeover laws.
Section 4.5. Additional Agreements. Subject to the terms and
---------------------
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all actions
and to do promptly, or cause to be done promptly, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement as expeditiously as
possible, including using efforts to obtain all necessary actions or
non-actions, extensions, waivers, consents and approvals from all applicable
Governmental Entities, effecting all necessary registrations, applications and
filings (including, without limitation, filings under any applicable state
securities laws) and obtaining any required contractual consents and regulatory
approvals.
Section 4.6. Publicity. The initial press release announcing
---------
this Agreement shall be a joint press release and thereafter Heritage and
SouthBanc shall consult with each other prior to issuing any press releases or
otherwise making public statements with respect to the Merger and any other
transaction contemplated hereby and in making any filings with any Governmental
Entity or with any national securities exchange or market with respect thereto.
46
<PAGE>
Section 4.7. Stockholders Meetings. SouthBanc and Heritage each
---------------------
shall take all action necessary, in accordance with applicable law and its
respective certificate of incorporation and bylaws, to convene a meeting of its
respective stockholders (each, a "Stockholder Meeting") as promptly as
practicable for the purpose of considering and voting on approval and adoption
of the transactions provided for in this Agreement. Except to the extent legally
required for the discharge by the Board of Directors of its fiduciary duties,
the Board of Directors of each of SouthBanc and Heritage shall (i) recommend at
its Stockholder Meeting that the stockholders vote in favor of and approve the
transactions provided for in this Agreement and (ii) use its reasonable best
efforts to solicit such approvals. SouthBanc and Heritage shall coordinate and
cooperate with respect to the timing of their respective Stockholder Meetings.
Section 4.8. Registration of SouthBanc Common Stock.
--------------------------------------
(a) As promptly as reasonably practicable following the date
hereof, SouthBanc and Heritage shall cooperate in preparing and each shall cause
to be filed with the SEC mutually acceptable proxy materials which shall
constitute the Joint Proxy Statement-Prospectus relating to the matters to be
submitted to the SouthBanc stockholders at the SouthBanc Stockholders Meeting
and the matters to be submitted to the Heritage stockholders at the Heritage
Stockholders Meeting (such proxy statement/prospectus, and any amendments or
supplements thereto, the "Joint Proxy Statement-Prospectus") and SouthBanc shall
prepare and file with the SEC a registration statement on Form S-4 with respect
to the issuance of SouthBanc Common Stock in the Merger (such Form S-4, and any
amendments or supplements thereto, the "Registration Statement"). The Joint
Proxy Statement-Prospectus will be included as a prospectus in and will
constitute a part of the Registration Statement as SouthBanc's prospectus. Each
of SouthBanc and Heritage shall use reasonable best efforts to have the Joint
Proxy Statement-Prospectus cleared by the SEC and the Registration Statement
declared effective by the SEC and to keep the Registration Statement effective
as long as is necessary to consummate the Merger and the transactions
contemplated thereby. SouthBanc and Heritage shall, as promptly as practicable
after receipt thereof, provide the other party copies of any written comments
and advise the other party of any oral comments, with respect to the Joint Proxy
Statement-Prospectus or Registration Statement received from the SEC. The
parties shall cooperate and provide the other with a reasonable opportunity to
review and comment on any amendment or supplement to the Joint Proxy
Statement-Prospectus and the Registration Statement prior to filing such with
the SEC, and will provide each other with a copy of all such filings made with
the SEC. Notwithstanding any other provision herein to the contrary, no
amendment or supplement (including by incorporation by reference) to the Joint
Proxy Statement-Prospectus or the Registration Statement shall be made without
the approval of both parties, which approval shall not be unreasonably withheld
or delayed; provided that with respect to documents filed by a party which are
incorporated by reference in the Registration Statement or Joint Proxy
Statement-Prospectus, this right of approval shall apply only with respect to
information relating to the other party or its business, financial condition or
results of operations. SouthBanc will use reasonable best efforts to cause the
Joint Proxy Statement-Prospectus to be mailed to SouthBanc stockholders, and
Heritage will use reasonable
47
<PAGE>
best efforts to cause the Joint Proxy Statement-Prospectus to be mailed to
Heritage"s stockholders, in each case as promptly as practicable after the
Registration Statement is declared effective under the Securities Act. Each
party will advise the other party, promptly after it receives notice thereof, of
the time when the Registration Statement has become effective, the issuance of
any stop order, the suspension of the qualification of the SouthBanc Common
Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Joint Proxy
Statement-Prospectus or the Registration Statement. If at any time prior to the
Effective Time any information relating to SouthBanc or Heritage, or any of
their respective affiliates, officers or directors, should be discovered by
SouthBanc or Heritage which should be set forth in an amendment or supplement to
any of the Registration Statement or the Joint Proxy Statement-Prospectus so
that any of such documents would not include any misstatement of a material fact
or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, the party
which discovers such information shall promptly notify the other party hereto
and, to the extent required by law, rules or regulations, an appropriate
amendment or supplement describing such information shall be promptly filed with
the SEC and disseminated to the stockholders of SouthBanc and Heritage.
(b) SouthBanc shall also take any action (other than qualifying
to do business in any jurisdiction in which it is not now so qualified or to
file a general consent to service of process) required to be taken under any
applicable state securities laws in connection with the Merger and each of
Heritage and SouthBanc shall furnish all information concerning it and the
holders of its Common Stock as may be reasonably requested in connection with
any such action.
(c) Prior to the Effective Time, SouthBanc shall notify the
Nasdaq National Market of the additional shares of SouthBanc Common Stock to be
issued by SouthBanc in exchange for the shares of Heritage Common Stock.
Section 4.9. Affiliate Letters. Heritage shall use its best
-----------------
efforts to cause each director, executive officer and other person who is an
"affiliate" of Heritage under Rule 145 of the Securities Act to deliver to
SouthBanc as soon as practicable and prior to the mailing of the Joint Proxy
Statement-Prospectus executed letter agreements, each substantially in the form
attached hereto as Exhibit C, providing that such person will comply with Rule
---------
145.
Section 4.10 Notification of Certain Matters. Each party shall
-------------------------------
give prompt notice to the other of: (i) any event or notice of, or other
communication relating to, a default or event that, with notice or lapse of time
or both, would become a default, received by it or any of its Subsidiaries
subsequent to the date of this Agreement and prior to the Effective Time, under
any contract material to the financial condition, properties, businesses or
results of operations of each party and its Subsidiaries taken as a whole to
which each party or any Subsidiary is a party or is subject; and (ii) any event,
condition, change or occurrence which individually or in the aggregate has, or
which, so far as reasonably can be foreseen at the time of its occurrence, is
48
<PAGE>
reasonably likely to result in a Material Adverse Effect. Each of Heritage and
SouthBanc shall give prompt notice to the other party of any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with any of the transactions contemplated by
this Agreement.
Section 4.11. Employees, Directors and Officers.
---------------------------------
(a) All persons who are employees of Heritage Federal
immediately prior to the Effective Time ("Heritage"s Employees") shall, at the
Effective Time, continue as employees of Heritage Federal ("Continuing
Employees"). Subject to paragraph (f) of this Section 4.11, all Continuing
Employees shall be employed at the will of Heritage Federal and no contractual
right to employment shall inure to such employees because of this Agreement.
(b) Except as provided in Section 4.11(e), from and after the
Effective Time, unless otherwise mutually determined, the SouthBanc Employee
Plans and the Heritage Employee Plans in effect as of the date of this Agreement
shall remain in effect with respect to employees of SouthBanc and Heritage and
their respective Subsidiaries covered by such plans and arrangements at the
Effective Time until such time as SouthBanc shall, subject to applicable law,
the terms of this Agreement and the terms of such plans, adopt new benefit plans
and arrangements with respect to the employees of SouthBanc and its Subsidiaries
("New Benefit Plans"), including all Continuing Employees. Prior to the
Effective Time, SouthBanc and Heritage shall cooperate in reviewing, evaluating
and analyzing the SouthBanc Employee Plans and the Heritage Employee Plans with
a view toward developing appropriate New Benefit Plans.
(c) The foregoing subparagraph (b) notwithstanding, SouthBanc
agrees to honor in accordance with their terms all benefits vested as of the
Effective Time under the SouthBanc Employee Plans and the Heritage Employee
Plans and all vested benefits or other vested amounts earned or accrued through
such time under contracts, arrangement commitments or understandings described
in Schedule 2.1(n) and Schedule 2.2(n), including benefits which vest or are
--------------- ---------------
otherwise accrued as a result of the consummation of the transactions
contemplated by this Agreement.
(d) With respect to all New Benefit Plans, SouthBanc agrees
that Continuing Employees shall receive (i) full credit for prior service with
Heritage and Heritage Federal for purposes of eligibility for participation and
vesting, (ii) a waiver of all waiting periods and preexisting condition
exclusions or penalties and (iii) credit for deductibles, copayments or similar
out-of-pocket expenses incurred under any Heritage Employee Plan with respect to
the plan year in which the Effective Time occurs. Notwithstanding anything
herein to the contrary, with respect to participation in Perpetual Bank's
Employee Stock Ownership Plan, Continuing Employees will be eligible to
participate in such plan on the earliest date required by ERISA and the IRC and
with Continuing Employees receiving credit for years of service with Heritage or
any of its Subsidiaries for the purpose of vesting, but not for the purpose of
accrual of benefits or allocation of employer contributions.
49
<PAGE>
(e) Notwithstanding anything in this Agreement to the contrary,
the Heritage Federal Bank Employee Stock Ownership Plan (the "Heritage ESOP")
shall be terminated as of the Effective Time. In connection with the termination
of the Heritage ESOP, Heritage shall promptly apply to the IRS for a
determination letter on the Heritage ESOP's tax-qualified status upon
termination under Code Sections 401(a) and 4975. Prior to any distributions to
any Heritage ESOP participants, the trustees for the Heritage ESOP shall have
received a favorable letter from the IRS related to the tax qualified status of
the Heritage ESOP upon termination. The parties acknowledge that the existing
loan between Heritage and the Heritage ESOP (the "ESOP Loan") shall be repaid in
full by the Heritage ESOP upon such termination or as soon thereafter as
practicable. The parties further acknowledge that, as of the date hereof, the
Heritage ESOP has unallocated assets with a current fair market value exceeding
the outstanding balance (principal and accrued interest) of the ESOP Loan. The
parties agree that, pursuant to the applicable provisions of the Heritage ESOP,
participants in the Heritage ESOP shall benefit from these assets as an
allocation of earnings in the manner and to the extent provided under the
Heritage ESOP upon termination of the Heritage ESOP. Heritage may take such
actions as it deems necessary or appropriate to effectuate this intent. In
addition, Heritage may take such other actions, including the making of other
amendments to the plan, that it deems necessary or appropriate to preserve the
tax-qualified status of the Heritage ESOP or the exempt status of the ESOP Loan.
From and after the Effective Time, the administrative and other authority
previously exercised solely by a committee appointed by the Board of Directors
of Heritage Federal shall be exercised by a committee appointed by the Board of
Directors of Heritage in consultation with SouthBanc. The committee shall advise
and consult with SouthBanc regarding all actions taken with respect to the
Heritage ESOP following the Effective Time.
On or before the Effective Time, Heritage may make such
contributions to the Heritage ESOP as may be necessary to permit the Heritage
ESOP to make scheduled principal and interest payments on any outstanding exempt
loan in accordance with past practice.
(f) From and after the Effective Time, J. Edward Wells shall
serve as Chairman of SouthBanc, H.A. Pickens, Jr. shall serve as Vice Chairman
of SouthBanc and Robert W. Orr shall serve as President and Chief Executive
Officer of SouthBanc. At the Effective Time, SouthBanc and Heritage Federal
shall enter into employment agreements with J. Edward Wells substantially in the
form attached hereto as Exhibits D and E, respectively. At the Effective Time,
---------- -
SouthBanc and Heritage Federal shall enter into Change in Control Agreements
with Edwin I. Shealy, Will B. Ferguson, John M. Swofford and James H. Wasson,
Jr. substantially in the form attached hereto as Exhibit F.
---------
(g) SouthBanc shall cause Perpetual Bank to appoint J. Edward
Wells to the Board of Directors of Perpetual Bank as of the Effective Time.
Heritage shall cause Heritage Federal to appoint Robert W. Orr and one other
member of the Board of Directors of SouthBanc, who shall be designated by
SouthBanc, to the Board of Directors of Heritage Federal as of the Effective
Time.
50
<PAGE>
Section 4.12. Indemnification.
---------------
(a) From and after the Effective Time through the sixth
anniversary of the Effective Date, SouthBanc agrees to indemnify and hold
harmless each present and former director and officer of Heritage and its
Subsidiaries and each officer or employee of Heritage and its Subsidiaries that
is serving or has served as a director or trustee of another entity expressly at
Heritage"s request or direction (each, an "Indemnified Party"), against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
amounts paid in settlement, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to the
Effective Time (including the transactions contemplated by this Agreement),
whether asserted or claimed prior to, at or after the Effective Time, and to
advance any such Costs to each Indemnified Party as they are from time to time
incurred, in each case to the fullest extent such Indemnified Party would have
been indemnified as a director, officer or employee of Heritage and its
Subsidiaries and as then permitted under applicable law.
(b) Any Indemnified Party wishing to claim indemnification
under Section 4.12(a), upon learning of any such claim, action, suit, proceeding
or investigation, shall promptly notify SouthBanc thereof, but the failure to so
notify shall not relieve SouthBanc of any liability it may have hereunder to
such Indemnified Party if such failure does not materially and substantially
prejudice SouthBanc. In the event of any such claim, action, suit, proceeding or
investigation, (i) SouthBanc shall have the right to assume the defense thereof
with counsel reasonably acceptable to the Indemnified Party and SouthBanc shall
not be liable to such Indemnified Party for any legal expenses of other counsel
subsequently incurred by such Indemnified Party in connection with the defense
thereof, except that if SouthBanc does not elect to assume such defense within a
reasonable time or counsel for the Indemnified Party at any time advises that
there are issues which raise conflicts of interest between SouthBanc and the
Indemnified Party (and counsel for SouthBanc does not disagree), the Indemnified
Party may retain counsel satisfactory to such Indemnified Party, and SouthBanc
shall remain responsible for the reasonable fees and expenses of such counsel as
set forth above, to be paid promptly as statements therefor are received;
provided, however, that SouthBanc shall be obligated pursuant to this paragraph
(b) to pay for only one firm of counsel for all Indemnified Parties in any one
jurisdiction with respect to any given claim, action, suit, proceeding or
investigation unless the use of one counsel for such Indemnified Parties would
present such counsel with a conflict of interest; (ii) the Indemnified Party
will reasonably cooperate in the defense of any such matter; and (iii) SouthBanc
shall not be liable for any settlement effected by an Indemnified Party without
its prior written consent, which consent may not be withheld unless such
settlement is unreasonable in light of such claims, actions, suits, proceedings
or investigations against, or defenses available to, such Indemnified Party.
(c) SouthBanc shall pay all reasonable Costs, including
attorneys' fees, that may be incurred by any Indemnified Party in successfully
enforcing the indemnity and other obligations provided for in this Section 4.12
to the fullest extent permitted under applicable law.
51
<PAGE>
The rights of each Indemnified Party hereunder shall be in addition to any other
rights such Indemnified Party may have under applicable law.
(d) SouthBanc shall maintain Heritage's existing directors' and
officers' liability insurance policy (or provide a policy providing comparable
coverage and amounts on terms no less favorable to the persons currently covered
by Heritage's existing policy, including SouthBanc's existing policy if it meets
the foregoing standard) covering persons who are currently covered by such
insurance for a period of three years after the Effective Time; provided,
however, that in no event shall SouthBanc be obligated to expend, in order to
maintain or provide insurance coverage pursuant to this Section 4.12(d), an
amount per annum in excess of 200% of the amount of the annual premiums paid by
Heritage as of the date hereof for such insurance ("Maximum Insurance Amount");
provided further, that if the amount of the annual premiums necessary to
maintain or procure such insurance coverage exceeds the Maximum Insurance
Amount, SouthBanc shall obtain the most advantageous coverage obtainable for an
annual premium equal to the Maximum Insurance Amount.
(e) In the event SouthBanc or any of its successors or assigns
(i) consolidates with or merges into any other person or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any person or entity, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors and assigns of
SouthBanc assume the obligations set forth in this Section 4.12.
(f) The provisions of this Section 4.12 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and his or
her representatives.
Section 4.13. Dividends. After the date of this Agreement, each
---------
of Heritage and SouthBanc shall coordinate with the other the declaration of any
dividends in respect of Heritage Common Stock and SouthBanc Common Stock and the
record dates and payment dates relating thereto, it being the intention of the
parties hereto that holders of Heritage Common Stock shall not receive two
dividends, or fail to receive one dividend, for any quarter with respect to
their shares of Heritage Common Stock and any shares of SouthBanc Common Stock
any such holder receives in exchange therefor in the Merger.
Section 4.14 Section 16 Matters. Prior to the Effective Time,
------------------
Heritage and SouthBanc shall take all such steps as may be required to cause any
dispositions of Heritage Common Stock (including derivative securities with
respect to Heritage Common Stock) or acquisitions of SouthBanc Common Stock
resulting from the transactions contemplated by this Agreement by each
individual who is subject to the reporting requirements of Section 16(a) of the
Exchange Act with respect to Heritage to be exempt under Rule 16b-3 promulgated
under the Exchange Act.
52
<PAGE>
ARTICLE V
Conditions to Consummation
--------------------------
Section 5.1. Conditions to Each Party's Obligations. The
--------------------------------------
respective obligations of each party to effect the Merger shall be subject to
the satisfaction of the following conditions:
(a) Stockholder Approvals. This Agreement shall have been
---------------------
approved by the requisite vote of Heritage's and SouthBanc's stockholders in
accordance with applicable laws and regulations.
(b) Regulatory Approvals. All approvals, consents or waivers
--------------------
of any Governmental Entity required to permit consummation of the transactions
contemplated by this Agreement shall have been obtained and shall remain in full
force and effect, and all statutory waiting periods shall have expired;
provided, however, that none of such approvals, consents or waivers shall
contain any condition or requirement that would so materially and adversely
impact the economic or business benefits to SouthBanc or Heritage of the
transactions contemplated hereby that, had such condition or requirement been
known, such party would not, in its reasonable judgment, have entered into this
Agreement.
(c) No Injunctions or Restraints; Illegality. No party hereto
----------------------------------------
shall be subject to any order, decree or injunction of a court or agency of
competent jurisdiction that enjoins or prohibits the consummation of the Merger
and no Governmental Entity shall have instituted any proceeding for the purpose
of enjoining or prohibiting the consummation of the Merger or any transactions
contemplated by this Agreement. No statute, rule or regulation shall have been
enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits, restricts or makes illegal consummation of the Merger.
(d) Registration Statement; Blue Sky Laws. The Registration
-------------------------------------
Statement shall have been declared effective by the SEC and no proceedings shall
be pending or threatened by the SEC to suspend the effectiveness of the
Registration Statement, and SouthBanc shall have received all required approvals
by state securities or "blue sky" authorities with respect to the transactions
contemplated by this Agreement.
(e) Third Party Consents. SouthBanc and Heritage shall have
--------------------
obtained the consent or approval of each person (other than the governmental
approvals or consents referred to in Section 5.1(b)) whose consent or approval
shall be required to consummate the transactions contemplated by this Agreement,
except those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on SouthBanc
(after giving effect to the consummation of the transactions contemplated
hereby) or upon the consummation of the transactions contemplated hereby.
(f) Tax Opinion. SouthBanc and Heritage shall have received
-----------
opinions of Malizia, Spidi, & Fisch, P.C. and Muldoon, Murphy & Faucette LLP,
respectively, dated as of the Effective Date, in form and substance customary in
transactions of the type contemplated hereby, and reasonably satisfactory to
SouthBanc and Heritage, as the case may be, substantially
53
<PAGE>
to the effect that on the basis of the facts, representations and assumptions
set forth in such opinions which are consistent with the state of facts existing
at the Effective Time, the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the IRC and
that accordingly:
(i) No gain or loss will be recognized by SouthBanc or
Heritage as a result of the Merger;
(ii) Except to the extent of any cash received as part of
the Merger Consideration or in lieu of a fractional share interest in SouthBanc
Common Stock, no gain or loss will be recognized by the stockholders of Heritage
who exchange their Heritage Common Stock for SouthBanc Common Stock pursuant to
the Merger;
(iii) The tax basis of SouthBanc Common Stock received by
stockholders who exchange their Heritage Common Stock for SouthBanc Common Stock
in the Merger will be the same as the tax basis of Heritage Common Stock
surrendered pursuant to the Merger, reduced by any amount allocable to a
fractional share interest for which cash is received and increased by any gain
recognized on the exchange; and
(iv) The holding period of SouthBanc Common Stock received
by each stockholder in the Merger will include the holding period of Heritage
Common Stock exchanged therefor, provided that such stockholder held such
Heritage Common Stock as a capital asset on the Effective Date.
Such opinions may be based on, in addition to the review of
such matters of fact and law as counsel considers appropriate, representations
contained in certificates of officers of SouthBanc, Heritage and others.
Section 5.2. Conditions to the Obligations of SouthBanc. The
------------------------------------------
obligations of SouthBanc to effect the Merger shall be further subject to the
satisfaction of the following additional conditions, any one or more of which
may be waived by SouthBanc:
(a) Representations and Warranties; Performance of
----------------------------------------------
Obligations. Each of the obligations of Heritage required to be performed by it
- -----------
at or prior to the Closing pursuant to the terms of this Agreement shall have
been duly performed and complied with in all material respects and the
representations and warranties of Heritage contained in this Agreement shall be
true and correct as of the date of this Agreement and as of the Effective Time
as though made at and as of the Effective Time (except as to any representation
or warranty that specifically relates to an earlier date), and SouthBanc shall
have received a certificate to the foregoing effect signed by the chief
executive officer and the chief financial or principal accounting officer of
Heritage; provided, however, that for purposes of this paragraph, such
representations and warranties shall be deemed to be true and correct unless the
failure or failures of such representations and warranties to be so true and
correct, either individually or in the aggregate, and without giving effect to
any qualification as to materiality set forth in such representations and
warranties, will have a Material Adverse Effect on Heritage.
54
<PAGE>
(b) Dissenters' Shares. Dissenters' rights shall not have been
------------------
exercised with respect to more than 10% of the outstanding shares of Heritage
Common Stock.
(c) Good Standing and Other Certificates. SouthBanc shall have
------------------------------------
received certificates (such certificates to be dated as of a day as close as
practicable to the Closing Date) from appropriate authorities as to the
corporate existence of Heritage and its Subsidiaries and such other documents
and certificates to evidence fulfillment of the conditions set forth in Sections
5.1 and 5.2 as SouthBanc may reasonably require.
Section 5.3. Conditions to the Obligations of Heritage. The
-----------------------------------------
obligations of Heritage to effect the Merger shall be further subject to the
satisfaction of the following additional conditions, any one or more of which
may be waived by Heritage:
(a) Representations and Warranties; Performance of Obligations.
----------------------------------------------------------
Each of the obligations of SouthBanc required to be performed by it at or prior
to the Closing pursuant to the terms of this Agreement shall have been duly
performed and complied with in all material respects and the representations and
warranties of SouthBanc contained in this Agreement shall be true and correct as
of the date of this Agreement and as of the Effective Time as though made at and
as of the Effective Time (except as to any representation or warranty which
specifically relates to an earlier date), and Heritage shall have received a
certificate to the foregoing effect signed by the chief executive officer and
the chief financial or principal accounting officer of SouthBanc; provided,
however, that for purposes of this paragraph, such representations and
warranties shall be deemed to be true and correct unless the failure or failures
of such representations and warranties to be so true and correct, either
individually or in the aggregate, and without giving effect to any qualification
as to materiality set forth in such representations and warranties, will have a
Material Adverse Effect on SouthBanc.
(b) Deposit of Merger Consideration. SouthBanc shall have
-------------------------------
deposited with the Exchange Agent sufficient cash to pay the aggregate Cash
Consideration and Heritage shall have received a certificate from the Exchange
Agent to such effect.
(c) Good Standing and Other Certificates. Heritage shall have
------------------------------------
received certificates (such certificates to be dated as of a day as close as
practicable to the Closing Date) from appropriate authorities as to the
corporate existence of SouthBanc and its Subsidiaries and such other documents
and certificates to evidence fulfillment of the conditions set forth in Sections
5.1 and 5.3 as Heritage may reasonably require.
ARTICLE VI
Termination
-----------
Section 6.1. Termination. This Agreement may be terminated, and
-----------
the Merger abandoned, at any time prior to the Effective Time, either before or
after any requisite stockholder approval:
55
<PAGE>
(a) by the mutual consent of SouthBanc and Heritage in a written
instrument, if the Board of Directors of each so determines by vote of a
majority of the members of its entire Board; or
(b) by either the Board of Directors of SouthBanc or Heritage,
in the event of the failure of the stockholders of Heritage or SouthBanc to
approve the Agreement at its Stockholder Meeting called to consider such
approval; provided, however, that Heritage or SouthBanc, as the case may be,
shall only be entitled to terminate the Agreement pursuant to this clause if it
has complied in all material respects with its obligations under Section 4.7; or
(c) by either the Board of Directors of SouthBanc or Heritage,
if either (i) any approval, consent or waiver of a Governmental Entity required
to permit consummation of the transactions contemplated by this Agreement shall
have been denied or (ii) any Governmental Entity of competent jurisdiction shall
have issued a final, unappealable order enjoining or otherwise prohibiting
consummation of the transactions contemplated by this Agreement; or
(d) by either the Board of Directors of SouthBanc or Heritage,
in the event that the Merger is not consummated by December 31, 2000, unless the
failure to so consummate by such time is due to the breach of any
representation, warranty or covenant contained in this Agreement by the party
seeking to terminate; or
(e) by either the Board of Directors of SouthBanc or Heritage
(provided that the party seeking termination is not then in material breach of
any representation, warranty, covenant or other agreement contained herein), in
the event of (i) a failure to perform or comply by the other party with any
covenant or agreement of such other party contained in this Agreement, which
failure or non-compliance is material in the context of the transactions
contemplated by this Agreement, or (ii) any inaccuracies, omissions or breach in
the representations, warranties, covenants or agreements of the other party
contained in this Agreement the circumstances as to which either individually or
in the aggregate have, or reasonably could be expected to have, a Material
Adverse Effect on such other party; in either case which has not been or cannot
be cured within 30 calendar days after written notice thereof is given by the
party seeking to terminate to such other party; or
(f) by either the Board of Directors of SouthBanc or Heritage,
if the Board of Directors of the other party does not publicly recommend in the
Joint Proxy Statement-Prospectus that stockholders approve and adopt this
Agreement or if, after recommending in the Joint Proxy Statement-Prospectus that
stockholders approve and adopt this Agreement, the Board of Directors of the
other party shall have withdrawn, qualified or revised such recommendation in
any respect materially adverse to the party seeking to terminate this Agreement;
or
(g) by Heritage, if the Board of Directors of Heritage
reasonably determines that a proposal made by a third party to acquire, directly
or indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction, for consideration consisting of cash and/or
56
<PAGE>
securities, more than 50% of the combined voting power of the shares of Heritage
Common Stock then outstanding or all or substantially all of the assets of
Heritage constitutes a Superior Proposal and that such proposal must be accepted
in order for the Board of Directors to comply with its fiduciary duties to
stockholders under applicable law; or
(h) by the Board of Directors of Heritage, within five business
days after the end of the Measurement Period (as defined in Section 8.1), if the
SouthBanc Price is less than $14.05; provided, however, that if within five
calendar days after receipt of notice of termination pursuant to this paragraph
(i), SouthBanc provides written notice to Heritage that it shall increase the
Exchange Ratio to an amount equal (rounded to the nearest one-thousandth) to
$15.57 divided by the SouthBanc Price, in which case no termination shall be
deemed to have occurred pursuant to this Section 6.1(i) and this Agreement shall
remain in full force and effect in accordance with its terms (except the
Exchange Ratio shall have been so modified).
Section 6.2. Effect of Termination. In the event of termination
---------------------
of this Agreement by either SouthBanc or Heritage as provided in Section 6.1,
this Agreement shall forthwith become void and have no effect, and there shall
be no liability on the part of any party hereto or their respective officers and
directors, except (i) the last two sentences of Section 4.2, and Sections 8.6
and 8.7, shall survive any termination of this Agreement, and (ii) that
notwithstanding anything to the contrary contained in this Agreement, no party
shall be relieved or released from any liabilities or damages arising out of its
willful breach of any provision of this Agreement.
ARTICLE VII
Closing, Effective Date and Effective Time
------------------------------------------
Section 7.1. Effective Date and Effective Time. The closing of
---------------------------------
the transactions contemplated hereby ("Closing") shall take place at the offices
of Muldoon, Murphy & Faucette LLP, 5101 Wisconsin Avenue, N.W., Washington, D.C.
20016, unless another place is agreed to by SouthBanc and Heritage, on a date
specified by the parties ("Closing Date") that is no later than 14 days
following the date on which the expiration of the last applicable waiting period
in connection with notices to and approvals of Governmental Entities shall occur
and all conditions to the consummation of this Agreement are satisfied or waived
(excluding conditions that, by their nature, cannot be satisfied until the
Closing Date) unless extended by mutual agreement of the parties. Prior to the
Closing Date, SouthBanc and Heritage shall execute a certificate of merger in
accordance with all appropriate legal requirements, which shall be filed as
required by law on the Closing Date, and the Merger provided for therein shall
become effective upon such filing or on such date as may be specified in such
certificate of merger. The date of such filing or such later effective date as
specified in the certificate of merger is herein referred to as the "Effective
Date." The "Effective Time" of the Merger shall be as set forth in the
certificate of merger.
57
<PAGE>
Section 7.2. Deliveries at the Closing. Subject to the provisions
-------------------------
of Articles V and VI, on the Closing Date there shall be delivered to SouthBanc
and Heritage the documents and instruments required to be delivered under
Article V.
ARTICLE VIII
Certain Other Matters
---------------------
Section 8.1. Certain Definitions; Interpretation. For purposes of
-----------------------------------
this Agreement:
"Acquisition Proposal" means any proposal or offer with respect
to any of the following (other than the transactions contemplated hereunder)
involving Heritage or any of its Subsidiaries: (i) any merger, consolidation,
share exchange, business combination, or other similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of 25% or
more of its consolidated assets in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 25% or more of the
outstanding shares of its capital stock or the filing of a registration
statement under the Securities Act in connection therewith; or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing;
"Acquisition Transaction" means any of the following (other
than the transactions contemplated hereunder) involving SouthBanc or any of its
Subsidiaries: (i) any merger, consolidation, share exchange, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 25% or more of its
consolidated assets in a single transaction or series of transactions; or (iii)
any tender offer or exchange offer for 25% or more of the outstanding shares of
its capital stock or the filing of a registration statement under the Securities
Act in connection therewith;
"CRA" means the Community Reinvestment Act;
"Delaware Law" means the Delaware General Corporation Law;
"Environmental Law" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, directive, executive or administrative order,
judgment, decree or injunction relating to (i) the protection, preservation or
restoration of the environment (which includes, without limitation, air, water
vapor, surface water, groundwater, drinking water supply, structures, soil,
surface land, subsurface land, plant and animal life or any other natural
resource), or to human health or safety as it relates to Hazardous Materials, or
(ii) the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of, Hazardous Materials, in each case as amended and as now in effect. The term
Environmental Law includes all federal, state and local laws, rules, regulations
or requirements relating to the protection of the environment or health and
safety, including, without limitation, the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980,
58
<PAGE>
the Superfund Amendments and Reauthorization Act of 1986, the Federal Water
Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976
(including, but not limited to, the Hazardous and Solid Waste Amendments thereto
and Subtitle I relating to underground storage tanks), the Federal Solid Waste
Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of
1970 as it relates to Hazardous Materials, the Federal Hazardous Substances
Transportation Act, the Emergency Planning and Community Right-To-Know Act, the
Safe Drinking Water Act, the Endangered Species Act, the National Environmental
Policy Act, the Rivers and Harbors Appropriation Act or any so-called
"Superfund" or "Superlien" law, each as amended and as now or hereafter in
effect;
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended;
"ERISA Affiliate" means any entity that is considered one
employer with SouthBanc or Heritage, as the case may be, under Section
4001(b)(1) of ERISA or Section 414 of the IRC;
"Exchange Act" means the Securities Exchange Act of 1934, as
amended;
"Excluded Shares" shall consist of (i) Dissenters' Shares and
(ii) shares held directly or indirectly by SouthBanc (other than shares held in
a fiduciary capacity or in satisfaction of a debt previously contracted);
"FDIA" means the Federal Deposit Insurance Act, as amended;
"FDIC" means the Federal Deposit Insurance Corporation;
"GAAP" means generally accepted accounting principles;
"Government Regulators" means any federal or state governmental
authority charged with the supervision or regulation of depository institutions
or depository institution holding companies or engaged in the insurance of bank
deposits;
"Governmental Entity" means any court, administrative agency or
commission or other governmental authority or instrumentality;
"Hazardous Material" means any substance (whether solid, liquid
or gas) which is or could be detrimental to human health or safety or to the
environment, currently or hereafter listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any
Environmental Law, whether by type or by quantity, including any substance
containing any such substance as a component. Hazardous Material includes,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance,
59
<PAGE>
hazardous waste, special waste, industrial substance, oil or petroleum, or any
derivative or by-product thereof, radon, radioactive material, asbestos,
asbestos-containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyl;
"Heritage Common Stock" means the common stock, par value $.01
per share, of Heritage;
"HOLA" means the Home Owners" Loan Act, as amended;
"IRC" means the Internal Revenue Code of 1986, as amended;
"IRS" means the Internal Revenue Service;
"knowledge" means, with respect to a party hereto, actual
knowledge of the members of the Board of Directors of that party or any officer
of that party with the title ranking not less than senior vice president;
"Loan" means a loan, lease, advance, credit enhancement,
guarantee or other extension of credit;
"Material Adverse Effect" means an effect which is material and
adverse to the business, financial condition or results of operations of
Heritage or SouthBanc, as the context may dictate, and its Subsidiaries taken as
a whole; provided, however, that any such effect resulting from any (i) changes
in laws, rules or regulations or generally accepted accounting principles or
regulatory accounting requirements or interpretations thereof that apply to both
SouthBanc and Perpetual Bank and Heritage and Heritage Federal, as the case may
be, or to similarly situated financial and/or depository institutions or (ii)
changes in economic conditions affecting financial institutions generally,
including but not limited to, changes in the general level of market interest
rates shall not be considered in determining if a Material Adverse Effect has
occurred;
"Measurement Period" means the ten consecutive trading days
immediately preceding the eleventh calendar day prior to the Closing Date;
"NASD" means the National Association of Securities Dealers,
Inc.;
"OTS" means the Office of Thrift Supervision;
"person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization or other
entity;
"SEC" means the Securities and Exchange Commission;
60
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder;
"SouthBanc Common Stock" means the common stock, par value $0.01
per share, of SouthBanc;
"SouthBanc Price" means the average of the closing sales price of
SouthBanc Common Stock, as reported on the Nasdaq National Market, for the
Measurement Period; provided, however, that in the event SouthBanc Common Stock
does not trade on one or more of the trading days in the Measurement Period, any
such date shall be disregarded in computing the average closing sales price and
the average shall be based upon the closing sales price and number of days on
which SouthBanc Common Stock actually traded during the Measurement Period;
"Subsidiary" means a corporation, partnership, joint venture or
other entity in which Heritage or SouthBanc, as the case may be, has, directly
or indirectly, an equity interest representing 5% or more of any class of the
capital stock thereof or other equity interests therein;
"taxes" means all income, franchise, gross receipts, real and
personal property, real property transfer and gains, wage and employment taxes;
and
"Triggering Event" means any one or more of the following
events:
(i) SouthBanc shall have authorized, recommended, publicly
proposed or publicly announced an intention to
authorize, recommend or propose, or entered into an
agreement with any person to effect an Acquisition
Transaction;
(ii) Any person shall have made, in the reasonable opinion
of the Board of Directors of SouthBanc, a bona fide
proposal to SouthBanc or its stockholders by public
announcement, or by written communication that is or
becomes the subject of public disclosure, to engage in
an Acquisition Transaction; and
(iii) Any person shall have commenced (as such term is
defined in Rule 14d-2 under the Exchange Act) or shall
have filed a registration statement under the
Securities Act with respect to, a tender offer or
exchange offer to purchase any shares of SouthBanc
Common Stock such that, upon consummation of such
offer, such person would own or control 25% or more of
the then outstanding shares of SouthBanc Common Stock.
When a reference is made in this Agreement to Sections,
Exhibits or Schedules, such reference shall be to a Section of, Exhibit or
Schedule to, this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for ease of
61
<PAGE>
reference only and shall not affect the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed followed by the words "without limitation."
Any singular term in this Agreement shall be deemed to include the plural, and
any plural term the singular. Any reference to gender in this Agreement shall be
deemed to include any other gender.
Section 8.2. Survival. Only those agreements and covenants of the
--------
parties that are by their terms applicable in whole or in part after the
Effective Time, including the last two sentences of Section 4.2 and Sections
4.11, 4.12, and 8.6 of this Agreement, shall survive the Effective Time. All
other representations, warranties, agreements and covenants shall be deemed to
be conditions of the Agreement and shall not survive the Effective Time.
Section 8.3. Waiver; Amendment. Prior to the Effective Time,
-----------------
any provision of this Agreement may 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) by an agreement in writing between the parties
hereto except that, after the vote by the stockholders of Heritage or SouthBanc,
no amendment or modification may be made that would reduce the amount or alter
or change the kind of consideration to be received by holders of Heritage Common
Stock or contravene any provision of Delaware Law or the federal banking laws,
rules and regulations.
Section 8.4. Counterparts. This Agreement may be executed in
------------
counterparts each of which shall be deemed to constitute an original, but all of
which together shall constitute one and the same instrument.
Section 8.5. Governing Law. This Agreement shall be governed by,
-------------
and interpreted in accordance with, the laws of the State of Delaware, without
regard to conflicts of laws principles.
Section 8.6. Expenses. Each party hereto will bear all expenses
--------
incurred by it in connection with this Agreement and the transactions
contemplated hereby, except that expenses incurred in connection with the
filing, printing and mailing of the Joint Proxy Statement-Prospectus and
Registration Statement shall be shared equally by SouthBanc and Heritage.
Section 8.7. Notices. All notices, requests, acknowledgments and
-------
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, overnight courier or
facsimile transmission (confirmed in writing) to such party at its address or
facsimile number set forth below or such other address or facsimile transmission
as such party may specify by notice (in accordance with this provision) to the
other party hereto.
If to Heritage, to:
Heritage Bancorp, Inc.
201 W. Main Street
Laurens, South Carolina 29360
62
<PAGE>
Facsimile: (864) 984-2293
Attention: J. Edward Wells
President and Chief Executive Officer
With copies to:
Paul M. Aguggia, Esq.
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Ave., NW
Washington, DC 20016
Facsimile: (202) 966-9409
If to SouthBanc, to:
SouthBanc Shares, Inc.
907 Main Street
Anderson, South Carolina 29621
Facsimile: (864) 260-3662
Attention: Robert W. Orr
President and Chief Executive Officer
With copies to:
John J. Spidi, Esq.
Malizia Spidi & Fisch, PC
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Facsimile: (202) 434-4661
Section 8.8. Entire Agreement; etc. This Agreement, together with
---------------------
the Stock Option Agreements and the Schedules, represents the entire
understanding of the parties hereto with reference to the transactions
contemplated hereby and supersedes any and all other oral or written agreements
heretofore made. All terms and provisions of this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Except for Section 4.11 and 4.12, which confer rights on
the parties described therein, nothing in this Agreement is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
Section 8.9. Successors and Assigns; Assignment. This Agreement
----------------------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that this Agreement may
not be assigned by either party hereto without the written consent of the other
party.
63
<PAGE>
In Witness Whereof, the parties hereto have caused this Agreement
to be executed by their duly authorized officers as of the 14th day of February,
2000.
SouthBanc Shares, Inc.
By: /s/ Robert W. Orr
-------------------------------------
Robert W. Orr
President and Chief Executive Officer
Heritage Bancorp, Inc.
By: /s/ J. Edward Wells
-------------------------------------
J. Edward Wells
President and Chief Executive Officer
64
<PAGE>
EXHIBIT 4.1
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated February 14, 2000, between
SouthBanc Shares, Inc., a Delaware corporation ("Issuer"), and Heritage Bancorp,
Inc., a Delaware corporation ("Grantee").
W I T N E S S E T H:
-------------------
WHEREAS, Grantee and Issuer have entered into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), which agreement
has been executed by the parties hereto immediately prior to this Stock Option
Agreement (this "Agreement");
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined); and
WHEREAS, as a condition and inducement to Issuer's willingness
to enter into the Merger Agreement and this Agreement, Issuer has requested that
Grantee agree and Grantee has agreed, to grant Issuer an option to purchase
shares of Grantee's Common Stock on substantially the same terms as the Option
(as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Merger Agreement,
the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 614,733 fully paid and nonassessable shares of Issuer's Common Stock, par
value $0.01 per share ("Common Stock"), at a price of $17.50 per share (the
"Option Price"); provided, however, that in no event shall the number of shares
------------------
of Common Stock for which this Option is exercisable exceed 19.9% of the
Issuer's issued and outstanding shares of Common Stock without giving effect to
any shares subject to or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock
are either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement) or (ii) redeemed, repurchased,
retired or otherwise cease to be outstanding after the date of this Agreement,
the number of shares of Common Stock subject to the Option shall be increased or
decreased, as appropriate, so that, after such issuance, such number equals
<PAGE>
19.9% of the number of shares of Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the Option.
Nothing contained in this Section 1(b) or elsewhere in this Agreement shall be
deemed to authorize Issuer or Grantee to breach any provision of the Merger
Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, and from time to time, if, but only if, both an
Initial Triggering Event (as hereinafter defined) and a Subsequent Triggering
Event (as hereinafter defined) shall have occurred prior to the occurrence of an
Exercise Termination Event (as hereinafter defined) and the Holder is not in
material beach of the agreements or covenants contained in this Agreement or the
Merger Agreement, provided that the Holder shall have sent the written notice of
--------
such exercise (as provided in subsection (e) of this Section 2) within 90 days
following such Subsequent Triggering Event (or such longer period as provided in
Section 10), provided further, however, that if the Option cannot be exercised
-------------------------
on any day because of any injunction, order or similar restraint issued by a
court of competent jurisdiction, the period during which the Option may be
exercised shall be extended so that the Option shall expire no earlier than on
the tenth business day after such injunction, order or restraint shall have been
dissolved or when such injunction, order or restraint shall have become
permanent and no longer subject to appeal, as the case may be. Each of the
following shall be an "Exercise Termination Event": (i) the Effective Time (as
defined in the Merger Agreement) of the Merger; (ii) termination of the Merger
Agreement in accordance with the provisions thereof if such termination occurs
prior to the occurrence of an Initial Triggering Event except a termination by
Grantee pursuant to Section 6.1(e) of the Merger Agreement (unless the breach by
Issuer giving rise to such right of termination is non-volitional); or (iii) the
passage of 12 months after termination of the Merger Agreement if such
termination follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 6.1(e) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination is
non-volitional). Notwithstanding any other provision of this Agreement, in no
event shall any of Issuer's obligations under this Agreement continue six months
beyond an Exercise Termination Event. The term "Holder" shall mean the holder or
holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of
the following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an
"Issuer Subsidiary"), without having received Grantee's prior written
consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) 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 Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the rules and
regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or the Board of Directors of Issuer shall
have recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction with any person other than Grantee or a
Subsidiary of Grantee. For purposes of this Agreement, "Acquisition
Transaction" shall mean (A) a merger or consolidation, or any similar
transaction, involving Issuer or any Significant Subsidiary (as defined
in Rule 1-02 of Regulation S-X promulgated by the Securities and
Exchange
-2-
<PAGE>
Commission (the "SEC")) of Issuer, (B) a purchase, lease or other
acquisition or assumption of all or a substantial portion of the assets
or deposits of Issuer or any Significant Subsidiary of Issuer, (C) a
purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
10% or more of the voting power of Issuer, or (D) any substantially
similar transaction; provided, however, that in no event shall any
-----------------
merger, consolidation, purchase or similar transaction involving only
the Issuer and one or more of its Subsidiaries or involving only two or
more of such Subsidiaries, be deemed to be an Acquisition Transaction,
provided that any such transaction is not entered into in violation of
the terms of the Merger Agreement;
(ii) Issuer or any Issuer Subsidiary, without having
received Grantee's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to authorize,
recommend or propose, an Acquisition Transaction with any person other
than Grantee or a Grantee Subsidiary, or the Board of Directors of
Issuer shall have publicly withdrawn or modified, or publicly announced
its intent to withdraw or modify, in any manner adverse to Grantee, its
recommendation that the stockholders of Issuer approve the transactions
contemplated by the Merger Agreement in anticipation of engaging in an
Acquisition Transaction;
(iii) Any person, other than Grantee, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity in
the ordinary course of its business, shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 10% or more
of the outstanding shares of Common Stock (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned
thereto in Section 13(d) of the 1934 Act, and the rules and regulations
thereunder);
(iv) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its
stockholders by public announcement or written communication that is or
becomes the subject of public disclosure to engage in an Acquisition
Transaction;
(v) After a proposal is made by a third party to
Issuer or its stockholders to engage in an Acquisition Transaction,
Issuer shall have breached any covenant or obligation contained in the
Merger Agreement and such breach (x) would entitle Grantee to terminate
the Merger Agreement and (y) shall not have been cured prior to the
Notice Date (as defined below); or
(vi) Any person other than Grantee or any Grantee
Subsidiary, other than in connection with a transaction to which
Grantee has given its prior written consent, shall have filed an
application or notice with the Federal Reserve Board, the Office of
Thrift Supervision ("OTS") or any other federal or state bank
regulatory authority for approval to engage in an Acquisition
Transaction.
(c) The term "Subsequent Triggering Event" shall mean
either of the following events or transactions occurring after the date hereof:
-3-
<PAGE>
(i) The acquisition by any person of beneficial
ownership of 25% or more of the then outstanding shares of Common
Stock; or
(ii) The occurrence of the Initial Triggering Event
described in paragraph (i) of subsection (b) of this Section 2, except
that the percentage referred to in clause (c) shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event of
which it has notice (together, a "Triggering Event"), it being understood that
the giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer a written notice (the date of which
being herein referred to as the "Notice Date") specifying (i) the total number
of shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from the
Notice Date for the closing of such purchase (the "Closing Date"); provided that
--------
if prior notification to or approval of the Federal Reserve Board, the OTS or
any other regulatory agency is required in connection with such purchase, the
Holder shall promptly file the required notice or application for approval and
shall expeditiously process the same and the period of time that otherwise would
run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods shall have
passed. Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
(f) At the closing referred to in subsection (e) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer, provided that failure or refusal of Issuer to designate such a bank
--------
account shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder, and
the Holder shall deliver to Issuer this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such shares in violation
of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
-4-
<PAGE>
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(i) Upon the giving by the Holder to Issuer of the
written notice of exercise of the Option provided for under subsection (e) of
this Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder. Issuer shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. Issuer agrees: (i) that it shall at all times maintain,
free from preemptive rights, sufficient authorized but unissued or treasury
shares of Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. ss. 18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of 1956, as
amended, the Change in Bank Control Act of 1978, as amended, or any other
federal or state banking law, prior approval of or notice to the Federal Reserve
Board, the OTS or to any state regulatory authority is necessary before the
Option may be exercised, cooperating fully with the Holder in preparing such
applications or notices and providing such information to the Federal Reserve
Board, the OTS or such state regulatory authority as they may require) in order
to permit the Holder to exercise the Option and
-5-
<PAGE>
Issuer duly and effectively to issue shares of Common Stock pursuant hereto; and
(iv) promptly to take all action provided herein to protect the rights of the
Holder against dilution.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase, on the same terms and subject to the same conditions as are
set forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein include
any Stock Option Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of any
change in, or distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares, distributions on or in respect of the Common
Stock that would be prohibited under the terms of the Merger Agreement, or the
like, the type and number of shares of Common Stock purchasable upon exercise
hereof and the Option Price shall be appropriately adjusted in such manner as
shall fully preserve the economic benefits provided hereunder and proper
provision shall be made in any agreement governing any such transaction to
provide for such proper adjustment and the full satisfaction of the Issuer's
obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee (whether on its own behalf or on behalf of any subsequent holder of this
Option (or part thereof) or any of the shares of Common Stock issued pursuant
hereto) delivered within 90 days of such Subsequent Triggering Event (or such
longer period as provided in Section 10), promptly prepare, file and keep
current a shelf registration statement under the 1933 Act covering this Option
and any shares issued and issuable pursuant to this Option and shall use its
reasonable best efforts to cause such registration statement to become effective
and remain current in order to permit the sale or other disposition of this
Option and any shares of Common Stock issued upon total or partial exercise of
this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two
-6-
<PAGE>
such registrations. The foregoing notwithstanding, if, at the time of any
request by Grantee for registration of the Option or Option Shares as provided
above, Issuer is in registration with respect to an underwritten public offering
of shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the inclusion of the Holder's Option or Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Issuer, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; provided,
--------
however, that after any such required reduction the number of Option Shares to
- -------
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided further, however, that if such reduction occurs,
-------------------------
then the Issuer shall file a registration statement for the balance as promptly
as practicable and no reduction shall thereafter occur. Each such Holder shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If requested by any such Holder in
connection with such registration, Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in secondary offering
underwriting agreements for the Issuer. Upon receiving any request under this
Section 6 from any Holder, Issuer agrees to send a copy thereof to any other
person known to Issuer to be entitled to registration rights under this Section
6, in each case by promptly mailing the same, postage prepaid, to the address of
record of the persons entitled to receive such copies. Notwithstanding anything
to the contrary contained herein, in no event shall Issuer be obligated to
effect more than two registrations pursuant to this Section 6 by reason of the
fact that there shall be more than one Grantee as a result of any assignment or
division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase
Event (as defined below) and prior to twelve months thereafter, (i) following a
request of the Holder, delivered prior to an Exercise Termination Event, Issuer
(or any successor thereto) shall repurchase the Option from the Holder at a
price (the "Option Repurchase Price") equal to the amount by which (A) the
Market/Offer Price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered within 90 days of such occurrence (or such longer period as provided
in Section 10), Issuer shall repurchase such number of the Option Shares from
the Owner as the Owner shall designate at a price (the "Option Share Repurchase
Price") equal to the Market/Offer Price multiplied by the number of Option
Shares so designated. The term "Market/Offer Price" shall mean the highest of
(i) the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock to be
paid by any third party pursuant to an agreement with Issuer, (iii) the highest
closing price for shares of Common Stock within the six-month period immediately
preceding the date the Holder gives notice of the required repurchase of this
Option or the Owner gives notice of the required repurchase of Option Shares, as
the case may be, or (iv) in the event of a sale of all or a substantial portion
of Issuer's assets, the sum of the price paid in such sale for such assets and
the current market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to Issuer, divided by the
number of shares of Common
-7-
<PAGE>
Stock of Issuer outstanding at the time of such sale. In determining the
Market/Offer Price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may
exercise its right to require Issuer to repurchase the Option and any Option
Shares pursuant to this Section 7 by surrendering for such purpose to Issuer, at
its principal office, this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Within the latter to occur of (i) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (ii) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under
applicable law or regulation from repurchasing the Option and/or the Option
Shares in full, Issuer shall immediately so notify the Holder and/or the Owner
and thereafter deliver or cause to be delivered, from time to time, to the
Holder and/or the Owner, as appropriate, the portion of the Option Repurchase
Price and the Option Share Repurchase Price, respectively, that it is no longer
prohibited from delivering, within five business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any time
-----------------
after delivery of a notice of repurchase pursuant to paragraph (b) of this
Section 7 is prohibited under applicable law or regulation from delivering to
the Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the extent
of the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock Option
Agreement was exercisable at the time of delivery of the notice of repurchase by
a fraction, the numerator of which is the Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator of which
is the Option Repurchase Price, or (B) to the Owner, a certificate for the
Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event
shall be deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease or
other acquisition of all or a substantial
-8-
<PAGE>
portion of the assets of Issuer, other than any such transaction which would not
constitute an Acquisition Transaction pursuant to the provisos to Section
2(b)(i) hereof or (ii) upon the acquisition by any person of beneficial
ownership of 50% or more of the then outstanding shares of Common Stock,
provided that no such event shall constitute a Repurchase Event unless a
Subsequent Triggering Event shall have occurred prior to an Exercise Termination
Event. The parties hereto agree that Issuer's obligations to repurchase the
Option or Option Shares under this Section 7 shall not terminate upon the
occurrence of an Exercise Termination Event unless no Subsequent Triggering
Event shall have occurred prior to the occurrence of an Exercise Termination
Event.
8. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement (i) to consolidate with or merge
into any person, other than Grantee or one of its Subsidiaries, and shall not be
the continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or one of its Subsidiaries, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger represent less than 50% of the outstanding voting shares
and voting share equivalents of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than Grantee or one of its Subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provision so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of the Holder, of either (x) the
Acquiring Corporation (as hereinafter defined) or (y) any person that controls
the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the
continuing or surviving corporation of a consolidation or merger with
Issuer (if other than Issuer), (ii) Issuer in a merger in which Issuer
is the continuing or surviving person, and (iii) the transferee of all
or substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common
stock issued by the issuer of the Substitute Option upon exercise of
the Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer
Price, as defined in Section 7.
(4) "Average Price" shall mean the average closing
price of a share of the Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in question,
but in no event higher than the closing price of the shares of
Substitute Common Stock on the day preceding such consolidation, merger
or sale; provided that if Issuer is the issuer of the Substitute
Option, the Average Price shall be computed with respect to a share of
common stock issued by the person merging
-9-
<PAGE>
into Issuer or by any company which controls or is controlled by such
person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option, provided, that if the terms of the Substitute Option cannot, for legal
--------
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such
number of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Option be exercisable for more than 19.9% of
the shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this clause (e), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall make a cash payment to Holder equal to the
excess of (i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute Option after
giving effect to the limitation in this clause (e). This difference in value
shall be determined by a nationally recognized investment banking firm selected
by the Holder or the Owner, as the case may be, and reasonably acceptable to the
Acquiring Corporation.
(f) Issuer shall not enter into any transaction described
in subsection (a) of this Section 8 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option
(the "Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to the amount by which (i) the
Highest Closing Price (as hereinafter defined) exceeds (ii) the exercise price
of the Substitute Option, multiplied by the number of shares of Substitute
Common Stock for which the Substitute Option may then be exercised, and at the
request of the owner (the "Substitute Share Owner") of shares of Substitute
Common Stock (the "Substitute Shares"), the Substitute Option Issuer shall
repurchase the Substitute Shares at a price (the "Substitute Share Repurchase
Price") equal to the Highest Closing Price multiplied by the number of
Substitute Shares so designated. The term "Highest Closing Price" shall mean the
highest closing price for shares of Substitute Common Stock within the six-month
period immediately preceding the date
-10-
<PAGE>
the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the Substitute
Share Owner, as the case may be, elects to require the Substitute Option Issuer
to repurchase the Substitute Option and/or the Substitute Shares in accordance
with the provisions of this Section 9. As promptly as practicable, and in any
event within five business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
notice or notices relating thereto, the Substitute Option Issuer shall deliver
or cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the Substitute
Option and/or the Substitute Shares in part or in full, the Substitute Option
Issuer following a request for repurchase pursuant to this Section 9 shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited; provided,
--------
however, that if the Substitute Option Issuer is at any time after delivery of a
- -------
notice of repurchase pursuant to subsection (b) of this Section 9 prohibited
under applicable law or regulation from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the
-11-
<PAGE>
numerator of which is the Substitute Option Repurchase Price less the portion
thereof theretofore delivered to the Substitute Option Holder and the
denominator of which is the Substitute Option Repurchase Price, or (B) to the
Substitute Share Owner, a certificate for the Substitute Common Shares it is
then so prohibited from repurchasing.
10. The 90-day period for exercise of certain rights under
Sections 2, 6, 7 and 14 shall be extended: (i) to the extent necessary to obtain
all regulatory approvals for the exercise of such rights, and for the expiration
of all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as
follows:
(a) Issuer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer and no other corporate
proceedings on the part of Issuer are necessary to authorize this Agreement or
to consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly executed
and delivered by Grantee.
(b) The Option is not being, and any shares of Common
Stock or other securities acquired by Grantee upon exercise of the Option will
not be, acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
-12-
<PAGE>
13. (a) Grantee may, at any time following a Repurchase Event
and prior to the occurrence of an Exercise Termination Event (or such later
period as provided in Section 10), relinquish the Option (together with any
Option Shares issued to and then owned by Grantee) to Issuer in exchange for a
cash fee equal to the Surrender Price (as defined below); provided, however,
-----------------
that Grantee may not exercise its rights pursuant to this Section 13 if Issuer
has repurchased the Option (or any portion thereof) or any Option Shares
pursuant to Section 7. The "Surrender Price" shall be equal to $1,600,000 (i)
plus, if applicable, Grantee's purchase price with respect to any Option Shares
and (ii) minus, if applicable, the sum of (A) the excess of (1) the net cash
amounts, if any, received by Grantee pursuant to the arms' length sale of Option
Shares (or any other securities into which such Option Shares were converted or
exchanged) to any unaffiliated party, over (2) Grantee's purchase price of such
Option Shares and (B) the net cash amounts, if any, received by Grantee pursuant
to an arms' length sale of a portion of the Option to any unaffiliated party.
(b) Grantee may exercise its right to relinquish the
Option and any Option Shares pursuant to this Section 13 by surrendering to
Issuer, at its principal office, this Agreement together with certificates for
Option Shares, if any, accompanied by a written notice stating (i) that Grantee
elects to relinquish the Option and Option Shares, if any, in accordance with
the provisions of this Section 13 and (ii) the Surrender Price. The Surrender
Price shall be payable in immediately available funds on or before the second
business day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
paying the Surrender Price to Grantee in full, Issuer shall immediately so
notify Grantee and thereafter deliver or cause to be delivered, from time to
time, to Grantee, the portion of the Surrender Price that it is no longer
prohibited from paying, within five business days after the date on which Issuer
is no longer so prohibited, provided, however, that if Issuer at any time after
-----------------
delivery of a notice of surrender pursuant to paragraph (b) of this Section 13
is prohibited under applicable law or regulation, or as a consequence of
administrative policy, from paying to Grantee the Surrender Price in full, (i)
Issuer shall (A) use its reasonable best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to make such payments, (B) within five days of the
submission or receipt of any documents relating to any such regulatory and legal
approvals, provide Grantee with copies of the same, and (C) keep Grantee advised
of both the status of any such request for regulatory and legal approvals, as
well as any discussions with any relevant regulatory or other third party
reasonably related to the same and (ii) Grantee may revoke such notice of
surrender by delivery of a notice of revocation to Issuer and, upon delivery of
such notice of revocation, the Exercise Termination Date shall be extended to a
date six months from the date on which the Exercise Termination Date would have
occurred if not for the provisions of this Section 13(c) (during which period
Grantee may exercise any of its rights hereunder, including any and all rights
pursuant to this Section 13).
14. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall
-13-
<PAGE>
have occurred prior to an Exercise Termination Event, Grantee, subject to the
express provisions hereof, may assign in whole or in part its rights and
obligations hereunder within 90 days following such Subsequent Triggering Event
(or such longer period as provided in Section 10); provided, however, that until
-----------------
the date 15 days following the date on which the Federal Reserve Board or the
OTS, as applicable, approves an application by Grantee to acquire the shares of
Common Stock subject to the Option, Grantee may not assign its rights under the
Option except in (i) a widely dispersed public distribution, (ii) a private
placement in which no one party acquires the right to purchase in excess of 2%
of the voting shares of Issuer, (iii) an assignment to a single party (e.g., a
----
broker or investment banker) for the purpose of conducting a widely dispersed
public distribution on Grantee's behalf, or (iv) any other manner approved by
the Federal Reserve Board or the OTS, as applicable.
15. Each of Grantee and Issuer will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation making application
to list the shares of Common Stock issuable hereunder on the Nasdaq National
Market upon official notice of issuance and applying to the Federal Reserve
Board and/or the OTS, as applicable, for approval to acquire the shares issuable
hereunder, but Grantee shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
16. (a) Notwithstanding any other provision of this Agreement,
in no event shall the Grantee's Total Profit (as hereinafter defined) exceed
$2,000,000 and, if it otherwise would exceed such amount, the Grantee, at its
sole election, shall either (i) reduce the number of shares of Common Stock
subject to this Option, (ii) deliver to the Issuer for cancellation Option
Shares previously purchased by Grantee, (iii) pay cash to the Issuer, or (iv)
any combination thereof, so that Grantee's actually realized Total Profit shall
not exceed $2,000,000 after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement,
this Option may not be exercised for a number of shares as would, as of the date
of exercise, result in a Notional Total Profit (as defined below) of more than
$2,000,000; provided, that nothing in this sentence shall restrict any exercise
--------
of the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion thereof)
pursuant to Section 7 of this Agreement, (ii)(x) the amount received by Grantee
pursuant to Issuer's repurchase of Option Shares pursuant to Section 7, less (y)
the Grantee's purchase price for such Option Shares, (iii)(x) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any other
securities into which such Option Shares are converted or exchanged) to any
unaffiliated party, less (y) the Grantee's purchase price of such Option Shares,
(iv) any amounts received by Grantee on the transfer of the Option (or any
portion thereof) to any unaffiliated party, and (v) any equivalent amount with
respect to the Substitute Option.
-14-
<PAGE>
(d) As used herein, the term "Notional Total Profit" with
respect to any number of shares as to which Grantee may propose to exercise this
Option shall be the Total Profit determined as of the date of such proposed
exercise assuming that this Option were exercised on such date for such number
of shares and assuming that such shares, together with all other Option Shares
held by Grantee and its affiliates as of such date, were sold for cash at the
closing market price for the Common Stock as of the close of business on the
preceding trading day (less customary brokerage commissions).
17. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and that
the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
18. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
19. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
20. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
21. This Agreement may be executed in two counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
22. Except as otherwise expressly provided herein, 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, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
23. Except as otherwise expressly provided herein or in the
Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and
-15-
<PAGE>
permitted assigns. Nothing in this Agreement, expressed or implied, is intended
to confer upon any party, other than the parties hereto, and their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
24. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
-16-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
HERITAGE BANCORP, INC.
By: /s/ J. Edward Wells
----------------------------------------
J. Edward Wells
President and Chief Executive Officer
SOUTHBANC SHARES, INC.
By: /s/ Robert W. Orr
----------------------------------------
Robert W. Orr
President and Chief Executive Officer
-17-
<PAGE>
Exhibit 10.1
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated February 14, 2000, between Heritage
Bancorp, Inc., a Delaware corporation ("Issuer"), and SouthBanc Shares, Inc., a
Delaware corporation ("Grantee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto immediately prior to this Stock Option Agreement
(this "Agreement");
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined); and
WHEREAS, as a condition and inducement to Issuer's willingness to
enter into the Merger Agreement and this Agreement, Issuer has requested that
Grantee agree and Grantee has agreed, to grant Issuer an option to purchase
shares of Grantee's Common Stock on substantially the same terms as the Option
(as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 855,916 fully paid and non assessable shares of Issuer's Common Stock, par
value $0.01 per share ("Common Stock"), at a price of $13.25 per share (the
"Option Price"); provided, however, that in no event shall the number of shares
-------- --------
of Common Stock for which this Option is exercisable exceed 19.9% of the
Issuer's issued and outstanding shares of Common Stock without giving effect to
any shares subject to or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are
either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement) or (ii) redeemed, repurchased,
retired or otherwise cease to be outstanding after the date of this Agreement,
the number of shares of Common Stock subject to the Option shall be increased or
decreased, as appropriate, so that, after such issuance, such number equals
<PAGE>
19.9% of the number of shares of Common Stock then issued and outstanding
without giving ef fect to any shares subject or issued pursuant to the Option.
Nothing contained in this Section 1(b) or elsewhere in this Agreement shall be
deemed to authorize Issuer or Grantee to breach any provision of the Merger
Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, and from time to time, if, but only if, both an
Initial Triggering Event (as here inafter defined) and a Subsequent Triggering
Event (as hereinafter defined) shall have occurred prior to the occurrence of an
Exercise Termination Event (as hereinafter defined) and the Holder is not in
material beach of the agreements or covenants contained in this Agreement or the
Merger Agreement, provided that the Holder shall have sent the written notice of
--------
such exercise (as provided in subsection (e) of this Section 2) within 90 days
following such Subsequent Triggering Event (or such longer period as provided in
Section 10), provided further, however, that if the Option cannot be exercised
-------- ------- -------
on any day because of any injunction, order or similar restraint issued by a
court of competent jurisdiction, the period during which the Option may be
exercised shall be extended so that the Option shall expire no earlier than on
the tenth business day after such injunction, order or restraint shall have been
dissolved or when such injunction, order or restraint shall have become
permanent and no longer subject to appeal, as the case may be. Each of the
following shall be an "Exercise Termination Event": (i) the Effective Time (as
defined in the Merger Agreement) of the Merger; (ii) termination of the Merger
Agreement in ac cordance with the provisions thereof if such termination occurs
prior to the occurrence of an Initial Triggering Event except a termination by
Grantee pursuant to Section 6.1(e) of the Merger Agreement (unless the breach by
Issuer giving rise to such right of termination is non-volitional); or (iii) the
passage of 12 months after termination of the Merger Agreement if such
termination follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 6.1(e) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination is non-
volitional). Notwithstanding any other provision of this Agreement, in no event
shall any of Issuer's obligations under this Agreement continue six months
beyond an Exercise Termination Event. The term "Holder" shall mean the holder
or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer
Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term "person" for
purposes of this Agreement having the meaning as signed thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the rules and regulations thereunder) other
than Grantee or any of its Subsidiaries (each a "Grantee Subsidiary") or
the Board of Directors of Issuer shall have recommended that the
stockholders of Issuer approve or accept any Acquisition Transaction with
any person other than Grantee or a Subsidiary of Grantee. For purposes of
this Agreement, "Acquisition Transaction" shall mean (A) a merger or
consolidation, or any similar transaction, involving Issuer or any
Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange
-2-
<PAGE>
Commission (the "SEC")) of Issuer, (B) a purchase, lease or other
acquisition or as sumption of all or a substantial portion of the assets or
deposits of Issuer or any Significant Subsidiary of Issuer, (C) a purchase
or other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of the voting
power of Issuer, or (D) any substantially similar transaction; provided,
--------
however, that in no event shall any merger, consolidation, purchase or
-------
similar transaction involving only the Issuer and one or more of its
Subsidiaries or involving only two or more of such Subsidiaries, be deemed
to be an Acquisition Transaction, provided that any such transaction is not
entered into in violation of the terms of the Merger Agreement;
(ii) Issuer or any Issuer Subsidiary, without having
received Grantee's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to authorize,
recommend or propose, an Acquisition Transaction with any person other than
Grantee or a Grantee Subsidiary, or the Board of Directors of Issuer shall
have publicly withdrawn or modified, or publicly announced its intent to
withdraw or modify, in any manner adverse to Grantee, its recommendation
that the stockholders of Issuer approve the transactions contemplated by
the Merger Agreement in anticipation of engaging in an Acquisition
Transaction;
(iii) Any person, other than Grantee, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity in the
ordinary course of its business, shall have acquired beneficial ownership
or the right to acquire beneficial ownership of 10% or more of the
outstanding shares of Common Stock (the term "beneficial ownership" for
purposes of this Agreement having the meaning assigned thereto in Section
13(d) of the 1934 Act, and the rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its
stockholders by public announcement or written communication that is or
becomes the subject of public disclo sure to engage in an Acquisition
Transaction;
(v) After a proposal is made by a third party to Issuer
or its stockholders to engage in an Acquisition Transaction, Issuer shall
have breached any cov enant or obligation contained in the Merger Agreement
and such breach (x) would entitle Grantee to terminate the Merger Agreement
and (y) shall not have been cured prior to the Notice Date (as defined
below); or
(vi) Any person other than Grantee or any Grantee
Subsidiary, other than in connection with a transaction to which Grantee
has given its prior written consent, shall have filed an application or
notice with the Federal Reserve Board, the Office of Thrift Supervision
("OTS") or any other federal or state bank regulatory authority for
approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of
the following events or transactions occurring after the date hereof:
-3-
<PAGE>
(i) The acquisition by any person of beneficial ownership
of 25% or more of the then outstanding shares of Common Stock; or
(ii) The occurrence of the Initial Triggering Event
described in paragraph (i) of subsection (b) of this Section 2, except that
the percentage referred to in clause (c) shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event of
which it has notice (together, a "Triggering Event"), it being understood that
the giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer a written notice (the date of which
being herein referred to as the "Notice Date") specifying (i) the total number
of shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from the
Notice Date for the closing of such purchase (the "Closing Date"); provided that
--------
if prior notification to or approval of the Federal Reserve Board, the OTS or
any other regulatory agency is required in connection with such purchase, the
Holder shall promptly file the required notice or application for approval and
shall expeditiously process the same and the period of time that otherwise would
run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods shall have
passed. Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
(f) At the closing referred to in subsection (e) of this Section
2, the Holder shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a bank account
- --------
shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder, and
the Holder shall deliver to Issuer this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such shares in violation
of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to
-4-
<PAGE>
resale restrictions arising under the Securities Act of 1933, as amended. A
copy of such agreement is on file at the principal office of Issuer and
will be provided to the holder hereof without charge upon receipt by Issuer
of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or trans ferred in
compliance with the provisions of this Agreement and under circumstances that do
not require the retention of such reference; and (iii) the legend shall be
removed in its entirety if the conditions in the preceding clauses (i) and (ii)
are both satisfied. In addition, such certificates shall bear any other legend
as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder. Issuer shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. Issuer agrees: (i) that it shall at all times maintain, free
from preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period re quirements specified in 15 U.S.C. (S) 18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of 1956, as
amended, the Change in Bank Control Act of 1978, as amended, or any other
federal or state banking law, prior approval of or notice to the Federal Reserve
Board, the OTS or to any state regulatory authority is necessary before the
Option may be exercised, cooperating fully with the Holder in preparing such
applications or notices and providing such information to the Federal Reserve
Board, the OTS or such state regulatory authority as they may require) in order
to permit the Holder to exercise the Option and Issuer duly and effectively to
issue shares of Common Stock pursuant hereto; and (iv) promptly to take all
action provided herein to protect the rights of the Holder against dilution.
-5-
<PAGE>
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5. In the event of any change in, or
distributions in respect of, the Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, distributions on or in respect of the Common Stock that
would be prohibited under the terms of the Merger Agreement, or the like, the
type and number of shares of Common Stock purchasable upon exercise hereof and
the Option Price shall be appropriately adjusted in such manner as shall fully
preserve the economic benefits provided hereunder and proper provision shall be
made in any agreement governing any such transaction to provide for such proper
ad justment and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of Grantee
(whether on its own behalf or on behalf of any subsequent holder of this Option
(or part thereof) or any of the shares of Common Stock issued pursuant hereto)
delivered within 90 days of such Subsequent Triggering Event (or such longer
period as provided in Section 10), promptly prepare, file and keep current a
shelf registration statement under the 1933 Act covering this Option and any
shares issued and issuable pursuant to this Option and shall use its reasonable
best efforts to cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of this Option and any
shares of Common Stock issued upon total or partial exercise of this Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee. Issuer will use its reasonable best efforts to cause such registration
statement first to become effective and then to remain effective for such period
not in excess of 180 days from the day such registration statement first becomes
effective or such shorter time as may be reasonably necessary to effect such
sales or other dispositions. Grantee shall have the right to demand two such
registrations. The foregoing notwithstanding, if, at the time of any request by
Grantee for registration of the Option or Option Shares as provided above,
Issuer is in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith
-6-
<PAGE>
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or under writers, of such offering the inclusion of the
Holder's Option or Option Shares would interfere with the successful marketing
of the shares of Common Stock offered by Issuer, the number of Option Shares
otherwise to be covered in the registration statement contemplated hereby may be
reduced; provided, however, that after any such required reduction the number of
-------- -------
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and provided further, however, that if such
-------- ------- -------
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practicable and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agree ments for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event
(as defined below) and prior to twelve months thereafter, (i) following a
request of the Holder, delivered prior to an Exercise Termination Event, Issuer
(or any successor thereto) shall repur chase the Option from the Holder at a
price (the "Option Repurchase Price") equal to the amount by which (A) the
Market/Offer Price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered within 90 days of such oc currence (or such longer period as provided
in Section 10), Issuer shall repurchase such number of the Option Shares from
the Owner as the Owner shall designate at a price (the "Option Share Repurchase
Price") equal to the Market/Offer Price multiplied by the number of Option
Shares so designated. The term "Market/Offer Price" shall mean the highest of
(i) the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock to be
paid by any third party pursuant to an agreement with Issuer, (iii) the highest
closing price for shares of Common Stock within the six-month period immedi
ately preceding the date the Holder gives notice of the required repurchase of
this Option or the Owner gives notice of the required repurchase of Option
Shares, as the case may be, or (iv) in the event of a sale of all or a
substantial portion of Issuer's assets, the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of Issuer
as determined by a nationally recognized investment banking firm selected by the
Holder or the Owner, as the case may be, and reasonably acceptable to Issuer,
divided by the number of shares of Common Stock of Issuer outstanding at the
time of such sale. In determining the Market/Offer Price, the value of
consideration other than cash shall be determined by a nationally recognized
investment
-7-
<PAGE>
banking firm selected by the Holder or Owner, as the case may be, and reasonably
acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise
its right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Within the latter to occur of (i) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (ii) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Re purchase Price therefor or the portion thereof that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law
or regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall immediately so notify the Holder and/or the Owner and thereafter
deliver or cause to be delivered, from time to time, to the Holder and/or the
Owner, as appropriate, the portion of the Option Repurchase Price and the Option
Share Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
-------- -------
delivery of a notice of repurchase pursuant to paragraph (b) of this Section 7
is prohibited under applicable law or regulation from delivering to the Holder
and/or the Owner, as appropriate, the Option Repurchase Price and the Option
Share Repurchase Price, respectively, in full (and Issuer hereby undertakes to
use its best efforts to obtain all required regulatory and legal approvals and
to file any required notices as promptly as practicable in order to accomplish
such repurchase), the Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver to the Holder
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share Repurchase Price that Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to the Holder, a new Stock Option
Agreement evidencing the right of the Holder to purchase that number of shares
of Common Stock obtained by multiplying the number of shares of Common Stock for
which the surrendered Stock Option Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Op tion Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator of which is the Option Repurchase Price, or (B)
to the Owner, a certificate for the Option Shares it is then so prohibited from
repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be
deemed to have occurred (i) upon the consummation of any merger, consolidation
or similar transaction involving Issuer or any purchase, lease or other
acquisition of all or a substantial portion of the assets of Issuer, other than
any such transaction which would not constitute an Acquisition Transaction
pursuant to the provisos to Section 2(b)(i) hereof or (ii) upon the
-8-
<PAGE>
acquisition by any person of beneficial ownership of 50% or more of the then
outstanding shares of Common Stock, provided that no such event shall constitute
a Repurchase Event unless a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event. The parties hereto agree that Issuer's
obligations to repurchase the Option or Option Shares under this Section 7 shall
not terminate upon the occurrence of an Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its Subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or one of its Subsidiaries, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger represent less than 50% of the outstanding voting shares
and voting share equivalents of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than Grantee or one of its Subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provision so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of the Holder, of either (x) the
Acquiring Corporation (as hereinafter defined) or (y) any person that controls
the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing
or surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock
issued by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer Price,
as defined in Section 7.
(4) "Average Price" shall mean the average closing price
of a share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no event
higher than the closing price of the shares of Substitute Common Stock on
the day preceding such consolidation, merger or sale; provided that if
--------
Issuer is the issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of common stock issued by the person
merging into Issuer or by any company which controls or is controlled by
such person, as the Holder may elect.
-9-
<PAGE>
(c) The Substitute Option shall have the same terms as the
Option, provided, that if the terms of the Substitute Option cannot, for legal
--------
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the denom
inator of which shall be the number of shares of Substitute Common Stock for
which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substi tute Option after giving effect to
the limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to the amount by which (i) the Highest Closing
Price (as hereinafter defined) exceeds (ii) the exer cise price of the
Substitute Option, multiplied by the number of shares of Substitute Common Stock
for which the Substitute Option may then be exercised, and at the request of the
owner (the "Substitute Share Owner") of shares of Substitute Common Stock (the
"Substitute Shares"), the Substitute Option Issuer shall repurchase the
Substitute Shares at a price (the "Substitute Share Repurchase Price") equal to
the Highest Closing Price multiplied by the number of Substitute Shares so
designated. The term "Highest Closing Price" shall mean the highest closing
price for shares of Substitute Common Stock within the six-month period
immediately preceding the date the Substitute Option Holder gives notice of the
required repurchase of the Substitute Option or the Substitute Share Owner gives
notice of the required repurchase of the Substitute Shares, as applicable.
-10-
<PAGE>
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to re purchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the Substitute
Share Owner, as the case may be, elects to require the Substitute Option Issuer
to repurchase the Substitute Option and/or the Substitute Shares in accordance
with the provisions of this Section 9. As promptly as practicable, and in any
event within five business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
notice or notices relating thereto, the Substitute Option Issuer shall deliver
or cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the Substitute
Option and/or the Substitute Shares in part or in full, the Substitute Option
Issuer following a request for repurchase pursuant to this Section 9 shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited; provided,
--------
however, that if the Substitute Option Issuer is at any time after delivery of a
- -------
notice of repurchase pursuant to subsection (b) of this Section 9 prohibited
under applicable law or regulation from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiply ing the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
-11-
<PAGE>
10. The 90-day period for exercise of certain rights under Sections
2, 6, 7 and 14 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate pro ceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all neces sary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
13. (a) Grantee may, at any time following a Repurchase Event and
prior to the occurrence of an Exercise Termination Event (or such later period
as provided in Section 10), relinquish the Option (together with any Option
Shares issued to and then owned by Grantee) to Issuer in exchange for a cash fee
equal to the Surrender Price (as defined below); provided, however, that Grantee
-------- -------
may not exercise its rights pursuant to this Section 13 if Issuer has
repurchased the Option (or any portion thereof) or any Option Shares pursuant to
Section 7.
-12-
<PAGE>
The "Surrender Price" shall be equal to $1,600,000 (i) plus, if applicable,
Grantee's purchase price with respect to any Option Shares and (ii) minus, if
applicable, the sum of (A) the excess of (1) the net cash amounts, if any,
received by Grantee pursuant to the arms' length sale of Option Shares (or any
other securities into which such Option Shares were converted or exchanged) to
any unaffiliated party, over (2) Grantee's purchase price of such Option Shares
and (B) the net cash amounts, if any, received by Grantee pursuant to an arms'
length sale of a portion of the Op tion to any unaffiliated party.
(b) Grantee may exercise its right to relinquish the Option and
any Option Shares pursuant to this Section 13 by surrendering to Issuer, at its
principal office, this Agreement together with certificates for Option Shares,
if any, accompanied by a written notice stating (i) that Grantee elects to
relinquish the Option and Option Shares, if any, in accordance with the
provisions of this Section 13 and (ii) the Surrender Price. The Surrender Price
shall be payable in immediately available funds on or before the second business
day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable
law or regulation, or as a consequence of administrative policy, from paying the
Surrender Price to Grantee in full, Issuer shall immediately so notify Grantee
and thereafter deliver or cause to be delivered, from time to time, to Grantee,
the portion of the Surrender Price that it is no longer prohibited from paying,
within five business days after the date on which Issuer is no longer so
prohibited, provided, however, that if Issuer at any time after delivery of a
-------- -------
notice of surrender pursuant to paragraph (b) of this Section 13 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from paying to Grantee the Surrender Price in full, (i) Issuer shall (A)
use its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to make such payments, (B) within five days of the submission or receipt of any
documents relating to any such regulatory and legal approvals, provide Grantee
with copies of the same, and (C) keep Grantee advised of both the status of any
such request for regulatory and legal approvals, as well as any discussions with
any relevant regulatory or other third party reasonably related to the same and
(ii) Grantee may revoke such notice of surrender by delivery of a notice of
revocation to Issuer and, upon delivery of such notice of revocation, the
Exercise Termination Date shall be extended to a date six months from the date
on which the Exercise Termination Date would have occurred if not for the
provisions of this Section 13(c) (during which period Grantee may exercise any
of its rights hereunder, including any and all rights pursuant to this Section
13).
14. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder within 90 days
following such Subsequent Triggering Event (or such longer period as provided in
Section 10); provided, however, that until the date 15 days following the date
-------- -------
on which the Federal Reserve Board or the OTS, as applicable, approves an
application by Grantee to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except
-13-
<PAGE>
in (i) a widely dispersed public distribution, (ii) a private placement in which
no one party acquires the right to purchase in excess of 2% of the voting shares
of Issuer, (iii) an assignment to a single party (e.g., a broker or investment
----
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf, or (iv) any other manner approved by the Federal Reserve Board
or the OTS, as applicable.
15. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the Nasdaq National Market upon
official notice of issuance and applying to the Federal Reserve Board and/or the
OTS, as applicable, for approval to acquire the shares issuable hereunder, but
Grantee shall not be obligated to apply to state banking authorities for
approval to acquire the shares of Common Stock issuable hereunder until such
time, if ever, as it deems appropriate to do so.
16. (a) Notwithstanding any other provision of this Agreement, in
no event shall the Grantee's Total Profit (as hereinafter defined) exceed
$2,000,000 and, if it otherwise would exceed such amount, the Grantee, at its
sole election, shall either (i) reduce the number of shares of Common Stock
subject to this Option, (ii) deliver to the Issuer for cancellation Option
Shares previously purchased by Grantee, (iii) pay cash to the Issuer, or (iv)
any combination thereof, so that Grantee's actually realized Total Profit shall
not exceed $2,000,000 after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this
Option may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined below) of more than
$2,000,000; provided, that nothing in this sentence shall restrict any exercise
--------
of the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion thereof)
pursuant to Section 7 of this Agreement, (ii)(x) the amount received by Grantee
pursuant to Issuer's repurchase of Option Shares pursuant to Section 7, less (y)
the Grantee's purchase price for such Option Shares, (iii)(x) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any other
securities into which such Option Shares are converted or exchanged) to any
unaffiliated party, less (y) the Grantee's purchase price of such Option Shares,
(iv) any amounts received by Grantee on the transfer of the Option (or any
portion thereof) to any unaffiliated party, and (v) any equivalent amount with
respect to the Substitute Option.
(d) As used herein, the term "Notional Total Profit" with
respect to any number of shares as to which Grantee may propose to exercise this
Option shall be the Total Profit determined as of the date of such proposed
exercise assuming that this Option were exercised on such date for such number
of shares and assuming that such shares, together with all other Option Shares
held by Grantee and its affiliates as of such date, were sold for cash at the
-14-
<PAGE>
closing market price for the Common Stock as of the close of business on the
preceding trading day (less customary brokerage commissions).
17. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and that
the obligations of the par ties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
18. If any term, provision, covenant or restriction contained in
this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
19. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
20. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, regardless of the laws that might
otherwise govern under ap plicable principles of conflicts of laws thereof.
21. This Agreement may be executed in two counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
22. Except as otherwise expressly provided herein, 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, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
23. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
-15-
<PAGE>
24. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
-16-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
HERITAGE BANCORP, INC.
By: /s/ J. Edward Wells
-------------------------------------
J. Edward Wells
President and Chief Executive Officer
SOUTHBANC SHARES, INC.
By: /s/ Robert W. Orr
-------------------------------------
Robert W. Orr
President and Chief Executive Officer
-17-
